Ninth Circuit Vacates Class-Settlement Fee Award Under Rule 23(h), Rejecting Lodestar-With-Multiplier Calculation in Case Where 96% of Value Is Coupons

In Chambers v. Whirlpool Corp., No. 16-56666 (9th Cir. Nov. 10, 2020), a Ninth Circuit panel affirms a class settlement, but remands the case for a recalculation of the attorney’s fees under Fed. R. Civ. P. 23(h). The panel finds that awarding the lawyers’ billable hours with a 1.69 multiplier – totaling $14.8 million – grossly overshadows the actual financial benefit to the class, who were paid almost entirely in “rebates” with a short expiration date.

The nationwide class action, filed in 2011, concerned allegedly defective “electronic control boards” on Whirlpool dishwashers. The case settled for some 18 million consumers in 2015. Although cash payments were involved, the largest part of the settlement was “a 10–20% ‘rebate’ coupon to purchase a new Whirlpool dishwasher, which expires 120 days after the claim deadline.” Indeed, after all of the notices were sent out and claims were filed by the class, “only 4% of the 133,040 filed claims — at most — could potentially involve cash reimbursement. The remaining 96% (or more) of the claims are for ‘rebates,’ i.e., discount coupons that customers may use to buy a new Whirlpool dishwasher.”

Rather than have the fees awarded from a class fund, the parties agreed that Whirlpool would pay counsel directly and that the district court would set the amount. “[P]laintiffs’ counsel … applied for a fee award of $15 million, based on an asserted baseline lodestar of $8,948,487.98 and a requested 1.68 upward multiplier. To support their request, the plaintiffs’ counsel claimed a settlement value in the range of $55.7 million to $116.7 million.” With only minor tweaks, the district court approved the requested fee award.

The Ninth Circuit, while upholding the settlement, rejects the district court’s fee award. It finds several errors infected the decision.

1. Initially, the panel rejects class counsel’s argument that the Class Action Fairness Act (CAFA), and its limitations on class fee awards (28 U.S.C § 1712), should not apply in a class action based on diversity jurisdiction. “The plain language of CAFA makes clear that its attorney’s fees provisions preempt any corresponding state law and apply to any class action case in federal court, including those based on diversity jurisdiction.”

2. Because “CAFA mandates the use of a percentage-of-value calculation for any ‘portion’ of a fee award ‘attributable to the award of the coupons,’” the district court erred in using a lodestar-only method to calculate the fee. Some of the settlement involved cash payments, yet “[t]he district court, however, arrived at its $14.8 million fee award based solely on a lodestar valuation that considered the work performed for the coupon portion of the settlement.”

The panel notes that a motivating purpose behind the passage of CAFA was to clamp down on coupon settlements that spare defendants from paying cash, “impose onerous obstacles that make it difficult to redeem the coupons,” allow “plaintiffs’ counsel … to inflate the ostensible value of the settlement” to boost fees, and return little of value to the class. Here, to use the “rebate,” class members “must spend hundreds of out-of-pocket dollars to purchase a new dishwasher,” the rebate applies only to ‘the very brands that allegedly contained the overheating defect,’ and the rebates “expire in 120 days” … assuring that most coupons will never be redeemed.

While this was a “mixed” settlement that provided cash and coupons, a district court may “use the lodestar approach” only “to determine any portion of attorney’s fees not attributable to coupons.” But here, the district court erroneously used lodestar for 100% of the fee. The panel notes that “[r]egardless of which method a court uses to establish the lodestar amount for the non-coupon portion of the settlement, it should apply a lodestar ‘cross-check’ in mixed settlements, or in the alternative, articulate why it is not feasible in a particular case.” Also “to ensure the § 1712(b) lodestar calculation does not overcompensate class counsel for work unrelated to noncoupon relief, the district court must ascertain the value of the non-coupon portion of the settlement.”

3. The district court also erred in awarding a 1.68 multiplier on the lodestar, which the panel holds is unsupported by the record.

The panel notes in particular that class counsel expended a “staggering number of written discovery hours – including over $2.6 million dollars in fees for document review … In most complex litigation matters, parties face a ‘mutually assured destruction’ scenario that theoretically curbs excessive discovery demands: if one party propounds burdensome discovery requests, the other side is likely to respond in kind … By contrast, class action plaintiffs typically possess no or very limited discoverable materials, while defendants may have reams of documents and terabytes of electronic data. Class action plaintiffs thus have an incentive to seek aggressive discovery (and log a tremendous number of hours in the process) without fear of reciprocally burdensome discovery.”

Thus, “when considering whether an upward multiplier should apply to a large lodestar based on a high number of discovery-related hours, courts should assess the reasonableness of the discovery efforts in light of the lack of structural restraints on discovery in class action cases.” Moreover, the discovery work – far from the kind of “difficult and complex legal questions” that would warrant a multiplier – “an enormous amount of class counsel’s work involved routine tasks such as document review.”

The panel also rejects the district court’s findings of “impressive results,” “contingency risk,” and “undesirability of the case.”

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