A recent Law 360 story by Michael Phillis, “High Court Won’t Hear $17.3M Fee Dispute in Gas Royalty Row,” reports that the Supreme Court declined to take up a challenge to a Tenth Circuit panel's decision that said an incorrect method of calculating the $17.3 million attorneys' fees award for work on a $52 million settlement over gas well royalty payments meant the award should be set aside.

The Tenth Circuit panel’s decision, which will now remain intact, reversed a lower court's award of attorneys' fees and an incentive award of half a percent for lead plaintiff Chieftain Royalty Co.  The panel agreed with two class members who objected to that award, Charles David Nutley and Danny George, who said the lower court was required to use the lodestar approach under Oklahoma law instead of using the percentage-of-the-fund approach for allocating fees.

In its petition for review, Chieftain Royalty said the lodestar method that is based on how many hours the attorneys worked was "burdensome and creates a perverse incentive for class counsel to litigate inefficiently."  The petitioner preferred common-fund awards that distribute a percentage of a fund.

Chieftain Royalty further argued that in diversity class actions such as in the instant case, the courts should be able to decide how to award reasonable attorneys' fees instead of being forced to defer to the applicable state law.  The objectors, however, said Oklahoma law required the lodestar approach and must be applied, and the Tenth Circuit agreed.

Chieftain had filed the state-law putative class action against EverVest Energy Institutional Fund in 2011, alleging the oil and gas company underpaid lease royalties on gas from wells in Oklahoma.  The $52 million settlement, meant to benefit around 21,000 class members, netted final approval about four years later.  The objectors appealed with respect to the fees and incentive awards.  They argued the Oklahoma Supreme Court has held that reasonable attorneys' fees should be calculated by the lodestar method in common-fund cases.

The Tenth Circuit panel said in mid-2017 that while the circuit had no binding precedent on whether federal courts must follow state laws governing how to calculate attorneys' fees, it found a consensus among five other circuits that have considered the issue.  "When state law governs whether to award attorney fees, all agree that state law also governs how to calculate the amount," the panel said.  The decision nixed the awards and remanded the case, adding that class counsel didn't provide the necessary records about their hours to be used in a lodestar calculation, throwing their fees into question.

In an opposition brief Nutley filed in October, the objector said the high court should not take the case, although he did say that there was a circuit split on the issue.  However, the brief said that the question posed by the petitioner on whether "common-fund fee awards are governed in diversity cases by state or federal law" wouldn't fully deal with the question at hand.

"This court should direct the parties to brief and argue the additional question of whether, in a common-fund case like this, 'a reasonable attorney's fee' is presumed to be the attorney's lodestar ... provided it does not exceed a reasonable percentage of the common fund," the opposition brief said.  "An affirmative answer to that question would resolve many conflicts in federal common-fund jurisprudence by providing a uniform rule that is consistent with this court's prior holdings defining 'a reasonable attorney's fee.'"

Eric Alan Isaacson, an attorney for Nutley, said the Tenth Circuit got it right.  He said the justices likely recognized the case was a poor vehicle to resolve conflicts among various courts.  "As Nutley's Brief in Opposition pointed out, there are many conflicts in the federal decisions on common-fund fee awards, so that if the Supreme Court granted certiorari to consider Chieftain's arguments that federal law controls, the Court should also have the opportunity to clarify what the controlling federal law is," Isaacson told Law360.

The case is Chieftain Royalty Co. v. Charles David Nutley et al., case number 18-301, in the Supreme Court of the United States.