United States Court of Appeals

For the Eighth Circuit

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No. 15-1629

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John T. Galloway, individually and on behalf of a class

lllllllllllllllllllll Plaintiff - Appellant

v.

The Kansas City Landsmen, LLC, et al.

lllllllllllllllllllll Defendants - Appellees

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Appeal from United States District Court 

for the Western District of Missouri - Kansas City

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 Submitted: February 8, 2016

 Filed: August 19, 2016 

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Before RILEY, Chief Judge, LOKEN and BENTON, Circuit Judges.

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LOKEN, Circuit Judge.

John T. Galloway, on behalf of himself and a class of similarly situated

consumers (“plaintiffs”), alleged that twenty-one Budget rental car businesses

(“defendants”) willfully violated the Fair and Accurate Credit Transactions Act

(“FACTA”) by issuing receipts that contained more than five digits of customers’

credit card numbers. See 15 U.S.C. § 1681c(g)(1). After suit was filed, defendants
installed software to ensure their receipts complied with FACTA. The parties then

mediated and agreed on a proposed class action settlement. The district court rejected

the first settlement because “the compensation provided to the class is inadequate,”

but the court approved a revised settlement providing that plaintiffs would be offered

reduced prices on car rentals and enjoining defendants to comply with FACTA. In a

“clear sailing” provision, defendants agreed not to contest class counsel’s request for

an award of attorney’s fees and costs of no more than $175,000, and a class

representative incentive fee of no more than $3,000.

 

The settlement provided that each class member would receive a certificate

worth $10 off any car rental or $30 off a rental over $150, with no holiday blackout

days. Class members were given 180 days to redeem the coupons. The claims

administrator reported that of the 726,210 certificates mailed, 89 were redeemed at the

$10 level and 237 were redeemed at the $30 level -- a redemption rate of 0.045%. The

total value of the redeemed certificates was $8,000. The parties agree that the

certificates were a non-cash benefit to class members, and therefore the Coupon

Settlements provisions in the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1712,

apply to the award of a reasonable attorney’s fee to class counsel.

After the certificate redemption period expired, plaintiffs filed an unopposed

motion for an award of $147,717.75 in attorneys’ fees, $5,699.01 in litigation

expenses, and a $3,000 class representative incentive fee for named plaintiff

Galloway. Applying § 1712(a)-(c), the district court awarded $23,137.46 in attorneys’

fees and costs, and a $1,000 class representative incentive fee. Plaintiffs appeal,

arguing the court committed an error of law in construing § 1712. Plaintiffs do not

contend that the court abused its discretion to award a reasonable attorney’s fee. See

Hensley v. Eckerhart, 461 U.S. 424, 433-37 (1983); Travelers Prop. Cas. Ins. Co. of

Am. v. Nat’l Union Ins. Co. of Pittsburgh, 735 F.3d 993, 1002 (8th Cir. 2013). 

Reviewing the interpretation of CAFA de novo, we conclude any error of law was

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harmless and therefore affirm. See Westerfeld v. Indep. Processing, LLC, 621 F.3d

819, 822 (8th Cir. 2010) (standard of review).1

I.

When a federal court has certified a class action, “the court may award

reasonable attorney’s fees and nontaxable costs that are authorized by law or by the

parties’ agreement.” Fed. R. Civ. P. 23(h). FACTA includes that authorization,

providing that the consumer in “any successful action to enforce any liability under

this section [may be awarded] the costs of the action together with reasonable

attorney’s fees as determined by the court.” 15 U.S.C. § 1681n(a)(3). 

Courts use two principal methods in exercising their discretion to award

reasonable attorney’s fees. Under the “lodestar” method, “the hours expended by an

attorney are multiplied by a reasonable hourly rate of compensation so as to produce

a fee amount which can be adjusted, up or down, to reflect the individualized

characteristics of a given action.” Johnston, 83 F.3d at 244. Under the “percentage

of the benefit” method, the attorney is awarded “some fraction of the common fund”

the attorney successfully gathered in the litigation, like the contingent fee

arrangements common in private litigation. Id. at 244-45. “It is within the discretion

of the district court to choose which method to apply.” Id. at 246.

