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Category: Fee Calculation Method

$45M Fee Award in $187M LIBOR MDL Settlement

November 25, 2020

A recent Law.com story by Nadia Dreid, “NY Judge ‘Surprised’ By Fee Application in Libor Rigging Case,” reports that a New York federal judge wasn't happy with the amount of hours or law firms on the attorney fee bill she received in the wake of a $187 million deal with JPMorgan and other major financial institutions over claims of interbank rate rigging, but she granted $45 million in fees anyway.  U.S. District Judge Naomi Reice Buchwald said in her opinion that she was "to say the least, surprised to learn from their fee application that [exchange-based plaintiff] class counsel involved twelve additional law firms" and that the work from those firms made up nearly a fifth of the submitted hours.

"The court cannot divine any reason why it was necessary, efficient or in the best interests of the class to have twelve additional law firms litigate this case," the opinion read.  "If anything, the hours were claimed for work that was duplicative, unnecessary and easily could have been performed by the two appointed firms."

Those firms were Kirby McInerney LLP and Lovell Stewart Halebian Jacobson LLP, who were appointed as class counsel to the exchange-based plaintiffs in the multidistrict litigation accusing JPMorgan, Deutsche Bank and a handful of other big banks of conspiring to rig the London Interbank Offered Rate, or Libor.  Judge Buchwald preliminarily approved the $187 million deal in March and gave it her final blessing in September, but she had yet to come to a final decision on attorney fees.  Ultimately, she decided that none of the 15,000 hours of additional work done by outside firms would be used in the lodestar calculations.

The court also had issues with the amount of hours billed by class counsel themselves.  Although she agreed to accept all of the more than 65,000 hours of work from the two firms, the court noted that their bill listed 10,000 hours more than their sister counsel claimed "in support of their fee application for a case of similar magnitude."  It would take a four-person law firm working on the case full-time for roughly nine years — minus a month annually for vacation — to reach the 65,000 mark, according to the court.

"While the sheer quantum of hours suggests some amount of over-litigation, the court will credit [class counsel] the full amount of time they claim," Judge Buchwald said.  The fees that the firms will walk away with comes out to 25% of the $187 million settlement, after the deduction of around $5.6 million in expenses, according to the opinion.

Judge Cites New Ninth Circuit Ruling When Considering Fee Calculation

November 12, 2020

A recent Law 360 story by Dorothy Atkins, “Koh Rips Kellogg Attys ‘Kitchen Sink’ Litigation Tactics,” reports that U.S. District Judge Lucy Koh rejected a revised $20 million deal to resolve claims Kellogg falsely labeled its sugar-loaded cereals and slammed class counsel for their "kitchen sink" approach to litigation, saying "the way you've litigated this case throughout has been overly burdensome on the court."  At the start of a hearing held via Zoom, Judge Koh took issue with a lengthy, now-mooted motion to enforce the settlement that class counsel filed after Kellogg purportedly threatened not to cooperate with a renewed bid for preliminary approval.

If approved, the proposed deal would resolve lead plaintiff Stephen Hadley's August 2016 lawsuit that alleges Kellogg Sales Co. falsely advertises its sugar-loaded Raisin Bran, Frosted Mini-Wheats and Smart Start cereals and Nutri-Grain breakfast bars as healthy.  Judge Koh told class counsel, Jack Fitzgerald, that she spent considerable time deciding the motion to enforce the settlement, which had 64 exhibits attached and included confidential information from the settlement negotiations, which Judge Koh repeatedly said isn't allowed.

But Kellogg ultimately did not oppose the class's renewed motion for preliminary settlement approval, so now the motion to enforce is moot, Judge Koh said, and the work and time she spent deciding it was a waste.  She added that she would have denied the motion.  Judge Koh noted that the motions to dismiss in the case were over 65 pages long "each time" and the lengthy motions practice is "a constant problem."  She also warned repeatedly that she'll remember how the attorneys overburdened the court if she decides to award attorney fees.

The discussion came during an hours-long hearing on the second attempt by the parties to get the deal preliminarily approved in hotly contested litigation over Kellogg's labels. For example, the Frosted Mini-Wheats and Smart Start labels say "lightly sweetened" and the Nutri-Grain bars say "wholesome goodness," which Hadley said implies those products are low in sugar, even though they contain 18% to 40% added sugars.

