Class Action Counsel Obtained Significant Benefit through Class Action Settlement Following 10-Year Litigation but Requested Multiplier was Excessive given Billing Rates of Class Counsel, Warranting Multiplier of 1.5 rather than 1.79 as Requested New York Federal Court Holds
Plaintiff filed a class action in New York state court against his automobile insurance company following its payment of insurance benefits that allegedly “did not reflect the amount that plaintiff, the insurance adjuster and the dealer had agreed upon. Steinberg v. Nationwide Mutual Ins. Co., 612 F.Supp.2d 219, 220-21 (E.D.N.Y. 2009). Defense attorneys removed the class action to federal court and the district court denied plaintiff’s motion to remand the class action to state court, id., at 221. According to the class action complaint, the insurer “subtracted a $563.17 ‘betterment’ charge reflecting the difference in value between the used engine and the new replacement engine.” Id., at 220. More specifically, the class action “alleged that this betterment deduction was not disclosed in or authorized by his insurance policy” and that the insurer “had taken betterment deductions from millions of insureds with policies similar to his since 1993.” Id. Ultimately the district court granted plaintiff’s motion to certify the litigation as a class action, id., at 221. The litigation dragged on for nearly a decade before it was finally settled, id., at 220. The settlement provides for the insurer to “pay 50% of the total betterment charges that it deducted from the automobile repair estimates of class members who submit valid claims.” Id., at 222. The insurer also agreed to modify its insurance forms, and to pay attorney fees and costs in an amount not to exceed $2.75 million. Id.
While federal courts have awarded attorney fees in class actions either by using the lodestar method or based upon a percentage of the common fund, the district court held that in this case “the latter method would be unworkable because the exact amount paid into the common fund is as yet undetermined.” Steinberg, at 222. Accordingly, the federal court used the lodestar method to determine the appropriate attorney fee award. Id. We do not go into detail in summarizing the court’s ruling. We note that, following its presentation of their lodestar figure, class counsel “requested that the Court exercise its discretion to increase the lodestar figure by applying a multiplier of 1.79 % to increase the total award of costs and fees to $2.75 million-the maximum amount consented to by Nationwide in the parties’ Settlement.” Id., at 223. The district court agreed that class counsel had “achieved an excellent result for the class,” id., at 223-24. The district court also explained at page 224, “Here, the relationship between the requested fee and the Settlement is somewhat difficult to assess because it is not clear, ultimately, how much Nationwide will pay into the common fund. However, the Court notes with approval that the fee award will not be drawn from the common fund but will be paid directly by Nationwide. In this regard, the fee award, however substantial, will have no effect on the monetary relief afforded to class members.” Nonetheless, the court concluded that a multiplier of 1.79 “would be excessive” given that “the lodestar figure is already inflated due to the high billable rates proposed by [class counsel].” Id. Accordingly, it agreed to a multiplier of 1.5, id., at 224-25.