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Volkswagen Challenges Fee Calculation in $30M Attorney Fee Award

May 11, 2012 | Posted in :

A recent NLJ story, “Volkswagen Challenges Fee Award Method in MDL Settlement,” reports that an award of $30 million in attorney fees and nearly $1.2 million in costs to plaintiffs’ lawyers who worked on multidistrict litigation came under fire at the U.S. Court of Appeals for the First Circuit on May 10.  Volkswagen claimed that the district court should have used the lodestar method.  Instead, the court used the percentage-of-the fund method.  Volkswagen said if the lodestar method was used, the plaintiffs’ fee award would have been $7.7 million.

The underlying litigation concerned oil-sludge damage to Volkswagen cars.  A special master settlement specialist estimated the value of settlement at about $223 million for a potential class of about $480,000 cars.  The settlement included oil changes and extended warranties.  Three firms were leading plaintiffs class counsel and parties to the appeal, Volkswagen Group of America Inc. v. Peter J. McNulty Law Firm.  They were the McNulty Firm, Denver’s Irwin & Boesen and Philadelphia’s Berger & Montague.

Volkswagen claimed that the New Jersey fee-shifting statute, which state’s courts have said requires use of the lodestar method, should have applied.  New Jersey state law governs the attorney fee calculations because the case centers on alleged violations of the New Jersey Consumer Fraud Act.  Volkswagen also noted that the agreement does not language that would create an entitlement to fees independent of the fee-shifting statute.  The agreement stated that the fee calculation “shall not…be derived” from the benefits awarded to the class, so applying the percentage method was inappropriate, Volkswagen claims.

The McNulty firm argued that, under well-settled principles of class action law, courts have discretion when awarding attorney fees.  The firm also disputed that it fees were awarded under New Jersey’s Consumer Fraud Act.  Instead, its brief stated, fees “were asserted on numerous theories, including breach of contract, breach of implied warranty of merchantability, unjust enrichment, declaratory judgment under federal law, and violations of the consumer fraud statutes of several states.”  The court “properly used lodestar methodology solely as a cross check of the reasonableness of its award,” stated the McNulty firm in its brief.

The McNulty firm further claimed that Volkswagen’s agreement to pay fees was part of the settlement and “memorialized in the class notice.”  Class counsel agreed in a lower court hearing not to seek more than $37.5 million in fees and about $1.8 million in costs.