Attorney fee awards are a major driver of class action litigation – both in the employment and other contexts.  How they are awarded, and what is “reasonable” has been an ongoing source of contention in many cases.  A recent opinion from the Sixth Circuit provides some guidance and also places limits on methodology used by some courts to support generous, even lavish, fee awards.

The decision in Linneman v. Vita-Mix Corp., Case Nos. 19-3993/4249 (6th Cir., Aug. 12, 2020), related to the settlement of a class action involving the high-end Vita-Mix blenders used commercially and by consumers.  The plaintiffs, who owned the mixers, claimed that a seal used in the blenders was defective and would wear away with use.  The parties settled the case under a two-part structure: Consumers could get either a $70 gift card or a replacement assembly with a revised seal; commercial users would get only the assembly.  As the parties were unable to agree to a fee amount, the settlement provided that class counsel would receive a fee to be determined by the district court.  As explained below, after two years of litigation, and using a lodestar calculation, the district court awarded $3.9 million in fees ($2.2 million plus a 75% premium), and the defendant appealed.

Much of the Court of Appeals’ decision related to the application of the Class Action Fairness Act (CAFA), as it was largely undisputed that the terms of the agreement made the deal a coupon settlement.  The importance to this blog is that the court found that it was appropriate for the trial court to use a lodestar calculation rather than a percentage of the settlement.

With respect to the lodestar calculation, the court made a number of important pronouncements, ruling for the plaintiffs in some instances and for the defendant in others. Among them:

• In a lodestar calculation, the result (reasonable hours times a reasonable rate) is presumed to be the correct reasonable rate. The court can apply a multiplier (no surprise there), but only in “rare and exceptional” circumstances.
• A fee award can include the time spent pursuing fees (again, no surprise), but in this case, the defendant had made a reasonable Rule 68 offer of judgment on the amount ($3.1 million), calling into serious question why the fee issue needed to be litigated for another two years.
• The rates used must be appropriate in the local community, not nationwide.  Thus, the plaintiffs were limited to the relatively lower rates charged in southern Ohio, where the case was pending, and not higher rates charged in other or “national” markets.

The court ultimately remanded the case for numerous reasons and for further determination of the issues noted above, as well as to determine whether the settlement had actually accomplished much for the class members given the steps the defendant had taken prior to the litigation to correct the alleged defect.

The Linneman case is a good example of what can happen when a court actually looks at the amount of work done, the results obtained for the class and whether a fee enhancement is actually in order.  The bottom line: Courts that look closely at what goes into lodestar fee awards in class actions may award less than the plaintiffs expect.