Stratton v. XTO Energy: Texas Case Complements California Lodestar Multiplier Analysis

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The Texas Court of Appeals has more than doubled the attorneys’ fee award in a securities class action, holding that the trial court misconstrued the multiplier doctrine and failed to enhance class counsel’s lodestar according to several well-established factors. See Stratton v. XTO Energy, No. 02-10-00483, 2012 Tex. App. LEXIS 1089 (Tex. App. Feb. 9, 2012) (available here). The lodestar multiplier methodology applied in the Texas case is substantially the same across jurisdictions, including California. See Lealao v. Beneficial California, 82 Cal. App. 4th 19, 26 (2000) (“the primary method for establishing the amount of ‘reasonable’ attorney fees is the lodestar method”) and Wershba v. Apple Computer, 91 Cal. App. 4th 224, 255 (2001) (“Multipliers can range from 2 to 4 or even higher.”).

In Stratton, class counsel had successfully negotiated a settlement of the plaintiffs’ claims for breach of fiduciary duty arising out of defendants’ $41 billion merger. See Stratton, 2012 Tex. App. LEXIS at *1-4. The trial court awarded fees of $3.97 million. However, the appellate court held that the trial court had misapplied the widely used “Johnson factors,” which are analyzed to determine whether a multiplier is warranted and how large the multiplier ought to be. See id. at *6-13 (citing Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974)). The Court of Appeals applied a 2.17 multiplier to the trial court’s award, arriving at the new, substantially increased fee award of $8.6 million. Stratton, 2012 Tex. App. LEXIS at *20-29.

In overturning the trial court’s fee award, the appellate court found that “the trial court ignored the uncontroverted evidence that (1) the suggested lodestar was calculated without enhancement by the Johnson factors and (2) that an enhancement was warranted by the facts of the case.” Id. at *9. The appellate court thus rejected the trial court’s assertion that a fee enhancement was inappropriate due to “a lack of evidence that the hours worked and rates billed were reasonable.” Id. at *3. The trial court’s failure to give due consideration to the Johnson factors and to the evidence thus “resulted in an award that cannot be said to be just.” Id.

The appellate court concluded that application of the Johnson factors supported the use of a multiplier. “The unenhanced lodestar does not reflect the exceptional results achieved by Plaintiffs’ counsel, the undesirability of this litigation, the high risk borne by its contingent nature, or the fact that the fee award requested is comparable to that awarded in similar class action litigation.” Id. at 29; accord Consumer Privacy Cases, 175 Cal. App. 4th 545, 556 (2009) (“Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative ‘multiplier’ to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained, and the contingent risk presented.”).

In addition to analyzing the application of the Johnson factors, the Stratton decision also illuminates other commonly adopted principles of fee awards, including the valuation of work performed by paralegals and the use of expert testimony in determining whether the lodestar reflects a reasonable rate and number of hours. Id. at *14.

Stratton is likely to be relied on in California and the numerous other jurisdictions that have adopted the same lodestar multiplier framework, just as Johnson has been widely influential in shaping the analysis of attorney fee motions.