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Ninth Circuit Throws Out $1.7 Million Attorney-Fee Award
Amount Is Unjustified in Light of Meager Monetary Award to Class Members, Opinion Says
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday reversed an award of $1.7 million in attorney fees in a class action because the award was calculated using the lodestar method, without taking into account the meager value to class members—a pay-out amounting to slightly over $50,000.
Writing for a three-judge panel, Ninth Circuit Judge Kenneth K. Lee said:
“This case will likely make the average person shake her head in disbelief: the plaintiffs’ lawyers filed a class action lawsuit on behalf of copyright holders of musical compositions and ended up recovering a little over $50,000 for the class members. The lawyers then asked the court to award them $6 million in legal fees. And the court authorized $1.7 million in legal fees—more than thirty times the amount that the class received.
“We reverse and remand. The touchstone for determining the reasonableness of attorneys’ fees in a class action is the benefit to the class. It matters little that the plaintiffs’ counsel may have poured then* blood, sweat, and tears into a case if they end up merely spinning wheels on behalf of the class. What matters most is the result for the class members. Here, the benefit from this litigation was minimal: the class received a measly $52,841.05 and obtained no meaningful injunctive or nonmonetary relief.”
Nonpayment of Royalties
The action was brought in 2016 by songwriter/singer/guitarist David Lowery and others against Rhapsody International, Inc. (now using the revived name, “Napster”), a music streaming service. The class plaintiffs asserted that Rhapsody was not making royalty payments that were due copyright holders.
In settling the action, the parties agreed that there would be a pay-out not exceeding $20 million. Claimants could receive up to $35 per song that was included by Rhapsody in its inventory with a license having been procure, under the accord.
However, in light of the settlement Rhapsody reached with the National Music Publishers Association, few class members filed claims in Lowry’s action. There were 605 claims from 331 claimants.
Rule 23(h) of the Federal Rules of Civil Procedure provides: “In a certified class action, the court may award reasonable attorney’s fees and nontaxable costs….”
The plaintiffs sought fees amounting to $6,120,042, claiming a lodestar figure of plaintiffs $2,198,370 and asking that a multiplier of 2.87 be applied. Then-Magistrate Judge Jacqueline Scott Corley (now a judge) recommended that $860,220.79 be awarded, adjusting the lodestar amount to $1,720,441.57 and using a negative multiplier of 0.5 to “account for the disparity between the lodestar and the actual benefit to the class.”
District Court Judge Jeffrey S. White adopted Corley’s lodestar amount and made an award based on it, opting not to use any multiplier.
Rhapsody’s Argument
Rhapsody appealed, arguing:
“Class actions can be a valuable tool in achieving justice, but they are not meant as a mechanism to generate fees for plaintiffs’ counsel untethered to the actual relief for the class….
“Where fees are based on counsel’s lodestar, merely multiplying hours ‘reasonably spent’ times a reasonable hourly rate is not the correct approach. Even ‘reasonable’ hours may not be compensated if doing so leads to fees that are ‘excessive’ ‘in relation to’ the class recovery.”
The plaintiffs contended:
“The district court acted within its broad discretion by awarding the lodestar and rejecting a negative multiplier. The $10 million gross settlement fund made available to class members (potentially $20 million) was the maximum amount that Rhapsody could pay. This was an excellent result. The settlement also provided nonmonetary benefits. This class action served the purpose of the Copyright Act, benefitting class members and the public. The court reasonably concluded that a lodestar fee award was appropriate to adequately compensate class counsel and that a negative multiplier was unwarranted, and adequately explained its determination.”
The Ninth Circuit agreed with Rhapsody. Lee wrote:
“The district court’s fee award is not reasonable under Rule 23, given that the $1.7 million fee award is more than thirty times larger than the amount paid to class members. On remand, the district court must justify any fee award it makes by comparing it to the benefit provided to the class. In evaluating the benefit to the class, the district court must disregard the illusory $20 million settlement cap and focus instead on the approximately $50,000 paid to class members, along with any other benefits to the class. We also encourage the court to cross-check the fees against the benefit to the class and ensure that the fees are reasonably proportional to that benefit. That this is a copyright case makes little difference—attorneys’ fees awarded under the Copyright Act must still be reasonably proportional to the benefit to the class.”
He added:
“We recognize that a fee award may exceed the monetary benefit provided to the class in certain copyright cases, such as when a copyright infringement litigation leads to substantial nonmonetary relief or provides a meaningful benefit to society. But this is not such a case.”
The case is Lowery v. Rhapsody International, Inc., 22-15162.
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