Guest Commentary

By Lauren Murphree, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

Plaintiffs’ attorneys may have just discovered their fee ceiling, thanks to a court’s rejection of the particularly egregious fee award in the multi-district class-action case Volkswagen Group of America  v. Peter J. McNulty Law Firm. Less than two months after the Ninth Circuit rejected attorneys’ fees in a large class-action settlement against Kellogg, the First Circuit has followed suit in unanimously rejecting an even greater award: over $35 million in attorneys’ fees for work on what the defendants estimated was an $11 million claim.

What sets Volkswagen Group apart from that and most other attorneys’ fee reviews, however, is that it was Volkswagen itself, not an individual or institutional class member, who challenged the fee.

The issue in the Volkswagen appeal centered on the appropriate source of law—plaintiffs argued for the application of federal law, which allowed for the large fee award, while Volkswagen claimed that New Jersey law should apply. Neither side entirely prevailed however, as the First Circuit deemed Massachusetts law to be most appropriate, based on a two-part analysis. First, the court decided whether federal or state law applied based on Erie v. Tompkins. Second, after finding that state law clearly applied to the issue of contract interpretation, the court moved to a choice of law analysis. That analysis was complicated because Volkswagen Group was a multi-district litigation case and the settlement agreement expressly disclaimed any agreement as to governing law.  The First Circuit remanded the case for a determination of the proper reasonable fee award under Massachusetts law.

Hopefully, this adds momentum to the growing trend of courts and corporations standing up to unbalanced, outrageous settlement agreements and fee awards in class-action litigation. While it can be advantageous for defendants to settle such suits quickly, it appears there is a line to be drawn after all.