Robert McKeage v. TMBC, LLC ( 2017 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 15-3191
___________________________
Robert McKeage; Janet McKeage, on behalf of themselves and all others similarly
situated
lllllllllllllllllllll Plaintiffs - Appellees
v.
TMBC, LLC
lllllllllllllllllllll Defendant - Appellant
Tracker Marine Retail, LLC; Bass Pro Outdoor World, LLC
lllllllllllllllllllll Defendants
___________________________
No. 15-3286
___________________________
Robert McKeage; Janet McKeage, on behalf of themselves and all others similarly
situated
lllllllllllllllllllll Plaintiffs - Appellants
v.
TMBC, LLC
lllllllllllllllllllll Defendant - Appellee
Tracker Marine Retail, LLC; Bass Pro Outdoor World, LLC
lllllllllllllllllllll Defendants
____________
Appeals from United States District Court
for the Western District of Missouri - Springfield
____________
Submitted: September 22, 2016
Filed: February 13, 2017
[Published]
____________
Before WOLLMAN, BRIGHT,1 and KELLY, Circuit Judges.
____________
PER CURIAM.
Robert and Janet McKeage brought this class action lawsuit to challenge
TMBC’s2 nationwide practice of charging a document fee when selling boats and
trailers under form contracts governed by Missouri law. After approving class
certification, the district court determined that TMBC prepared legal documents
attendant to its sales and that charging a fee for those documents constituted
unauthorized law business in violation of Mo. Rev. Stat. §§ 484.010 and 484.020.
The district court granted summary judgment in favor of the class and awarded treble
1
The Honorable Myron H. Bright died on December 12, 2016. This opinion is
being filed by the remaining judges of the panel pursuant to 8th Cir. Rule 47E. It
incorporates in large part the views expressed by Judge Bright during the pendency
of this case.
2
TMBC, LLC’s parent company is Tracker Marine Retail, LLC. Tracker
Marine Retail, LLC’s parent company is Bass Pro Group, LLC.
-2-
damages in the amount of $21,735,754. The district court also awarded attorneys’
fees to class counsel in the amount of $2,425,359, to be paid out of the common fund.
TMBC filed an appeal challenging the class certification, grant of summary
judgment, and application of Missouri law to sales that occurred outside Missouri.
The McKeages filed a cross appeal to enforce the fee-shifting provision in TMBC’s
contract and to challenge the district court’s calculation of fees based on the amount
of untrebled damages rather than the entire common fund. We affirm the district
court on the main appeal. We reverse and remand for further proceedings on the
cross appeal.
I
TMBC is a corporation headquartered in Springfield, Missouri. It sells boats
and trailers through dealerships across the nation, most of which are located within
Bass Pro Shops.3 On May 23, 2008, Robert and Janet McKeage purchased a boat
from TMBC at the Tracker Boat Center located inside the Bass Pro Shop in St.
Charles, Missouri. The purchase was memorialized in a standard form contract
TMBC has used since 2007, which has a choice-of-law provision that states, in
relevant part:
GOVERNING LAW. THE PARTIES AGREE THAT THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
MISSOURI. The venue for any action or proceeding arising from this
Agreement . . . shall be in Greene County, Missouri. The prevailing
party in any such action or proceeding shall be entitled to recover all
litigation costs and expenses, including reasonable attorneys’ fees at all
levels of litigation . . . .
3
As of 2008, TMBC operated seventy-three dealerships nationwide. Fifty-two
of those dealerships were located within Bass Pro Shops, and twenty-one were
freestanding dealerships.
-3-
As part of the contract, TMBC charged the McKeages a $75 “document fee.” TMBC
charged the fee to cover the cost of preparing and/or completing documents such as
the form contract itself (sometimes referred to by the parties as the Order
Acknowledgment and Agreement of Sale, or OAAS form); a bill of sale; a power of
attorney form; and title, license, and registration documents.
