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Ninth Circuit Clarifies Fee Calculation Method in Class Coupon Settlements

November 11, 2020 | Posted in : Contingency Fees / POF, Fee Award, Fee Award Factors, Fee Calculation Method, Fee Issues on Appeal, Fee Jurisprudence, Hourly Rates, Judicial Discretion, Lodestar Crosscheck, Lodestar Multiplier, Practice Area: Class Action / Mass Tort / MDL, Settlement Amount / Data

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."