In February, Judge Koh rejected an initial $31.5 million class action settlement, finding the deal contained several troubling provisions and outright legal errors.  The parties went back to the negotiating table, but in July, class counsel filed a renewed motion for preliminary approval along with a motion to enforce the settlement, which Kellogg opposed.  But during the lengthy hearing on the motions, Judge Koh pointed out that the motion to enforce attached privileged mediation communication between defense counsel, class counsel and the mediator.

Judge Koh also took issue with the "mechanics" of how the proposed deal calculates attorney fees. The judge pointed out that as it is proposed, fees would need to be approved before a cash settlement is distributed, but the fees depend on how many class members choose to redeem coupons compared to those who choose cash payments, and class members need to know how much they would receive in a cash payment in order to decide whether to opt for a coupon or cash.

"It seems a bit circular," she said.  Judge Koh added that in light of the Ninth Circuit's ruling earlier this week in Chambers et al. v. Whirlpool Corp. et al., she is "more confident" that this deal qualifies as a coupon settlement for the purposes of determining attorney fees.  But Fitzgerald argued that even under Chambers, the court has the discretion to award fees and he proposed to base the fee award on using a lodestar that's calculated after they determine how many class members will redeem a coupon versus cash payment.

Ninth Circuit Clarifies Fee Calculation Method in Class Coupon Settlements

November 11, 2020

A recent Law 360 story by Dave Simpson, “9th Circ. Nixes $14.8M Atty Fees in Dishwasher Defect Deal,” reports that the Ninth Circuit sent back a lower court's approval of $14.8 million in fees for the attorneys representing a class of millions of owners of allegedly defective Sears and Whirlpool dishwashers, ordering it to determine the value of the settlement, which provides coupons to much of the class.

In a unanimous, published decision penned by U.S. Circuit Judge Kenneth K. Lee, the panel said that while U.S. District Judge Fernando M. Olguin was right to approve the California federal court settlement, the attorney fees were off-base.  He shouldn't have used a lodestar-only calculation, or a calculation based on attorneys' hours worked and their rates, for the coupon portion of the settlement, the panel said.  The judge should have, instead, attempted to determine the value of the coupons and based the attorney fees on that calculation, the panel said.  They remanded the approval of the attorney fees and ordered the judge to recalculate.

Further, it said, the judge was wrong to multiply the attorneys' lodestar by 1.68, disagreeing with, among other things, the judge's lauding of the settlement as "impressive."  "While observing that the parties' respective valuations of the settlement ranged from $4,220,000 to $116,700,000, the court declined to determine where in that spectrum the actual value fell," the panel said.  "Given this enormous spread, without at least estimating the settlement value, the court could not have conducted the necessary evaluation between 'the extent of success and the amount of the fee award.'"

In the case of California residents David and Bach-Tuyet Brown, their KitchenAid dishwasher overheated while they were sleeping in April 2010, filling the house with smoke and causing them to spend $70,000 to replace the entire kitchen and to lose an additional $3,000 in rental income as a result of having to vacate the property for three weeks, according to the complaint.

In September 2015, the parties reached a proposed settlement that was open-ended and involved several elements for owners, court records show. If a person had already had to repair their unit, they would get $200, or more if they saved their repair receipt showing they paid more to have it fixed, according to the deal.  And Sears and Whirlpool also agreed to repair dishwashers that weren't even part of the class but also had fire problems, according to filings in the case.

In August 2016, the lawyers duked it out in court over whether the $15 million fee request baked into the settlement up for final approval was too much. Attorneys for Sears and Whirlpool said that the plaintiffs' attorneys had worked hard, but deserved a fee award of $2 million to $3 million.  The requested amount, the defendants said, would dwarf the benefits received by the class.  The class lawyers fought back, saying the potential value of the uncapped deal was enormous and may cover between 15% and 20% of all U.S. households.

In October 2016, Judge Olguin shut down arguments by Sears Holdings Corp. and Whirlpool Corp. that attorneys at the five firms that worked to litigate the case and reach a deal last year over the allegedly defective washers were asking too much, finding that the arrangement the lawyers reached for the class — cash payments to owners of Kenmore, KitchenAid and Whirlpool home dishwashers to cover repairs or rebates toward buying a new model, plus some insurance-like deals and other protections — was highly beneficial.