Unhappy with their purchase, the McKeages contacted an attorney to help them
rescind the sale. After reviewing the contract, counsel for the McKeages filed suit
against TMBC in the Circuit Court for St. Charles County, Missouri. Among other
things, the McKeages alleged that TMBC’s practice of charging a document fee
constituted unauthorized law business in violation of Mo. Rev. Stat. §§ 484.010 and
484.020.4 Pursuant to the contract’s choice-of-law provision, venue was thereafter
transferred to Greene County, Missouri.
4
Section 484.010 states in relevant part:
The “law business” is hereby defined to be and is the advising or
counseling for a valuable consideration of any person, firm, association,
or corporation as to any secular law or the drawing or the procuring of
or assisting in the drawing for a valuable consideration of any paper,
document or instrument affecting or relating to secular rights . . . .
Section 484.020 states in relevant part:
No person shall engage in the practice of law or do law business . . .
unless he shall have been duly licensed therefor and while his license
therefor is in full force and effect . . . . Any person, association,
partnership, limited liability company or corporation who shall violate
the foregoing prohibition of this section . . . shall be subject to be sued
for treble the amount which shall have been paid him or it for any
service rendered in violation hereof by the person, firm, association,
partnership, limited liability company or corporation . . . .
-4-
The McKeages asked the state court to certify a nationwide class action. The
state court certified a class, but limited it to customers whose purchases occurred in
Missouri. The McKeages sought review from the Missouri Supreme Court,
contending that the district court should have certified a nationwide class. The
Missouri Supreme Court agreed, noting that TMBC chose Missouri law for the
standardized form contracts it used nationwide. State ex rel. McKeage v. Cordonnier,
357 S.W.3d 597, 601 (Mo. banc 2012). Pursuant to the Missouri Supreme Court’s
decision, the state trial court then certified a nationwide class.
In March 2012, TMBC removed the action to federal district court pursuant to
the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(8). After removal,
TMBC brought a motion to decertify the class. Extensive litigation followed over
whether a class action was appropriate, and eventually the district court denied the
motion to decertify. After TMBC unsuccessfully petitioned this court for permission
to appeal the denial of its motion to decertify the class, TMBC asked the district court
to reconsider. Ultimately, the district court required the McKeages’ counsel to hire
reviewers to manually inspect each of TMBC’s customer files in order to determine
which contracts contained a Missouri choice-of-law provision, the inclusion of which
formed the basis for the nationwide class. After the document review, the class was
determined to consist of approximately 100,000 members.
The parties filed cross motions for summary judgment. As relevant to the
issues now on appeal, TMBC argued that charging a document fee did not amount to
unauthorized law business because TMBC’s employees did not exercise legal
judgment when filling out documents for customers. TMBC also argued that some
individuals had been improperly identified as customers who signed contracts
governed by Missouri law. TMBC further argued that Missouri law should not be
applied nationwide to customers who signed contracts with TMBC outside Missouri.
Finally, TMBC argued that damages should not be calculated based on the entire
-5-
document fee because portions of the fee went to services that did not constitute
unauthorized law business.
The district court rejected TMBC’s arguments and granted the McKeages’
motion for summary judgment. The district court determined that the class members
were properly identified, TMBC’s conduct in charging a document fee constituted
unauthorized law business, Missouri law applied to transactions that occurred outside
Missouri, and damages should be awarded based on the entire document fee. The
district court then awarded treble damages pursuant to Mo. Rev. Stat. § 484.020.
Based on the number of members in the class, the amount of damages was calculated
at $21,735,754.
After the district court’s grant of summary judgment, the McKeages filed a
motion for attorneys’ fees. Although the parties’ contract provided that “[t]he
prevailing party in any [action or proceeding arising from the agreement] shall be
entitled to recover . . . reasonable attorneys’ fees at all levels of litigation,” the district
court determined that “even in cases where a fee shifting provision may be applicable,
attorney’s fees should come from the common fund.” The district court used the
percentage-of-the-benefit method to calculate the fees and determined that thirty-three
percent was appropriate in this case. Finally, the district court noted that the common
fund included $7,349,574 in actual damages and $14,386,180 in statutory interest and
treble damages. Based on a trilogy of Eighth Circuit cases involving treble damages
under Section 4 of the Clayton Act—Twentieth Century-Fox Film Corp. v. Brookside
Theatre Corp., 194 F.2d 846 (8th Cir. 1952); International Travel Arrangers, Inc. v.
