Parsons v. Volkswagen of America, Inc.

{1 To dispose of the appeal, we must determine a single issue: 1 whether granting attorney fees exceeding $7 million in a multi-jurisdictional, class action law suit constitutes an abuse of discretion where $45,780 was awarded to the class as a whole. Here, the trial court originally determined the appropriate attorney fees to be $3,610,719.15 based on State ex rel. Burk v. City of Oklahoma City, 1979 OK 115, 598 P.2d 659 and the directives of 12 O.S. Supp.2009 § 20232 Hess filed a motion to reconsider based on the fees awarded in Berry v. Volkswagen Group of America, 397 S.W.3d 425 (Mo.*6652013), a Missouri Supreme Court case involving a class action against Volkswagen related to defective window regulator claims. The trial court considered the Missouri case; and, adopting the identical analysis utilized in reaching a determination that the appropriate fee award was approximately $3.6 million, the trial court amended its order to reflect a multiplier of 1.9 for an adjusted award of $7,221.438.30.3

T2 In calculating the lodestar, the trial court included hours in failed, out-of-state litigation concerning similar issues to those presented here. Based on these facts, we hold that the $7 million attorneys' fee award constituted an abuse of discretion.

RELEVANT FACTS AND PROCEDURAL HISTORY

3 In 2005, Hess filed a class action suit against Volkswagen for breach of express and implied warranties relating to an improperly designed front spoiler. The claimants argued that there were design defects which caused the Jetta's 4 front spoiler cover to catch on curbs or wheel-stops resulting in damage to the front spoiler. Certification of the class was upheld by the Court of Civil Appeals in 2009.5 Plaintiffs in Ohio filed a similar action in 2004. Volkswagen successfully decertified a Florida cause in July of 2005.6

1 4 The parties entered a settlement agreement in December of 2011. Ohio residents filed an application to intervene on July 31, 2012. The Amended Order of Final Judgment Granting Final Approval of Settlement and Certification of Class was entered in November of the same year.

T5 In conformance with the settlement, Volkswagen notified in excess of two million owners and lessees of class vehicles nation*666wide. The parties agree that the average pay-out to each successful applicant for repair costs constituted a full recovery. No Oklahoma citizens received any settlement pay-out. Claims from other states totaled 310 for a distribution by Volkswagen of $45,780 or approximately $140.00 per claimant.7

16 As a part of the settlement, Volkswagen agreed to pay the claimants' reasonable attorney fees and costs.8 Hess filed its Brief in Support of an Award of Attorneys' Fees, Expenses and Class Representative Incentive Awards on October 2, 2012 seeking a combined fee and expense request of $15,000,000.00.9 On April 10,2013, the trial court entered an order granting Hess attorney fees of $8,610,719.15 and expenses of $146,133.06. The attorney fee award included a downward adjustment 10 of 5% to accommodate for fees incurred in the failed Florida litigation. In support of the award, the trial court provided detailed analysis of the legislatively enacted factors found in 12 O.S. Supp.2018 § 2023.

T7 The day before the order awarding attorney fees issued, the Missouri Supreme Court decided Berry v. Volkswagen Group of America, 397 S.W.3d 425 (Mo.2013). In Berry, the Missouri court determined that no abuse of discretion occurred by the trial court's application of a 2.0 multiplier to the lodestar. Relying on the Missouri case, Hess filed a Motion for Reconsideration of the Order Granting an Award of Fees and Expenses on April 19, 2013.

T8 The trial court considered Berry and, ultimately, applied a multiplier of 1.9 to its earlier determined lodestar of $3,800,757.00 resulting in an adjusted fee award of $7,367,571.36. Volkswagen appealed, filing a timely Petition In Error on July 12, 2018. On February 25, 2014, the claimants' motion to retain was granted. The State Chamber filed an amicus brief April 1st. After defects in the record were corrected, we received the same from the trial court on June 20, 2014.

