Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Lodestar / Multiplier

Class Action Fee Awards Shaped by Circuits and Benchmarks

September 12, 2017

A recent NLJ article by Amanda Bronstad, “Class Action Fees Shaped by Circuit, Benchmark,” reports on attorney fee awards in class action litigation.  The article reads:

When it comes to attorney fees in class actions, it pays to be in the U.S. Court of Appeals for the Seventh Circuit — and it's tough to get what you want in the Second and Ninth circuits.  That's according to two leading academic research reports that federal judges increasingly cite in determining how much in fees to award plaintiffs attorneys who work on contingency.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, authored one of the studies.  The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both reports found that federal judges tend to determine a percentage of the settlement amount, then crosscheck it against the hours that plaintiffs attorneys spent multiplied by a reasonable hourly rate — called the lodestar.  They also found that as the size of the settlement goes up, the percentage of fees that judges award to plaintiffs attorneys goes down.  That's particularly true when it comes to the largest class action settlements.

But a lot depends on what circuit of the U.S. court of appeals the case ends up.  Here are some key points from the studies:

Fee awards aren't evenly spread out: The vast majority of class action fee awards come in the Second, Ninth, First and Seventh circuits, Fitzpatrick said.  He attributed much of that to the larger cities in those circuits — Boston, New York, Chicago, San Francisco and Los Angeles.  "The lawyers are there, the defendants are often there, and I think judges with a lot of experience are often there, so that attracts these cases," he said.

Benchmarks might matter: The Ninth Circuit is one of the few circuits with a benchmark that judges cite in determining fees — 25 percent based on its 2011 holding in In re Bluetooth Headset Products Liability Litigation.  Fitzpatrick said "that really limits the number of times a court would award more than 25 percent.  It's working as a ceiling in the Ninth Circuit." Miller said having a benchmark didn't seem to matter when it comes to lower fee awards — his report found the Ninth Circuit stuck to 25 percent for the most part.

The Second Circuit has experience: The Second Circuit handled nearly a third of all the cases, according to the Eisenberg/Miller report.  Many are securities class actions.  The circuit doesn't have a benchmark, but it did set forth six factors for judges to consider in a 2000 ruling called Goldberger v. Integrated Resources.  It's the circuit in which a judge is most likely to reject the original fee request made by lawyers.  "It's a hard road to convince a district judge in the Second Circuit that your fee request ought to be accepted without question," Miller said.

One of the most generous circuits is the Seventh: That's due in large part to a 2001 decision in In re Synthroid Marketing Litigation, in which the Seventh Circuit downplayed the significance of using the percentage of the settlement fund by directing judges to look at market rates when assessing the lodestar component of an attorney fee request.  "They have said clearly you should not lower the percentage over the entire amount of the settlement," Fitzpatrick said.  "You should do it on a marginal basis.  I see more district courts doing it in the Seventh Circuit than anywhere else because of those admonitions."

National Law Journal Cites NALFA Program

September 11, 2017

A recent NLJ article by Amanda Bronstad, “Judges Look to Profs in Awarding Lower Percentage Fees in Biggest Class Actions,” quotes NALFA’s CLE program, “View From the Bench: Awarding Attorney Fees in Federal Litigation” in an article on class action fee awards.  The full article reads:

After reaching a $101 million class action settlement to resolve lawsuits brought over a chemical spill that contaminated a West Virginia river, the plaintiffs lawyers asked a federal judge to grant them 30 percent of the fund as contingency fees.

The judge praised their work but found that fee request to be just too high.  "Even without accounting for fund size, the empirical literature clearly demonstrates that a 30 percent fee is higher than that awarded in the vast majority of class actions," U.S. District Judge John Copenhaver of the Southern District of West Virginia wrote in a July order.  "Courts have found through empirical analysis that larger common funds typically have smaller percentage fees."

The empirical analysis Copenhaver referred to came from the findings of two leading academic reports — both cited in the opinion — that federal judges across the country have used for the past decade to guide them in decisions about attorney fees in some of the nation's largest class action settlements.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, wrote one of the studies, an updated version of which is set to be published this year.  The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both studies have provided critical assistance for federal judges, particularly when it comes to class action settlements of $100 million or more.  The concern for those on the bench is how to award plaintiffs lawyers for their work without granting them excessive fees and leaving class members in the lurch.

"Judges do take the role seriously," said William Rubenstein, a professor at Harvard Law School whose highly regarded "Newberg on Class Actions" has cited the Eisenberg/Miller and Fitzpatrick studies in his 11-volume treatise, alongside data he has used from a former publication called Class Action Attorney Fee Digest.  "And they understand they're a bulwark against excessive fees from the class members' money."