The panel quickly shot down the attorneys' arguments that the Class Action Fairness Act is preempted by corresponding state law, noting that the plain language of CAFA makes clear that its attorney fees provisions top any state laws and apply to all federal court class actions.  "Indeed, it would be highly incongruous for Congress to expand federal jurisdiction for class action lawsuits based on diversity jurisdiction, but then in the same statute prevent CAFA's attorney's fee provisions from applying in those diversity jurisdiction-based cases," it said.

The panel then pointed out that precedent mandates the use of a percentage-of-value calculation for any "portion" an award "attributable to the award of the coupons."  The court's decision to use a lodestar calculation for the coupon portion of the deal was, therefore, an error, the panel found.  The panel also shot down the plaintiff attorneys' argument that the settlement provides a "rebate" rather than a "coupon."  It is a coupon, "despite the settlement agreement's refusal to use that term," the panel said.

"To use the 'rebate,' class members must spend hundreds of out-of-pocket dollars to purchase a new dishwasher," the panel said.  "And the rebates expire in 120 days, a third of the useful life of the [credits].  Given that a dishwasher typically lasts at least several years, most consumers likely will not redeem their coupons within 120 days."

Finally, the panel turned to the 1.68 lodestar multiplier, finding that the judge wrongly included the value of the coupon portion of the settlement in determining the 1.68 multiplier for the lodestar value, and also several of its reasons for enhancing the attorney fees cannot be justified, the panel said.  The judge was wrong, for instance, to find that the case was "undesirable" for attorneys to pursue, noting that this very notion is undercut by the fact that five different law firms pursued the claims for many years.

"If the mere fact that the defendants are 'large corporations' were sufficient, then most class action fee awards would automatically qualify for enhancement — contrary to the rule that multipliers are for 'rare and exceptional circumstances,'" the panel said.  "In practice, deep pockets often create an incentive to sue, particularly in the class action context."

The district court had said that the wide gap between the parties' estimated valuations for the deal meant that any attempt to determine a value of the deal "would be imprecise to the point of uselessness."  The panel ordered the court to attempt to determine a value for the deal and to consider whether, as Whirlpool argues, a negative multiplier should apply to the attorney fees.

"It becomes even more critical to crosscheck the lodestar valuation if the parties present widely divergent settlement valuation estimates," the panel said.  "It may admittedly be difficult to determine that amount with precision, but courts must try to do so to ensure the fees are not excessive."

Full Eleventh Circuit Urged to Buck Ban on Class Incentive Awards

October 28, 2020

A recent Law 360 story by Allison Grande, “Full 11th Circ. Urged to Buck Ban on Class Incentive Awards,” reports that the full Eleventh Circuit is being pressed to review a panel decision in a dispute over a $1.4 million robocall settlement that found class representatives can't recover routine incentive awards, with the lead plaintiff arguing that this categorical ban would hobble class action litigation and an objector to the deal taking issue with the calculation of class counsel's fees.

Lead plaintiff Charles Johnson and objector Jenna Dickenson in separate petitions filed seized on differing rationales in attempting to convince the appellate court to reconsider a panel ruling handed down last month that directed the lower court to revisit its approval of the contested class action settlement in a dispute accusing medical debt collector NPAS Solutions LLC of violating the Telephone Consumer Protection Act.

In a divided decision, the panel concluded that a pair of U.S. Supreme Court rulings from the 1880s prohibited Johnson from being awarded $6,000 for his role in the litigation and that the district court had failed to provide a sufficient explanation for signing off on the deal or class counsel's request to recover 30% of the settlement fund.

Johnson argued that the panel's clearly incorrect decision to categorically prohibit the common practice of awarding incentive payments to named plaintiffs established a precedent that not only conflicted with every other circuit but also upended long-standing class action practice.

"No court in the last century has ever held that incentive awards are categorically impermissible," Johnson argued.  "That incentive awards are a universally accepted practice provides ample reason for the full court to consider whether such an established aspect of class-action settlements should be held per se unlawful."

Contending that the panel's decision "effects a sea change in class action practice," Johnson stressed the importance of incentive awards in encouraging plaintiffs to step forward to lead lawsuits that enable redress for widespread harm that's "inflicted in small increments" on a large group of individuals that aren't willing or able to bring claims separately.

