A Redlands band’s suit against the music streaming site Napster triggered a June 7 appellate ruling that reduces attorney fees.
Fees must be set at the final payment in a class-action, not at the agreed-upon cap, the Court of Appeals for the Ninth Circuit ruled.
The class action case had resulted in Napster paying $52,000 to class members, and $1.7 million to the plaintiffs’ attorneys. Attorneys had continued settlement agreements long after it became clear that payout would be minimal, the Ninth Circuit said.
“(The attorney fees) will be multiple times the settlement’s value. And that is a major red flag that signifies that lawyers are being overcompensated and that they achieved only meager success for the class.”
From the ruling
Paul Zimmerman provided a statement on behalf of Mona Hanna of Michelman & Robinson, which represented the plaintiffs. He said the Ninth Circuit ruling ignored their contribution to a competing class action claim, and that they are considering their options moving forward.
“There is no dispute that after years of failing to pay artists their legally mandated royalties, Rhapsody (Napster) ceased that practice, entered into a settlement with the National Music Publishers’ Association, and created an internal artist board to watch over Rhapsody’s conduct and confirm compliance with the new procedures. This lawsuit contributed to these significant changes and resulted in a settlement providing up to $20 million to eligible class members and other non monetary benefits. The district court acknowledged the benefits to the class and awarded attorney fees accordingly,” Zimmerman wrote.
Case background
David Lowery, Victor Krummenacher, Greg Lisher and David Faragher brought the suit. Lowery is a member of the rock bands Cracker and Camper Van Beethoven.
Krummenacher and Lisher came from Camper Van Beethoven, and Faragher co-founded Cracker.
They sued the file-sharing application Napster in 2016, claiming it illegally reproduced and distributed their songs.
The suit brought one count of direct copyright infringement.
The litigants immediately began discussing settlement instead of litigation, the appellate ruling said.
The brief claimed that Napster wanted to settle early, and that they were accused of breaking license provisions that Congress found were outdated, because it was impossible for streaming services to comply with them.
According to the appellate ruling, large numbers of the injured class decided to participate in the settlement of a separate case in 2018. It became clear by April 2018 that the lawsuit would not bring much compensation, the ruling said.
It was settled in 2020.
The settlement brought $35 to each claimant per registered work and $1 per unregistered work for the works which Napster was unable to identify the copyright owner, according to Napster’s settlement brief.
After approving the $52,000 payout to class members in 2019, California Central District Judge Jeffrey White ordered Napster to pay the musicians’ attorneys $1.5 million of a requested $6 million in attorneys’ fees.
The settlement also directed Napster to establish an Artist Advisory Budget with $30,000 in annual funding to promote artists’ rights.
White found the attorney fees reasonable because the agreed-upon cap for the settlement was $20 million. There was no bright-line rule whether to consider the cap or the actual payment, White said.
The ruling
The appellate decision established that attorney fees must be pegged to the actual class payment instead of the agreed-upon cap.
“Here, no matter the final valuation of the settlement, the $1.7 million lodestar amount will greatly exceed 25% of the value of the settlement. Indeed, it will be multiple times the settlement’s value. And that is a major red flag that signifies that lawyers are being overcompensated and that they achieved only meager success for the class,” the ruling said.
Attorneys’ fees should not exceed half the total money going to class members and their counsel, the ruling said.
“Except in extraordinary cases, a fee award should not exceed the value that the litigation provided to the class,” the ruling continued.
Case information
David Lee, Jennifer Mauri, Mona Hanna and Sanford Michelman of Los Angeles’ Michelman and Robinson represented the plaintiffs.
Karin Kramer, Andrea Roberts, Arthur Roberts, Cory Struble, Sean Pak and Thomas Rubin of San Francisco’s Hanson Bridgett LLP represented Napster.
Case No. 4:16-cv-01135
California Central District Judge Jeffrey White presided.
Ninth Circuit Judge Kenneth Lee wrote the opinion, which judges Milan Smith and Daniel Collins joined.
Read the complaint here.
Read the appellate ruling here.