Western Airlines, Inc., 623 F.2d 1255 (8th Cir. 1980); and Rose Confections, Inc. v.
Ambrosia Chocolate Co., 816 F.2d 381 (8th Cir. 1987)—the district court concluded
that calculating the fee award “from the actual damages [rather than treble damages]
. . . is preferable because it better reflects the policies behind a common fund
recovery[.]” As a result, the district court awarded class counsel $2,425,359.42 in
-6-
attorneys’ fees to be paid from the common fund, representing thirty-three percent of
the untrebled damages.
TMBC timely appealed, contending: (1) the class should not have been
certified because individualized proof was required to determine whether each
customer’s contract contained a Missouri choice-of-law provision; (2) the district
court misinterpreted Missouri case law regarding unauthorized law business in
granting summary judgment to the class; and (3) the district court erred in applying
Missouri law to conduct which occurred outside Missouri. The McKeages filed a
timely cross appeal contending that the district court should have enforced the fee-
shifting provision in TMBC’s standard form contract and that the fee award should
have been based on the entire common fund rather than the untrebled damages.
II
A
TMBC first contends that the district court erred when it certified a class. We
review the district court’s decision to certify a class for an abuse of discretion, but
review de novo any issues of law involved in the class certification. In re St. Jude
Med., Inc., 425 F.3d 1116, 1119 (8th Cir. 2005).
TMBC argues that the McKeages failed to satisfy the commonality and
predominance requirements of Federal Rules of Civil Procedure 23(a)(2) and (b)(3).
See Fed. R. Civ. P. 23(a)(2) (setting forth the prerequisite to class certification that
there be “questions of law or fact common to the class”); Fed. R. Civ. P. 23(b)(3)
(setting forth an additional requirement that there be “questions of law or fact
common to class members [that] predominate over any questions affecting only
individual members”). More specifically, TMBC argues individual issues
-7-
predominated over common issues during the highly individualized process the
district court used to identify class members.
TMBC’s complaints about an individualized inquiry relate to both the
identification of the class members and the evidence necessary to establish liability
once a class has been identified. TMBC’s argument thus implicates not only the
commonality and predominance requirements, but also Rule 23’s implicit requirement
that a class “‘must be adequately defined and clearly ascertainable.’” Sandusky
Wellness Ctr. v. Medtox Sci., Inc., 821 F.3d 992, 996 (8th Cir. 2016) (quoting Ihrke
v. N. States Power Co., 459 F.2d 566, 573 n.3 (8th Cir.), vacated as moot, 409 U.S.
815 (1972)). Though ascertainability is an implicit requirement that our court
enforces through “a rigorous analysis of the Rule 23 requirements,” id., a dispute
regarding the method for identifying class members calls for an independent
discussion of whether a class is ascertainable.
A class may be ascertainable when its members may be identified by reference
to objective criteria. See id. at 997–98. In Sandusky, the plaintiffs alleged Medtox
Scientific violated the Telephone Consumer Protection Act (TCPA) by sending
unsolicited faxes without the opt-out notice required by the TCPA. We identified the
“fax logs showing the numbers that received each fax” as “objective criteria that
make the recipient clearly ascertainable.” Id. at 997. We concluded that the district
court abused its discretion by denying class certification, despite the fact that the logs
may have identified some fax recipients “who don’t have rights under the [TCPA],”
noting that those class members “just wouldn’t be entitled to share in the damages
awarded to the class by a judgment or settlement.” Id. at 998 (alteration in original)
(quoting Chapman v. Wagener Equities, Inc., 747 F.3d 489, 492 (7th Cir. 2014)).