STANDARD OF REVIEW

19 The reasonableness of attorney fees depends on the facts and cireamstances of each individual case and is a question for the trier of fact.11 The standard of review for considering the trial court's award of an attorney fee is abuse of discretion.12 Rever*667sal for an abuse of discretion occurs where the lower court ruling is without rational basis in the evidence or where it is based upon erroneous legal conclusions.13

110 Appropriate steps to determine attorney fees begin with perusal of detailed time records to determine a lodestar fee arrived at by multiplying the attorney's hourly rate by the time expended. Next, in class action suits, the fee may be enhanced by application of certain factors to be considered in arriving at a fair and reasonable fee for class counsel. The considerations are delineated by the Legislature in 12 0.8. Supp.2018 § 2023 and include: time and labor required; novelty and difficulty of the questions; skill required to perform the legal services; preclusion of other employment; customary fee; whether the fee is fixed or contingent; time limitations; amount involved and results obtained; experience, reputation, and abilities of attorneys involved; undesirability of the case; nature and length of the professional relationship with the client; awards in similar causes; risk of recovery; and whether any benefits of the recovery take a non-cash form.14 In all cases, the attorney fees must bear some reasonable relationship to the amount in controversy.15

111 UNDER THE FACTS PRESENTED, THE TRIAL COURT ABUSED ITS DISCRETION IN COMPUTING THE LODESTAR AND IN APPLYING A MULTIPLIER OF 1.9 TO THE SAME.

{12 Hess originally sought $15 million in attorney fees. Here, the claimants assert that the trial court did not abuse its discretion in granting the motion for reconsideration and applying an incentive fee of 1.9 to its originally calculated lodestar, which included fees from the Florida failed certification proceeding. It argues no error resulted from the trial court's reliance on a single out-of-state opinion in making its incentive decision, noting that Oklahoma law compels consideration of awards in similar causes.

1 13 Volkswagen argues that including the hours attributable to the failed Florida litigation in determining the lodestar was inappropriate and that application of an incentive fee of 1.9 to the calculated fee was unwarranted. The claimants contend that the Missouri case upon which the court relied is contrary to Oklahoma law and distinguishable We agree with Volkswagen's assertions.

1 14 a. Including attorney fees incurred in the failed Florida litigation in computing the fee award was a clear abuse of discretion.

115 Juan B. Bauta represented Florida class members in Volkswagen of America, Inc. v. Sugarman, 909 So.2d 923 (Fla.App.2005) for relief identical to that sought in the instant cause. The Florida claimants alleged that, as a result of a design defect, the class suffered repeated damage to the front spoiler assembly of their Volkswagen Jettas.

116 The trial court certified the class. The Florida Appellate Court determined that the trial court abused its discretion in reaching the certification ruling. It reasoned that the element of causation would require an individual inquiry into each plaintiff's claim. Therefore, the cause was reversed and remanded for decertification. Rehearing was denied.

1 17 Volkswagon asserts that Juan B. Bau-ta (Bauta) billed some 808.13 hours in the failed Florida litigation. It asserts that including these hours in the raw lodestar total in the instant cause constituted an abuse of discretion. Hess argues that inclusion of the hours was appropriate as Bauta's experience in Florida contributed to the successful settlement of the instant cause and allowed Florida residents to be included within the *668settlement class for payment of damages. We disagree with the claimant's arguments.

118 Here, this Court had no opportunity to review the certification decision. Volkswagen failed to timely file its certiorari petition, requiring this Court to dismiss the cause on September 21, 2009. Therefore, the Court of Civil Appeals ruling on certification is the law of the case.

119 In Hess v. Volkswagen of America, Inc. [Hess I], 2009 OK CIV APP 84, 221 P.3d 132, the Court of Civil Appeals stated:

VW relies on a Florida case, Volkswagen of America, Inc. v. Sugarman, 909 So.2d 923 (Fla.Ct.App.2005), which, like the instant case, concerns a class composed of Jetta owners whose front bumper assemblies had been damaged as a result of contact with a wheel stop or curb. The Florida appellate court noted that, under Florida law, the "predominance requirement is not satisfied when the claims involve factual determinations which are unique to each plaintiff." Id. at 924. It reversed class certification because "the key element of causation mandates individual inquiry into each plaintiff's claim," including such factors as vehicle condition, type of damage, and actions of the driver.

The Sugarman holding is clearly inconsistent with Oklahoma law. [Italics in original. Bold supplied. Footnotes omitted.]

