Opinion ID: 223635
Heading Depth: 3
Heading Rank: 2

Heading: Approval of the Attorneys' Fee Award in the Present Case

Text: The district court here applied the lodestar method, although it never announced a lodestar figure. After finding numerous defects in class counsel's proposed computation of its $1.6 million lodestar, including duplicative entries, excessive charges for most categories of services, a substantial amount of block billing, and use of an inflated hourly rate, the court announced that its own analysis revealed the lodestar still substantially exceeds the $800,000 defendants agreed to pay. Citing our previous observation that a defendant is interested only in disposing of the total claim asserted against it, Staton, 327 F.3d at 964, Objectors argue the district court should have treated this settlement as producing a constructive common fund and employed a percentage-of-recovery method to assess the reasonableness of the $800,000 fee award, rather than relying exclusively on a lodestar calculation. Several courts have embraced the constructive common fund approach, warning that private agreements to structure artificially separate fee and settlement arrangements should not enable parties to circumvent the 25% benchmark requirement on what is in economic reality a common fund situation. In re Gen. Motors, 55 F.3d at 821; see Johnston v. Comerica Mortg. Corp., 83 F.3d 241, 246 (8th Cir.1996) ([I]n essence the entire settlement amount comes from the same source. The award to the class and the agreement on attorney fees represent a package deal.); cf. Manual for Complex Litig. § 21.75 (4th ed. 2008) (If an agreement is reached on the amount of a settlement fund and a separate amount for attorney fees ... the sum of the two amounts ordinarily should be treated as a settlement fund for the benefit of the class.). Plaintiffs insist this is not a common-fund case because the relief obtained was primarily injunctive in nature and because, as prevailing parties under California Civil Code § 1750's fee-shifting provision, they are entitled to attorneys' fees calculated under the lodestar method. Whether or not we view this as a common-fund case, we agree with Objectors that the district court needed to do more to assure itself  and us  that the amount awarded was not unreasonably excessive in light of the results achieved. Notably, the district court made (1) no explicit calculation of a reasonable lodestar amount; (2) no comparison between the settlement's attorneys' fees award and the benefit to the class or degree of success in the litigation; and (3) no comparison between the lodestar amount and a reasonable percentage award. On this record, we lack a sufficient basis for determining the reasonableness of the award. First, our discomfort is not with the choice of the lodestar method as a primary basis for calculation, but rather the absence of explicit calculation or explanation of the district court's result. The district court s[aw] no need to calculate a precise lodestar amount in light of defendants' willingness to pay and because reducing the award below $800,000 would in no way benefit the class or enhance the cy pres award. But a defendant's advance agreement not to object cannot relieve the district court of its duty to assess fully the reasonableness of the fee request. See Staton, 327 F.3d at 963-64; Knisley, 312 F.3d at 1125. Under the lodestar method, the district court must calculate the lodestar figure based on the number of hours reasonably expended on the litigation, adjusting the figure to account for the degree of success class counsel attained, along with other factors. From the face of the Fee Order, however, we do not have sufficient information from which to conclude that the district court included a reasonable number of hours in its lodestar calculation or that it considered the relationship between the amount of the fee awarded and the results obtained. Hensley, 461 U.S. at 437, 103 S.Ct. 1933 (It [is] important ... for the district court to provide a concise but clear explanation of its reasons for the fee award.); accord McCown, 565 F.3d at 1102 (Once the district court completes its analysis of the final lodestar amount, it must explain how it arrived at its determination with sufficient specificity to permit an appellate court to determine whether the district court abused its discretion in the way the analysis was undertaken.). Instead, we know only that the district court believed the lodestar figure to be less than $1.6 million but greater than $800,000. Second, the district court declined to reduce the award because the injunctive relief and cy pres payment provided at least minimal benefit, even while acknowledging that the settlement did not achieve all the goals of the suit. The district court appears to have conflated the Rule 23(e) standard for approval of a settlement agreement (which requires