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5th Cir. Vacates $4 Million-Plus Attorney Fee Award in Class Action Settlement

product liabilityThe U.S. Court of Appeals for the Fifth Circuit recently vacated and remanded a lower court’s award of over $4 million in attorney’s fees in connection with a class action settlement.

In so ruling, the Fifth Circuit held that the trial court: (a) improperly failed to “find the facts specifically and state its conclusions of law separately;” and (b) improperly failed to consider the degree of success obtained as required when awarding reasonable attorneys’ fees in a certified class action.

A copy of the opinion in Cone, et al v. Porcelana Corona De Mexico is available at:  Link to Opinion.

The appeal arose out of a putative class action lawsuit filed by buyers of toilet tanks against two companies who manufactured the tanks. The consumers sought damages on behalf of themselves and those similarly situated for defective toilet tanks manufactured by the companies. An amended complaint was filed adding several plaintiffs and an additional defendant (“Manufacturer”).

After the original two consumers and several other named plaintiffs settled, a second amended complaint was filed and Manufacturer was the only defendant. The second amended complaint sought injunctive relief and damages, including punitive and treble damages on behalf of the plaintiff class (“Consumers”).

Eventually, the original class was severed and the parties entered into a classwide settlement of one of the remaining classes. The settlement class involved only the purchasers of certain models of toilets, and the agreement required attorneys’ fees to be determined by the court. 

A second class was limited to owners of certain models of the toilets that were produced in a specific plant by Manufacturer.  The claims in this second class were also eventually settled, with attorneys’ fees to be determined by the court.

After settlement was approved, class counsel filed a motion seeking attorneys’ fees and expenses from the two cases. They requested almost $13 million in fees and almost $400,000 in expenses.

Manufacturer challenged the request, disputing the number of hours spent on the claims. Specifically, Manufacturer argued that the lodestar calculation should have been limited to the hours worked for only the successful settlement class members, and not every putative class member. Manufacturer also sought a downward adjustment because of the limited results achieved.

The trial court declined to address the dispute in the computation of the lodestar award itself but instead weighed a possible reduction based on the Johnson factors. The trial court slightly reduced the proposed lodestar by omitting duplicative billing entries but rejected Manufacturer’s request for a downward adjustment.

The trial court awarded $4,333,949.50 in attorneys’ fees and $371,354.98 in expenses. Manufacturer appealed.

On review, the Fifth Circuit reviewed the standard for determining reasonable attorney’s fees. First the trial court must calculate the lodestar – “the number of hours reasonably expended multiplied by the prevailing hourly rate in the community for similar work.” Combs v. City of Huntington, 829 F.3d 391, 392 (quoting Jimenez v. Wood Cty., 621 F.3d 372, 379 (5th Cir. 2010), revised on other grounds, 660 F.3d 841 (5th Cir. 2011) (en banc)).

Although the lodestar calculation is presumed reasonable, the court can enhance or decrease it after consideration of the 12 factors detailed in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974), the most critical of which is the degree of success obtained.  Id. at 391, 394 (quoting Hensley v. Eckerhart, 461 U.S. 424, 436, 103 S. Ct. 1933, 1941 (1983)).

No fee may be awarded for work on unsuccessful claims (Hensley, 461 U.S. at 435, 103 S. Ct. at 1940), but “when claims…share a ‘common core of facts’ or ‘related legal theories,’ a fee applicant may claim all hours reasonably necessary to litigate those issues.” Louisiana Power, 50 F.3d at 327 (quoting Hensley, 461 U.S. at 434–35, 103 S. Ct. at 1940).

The initial action sought relief for owners of seven different tank models manufactured over a nine-year period.  However, the case resulted in two much narrower settlements, with recovery being restricted to two tank models with limited compensatory damages for a year and limited replacement costs for five years.

Thus, the Fifth Circuit held, per Hensley’s instruction, that class counsel was not entitled to any fee recovery for hours expended on the unsuccessful claims unless the trial court found a “common core of facts” or “related legal theories.” See Hensley, 461 U.S. at 434-35, 103 S. Ct. at 1940.

Upon review of the record, the Court of Appeals found the trial court’s conclusory ruling on this issue insufficient to satisfy the standards set out in Rule 23(h) and 52(a) which required the trial court to “find the facts specifically and state its conclusions of law separately” when awarding reasonable attorneys’ fees in a certified class action. Fed. R. Civ. P. 23(h), 52(a).

The Fifth Circuit found that trial court’s failure to make any factual findings regarding the nature of the unsuccessful claims an abuse of discretion.

The Appellate Court specifically noted that the unsuccessful claims were related to tank models manufactured at a different plant and one tank model was from a different product line.  The Court noted that class counsel could not obscure the factual distinctions with overly broad theories of liability. The Court held that to allow recovery on the unsuccessful claims “would incentivize fishing expeditions into every tangentially related product after the discovery of a singular defective item.”

The Fifth Circuit further held that even if the trial court had adequately supported its conclusion that the claims were intertwined, the trial court still failed to properly analyze the award in relation to results obtained.

In other words, the Fifth Circuit found that the trial court failed to consider the amount awarded in relation to the amount sought. The Fifth Circuit noted that the Supreme Court of the United States has twice stated that “degree of success obtained” is “the most critical factor” in determining the reasonableness of attorneys’ fees. Farrar v. Hobby, 506 U.S. 103, 114, 113 S. Ct. 566, 574 (1992) (quoting Hensley, 461 U.S. at 436, 103 S. Ct. at 1941). The Fifth Circuit found the trial court misconstrued precedent in its ruling that not receiving every bit of relief requested was not a reason to reduce the lodestar.

The Fifth Circuit found further error in the trial court’s justification of the award in comparing the proportion of the fee award to the class benefit with that of other cases. Instead, the Fifth Circuit instructed the lower court, on remand, to consider the amount of damages and non-monetary relief sought compared to what was actually received by the class in this case.

Thus, the Fifth Circuit vacated the trial court’s ruling and remanded for further proceedings.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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