from the United States District Court for the Western
District of Oklahoma (D.C. No. 5:11-CV-00177-D)
J. Pentz, Sudbury, Massachusetts, for Objector-Appellant
Alan Isaacson, La Jolla, California (C. Benjamin Nutley,
Pasadena, California, and John W. Davis, San Diego,
California, with him on the briefs), for Objector-Appellant
Charles David Nutley.
S. Volchok, WilmerHale, Washington, D.C. (Bradley E.
Beckworth, Susan Whatley, and Jeffrey J. Angelovich, Nix,
Patterson & Roach, LLP, Austin, Texas, and Robert N.
Barnes, and Patranell Britten Lewis, Barnes & Lewis, LLP,
Oklahoma City, Oklahoma, on the briefs), for
Plaintiff-Appellee Chieftain Royalty Company.
D. Christiansen, McAfee & Taft, P.C., Oklahoma City,
Oklahoma, for Defendants-Appellees, Enervest Energy
Institional Fund XIII-A, L.P., et al.
HARTZ and HOLMES, Circuit Judges. [*]
settlement of a class action for royalties from gas wells,
the United States District Court for the Western District of
Oklahoma awarded attorney fees to class counsel and an
incentive award to the lead plaintiff to be paid out of the
common fund shared by class members. The court rejected
claims by two objectors, and they appealed. Exercising
jurisdiction under 28 U.S.C. § 1291, we reverse and
remand. The district court failed to compute attorney fees
under the lodestar method, as required by Oklahoma law in
this diversity case, and the incentive award is unsupported
by the record.
underlying class action alleged underpayment of royalties by
the defendants on gas from wells in Oklahoma. The parties
reached a settlement for a cash payment of $52 million, to be
distributed pro rata to the class members after payment of
expenses and fees. Class counsel moved for attorney fees in
the amount of 40% of the settlement fund, plus interest; and
the lead plaintiff, Chieftain Royalty Company, requested an
incentive award of 1% of the fund. Appellants Charles David
Nutley and Danny George were class members who objected to
these requests. After a hearing on the settlement and fee
requests, the court awarded class counsel 33 1/3% of the fund
($17, 333, 333.33) as attorney fees and awarded Chieftain
1/2% of the fund ($260, 000) as an incentive award. The
objectors appealed each award. We address them in turn.
are two primary methods for determining attorney-fee awards
in common-fund class-action cases. The first is the
percentage-of-the-fund method, which awards class counsel a
share of the benefit achieved for the class. See
Newberg on Class Actions § 15:63 (5th ed. 2016)
(Newberg). Many courts, including this circuit, consider 12
factors to determine the appropriate percentage. See
Gottlieb v. Barry, 43 F.3d 474, 482 & n.4 (10th Cir.
1994). These factors were first set forth in Johnson v.
Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th
Cir. 1974), which was not a common-fund case. We have stated
the factors as:
the time and labor required, the novelty and difficulty of
the question presented by the case, the skill requisite to
perform the legal service properly, the preclusion of other
employment by the attorneys due to acceptance of the case,
the customary fee, whether the fee is fixed or contingent,
any time limitations imposed by the client or the
circumstances, the amount involved and the results obtained,
the experience, reputation and ability of the attorneys, the
"undesirability" of the case, the nature and length
of the professional relationship with the client, and awards
in similar cases.
See Gottlieb, 43 F.3d at 482 n.4. The second method
is the lodestar approach. The court first determines the
lodestar by multiplying the number of hours reasonably spent
on the litigation by a reasonable hourly rate. See
Anchondo v. Anderson, Crenshaw & Assocs. LLC, 616
F.3d 1098, 1102 (10th Cir. 2010). This "produces a
presumptively reasonable fee, " but it "may in rare
circumstances be adjusted to account for the presence of
special circumstances." Id.
court has approved both methods in common-fund cases,
although expressing a preference for the
percentage-of-the-fund approach. See Gottlieb, 43
F.3d at 483 ("In our circuit, following Brown
[v. Phillips Petroleum Co., 838 F.2d 451 (10th Cir.
