John Galloway v. The Kansas City Landsmen, LLC

United States Court of Appeals
For the Eighth Circuit
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No. 15-1629
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John T. Galloway, individually and on behalf of a class
lllllllllllllllllllll Plaintiff - Appellant
v.
The Kansas City Landsmen, LLC, et al.
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Western District of Missouri - Kansas City
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Submitted: February 8, 2016
Filed: August 19, 2016
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Before RILEY, Chief Judge, LOKEN and BENTON, Circuit Judges.
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LOKEN, Circuit Judge.
John T. Galloway, on behalf of himself and a class of similarly situated
consumers (“plaintiffs”), alleged that twenty-one Budget rental car businesses
(“defendants”) willfully violated the Fair and Accurate Credit Transactions Act
(“FACTA”) by issuing receipts that contained more than five digits of customers’
credit card numbers. See 15 U.S.C. § 1681c(g)(1). After suit was filed, defendants
installed software to ensure their receipts complied with FACTA. The parties then
mediated and agreed on a proposed class action settlement. The district court rejected
the first settlement because “the compensation provided to the class is inadequate,”
but the court approved a revised settlement providing that plaintiffs would be offered
reduced prices on car rentals and enjoining defendants to comply with FACTA. In a
“clear sailing” provision, defendants agreed not to contest class counsel’s request for
an award of attorney’s fees and costs of no more than $175,000, and a class
representative incentive fee of no more than $3,000.
The settlement provided that each class member would receive a certificate
worth $10 off any car rental or $30 off a rental over $150, with no holiday blackout
days. Class members were given 180 days to redeem the coupons. The claims
administrator reported that of the 726,210 certificates mailed, 89 were redeemed at the
$10 level and 237 were redeemed at the $30 level -- a redemption rate of 0.045%. The
total value of the redeemed certificates was $8,000. The parties agree that the
certificates were a non-cash benefit to class members, and therefore the Coupon
Settlements provisions in the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1712,
apply to the award of a reasonable attorney’s fee to class counsel.
After the certificate redemption period expired, plaintiffs filed an unopposed
motion for an award of $147,717.75 in attorneys’ fees, $5,699.01 in litigation
expenses, and a $3,000 class representative incentive fee for named plaintiff
Galloway. Applying § 1712(a)-(c), the district court awarded $23,137.46 in attorneys’
fees and costs, and a $1,000 class representative incentive fee. Plaintiffs appeal,
arguing the court committed an error of law in construing § 1712. Plaintiffs do not
contend that the court abused its discretion to award a reasonable attorney’s fee. See
Hensley v. Eckerhart, 461 U.S. 424, 433-37 (1983); Travelers Prop. Cas. Ins. Co. of
Am. v. Nat’l Union Ins. Co. of Pittsburgh, 735 F.3d 993, 1002 (8th Cir. 2013).
Reviewing the interpretation of CAFA de novo, we conclude any error of law was
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harmless and therefore affirm. See Westerfeld v. Indep. Processing, LLC, 621 F.3d
819, 822 (8th Cir. 2010) (standard of review).1
I.
When a federal court has certified a class action, “the 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). FACTA includes that authorization,
providing that the consumer in “any successful action to enforce any liability under
this section [may be awarded] the costs of the action together with reasonable
attorney’s fees as determined by the court.” 15 U.S.C. § 1681n(a)(3).
Courts use two principal methods in exercising their discretion to award
reasonable attorney’s fees. Under the “lodestar” method, “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.” Johnston, 83 F.3d at 244. Under the “percentage
of the benefit” method, the attorney is awarded “some fraction of the common fund”
the attorney successfully gathered in the litigation, like the contingent fee
arrangements common in private litigation. Id. at 244-45. “It is within the discretion
of the district court to choose which method to apply.” Id. at 246.
1
We do not have the assistance of briefing by defendants because the awarded
amounts were within the negotiated clear sailing provision. These provisions heighten
the potential for class action settlement abuse addressed in CAFA because “the
separate negotiation of attorney fees presents the opportunity for the attorneys to trade
relief benefitting the class for a higher fee for themselves.” Johnston v. Comerica
Mortg. Corp., 83 F.3d 241, 244, 246 n.11 (8th Cir. 1996). “Such a clause by its nature
deprives the court of the advantages of the adversary process” and “should put a court
on its guard, not lull it into aloofness.” Weinberger v. Great N. Nekoosa Corp., 925
F.2d 518, 525 (1st Cir. 1991).
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In CAFA, Congress addressed the perceived abuse of class action settlements
“in which most -- if not all -- of the monetary benefits went to the class counsel, rather
than the class members those attorneys were supposed to be representing” S. Rep. No.
109–14, at 15 (2005), as reprinted in 2005-4 U.S.C.C.A.N. 3, 16. The Coupon
Settlements provision in § 1712 addressed the inequity of “settlements under which
class members receive nothing but essentially valueless coupons, while the class
counsel receive substantial attorneys’ fees.” Id. at 30. Subsections § 1712(a)-(c)
provide:
(a) Contingent fees in coupon settlements. -- If a proposed settlement
in a class action provides for a recovery of coupons to a class member,
the portion of any attorney’s fee award to class counsel that is
attributable to the award of the coupons shall be based on the value to
class members of the coupons that are redeemed.
