Percentage Of Value Governs Coupon Portion And Lodestar Governs Non-Coupon Portion, Articulating How To Calculate Lodestar In The Latter Situation; But …. Lodestar Can Be Applied In A Mixed Settlement If Adjustments Are Made For Coupon Portion Of Settlement.
Practitioners and district judges in the Ninth Circuit should welcome the circuit court’s clarification of how to calculate attorney’s fees in class action settlements under the Class Action Fairness Act (CAFA) in mixed coupon/non-coupon relief cases. That is what the Ninth Circuit did in Chambers v. Whirlpool Corp., No. 16-56666 (9th Cir. Nov. 10, 2020 published).
There, using a lodestar methodology, a district judge awarded over $14.8 million to class counsel in a mixed relief settlement, using a lodestar methodology and sweetening it with a 1.68 multiplier where there were widely divergent valuations on the worth of the settlement--$4.2-6.8 million estimated settlement value by Whirlpool as opposed to the $55.7-116.7 million estimated value by class counsel. Whirlpool appealed the fee award, given that it was the one agreeing to pay the fees to class counsel.
The Ninth Circuit reversed and remanded, after initially determining as threshold matters that CAFA preempted state law methods of calculating the fees to be awarded and that the “rebate” mechanism of the settlement was a coupon settlement.
The percentage-of-value approach governed the coupon aspect of the settlement, such that redemption values had to be considered, whether in a coupon-only or a mixed settlement. In fact, bifurcation of the coupon-based fee component is a possible option were there are short redemption window time limits. For extended redemption periods, a possible option is to “stagger” fee awards to reflect periodic redemption rates. The lodestar methodology governs fee calculation for the non-coupon portion of the settlement. The Ninth Circuit provided two ways to do so: (1) take the lodestar for the entire case and apply a negative multiplier for coupon work; or (2) apportion hours between coupon versus non-coupon work through analyses by counsel and their fee audit experts. However, the circuit court indicated that a “cross check” of the non-coupon lodestar should be done through analyzing the lodestar for the entire case to make sure there is no “double dipping” and the results are fair for class counsel/the class/the defense—especially where there are widely divergent settlement valuation estimates. Then, the sum of the two calculations would be the fee award “in most cases.” A district judge nonetheless can rely solely on the lodestar methodology if he or she does so without reference to the dollar value of the coupon relief or if the coupon redemption rate is calculated into the settlement valuation analysis (although the redemption rate analysis normally applies only if it is too difficult to calculate fees).
The circuit court reversed the positive multiplier because (1) it cannot reflect credit for the coupon-oriented work, which the district judge did; (2) class counsel billed a lot for skeptical discovery efforts; (3) the failure to actually estimate the settlement value made it difficult to assess whether the settlement was an impressive result; and (4) no contingency risk was presented given the circumstance that Whirlpool was paying the fees to class counsel as opposed to common fund recovery. It remanded to see if a downward multiplier was warranted for the results obtained (which awaited a valuation of the settlement by the district court).