In Americana Art China Company, Inc. v. Foxfire Printing & Packaging, Inc., 743 F.3d 243 (7th Cir. Feb. 18, 2014), the U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s attorneys’ fees award in a class action settlement arising from the defendant’s faxing of thousands of unsolicited advertisements in violation of the federal Telephone Consumer Protection Act. In doing so, the Seventh Circuit reaffirmed the district court’s discretionary power to use the lodestar method, rather than the percentage method, to determine an appropriate fee award for class counsel. The Seventh Circuit held that the lodestar methodology was properly applied and permissible under the circumstances.
In this case, the plaintiff and defendant’s insurer had reached a proposed class settlement totaling $6.1 million, which was approximately equal to the number of faxes sent (110,853) times the per-fax damages figure offered by the insurance company ($55.03). The proposed settlement allowed for an attorneys’ fee award of one-third the total settlement value: $2,033,333.33. Although 24,389 of the 28,879 class members were successfully notified of the settlement, only 1,820 returned a claim form, a claim rate of 7%. Concerned about an inequitable distribution of attorneys’ fees in light of the final payout to class members, the district court applied the lodestar method instead of the one-third percentage method requested by class counsel. The district court accepted the lodestar amount submitted by class counsel and applied a risk multiplier of 1.5 to arrive at the final fee award of only $1,147,698.70—a reduction of $885,634.63 from the percentage amount requested in the proposed settlement.
Plaintiffs appealed the district court’s fee award, arguing that the district court both misapplied the lodestar method and erred in refusing to use the percentage method. In affirming the attorneys’ fee award based on the lodestar method, the Seventh Circuit reasoned that the district court did not abuse its discretion because it properly considered the lodestar amount submitted by class counsel and the risk multiplier warranted by the contingent nature of the case. The Seventh Circuit also endorsed the district court’s rationale in trying to award attorneys’ fees more equitably in light of the actual amount paid to the class, stating “that is exactly what we have suggested a district court should do.” The Seventh Circuit firmly rejected plaintiff’s argument that the district court committed legal error by choosing the lodestar method over the percentage method in a class action.