NEW ORLEANS (Legal Newsline) - The Fifth Circuit Court of Appeals reversed a $4.4 million fee award to lawyers who negotiated a settlement over defective toilet tanks that could result in less than $600,000 in benefits to their clients.
Saying plaintiff lawyers “prevailed on only a fraction” of their original claims, Judge Edith Jones ordered a new calculation of fees awarded to lawyers at Carpenter & Schumacher and Elvin E. Smith in a class action against Porcelana Corona de Mexico.
The lawyers sued Porcelana after the Mexican manufacturer announced a recall in 2017 of defective Vortens and Sanitarios toilet tanks. After lengthy negotiations, the company settled by agreeing to pay replacement costs of $150 or $300 for two models of tanks and up to $4,000 in damage reimbursement, plus $7,000 to the named plaintiffs. In a subsequent court filing, Porcelanas said the total benefits paid are unlikely to exceed $200,000.
The lawyers then sought $12.8 million in fees plus $375,000 in expenses, applying a 2.9 multiplier to “lodestar” hours worked for an average hourly rate of about $1,800. The trial judge slashed that to $4.4 million, saying there was no need for a multiplier since the settlement largely duplicated a warranty policy the company already had in place.
Porcelana appealed to the Fifth Circuit, arguing the lawyers would be vastly overpaid for the results they achieved. The trial judge should have stripped out hours the lawyers spent pursuing claims that ultimately failed, Porcelana argued, since they sued over seven models of toilet tanks produced between 2004 and 2012 but the court eliminated all claims except for those involving two tanks made at a single factory in 2011.
In a Jan. 10 decision, the Fifth Circuit agreed the legal bill might be overstated.
“In sum, recovery was ultimately restricted to two tank models with limited compensatory damages for one year and limited replacement costs for five years,” the appeals court observed. “And even for the two models in which the original class achieved some success, they came up empty-handed on four of the nine model years.”
The lawyers aren’t entitled for fees on the unsuccessful claims unless there was a “common core of facts” or “related legal theories,” the Fifth Circuit went on. But Porcelana succeeded in winnowing the case down to claims involving tanks made in a single year at one plant, for which it already had extended warranty protection.
The trial court acknowledged the lawyers should be paid only for successful efforts but said “it is difficult – if not practically impossible – to attempt to identify specific hours that should be eliminated in a case like this.”
“This conclusory language fails to pass muster,” Judge Jones wrote in the panel opinion, which was joined by Judge Edith Brown Clement. The plaintiff lawyers failed to prove any design defect common to all the tanks they sued over, the court noted, and “to allow recovery on these unsuccessful claims would incentivize fishing expeditions into every tangentially related product after the discovery of a single defective item.”
Instead, she concluded, the class action lawyers “must shoulder the burden of proving that the hours submitted are for claims sharing a common core of facts.”
Judge James Graves dissented, saying the appeals court should have deferred to the trial court because all of the claims were based on a theory Porcelana made its products in outdated plants. The defendants calculated the total benefit of the settlement to be around $500,000, the judge said, meaning the fees are “only 8.67 times the class’s monetary benefit.”
In a report submitted for the settlement fairness hearing in 2020, Porcelana said it had received four claims from members of a Texas class of consumers and estimated it would pay out less than $200,000 in total cash through the settlement, since the tanks were covered under its own warranty program.