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Denver law firm wants federal court to uphold fee division agreement in Volkswagen, Audi class action

By Jessica Karmasek | Jul 7, 2015

The John Joseph Moakley U.S. Courthouse in Boston.

BOSTON (Legal Newsline) - One of the three law firms appointed counsel for a class action lawsuit filed against Volkswagen and Audi over oil sludge buildup in engines and related warranties argues it is entitled to the largest share of the $15.5 million awarded in attorneys fees.

In a complaint filed in the U.S. District Court for the District of Massachusetts June 23, Denver-based law firm Irwin & Boesen PC argues that a fee division agreement signed by it, Philadelphia firm Berger & Montague PC and Los Angeles-based The McNulty Law Firm in November 2006 should control the division of any jointly awarded fees.

In February, the federal court issued an order concerning an award of fees to all counsel of record. In particular, the court awarded undivided fees in the amount of $15,468,000 to the “class counsel as a whole.”

The order was the second such award. The first award was reversed on appeal because it had been calculated based on a “percentage of fund” basis that an appellate court found to be improper. Based on the outcome of the appeal, all fee awards made in the order were determined based on a time accounting.

According to Irwin & Boesen’s complaint, the $15,468,000 fee award to class counsel as a whole was the only fee award that was enhanced by a multiplier. The court determined that a multiplier of two was an “appropriate enhancement” to class counsel’s pre-award lodestar of $7,734,000.

Under the lodestar method, an amount is calculated by multiplying the number of hours reasonably spent on the case times a reasonable hourly rate. Massachusetts courts are allowed to use the method.

In this case, the lodestar was calculated based on an across-the-board one-third reduction of the hours submitted by class counsel and then multiplied by $500 per hour.

According to court documents, the time devoted to the case by the three class counsel firms was: 14,600.13 hours by Irwin & Boesen; 4,350.40 hours by McNulty; and 4,241.10 hours by Berger & Montague.

As such, Irwin & Boesen devoted 63 percent of the total time making up the lodestar, McNulty devoted 18.7 percent and Berger & Montague devoted 18.3 percent.

The underlying class action against Volkswagen and Audi dates back to 2006.

The plaintiffs -- represented by Irwin & Boesen, Berger & Montague, and McNulty -- accused the automakers of failing to disclose to consumers that engines in model year 1997 through 2004 Audi vehicles equipped with 1.8 liter turbo-charged engines and model year 1998 through 2004 Volkswagen Passat vehicles equipped with 1.8 liter turbo-charged engines are predisposed to the formation of harmful sludge and deposits.

The class argued that the sludge and deposits led to oil starvation, causing “very serious” and expensive damage to and/or “catastrophic failure” of engines.

Volkswagen and Audi eventually agreed, in a settlement approved in March 2011, to cover 100 percent of sludge-related maintenance costs for certain makes and model years if they have documentation of required oil changes.

In anticipation of their eventual appointment as class counsel, the three law firms entered into a “leadership,” or fee division, agreement in November 2006, according to Irwin & Boesen’s complaint. The agreement provided that any division of the fees awarded would be based on a time-in basis, not an economic formula.

Following the federal court’s February order, defendants’ counsel was notified of the fee division agreement. At that time, it was requested that Volkswagen issue separate checks to the three class counsel firms based on the agreement.

Irwin & Boesen approved the request. Berger & Montague and McNulty objected to it, arguing the agreement was nullified in a series of December 2010 emails and the three firms instead should receive the following: Berger & Montague, 20 percent of any fee award; McNulty, 40 percent; and Irwin & Boesen, also 40 percent.

“The emails do not expressly or implicitly nullify the Fee Division Agreement,” attorneys for Irwin & Boesen wrote in the firm's nine-page complaint. “The emails instead refer to a sliding scale economic formula in which Berger was to receive a maximum of 20 percent of an anticipated percentage of fund fee award.

“The consideration for this formula was Berger’s agreement to then make fee payments to the non-Class Counsel law firms under Berger’s ‘tent.’”

Irwin & Boesen is seeking a declaration that the fee agreement is binding; that the fees awarded to class counsel as a whole are to be divided based on the agreement; that all fees awarded to class counsel as a whole be divided based on the lodestar time accounting; and that it receive 63 percent of the fees, Berger & Montague receive 18.3 percent and McNulty 18.7 percent.

Judge William Young, who under a March agreement has exclusive jurisdiction over any such disputes, is handling the complaint.

Irwin & Boesen has asked the court for a speedy hearing. The firm argues the denial of its “rightful and substantial” fee award has created an “undue hardship.”

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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