In Calculating Fees Where the Benefit Is in the Form of Coupons, Opinion Says, Class Action Fairness Act Requires Use of Percentage-of-the-Value Method
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals Tuesday vacated a $14.8 million award of attorneys fees in a class action against Whirlpool in which a portion of the benefit, under a settlement, was providing coupons to class members for use in purchasing new dishwashers, holding that the District Court erred in using the lodestar method, under California law, in connection with the coupons, rather than the federal standard of a percentage of their value.
Judge Kenneth K. Lee wrote the opinion which rejects the plaintiffs’ contention that California law should be utilized in the diversity case because the settlement agreement provides that “the rights and obligations of the Parties shall be construed and enforced in accordance with, and governed by, the laws of the State of California.” California recognizes only the lodestar method of calculating attorney fees, which is based on the number of hours reasonably expended times the reasonable hourly billing rates of the attorneys, often with a multiplier.
The jurist noted that the federal Class Action Fairness Act (“CAFA”), in general, recognizes both the lodestar method and the percentage-of-value method, but said that coupon settlements are in a distinct category.
“The plain language of CAFA makes clear that a court should ordinarily use the percentage-of-value, not lodestar, methodology for the portion of the settlement involving coupons,” he wrote.
That should have been followed in the present case, Lee said, notwithstanding the proviso in the settlement agreement, declaring:
“The plain language of CAFA makes clear that its attorneys fees provisions preempt any corresponding state law and apply to any class action case in federal court, including those based on diversity jurisdiction.”
Lee’s opinion, while affirming the settlement, vacates the attorney fee award by District Court Judge Fernando M. Olguin of the Central District of California and remands the case for a new calculation.
While application of the lodestar method to the non-coupon portion of the settlement was appropriate, Lee said, it could not be determined what value was placed on that portion. He noted that Whirlpool proclaimed the value of that portion of the settlement to be about $3 million, while the plaintiffs reckoned it to be $63 million.
Reflecting at the outset of the opinion on the uncertainty of the value of coupon settlements, he wrote:
“Is it reasonable to award $14.8 million in attorney’s fees in a class action settlement that provides $116.7 million in benefits to class members? But what if the class settlement is in fact worth only $4.2 million? We face these two dramatically divergent scenarios in large part because the settlement here offers ‘coupons’ that may provide phantom benefits to most class members.”
Lee went on to comment:
“Federal courts, as well as Congress, have long viewed coupon-based class action settlements with a skeptical eye. And for good reason: counsel for plaintiffs and defendants have sometimes conspired to craft class action settlements that benefit themselves at the expense of the class members.
“Defendants sometimes favor coupon settlements because they do not require the payment of cash out of pocket, but instead offer coupons for the company's product or service. Moreover, coupon settlements often impose onerous obstacles that make it difficult to redeem the coupons. Many plaintiffs" counsel also prefer coupon settlements to inflate the ostensible value of the settlement—and, in turn, ratchet up their request for attorney's fees….And too often, class members do not benefit from a coupon settlement because any of them, not surprisingly, do not want to reward the offending company by buying its product or service again, even if they receive a discount.”
(The plaintiffs sued over defects in Whirlpool dishwashers, with 122,294 persons receiving coupons, and 26,380 gaining cash reimbursements.)
Lee observed the Congress, in enacting CAFA, “struck back against this perceived menace of phantom benefits in coupon settlements.”
The opinion also set forth that no valid basis appears for Olguin having utilized a lodestar multiplier of 1.68.
The case is Chambers v. Whirlpool Corp., 16-56694.
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