Judge approves $90 million in lawyers' fees in Prudential settlement
The federal judge who oversaw the class action settlement against Prudential Insurance Co. of America (settled in 1996 and finally paid out last year) has given approval for the plaintiffs' attorneys to receive $90 million in attorneys' fees.
Prudential has paid $2.75 billion in cash payments, $13 million in restored policy values, and more than $589 million in policy premium adjustments.
U.S. District Judge Alfred Wolin wrote in a July 18 decision that because the settlement payout process is "essentially complete," the class action attorneys, led by Milberg Weiss Bershad Hynes and Lerach, LLP of New York City, should receive the full $90 million agreed to when the settlement was reached in 1996.
Prudential had agreed to a $2.5 billion settlement to resolve allegations that the company routinely "churned" policyholders. Churning is an illegal practice in which agents encourage customers to use built-up cash value in their whole life insurance policies to purchase new policies. This causes customers to lose their cash value and any other benefits they accumulate. Agents "churn" customers because they receive a commission on every new policy sold.
Fees are "eminently appropriate"
When the settlement was reached in 1996, $90 million was earmarked for the plaintiffs' attorneys. That figure did not include the $2.5 billion the company agreed to pay policyholders. Attorney Michael Malakoff of Pittsburgh, who represented policyholder Richard Krell, appealed the settlement to the U.S. 3rd Circuit Court of Appeals in New Jersey. That court issued an opinion that the lawyers should not be paid the full amount unless there was a better sense as to exactly how much compensation class members would receive.
On Dec. 10, 1998, Wolin ordered Prudential to pay the lawyers an "interim award" of $44.5 million. "Plaintiff's counsel had been working on this matter since 1994 [when the case was first filed], and had achieved excellent results, but had not been paid any fees during that lengthy period of time," Wolin wrote in the decision. In January 1999, Prudential transferred the remaining $45.5 million to the attorneys' escrow account, but it could not be accessed by the attorneys because the payout process was not yet complete.
However, in April 1999, Milberg Weiss filed a petition to Wolin seeking permission to collect their $45.5 million. Wolin did not allow the attorneys to receive the entire sum, but instead allowed them to collect an "interim fee award" of $10 million.
In July 2000, he wrote that because the claims process is "now essentially complete," the lawyers are entitled to receive the remaining $35.5 million. The judge also noted that 645,000 claims have been handled in the claims process, and approximately 565,000 of those were offered either "intermediate level or highest level relief."
After consulting a report by a fee examiner and citing decisions in several class action cases in which lawyers' fees had been calculated as a percentage of the settlement, Wolin wrote that the attorneys' fees could have been higher because the settlement ended up costing Prudential more than expected. But he wrote the $90 million was "eminently appropriate and will be approved."
Wolin wrote that there has been only some "minor follow-up on the last hundred or so claims" in the claims process. As of May 31, 2000 (the most recent data available), Prudential had paid more than $3.3 billion in relief, which includes $2.75 billion in cash payments, $13 million in restored policy values, and more than $589 million in policy premium adjustments, according to Wolin's decision.