 "If few plaintiffs would suffer litigation for the hope of a tiny recovery, fewer still would do so for the same possible award alongside the added burdens — including, potentially, paying a defendant's costs — and fiduciary responsibilities that attend litigating on behalf of a class," Johnson argued.  "Incentive payments help attract class representatives willing to shoulder those burdens."

Johnson urged the full Eleventh Circuit to order the parties to provide "full, targeted briefing" on this "vital issue," noting that the parties have barely addressed the topic to date since courts have repeatedly approved incentive awards without incident.  He also argued that the more than century-old Supreme Court cases on which the panel relied to buck this trend "provide no authority" for its novel conclusion.  "The panel majority broke from all other circuits and remade the landscape of class-action litigation on the premise that Supreme Court precedent so required," Johnson added.  "That precedent — if it applies — requires nothing of the sort."

Dickenson, who was the lone objector to the TCPA deal and appealed its approval to the Eleventh Circuit, asserted in her own brief that the full appellate should take a look at the case to clarify the appropriate standard for calculating attorney fees in such disputes.  While the panel held that the lower court hadn't provided enough information about why the fee request was reasonable, it backed the method of calculating and awarding fees as a percentage of the settlement fund, concluding that an Eleventh Circuit case from 1991 that endorsed this practice was still "good law."

Dickenson argued that this holding conflicts with Supreme Court precedent, most notably its 2010 holding in Perdue v. Kenny A. ex rel. Winn, which "directly repudiated" the use of the factors relied on by the Eleventh Circuit and directed lower courts "to recognize a strong presumption that attorneys' unenhanced lodestars — i.e., their hourly rates times the hours expended — provide them a reasonable fee that is sufficient both to attract capable counsel and to equitably compensate them."

Therefore, it's imperative for the full Eleventh Circuit to step in to clearly announce whether lower courts should award class counsel fees based on attorneys' actual time and billings or as a percentage of the common class settlement fund, according to Dickenson.  "Attorney's fees are a critical issue in class-action litigation, and uniform rules governing their calculation are a matter of overriding national importance," Dickenson argued.

Article: A Mixed Ruling on Coupon Redemption Rates and Attorney Fees

September 8, 2020

A recent Law.com article by Diane Flannery, Trent Taylor, Frank Talbott, and Andrew Gann of McGuireWooods LLP, “A Mixed Ruling on Coupon Redemption Rates and Atty Fees,” reports on the recent Sixth Circuit ruling on coupon settlements and awarding attorney fees.  This article was posted with permission.  The article reads:

In an Aug. 12 ruling in Linneman v. Vita-Mix Corp., the U.S. Court of Appeals for the Sixth Circuit joined the U.S. Court of Appeals for the Seventh Circuit in holding that the Class Action Fairness Act, or CAFA, does not require that a court consider coupon redemption rates when assessing an award of attorney fees under Title 28 of the U.S. Code, Section 1712, and that a court may instead choose to utilize a lodestar method alone.

The Sixth Circuit, however, did not write off analysis of coupon redemption rates wholesale.  Instead, it held that those rates may be relevant to the overall reasonableness of the award.  In so doing, the Sixth Circuit deepened a circuit split — and offered a reminder to litigants that coupon redemption rates may still play an important role in determining an appropriate attorney fee award in class action settlements.

Accordingly, litigants should be cognizant of practical implications that result if courts require the use of redemption rates in class action coupon settlements — including the potential chilling effect of lengthening litigation for years, in order to analyze such rates to determine any attorney fee award.

The litigants in Linneman originally settled the underlying claims related to defective blenders for two classes of plaintiffs: a household class and a commercial class.  The household class would be eligible for a $70 gift card or replacement blade assembly for their blenders, while the commercial class would only be eligible for a replacement blade assembly.  Although the settlement provided for an award of attorney fees, the parties could not agree on a specific amount.  The parties "then spent most of the next two years arguing about attorney's fees."

Ultimately, the U.S. District Court for the Southern District of Ohio applied a lodestar analysis to the issue.  The calculation resulted in a $2.2 million award, which the district court then enhanced by 75%, for a final award of approximately $4 million.

