Class Action, Multipliers: Eleventh Circuit Court Of Appeals Affirms Most Of Class Counsel Award In Home Depot Data Breach Case, But Reverses 1.3 Positive Multiplier Enhancement

Federal Appellate Court Provides Scholarly Analysis Of Differences Between Common Fund, Constructive Common Fund, And Contractual Fee-Shifting Cases.

            In In re:  Home Depot Inc. Customer Data Security Litig., No. 17-14741 (11^th Cir. July 25, 2019) (published), the Eleventh Circuit faced review of a $15.3 million fee award to class counsel in a class action stemming from Home Depot’s 2014 data security breach which exposed the credit card information to improper use for tens of millions of customers.  It eventually agreed to settle by paying $25 million into a settlement fund, paying smaller banks an additional $2.25 million (after paying about $134.5 million--$120 million set by the banks under contractual agreements with Home Depot and a $14.5 million premium to other banks on top of that--under a card-brand recovery process), and agreeing to data breach security measures of an on-going nature.  The settlement agreement also confirmed class counsel was entitled to reasonable attorney’s fees, but it set no amount for fees in the agreement and allowed this determination to be made by the district judge.  The fees would be paid by Home Depot separate from the other settlement payments.  The district judge awarded class counsel $15.3 million in fees, calculated this way:  (1) a lodestar of $11.7 million enhanced by a positive 1.3 multiplier based on risk; and (2) cross-checked by the percentage method, based on an addition of the $27.25 million settlement payments, the $14.5 bank premium, and about $700,000 in expenses (about a $42.5 million total “percentage”), with the award being slightly higher than a third of the “percentage” (which was close to the 20-30% generally allowed in the Eleventh Circuit).  Class counsel had asked for $18 million, while Home Depot suggested only $5.6 million should be the fee award.

            The Eleventh Circuit affirmed most of the fee award, although reversing the grant of the 1.3 positive enhancement.

            The key threshold determination was to decide whether the case was a constructive common fund or contractual fee-shifting case, with the latter being the characterization adopted by the federal appeals court.  The reason for this was that the settlement agreement had a fees clause, no fees were specified or capped as under clear sailing provisions, and the fee determination was left to the district court’s decision-making authority.  This smacked of a contract fee-shifting situation, unlike a common fund where fees are actually taken out of the class recovery such that they are paid by the “client” (the class). 

            The multiplier was infirm because federal precedents (such as Perdue and Dague) are hostile to enhancements, because it is assumed that the lodestar factors subsume the multiplier considerations for further enhancement.  Given that risk is not a factor to consider for enhancement in statutory fee-shifting cases, the appeals court found no reason that the same logic should not apply to contract fee-shifting cases. 

            The Eleventh Circuit also found that compensating class counsel for the card-brand recovery work and time spent in vetting class representatives was appropriate.  Clearly, the class litigation was a catalyst which drove Home Depot to pay the banks and narrow the class exposure in the overall sense. 

            The district judge’s decision did provide sufficient detail, especially given that Home Depot failed to make specific objections.

            The class cross-appealed.  It argued that it was error for the district judge to not include the attorney’s fees in the “percentage” cross-check total.  The appeals court disagreed, concluding that it would be impractical to guess what fees might have been awarded in a contract fee-shifting context.  It also found some balance here:  fees on fees are not awardable in common fund cases, but they are awardable in contract fee-shifting cases. 

            BLOG COMMENT—Same result in California state courts?  Likely no.  Although novelty, complexity, and counsel special skill lodestar factors cannot be counted twice for multiplier analysis, risk is a factor which can be considered separately.  (Ramos v. Countrywide Home Loans, 82 Cal.App.4^th 615, 625 (2000).)  Beyond that, California does not take the dim view that Perdue/federal precedents do on enhancements in statutory fee-shifting cases.  (Khazan v. Braynin (Khazan III), Case No. A128536 (1^st Dist., Div. 4 June 12, 2012), rev. den. [reviewed in our September 15, 2012 post].)