T20 Most certainly, in arguments before the Court of Civil Appeals, Hess opposed application of Sugarman to the certification decision. Such opposition leads to the conclusion that Hess asserted either that Florida law was substantially different from that of Oklahoma's for certification purposes or that Bauta's representation may have been inadequate. Nevertheless, whether either, both, or none of these deductions are correct, arguments that Mr. Bauta's experience in the failed Florida litigation was beneficial to the conclusion of the instant cause is unconvine-ing.

21 There was no issue of settlement addressed in Sugarman and the Court of Appeals concluded that the Florida law on certification did not comport with Oklahoma's on the same subject. Furthermore, Hess provides no citation of authority for the proposition that fees incurred in a cause independent of another may be collected in related litigation.

22 Under the facts presented and without supporting jurisprudence, it is difficult for this Court to conceive how Bauta's experience in Florida was of assistance to Hess here, especially where the attorney was unsuccessful at the certification stage in Florida. Therefore, we hold that the inclusion of Bauta's legal fees attributable solely to the Florida litigation in the lodestar calculation was an abuse of discretion.

I 23 b. The trial court abused its discretion by applying a 1.9 incentive to the lodestar fee based on the identical analysis utilized to support an award of less than half such an award.

124 The trial court originally awarded $3,610,719.15 in attorneys' fees. In so doing, the court found "that the results obtained by Class Counsel do not mandate an increase in the fee award." It determined further that "a slight reduction in the lodestar is warranted based on the inclusion of attorney fees from the Sugarman litigation." Taking in consideration the monetary outcome of the case and balancing that with the fees awarded, the trial court determined that "a 5% reduction in the lodestar is justified.16

{25 On reconsideration, the trial court adopted, straight out of its prior order and without change, its analysis based on Burk v. City of Oklahoma City, 1979 OK 115, 598 P.2d 659 and 12 O.S. Supp.2009 § 2013(G)(4)(e) that it had originally utilized to determine that the reasonable attorneys' fee would be $3.6 million.17 It then looked to Berry v. Volkswagen Group of America, Inc., 397 S.W.3d 425 (Mo.2013).

*669€ 26 The trial court noted that: the facts of Berry and those here were similar; the instant litigation seemed to be the more intense of the two; although Missouri law was fundamentally different from Oklahoma, it appeared that the Missouri standards were the more restrictive; the uncertainty of recovery here would have convinced most attorneys to abandon the litigation; the Florida litigation was necessary to the successful prosecution of this case; and noted the possible chilling effect its original ruling might have on future litigants facing complex class action cases. On consideration of these factors, the trial court readopted its original lodestar of $3,800,757.00, an amount not representing the 5% reduction. in consideration of the Sugarman case. It then applied a multiplier of 1.9 for an adjusted fee of $7,221,438.30.

127 Before discussing Berry, we note our determination, supra, that inclusion of attorney fees in the lodestar calculation for Bauta's time associated with the failed Sugarman litigation was unwarranted and an abuse of discretion. Furthermore, we disagree with the trial court's conclusion that Missouri's standards for the award of attorneys' fees in class action litigation are more restrictive than Oklahoma's. While Missouri courts need only consider eight factors in making an enhancement decision,18 the Oklahoma trial bench must consider the thirteen factors outlined in 12 0.8. Supp.2018 § 2023.19

128 Berry brought a class action against Volkswagen related to defective window regulators installed in some of its vehicles. On appeal from the trial court's award of attorney fees, the Missouri court determined that the trial court did not abuse its discretion in determining the lodestar amount of $3,087,320 or in applying a multiplier of 2.0 for a total award of $6,174.650 in attorneys' fees. In concluding that the trial court did not abuse its discretion, the court in Berry focused on three factors considered by the trial court: any award to class counsel was contingent; taking the case precluded class counsel from accepting other employment; and the time required for trial delayed work on class counsel's other work. The Berry court stated:

These findings support a finding that a multiplier was necessary to ensure a market fee that compensated class counsel for taking this case in lieu of working less risky cases on an hourly basis.

1 29 Like the fees in Berry, fees here were contingent in nature. Nevertheless, the trial court noted that there was "no evidence of any lost opportunity by any Class Counsel" to take on other clients or cases. Rather, it appears that there is evidence that counsel had every opportunity to participate in other litigation and nationwide class actions.20 This indicates that at least two of the factors relied upon in Berry to support the 2.0 multiplier are absent here.

