Eighth Circuit Reverses “Windfall” Fee Award to Class Counsel

Earlier this summer we reported that federal courts of appeals are more closely scrutinizing class action settlements that award class counsel outsized sums not reflecting counsels' time spent on the litigation. Last week, the Eighth Circuit joined the trend by reversing an attorneys' fee award of almost $80 million in a "megafund" case that "had barely gotten off the ground before it settled." In re T-Mobile Customer Data Sec. Breach Litig., - F.4th -, 2024 WL 3561874, at *1 (8th Cir. July 29, 2024).

In fall 2021, T-Mobile customers filed more than forty separate individual and putative class actions lawsuits against T-Mobile after their personal information was stolen during a cyberattack. The cases were consolidated into the multidistrict litigation In re: T-Mobile Consumer Data Security Breach Litigation, and the court appointed interim class counsel, who filed a consolidated complaint.

Less than a month after the consolidated complaint was filed, the parties agreed to basic terms of a settlement, which were ratified in a formal agreement executed a month later. The agreement created a $350 million settlement fund for payments to class members, provided class members two years of identity defense and fraud services, and committed T-Mobile to spending an additional $150 million to improve its data security. Class counsel moved for approval of the settlement, which included a request for attorneys' fees totaling 22.5% of the $350 million settlement fund.

The district court approved the settlement and awarded class counsel their requested fees. Thirteen class members objected to the settlement, arguing that the attorneys' fee award was too high. Objectors asserted that awarding fees in the amount of 22.5% of the settlement fund was unreasonable because the litigation was a "megafund" case, and counsels' limited work did not justify almost $79 million in fees. The district court rejected that argument and also struck their objections from the record. Two objectors appealed. The Eighth Circuit reversed, holding that the district court abused its discretion by striking the objections from one of the class members and by awarding class counsel an unreasonable amount of fees for only a few months of work. Although it rejected the objector's request that the court draw a bright-line rule requiring courts to award a reduced percentage in "megafund" cases, it held the fee award was an unreasonable "windfall" based on the "lodestar crosscheck" conducted by the district court. Class counsels' lodestar was about $8.17 million, resulting in a lodestar "multiplier" of 9.6, almost double the 5.3 multiplier the circuit had previously called "high." The court wrote that the award resulted in counsel receiving fees from $7,000 to $9,500 an hour, which "no reasonable class member would willingly pay an attorney to help resolve this claim." Id. at 17.