August 18, 2017
A recent NLJ story by Amanda Bronstad, “Fees in Class Action Over Moldy Washing Machines Nearly Halved,” reports that a federal appeals court has slashed plaintiffs' attorney fees by nearly half in a class action settlement over defective washing machines — but the firms could have taken a bigger hit. A much bigger hit.
The opinion by the U.S. Court of Appeals for the Seventh Circuit reduced the fees in a 2015 settlement from $4.8 million to $2.7 million. The suit alleged that front-loading washing machines made by Whirlpool Corp. and sold by Sears, Roebuck and Co. from 2004 to 2006 had a defect in their central control units and grew mold inside them. Sears estimated that the settlement, which resolved just the claims over the control units in Kenmore and Whirlpool brands, was worth about $900,000.
The Seventh Circuit found a federal magistrate judge's reasoning "questionable" when she boosted the award 1.75 times what lawyers charged for their work. "The judge's reasoning was that the case was unusually complex and had served the public interest and that the attorneys had obtained an especially favorable settlement for the class," wrote Judge Richard Posner. "The district court, comparing the hourly rates sought by class counsel with the complexity of their work, concluded that for the most part the case wasn't very complex — it was just about whether or not Sears had sold defective washing machines. This conclusion leaves us puzzled about the court's decision nevertheless to allow a multiplier."
What the Seventh Circuit did not do, however, is find any problem awarding fees greater than the benefits to class members, despite two of its own precedents in 2014 cautioning courts to presume that such fees are unreasonable. Defense attorneys insisted that the fee award disregarded those precedents — Pearson v. NBTY and Redman v. RadioShack — and that the plaintiffs' attorneys should get no more than $900,000 given that 95 percent of the class won't get anything.
Yet such a presumption, Posner clarified, wasn't "irrebuttable." He noted the "extensive time and effort that class counsel had devoted to a difficult case against a powerful corporation entitled them to a fee in excess of the benefits of the class." But three times what class members got? The attorneys should get what they billed for — "no more, no less," Posner wrote, remanding with directions to award $2.7 million.
Plaintiffs' attorneys, meanwhile, spent much of their appeal brief focused on the Seventh Circuit's 2015 ruling in In re Southwest Airlines Voucher Litigation, which awarded $1.6 million in fees in a coupon settlement. But Posner's opinion never mentioned that ruling. Sears and Whirlpool were represented by Timothy Bishop, a partner at Mayer Brown in Chicago. In an email, both companies praised the Seventh Circuit's decision to reduce "the plaintiffs' lawyers' excessive and unreasonable fee by more than 43 percent."
Steven Schwartz of Chimicles & Tikellis in Haverford, Pennsylvania, did not respond to a request for comment. His firm sought fees alongside five others, including Carey, Danis & Lowe in St. Louis, San Francisco's Lieff Cabraser Heimann & Bernstein and New York's Seeger Weiss.
The class actions were filed in 2006. In 2012, the Seventh Circuit certified two classes of customers in a ruling written by Posner that ended up before the U.S. Supreme Court, which remanded the case in light of its ruling in Comcast v. Behrend. Posner reaffirmed the certification ruling in 2013. Separate claims over mold against were transferred to multidistrict litigation in the Northern District of Ohio, where a federal jury issued a defense verdict in 2014. In that case, the lawyers got $14.75 million in counsel fees and costs.
After U.S. Magistrate Judge Mary Rowland of the Northern District of Illinois approved the central unit settlement last year, the attorneys sought $6 million in fees. They claimed their lodestar — the amount they actually billed — was $3.25 million and that they deserved a 1.85 multiplier to account for their efforts in the case.
In a 55-page opinion, Rowland reduced their lodestar to $2.7 million after finding issues with some of their billing records, but multiplied the amount by 1.75 due to the novelty and complexity of the case, the success achieved and the advancement of a public interest.
"It is no exaggeration to say that this protracted nine-year litigation has concerned fees and little else," Bishop wrote in the brief for Sears and Whirlpool appealing her fee award. "The approach taken by the district court would encourage prolonged litigation to drive up class counsel's hours with no added value to the class."
But it was the defendants, Schwartz wrote in the plaintiffs' response brief, who drove up those hours. "The only reason why it took a decade of litigation up through the eve of trial to get the cases settled was defendants' refusal to even discuss settlement," he wrote.
The case is In re: Sears, Roebuck and Co Front-Loading Washer Products Liability Litigation, 7th U.S. Circuit Court of Appeals, No. 16-3554.