By Susan Lasser, J.D.
Attorneys in a class action concerning defective washing machines sold by Sears, Roebuck and Co. and Whirlpool Corp. failed to justify a fee award of nearly $4.8 million, which was 1.75 times the fees the attorneys originally charged for their work on the case, the U.S. Court of Appeals for the Seventh Circuit held, reversing the judgment of a federal district court in Illinois and directing the court to reduce the fee award to $2.7 million. The lower court had reasoned that the case was unusually complex and had served the public interest, and that the attorneys had obtained an especially favorable settlement for the class, even though the fees they sought—$4.8 million with a 1.75 multiplier, as opposed to $2.7 million without a multiplier—greatly exceeded the likely award of damages to the class. While the Seventh Circuit agreed that work by the plaintiffs’ attorneys (class counsel) in "a difficult case against a powerful corporation" warranted a fee in excess of the benefits to the class, the attorneys failed to prove that a reasonable fee would exceed $2.7 million, which was the pre-multiplier figure sought by class counsel and three times the damages awarded to the class in settlement (In Re Sears, Roebuck and Co. Front-loading Washer Products Liability Litigation, August 14, 2017, Posner, R.).
The case at issue stemmed from two defects in washing machines sold by Sears and Whirlpool (collectively, Sears): a control unit defect and the development of mold in the washers. Two plaintiff classes were certified in 2013—one consisting of owners of machines manufactured between 2004 and 2006 that had been affected by the control unit defect; and the other consisting of owners of machines affected by mold. Sears settled with both classes, and its appeal was limited to challenging the fees awarded to class counsel by the district court.
District court’s class counsel fee award. The settlement left it to the court to determine the fees. Although the amount of damages that the class will receive has not yet been determined, the district court accepted Sears’ estimate that the class members would receive no more than $900,000 from the settlement. Class counsel agreed to seek no more than $6 million in attorney fees. They claimed to have incurred $3.16 million in fees, but asked the court to multiply the amount by 1.9 to account for what they asserted was "their extraordinary effort in the case." They later increased their base fee estimate to $3.25 million after discovering more billable time, but reduced their multiplier request from 1.9 to 1.85. Either calculation would yield approximately $6 million for class counsel. However, the trial court concluded that attorneys for the class were entitled to a base fee of only $2,726,191, which the court multiplied by 1.75, making the total fee award $4,770,834.
Cut in fee award. The Seventh Circuit directed that the fee award be reduced to $2.7 million, despite class counsel’s argument that the large fee award was warranted based on "the novelty/complexity of the legal issues involved, the degree of success obtained, the public interest advanced by the litigation, the fact that fees were contingent on the outcome of the case, and to a lesser extent the preclusion of certain class counsel from working on other cases." The district court had rejected the last two factors, but it deemed the first three (novelty/complexity, degree of success, and public interest) to be adequate in support of the 1.75 multiplier. The appellate court found that reasoning "questionable, because novelty and complexity influence the base fee—the more novel and complex a case, the more hours will be billed and the higher the hourly billing rates will be."
The district court, comparing the hourly rates sought by class counsel with the complexity of their work, concluded that the case was not very complex—the issue being whether or not Sears had sold defective washing machines. This conclusion left the appellate court "puzzled" as to why a multiplier was nevertheless allowed.
The Seventh Circuit noted that in two class action cases it had previously decided, it stated that a district court should compare attorney fees to what the class actually recovers and "presume" that fees exceeding the class recovery are unreasonable. The presumption, the appellate court said, was not an irrebuttable one. Given "the extensive time and effort" by class counsel in the case, which was "difficult" and was "against a powerful corporation," class counsel was entitled to a fee in excess of the class’s benefits. However, class counsel failed to prove that a reasonable fee would exceed $2.7 million, which was the pre-multiplier figure sought by class counsel and three times the damages awarded to the class. Thus, the Seventh Circuit reversed the lower court’s judgment and remanded with directions to award $2.7 million in fees to the class counsel.
The case is No. 16-3554.
Attorneys: James J. Rosemergy (Carey, Danis & Lowe) for Kevin Barnes. Timothy S. Bishop (Mayer Brown LLP) and Allison R. McLaughlin (Wheeler Trigg O'Donnell LLP) for Sears, Roebuck and Co. and Whirlpool Corp.
Companies: Sears, Roebuck and Co.; Whirlpool Corp.
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