What law is used to govern attorney’s fees in MDLs? The answer is determined by a combination of the Erie Doctrine and choice of law rules. The Erie doctrine determines whether a federal court will apply state or federal law to a particular issue, with federal applying to procedural issues, and state law applying to substantive issues. Each state has its own choice of law rules, which determine which state’s law will apply to a case, usually depending on where events in a case took place. Under the Supreme Court’s decision in Klaxon Co. v. Stentor Electric, 313 U.S. 487 (1941), once a court determines that state substantive law will apply to an issue, it uses the choice of law rules for its forum state to decide which law to apply. In a multidistrict litigation this can make the issue quite complex, because the MDL court treats the transferor courts as its fora.1Depending on where an MDL is located and the particular fee issue in question, federal or state law may be applied.
A 2012 decision from the First Circuit in In re Volkswagen & Audi Warranty Extension Litigation, 692 F.3d 4 (1st Cir. 2012), determined that a fee awarded as part of a settlement agreement was really a question of state contract law, and therefore a substantive issue of state law under Erie. A settlement had been approved, including a $30 million attorney fee under the common fund doctrine. After deciding that it was a state contract law issue, the First Circuit court reviewed the choice of law rules for contractual interpretation from the 7 transferor states and determined that all of the states would use Massachusetts contract law to govern the settlement, primarily because the settlement was signed and would be carried out there. The fee was ruled to be unreasonable under Massachusetts law because it was based on the common fund method, while Massachusetts used the lodestar method and a multi-factor test to determine reasonable fees. The fee was too large according to Massachusetts’ methods of calculation.
A 1995 case from the 3rd Westinghouse Electric, Corp., 72 F.3d 414 (3rd Cir 1995), was not an MDL, but a federal diversity personal injury case in New Jersey. The plaintiffs and their attorneys had agreed to a contingent fee arrangement that was in excess of New Jersey’s state law limiting maximum contingent fees. The court admitted that fee shifting laws are substantive, but decided that contingent fee limits were procedural. The Court ruled that federal law should apply; in this case the local rules in the District of New Jersey copied the state fee limitation. However, the court’s interpretation of the local rule was based entirely on New Jersey state court decisions, and the decision ultimately reached was very likely the same as would have been reached in a New Jersey state court.
Determining which fee rules will govern an MDL can be tricky. Note that both cases used above treat fee shifting and fee awards as substantive issues under Erie, but fee limits are treated differently. The type of law implicated is also important, because choice of law rules vary depending on which type of law is being chosen.
1 See In re Volkswagen & Audi Warranty Extension Litigation, 692 F.3d 4, 17-18 (1st Cir. 2012) (citing multiple Circuit Courts for this rule).