A recent Law 360 story, “3^rd Circ. Vacates Fee Award After Unjustified Fourfold Bump,” reports that the Third Circuit vacated a Delaware federal court order last year granting about $1.1 million in attorneys' fees to class counsel in an action against a company providing invention promotion services, saying the lower court did not justify awarding what amounted to a more than fourfold enhancement.

In an unpublished opinion, a circuit panel said the district court did not explain why the lawsuit against Davison Design & Development Inc. presented exceptional circumstances needed to enhance the lodestar — which is based on the attorneys' hourly rates — and counsel for named plaintiff Deborah Dungee did not provide the court with specific evidence required to justify the enhancement.

“In the absence of specific evidence from class counsel and detailed findings by the District Court justifying the use of any lodestar multiplier, let alone a multiplier of 4.35, we must vacate the $1,118,936.40 award and remand the case to the District Court,” the panel said.

Dungee filed the complaint in April 2010 on behalf of herself and certain other individuals who had entered into contracts with Davison for invention promotion services, according to the panel's opinion.  The action included class claims against Davison for violations of the American Inventors Protection Act of 1999 and for breach of contract, the opinion states.

After the district court denied Davison's motion to dismiss Dungee's original complaint, the parties ultimately reached a settlement agreement, the opinion states.  The parties agreed that Davison would pay class counsel's fees, but they could not agree on the proper amount, leading Dungee to submit a motion for attorneys' fees to the court, according to the opinion.

Dungee sought $2 million in fees under a percentage-of-recovery calculation, but Davison argued that the lodestar calculation method was more appropriate, the panel said.  Under that method, “the lodestar is calculated by multiplying the number of hours an attorney reasonably worked on a case by that attorney’s reasonable hourly billing rate,” the panel said.

The parties agreed that the base lodestar calculation amounted to $257,226.76, and they argued the attorneys’ fees issues at a class action settlement fairness hearing on July 30, 2015, the panel said.  But on Feb. 16, 2016, the district court issued an order granting the $1.1 million in attorneys’ fees to Dungee’s counsel, the panel said.

Based on Dungee's recommendation, the court reached that figure by applying a 4.35 multiplier to enhance the base lodestar calculation, according to the panel's opinion.  Dungee had asserted that 4.35 was the “average” multiplier used in the Third Circuit, the opinion states.  On Feb. 24, the court entered an order approving the final settlement between the parties, which included the $1.1 million attorneys’ fees award, the opinion states.

In deciding Davison's appeal, the panel said that enhancement of a lodestar figure is only permissible in “certain ‘rare’ and ‘exceptional’ circumstances,” citing the U.S. Supreme Court’s 1987 decision in Pennsylvania v. Del. Valley Citizens’ Council for Clean Air.

Those circumstances include where the method used to determine the hourly rate in the lodestar calculation does not adequately measure the attorney’s true market value and where the attorney’s performance included an extraordinary outlay of expenses and the litigation has been exceptionally protracted, according to the opinion.

A district court must provide detailed findings justifying any enhancement to the lodestar and the party seeking the enhancement must produce specific evidence to support its request, the panel said.  But those requirements were not met in enhancing the lodestar in the Davison case, the panel said.

“Here, the District Court offered no explanation for why the simple lodestar calculation would not adequately compensate class counsel, or why this case presented 'rare' and 'exceptional' circumstances needed to enhance the lodestar. We see nothing in the record to suggest that class counsel provided the District Court the 'specific evidence' required to justify the enhancement,” the panel said.

“Rather, it appears that the District Court simply adopted Dungee’s recommended 4.35 multiplier, understanding it to be the 'average' multiplier used in the Third Circuit.”  On remand, the panel directed the district court to “reassess whether an enhancement to the lodestar calculation is appropriate in this case and, if so, it should provide factual findings supporting any multiplier used.”

The panel also vacated the court order approving the final settlement insofar as that agreement incorporated the $1.1 million fee award.  The case is Deborah Dungee v. Davison Design & Development Inc., case number 16-1486, in the U.S. Court of Appeals for the Third Circuit.