consideration of whether the settlement agreement offers plaintiffs more than they are likely to achieve at trial) with the requirement that the fee award be reasonable in relation to the results obtained. Hensley, 461 U.S. at 440, 103 S.Ct. 1933. Although the court stated that the substantial reduction below the lodestar accounted for the fact that there were a number of claims for which class counsel achieved no relief, we remain in the dark both as to how substantial a reduction it was and what level of success plaintiffs in fact achieved. The district court made no findings in its Approval Order with regard to the value vel non of the injunctive relief, noting only that the cy pres award was an appropriate form of relief given the large class size. Nor did it discuss in the Fee Order the value of the injunctive relief or whether it in fact was socially beneficial as would justify a fee award under California Civil Code § 1750's fee-shifting provision. Cf. Fed.R.Civ.P. 23(h), 2003 Advisory Cmte. Notes (Settlements involving nonmonetary provisions for class members also deserve careful scrutiny to ensure that these provisions have actual value to the class.); In re TD Ameritrade Accountholder Litig., 266 F.R.D. 418, 423 (N.D.Cal.2009) ([T]he standard [under Rule 23(e)] is not how much money a company spends on purported benefits, but the value of those benefits to the class. (citing O'Keefe v. Mercedes-Benz USA, LLC, 214 F.R.D. 266, 304 (E.D.Pa.2003))). With neither a lodestar figure nor a sense of what degree of success this settlement agreement achieved, we have no basis for affirming the fee award as reasonable under the lodestar approach. Third, even though a district court has discretion to choose how it calculates fees, we have said many times that it abuses that `discretion when it uses a mechanical or formulaic approach that results in an unreasonable reward.' In re Mercury Interactive Corp., 618 F.3d at 992 (quoting Powers, 229 F.3d at 1256). Thus, even though the lodestar method may be a perfectly appropriate method of fee calculation, we have also encouraged courts to guard against an unreasonable result by cross-checking their calculations against a second method. See, e.g., Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1050-51 (9th Cir.2002); see also In re Gen. Motors, 55 F.3d at 820. Just as the lodestar method can confirm that a percentage of recovery amount does not award counsel an exorbitant hourly rate, the percentage-of-recovery method can likewise be used to assure that counsel's fee does not dwarf class recovery. In re Gen. Motors, 55 F.3d at 821 n. 40. If the lodestar amount overcompensates the attorneys according to the 25% benchmark standard, then a second look to evaluate the reasonableness of the hours worked and rates claimed is appropriate. In re Coordinated Pretrial Proceedings, 109 F.3d at 607. If the district court here took that second look, the record does not reflect it. Absent any explanation from the district court, we are concerned that the amount awarded was 83.2% of the total amount defendants were willing to spend to settle the case, viewing the $800,000 allotment for attorneys' fees, the $12,000 allotment for an incentive award, the $100,000 cy pres award, and the $50,000 allotment for fees as a constructive common fund. Twenty-five percent of this $962,000 fund, by contrast, would have yielded only $240,500 in attorneys' fees. Even if we included the $1.2 million notice costs in the constructive fund (and accordingly reduced the fees to $38,000), the attorneys' fees awarded would constitute 37.2% of this $2.15 million fund, in contrast to a 25% benchmark figure of $537,500. Plaintiffs urge us to find that the fee award is justified because the injunctive relief confers a valuable benefit and was the primary objective of the lawsuit, but the district court did not make findings on the value of the injunctive relief, so we cannot evaluate whether it justifies an otherwise disproportionate award. [8] While we cannot say the disproportion between the fee award and the benefit obtained for the class was per se unreasonable, in the absence of an adequate explanation of the award, we have no choice but to remand the case to the district court to permit it to make the necessary calculations and provide the necessary explanations. McCown, 565 F.3d at 1102 (citing Tutor-Saliba Corp. v. City of Hailey, 452 F.3d 1055, 1065 (9th Cir.2006)). On remand, the district court should (1) decide whether to treat the settlement as a common fund; (2) choose the lodestar or percentage method for calculating a reasonable fee and make explicit calculations; (3) ensure that the fee award is reasonable considering, inter alia, the degree of success in the litigation and benefit to the class; and (4) if standard calculations yield an unjustifiably disproportionate award, adjust the lodestar or percentage accordingly.