Sasquatch Sightings And Other Improbable News: Texas Court Of Appeals Awards Lodestar Enhancement
By Chris Palamountain and Esteban Shardonofsky
Searches for mysterious creatures are hot again. We used to have to satisfy our curiosity by flipping through tabloids while waiting to pay for groceries or logging on to Wikipedia to stay up to date on the latest appearance of man-ape, alien, or the Loch Ness dragon. Now, entire cable television shows are dedicated to “searching” for such beings. Actual money and time is being spent on these “investigations,” and the motivation behind such decisions is open for public speculation.
Law has its own set of elusive curiosities. For class action litigators, an attorneys’ fees award that comes with a lodestar “enhancement” above 150% is the courtroom equivalent of passing a leprechaun on your morning jog. Young lawyers hear rumors about how once upon a time courts awarded attorneys’ fees above and beyond the lodestar (the reasonable hourly rate multiplied by the number of hours reasonably spent on a case). However, fee multipliers have been virtually extinct in federal courts for over a decade, and proof of a significant positive multiplier has been increasingly hard to substantiate even in state courts. Texas state courts are particularly unlikely jurisdictions for finding a positive multiplier above 1.5. But the wait is over.
In a recent ruling on February 9, 2012, the Texas Court of Appeals awarded a lodestar enhancement in Stratton v. XTO Energy, Inc., Case No. 20-10-00483-CV (Tex. Ct. App. Feb. 9, 2012). It is believed that the ruling represents the first Texas appellate court to address the state’s lodestar enhancement statute.
Stratton started as a shareholders’ class action arising in the wake of the $41 billion 2009 merger of ExxonMobil Corp and XTO Energy, Inc. A class of XTO shareholders filed suit, alleging that the company’s directors breached their fiduciary duty in their disclosures and failed to maximize shareholder value. Class actions were filed in a Texas state court, a Delaware chancery court, and a federal district court in Texas. After two months of intensive discovery, the parties reached a settlement in April 2010 that involved increased disclosures but no monetary awards to the class. As part of the settlement, Exxon Mobil agreed not to oppose any application for an award of attorneys’ fees and costs up to $8.8 million.
During the settlement approval process, Plaintiffs moved for fees and expenses totaling $8.8 million. The lodestar figure of the 21 firms who represented the class amounted to $3.97 million, and costs were $188,355.66. In addition, Plaintiffs sought a multiplier of 2.17, for a total fee and costs award of $8.8 million. To support their application, Plaintiffs submitted affidavits from all 21 firms attesting to the work done by each firm and the hours and rates of their attorneys. Per the settlement agreement, Defendants did not object.
The trial court awarded the full lodestar figure and costs but declined to apply any multiplier. The trial court issued a letter to clarify the reasons for its ruling. The letter noted several problems with the evidence for the award, including a lack of substantiation that the hours worked and rates billed were reasonable, as well as concern that some of the factors to be considered in granting a multiplier “would not be appropriate across the board” because of the firms’ differences in size, location, specialization, and degree of involvement with the case. In addition, the trial court assumed that the factors governing lodestar awards had already been applied to justify the unusually high rates requested by the firms.
Plaintiffs filed a motion to modify the judgment and to supplement the record, including new affidavits from the law firms attesting to the reasonableness of their respective firms’ rates. Plaintiffs also submitted an affidavit from Professor Geoffrey P. Miller, as an expert opinion on attorneys’ fees in class actions; and an affidavit from Professor Arthur Miller, a member of the Advisory Committee on Civil Rules of the Judicial Conference. At a hearing on Plaintiffs’ motion, Professor Miller and Craig Enoch (a former Justice of the Texas Supreme Court) testified and submitted an exhibit comparing the rates of Plaintiffs’ counsel with other comparable firms in and beyond Texas. The trial court took no action on Plaintiffs’ motion, so the motion was denied by operation of law. Plaintiffs subsequently appealed.
Applying an abuse of discretion standard to its review of the judgment, the Texas Court of Appeals more than doubled the attorneys’ fees award, holding that the trial court misconstrued the multiplier factors outlined in Tex. R. Civ. P. 42(i)(1) and failed to account for unrebutted evidence supporting a fee enhancement. Those factors include: (i) the novelty and difficulty of the questions involved; (ii) the likelihood that acceptance of the case precluded other employment by the lawyer; (iii) the customary fee charged in the locality for similar legal services; (iv) the amount involved and results obtained; (v) time limitations; (vi) the nature and length of the professional relationship; () the experience of reputation of counsel; and (viii) the uncertainty of collection before services are rendered.
Given the lack of Texas authority on the subject, the Court of Appeals’ decision draws heavily from Johnson v. Georgia Highway Express, Inc., 488 F.3d 714, 717-19 (5th Cir. 1974). The Georgia Highway Express decision articulated a very similar set of standards for applying a multiplier in federal court as those laid out in the Texas statute. Interestingly, the Texas Court of Appeals did not mention, much less address, the dramatic evolution in the application of multipliers that has occurred since that time. In the end, the Texas Court of Appeals in large part appears to have been persuaded by the expert testimony, which, under the terms of the settlement, Defendants were not permitted to rebut. Similarly, as the final fee award is within the amount negotiated as part of the settlement, a further appeal is unlikely.
Whether or not this decision breathes new life into plaintiffs’ attempts to obtain multipliers as part of their fee applications in workplace class actions remains to be seen. However, given the procedural posture, the settlement that prevented Defendants from challenging the fee award, and the unusual set of experts involved in this litigation, it could well be decades before a multiplier of this type is seen again.