(Photo: Melanie Bell/ALM)

A federal appeals court has vacated a $15.3 million legal fee award and remanded it with instructions to reduce it in litigation stemming from a  2014 data breach that impacted 56 million Home Depot customers.

The U.S. Court of Appeals for the Eleventh Circuit determined Thursday that the fee award to counsel representing a slate of financial institutions that sued Home Depot over the breach should have been based solely on the lawyers' hourly rates and time spent litigating the case and should not have included any financial enhancement.

Holding that the legal fees were part of a separate contractual deal not included in the final settlement, Judge Gerald Tjoflat wrote that, “It was an abuse of discretion to use a multiplier to account for risk in a fee-shifting case.”

Tjoflat was joined by Judge William Pryor and Judge Ronald Lee Gilman of the U.S. Court of Appeals for the Sixth Circuit.

Ken Canfield, a partner at Atlanta's Doffermyre Shields Canfield & Knowles, and co-class class counsel for the financial institutions, said, “The Eleventh Circuit affirmed that Judge Thrash was  correct in deciding every argument that was presented to  him.  The fee award was vacated based on a new argument Home Depot made for the first time on appeal. We are confident that Judge Thrash will again make the right calls on remand after a complete record is put before  him.”

Canfield argued the case at the 11th Circuit and is co-lead counsel for the consumer plaintiffs in the Equifax data breach litigation.

Cari Dawson, a partner at Alston & Bird and co-counsel for Home Depot, could not immediately be reached for comment.

The legal fees at issue were calculated as a lodestar, which is based on lawyers' hourly rates and time but traditionally includes a financial enhancement to compensate plaintiffs lawyers for the risk they assumed when they signed onto the litigation.

The multidistrict litigation on behalf of financial institutions that sought damages stemming from the data breach settled in 2017 for $25 million. U.S. District Court Chief Judge Thomas Thrash Jr., who presided over the Home Depot data breach cases, set the fee award after plaintiffs attorneys agreed, at the request of Home Depot lawyers, to negotiate the specifics of “reasonable legal fees,” costs and expenses after closing the settlement deal.

But Home Depot reserved the right to object to any fee request—and ultimately did so after class counsel requested $18 million, according to Tjoflat. Home Depot countered that reasonable legal fees should be about $5.6 million.

Thrash stepped in after lawyers on both sides were unable to agree on a dollar amount. He accepted the lodestar proposed by class counsel—about $11.7 million—as “an appropriate measure of the time expended by the plaintiffs in this case,” Tjoflat said. Thrash then applied the same 1.3 multiplier that had been used in a parallel settlement compensating Home Depot consumers whose financial and personal data had been compromised by the breach, bringing the total to $15.3 million.

“The Home Depot argued that class counsel was not entitled to a multiplier,” Tjoflat said.  “Home Depot did not suggest that a multiplier was prohibited, only that it was not warranted” and that financial institution  lawyers “did not achieve a great result.”

Thrash also rejected arguments by Home Depot lawyers that counsel for the financial institutions should be the same as the fees paid to consumer class counsel

Thrash said in awarding the fees that financial institution counsel expended more effort and more time than consumer lawyers in settling the cases and that “dealing with [banks] rather than consumers added difficulty to the process of litigating this case.”

Thrash also cross-checked his lodestar award, including the fee enhancement, against a separate percentage calculation based on the class settlement benefits. Thrash ultimately found that the $15.3 million award was only slightly more than one-third of the settlement benefits, which Thrash determined was reasonable.

“It is hard to imagine how the settlement agreement could be any clearer that Home Depot will pay the attorney's fees, and that payment will not come out of the class fund,” Tjoflat said. “A settlement agreement is a contract, … and the parties' intent seemed to be for the fees to be paid separately by Home Depot—i.e., a fee-shifting arrangement.”

“The District Court's only stated reason for using a multiplier was the exceptional risk taken by counsel in litigating the case,” Tjoflat continued. “And risk, according to the Supreme Court, is not an appropriate basis for enhancing an attorney's fee in statutory fee-shifting cases.”