How to determine the exact amount has often been more art than science.  In a webinar earlier this year hosted by the National Association of Legal Fee Analysis, U.S. District Judge David Herndon of the Southern District of Illinois, who has handled several of the nation's largest mass torts and class actions, said a lot depends on the amount of recovery to the class.

"It just depends … on the case and what the benefit is that the lawyers have achieved by their work," he said at the webinar, called "View from the Bench: Awarding Attorney Fees in Federal Litigation."  "If it's reasonable, then you can approve the contingency, but if it's pretty far out of whack maybe you've got to have the lawyers justify the difference or perhaps go with the lodestar.  There are a lot of things to look at."

And there are outside concerns as well.  Judges have increasing scrutiny from appeals courts, which often take up the petitions of objectors to class action settlements, Rubenstein said.  "Public policy generally cautions against awarding too high a fee," Copenhaver wrote in the West Virginia water case.  "The court's challenge is to award a fee that both compensates the attorneys with a risk premium on their skill and labor and avoids a windfall."

Last month, plaintiffs lawyers in the case submitted a renewed motion for settlement approval that lowered their fee request to 25 percent — more in line with what Copenhaver had found was reasonable.

Judges often look to previous case decisions, or their own experience, to determine what amount is appropriate to award lawyers in class actions.  They also get a list of cases from the lawyers — but those often come with vested interests.  For a long time, there was limited statistical data on what other judges had done.  That's where Fitzpatrick said he and the Eisenberg-Miller team tried to give judges a starting point.

"We tried to give the judges the full data instead of just leaving them at the whim of the cherry-picked cases the lawyers give them," he said.  "The judges don't have to replicate what other courts have done, but they have the opportunity to stick within the mainstream of what their colleagues have done if they want it now that they have the power of empirical studies."

Miller said he came up with the idea while serving as an expert witness in cases.  When his first report with Eisenberg published in 2004, one year before the U.S. Class Action Fairness Act passed, the political atmosphere was rife with criticism about attorney fees in class actions.  At the time, only one group had looked at the data — but it wasn't really a controlled study.

"On the issue of fees, the data was there but hadn't been developed," he said.  Eisenberg wasn't an expert on class actions, Miller said, "but he was the leading person probably in the world who was doing empirical studies of legal material."  Their report looked at published data of class action settlements from 1993 to 2002.

By the time of their second report in 2009, which expanded the data through 2008, Miller and Eisenberg had some competition.  Fitzpatrick thought that their report, like those before it, relied too much on "ad hoc" data that focused primarily on bigger, published decisions.  "I really endeavored to find every last one to have the complete and representative picture," he said.

He came up with a wider range of class action settlements within a shorter period of time — just 2006 and 2007.  Combined, both reports have been cited by judges more than 100 times, Miller said.  And they often involve the biggest settlements in dollar amount, he said.  "The issue is that there aren't as many cases," he said.  "There's less data. And that puts an additional premium on getting what data there is, so that's one reason judges look to this research in big cases."

Another came in 2012, he said, when U.S. District Judge Lee Rosenthal of the Southern District of Texas, the former chairwoman of the Judicial Conference Committee on Rules of Practice and Procedure, endorsed both studies in a case called In re Heartland Payment Systems Customer Data Security Breach Litigation: "District courts increasingly consider empirical studies analyzing class-action-settlement fee awards to set the appropriate percentage benchmark or to test the reasonableness of a given benchmark," she wrote.  "Using these studies alleviates the concern that the number selected is arbitrary."

Economies of Scale

Both studies have come out with slight differences in their specific findings.  But they came to the same conclusions: The vast majority of judges award fees based on a percentage of the total settlement amount — then cross-check that amount against the total number of hours the lawyers billed multiplied by the hourly rate, referred to as the lodestar.  There's a good reason for that trend.

"It's economies of scale," Miller said.  "Judges understand that to get a $1 billion settlement is not 1,000 times harder for an attorney to get a $1 million settlement.  It's a lot harder, but not 1,000 times harder."

Herndon, in the webinar, said that's just common sense.

"If they got a third of $1 billion, and compared to their lodestar, it would be an astronomical per hour figure," he said.  "There's some common sense in doing something like that, and I don't really have a particular feeling one way or the other, but I think there's certainly authority in the law for doing it."

In fact, many judges who cite the Eisenberg-Miller and Fitzpatrick reports look specifically to the data as it pertains to the size of the settlement in front of them and what the case is about.

But Fitzpatrick questioned whether judges were doing the right thing in lowering the percentages as the settlements get bigger.  "I think the judges are responding to perception when they do that and they're not responding to good economic policy analysis," he said.  "Because why would we want to punish lawyers with lower percentages for getting their clients more money?"

