Contingency fees versus hourly fees— which is the appropriate standard in a class action lawsuit?
Last Friday, the First Circuit Court of Appeals overturned a class action attorneys’ fees award in a lawsuit against Volkswagen and Audi, reports Thomson Reuters News & Insight.
The First Circuit held that the district court applied the improper standard when awarding attorneys’ fees based on the size of the overall settlement.
The court awarded $30 million. But the First Circuit Court of Appeals found the attorneys’ hourly rates to total $7.7 million.
The settlement involved engine defects in Audi and Volkswagen vehicles, in which the engines suffered sledge buildup. There was no mention in the settlement agreement regarding the proper methodology for attorneys’ fees.
The attorneys for the plaintiffs argued that the proper standard was the federal standard, which calculated attorneys’ fees as a percentage of the overall award. Seeing as the plaintiffs’ counsel presented expert testimony that the settlement was in excess of $400 million, they argued that attorneys’ fees should be $37 million.
On the other side, however, counsel argued that the proper standard was New Jersey state law, which was based on hourly billings.
The case involved no federal claims, so the three-judge panel determined that state law applied.
But the proper state was not New Jersey. The court found that the laws of the state of Massachusetts applied.
Under the lodestar method, the proper attorneys’ fees were $7.7 million, the First Circuit decided. The district court, however, had applied the lodestar value and multiplied it by 2.5 percent; a value which the First Circuit found no justification for.
Whether or not the fees will cap out at $7.7 million has yet to be determined. The case has been remanded and the values could change again. But this time, the trial judge will have to apply Massachusetts law.