“If at First You Don’t Succeed ….”

Dewey v. Volkswagen, A.G., 2014 U.S. App. LEXIS 2596 (3d Cir. Feb. 12, 2014).  In Dewey v. Volkswagen, A.G., 681 F.3d 170 (3d Cir. 2012), the Third Circuit reversed approval of a class action settlement in a case involving allegedly leaky sunroofs in Volkswagen vehicles.  That settlement had divided the plaintiff class into two groups– the “reimbursement class” and the “residual group.”  Because all of the named representative plaintiffs were members of the reimbursement group, the Third Circuit found that those plaintiffs could not be adequate representatives of the residual group.  The case was remanded, and the parties then restructured the settlement so that all class members had the right to join the “reimbursement class.”  The district court approved that settlement and awarded class counsel an attorneys’ fee, to be paid separately by Volkswagen, based on a percentage of the settlement fund.  A few class members appealed the fee to the Third Circuit.  Applying the abuse of discretion standard of review, the Third Circuit affirmed in an opinion by Judge Jordan.

The objectors’ central argument was that New Jersey state law, not federal law, should have been applied in making the fee award, and New Jersey state law, objectors asserted, “prefers the lodestar method, not the percentage-of-recovery method.”  Judge Jordan found it unnecessary to decide which law applied, because New Jersey law, like federal law, allows application of either the lodestar or the percentage method.  He quoted Sutter v. Horizon Blue Cross Blue Shield of New Jersey, 406 N.J. Super. 86 (App. Div. 2009) (“A court may consider two different methods for determining class action fees: the lodestar method and the percentage of recovery method….  The ultimate choice of methodology rests with the court’s discretion.”).

Though this case did not involve a true common fund because Volkswagen was paying the attorneys’ fee out of its own pocket and not from the reimbursement fund, the percentage method was still permissible.  “[T]he reality is that the fund and the fee are paid from the same source,” Volkswagen, so that the arrangement was, “for practical purposes, a constructive common fund.”  Objectors’ reliance on Rendine v. Pantzer, 141 N.J. 292 (1995), was misplaced.  Judge Jordan observed that Rendine, while applying the lodestar method, did not foreclose the percentage method, and, in any event, Rendine was not a class action.

The panel tersely rejected objectors’ other arguments that the court below had improperly valued the reimbursement fund and had wrongly denied one of the objectors the right to intervene.  Judge Jordan found no abuse of discretion on either issue.

The question of whether New Jersey law permits percentage of the fund fee awards is one that has popped up frequently since Rendine.  The panel rightly found that Rendine did not foreclose percentage awards and that, as an employment action on behalf of two individual plaintiffs rather than a class action, Rendine did not speak to fee awards in the class action context.  In fact, as far back as In re Cadillac V8-6-4 Class Action, 93 N.J. 412 (1983), the Supreme Court of New Jersey had recognized that class action counsel fee awards could be based on a percentage of the fund.  And at least one post-Rendine Supreme Court case, Henderson v. Camden County Municipal Utility Auth., 176 N.J. 554 (2003), expressly approved a fee award “pursuant to the fund in court doctrine.”  [Disclosure:  I served as an expert witness for class counsel on their fee application on remand in Henderson].  Though the panel decision here was designated non-precedential, its ruling on this issue is an important one that should remove any lingering doubt.