In the wake of a data breach, T-Mobile agreed to create a $350 million fund from which individual class members could recover up to $25,000 for out-of-pocket losses, including time spent trying to remedy issues relating to the breach. Those who didn’t submit proof of loss could receive $25 (or $100 if a member of the California subclass). Class members could also enroll free of charge in an identity-defense and monitoring service for two years, which class counsel say carries a retail price of $96 per year. And all class members would receive two years of “restoration services” that gave them access to “fraud resolution specialists who can assist with important tasks” like disputing inaccurate credit reports and placing fraud alerts with credit bureaus. Finally, T-Mobile committed to spend an additional $150 million over two years to improve its data security.  In seeking preliminary approval, class counsel informed the court that they would request no more than 30% of the $350 million settlement fund. The court gave preliminary approval and said that the proposed fee award was “reasonable, subject to the Court’s review of a timely filed fee application.” The district court reported that over two million class members submitted claims and that class counsel expected that those who submitted proof of losses stemming from the data breach would be completely or “nearly completely” reimbursed. Class counsel then moved for, and were granted, a fee award of 22.5% of the $350 million settlement fund.

Thirteen objections to the settlement were filed, including two objections to class counsel fees, which objections were stricken from the record by the District Court.  An appeal by these two objectors followed.  The U.S. Eighth Circuit reinstated one of the objections, and determined that it had merit; hence, the class counsel fee award was vacated and remanded.

With respect to one of the fee objectors, the Court held as follows: “The district court found that she and her attorneys are serial objectors with a history of raising frivolous objections to class settlements for their own pecuniary gain. But even if this is correct, we can’t see how that is relevant in this particular case. Merely characterizing some of the attorneys as ‘professional objectors’ without specifying what, exactly, they have done that is either in bad faith or vexatious, is not enough. There is just no evidence that either Hampe or her attorneys in this case are attempting to extort a payout, have acted vexatiously, have broken any rules, or have acted unethically. No one contends that her objection is frivolous. In fact, as we will explain, it is meritorious. And though it’s possible that her meritorious objection is delaying execution of the settlement (a matter she vigorously contests), if so, that’s par for the course when class members are given an opportunity to object to the terms of a class settlement. So we reverse the ad hominem decision to strike Hampe’s objection as well as the decision to revoke the pro hac vice admission of her attorneys.

“Pentz’s situation is different. For her, the court identified case-specific behavior that it believed was deserving of sanction. According to class counsel, Pentz initially said that she was acting pro se, but she later disclosed that she was indeed represented by an attorney. She nonetheless refused to disclose her attorney’s identity even though the class notice that she received required her to do so. She also evaded personal service of a subpoena compelling her to sit for a deposition, and when she spoke to class counsel on the telephone, she advised that she would not sit for a deposition. In short, she repeatedly refused to cooperate with class counsel’s efforts to conduct the discovery that the district court ordered. And if she had concerns about sitting for a deposition, she never brought them to the district court’s attention, for instance by moving to quash the subpoena or seeking a protective order. Nor did she respond after class counsel moved to strike her objection. She essentially inserted herself into the dispute and then, without explaining why, refused to play by the rules that the district court set. In the circumstances, we cannot fault the court for striking her objection.”

With respect to the class fee award, the Court first rejected the argument that the fee percentage be automatically reduced in so-called “mega-fund” cases: ” Hampe maintains that we should require courts to consider the economies of scale when addressing attorneys’ fees awarded in class action settlements exceeding $100 million. The idea that underpins Hampe’s suggested method is that there’s an instinct that as funds reach gargantuan proportions, normal fee percentages would generate fees of such a high magnitude that they would provide a windfall to class counsel, as large recoveries are driven more by class size than attorney effort. In short, the argument runs, it isn’t ten times as hard to try a $100 million case as it is a $10 million case. Some courts, though, including the district court here, note that a megafund approach could create perverse incentives, as clients generally want to incentivize their counsel to pursue every last settlement dollar, and a declining percentage award operates to the contrary, and may encourage counsel to seek quick settlements at sub-optimal levels. There seem to be good arguments on both sides of the debate. On one hand, it doesn’t seem reasonable for attorneys to receive a windfall for doing little work; on the other, it doesn’t seem reasonable to penalize attorneys for obtaining a quick success…. In a typical class action, courts have frequently awarded attorneys’ fees ranging up to 36%. But relying on one particular study, Hampe says that the percentage awarded in a megafund class action is typically 10–12% of the settlement fund. But class counsel point out that other studies paint a different picture; for example, one study found that the typical fee in class-action settlements of this size is 17.8–19.5%. And though 22.5% is a bit higher than this range, class counsel note, if one considers that T-Mobile pledged to spend an additional $150 million for data security, they are seeking only about 15.75% of the $500 million that T-Mobile has agreed to pay, which is well below class counsel’s preferred range. In any case, we decline to hold that a court must award a reduced percentage in megafund cases. The determination of a reasonable fee is a wide-ranging inquiry that seeks to account for a variety of case-specific circumstances…. The existing criteria for determining fee awards already give courts ample room to consider the potential economies of scale that a large class action entails. For example, courts are to consider the time and labor required, the amount involved and the results obtained, and awards in similar cases, among other matters. Those considerations already tune courts’ attention to the circumstances that megafund-method advocates want courts to consider, such as the work attorneys have performed, the size of the award and the class, the amount attorneys have received in similar cases, and whether attorney effort contributed to the award and is deserving of additional fees.”

The Court of Appeal, however, determined that the percentage fee award was “unreasonable” when applying a lodestar cross-check: “Class counsel reported spending more than eight thousand hours on the case and anticipated spending another three thousand hours over the next few years as the settlement was administered, which amounted to a lodestar of about $8.17 million when those hours are multiplied by counsels’ typical hourly rates. That resulted in a lodestar ‘multiplier’ of 9.6, meaning that counsel would get paid about 9.6 times their customary hourly rates. According to the district court, courts often approve awards with similar multipliers, and it cited a handful of cases in support of that observation.” However: “We believe that the district court abused its discretion by awarding an unreasonable fee. Though our court has never held that a particular multiplier is always unreasonable, we have recognized that an award with a multiplier of 5.3 is ‘high’. Class counsel in this case nonetheless sought an award with a multiplier nearly twice as high, assuming that projected future hours of work are considered in the lodestar calculation. Without including those projected future hours, the multiplier was nearly three times as high. Class counsel worked on the case for just a matter of months, conducted relatively little discovery, and engaged in no substantial motions practice, save for responding to a motion to remand. That’s not to intimate in any way that class counsel didn’t do a good job; in fact, they appear to have represented the class well, and they obtained a significant result. We simply note that the case had barely gotten off the ground before it settled, and counsel hadn’t yet invested the time and effort to yield a return like the one the court awarded. Class counsel echo a concern the district court adverted to — that by reducing their award in light of the lodestar crosscheck, the court is essentially penalizing counsel for obtaining remarkable relief quickly. We disagree. Class counsel could make the same argument in a case involving a multiplier of 100 or in a case involving only a day or two of work. The assertion contains no limiting principle. If we permitted the fee award here to stand, it would mean that counsel could make $7,000 to $9,500 an hour, which we think no reasonable class member would willingly pay to an attorney to help resolve this claim, especially when, as here, dozens of other attorneys were offering their assistance. Reducing the fee award to, say, half of what was requested (resulting in fees of $3,500 to $4,750 per hour) could hardly be considered a penalty.”

 

In re T-Mobile Data Breach, 111 F.4th 849 (8th Cir. 2024).