Here, class members were identified by reviewing TMBC’s customer files
according to objective criteria. The purpose of the review process was to identify for
class membership the customers whose files contained an OAAS form or a terms-and-
-8-
conditions sheet with a Missouri choice-of-law provision. The district court adopted
an intensive file-by-file review process specifically for the purpose of excluding
customers whose contracts did not contain the Missouri choice-of-law provision and
who therefore did not have rights under Missouri law. Indeed, our examination of the
record indicates that review process worked, and that most5 customers who may have
been subject to TMBC’s individual defenses were excluded from the class during the
review process.
In addition to the class being clearly ascertainable, the commonality and
predominance requirements of Rule 23(b) are satisfied here. The class identified as
a result of the intensive file-by-file review included TMBC customers that entered
into a contract identical or substantially similar to the one entered into by the
McKeages. In addition, evidence gleaned during discovery showed that it was
TMBC’s corporate policy to require all customers to sign the standard form contract
governed by Missouri law. Thus, this case presented a “classic case for treatment as
a class action.” Steinberg v. Nationwide Mut. Ins. Co., 224 F.R.D. 67, 74 (E.D.N.Y.
2004) (internal quotation omitted); see also Flanagan v. Allstate Ins. Co., 242 F.R.D.
421, 428 (N.D. Ill. 2007) (“Claims arising out of form contracts are particularly
appropriate for class action treatment.”); Egge v. Healthspan Servs. Co., 208 F.R.D
265, 269 (D. Minn. 2002) (“Claims arising from interpretations of a form contract
appear to present the classic case for treatment as a class action.”) (alteration omitted)
(quoting Kleiner v. First Nat’l Bank of Atlanta, 97 F.R.D. 683, 692 (N.D. Ga. 1983)).
As to the class members eventually identified, the common and predominant issue
was whether TMBC’s practice of charging a document fee in the standardized
contract violated Missouri’s prohibition on unauthorized law business. Although the
5
The district court denied summary judgment as to 2,293 individuals who were
initially included in the class after finding there was a genuine issue of material fact
as to whether the transactions of 68 of those individuals were governed by Missouri
law, and whether 2,225 of those individuals whose transactions were governed by
Missouri law had actually paid a document fee.
-9-
documents TMBC prepared for individual customers varied at times, the district court
correctly determined that the variety of services and the differences between contracts
were not distinct enough to decertify the case as a class action. See Janson v.
LegalZoom.com, Inc., 271 F.R.D. 506, 510, 512 (W.D. Mo. 2010) (involving a claim
of unauthorized law business and finding that Rule 23’s commonality and
predominance requirements were met even when the defendant offered more than 200
separate legal forms, noting that variation in forms did not negate the overarching
common legal question of “whether LegalZoom’s preparation of legal documents
violates Missouri law”).
We conclude that the district court did not abuse its discretion in finding that
the class as ultimately defined met the requirements of Rule 23 and certifying the case
as a class action.
B
TMBC next contends that the district court erred in granting summary
judgment to the class. We review the district court’s grant of summary judgment de
novo. Green v. Dillard’s, Inc., 483 F.3d 533, 538 (8th Cir. 2007).
TMBC contends that the district court misconstrued Missouri law when it
concluded that TMBC’s practice of charging a document fee constituted unauthorized
law business under Mo. Rev. Stat. §§ 484.020 and 484.010. TMBC contends that the
district court misunderstood that “an activity must first be the practice of law before
charging for its performance by a non-lawyer can be unauthorized.”
Under Missouri law, “charging a separate fee for the completion of legal forms
by non-lawyers constitutes the unauthorized practice of law business.” Carpenter v.
