Linneman v. Vita-Mix Corp.

970 F.3d 621

Vicki A. LINNEMAN and Obadiah N. Ritchey, on behalf of themselves and those similarly situated, Plaintiffs-Appellees,

v.VITA-MIX CORPORATION, Vita-Mix Management Corporation, and Vita-Mix Manufacturing Corporation, Defendants-Appellants.

Nos. 19-3993/4249

United States Court of Appeals, Sixth Circuit.

Argued: August 3, 2020

Decided and Filed: August 12, 2020

ARGUED: John M. Fitzgerald, TABET DIVITO & ROTHSTEIN, LLC, Chicago, Illinois, for Appellants. W. B. Markovits, MARKOVITS, STOCK & DEMARCO, LLC, Cincinnati, Ohio, for Appellees. ON BRIEF: John M. Fitzgerald, TABET DIVITO & ROTHSTEIN, LLC, Chicago, Illinois, Tracey L. Turnbull, PORTER WRIGHT MORRIS & ARTHUR, LLP, Cleveland, Ohio, Caroline H. Gentry, PORTER WRIGHT MORRIS & ARTHUR, LLP, Dayton, Ohio, for Appellants. W. B. Markovits, Paul M. DeMarco, Justin C. Walker, Terence R. Coates, MARKOVITS, STOCK & DEMARCO, LLC, Cincinnati, Ohio, Jeffrey S. Goldenberg, GOLDENBERG SCHNEIDER, L.P.A., Cincinnati, Ohio, for Appellees.

Before: GRIFFIN, KETHLEDGE, and THAPAR, Circuit Judges.

THAPAR, Circuit Judge.

What began as a case about defective blenders has devolved into a quarrel about attorney's fees. In this appeal, we consider several questions of first impression about attorney's fees in class-action settlements. We agree with the district court on many issues but find that it abused its discretion as to the final award of fees. We therefore vacate the award and remand for further proceedings.

I.

Vita-Mix is a family-owned company that manufactures and sells high-performance blenders. Several years ago, the company learned that some of its blenders contained tiny black flecks after use. Vita-Mix determined that these flecks were polytetrafluoroethylene—a substance commonly used in kitchen appliances and used in the seals of its blenders. Normal wear-and-tear would cause tiny pieces—so tiny they were almost invisible to the naked eye—to rub off from the seal and end up in the blender container.

Because of this defect, the named plaintiffs (owners of Vita-Mix blenders) filed this class action, alleging various claims against the company under state law. The parties soon entered into settlement negotiations and eventually agreed to a proposed settlement. The settlement provided for two classes of plaintiffs: a household class and a commercial class. Class members who owned a household blender could request either a $70 gift card or a replacement blade assembly, which included a non-flecking blender seal. (Those with multiple household blenders were eligible for a $140 gift card.) In contrast, class members who owned a commercial blender could request only a replacement blade assembly. The settlement also specified that class counsel were entitled to attorney's fees but that the parties had not agreed on the amount. The district court preliminarily approved this settlement in late 2017.

The parties then spent most of the next two years arguing about attorney's fees. The district court ultimately decided to calculate the fees by multiplying the hours class counsel reasonably worked on the case by a reasonable hourly rate. That calculation resulted in a fees award of a little over $2.2 million. But based on the purportedly exceptional nature of the litigation, the court enhanced this figure by 75% for a final award of just under $4 million. Vita-Mix appealed that decision. The district court later awarded post-judgment interest on the fees award. Vita-Mix appealed that order too.

II.

Vita-Mix raises a host of challenges to the district court's award of attorney's fees. Some have merit; others do not. We review legal questions involving the interpretation of statutes or the settlement agreement de novo but review the district court's final award for an abuse of discretion. See Yellowbook Inc. v. Brandeberry , 708 F.3d 837, 848 (6th Cir. 2013) ; Riley v. Kurtz , 361 F.3d 906, 910–11 (6th Cir. 2004).

A.

Vita-Mix first argues that the district court used the wrong method to calculate the award of attorney's fees.

