THERESA STUMPF, on behalf of herself and others similarly situated, Plaintiff,
PYOD, LLC, et al., Defendant.
MEMORANDUM OPINION AND ORDER
GERALDINE SOAT BROWN, Magistrate Judge.
This matter is before the court in connection with the plaintiff's Motion for Final Approval of the Class Action Settlement and Request for Attorneys' Fees. [Dkt 70.] The court ordered class counsel to file a supplemental memorandum addressing whether attorneys' fees exceeding the lodestar may be awarded in a class action based on a statute that includes a fee-shifting provision in a settlement that produces a fund for the class and, if so, whether the fees requested by class counsel were reasonable. [Dkt 71.] For the reasons below, the court finds that class counsel may receive fees that exceed the lodestar. Nevertheless, counsel's submissions do not allow the court to make a final determination of the amount of fees to be awarded. Class counsel shall, therefore, file an additional supplemental memorandum by November 6, 2013, addressing those issues.
On June 7, 2013, the court preliminarily approved the class action settlement in this Fair Debt Collection Practices Act ("FDCPA") case. [Dkt 68.] The FDCPA contains a fee-shifting provision. 15 U.S.C. § 1692k(a)(3) ("any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable[, ].... in the case of any successful action to enforce the foregoing liability, " for costs and attorneys' fees). The complaint sought statutory fees from the defendants directly. (Compl. at 7-9.) [Dkt 1.] The proposed settlement, however, provided that "plaintiff's attorneys' fees and costs, subject to approval from this Court and not to exceed 30% of the Settlement Fund" would be paid from the class settlement fund. (Joint Mot. for Preliminary Approval of Class Action Settlement at ¶ 7(b).) [Dkt 63.]
On October 1, 2013, the court held a final approval hearing in connection with the plaintiff's Motion for Final Approval of the Class Action Settlement and Request for Attorneys' Fees. In that motion, class counsel requested, among other things, that the court award $45, 188.40 in attorneys' fees and costs out of the settlement fund. (Pl.'s Mem. Supp. Final Approval at 11.) The actual fees and costs incurred by class counsel are $24, 263.50 and $597.98, respectively. ( Id. at 13.) The difference between the amount requested and the actual fees and costs is $20, 326.92. If the court accepts the class counsel's proposed fees and costs, each claimant will receive approximately $124. ( Id. at 1.) If counsel receives their actual fees and costs, each claimant will receive approximately $150. ( See id. )
During the final approval hearing, the court found that the settlement was fair and reasonable, and that notice was appropriate. [Dkt 71.] However, the court questioned whether attorneys' fees exceeding the lodestar (a reasonable fee times reasonable hours, as detailed in Hensley v. Eckerhart, 461 U.S. 424, 433-37 (1983)), may be awarded in a class action based on a statute that includes a fee-shifting provision in a settlement that produces a fund for the class and, if so, whether the fees requested were reasonable. It thus ordered class counsel to file a memorandum addressing those issues. Because a fee award exceeding the lodestar decreases the amount due to each claimant but does not affect the bottom line, the defendants take no position regarding the calculation of fees.
Class counsel requests fees from the common fund that exceed the lodestar. For the reasons discussed below, the court has the authority to award attorneys' fees from the common fund that exceed the lodestar even though the FDCPA contains a fee-shifting provision. With respect to the amount of fees, as detailed below, counsel must file a second supplemental memorandum.
