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No Attorney Fees for Non-Class Counsel in VW Settlement

January 23, 2019 | Posted in : Class Action, Expenses / Costs, Fee Doctrine / Theory, Fee Entitlement, Fee Issues on Appeal, Fee Jurisprudence, Fee Reduction / Fee Denial, Fee Request, Quantum Meruit

A recent Metropolitan News-Enterprise story, “No Fees for Non-Class Counsel in Volkswagen Settlement,” reports that the Ninth U.S. Circuit Court of Appeals yesterday rejected a bid by several law firms to claim attorneys’ fees in connection with the recent multi-billion dollar Volkswagen diesel vehicle class action settlement despite not being class counsel because the firms didn’t provide a compensable benefit to the class.

The opinion was written by Circuit Judge Milan D. Smith Jr. It affirms the denial by U.S. District Judge Charles R. Breyer of the Northern District of California of 244 separate attorneys fee applications in the multidistrict litigation (“MDL”), consolidating seventeen of the eighteen appeals from those fee motions (the eighteenth firm filed a notice of appeal but did not join either of the two briefs submitted on appeal).

The litigation against Volkswagen was sparked by accusations in a notice of violation (“NOV”) by the U.S. Environmental Protection Agency that the company had utilized a device designed to spoof emissions tests in 500,000 of its diesel vehicles.  Those accusations were prompted by a study commissioned by the California Air Resources Board to look into discrepancies between the emissions numbers of American and European models of certain vehicles.  Audi and Porsche, two German marques also owned by the Volkswagen Group, were also sued in the class action, which resulted in a settlement of more than $7 billion, as well as $175 million in class counsel fees, agreed to by the parties.

Breyer, responding to several motions for attorney fee liens from lawyers who were not class counsel, noted that the purpose of the settlement was to give class members opting into the agreement’s buyback program “sufficient cash to purchase a comparable replacement vehicle and thus facilitate[] removal of the polluting vehicles from the road.”

He continued: “An attorneys’ lien on a Class Member’s recovery frustrates this goal. By diverting a portion of Class Members’ compensation to private counsel, a lien reduces Class Members’ compensation and places them in a position where they must purchase another vehicle but lack the funds to do so.  Put another way, attorneys—notably, attorneys who did not have a hand in negotiating the Settlement—stand to profit while their clients are left with inadequate compensation.”

The judge enjoined state court proceedings related to any class member’s attorney’s lien on his or her recovery, but noted that some lawyers “may have provided Class Members with compensable services,” and implemented a procedure whereby such attorneys could apply for reimbursement.  That scheme resulted in the 244 applications for fees.

Nagel Rice LLP of New Jersey wrote the lead brief on appeal, joined by 15 other firms. They argued that the appeal presented “an issue of first impression in the Ninth Circuit: whether Independent Counsel who performed services and incurred costs in a multi-district litigation prior to the appointment of Lead Counsel are entitled to an award of fees and costs, or are only the firms appointed to leadership roles entitled to a fee award for services performed prior to their appointment.”  Smith responded: “In truth, however, the central issue before us is narrower: whether the district court abused its discretion when it denied Appellants’ motions for attorneys’ fees.”

The jurist noted that under Federal Rule of Civil Procedure 23, courts are permitted to award attorneys fees “authorized by law or by the parties’ agreement,” and that such awards are available even to non-class counsel in class actions.  Nevertheless, he said, a trial court must determine whether an attorney fee award is reasonable.  According to Nagel Rice, its commencement of hundreds of lawsuits against Volkswagen before the class action was commenced, its filing of discovery and other motions, and other research and communications benefitted the class.

Smith agreed with the plaintiffs in the case as to the pre-trial work done by Nagel Rice and its co-objectors, who noted on appeal that “even assuming these activities are all attributable to the Appellants, [they] fail to establish how, precisely, these activities benefitted the Class.”

He wrote: “Appellants may have filed complaints and conducted preliminary discovery and settlement work on behalf of their clients before consolidation of the MDL and appointment of Class Counsel, but they do not appear to have discovered grounds for suit outside of the information contained in the widely publicized NOVs, or otherwise provided guidance or insights that were later used in securing the Settlement.  In short, Appellants have not demonstrated that, in Plaintiffs’ words, ‘they engaged in serious settlement efforts, much less that any such efforts contributed to the class settlement framework that was ultimately reached, approved, and successfully implemented.’ ”

He also rejected the appellants’ claim that their work after class counsel was appointed, consisting largely of actions to “remain updated on the case,” helped the class, especially in light of a pretrial order stating: “Only Court-appointed Counsel and those attorneys working on assignments therefrom that require them to review, analyze, or summarize those filings or Orders in connection with their assignments are doing so for the common benefit.  All other counsel are reviewing those filings and Orders for their own benefit and that of their respective clients and such review will not be considered Common Benefit Work.”

Smith said: “We are sympathetic to Appellants, and have no doubt that many of them dutifully and conscientiously represented their clients. This is not necessarily a case where latecomers attempt to divide spoils that they did not procure. But Appellants’ efforts do not entitle them to compensation from the MDL, when the record indicates that they did not perform work that benefited the class, and that they neglected to follow the protocol mandated by the district court. We commend the district court’s efforts to successfully manage a massive and potentially ungainly MDL, and conclude that the court did not abuse its discretion when it determined that Appellants were not entitled to compensation.”

The opinion also rejects the attorneys’ contentions that Volkswagen had agreed to pay fees to them or that they were entitled to recovery on a theory of quantum meruit, which would itself require them to have benefitted the class by their work.  The case is Bishop, Heenan & Davies v. Volkswagen Group of America, No. 17-16020.