Countrywide Home Loans, Inc., 250 S.W.3d 697, 702 (Mo. banc 2008). Determining
whether a particular form is legal in nature requires the court to “balance the
-10-
protection of the public against a desire to avoid unnecessary inconvenience and
expense.” Hargis v. JLB Corp., 357 S.W.3d 574, 584 (Mo. banc 2011) (quoting In
re First Escrow, Inc., 840 S.W.2d 839, 843 (Mo. banc 1992)). A key factor in this
inquiry is the legal judgment or discretion required to prepare the form. See Hargis,
357 S.W.3d at 584; In re First Escrow, Inc., 840 S.W.2d at 843; Hulse v. Criger, 247
S.W.2d 855, 861 (Mo. banc 1952). However, once it has been determined that a
particular document is legal in nature, the act of charging a fee for the preparation or
completion of that document constitutes unauthorized law business, even when a non-
lawyer does not exercise any legal judgment in completing the form.
For example, in Eisel v. Midwest BankCentre, 230 S.W.3d 335 (Mo. banc
2007), bank employees prepared a number of pre-printed documents when processing
mortgage loans. The pre-printed forms included, among other things, a deed of trust
and a promissory note. Id. at 337 n.3. The Missouri Supreme Court had previously
determined that deeds of trust and promissory notes were legal documents because
their preparation requires the exercise of legal judgment or discretion. See id. (citing
In re First Escrow, 840 S.W.2d at 846). As a result, the court found it unnecessary
to consider whether bank employees’ completing the pre-printed forms required the
exercise of legal judgment or discretion. Rather, the court held the bank’s practice
of charging a fee for completing the pre-printed forms was unauthorized law business
prohibited by § 484.020, explaining that “charging of a separate additional charge
tends to place emphasis on conveyancing and legal drafting as a business rather than
on the business of being a [banker].” Id. at 339.
The forms for which TMBC charged a fee included forms Missouri has
determined to be legal documents—namely, power of attorney forms—as well as
forms that have yet to be analyzed under Missouri law. See id. (companies and their
non-lawyer agents prohibited “from drawing, preparing, or assisting in the
preparation of trust workbooks, trusts, wills, and powers of attorney for valuable
consideration”) (citing In re Mid-Am. Living Trust Assocs., Inc., 927 S.W.2d 855,
-11-
871 (Mo. banc 1996)). As a consequence, TMBC’s practice of charging a separate
fee for the completion of those forms was unauthorized law business under § 484.020
whether or not the act of completing the forms required the exercise of legal judgment
or discretion. See id.
Relying on Bray v. Brooks, 41 S.W.3d 7 (Mo. Ct. App. 2001), TMBC further
contends the district court misconstrued Missouri law when it calculated damages
based upon the entire document fee, because some of the forms for which it charged
a document fee were not legal documents. TMBC contends that the district court was
required to parse the document fee to determine what portion should be allotted to the
preparation of legal documents and to calculate damages only upon that amount.
However, Bray does not mandate such a procedure. Bray involved a real estate
broker who charged a single fee for all of his services, which included the
unauthorized drafting of a number of legal documents as well as legitimate broker
services, without making a defined separate charge for document preparation. In
deciding whether damages for the violation of § 484.020 should be based upon the
broker’s entire fee, the Missouri Court of Appeals said a distinction must be made
between the legitimate and unauthorized services the broker provided. Id. at 14.
As the district court correctly determined, the facts of Bray differ from those
involved here. TMBC did not charge the McKeages a single contract price for the
sale of the boat. Rather, the unauthorized fee for document preparation was charged
separately from the legitimate portions of the contract. Thus, there was no need to
address the dilemma the court faced in Bray. In situations where the unauthorized
charge is separate from the legitimate portions of the parties’ transaction, damages
may be based upon the entire unauthorized fee, even if some of the documents are not
legal in nature. See Eisel, 230 S.W.3d at 337 n.3.
