Galloway v. The Kansas City Landsmen, LLC, 2016 WL 4409343 (8th Cir. Aug. 19, 2016)

In this case, affirming the judgment of a district court for an award of attorney’s fee to class counsel, the Eighth Circuit found that 28 U.S.C. § 1712 does not authorize class counsel to choose its method of payment calculation for purposes of computing attorneys’ fees, departing from the Ninth Circuit’s interpretation of the statute.

The plaintiffs, consumers, brought a putative class action alleging that the defendants, car rental companies, issued receipts that contained more than five digits of customers’ credit card numbers in violation of the Fair and Accurate Credit Transactions Act (“FACTA”).  The parties mediated and agreed on a proposed class action settlement, which the district court approved.  The settlement provided that each class member would receive a certificate worth $10 off any car rental or $30 off a rental over $150, with no holiday blackout days, and they were given 180 days to redeem the coupons.  The claims administrator reported that of the 726,210 certificates mailed, 89 were redeemed at the $10 level and 237 were redeemed at the $30 level, a redemption rate of 0.045%.  The total value of the redeemed certificates was $8,000.  The parties agreed that the certificates were a non-cash benefit to class members, and therefore the coupon settlements provisions in the CAFA, 28 U.S.C. § 1712 applied to the award of a reasonable attorney’s fee to class counsel.

After the certificate redemption period expired, the plaintiffs filed an unopposed motion for an award of $147,717.75 in attorneys’ fees, $5,699.01 in litigation expenses, and a $3,000 class representative incentive fee for named plaintiff Galloway.  Applying 28 U.S.C. § 1712(a)-(c), the district court awarded $23,137.46 in attorneys’ fees and costs, and a $1,000 class representative incentive fee.  The plaintiffs appealed, arguing that the district court committed an error of law in construing § 1712.  The Eighth Circuit affirmed the judgment of the district court.

The Eighth Circuit noted that the coupon settlements provision in § 1712 addressed the inequity of “settlements under which class members receive nothing but essentially valueless coupons, while the class counsel receive substantial attorneys’ fees.”  In ruling on the plaintiffs’ attorney’s fee request, the district court first applied § 1712(a) and determined that a reasonable fee attributable to the award of coupon certificates to class members was $2,666.67, which was 33% of $8,000, the value of the redeemed coupons.  The district court then used the lodestar method prescribed in § 1712(b) to determine that 10% of the total fee requested, or $14,771.78, was a reasonable fee for the injunctive relief provided to the class.  Applying § 1712(c), the district court added the two fee components together and awarded $17,438.45 as a reasonable attorney’s fee, plus the costs the plaintiffs requested.


The plaintiffs argued that the plain language of § 1712 gave class counsel the right to elect that all of its fees be calculated under the lodestar methodology prescribed in § 1712(b).  The Eighth Circuit agreed with the district court that there is simply no language which authorizes class counsel to choose its method of payment calculation.  The Eighth Circuit opined that class counsel can invariably propose that the court choose a certain method but the court has discretion to accept or reject that proposal.  The Eighth Circuit noted that § 1712(a) clearly provides that, if the court chooses to attribute all or a portion of the fee award to the benefit provided to the class by coupons, that portion “shall be based on the value to class members of the coupons that are redeemed,” not on the theoretical value of coupons that could have been redeemed.  Beyond that, courts have disagreed whether § 1712(a) limits their discretion to choose the lodestar method to determine all or part of the fee to award for a coupon-based settlement.  The Eighth Circuit thus ruled that the district court was not required to accept class counsel’s election.

The plaintiffs further argued that the district court erred in construing § 1712(a) as mandating that any fee award attributable to the coupon portion of the settlement must be based solely on the value of coupons redeemed.  When the district court ruled, the Ninth Circuit had held in In re HP Inkjet Printer Litigation, 716 F.3d 1173 (9th Cir. 2013) that § 1712(a) and (b) are not permissive; they provide that a district court must calculate attorneys’ fees for coupon awards as a percentage of the redeemed value and must use the lodestar method to calculate fees for injunctive relief.  In absence of the Eighth Circuit guidance in construing the statute, the district court followed the HP Inkjet analysis.  Subsequently, a panel of the Seventh Circuit concluded in In re Southwest Airlines Voucher Litigation, 799 F.3d 701, 707 (7th Cir. 2015) that § 1712(a)–(c) is a permissive statute.  (Editor’s Note: see CAFA law blog analysis on In re Southwest, dated Jan. 17, 2017). Rejecting the Inkjet majority’s interpretation of “attributable to,” the Seventh Circuit interpreted § 1712(a) as meaning that “if any portion of the fee is attributed to the coupon benefits, then that portion of the fee must be based on the coupons used, but that is not the only method available.”  The Eighth Circuit concluded that the Seventh Circuit’s interpretation of § 1712 is more consistent with the substantial discretion district courts have always had to determine the reasonable attorney’s fee to award to the prevailing party in a class action case.

The Eighth Circuit thus held that the district court erred by following the HP Inkjet’s mandatory approach in applying § 1712(a)–(c) without explicitly stating that the award was based on an exercise of its discretion to determine a reasonable attorney’s fee.  The Eighth Circuit, however, found that the plaintiffs did not argue that the award was a breach of the district court’s discretion.  The Eighth Circuit further found that any award greater than $17,438.45 would be unreasonable in light of class counsel’s limited success in obtaining value for the class.  The Eighth Circuit therefore concluded that any error was harmless.

Accordingly, the Eighth Circuit affirmed the judgment of the district court.