Ninth Circuit Rejects Percentage Method To Determine Attorneys’ Fees In Class Action Settlement

In Collado v. Toyota Motor Sales, U.S.A., Inc., Nos. 11-57013, 11-57023, 11-57030 (9th Cir. Dec. 16, 2013), the Ninth Circuit Court of Appeals reversed a district court’s attorneys’ fees award in a class action settlement alleging malfunctioning Toyota Prius headlights.  The Ninth Circuit held that the district court incorrectly applied federal law instead of state law to determine the amount of recoverable attorneys’ fees.  The district court should have used California’s lodestar method (reasonable hours times reasonable rates) and not the federal percentage of recovery method (25% benchmark).

In this case, the plaintiffs’ attorneys asked the federal district court to award them attorneys’ fees in a class action settlement using California’s lodestar method.  They claimed to have worked 6,881 hours on the lawsuit.  They requested an award of $4.7 million based on hours worked, times rate, times a requested multiplier of 1.5.  The district court rejected the plaintiffs’ request and instead applied the percentage method.  The district court noted the class recovery at $3.83 million and determined 20% of this as an appropriate fee award (slightly below the 25% benchmark because the case was not complex).  The district court rejected the plaintiffs’ request for $4.7 million in attorneys’ fees and instead awarded only $766,000.

The Ninth Circuit held that the district court incorrectly applied the percentage method instead of the lodestar method.  The plaintiffs sought fees under California’s private attorney general statute, which awards fees to plaintiffs’ lawyers whose class action results in the significant enforcement of “an important right affecting the public interest.”  Cal. Code Civ. Proc. § 1021.5 (2013).  Under this law, plaintiffs’ attorneys’ fees are calculated using the lodestar method.  The Ninth Circuit held that because it had jurisdiction based on diversity, state law applied to both the right to recover attorneys’ fees and the method for determining the amount of those fees.

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