We begin with a little background about how district courts typically calculate attorney's fees in class-action settlements. There are two leading approaches known as the lodestar method and the percentage method. See Gascho v. Glob. Fitness Holdings, LLC , 822 F.3d 269, 279–80 (6th Cir. 2016) ; 5 William B. Rubenstein et al., Newberg on Class Actions §§ 15:63 –64 (5th ed. June 2020 update). The lodestar method attempts to approximate the work done: the court multiplies the number of hours reasonably worked on the case by a reasonable hourly fee—with the possibility of an enhancement in certain cases. See Perdue v. Kenny A. ex rel. Winn , 559 U.S. 542, 551–52, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010) ; Gascho , 822 F.3d at 279. In contrast, the percentage method attempts to approximate the result achieved: the court calculates the fees as a percentage of the class members’ recovery in the case. See Gascho , 822 F.3d at 279. Because "each method has its respective advantages and drawbacks," district courts have discretion in some contexts to choose the more appropriate method for a particular case. Rawlings v. Prudential-Bache Props., Inc. , 9 F.3d 513, 516 (6th Cir. 1993). But still, the court must ensure—whichever method it chooses—that the final award is "reasonable" under the circumstances. Fed. R. Civ. P. 23(h) ; Jordan v. Mark IV Hair Styles, Inc. , 806 F.2d 695, 697 (6th Cir. 1986).

Enter the Class Action Fairness Act (CAFA). Congress enacted CAFA to curb various "abuses of the class action device." Pub. L. No. 109-2, § 2(a)(2), 119 Stat. 4, 4 (2005); Freeman v. Blue Ridge Paper Prods., Inc. , 551 F.3d 405, 407–08 (6th Cir. 2008). Among other things, the Act targets "coupon" settlements—cases in which class counsel would receive large fees awards while class members would often receive coupons of little or no value. See CAFA § 2(a)(3)(A), 119 Stat. at 4; In re HP Inkjet Printer Litig. , 716 F.3d 1173, 1177–80 (9th Cir. 2013). The relevant provision on this issue, 28 U.S.C. § 1712, regulates attorney's fees in coupon settlements.

The district court held—and neither party meaningfully disputes—that the gift cards in this case qualify as "coupons" under CAFA and thus that § 1712 applies. The question for us is whether § 1712 permitted the district court to use the lodestar method (rather than the percentage method) when it calculated the attorney's fees in this case.¹

Section 1712 provides the following instructions on how to calculate attorney's fees:

(a) CONTINGENT FEES IN COUPON SETTLEMENTS .—If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.

(b) OTHER ATTORNEY'S FEE AWARDS IN COUPON SETTLEMENTS .—

(1) IN GENERAL .—If a proposed settlement in a class action provides for a recovery of coupons to class members, and a portion of the recovery of the coupons is not used to determine the attorney's fee to be paid to class counsel, any attorney's fee award shall be based upon the amount of time class counsel reasonably expended working on the action.

(2) COURT APPROVAL .—Any attorney's fee under this subsection shall be subject to approval by the court and shall include an appropriate attorney's fee, if any, for obtaining equitable relief, including an injunction, if applicable. Nothing in this subsection shall be construed to prohibit application of a lodestar with a multiplier method of determining attorney's fees.

(c) ATTORNEY'S FEE AWARDS CALCULATED ON A MIXED BASIS IN COUPON SETTLEMENTS .—If a proposed settlement in a class action provides for an award of coupons to class members and also provides for equitable relief, including injunctive relief—

(1) that portion of the attorney's fee to be paid to class counsel that is based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (a); and

(2) that portion of the attorney's fee to be paid to class counsel that is not based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (b).

As several of our sister circuits have noted, this statute is not a model of draftsmanship. See In re: Lumber Liquidators Chinese-Manufactured Flooring Prods. Mktg., Sales Practices & Prods. Liab. Litig. , 952 F.3d 471, 488 (4th Cir. 2020) ; Galloway v. Kan. City Landsmen, LLC , 833 F.3d 969, 973 (8th Cir. 2016) ; Redman v. RadioShack Corp. , 768 F.3d 622, 633 (7th Cir. 2014) ; In re HP Inkjet , 716 F.3d at 1181. Still, we must do the best we can to make sense of Congress's handiwork.

Begin at the beginning: with subsection (a). That subsection states that "[i]f a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed." 28 U.S.C. § 1712(a). All agree about one thing this provision does: it prohibits the use of the face value of coupons rather than their redemption rate when calculating attorney's fees based on the percentage method. In other words, the provision requires district courts to determine how many class members use a coupon rather than how many class members are entitled to one.

The dispute here turns on when a district court must calculate attorney's fees in this way—that is, using the percentage method based on the redemption rate. And that question centers on the meaning of the phrase "attributable to the award of the coupons" because only that "portion" of the fees award must be "based on the value to class members of the coupons that are redeemed."

Congress did not define the phrase "attributable to" in CAFA, so we give that phrase its ordinary meaning. See Lamar, Archer & Cofrin, LLP v. Appling , ...