ST. LOUIS — The U.S. Court of Appeals for the Eighth Circuit reversed a fee award decision in a case involving T-Mobile, finding that a lower court had not adequately justified a high multiplier and had potentially overstepped by awarding a sum that might be deemed excessive given the case's scope and duration.
Circuit Judge Morris Arnold authored the July 29 decision. The matter was remanded for reconsideration of the attorneys' fees.
In the case, after a data breach exposed the personal information of approximately 76.6 million T-Mobile customers, several class actions were filed against the company. The cases were consolidated in the U.S. District Court for the Western District of Missouri.
A settlement was reached and T-Mobile agreed to a $350 million fund for affected customers, covering various forms of compensation and offering additional identity protection services.
Class counsel requested $78.75 million in attorneys' fees —approximately 22.5% of the settlement fund.
Two class members, Cassie Hampe and Connie Pentz, objected to this fee request, claiming it was excessive. The district court dismissed their objections, finding them to be made in bad faith and struck them from the record.
Hampe's objection was dismissed because the court considered her a serial objector with a history of filing frivolous claims.
Pentz's objection was struck due to her non-cooperation with the discovery processes required by the court.
On appeal, it was determined that the district court abused its discretion by striking Hampe’s objection. The appellate court agreed that Rule 12(f), which allows striking of pleadings, did not apply to class member objections.
Arnold wrote that because of this, Hampe should have been permitted to challenge the fee award. However, the court upheld the striking of Pentz’s objection due to her failure to comply with court orders.
The main issue on appeal was whether the fee awarded to class counsel was reasonable and the court considered two primary methods for determining attorneys' fees: the lodestar method, based on hours worked, and the percentage method, which calculates fees as a percentage of the settlement fund.
The district court had used the percentage method, awarding 22.5% of the $350 million fund, which was higher than typical percentages for megafund settlements.
Hampe had argued that in large settlements, attorneys' fees should be proportionally lower due to the economies of scale.
Although the district court found the fee award reasonable, it was criticized for potentially awarding an excessive amount given the relatively short duration of the case and the work involved.
"The district court expressed concern that lowering fee percentages might 'encourage class counsel to pursue quick settlements at sub-optimal levels,'" Arnold wrote. "While that could be true, it could also be true that awarding counsel ten times their hourly rates in the early stages of a case might encourage them to settle quickly at suboptimal levels so they can turn their attention to the next promising case on the horizon before diminishing marginal returns to their labor kick in."
Arnold wrote that rational, self-interested attorneys would probably prefer to spend a year's work settling five actions at ten times their typical hourly rates than litigating one action at twice their hourly rate.
"So even if preventing quick settlements at sub-optimal levels was the court's aim, we aren't sure the award it gave achieved it," he wrote. "For all the reasons adverted to, we hold that the court abused its discretion in awarding this fee in the circumstances."
The court observed that the multiplier applied to the lodestar calculation was unusually high, suggesting that the awarded fees might be disproportionate. The court denied the parties' motions to supplement the record as moot and reversed the award of attorneys' fees and remanded the case for further proceedings.
The appellees were represented by Norman Siegel, of Kansas City; James Pizzirusso, of Washington, D.C.; Cari C. Laufenberg, of Seattle; Steven M. Nathan, of New York City; and Chris Springer, of Santa Barbara, Calif.
The appellant is represented by Robert William Clore, of Corpus Christi, Texas; Anthony E. LaCroix, of Kansas City; and John Jacob Pentz III.
Attorneys did not respond to requests for comment.
U.S. Court of Appeals for the Eighth Circuit case number: 23-2744