(b) Other attorney’s fee awards in coupon settlements. --
(1) In general. -- If a proposed settlement in a class action
provides for a recovery of coupons to class members, and a
portion of the recovery of the coupons is not used to determine the
attorney’s fee to be paid to class counsel, any attorney’s fee award
shall be based upon the amount of time class counsel reasonably
expended working on the action.
(2) Court approval. -- Any attorney’s fee under this subsection
shall be subject to approval by the court and shall include an
appropriate attorney’s fee, if any, for obtaining equitable relief,
including an injunction, if applicable. Nothing in this subsection
shall be construed to prohibit application of a lodestar with a
multiplier method of determining attorney’s fees.
(c) Attorney’s fee awards calculated on a mixed basis in coupon
settlements. -- If a proposed settlement in a class action provides for an
award of coupons to class members and also provides for equitable
relief, including injunctive relief --
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(1) that portion of the attorney’s fee to be paid to class counsel
that is based upon a portion of the recovery of the coupons shall
be calculated in accordance with subsection (a); and
(2) that portion of the attorney’s fee to be paid to class counsel
that is not based upon a portion of the recovery of coupons shall
be calculated in accordance with subsection (b).
28 U.S.C. § 1712(a)-(c). Nearly every federal court to consider § 1712 has agreed
with Judge Richard Posner’s observation, “This is a badly drafted statute.” Redman
v. RadioShack Corp., 768 F.3d 622, 633 (7th Cir. 2014), cert. denied, 135 S. Ct. 1429
(2015). In parsing its various ambiguities and inconsistencies, we believe it important
to bear in mind the Senate committee’s statement that “nothing in Section 1712 is
intended to change current law regarding the circumstances under which an award of
attorneys’ fees is appropriate.” S. Rep. No. 109–14, at 31.
II.
In ruling on plaintiffs’ attorney’s fee request, the district court first applied
§ 1712(a) and determined that a reasonable fee attributable to the award of coupon
certificates to class members was $2,666.67, which was 33% of $8,000, the value of
the redeemed coupons. “In the Court’s experience, 33% is in the middle of the range
that attorneys performing contingency fee work in this market typically charge their
clients when a case settles at this stage in the litigation.” The court then used the
lodestar method prescribed in § 1712(b) to determine that 10% of the total fee
requested, or $14,771.78, was a reasonable fee for the injunctive relief provided to the
class. Noting that counsel’s billing records “do not differentiate between time spent
obtaining injunctive relief and time spent on the coupon portion of the Settlement,”
the court determined that approximately 10% of class counsel’s time was spent on the
“routine and non-controversial” injunctive relief, that the hourly billing rates claimed
by class counsel were reasonable, and that no additional adjustment to the lodestar
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calculation was warranted by the twelve discretionary factors listed in Allen v.
Tobacco Superstore, Inc., 475 F.3d 931, 944 n.3 (8th Cir. 2007) (and before that, in
Hensley, 461 U.S. at 430 n.3). Applying § 1712(c), the court added the two fee
components together and awarded $17,438.45 as a reasonable attorney’s fee, plus the
costs plaintiffs requested.
On appeal, plaintiffs argue that “the plain language of 28 U.S.C. § 1712 gives
class counsel the right to elect that all of its fees be calculated under the lodestar
methodology” prescribed in § 1712(b).2 The district court responded, “[t]here is
simply no language here which authorizes . . . class counsel . . . to choose its method
of payment calculation.” We emphatically agree. “It is within the discretion of the
district court to choose which method to apply.” Johnston, 83 F.3d at 246. Class
counsel can and invariably does propose that the court choose a certain method. But
the court has discretion to accept or reject that proposal. See S. Rep. No. 109–14, at
30 (“In some cases, the proponents of a class settlement involving coupons . . . may
propose that counsel fees be based upon the amount of time class counsel reasonably
expended working on the action.” (emphasis added)).
Section 1712(a) clearly provides that, if the court chooses to attribute all or a
portion of the fee award to the benefit provided the class by coupons, that portion
“shall be based on the value to class members of the coupons that are redeemed,” not
on the theoretical value of coupons that could have been redeemed. Beyond that,
courts have disagreed whether § 1712(a) limits their discretion to choose the lodestar
method to determine all or part of the fee to award for a coupon-based settlement. But
no court has held that § 1712(a) usurps the discretion granted the district court in
Hensley and in every other attorney’s fee decision and gives class counsel the right
2
This contention does not put at issue the district court’s decision to reduce the
class representative’s incentive fee because that fee is not addressed in § 1712. Thus,
that fee is not before us on appeal. Cf. In re U.S. Bancorp Litig., 291 F.3d 1035, 1038
(8th Cir.), cert. denied, 537 U.S. 823 (2002).
