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Consumer Class Actions: 19.3.7.5 Lodestar Multipliers in Common Fund Recoveries

When a lodestar calculation is used to determine or to cross-check the proposed percentage fee from a common fund, courts commonly approve a fee that is higher than the lodestar figure. “[M]ultipliers may reflect the risks of non-recovery facing counsel, may serve as an incentive for counsel to undertake socially beneficial litigation, or may reward counsel for an extraordinary result.”255

Consumer Class Actions: 19.4.2 Approval of Negotiated Fee and Notice to the Class

A negotiated fee agreed upon in circumstances under which there could be no connection between the amount of the fee and the class recovery—such as when the fee is negotiated after preliminary approval of a settlement providing that the defendant will pay such fees as the court may award—is entitled to substantial weight.274 “A court should refrain from substituting its own value for a properly bargained-for agreement.”275 Thus, when there is no evidence of collusion and no detrimen

Consumer Class Actions: 19.5.1 Overview

When several counsel have successfully represented a class, the fees awarded by the court must be divided between the counsel in some manner. Most commonly, courts prefer to make a single lump-sum award and leave it to the participating firms to divide the fees among themselves because the interest of both the class and the defendant is only in the total award of fees, not the particular division.286 Thus, counsel may properly divide fees according to whatever agreements they made upon originally associating or as they subsequently agree.

Consumer Class Actions: 19.6.2 Why the Concern?

The concern about attorney fees being income to clients is acute in the context of individual actions, but much less so in class actions. As discussed in § 19.6.1, supra, what is at issue is whether that fee award, or some portion of it, is also reportable as income to a class representative or other class members even when they do not directly receive the fee award.

Consumer Class Actions: 19.6.3 IRS Ruling Indicates Fees Are Not Necessarily Income to Class Members in Opt-Out Classes

A 2005 IRS private letter ruling states that attorney fees paid to class counsel pursuant to the settlement agreement in an opt-out class case under Rule 23(b)(3) were not includable in the gross income of either the class representatives or the class members. In addition, the attorney fees were not subject to information reporting via a Form 1099 to the class members and representatives.324 Note, however, that every letter ruling is directed only to the taxpayer requesting it and, pursuant to I.R.C.

Consumer Class Actions: 19.6.5.1 Generally

A close reading of Banks indicates that, even in individual lawsuits, the Supreme Court might treat statutory attorney fees paid to the attorney differently than fees pursuant to the contingent fee agreement at issue there.334 The Banks court discussed this possibility but declined to address it.

Consumer Class Actions: 19.6.6 Generally Minimal Tax Implications If Tax Liability Distributed on a Pro Rata Basis to the Whole Class

Even if the IRS or a court were to find the attorney fees to be taxable income to the class, it seems clear that the attorney fees should be taxable income to each class member and not just to the class representatives. It is difficult to see how the class representative could be required to report the full portion of the common fund being paid for attorney fees and costs as income without also having to report the rest of the entire common fund award as income.

Unfair and Deceptive Acts and Practices: 12.3.4 Prejudgment Interest

Whether a court will order prejudgment interest on a UDAP claim will normally depend on the state’s general treatment of prejudgment interest. One court has ruled that the authority in the UDAP statute to award such equitable relief as the court deems proper was not, in itself, broad enough to allow an award of prejudgment interest.292

Unfair and Deceptive Acts and Practices: 12.3.5.1 General Standards

Whatever theory a consumer uses in seeking damages, the consumer has the burden of proving the amount of those damages. While proof of damages does not require mathematical precision, it must be based on more than mere speculation.295 A plaintiff seeking consequential damages should also take care to introduce evidence that these damages were the foreseeable consequence of the UDAP violations or that other state standards for consequential damages are satisfied.296

Unfair and Deceptive Acts and Practices: 12.3.6.1 Remedy Limitation Clauses

A contractual provision limiting the consumer’s remedies may be effective in limiting the damages available on a contract or warranty claim. A UDAP action, however, is not based on the contract or on a warranty but on the seller’s unfair or deceptive practices.332 Consequently, such limitations are inapplicable to UDAP claims.333

Unfair and Deceptive Acts and Practices: 12.4.1.1 General

About half the states authorize private litigants who have proven a UDAP violation to obtain minimum damage awards ranging from $25 to $10,000.345 Thus, even if actual damages are only one dollar, minimum damage provisions may allow sizeable recoveries.346

Unfair and Deceptive Acts and Practices: 12.4.1.3 Should Statutory Damages Be Trebled?

A number of UDAP statutes authorize both statutory damages and treble damages for certain types of violations, such as willful or knowing violations. The statutory language will often make it clear whether the minimum statutory damages can be trebled. A California statute allows the trier of fact to treble any civil penalty (or any other remedy if its purpose or effect is to punish or deter) when the person affected is an older or disabled person and certain other factors apply.363

Unfair and Deceptive Acts and Practices: 12.4.1.4 Interrelationship Between Statutory Damages and Other Awards

Where the UDAP statute allows a plaintiff to recover “damages or a civil penalty,” the consumer may recover a civil penalty on the UDAP claim along with damages on common law claims.367 This conclusion is particularly clear if the UDAP statute provides, as many do, that it does not limit the rights available to a consumer under other law. But this language may preclude an award of both actual and statutory damages for the same UDAP violation.368

Unfair and Deceptive Acts and Practices: 12.4.2.1 General

About half of all UDAP statutes authorize treble or other multiple damage awards.378 The actual damage award, under specified conditions, is multiplied (usually by three) to calculate the consumer’s award. A few states have special multiple damage provisions if the consumer is older or disabled.379

Unfair and Deceptive Acts and Practices: 12.4.2.2 Are Multiple Damages Mandatory?

Despite the clear policy underpinnings for multiple damage awards, individual courts may be reluctant to order merchants to pay consumers more than actual damages. In this situation, it is useful if the consumer litigant can argue that the award of multiple damages is not in the court’s discretion, but is mandated if the statutory preconditions are met.