Finally, TMBC contends it had no notice that the choice-of-law clause in its
contract would subject it to treble damages. We disagree. See Carpenter, 250 S.W.3d
-12-
at 702 (“Countrywide had clear and fair notice, both by statute and case law, that its
activities constituted the unauthorized practice of law business and that this conduct
would subject it to treble the amount of fees paid in exchange for those services.”);
Janson v. LegalZoom, Inc., 802 F. Supp. 2d 1053, 1067 (W.D. Mo. 2011) (finding
application of Missouri’s unauthorized practice of law statute did not violate the
defendant’s constitutional due process rights where Missouri “cases such as Hulse,
First Escrow, Mid-America, and Eisel put [the defendant] on notice that it could not
charge a fee for the preparation of legal documents”).
We conclude that the district court did not err in granting the class members’
motion for summary judgment or in calculating damages based upon the entire
document fee.
C
Finally, TMBC contends the district court erred in applying Missouri law to
sales that occurred outside Missouri. This issue involves the interpretation and
application of the choice-of-law provision in TMBC’s standard form contract, and
thus is an issue of law reviewed de novo. See Schwan’s Sales Enters., Inc. v. SIG
Pack, Inc., 476 F.3d 594, 595–96 (8th Cir. 2007).
TMBC characterizes this issue as an unconstitutional extra-territorial
application of Missouri penal law, arguing that “[t]o allow Missouri to control the
regulation of law licenses and decide what constitutes the practice of law in other
states is unprecedented” and violative of the Commerce and Full Faith and Credit
Clauses of the United States Constitution. In making this argument, TMBC relies on
the fact that § 484.020(2) makes it a misdemeanor to engage in unauthorized law
business and that the Missouri attorney general has the right to sue for treble damages
in the event the parties granted a private cause of action under the statute “neglect and
fail to sue for or recover such treble amount.” Mo. Rev. Stat. § 484.020(2).
-13-
The fundamental flaw in TMBC’s argument is that Missouri is not a party to
this action. Missouri has not charged TMBC with any crimes, nor has the Missouri
attorney general pursued an action against TMBC for treble damages arising out of
its contracts with class members. Missouri makes no attempt to enforce its law extra-
territorially. Thus, whether Missouri can control the regulation of law licenses extra-
territorially and whether the Missouri attorney general can enforce § 484.020 extra-
territorially are issues not before us.
Instead, the question here is whether a corporation headquartered in Missouri
can choose that Missouri law govern its conduct in standard form contracts it used
nationwide. There is nothing inherently unconstitutional about enforcing a
corporation’s choice to have its contractual duties governed by the law of a particular
state. On the contrary, “[t]he general rule is that competent persons shall have the
utmost liberty of contracting and that their agreements voluntarily and fairly made
shall be held valid and enforced in the courts.” Twin City Pipe Line Co. v. Harding
Glass Co., 283 U.S. 353, 356 (1931); State ex rel. McKeage, 357 S.W.3d at 600
(“Generally, parties may choose the state whose law will govern the interpretation of
their contractual rights and duties. A valid choice of law provision in a contract binds
the parties.” (internal citation omitted)). Aside from its argument that application of
§ 484.020 in this case constitutes the unconstitutional extra-territorial application of
Missouri penal law, TMBC does not otherwise challenge the validity or enforcability
of the choice-of-law clause. We thus conclude that the district court did not err in
applying Missouri law to sales that occurred outside Missouri.
D
In their cross appeal, the McKeages challenge the district court’s award of
attorneys’ fees. We review the district court’s award of attorneys’ fees for an abuse
of discretion, but review de novo any rulings of law related to the award of fees.
Roemmich v. Eagle Eye Dev., LLC, 526 F.3d 343, 354–55 (8th Cir. 2008).
-14-
We first address the McKeages’ contention that the district court erred when
it held that the attorneys’ fees should be paid from the common fund rather than paid
by TMBC pursuant to the contractual fee-shifting provision.6 In concluding that
attorneys’ fees should be paid by the class members out of the common fund even
though there was a fee-shifting provision in TMBC’s contract, the district court cited
three cases: Entergy Arkansas, Inc. v. Nebraska, 226 F. Supp. 2d 1174 (D. Neb.
2002); In re Workers’ Compensation Insurance Antitrust Litigation, 771 F. Supp.
