{"id":1682,"date":"2024-08-05T09:12:07","date_gmt":"2024-08-05T13:12:07","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=1682"},"modified":"2024-08-05T17:48:43","modified_gmt":"2024-08-05T21:48:43","slug":"eighth-circuit-overturns-windfall-78-75-million-attorney-fee-award-in-t-mobile-data-breach-class-action","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2024\/08\/05\/eighth-circuit-overturns-windfall-78-75-million-attorney-fee-award-in-t-mobile-data-breach-class-action\/","title":{"rendered":"Eighth Circuit Overturns \u201cWindfall\u201d $78.75 Million Attorney Fee Award In T-Mobile Data Breach Class Action"},"content":{"rendered":"

\"\"<\/a><\/i>By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther<\/b><\/p>\n

Duane Morris Takeaways<\/i><\/b>: In a data breach class action entitled In Re T-Mobile Customer Data Security Breach Litigation, Nos. 23-2944 & 23-2798, 2024 WL 3561874 (8th Cir. July 29, 2024), the U.S. Court of Appeals for the Eighth Circuit\u00a0 overturned<\/a> a district court\u2019s order granting $78.75 million in attorneys\u2019 fees for class counsel as part of the underlying approval of the class action settlement. The Eighth Circuit held that the district court abused its discretion by awarding class counsel an unreasonable attorneys\u2019 fee award, and improperly striking a class member objection to that award. <\/i><\/p>\n

This decision serves as an important reminder that, in class actions, unnamed class members who cannot opt out of a class can object to and appeal a district court\u2019s approval of a settlement \u2014 which can inure to the benefit of both the class and the defendant.<\/i><\/p>\n

Case Background<\/b><\/p>\n

At some point before August 16, 2021, a cybercriminal breached T-Mobile\u2019s systems, capturing personally identifiable information for an estimated 76.6 million people. Id<\/i>. Various plaintiffs filed suits nationwide, and in December 2021, the suits were combined into a multidistrict litigation proceeding in the U.S. District Court for the Western District of Missouri. Id<\/i>.<\/p>\n

In January 2022, the Court appointed twelve attorneys to represent the class in various roles (\u201cclass counsel\u201d), who then filed a joint complaint, and entered settlement discussions with T-Mobile. Id<\/i>. at 7. A month after class counsel filed the complaint, the parties agreed to a settlement where T-Mobile would, among other items, create a $350 million fund from which individual class members could recover up to $25,000 for out-of-pocket losses they could prove resulted from the data breach, and $25 (or $100 if a member of the California sub-class) for all other class members who did not submit proof of loss. Id<\/i>.<\/p>\n

After the class was notified of the settlement, class counsel moved for a fee award of 22.5% of the $350 million settlement fund, or a total award of $78.75 million. Id<\/i>. at 8. Thirteen class members filed objections to the settlement. Two of the objecting class members, Cassie Hampe (\u201cHampe\u201d) and Connie Pentz (\u201cPentz\u201d), contended that the amount of attorneys\u2019 fees sought was too high. Id<\/i>. The district court struck Hampe\u2019s objection under Rule 12(f), finding that Hampe and her law firm were serial objectors, and that her objection was vexatious, brought in bad faith, and brought for the sole purpose of extracting a fee from the settlement fund. Id<\/i>. at 9. The district court also struck Pentz\u2019s objection under Rule 12(f) because Pentz\u2019 son had previously filed frivolous objections to class action settlements and Pentz herself would not attend a deposition. Id<\/i>.<\/p>\n

Hampe and Pentz appealed. They argued that the district court erred in relying on Rule 12(f) to strike their objections, and that the class counsel\u2019s fee award was unreasonable. Id<\/i>.<\/p>\n

The Eighth Circuit\u2019s Decision<\/b><\/p>\n

The Eighth Circuit found that the district court abused its discretion in striking Hampe\u2019s objections to class counsel\u2019s attorney\u2019s fees request, and also by awarding class counsel unreasonable attorneys\u2019 fees. Id<\/i>. at 19. The Eighth Circuit also held that the district court did not abuse its discretion by striking Pentz\u2019 objections. Id<\/i>.<\/p>\n

