The Ninth Circuit recently reversed an $800,000 attorney fee award in a data breach class action because the award accounted for too large a portion of the total value of the settlement. In re California Pizza Kitchen Data Breach Litig., — F.4th —, 2025 WL 583419 (9th Cir. Feb. 24, 2025).

The case stems from a data breach that allegedly compromised the personal information of over 100,000 current and former employees at California Pizza Kitchen. Shortly after the company revealed the attack, five class action lawsuits were filed. Counsel in four of the cases agreed to consolidate and quickly negotiated a settlement with the defendant.  Among other things, the settlement provided reimbursement for expenses incurred because of the data breach, including up to $5,000 for monetary loss from identity theft, and two years of worth of credit monitoring services, including identity theft insurance. The agreement was structured as a “claims-made” settlement, which meant that (1) the defendant would wait until after the claims process was finished to pay the amount claimed by class members and (2) the defendant’s payment obligation would be limited to the sum of all valid claims that were submitted. At the end of the claims process, the consolidated plaintiffs reported a 1.8% claims rate. The consolidated plaintiffs submitted the proposed settlement to the district court and sought $800,000 in attorneys’ fees. The agreement included a “clear-sailing” provision, which permitted class counsel to request—without objection from the defendant—up to $800,000 in fees.

Counsel in the unconsolidated case objected to the settlement, arguing that the “claims-made” structure and the “clear-sailing” provision were signs of collusion. The district court appeared to agree. But after two hearings, which included questioning of the parties’ private mediator, the district court approved the settlement in a short written order and awarded the full $800,000 fee award.

On appeal, the Ninth Circuit affirmed the settlement approval but reversed the fee award. The panel found that the district court correctly applied heightened scrutiny to the settlement due to concerns about collusion. It also found that, despite the low claims rate, the settlement was fair because class members received genuine value from the settlement in the face of significant Article III standing hurdles. The fee award, however, was too high. Although the district court was wary of awarding fees above a 25% benchmark for recovery, it ultimately ordered attorneys’ fees that were approximately 45% of the total settlement value. The panel ordered that, on remand, the district court should scrutinize plaintiffs’ lodestar, calculate the actual value of the settlement to the class, and crosscheck the lodestar against a 25% benchmark to ensure that any fees are reasonable.

Although all three panel members agreed to reverse the fee award, Judge Collins dissented from the decision to affirm approval of the settlement, expressing concern about the truncated and conclusory nature of the approval order.