284 (D. Minn. 1991); and In re Chrysler Motors Corp. Overnight Evaluation Program
Litigation, 736 F. Supp. 1007 (E.D. Mo. 1990). However, none of these cases
involved a common fund in a class action in which a contractual fee-shifting
provision played a part. See Entergy Ark., 226 F. Supp. 2d at 1182 (noting the
common fund doctrine exists “independently of the various fee-shifting statutes,” and
not addressing whether the presence of a common fund necessarily precludes the
enforcement of a contractual fee-shifting provision); In re Workers’ Comp., 771 F.
Supp. at 286 (honoring class counsel’s request that fees be paid out of common fund
rather than under applicable statutory fee-shifting provisions because “the settlement
agreements contain an explicit term creating a common fund”); In re Chrysler Motors
Corp., 736 F. Supp. at 1012–13 (discussing other cases initiated pursuant to
6
We reject TMBC’s contention, articulated in its reply brief, that the
contractual fee-shifting provision does not apply because this suit is not an action or
proceeding arising from its agreements. The $75 document fee was part of the
contracts, this class action was brought to challenge the lawfulness of that part of the
contracts—a determination that relates to the interpretation of the contract—and thus
this class action arises from those agreements and triggers the fee-shifting provision.
See Major v. McCallister, 302 S.W.3d 227, 231–32 (Mo. Ct. App. 2009) (“Generally
speaking, whether a forum selection clause that by its terms applies to contract
actions also reaches non-contract claims ‘depends on whether the resolution of the
claims relates to interpretation of the contract.’” (quoting Manetti-Farrow, Inc. v.
Gucci Am., Inc., 858 F.2d 509, 514 (9th Cir. 1988)).
-15-
fee-shifting statutes in which common fund principles were applied to determine
fees). These cases, while informative, are not dispositive.
The question here is whether, in a case in which both a common fund and a
contractual fee-shifting provision exist, attorneys’ fees should be awarded from the
common fund or paid under the contract’s terms. Our court has yet to address this
question. In deciding this issue, we first note that the presence of a fee-shifting
statute does not necessarily preclude awarding attorneys’ fees out of a common fund.
See 5 William B. Rubenstein, Newberg on Class Actions § 15:61 (5th ed. 2016)
(“[C]ounsel may in some cases be able to seek both statutory fee-shifting and
common fund fee-spreading.”). Instead, the presence of a fee-shifting statute
precludes a common fund award only when that result is required by the statutory
scheme involved. See Alan Hirsch et al., Fed. Judicial Ctr., Awarding Attorneys’
Fees and Managing Fee Litig., 78 & n.447 (3d ed. 2015) (“The Second, Third, and
Seventh Circuits have held that, absent . . . a showing of legislative intent [to preclude
a common fund award], the fact that a fee-shifting statute applies to a particular case
does not preclude recovery from a common fund.”) (citing Suffolk v. Long Island
Lighting Co., 907 F.2d 1295, 1327 (2d Cir. 1990); Skelton v. Gen. Motors Corp., 860
F.2d 250, 255 (7th Cir. 1988); In re Fine Paper Antitrust Litig., 751 F.2d 562, 583 (3d
Cir. 1984)); see also Haggart v. Woodley, 809 F.3d 1336, 1357 (Fed. Cir.), cert.
denied, 136 S. Ct. 2509 (2016) (holding that fee-shifting provision under section
304(c) of the Uniform Relocation Assistance and Real Property Acquisition Policies
Act precluded a common fund award because the statutory scheme “expressly allows
landowners to retain the full compensation of the value of their property by
mandating the Government to assume the litigation expenses of counsel”). But when
a particular statutory scheme does not manifest congressional intent to preclude
equitable fee-shifting under the common fund doctrine, courts are afforded greater
discretion in determining the appropriate source of attorneys’ fees. See Haggart, 809
F.3d at 1359 (“We do not foreclose the application of the common fund doctrine in
all instances in which a fee-shifting statute is present. Equity may sometimes deem
-16-
it appropriate to give counsel a piece of either the final judgment or settlement
agreement.”).
