EAST PALESTINE — Last week, the U.S. Court of Appeals for the Sixth Circuit in Cincinnati partially reversed and remanded a lower court’s decision regarding the allocation of attorneys’ fees in the $600 million settlement tied to the 2023 Norfolk Southern train derailment in East Palestine. The ruling, issued on Nov. 25, affirmed most of the district court’s judgment but called for further review of the fee allocation process for Morgan & Morgan, a law firm involved in the case.

The derailment, which occurred on Feb. 3, 2023, involved 38 cars of a Norfolk Southern freight train carrying hazardous materials. The incident caused fires that burned for days and led to controlled chemical releases, creating a toxic cloud that forced thousands of residents to evacuate. The disaster sparked numerous lawsuits, which were consolidated into a class-action case that resulted in the $600 million settlement.

While the settlement was approved in September 2024, disputes over attorneys’ fees emerged. Morgan & Morgan, which represented individuals and entities filing standalone cases against Norfolk Southern, received nearly $8 million in fees but later challenged the allocation process. The firm argued that the quick-pay provision in the settlement, which allowed attorneys to be paid within 14 days of approval, lacked transparency and undervalued its contributions.

The Sixth Circuit ruled that Morgan & Morgan lacked standing to challenge the quick-pay provision, noting that the firm had previously supported the settlement and benefited from the expedited payment.

“[Morgan & Morgan] helped negotiate the settlement with the quick pay provision, later signed the agreement memorializing that settlement, and then separately attested to its ‘full support’ for the settlement and fee award,” the appellate court wrote. “In other words, if Morgan & Morgan was injured by the inclusion of a quick pay provision in the settlement agreement, it has only itself to blame for procuring that result.”

However, the court found that the district court failed to adequately scrutinize the fee allocation process, particularly Morgan & Morgan’s share, which was decided at the discretion of co-lead counsel. The appellate court emphasized the importance of judicial oversight in ensuring fair compensation for attorneys in class-action settlements, asking “How much deference is due the fox who recommends how to divvy up the chickens?”

Judge Amul Thapar, in a concurring opinion, expressed concerns about quick-pay provisions, which allow attorneys to receive full payment while plaintiffs await their settlement funds. Thapar argued that such provisions could misalign incentives between lawyers and their clients, create an appearance of unfairness, and enable potential self-dealing among class counsel. He called for district courts to implement safeguards, such as claw-back provisions and third-party oversight, to address these issues.

“Some type of quick-pay provision makes sense in most class action litigation. After all, the plaintiffs’ attorneys often front substantial costs to fight a class action. So quick-pay provisions help them quickly recoup those costs,” Thapar wrote. “But full payment of fees? That’s problematic for a few reasons.”

Thapar argued that once lawyers collect the entirety of their fees, they lose any financial motivation to bring the litigation to a timely resolution, even if their clients urgently need closure and that paying attorneys promptly and in full while injured plaintiffs remain waiting for their compensation is inherently unfair and that rushing to distribute attorneys’ fees can foster opportunities for collusion among lead counsel and participating firms, encouraging fee-splitting arrangements that are neither transparent nor fair.

The attorneys who helped broker last year’s $600 million between the railroad and impacted residents pocketed $162 million in legal fees and an additional $18 million in expenses. Lawyers received payment for their work almost immediately following final approval, while direct payments to residents and businesses have been during the appeal process.

selverd@mojonews.com