Stanger v. China Electric Motor, Inc.
2016 U.S. App. LEXIS 679
| 9th Cir. | 2016Background
- Securities class action under the Securities Act of 1933 against China Electric Motor and related parties; class counsel prosecuted the case for about two years and obtained a $3.78 million global settlement.
- Settlement notice informed the class that counsel would seek 25% of the fund as fees; no class objections to the fee percentage were lodged.
- Class Counsel moved for fees seeking 25% (~$944,583) and submitted billing records supporting a percentage-of-fund award.
- At the final-approval hearing the district court declined the percentage method and instead applied the lodestar: blended rate $475 × 1,402 hours = $666,488.
- The district court cut 422 hours (approximately 30%), producing a fee award of $466,038, but provided only impressionistic reasons (case was "very simple," some billing entries improperly lumped) and no detailed explanation for the 422-hour reduction or how the blended rate was calculated.
- The Ninth Circuit vacated the fee award and remanded, holding the district court abused its discretion by failing to adequately explain the lodestar reduction and by not addressing certain upward-adjustment factors (Kerr factors, delay, and risk).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court abused discretion by using lodestar instead of percentage-of-fund | McGee: district court’s fee reduction was arbitrary and inadequately explained; counsel supported percentage award | (District Court) applied lodestar method and then reduced lodestar hours for alleged improper billing | Court: District court may choose lodestar or percentage in common-fund cases; choice of lodestar was within discretion, but explanations for reductions were inadequate and award vacated |
| Whether the 422-hour (30%) reduction was adequately supported | McGee: reduction unexplained and therefore arbitrary | Court asserted vague billing flaws and case simplicity to justify cut | Held: Reduction arbitrary; district court failed to state why 422 hours were removed; remand required |
| Whether court erred by failing to consider upward adjustments (Kerr factors) | McGee: Kerr factors (quality, complexity, benefit) support positive multiplier | Court did not explicitly analyze Kerr factors or justify rejecting multiplier | Held: Failure to address Kerr factors was abuse of discretion; court must consider and explain on remand |
| Whether court erred by failing to compensate for delay and litigation risk | McGee: delay in payment and risk of contingent representation warrant enhancement or other compensation | Court did not explain whether blended rate used current or historical rates, and did not address risk multiplier | Held: Court must consider delay-compensation methods and risk enhancement; failure to do so was error and requires reconsideration on remand |
Key Cases Cited
- Childress v. Darby Lumber, Inc., 357 F.3d 1000 (9th Cir. 2004) (standard of review for fee awards)
- In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir. 2010) (review and standards for attorney-fee decisions)
- Fischel v. Equitable Life Assurance Soc’y, 307 F.3d 997 (9th Cir. 2002) (delay and risk adjustments to lodestar)
- Hensley v. Eckerhart, 461 U.S. 424 (1983) (requirement that court explain fee award and reasoning)
- Powers v. Eichen, 229 F.3d 1249 (9th Cir. 2000) (25% benchmark for percentage-of-fund method)
- In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291 (9th Cir. 1994) (common-fund fee principles and risk multipliers)
- Kerr v. Screen Extras Guild, Inc., 526 F.2d 67 (9th Cir. 1975) (Kerr factors for assessing lodestar adjustments)
- In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 109 F.3d 602 (9th Cir. 1997) (caution against mechanical application of fee methods)