In cases involving contractual fee-shifting provisions, there is no relevant
underlying congressional intent that might preclude a common fund award. Instead,
the court must weigh the equitable principles underlying the creation of the common
fund doctrine against the fee-shifting provision agreed upon by the parties. See
Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980) (explaining that the common
fund doctrine is grounded in equity).
There is a distinction between the amount a losing party may be required to pay
under an agreed-upon contractual fee-shifting provision and the amount a class
member should equitably be required to pay his or her own lawyer under the common
fund doctrine. Cf. Gisbrecht v. Barnhart, 535 U.S. 789, 806 (2002) (emphasizing that
the lodestar method of awarding fees under a fee-shifting provision “was designed to
govern imposition of fees on the losing party . . . . [but] nothing prevents the attorney
for the prevailing party from gaining additional fees, pursuant to contract, from his
own client.” (citation omitted)); Venegas v. Mitchell, 495 U.S. 82, 90 (1990)
(explaining that the relevant statutory fee-shifting provision “controls what the losing
defendant must pay, not what the prevailing plaintiff must pay his lawyer”). In Nilsen
v. York County, the court discussed Venegas and Gisbrecht in the context of a class
action common fund case and concluded that “[t]hese cases, read together, uncouple
the fee analysis in determining an award against the losing defendant . . . from the fee
analysis for determining an award to the lawyer from the amount that he or she has
recovered.” 400 F. Supp. 2d 266, 272 (D. Me. 2005).
“The fact that a common fund has been created is not sufficient to establish a
finding that the common fund doctrine must be applied when awarding attorney
fees . . . .” Haggart, 809 F.3d at 1356. The common fund doctrine is intended to
ensure that class counsel receives a fee similar to what would have been received had
-17-
a retainer agreement been in place with all class members, as well as to prevent
“persons who obtain the benefit of a lawsuit without contributing to its cost”—e.g.,
passive class members—from being “unjustly enriched at the successful litigant’s
expense.” Boeing Co., 444 U.S. at 478. Payment of attorneys’ fees under the fee-
shifting provision accommodates both concerns underlying the common fund
doctrine: First, lawyers are able to recoup reasonable compensation. Second, there
is no risk that named plaintiffs alone will be required to pay the class’s lawyers,
thereby unjustly enriching passive class members by providing them the benefit of
a portion of the award without the burden of litigation costs. Furthermore, the
McKeages’ counsel successfully obtained a judgment on behalf of the class against
a defendant who freely entered into a contract containing a fee-shifting provision.
Requiring the class to pay the entire attorneys’ fee award from the common fund in
this case is inequitable because it nullifies the class’s contractual right, as the
prevailing party, “to recover all litigation costs and expenses, including reasonable
attorneys’ fees at all levels of litigation” from its opponent. Enforcement of the fee-
shifting provision honors both the contract and the principles underlying the common
fund doctrine.
However, should the district court determine that counsel for the class is
entitled to additional fees from the common fund, apart from those reasonable
expenses covered by the fee-shifting provision, it is not prohibited from awarding
additional fees. See Nilsen, 400 F. Supp. 2d at 272–73 (fee analysis for determining
an award against the losing defendant is distinct from the fee analysis for determining
an award to the lawyer from the amount that a plaintiff has recovered). We make no
comment with respect to whether fees beyond those resulting from the contractual
fee-shifting provision should be awarded in this case, and we leave that determination
to the district court’s sound discretion. Should it determine that an additional award
out of the common fund is justified in this case, the district court should look to “the
fund as a whole,” including the trebled damages, Boeing Co., 444 U.S. at 478, but
is free to award any portion of the fund that it deems appropriate.
-18-
III
For the reasons stated, we affirm on all issues raised in the primary appeal. We
reverse and remand for further proceedings consistent with this opinion on the issues
raised in the cross appeal.
______________________________
-19-