A class action was brought against Welspun for underpayment of its employees under the FLSA and State Law, and the parties negotiated a settlement for the plaintiffs’ wage claim, costs, and attorneys’ fees. Under the agreement, Welspun would pay $211,666.36 to the first opt-in class and certain amounts to each member of the second opt-in class, whose members had not yet been determined; Welspun would also be required to pay the Sanford Law Firm $89,000 in attorneys’ fees and costs for the first opt-in class and additional attorneys’ fees that were dependant on the number of people opting into the second class. The parties filed a joint motion for approval of the settlement agreement, which was denied, because the District Court could not determine the reasonableness of the agreement without certain information, such as the number of people in each opt-in class, Sanford’s billing records, and an example of Sanford’s contingency-fee agreements with the opt-in classes.

The parties went back to the drawing board and reached a new agreement, under which the first opt-in class would receive the same amount ($211,666.36), but this time the second opt-in class, whose members were now determined, was slated to receive $57,673.24. The attorneys’ fees and costs were set at $96,000, and the parties included with the motion a breakdown of the classes’ members, Sanford’s billing records, and examples of Sanford’s contingency agreements. After reviewing these materials, the district court again denied the parties’ joint motion, determining that the parties had not negotiated the plaintiffs’ wage claim separately from the attorneys’ fees, as required by Barbee v. Big River Steel, 927 F.3d 1024, 1027 (8^th Cir. 2019).

Finally, the parties submitted a third settlement agreement that included the same amounts for the wage claims, but no provision for attorneys’ fees.  The settlement was approved, and the claims were dismissed.

The parties could not come to a new agreement regarding costs and attorneys’ fees, so the law firm filed a fee petition seeking $96,000 on the basis that that was the amount the parties had previously agreed to. Alternatively, the plaintiffs argued that $96,000 was a reasonable fee based on the lodestar method.

The District Court, however, awarded only $1.00, based on the conduct of the plaintiffs’ firm and its billing practices.

On appeal, the U.S. Eighth Circuit vacated this award: “The district court must calculate the lodestar.  Although the district court need not explicitly state which hours it finds reasonable, it must at least calculate the hourly rate and the reasonable number of hours worked. It may then reduce the lodestar calculation by considering the appropriate factors, including unprofessional conduct.”

In this case, however, “the district court did not calculate the lodestar. Initially, it properly determined the prevailing hourly rate for SLF’s attorneys. But its analysis did not multiply the hourly rate by the reasonable number of hours worked. In fact, the district court did not determine the number of hours SLF reasonably worked, nor did it multiply the hourly rate by anything. Instead, the district court only broadly noted SLF’s billing practices that the court believed warranted a reduction in reasonably expended hours. Because the district court did not determine the number of hours reasonably expended, it could not have multiplied that number by the hourly rate…. Based on the record before us, it is unlikely that a $1.00 attorneys’ fee is reasonable. The plaintiffs obtained an almost $270,000 settlement, and SLF likely performed some reasonably expended hours. But without any reference to the lodestar amount, the district court said it awarded $1.00 because it could not award any less. Without a supporting rationale based on the lodestar calculation and reduction, this was error….

“The district court also noted that, if its $1.00 award was improper, it would award $25,000 because that was the amount unreasonably rejected by SLF in Welspun’s August 2019 offer. This amount also lacks a basis in the lodestar calculation. It may be that $25,000 is a reasonable amount of attorneys’ fees, but we cannot conduct a meaningful review of the district court’s determination on this record. Because the record contains no lodestar calculation, we vacate the award of attorneys’ fees. We note that it is well within the district court’s broad discretion to consider the party’s unprofessional conduct in the case. But this consideration should come after the district court calculates the lodestar and has moved on to reducing that number.”

Judge Colloton, dissenting, provided a contrary view: “When a lawyer representing employees who sue for unpaid wages simultaneously engages in settlement negotiations over the merits of the claim and his own fee, a significant conflict of interest between client and attorney is created. In combined negotiations, plaintiffs’ counsel negotiates a fee ultimately destined for his pocket when all thoughts ought to be singlemindedly focused on the interests of his clients. The defendant employer, for its part, is interested only in disposing of the total claim, and is therefore indifferent to the allocation of a settlement between plaintiffs’ counsel and the plaintiffs. With no resistance from the defendant, there is little to deter plaintiffs’ counsel from urging settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees. The district court was thus well advised to scrutinize the settlement for signs that such a conflict of interest infected the agreement.  In conducting its review, the district court uncovered not only that the law firm representing the plaintiffs failed to negotiate the merits and attorney’s fees separately, but that the conflict of interest tainted the entire settlement agreement. During negotiations, the law firm attempted to persuade the defendant, Welspun Pipes, to agree to an exorbitant amount of attorney’s fees by emphasizing that the settlement was a ‘substantial discount’ on total liability and fees, and that Welspun Pipes was getting a ‘pretty sweet deal’ on some of the plaintiffs’ claims. The district court cried foul, reasoning that the law firm’s attorneys knew the hand they were dealt with a solid case on the merits, and used that to squeeze excessive fees. The majority, however, is fixated on whether the district court calculated a lodestar amount of attorney’s fees based on the number of hours worked and the appropriate hourly rate. That concern is misplaced here: the whole point of the district court’s order is that the lodestar amount of fees was immaterial on this record, because counsel’s egregious conduct warranted an award of a de minimis fee, if any at all….  The litigation did achieve a settlement for the employees, but it came in a relatively straightforward FLSA case that involved very little ‘legal’ work, with the employer doing the heavy lifting by generating the payroll summary. The case ordinarily would have justified a modestly greater fee award for lawyers who processed a simple resolution, but the court concluded that the law firm forfeited its right to such a fee by engaging in exploitative conduct and exhibiting singular intransigence.”

 

Vines v. Welspun Pipes, No.20-2168, 2021 WL 3640219 (8^th Cir. Aug. 18, 2021).