No Multiplier for Home Depot Class Action Lodestar Fee Award

In a class action settlement, one of the most difficult issues for negotiation is often how—and how much—class counsel will be paid.  In many cases, a cap on the fee is negotiated:  the defendant agrees not to object to a fee application within the cap, which can be a percentage of the so-called “common fund” received by the class in the settlement, or a fixed amount.  Less common is the arrangement agreed to in In re The Home Depot Inc., Customer Data Security Breach Litigation, 2019 WL 3330867, decided on July 25 by the Eleventh Circuit, in which Home Depot agreed to pay reasonable fees and expenses awarded by the court, but was free to challenge the proposed amount.  The MDL settlement between Home Depot and financial institution plaintiffs affected by a 2014 data breach also called for Home Depot to pay $25 million into a settlement fund; to commit to pay an additional $2.25 million to the extent claimed; and to implement a suite of improved security measures.

Home Depot appealed the district court’s award of $15.3 million in attorneys’ fees, calculated using the rate-times-hours “lodestar” method with a 1.3 multiplier enhancement.  Neither side quarreled with use of the lodestar method.  In a 55-page opinion by Judge Tjoflat, the Eleventh Circuit held that use of the multiplier to account for risk in a fee-shifting case was an abuse of discretion.  On its journey to this holding, the court sorted through several subsidiary issues.

First, the court determined that the settlement agreement provided for fee-shifting and so was not properly analyzed as a common fund.  The court pointed out that a common fund case is distinguishable from a fee-shifting case, because the plaintiff class pays its own fees.  In a fee-shifting case, the fees are paid by the defendant.  The court rejected class counsel’s argument that the arrangement with Home Depot should be regarded as a “constructive common fund.”  Cases which have characterized a settlement as a constructive common fund, the court explained, consider the class benefit and the attorneys’ fees as a single package.  In contrast, Home Depot did not negotiate the attorneys’ fees simultaneously with the settlement fund; the fee award was left entirely to the court’s discretion.

Second, while noting that it was not bound by statutory fee-shifting precedents in a contractual fee-shifting case, the court found that the district court abused its discretion in applying a multiplier to account for the risk taken by counsel in litigating the case.  Accounting for risk, the court observed, is inappropriate according to the Supreme Court’s statutory fee-shifting precedents.  The court concluded that the same rationale applies in contractual fee-shifting cases.  The court also rejected an argument that Home Depot had waived the issue by raising it for the first time on appeal.  New issues are not permitted on appeal, but new arguments in support of properly preserved issues are permissible, the court held.

Next, the court rejected Home Depot’s argument that the court abused its discretion in compensating class counsel for time spent litigating about a card-brand recovery process in which Home Depot settled the claims of many banks which were ultimately excluded from the class.  In a statutory fee-shifting case, the court noted, time spent on unsuccessful claims is generally not compensable.  But the fees in this case were awarded to class counsel pursuant to a contract which was without a prevailing party limitation.  Accordingly, those statutory fee precedents were inapplicable to that aspect of the analysis, and there was no abuse of discretion.

Similarly, the court held that time spent by class counsel on soliciting class representatives, which ordinarily is not compensable under fee-shifting statutes because those statutes limit awards to time spent “on the litigation,” was nonetheless compensable here without an abuse of discretion, again because the obligation to pay fees was contractual.

Finally, in the cross-check to support the reasonableness of the lodestar award, the district court calculated that the class benefit was $42.5 million, so that an attorneys’ fee award of $15.3 million would represent approximately a third of the class benefit, within an acceptable range.  The Eleventh Circuit rejected class counsel’s cross-appeal argument that the district court should have included the attorneys’ fees award in calculating the class benefit for purposes of the percentage cross-check exercise.

Posted by Tom Byrne.

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