Not all judges agree with the conclusions made by the professors, who sometimes go up against each other as paid experts in individual cases.  In a $415 million settlement of "no poach" claims involving high-tech workers, U.S. District Judge Lucy Koh of the Northern District of California weighed Fitzpatrick's report against the Eisenberg/Miller study in awarding $40 million in fees.  In that case, Fitzpatrick was a paid expert for the lead plaintiffs attorneys, while Rubenstein cited the Eisenberg-Miller report in a declaration filed on behalf of one of the lead firms that had submitted a separate fee request.

"The court finds the Eisenberg & Miller study more persuasive than the Fitzpatrick study," Koh wrote in a 2015 order, concluding that the "length and large sample size of the Eisenberg & Miller study suggest that its results are entitled to greater weight."

Fitzpatrick said he's working on an updated report, likely to be drafted next year.  "Whenever I hear from these judges, they say the same thing: We love your study but we need more recent data," Fitzpatrick said.  "So that's what I'm trying to give them."  But gathering the data takes a lot of time and money, he said.  He's hired research assistants to code all the data.

The latest Eisenberg-Miller report, co-authored with research scholar Roy Germano at NYU's law school, uses data through 2013.  Without Eisenberg, who died in 2014, Miller said he's not certain he'll keep publishing the report.  "I don't think I'll do it anymore," he said. "It is a lot of work."

$18M in Fees Sought in Home Depot Data Breach Deal

September 1, 2017

A recent Law 360 story by Kat Greene, “Home Depot Data Breach Attys Seek $18M Fees on $27M Deal,” reports that attorneys who scored just more than $27 million in settlements from The Home Depot Inc. for banks suing over the 2014 data breach asked a Georgia federal court to approve $18 million in fees, arguing their work spurred other payouts for would-be class members out of court.

The lawyers that represented a proposed class of financial institutions after the breach that compromised 56 million credit and debit card numbers said their work had resulted not only in a $25 million deal to cover financial institutions’ losses and another $2.25 million for those whose claims had been released by a sponsor in connection with a recovery program launched by MasterCard, but also further financial benefits and security changes, according to the filing.

For example, Home Depot had also separately solicited financial institutions that would have been part of the class and paid them $14.5 million to release their claims, and shelled out another $120 million to Visa Inc. and MasterCard Inc. as part of a negotiation to cover losses through their card brands to some of the banks, according to the filing.

The court should count the $14.5 million in the settlement total when determining the reasonableness of the fee request, the attorneys said, because those payments wouldn’t have been made without this litigation and the lawyers were directly involved in advising financial institutions on their decisions to release claims, including holding mass conference calls and conducting industry outreach, they said.

“There is no doubt this litigation was the impetus for the $14.5 million that Home Depot paid for releases,” the attorneys said in the request. “Home Depot admits its goal in soliciting releases was to avoid legal exposure, including exposure for attorneys’ fees that might have to be paid in a settlement.”  The company shouldn’t be allowed to circumvent the multidistrict litigation process, thereby cutting into the plaintiffs’ lawyers’ compensation for their work, the attorneys argued.

Counting the on-paper settlement amount and the additional payment for releases, the $18 million fee request is just under 30 percent of the settlement amount, class counsel said.  A year ago, U.S. District Judge Thomas W. Thrash granted final approval to a $13 million deal between Home Depot and consumers in the litigation, awarding the attorneys representing those class members $7.5 million in fees, court records show.

Although the consumers’ attorneys sought approval of attorneys’ fees of $8.5 million, or 1.46 times the lodestar calculation of reasonable fees multiplied by the amount of time the consumers’ legal team spent on the case, the judge said a multiplier of 1.3 was appropriate given the amount of time spent by the consumers’ attorneys as well as the risks they took in bringing the suit.  Home Depot had objected to that fee bid, saying it was excessive.  The company has not agreed on a fee amount with the financial institution class attorneys either, court records show.

The case is In Re: The Home Depot Inc., Customer Data Security Breach Litigation, case number 1:14-md-02583, in the U.S. District Court for the Northern District of Georgia.

In-House Counsel Can and Should Collect Attorney Fees

August 21, 2017

A recent Corporate Counsel article by Daniel K. Wiig, “In-House Counsel Can and Should Collect Attorney Fees,” writes about attorney fee entitlement for in-house counsel work.  This article was posted with permission.  The article reads:

When weighing his post-Senate career options, then-U.S. Sen. Howard "Buck" McKeon rejected an offer from a prominent law firm, opting not to "live his life in six-minute increments."  Indeed, it is with fair certainty to state a top reason lawyers in private practice transition to in-house is to escape the billable hour.  And while the imminent death of the billable hour may have been highly exaggerated (again and again), it remains the predominate metric for private-practice attorneys handling commercial work to track their time and collect fees.

