In an appeal involving the settlement of four separate class actions under the federal Telephone Consumer Protection Act (TCPA), the U.S. Court of Appeals for the Eighth Circuit recently held that the trial court did not abuse its discretion by electing to use the “percentage-of-the-benefit” method to calculate class counsel’s fee award, as opposed to the “lodestar” method.

The Eighth Circuit also held that the trial court did not abuse its discretion by allowing the respective class counsel to distribute the award amongst themselves without judicial oversight or approval.

A copy of the opinion in Lindsey Thut v. Life Time Fitness, Inc. is available at: Link to Opinion.

Four separate class-action lawsuits were filed against a defendant for allegedly violating the TCPA by sending unsolicited text message advertisements to the putative class members’ cellular phones. The lawsuits were ultimately consolidated.

The parties entered into a settlement agreement in which the defendant agreed to pay a minimum of $10 million and a maximum of $15 million to settle the TCPA claims and pay court costs and fees. The agreement provided that each class member who submitted a valid claim would be entitled to choose between a cash award of $100, or either a three-month single membership or a $250 credit on an existing membership with the defendant.

The trial court granted preliminary approval of the settlement and conditionally certified the class. Despite negotiation efforts, the parties were unable to reach an agreement regarding attorney’s fees and costs. The class representatives filed a motion for attorney’s fees for $3 million, or 30% of the guaranteed $10 million minimum payment. One class member objected. The defendant requested calculation by the lodestar method, which would have provided only $687,928.75 to class counsel.

The trial court granted final approval of the class settlement. The court used class counsels’ requested “percentage of the benefit” method to calculate the fee amount, rejecting the calculation by the lodestar method, and overruling the class member’s objection to the fee request. The court awarded $2.8 million in attorney’s fees and costs for the four class counsel law firms to distribute among themselves.

The objecting class member appealed the award on the bases that the award was excessive, and that the court improperly allowed unsupervised distribution of the fee award among the four class counsel law firms.

As you may recall, a trial court’s award of attorney’s fees is reviewed for abuse of discretion.

In a class action, a district 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). In exercising its discretion to award attorney’s fees, a district court generally applies one of two methods to determine a reasonable fee amount: (1) the “lodestar” method, under which 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; or (2) the “percentage of the benefit” method, under which the fee amount is equal to some fraction of the common fund that the attorneys were successful in gathering during the course of the litigation.

The Eighth Circuit noted that a trial court may use either method to determine the amount that constitutes a reasonable award of attorney’s fees in a class action.

Here, the Eighth Circuit noted that the trial court reviewed the parties’ proposals on the issue of attorney’s fees, heard extensive arguments and considered the two methods in detail. The trial court also reviewed itemized daily time records kept by each attorney or legal professional who represented each class. The trial court noted that class counsel “expended substantial time and effort in their prosecution of claims on behalf of the class,” and that those efforts led to the claims being quickly settled in a fair and reasonable manner.

Following this examination and analysis, the Eighth Circuit noted that the trial court found that the $2.8 million in attorney’s fees and costs, based upon the percentage of the benefit method, was reasonable and typical in other class actions and TCPA settlements.

The Eighth Circuit found that the trial court’s analysis was thorough, its findings were amply supported, and that the trial court did not abuse its significant discretion by electing to use the percentage of the benefit method to calculate the fee award or by determining that an award of $2.8 million in attorney’s fees and expenses was reasonable.

In addition, the Eighth Circuit found that the trial court did not abuse its discretion by including approximately $750,000 in fund administration costs as part of the “benefit” conferred to the settlement class.

The Court noted that the Seventh Circuit has held that trial courts should scrutinize administrative costs to determine if they truly confer a benefit on the class before including them in fee award calculations. However, the Ninth Circuit leaves the inclusion of administrative costs to the trial court’s discretion.

The Eighth Circuit here found that the objecting party made no showing that the administrative costs were unjustifiable, and therefore the Eighth Circuit found that the trial court did not abuse its discretion by including them as part of the benefit.

The Appellate Court also found that the trial court did not abuse its discretion by allowing the four class counsel law firms to distribute the award among themselves. The objecting party cited to a Fifth Circuit ruling as precedent, but the Eighth Circuit noted that the other court’s ruling is not controlling and even if it were, the Fifth Circuit recognized a “district court’s duty to scrutinize the allocation of a fee award when an attorney objects to his co-counsels’ fee recommendations.” Here, the Eighth Circuit noted there was no dispute among the four class counsel firms on how to distribute the award.

Accordingly, the Eighth Circuit found the trial court did not abuse its discretion, and affirmed the judgment of the trial court.