First, the Eighth Circuit found that the district court abused its discretion by relying on Rule 12(f) to strike the objections of both Hampe and Pentz. Id<\/i>. at 10. While Rule 12(f) permits courts to \u201cstrike from a pleading . . . any redundant, immaterial, impertinent, or scandalous matter,\u201d the Eighth Circuit reasoned that it did not permit the district court to strike a class member\u2019s objection to a settlement, since it is not a pleading under Rule 7(a). Id<\/i>. at 9-10.<\/p>\n

Second, the Eighth Circuit acknowledged that while the district court had inherent authority to strike objections as a sanction for misconduct, the alleged misconduct asserted here only supported the district court striking Pentz\u2019 objection \u2014 not Hampe\u2019s objection. Id<\/i>. at 10. For Hampe, the Eighth Circuit found that the district court abused its discretion in striking her objection because there was no evidence that either Hampe or her attorneys were attempting to extort a payout, acted vexatiously, broke any rules, or acted unethically. Id<\/i>. As for Pentz, however, the Eighth Circuit held that it could not fault the district court for striking her objection, since Pentz had been covertly working with an attorney (despite initially stating that she was acting pro se), evaded service of a subpoena compelling her to sit for a deposition, and generally refused to cooperate with the district court\u2019s discovery orders. Id<\/i>. at 11.<\/p>\n

Finally, the Eighth Circuit analyzed Hampe\u2019s objection that the fee award was unreasonable. Id<\/i>. at 12-19. In class actions, courts use two methods to calculate attorneys\u2019 fees, including: (i) the \u201clodestar\u201d method (where the court multiplies the number of hours the attorneys worked by their hourly rates); or (2) the percentage method (where the court awards a percentage of the fund that the attorneys helped recover). Id<\/i>. at 12. While district courts have discretion to choose which method should apply, the Eighth Circuit underscored that district courts should focus on whether or not the fee is reasonable under Rule 23(h), and consider \u201cthe time and labor required,\u201d \u201cthe amount involved and the results obtained,\u201d and \u201cawards in similar cases.\u201d Id<\/i>. at 12.<\/p>\n

The Eighth Circuit ultimately held that the district court\u2019s attorneys\u2019 fee award was unreasonable and constituted a \u201cwindfall\u201d for class counsel. Id<\/i>. at 16. The district court, in an attempt to demonstrate that the attorneys\u2019 fee award was reasonable, conducted a lodestar crosscheck and found that the lodestar \u201cmultiplier\u201d was 9.6, meaning that class counsel would get paid about 9.6 times their customary hourly rates. Id<\/i>. While district court found this multiplier was reasonable, the Eighth Circuit did not, citing its previous holding in Rawa v. Monsanto Co.<\/i>, 934 F.3d 862, 870 (8th Cir. 2019) (holding that a 5.3 multiplier was too high and amounted to a windfall for class counsel). Id<\/i>.<\/p>\n

Implications For Class Action Defendants<\/b><\/p>\n

The Eighth Circuit\u2019s ruling in In Re T-Mobile Customer Data Security Breach Litigation<\/i> serves as an important reminder that class members have power to object to attorney fee awards. While only awarding reasonable attorneys\u2019 fees to class counsel certainly inures to the benefit of the class, it also benefits the defendants in claims-made data breach settlements. When calculating the total \u201cpayout\u201d for a defendant in a claims-made data breach settlement, an attorneys\u2019 fee award is a hard cost that drives up a defendant\u2019s total likely payout. However, reducing the attorneys\u2019 fee, it leaves more in the settlement fund for class members to claim. As stated in the 2024 Duane Morris Class Action Review, claim rates in data breach class actions are between 1% and 10%. Accordingly, by raising the amount left in the settlement fund for the class members to claim, the total payout for a defendant will likely substantially decrease.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Emilee N. Crowther Duane Morris Takeaways: In a data breach class action entitled In Re T-Mobile Customer Data Security Breach Litigation, Nos. 23-2944 & 23-2798, 2024 WL 3561874 (8th Cir. July 29, 2024), the U.S. Court of Appeals for the Eighth Circuit\u00a0 overturned a district court\u2019s … <\/p>\n

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