One of the primary catalysts for class action litigation both in the employment context and outside of it is the availability of attorney’s fees. In many cases, plaintiffs can recover their “reasonable” attorney fees, and predictably fees are frequently a key topic in settlement negotiations. So, what is a “reasonable” attorney fee award? Many courts permit a percentage of the total recovery in so-called “common fund” settlements in which the settlement creates a pool of money to pay claims, administrative costs, and attorney fees.
In McKenzie v. Federal Express Corp.pdf., Case No. CV 10-02420 GAF (PLAx) (C.D. Cal. July 2, 2012), the plaintiffs brought a California wage and hour claim against FedEx, contending that its wage statements did not comply with the requirements of California Labor Code 226(a). That provision of the California spells out what the information that a paystub must contain. The trial court granted summary judgment against the defendant, finding that its wage statements were overly confusing, and triggering penalties under California law. The parties settled the case for $8.25 million, and the plaintiffs’ attorneys sought 1/3 of that amount in attorney fees.
According to the court, the plaintiffs’ attorneys spent slightly over 1,000 hours on the case at rates between $550 and $600 an hour. The total fee on an hourly basis would have been $640,695. One-third of $8.25 million, the amount the attorneys sought, is $2,749,725.
The court was generally underwhelmed by the by the difficulty of the case, and found that the amount sought was excessive. It found that a 25% contingency was the “benchmark” in the Ninth Circuit in common fund cases, and, absent any genuine reason to depart from it, the court trimmed the award from 33% to 25% or to $2,062,500.
The award was less than the amount sought, but still came to something in the neighborhood of $1,500 per hour on a case that, at least according to the court’s rulings, presented little risk to the attorneys.
The common fund theory was developed in equity, but one might genuinely question why it continues to apply in employment context, as well as in many others.
Just two years ago, in Purdue v. Kenny A., 130 S. Ct. 1662 (2010), the United States Supreme Court considered a fee award in a class action civil rights case under 42 U.S.C. section 1983. The Kenny A. case involved a class of children in state-sponsored foster care. The court re-affirmed that under federal fee-shifting statutes, a reasonable fee is a lodestar amount, meaning a reasonable hourly rate times a reasonable number of hours. Indeed, according to the Court, there is a “strong presumption” that the lodestar calculation is the correct one. Only when, according to the Court, there are “rare” or “exceptional” circumstances should that amount be increased.
One could question whether a common fund theory should be permitted to override what the court described as a “strong” presumption that the correct figure is essentially a reasonable hourly rate times the time reasonably expended. Even before Purdue, the Second Circuit affirmed a lodestar award in Arbor Hill v. County of Albany, 522 F.3d 182 (2d Cir. 2008).
The Bottom Line: Courts will examine attorney fee awards in class action settlements, but 25% will still be the norm in the Ninth Circuit. At some point the question may arise why a rate times hours calculation is not more appropriate.