A. The Court's Authority to Award Attorneys' Fees Exceeding the Lodestar in a FDCPA Common Fund Case
There are two ways to calculate the attorneys' fees that may be awarded to a prevailing party. Under the "common fund doctrine'... a reasonable fee is based on a percentage of the fund bestowed on the class." Blum v. Stenson, 465 U.S. 886, 900 n. 16 (1984). The common fund doctrine is based on the idea that individuals who benefit from litigation should share the cost of that litigation. Sutton v. Bernard, 504 F.3d 688, 691-92 (7th Cir. 2007). In contrast, "the lodestar method produces an award that roughly approximates the fee that the prevailing attorney would have received if he or she had been representing a paying client who was billed by the hour in a comparable case." Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 551 (2010) (emphasis in original). Since the Hensley decision, the lodestar figure has been the "guiding light of our fee-shifting jurisprudence." Id. at 551 (internal quotations and citations omitted). The court may enhance the lodestar amount in "rare circumstances in which the lodestar does not adequately take into account a factor that may properly be considered in determining a reasonable fee." Id. at 554. For example, the Supreme Court has held that it is inappropriate to apply a risk multiplier to enhance an attorneys' fee award under the fee-shifting statutes applicable to cases brought under environmental statutes. City of Burlington v. Dague, 505 U.S. 557, 565-67 (1992). The Seventh Circuit has held that Dague applies to all statutes that contain a fee-shifting provision. Barrow v. Falck, 977 F.2d 1100, 1105 (7th Cir. 1992).
Even though the FDCPA contains a fee-shifting provision, class counsel here contend that they may receive a percentage of the common fund that exceeds the lodestar. They assert that the rule that a fee award cannot exceed the lodestar if the basis for fees is a statutory fee-shifting provision only limits a defendant's liability for fees. They then reason that because the class will be responsible for attorneys' fees, not the defendant, they may receive a reasonable fee from the common fund that is greater than the lodestar. In support, they direct this court's attention to the Seventh Circuit's decision in Skelton v. Gen. Motors Corp., 860 F.2d 250 (7th Cir. 1988), in which the court endorsed the concept of enhancing the lodestar in a common fund case based on contingency. (Pl.'s Suppl. Mem. at 1.) [Dkt 72.]
Skelton, however, pre-dates Dague, which as noted above, prohibits the use of fee enhancements in cases where the entitlement to attorneys' fees is based on a statutory provision. In Florin v. Nationsbank of Georgia, N.A., which post-dates Dague, the Seventh Circuit confronted the precise question presently before this court: whether "when a case is initiated under a statute with a fee-shifting provision [but] is settled with the creation of common fund... statutory fee principles should govern in whole or in part the attorney fee award.'" 34 F.3d 560, 563 (7th Cir. 1994) (quoting Skelton, 860 F.2d at 254).
The court answered the question by holding that "risk multipliers remain available in common fund cases after Dague. " Id. at 565. Specifically, the court held that in an ERISA case, "the terms of ERISA's fee-shifting provision do not purport to control fee awards in cases settled with the creation of a common fund, nor does the operation of common fund principles in this case conflict with the provision's intended purpose." Id. at 563. It then noted that the parties' settlement agreement contemplated that the settlement amount included an unspecified sum for class counsel's fees, and found that Dague 's prohibition against the use of risk multipliers in statutory fee cases was inapplicable because the source of attorneys' fees was a settlement fund created to benefit the plaintiff class. See id. at 564-65. The court concluded, "We therefore reiterate the law of this circuit that in common fund cases, the decision whether to use a percentage method or a lodestar method remains in the discretion of the district court." Id. at 566.
Recently, the Seventh Circuit revisited the fee issue in a Fair Credit Reporting Act ("FCRA") case where the attorneys' fees were payable out of a common fund created by a settlement as opposed to the FRCA's fee-shifting provisions. In re Trans Union Corp. Privacy Litig., 629 F.3d 741, 744 (7th Cir. 2011); see 15 U.S.C. §§ 1681n(a)(3) & 1681o(a)(2) (a prevailing plaintiff in a FCRA case is entitled to attorneys' fees if a defendant violates the FCRA willfully or negligently). The district court calculated attorneys' fees using "the percentage-of-fund' method, notwithstanding [its] general preference for the lodestar' approach." In re Trans Union Corp. Privacy Litig., No. 00 C 4729, MDL 1350, 2009 WL 4799954 at *8 (N.D. Ill.Dec. 9, 2009). One of the attorneys appealed, arguing that her percentage of the common fund was too small. The Seventh Circuit agreed, ...