Volkswagen Group of America, Inc. v. Peter J. McNulty Law Firm
692 F.3d 4
| 1st Cir. | 2012Background
- MDL in First Circuit involving VW/Audi warranty extension settlement in D. Mass; settlement provided that defendants would pay reasonable attorneys' fees and expenses to class counsel, to be paid within 30 days of final judgment, with no agreement on governing law for the fee award.
- Settlement notice to 1.6 million class members described attorneys’ fees as up to $37.5M plus costs up to $1.75M, with defendants bearing fees regardless of class benefits.
- Settlement retained exclusive jurisdiction in district court for administering and enforcing the agreement; Section VI.A.2 expressly stated no choice of law was agreed for attorney fees.
- District court awarded $30M in fees under federal-law analysis, applying the percentage-of-fund method with a lodestar cross-check, and declined to apply New Jersey law.
- Defendants challenged the fee award, arguing federal-law governs; class counsel argued Rule 23(h) supports federal-law fee framework, and that a lodestar cross-check plus multiplier justified a large award.
- Court sua sponte undertook Erie-based analysis and held that Massachusetts law governs the fee award in a diversity case where the settlement contract contains no chosen law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What law governs the attorney-fee award? | Massachusetts law applies per Erie principles (state contract law controls). | Federal law governs due to class action context and Rule 23(h). | Massachusetts law governs the fee award; district court erred by applying federal law. |
| Which state’s choice-of-law rules apply to determine substantive fee-law? | Transferor-state choice rules lead to Massachusetts law under Restatement §188 factors. | Could apply transferor-state rules or Massachusetts law only if conflicts arise. | Massachusetts law applies under Restatement §188 and MDL transfer logic. |
| May Rule 23(h) or federal equitable powers justify federal-law fee standards? | Rule 23(h) provides federal framework when allowed by law or agreement. | No direct federal-law basis; not procedural; no inherent federal-equitable basis here. | Rule 23(h) and inherent federal powers do not override Massachusetts law here. |
| Is the fee award appropriate under Massachusetts law, and what method should be used on remand? | Lodestar/multi-factor analysis yields higher fee; base lodestar around $7.7M; multiplier arguable. | Federal method or higher award possible; contesting multiplier and total. | Remand to apply Massachusetts-law lodestar or multi-factor approach; original amount vacated. |
Key Cases Cited
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) ( Erie governs substantive choice of law in diversity cases)
- Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941) (apply forum-state choice-of-law rules in diversity actions)
- Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981) (forum-state conflict rules determine applicable law; MDL complexities noted)
- Burlington Northern R.R. Co. v. Woods, 480 U.S. 1 (1987) (direct collision principle; federal law must be broad enough to cover issue)
- Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149 (2010) (American Rule and fee-shifting contracts; contractual control of fees)