1988), ] and Uselton [v. Commercial Lovelace
Motor Freight, Inc., 9 F.3d 849 (10th Cir. 1993)],
either method is permissible in common fund cases; however,
Uselton implies a preference for the percentage of
the fund method."). Our approach also "has been
called a 'hybrid' approach, combining the percentage
fee method with the specific factors traditionally used to
calculate the lodestar." Id. at 482-83.
district court chose the percentage-of-the-fund analysis,
explaining that this is "[t]he preferred method of
determining a reasonable attorney fee award in common fund
cases." JA at 523 (Dist. Ct. Order). It overruled the
objectors' argument that the lodestar approach should
govern and that the fee is excessive under that analysis. The
court stated that "[b]oth state and federal cases
recognize and/or permit a percentage of fund recovery under
the common fund doctrine." Id. It added that in
any event, the result would not have differed under a
lodestar analysis, citing Newberg on Class Actions §
14.6 at 551 (4th ed. 2002), for the proposition that
empirical studies show that the average fee award is about
one-third of the recovery, whichever method is used. See
id. at 524.
a contingency-fee agreement allowed class counsel to recover
40% of any common-fund recovery, the district court ruled
that "in fairness and consistent with the best interest
of the Class, " counsel should recover 33 1/3% of the
settlement. Id. at 523. It stated that an award of
that percentage was not unusual, pointing out that
"[t]he Tenth Circuit has previously identified the
typical fee range as 23.7% to 33.7%." Id. at
526 (citing Brown, 838 F.2d at 455 n.2). It then
recited the Johnson factors and found that
"most, if not all, . . . support Class Counsel's fee
request, as reduced by the Court." Id. It
Class Counsel has conducted the Litigation and achieved the
Settlement with skill, perseverance and diligent advocacy;
The Litigation involved complex factual and legal issues and
was actively prosecuted for over four years;
Had Class Counsel not achieved the Settlement, there would
remain a significant risk that Class Representative and the
other members of the Settlement Class may have recovered less
or nothing from the Settling Parties;
Class Counsel devoted substantial time and resources to
achieve the Settlement. Id. (internal numbering
removed). The court added that its award was informed by
"[t]he market rate for Class Counsel's legal
Id. at 528.
review a district court's award of attorney fees for
abuse of discretion. See Gottlieb, 43 F.3d
at 486. This includes review de novo of the legal principles
underlying the fee award-such as the choice of whether to
apply state or federal law. See Rosenbaum v.
Macallister, 64 F.3d 1439, 1444 (10th Cir. 1995);
see also Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 405 (1990) (district court abuses
its discretion in Rule 11 determination if ruling is based on
an erroneous view of the law).
argue that Oklahoma law governs the award of attorney fees in
this case and requires using the lodestar approach rather
than a percentage-of-the-fund analysis. We
federal jurisdiction in this common-fund case is based on the
diversity of the parties, see 28 U.S.C. § 1332,
the doctrine established in Erie R.R. Co. v.
Tompkins, 304 U.S. 64 (1938), requires us to apply
Oklahoma law governing the award of attorney fees in
common-fund cases. Under Erie, "federal courts
in diversity cases must respect the definition of
state-created rights and obligations by the state
courts." Byrd v. Blue Ridge Rural Elec. Coop.,
356 U.S. 525, 535 (1958). In other words, the federal courts
must recognize state-created substantive rights. Those rights
include "the rules of decision by which [the] court will
adjudicate [substantive] rights." Mississippi Pub.
Corp. v. Murphree, 326 U.S. 438, 446 (1946) (describing
prohibition in Rules Enabling Act, 28 U.S.C. § 2072(b),
against federal rules of procedure that modify substantive
rights); see Shady Grove Orthopedic Assocs., P.A. v.
Allstate Ins. Co.,559 U.S. 393, 407 (2010) (plurality
opinion); Scottsdale Ins. Co. v. Tolliver, 636 F.3d
1273, 1280 (10th Cir. 2011) (applying Oklahoma statute
authorizing award of fees to defendant when judgment awarded
is less than amount of offer of judgment). But the
Erie doctrine sometimes also requires federal courts
to apply state law that, in other contexts, might be deemed
matters of procedure. "[T]he twin aims of the
Erie rule [are] discouragement of forum-shopping and
avoidance of inequitable administration of the laws."
Hanna v. Plumer, 380 U.S. 460, 468 (1965). To
advance those aims, at least when there is no contrary
federal rule of civil procedure properly enacted under the
Rules Enabling Act, see Shady Grove, 559 U.S. 393