United States District Court Chief Judge Joseph R. Goodwin recently ruled in Jones v. Dominion Resources Services, Inc., 601 F.Supp.2d 756 (S.D.W.Va. 2009), on the class counsel’s motion for attorney’s fees and expenses, and his order entered on March 6, 2009 is important for attorneys who prosecute and defend class actions in West Virginia.

Jones was a class action filed by gas well owners who alleged that gas companies cheated them out of their royalties. Earlier this year, the parties agreed to a settlement creating a common fund of between $40 and $50 million and awarding attorney’s fees not to exceed 25% of the total settlement. Class counsel sought an award of attorney’s fees equal to 25% of the settlement, which they estimated at $50 million, plus reimbursement of $91,883.50 in expenses and a $25,000 incentive award for each of the three named class representatives. Here is the settlement website.

In considering the motion, Judge Goodwin noted initially that the Fourth Circuit Court of Appeals has not stated a preference between the “lodestar” method and the “percentage of fund” method, so he had complete discretion to determine how to compensate class counsel. He also discussed how each method is applied and its relative advantages and disadvantages. 

He found that the percentage method was appropriate and would also apply the lodestar crosscheck as “an element of objectivity.”

He identified these factors for determining the reasonableness of the fee, which are “commonly used by courts in the application of the percentage method”:

  • The results obtained for the class;
  • The quality, skill, and efficiency of the attorneys involved;
  • The complexity and duration of the case;
  • The risk of non-payment;
  • Awards in similar cases;
  • Objections; and
  • Public policy.

I won’t review Judge Goodwin’s analysis of each factor, except that he concluded the factors that weighed in favor of the reasonableness of the requested fee award were the significant benefit obtained for the class; the quality, skill, and efficiency of class counsel; the proximity of the requested award to awards in similar cases; and the low incidence of objections to the award.

He also concluded that factors that weighed against the reasonableness of the requested fee award and supported a reduced fee were the non-complex nature of the case; the low risk of non-payment; public policy and the high lodestar multiplier resulting from the requested fee award.

He devoted the most discussion to the public policy factor, where he expressed support for the lone objector’s “concerns about the trend toward excessive attorneys’ fees in class actions. I can easily understand that fees deemed reasonable by the bar and the judiciary appear unseemly to the general public.” (Judge Goodwin overruled the objection but stated that he would keep it in mind when deciding the amount of the fee.)

After reviewing all the factors, and calculating a lodestar multiplier of 4.5 to 5.3, which he described as “closer to the middle of the range considered reasonable by courts[,]” Judge Goodwin found that a fee award of 20% of the settlement fund was reasonable compensation for class counsel.

In arriving at 20%, he placed the most emphasis on:

the high incidence of actual, direct notification in this case and the resulting near-unanimous approval of the attorneys’ fee provision by the Class Members. The rest of the factors alone, as relevant as they are to the determination of a reasonable attorney’s fee, are not enough to convince me that a fee of this magnitude is "reasonable." Even reduced, the fee that I approve in this case remains extremely high. Nevertheless, I am reluctant to deviate too greatly from a fee amount approved by virtually all of the Class Counsels’ clients.

Judge Goodwin also approved the payment of the requested expenses, but reduced the incentive award for each class representative to $15,000 because he had no evidence that the representatives participated in the case and therefore would be overcompensated by $25,000 each.

Until the Fourth Circuit addresses the issue, I expect federal courts in West Virginia to rely on this decision when determining attorney’s fees in class actions. In fact, I am aware of one court that has already looked to Jones when determining attorney’s fees.

In Loudermilk Services, Inc. v. Marathon Petroleum Co. LLC, 2009 WL 1306917 (S.D.W.Va. 2009), District Judge Robert C. Chambers relied on Jones in reducing the class counsel’s requested fee from $6 million to $4.25 million. Here is Judge Chambers’ order entered on May 7, 2009. (I was counsel for one of the defendants in Loudermilk, but I was out of the case when the attorney’s fee issue was briefed and decided.)