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3rd Cir. Vacates $3.7 Million Attorney Fee Award in Class Action Settlement

class actionThe U.S. Court of Appeals for the Third Circuit recently overturned a $3.7 million attorney fee award in a class action settlement.

In so ruling, the Third Circuit held that: (1) The appellant did not waive its right to appeal due to an agreement for “final evaluation and decision” by a magistrate judge, or due to statements made by counsel for the appellant in a prior court proceeding; (2) The record relied upon by the lower court in calculating the lodestar fee award was insufficient; and (3) The record was also insufficient to determine the propriety of a lodestar fee multiplier, if such a multiplier were even appropriate in this case. 

A copy of the opinion in Gelis v. BMW of North America LLC is available at:  Link to Opinion.

This appeal arose from the settlement of a class action lawsuit filed by various name plaintiffs against an automotive manufacturer (“company”) alleging that the company knowingly manufactured and sold defective vehicles. Plaintiffs’ complaint included various causes of action including alleged violations of the Magnuson-Moss Warranty Act, state consumer fraud and deceptive practices claims. 

The parties resolved all issues except for the amount of attorneys’ fees awarded to the plaintiffs’ counsel. In an attempt to narrow the issues needed to be resolved by the court, the parties agreed to a “high-low” arrangement. In this arrangement, the plaintiffs agreed to not seek an award of fees that exceed $3.7 million and the company agreed that attorneys’ fees should at least be $1.5 million. The parties jointly agreed to submit the issue of the attorneys’ fees to a magistrate judge for ruling. 

In support of the fee award, the plaintiffs submitted summary charts of the time they committed to the matter and more specific declarations in support of the award of legal fees. The magistrate judge agreed with the plaintiffs and using the lodestar analysis awarded the plaintiffs’ counsel $1.9 million in legal fees plus a lodestar multiplier award of $1.8 million, which resulted in a total fee award of $3.7 million.

The company appealed. 

Before examining the specific issues raised by the company, the Third Circuit first addressed whether the company waived its right to appeal by agreeing to submit the fee issue to the magistrate judge for “final evaluation and decision” or whether waiver occurred due to statements made by counsel for the company in a prior court proceeding. 

The plaintiffs’ counsel argued that after the magistrate judge’s ruling counsel for the company’s statement that “We put it in the hands of the Court, and you’ve made your decision, Judge” effectively barred the company from seeking an appeal. The Third Circuit disagreed stating that judicial admissions are required to be “unequivocal” or “deliberate, clear, and unambiguous.” In re Motors Liquidation Co., 957 F.3d 357, 360 (2d Cir. 2020) The Appellate Court held that the statements made by counsel for the company merely acknowledged the adverse result of the hearing and did not meet this standard required to constitute a waiver.

The Third Circuit also considered whether the parties’ agreement to submit the issue of attorneys’ fees to the magistrate judge for a “final evaluation and decision” could be construed as a waiver of their right to appeal. The Third Circuit noted the distinction between prior case precedent which has construed waiver of the right to appeal without requiring an express waiver of appeal. In re Odyssey Contracting Corp., 944 F.3d 483 (3d Cir. 2019).

However, in class action settlement cases the Fifth Circuit and Tenth Circuit have required express waiver of the right to appeal when the parties have stipulated that a court will decide a certain issue.  See In re Deepwater Horizon, 785 F.3d 986, 997 (5th Cir. 2015); Montez v. Hickenlooper, 640 F.3d 1126, 1132 (10th Cir. 2011)). Here, the Third Circuit did not agree that the company waived its right to appeal and concurred with the Fifth and Tenth Circuit’s prior holding requiring an express waiver of the right to appeal. 

After deciding that the company did not waive its right to an appeal, the Third Circuit addressed two substantive issues raised by the company.  

In reviewing a fee award, the Third Circuit noted that “so long as it employs correct standards and procedures and makes findings of fact [that are] not clearly erroneous,” a trial court has discretion to decide the amount of an award. However, the lower courts must “clearly set forth their reasoning for fee awards so that we will have a sufficient basis to review for abuse of discretion.” 

First, the company argued that the trial court’s fee award was based on insufficient information. Generally, when courts calculate attorney fee awards, they often use the lodestar method. “Lodestar, though, is a term-of-art used by courts to denote an award that is “calculated by multiplying the number of hours [the lawyer] reasonably worked on a client’s case by a reasonable hourly billing rate for such services based on the given geographical area, the nature of the services provided, and the experience of the attorney.” In re Rite Aid Corp. Sec. Litig., 396 F.3d at 305, 299 (3d Cir. 2005). As the plaintiffs’ counsel were seeking to recover legal fees pursuant to a fee shifting statute “any hours to be used in calculating attorneys’ fees . . . be detailed with sufficient specificity.” Keenan v. City of Philadelphia, 983 F.2d 459, 472 (1992). 

In support of their fee award, the plaintiffs’ counsel submitted summary charts which included three pages of information that summarized their time over a three-year period along with declarations by the plaintiffs’ counsel. However, the Third Circuit ruled this was not sufficient information for the lower court to base its fee award stating “[w]e simply cannot discern from the charts whether certain hours are duplicative (a determination that is particularly crucial here, given that three plaintiffs’ firms seek fees for performing the same categories of work) or whether the total hours billed were reasonable for the work performed.”

Furthermore, the Third Circuit noted that contemporaneous billing records are not required but preferred. As a result, the Third Circuit vacated the trial court’s fee award and remanded for further proceedings. 

Lastly, the company raised the issue of whether the lodestar multiplier awarded by the lower court was proper. The company argued that “multipliers are inappropriate where fees are based on a fee-shifting statute, determined by a lodestar calculation, as they were here.” However, the Third Circuit noted that the lower court “awarded the attorney’s fees pursuant to a contract — the settlement agreement — not pursuant to a statute.”

Because the Third Circuit ruled that the original fee award should be vacated, the lodestar multiplier was also required to be vacated.  Although the Third Circuit did not specifically opine on the validity of the lodestar multiplier, the Third Circuit recommended that the lower court provide additional reasoning to support its multiplier because the previous ruling did not contain a “sufficient basis to review” its decision to award the fee multiplier. Rite Aid, 396 F.3d at 301. 

Accordingly, the Third Circuit vacated the judgment of the lower court and remanded for further proceedings.

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Jake VanAusdall is Senior Counsel in the Nashville office of Maurice Wutscher LLP. He practices in the firm’s Consumer Credit Litigation and Commercial Litigation groups predominantly representing financial institutions. Jake also has substantial litigation experience representing clients involved in intellectual property, construction, contract, and business disputes. Jake has been recognized as a “Mid-South Super Lawyers – Rising Star” in the area of Business Litigation (2018-2022), and is a former member of the Tennessee John Marshall American Inn of Court. For more information, see https://mauricewutscher.com/attorneys/jacob-vanausdall/

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