A recent Law 360 story, “VW, Audi Owners Win $15.5M in Attys’ Fees in Oil Sludge MDL,” reports that a Massachusetts federal judge approved roughly $15.5 million in attorneys’ fees to class counsel in multidistrict litigation against Volkswagen AG and Audi AG over oil sludge buildup in engines and related warranties, after the First Circuit nixed a previous $30 million fee award.

In an 87-page memorandum and order, U.S. District Judge William G. Young granted $15,468,000 in fees and $1.2 million in expenses to class counsel.  He also gave the green light to a slew of additional awards for attorneys and firms that represented individual class plaintiffs in the sprawling litigation.

U.S. District Judge Joseph L. Tauro in March 2011 approved a settlement – which plaintiffs’ attorneys estimated at $414 million and Volkswagen estimated at $50 million – and awarded $30 million in fees to class counsel.  But in July 2012, the First Circuit vacated the award, finding the fee should have been based on relevant Massachusetts state law instead of federal law.  Volkswagen and Audi argued on remand that taking on the case was a low-risk proposition for class counsel because of the work accomplished by earlier similar suits.

But Judge Young replied that the defendants’ argument is “belied by the years it took for the parties to reach settlement and by the additional time and effort class counsel has had to dedicate to attempting to collect the fees the defendants agreed to pay.  The defendants, having ably and vigorously advocated for their interests throughout the life of this case, are in a poor position to suggest that this case was a predictable one for class counsel to litigate.”

The district court eventually awarded $30 million in fees and $1.2 million in expenses, but the appellate court overruled the fee award, finding that when a provision in a settlement agreement expressly states that the parties have not agreed on the source of law to apply to the fee award and the agreement states that defendants will pay reasonable fees, state law should govern the fee award.  Because the basis for the fee award is the settlement agreement itself, which is a contract under state and not federal law, the attorneys’ fees should be awarded under state ruled, the Federal Circuit decided.

Massachusetts courts are allowed to use the lodestar method of analysis, under which an amount is calculated by multiplying the number of hours reasonably spent on the case times a reasonable hourly rate, according to court papers.  After the court calculates a base lodestar amount, it is then adjusted upward or downward on the basis of additional factors.  Courts can also enhance lodestar amounts by applying multipliers to reflect the scale of the results achieved by prevailing counsel or the risks counsel took in pursuing contingent fees.

Upon remand, class counsel sought a fee award ranging from $19.3 million to $27.1 million.  The defendants requested the base lodestar be reduced, which would result in a negative multiplier.  Judge Young decided that a multiplier of 2 was appropriate to enhance class counsel’s pre-award base lodestar of $7.7 million.  He also approved 15 additional fee awards to plaintiffs’ attorneys that totaled about $2.9 million, $1.2 million in costs and fees incurred before Judge Tauro’s original award, and roughly $185,000 for costs and expenses incurred after the judge’s original fee award.

The case is In re: Volkswagen and Audi Warranty Extension Litigation, 1:07-md-01790, in the U.S. District Court for the District of Massachusetts.