1

We do not have the assistance of briefing by defendants because the awarded

amounts were within the negotiated clear sailing provision. These provisions heighten

the potential for class action settlement abuse addressed in CAFA because “the

separate negotiation of attorney fees presents the opportunity for the attorneys to trade

relief benefitting the class for a higher fee for themselves.” Johnston v. Comerica

Mortg. Corp., 83 F.3d 241, 244, 246 n.11 (8th Cir. 1996). “Such a clause by its nature

deprives the court of the advantages of the adversary process” and “should put a court

on its guard, not lull it into aloofness.” Weinberger v. Great N. Nekoosa Corp., 925

F.2d 518, 525 (1st Cir. 1991).

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In CAFA, Congress addressed the perceived abuse of class action settlements

“in which most -- if not all -- of the monetary benefits went to the class counsel, rather

than the class members those attorneys were supposed to be representing” S. Rep. No.

109–14, at 15 (2005), as reprinted in 2005-4 U.S.C.C.A.N. 3, 16. The Coupon

Settlements provision in § 1712 addressed the inequity of “settlements under which

class members receive nothing but essentially valueless coupons, while the class

counsel receive substantial attorneys’ fees.” Id. at 30. Subsections § 1712(a)-(c)

provide:

(a) Contingent fees in coupon settlements. -- If a proposed settlement

in a class action provides for a recovery of coupons to a class member,

the portion of any attorney’s fee award to class counsel that is

attributable to the award of the coupons shall be based on the value to

class members of the coupons that are redeemed.

(b) Other attorney’s fee awards in coupon settlements. --

(1) In general. -- If a proposed settlement in a class action

provides for a recovery of coupons to class members, and a

portion of the recovery of the coupons is not used to determine the

attorney’s fee to be paid to class counsel, any attorney’s fee award

shall be based upon the amount of time class counsel reasonably

expended working on the action.

(2) Court approval. -- Any attorney’s fee under this subsection

shall be subject to approval by the court and shall include an

appropriate attorney’s fee, if any, for obtaining equitable relief,

including an injunction, if applicable. Nothing in this subsection

shall be construed to prohibit application of a lodestar with a

multiplier method of determining attorney’s fees.

(c) Attorney’s fee awards calculated on a mixed basis in coupon

settlements. -- If a proposed settlement in a class action provides for an

award of coupons to class members and also provides for equitable

relief, including injunctive relief --

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(1) that portion of the attorney’s fee to be paid to class counsel

that is based upon a portion of the recovery of the coupons shall

be calculated in accordance with subsection (a); and

(2) that portion of the attorney’s fee to be paid to class counsel

that is not based upon a portion of the recovery of coupons shall

be calculated in accordance with subsection (b).

28 U.S.C. § 1712(a)-(c). Nearly every federal court to consider § 1712 has agreed

with Judge Richard Posner’s observation, “This is a badly drafted statute.” Redman

v. RadioShack Corp., 768 F.3d 622, 633 (7th Cir. 2014), cert. denied, 135 S. Ct. 1429

(2015). In parsing its various ambiguities and inconsistencies, we believe it important

to bear in mind the Senate committee’s statement that “nothing in Section 1712 is

intended to change current law regarding the circumstances under which an award of

attorneys’ fees is appropriate.” S. Rep. No. 109–14, at 31. 

II.