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to elect the lodestar methodology. Such a decision would be flatly contrary to the
Senate committee’s statement that “nothing in Section 1712 is intended to change
current law regarding the circumstances under which an award of attorneys’ fees is
appropriate.” The district court was not required to accept class counsel’s election.3
Plaintiffs further argue the district court erred in construing § 1712(a) as
mandating that any fee award attributable to the coupon portion of the settlement must
be based solely on the value of coupons redeemed. This contention has merit, but we
conclude any error was harmless.
When the district court ruled, a divided panel of the Ninth Circuit had recently
held that § 1712(a) and (b) are not permissive; they provide that a district court must
calculate attorneys’ fees for coupon awards as a percentage of the redeemed value and
must use the lodestar method to calculate fees for injunctive relief. In re HP Inkjet
Printer Litig., 716 F.3d 1173, 1181-83 (9th Cir. 2013). Lacking Eighth Circuit
guidance in construing this “poorly worded and confusing” statute, the district court
followed the HP Inkjet majority’s analysis.
Subsequently, a panel of the Seventh Circuit concluded that § 1712(a)-(c) is a
permissive statute. In re Southwest Airlines Voucher Litig., 799 F.3d 701, 707 (7th
Cir. 2015). Rejecting the Inkjet majority’s interpretation of “attributable to,” the
3
A further flaw in plaintiffs’ statutory argument is that the injunction they
obtained by consent -- “Defendants are hereby ordered to comply with the Fair and
Accurate Credit Transactions Act (“FACTA”), 15 U.S.C. § 1681c(g), at all their
currently owned locations” -- is invalid. “Blanket injunctions against general
violation of a statute are repugnant to American spirit and should not lightly be either
administratively sought or judicially granted.” Beatty v. United States, 191 F.2d 317,
321 (8th Cir. 1951); see Swift & Co. v. United States, 196 U.S. 375, 401 (1905).
Thus, no part of the settlement was properly attributable to obtaining injunctive relief.
If the jurisdiction the court has retained over the settlement is ever invoked to enforce
this order to comply with FACTA, the court is directed to vacate the injunction.
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Seventh Circuit interpreted § 1712(a) as meaning that “if any portion of the fee is
attributed to the coupon benefits, then that portion of the fee must be based on the
coupons used, but that is not the only method available.” Id. at 708; accord HP Inkjet,
716 F.3d at 1194 (Berzon, J., dissenting). Thus, Ҥ 1712 permits a district court to use
the lodestar method to calculate attorney fees to compensate class counsel for the
coupon relief obtained for the class,” keeping in mind “the potential for abuse posed
by coupon settlements.” Southwest, 799 F.3d at 710. “Subsection (c) allows a
combination of percentage-of-coupons-used and lodestar, but it does not require that
any portion of the fee be based on the percentage of coupons used.” Id.
We conclude that the Seventh Circuit’s interpretation of § 1712 is more
consistent with the substantial discretion district courts have always had to determine
the reasonable attorney’s fee to award to the prevailing party in a class action case,
whether plaintiff receives “some relief on the merits of his claim” by a settlement
agreement enforced by a consent decree, or by fully litigating the claim. Buckhannon
Bd. & Care Home, Inc. v. W. Va. Dept. of Health & Human Res., 532 U.S. 598, 603-
04 (2001) (quotation omitted). In exercising this discretion, “the most critical factor
is the degree of success obtained.” Hensley, 461 U.S. at 436. The principal focus of
§ 1712 was to mandate more careful scrutiny of coupon settlements to ensure that the
degree of success was properly evaluated. In some cases, if the actual value of
redeemed coupons is high, applying a typically large percentage-of-benefit factor may
produce an unreasonably high fee award. In other cases, if the value of redeemed
coupons is minimal, as in this case, a fee award based on an unadjusted lodestar
calculation may produce an unreasonably high award. Frequently, the court may find
it useful to “double-check” the fee using both methods. See, e.g,, Hashw v. Dep’t
Stores Nat’l Bank, --- F. Supp. 3d ----, 2016 WL 1729525 at *9 (D. Minn. Apr. 26,
2016). In all cases, we conclude, § 1712 leaves the court discretion to apply either
method, with or without adjustments, or some combination of the two, subject to
abuse of discretion review. We interpret the words of CAFA, like all statutes, “in
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light of the purposes Congress sought to serve.” Westerfeld, 621 F.3d at 824
(quotation omitted).
We conclude that the district court erred by following the HP Inkjet mandatory
approach in applying § 1712(a)-(c) without explicitly stating that the award was based
on an exercise of the court’s discretion to determine a reasonable attorney’s fee. But
plaintiffs do not argue the award was a breach of the court’s discretion, and if we
remanded, it would be for an explicit exercise of that discretion, applying the
principles of § 1712(a)-(c). Our review of the record persuades us that any award
greater than $17,438.45 would be unreasonable in light of class counsel’s limited
success in obtaining value for the class. Cf. Gumbhir v. Curators of the Univ. of Mo.,
157 F.3d 1141, 1147 (8th Cir. 1998), cert. denied, 526 U.S. 1005 (1999). Thus, we
conclude any error was harmless.
The judgment of the district court is affirmed.
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