Numerous reports suggest the in-house lawyer is "rising," with companies opting to retain more and more legal work within their law departments, and decreasing the amount of work they disseminate to outside counsel.  Sources cite various reasons from cost to the intimate knowledge in-house lawyers possess regarding their employer vis-à-vis outside counsel.  Whatever the genesis, it reasons that in-house lawyers morphing into the role traditionally held by outside lawyers should assume all such components of the role, which, when possible, can include recovering attorney fees for actual legal work performed, as noted in Video Cinema Films v. Cable News Network, (S.D.N.Y. March 30, 2003), (S.D.N.Y. Feb. 3, 2004), and other federal and state courts.

Recovering attorney fees is that extra win for the victorious litigant, whether provided by statute or governed by contract.  It leaves the client's bank account intact (at least partially) and gives the prevailing attorney additional gloating rights.  For the in-house lawyer, recovering attorney fees can also occasionally turn the legal department from a cost center to a quasi-profit center.  In-house lawyers can and should collect attorney fees.

To be clear, recovering attorney fees is not available for in-house lawyers functioning in the traditional role of overseeing outside counsel's work.  As noted in Kevin RA v. Orange Village, (N.D. Ohio May 4, 2017), a court will not award fees to in-house lawyers that are redundant, i.e., those which reflect work performed by outside counsel.  Indeed, when in-house counsel is the advisee of litigation status rather than drafter of the motion or attends the settlement conference as one with authority to settle rather than to advocate more advantageous settlement terms, she functions as the client rather than lawyer, of which attorney fee are unavailable.

Unlike their counterparts in private practice, in-house counsel do not have set billing rates, although an exception may exist if internal policies permit the legal department to invoice the department that generated the legal matter.  Even in such a situation, as with law firm billing rates, the actual fees/rates are considered by the court but not determinative in awarding fees, as noted in Tallitsch v. Child Support Services, 926 P2d. 143 (Colo. App. 1996).  In determining what constitutes an appropriate and reasonable attorney fee award, courts frequently apply the "reasonably presumptive fee" or the "lodestar" method.  Under the lodestar method, as explained in Earth Flag v. Alamo Flag, 154 F.Supp.2d 663 (S.D.N.Y. 2001), fees are determined by "multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate."

Reasonableness is a question of fact for the trial court.  In determining a reasonable hourly rate, federal courts look to those reflected in the federal district in which they sit, while state courts consider the prevailing rates in their respective city and geographical area.  Courts will also consider other factors such as the complexity of the case, the level of expertise required to litigate the matter, and the fees clients in similar situations would be willing to pay outside counsel in determining the appropriate hourly rate for the in-house lawyer.  Determining whether the tasks performed by the in-house lawyer were reasonable is left to the court's discretion.

Recognizing legal departments do not necessary operate in lockstep fashion as a law firm, courts will consider the "blended" rate in the lodestar calculation.  Here, a court will combine or "blend" the reasonable rates for associates, partners, counsel and paralegals in their locale to devise the appropriate hourly rate for the in-house lawyer.  The premise is in-house lawyers generally take on less defined roles in litigating a matter than their counterparts in private practice, performing a combination of litigation tasks that may be more clearly delineated among law firm staff.

In order to successfully receive an award of attorney fees, the in-house lawyer must maintain a record akin to a law firm's billing sheet of her time spent on the matter, as reflected in Cruz v. Local Union No. 3 of International Brotherhood of Electrical Workers, 34 F.3d 1148 (2d Cir. 1994).  Consequently, an excel spreadsheet, or similar document, enumerating the time and task, with as much detail as possible, is required to sustain a court's scrutiny in looking for tasks that were "excessive, redundant or otherwise unnecessary," as noted in Clayton v. Steinagal, (D. Utah Dec. 19, 2012).  Moreover, the in-house attorneys who worked on the matter must execute affidavits attesting to the accuracy of their time records, and include the same in their moving papers.

As the legal profession changes and corporate legal departments retain more of their work, in-house should take advantage of statutory or contractual attorney fees provisions, notably for the litigation they handle internally.  In so doing, the in-house lawyer may find a number of benefits, such as approval to commence litigation that they may have otherwise shied away from because of the possibility to recoup attorney fees and the benefit of essentially obtaining payment for the legal work performed.

Daniel K. Wiig is in-house counsel to Municipal Credit Union in New York, where he assists in the day-to-day management of the legal affairs of the nearly $3 billion financial institution.  He is also an adjunct law professor at St. John's University School of Law.  Wiig successfully moved for in-house attorney fees in Municipal Credit Union v. Queens Auto Mall, 126 F. Supp. 3d 290 (E.D.N.Y. 2015).

Seventh Circuit Cuts Fee Award in Half

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.