In ruling on plaintiffs’ attorney’s fee request, the district court first applied

§ 1712(a) and determined that a reasonable fee attributable to the award of coupon

certificates to class members was $2,666.67, which was 33% of $8,000, the value of

the redeemed coupons. “In the Court’s experience, 33% is in the middle of the range

that attorneys performing contingency fee work in this market typically charge their

clients when a case settles at this stage in the litigation.” The court then used the

lodestar method prescribed in § 1712(b) to determine that 10% of the total fee

requested, or $14,771.78, was a reasonable fee for the injunctive relief provided to the

class. Noting that counsel’s billing records “do not differentiate between time spent

obtaining injunctive relief and time spent on the coupon portion of the Settlement,”

the court determined that approximately 10% of class counsel’s time was spent on the

“routine and non-controversial” injunctive relief, that the hourly billing rates claimed

by class counsel were reasonable, and that no additional adjustment to the lodestar

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calculation was warranted by the twelve discretionary factors listed in Allen v.

Tobacco Superstore, Inc., 475 F.3d 931, 944 n.3 (8th Cir. 2007) (and before that, in

Hensley, 461 U.S. at 430 n.3). Applying § 1712(c), the court added the two fee

components together and awarded $17,438.45 as a reasonable attorney’s fee, plus the

costs plaintiffs requested. 

On appeal, plaintiffs argue that “the plain language of 28 U.S.C. § 1712 gives

class counsel the right to elect that all of its fees be calculated under the lodestar

methodology” prescribed in § 1712(b).2

 The district court responded, “[t]here is

simply no language here which authorizes . . . class counsel . . . to choose its method

of payment calculation.” We emphatically agree. “It is within the discretion of the

district court to choose which method to apply.” Johnston, 83 F.3d at 246. Class

counsel can and invariably does propose that the court choose a certain method. But

the court has discretion to accept or reject that proposal. See S. Rep. No. 109–14, at

30 (“In some cases, the proponents of a class settlement involving coupons . . . may

propose that counsel fees be based upon the amount of time class counsel reasonably

expended working on the action.” (emphasis added)). 

Section 1712(a) clearly provides that, if the court chooses to attribute all or a

portion of the fee award to the benefit provided the class by coupons, that portion

“shall be based on the value to class members of the coupons that are redeemed,” not

on the theoretical value of coupons that could have been redeemed. Beyond that,

courts have disagreed whether § 1712(a) limits their discretion to choose the lodestar

method to determine all or part of the fee to award for a coupon-based settlement. But

no court has held that § 1712(a) usurps the discretion granted the district court in

Hensley and in every other attorney’s fee decision and gives class counsel the right

2

This contention does not put at issue the district court’s decision to reduce the

class representative’s incentive fee because that fee is not addressed in § 1712. Thus,

that fee is not before us on appeal. Cf. In re U.S. Bancorp Litig., 291 F.3d 1035, 1038

(8th Cir.), cert. denied, 537 U.S. 823 (2002). 

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to elect the lodestar methodology. Such a decision would be flatly contrary to the

Senate committee’s statement that “nothing in Section 1712 is intended to change

current law regarding the circumstances under which an award of attorneys’ fees is

appropriate.” The district court was not required to accept class counsel’s election.3

Plaintiffs further argue the district court erred in construing § 1712(a) as

mandating that any fee award attributable to the coupon portion of the settlement must

be based solely on the value of coupons redeemed. This contention has merit, but we

conclude any error was harmless. 

When the district court ruled, a divided panel of the Ninth Circuit had recently

held that § 1712(a) and (b) are not permissive; they provide that a district court must

calculate attorneys’ fees for coupon awards as a percentage of the redeemed value and

must use the lodestar method to calculate fees for injunctive relief. In re HP Inkjet

Printer Litig., 716 F.3d 1173, 1181-83 (9th Cir. 2013). Lacking Eighth Circuit

guidance in construing this “poorly worded and confusing” statute, the district court

followed the HP Inkjet majority’s analysis.

