On The Case

9th Circuit tosses $14.8 mln fee award in Whirlpool ‘coupon’ class action

(Reuters) - A new decision from the 9th U.S. Circuit Court of Appeals, vacating a $14.8 million fee award to class counsel in a case alleging that Whirlpool dishwashers were prone to overheat, seems likely to discourage plaintiffs' lawyers from agreeing to settlements in which a big chunk of the relief can be characterized as a coupon.

Under the settlement agreement at the heart of the 9th Circuit case, class counsel’s fees were to be paid directly by Whirlpool rather than coming from the class recovery. But the two sides could not agree on an amount. The company and plaintiffs’ lawyers had widely divergent views on the value of the settlement, which included cash payments to dishwasher owners who had to repair or replace their appliances as well as rebates discounting the price of future dishwasher purchases. Plaintiffs’ lawyers from Chimicles Schwartz Kriner & Donaldson-Smith; Rifkind Weiner Livingston; Lieff Cabraser Heimann & Bernstein; Law Offices of Jeffrey M. Cohon and Weinstein Kitchenoff & Asher claimed the entire deal was worth as much as $116.7 million to the class. Whirlpool said that the actual class recovery would be more like $4.2 million, based on the 3.7% claims rate and deficient documentation by most of the owners seeking a cash payout.

Want more On the Case? Listen to the On the Case podcast.

Rather than award fees based on a percentage of the settlement, U.S. District Judge Fernando Olguin of Los Angeles based his fee award on class counsel’s lodestar billings of nearly $9 million, applying a 1.68 multiplier for the “impressive” results and novelty of the case.

Whirlpool, represented by Mayer Brown, appealed the fee award. Objectors represented by the Bandas Law Firm, Lang Hanigan & Carvalho, the Law Office of Sam Miorelli and Scott & Cain also appealed, protesting approval of the settlement as well as the fee award.

The 9th Circuit panel – Judges Richard Clifton, Kenneth Lee and U.S. District Judge Frederic Block of Brooklyn – ruled in an opinion written by Judge Lee that 9th Circuit precedent in 2013’s In re HP Inkjet Printer Litigation and 2018’s Easysaver Rewards Litigation precluded Judge Olguin from basing the fee award only on class counsel’s lodestar billings. Those decisions held that the Class Action Fairness Act does not allow trial judges to award lodestar fees for coupon settlements. (Plaintiffs’ lawyers argued that the rebates in the Whirlpool settlement were not coupons, but the 9th Circuit said they were because class members would have to lay out additional money to receive the credit, which applied only to the future purchase of a Whirlpool dishwasher within a limited timeframe.)

When judges are setting fees for a “mixed” settlement that includes both cash and coupon components, the 9th Circuit said, the preferable method is to disaggregate the value of the cash and coupon components and add together separate calculations of appropriate fees for the two components. Fees for the non-coupon piece of the deal can be based on lodestar billings. The award for the coupon component should be a percentage of the value of the coupons to the class.

Alternatively, the 9th Circuit said, a trial judge can base the entire fee award on lodestar billings, but only if he or she applies a multiplier to reflect redemption of the coupons. If class members don’t actually use the coupons, the appeals court said, then trial judges should discount the lodestar. That gets complicated in a settlement like the Whirlpool deal, when dishwasher owners have a relatively long timeframe to use their rebate. But the 9th Circuit said judges can award fees on a staggered basis.

The appeals court made clear that the adjusted lodestar method should only be used when it’s too difficult to untangle the value of the two settlement components and that trial judges must provide an explanation when they adopt the disfavored approach.

In this case, the 9th Circuit said, Judge Olguin should attempt on remand to figure out the redemption value of the coupons and the value of the cash relief. For the second component, the appeals court said, “the record provides ample evidence (including) evidence on the likely deficiency rate of the dishwashers, the value of coverage for future deficiencies and other relevant factors.” (The 9th Circuit also said that its review of the record suggested that plaintiffs had overestimated the value of the deal, failing to account for deficient cash claims and projecting that future overheating claims per year would outstrip the total number of claims over the last decade.)

I’m not sure, though, how trial judges can realistically segregate lodestar bills for the non-coupon portion of the deal from billings on the coupon component. Discovery and briefing isn’t conducted on those two separate tracks, after all. In a case like this one, with high lodestar bills, relative to the class recovery, and an agreement that the defendant would pay class counsel’s fees, plaintiffs lawyers might have been better off if the deal had not included a coupon component. As things stand, they can’t claim their entire lodestar billings.

Class counsel Steven Schwartz of Chimicles, who argued for plaintiffs’ lawyers at the 9th Circuit, did not respond to my email query. Whirlpool said in an email statement that it was pleased with the decision. “The original fee awarded in this case was grossly disproportionate to the amount plaintiffs’ lawyers recovered for their own clients, the class,” the statement said. “The 9th Circuit’s decision provides important guidance for determining a fee award that will be fair and reasonable to the class, plaintiffs’ lawyers, and Whirlpool.”

Objectors’ counsel Rob Clore of the Bandas firm, who urged the 9th Circuit to overturn approval of the settlement, said the ruling helps only Whirlpool, not class members. “Parties shouldn’t be able to contract their way around the (CAFA) statute by segregating fees,” Clore said by email.