180 Perhaps more instructive here than Berry is In re Volkswagen & Audi Warranty Extension Litigation, 692 F.3d 4 (1st Cir.2012). Although Audi concerned the primary issue of whether federal or state law would govern the settlement of a class action, its analysis of the application of a multiplier provides guidance here.

T31 Audi involved a class action alleging improprieties in Volkswagen's warranty extension or reimbursement program as it related to engine defects in certain Volkswagen and Audi vehicles. As is the case here, protracted litigation resulted in a settlement *670agreement providing that Volkswagen would pay "reasonable attorneys' fees and expenses."

32 The claimants' attorneys in Audi argued that they should receive $37.5 million in attorneys' fees from what they anticipated would be a $414 million recovery. A special master recommended an award of $30 million. Applying a lodestar calculation, the district court calculated fees at $500.00 per hour to produce a base lodestar value of $7,734,000. It applied a multiplier of 2.5, resulting in a fee of $19,835,000. It utilized these figures to support a $30 million fee award.

133 On appeal, the appellate court first determined that state rather than federal law was applicable to attorney fee calculations. The cause was remanded for application of Massachusetts law. As to the enhancement figure, the Court of Appeals for the First Cireuit noted:

[A] question remaining on remand is the question of the appropriate contingency enhancement, if any. The district court's choice of a multiplier figure was not based on Massachusetts law nor justified by the record, and it is therefore vacated.... As to the last question, the actual claims data collected by the settlement administrator is relevant to the enhancement question and in determining the appropriate fee. [Emphasis provided.]

Although the settlement value in Audi was estimated to be $414 million, Volkswagen contended that the actual number would be in the $50 million range.21

'I 34 A nationwide class of 2,103,229 owners was certified here. At certification, Volkswagen admitted having received complaints from 663 persons involving the Jetta front spoilers being damaged from contact with a parking block or wheel stop. If all of the class had been awarded the $140 in damages provided to claimants, the total settlement amount would have approached $295 million. History has shown that only 310 valid claims have been filed and there has been a pay-out for damages for the minimal amount of $45,780. No payments went to Oklahoma residents.

135 This Court has long recognized the importance of the relationship between the amount sued for in a case seeking only money damages and the results obtained.22 As defined by Hess, the "class" included in excess of two million Jetta owners. Although in excess of 800 members have received full recovery for damage repairs and the warranty period has been expanded by twelve months through the settlement, if the payout is spread across the entirety of the defined class, recovery is minuscule.

136 When we consider the award to the class, as did the federal court in Audi, we have little difficulty in concluding that application of a 1.9 enhancement figure to the lodestar amount constituted an abuse of discretion. Nevertheless, we are loath to go so far as did the federal court and to instruct the district court that the record will not support application of a percentage amount to the lodestar figure. Our hesitancy lies in the fact that we are aware that the trial court is cognizant that multipliers may adjust a lodestar upwards or may diminish the award.23

CONCLUSION

T 37 The decision to file a nationwide class action can be the cause of massive amounts of work. The class counsel, being the masters of their complaints and all attorneys and their clients being servants to them, must *671consider the decision to file in that light.24 Nevertheless, the use of class-action procedures for litigation of individual claims may offer substantial advantages for named plaintiffs. It may motivate them to bring cases that, for economic reasons, might not be brought otherwise.25

138 Trial judges have wide discretion in making reductions based on estimates of time spent on activities that are non-compen-sable in whole or in part.26 Here, the trial court abused its discretion in not deducting the entirety of the fees claimed in the failed Florida litigation when calculating the lodestar.

$389 There is a strong presumption that the lodestar method, alone, will reflect a reasonable attorney fee.27 On reconsideration, the trial court applied a 1.9 increase of attorney fees based largely on the Missouri Supreme Court case, Berry, supra, a nonbinding pronouncement on Missouri law, and factors not existing in the instant cause. No rational basis for the trial court's adjustment of the attorney fees based on the same factors which it determined did not warrant enbancement in its original order exists. Therefore, application of a 1.9 enhancement to the lodestar constituted an abuse of discretion.

{40 The cause is reversed and remanded. The attorney fees, as herein modified, are to be assessed against Volkswagen and awarded to Hess in a manner consistent with this opinion and as ordered by the trial court.

REVERSED AND REMANDED.