Subsequently, a panel of the Seventh Circuit concluded that § 1712(a)-(c) is a

permissive statute. In re Southwest Airlines Voucher Litig., 799 F.3d 701, 707 (7th

Cir. 2015). Rejecting the Inkjet majority’s interpretation of “attributable to,” the

3

A further flaw in plaintiffs’ statutory argument is that the injunction they

obtained by consent -- “Defendants are hereby ordered to comply with the Fair and

Accurate Credit Transactions Act (“FACTA”), 15 U.S.C. § 1681c(g), at all their

currently owned locations” -- is invalid. “Blanket injunctions against general

violation of a statute are repugnant to American spirit and should not lightly be either

administratively sought or judicially granted.” Beatty v. United States, 191 F.2d 317,

321 (8th Cir. 1951); see Swift & Co. v. United States, 196 U.S. 375, 401 (1905). 

Thus, no part of the settlement was properly attributable to obtaining injunctive relief. 

If the jurisdiction the court has retained over the settlement is ever invoked to enforce

this order to comply with FACTA, the court is directed to vacate the injunction.

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Seventh Circuit interpreted § 1712(a) as meaning that “if any portion of the fee is

attributed to the coupon benefits, then that portion of the fee must be based on the

coupons used, but that is not the only method available.” Id. at 708; accord HP Inkjet,

716 F.3d at 1194 (Berzon, J., dissenting). Thus, “§ 1712 permits a district court to use

the lodestar method to calculate attorney fees to compensate class counsel for the

coupon relief obtained for the class,” keeping in mind “the potential for abuse posed

by coupon settlements.” Southwest, 799 F.3d at 710. “Subsection (c) allows a

combination of percentage-of-coupons-used and lodestar, but it does not require that

any portion of the fee be based on the percentage of coupons used.” Id.

We conclude that the Seventh Circuit’s interpretation of § 1712 is more

consistent with the substantial discretion district courts have always had to determine

the reasonable attorney’s fee to award to the prevailing party in a class action case,

whether plaintiff receives “some relief on the merits of his claim” by a settlement

agreement enforced by a consent decree, or by fully litigating the claim. Buckhannon

Bd. & Care Home, Inc. v. W. Va. Dept. of Health & Human Res., 532 U.S. 598, 603-

04 (2001) (quotation omitted). In exercising this discretion, “the most critical factor

is the degree of success obtained.” Hensley, 461 U.S. at 436. The principal focus of

§ 1712 was to mandate more careful scrutiny of coupon settlements to ensure that the

degree of success was properly evaluated. In some cases, if the actual value of

redeemed coupons is high, applying a typically large percentage-of-benefit factor may

produce an unreasonably high fee award. In other cases, if the value of redeemed

coupons is minimal, as in this case, a fee award based on an unadjusted lodestar

calculation may produce an unreasonably high award. Frequently, the court may find

it useful to “double-check” the fee using both methods. See, e.g,, Hashw v. Dep’t

Stores Nat’l Bank, --- F. Supp. 3d ----, 2016 WL 1729525 at *9 (D. Minn. Apr. 26,

2016). In all cases, we conclude, § 1712 leaves the court discretion to apply either

method, with or without adjustments, or some combination of the two, subject to

abuse of discretion review. We interpret the words of CAFA, like all statutes, “in

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light of the purposes Congress sought to serve.” Westerfeld, 621 F.3d at 824

(quotation omitted).

We conclude that the district court erred by following the HP Inkjet mandatory

approach in applying § 1712(a)-(c) without explicitly stating that the award was based

on an exercise of the court’s discretion to determine a reasonable attorney’s fee. But

plaintiffs do not argue the award was a breach of the court’s discretion, and if we

remanded, it would be for an explicit exercise of that discretion, applying the

principles of § 1712(a)-(c). Our review of the record persuades us that any award

greater than $17,438.45 would be unreasonable in light of class counsel’s limited

success in obtaining value for the class. Cf. Gumbhir v. Curators of the Univ. of Mo.,

157 F.3d 1141, 1147 (8th Cir. 1998), cert. denied, 526 U.S. 1005 (1999). Thus, we

conclude any error was harmless. 

The judgment of the district court is affirmed.

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