The parties did not seriously contest that the settlement qualified as a coupon settlement, but Vita-Mix argued that the district court erred by applying a lodestar analysis without consideration of the coupon redemption rate as required under Section 1712.  Subsection (a) provided that in coupon settlements, "the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed."

Subsection (b), however, provided that if "a portion of the coupons is not used to determine the attorney's fee to be paid to class counsel, any attorney's fee award shall be based on the amount of time class counsel reasonably expended working on the action."

Section 1712, as the Sixth Circuit noted, "is not a model of draftsmanship."  Although subsection (a) seemingly required an analysis of what may be "attributable to" any coupon, Congress gave courts an escape hatch in subsection (b).

According to the Sixth Circuit, that subsection makes it clear: (1) that a district court might not "use ... " a portion of a coupon award "to determine the attorney's fee" and (2) that in such cases the court should determine the fee "based upon the amount of time class counsel reasonably expended working on the action" (i.e., the lodestar method).

Subsection (c) only reinforced this view, because it required that when awarding attorney fees on a "mixed basis" (some based on coupon value, some not), the portion not attributable to the coupon value should be calculated under a lodestar analysis.  Thus, the Sixth Circuit followed the Seventh Circuit's holding in In re: Southwest Airlines Voucher Litigation in finding that a district court could utilize a lodestar method to calculate an attorney's fee award under Section 1712.

In so doing, the Sixth Circuit rejected the U.S. Court of Appeals for the Ninth Circuit's holding in In re: HP Inkjet Printer Litigation, stating that the Ninth Circuit's interpretation that subsection (a) prohibited the utilization of a lodestar analysis would "erase" subsection (b) completely.  The Sixth Circuit then tweaked the Ninth Circuit for "disregarding its own admonition that 'intelligent drafters do not contradict themselves.'"

Although the Sixth Circuit endorsed the lodestar method as appropriate under Section 1712, it did not completely toss out the notion that redemption rates need not be considered when assessing an attorney's fee award.  A district court still must ensure that an attorney's fee award is reasonable — an analysis that includes assessing the value of the settlement to the class, "the most critical factor" being "the degree of success obtained."

And a district court "will often abuse its discretion if it fails to consider the redemption rate as part of that analysis."  That is because courts "know from experience (and Congress) that the face value of a coupon may be quite different from its actual value to the class members — even if the coupon is for more than an 'illusory amount.'"

Because "the district court failed to make any specific findings about the value of the settlement," the Sixth Circuit found error.  The "most straightforward way" to remedy this would include evidence regarding the coupon redemption rate, but the Sixth Circuit did not "rule out the possibility that a court might be able to determine the reasonableness of an award . . . without reference to redemption rates."

In Linneman, the Sixth Circuit deepened the circuit split regarding whether Section 1712 permitted a purely lodestar analysis, or required only an assessment of redemption rates in coupon settlements.  Although the Sixth Circuit endorsed the view that the lodestar analysis was permissible, it did not enunciate a rule that said coupon redemption rates were not important.

In fact, the Sixth Circuit endorsed that these rates were likely the best indicator of what value the class received in a settlement — and, therefore, were relevant to any attorney's fee award.  Thus, litigants should be cognizant that while a lodestar analysis alone under CAFA is likely permissible, redemption rates may still play an important role in determining whether any ultimate attorney's fee award is reasonable.

At first blush, this may not appear to be a significant issue for class action defendants, especially given the fact that such analysis is cabined to the award of attorney fees for plaintiffs' counsel.  But practical considerations make this decision potentially important.

First, any redemption rate requirement could drag out litigation for years past final approval.  For example, many coupons provided in litigation can be redeemed for years after receipt.  Thus, the parties may be waiting two, three, five or more years until it is possible to clearly determine the redemption rate.

Second, and related, a redemption rate requirement could have a chilling effect on the use of coupons in settlement.  In some cases, a coupon provides the only possibility of settlement.  If plaintiffs counsel know that the redemption of these coupons will determine their fees, it is likely they will begin to not accept these settlements — resulting in prolonged litigation that is not beneficial to either party.  While other practical considerations likely exist, these two prove the potential import of resolution of the circuit split.

Diane P. Flannery and R. Trent Taylor are partners, and Frank Talbott V and Andrew F. Gann Jr. are associates, at McGuireWoods LLP.