Appellate Court Rejects Outsized Attorneys’ Fees in Napster Class Action Complaint: ‘The Benefit From This Litigation Was Minimal’

Napster acquires defunct Mint Songs
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Napster acquires defunct Mint Songs
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Photo Credit: Napster

An appellate court has officially rejected the prior approval of $1.7 million in legal fees for the attorneys who recovered $52,841.05 on behalf of rightsholders in a copyright infringement lawsuit against the new Napster (formerly Rhapsody International).

The three-judge panel just recently reversed and remanded a district court’s $1.7 million in awarded attorneys’ fees, with Judge Kenneth K. Lee indicating in the appropriate opinion that the “case will likely make the average person shake her head in disbelief.”

Said case kicked off towards 2016’s beginning, when plaintiffs including David Lowery and Camper Van Beethoven’s Victor Krummenacher submitted a class-action complaint against the company now known as Napster for allegedly infringing upon their compositions. But before the involved parties could finalize a settlement, the National Music Publishers’ Association (NMPA) ahead of the Music Modernization Act’s passage negotiated a separate settlement (which compelled participating rightsholders to waive claims in this suit) with Napster.

“By April 2018, Rhapsody had informed the plaintiffs in this lawsuit about this NMPA settlement,” Judge Lee recapped in his opinion. “It advised them that copyright holders of around 98% of the musical works available on its streaming service had opted to participate in the NMPA settlement, ‘effectively decimating’ the putative class in this lawsuit.”

Nevertheless, the plaintiffs’ attorneys and the Rhapsody/Napster legal team pressed forward with their talks, ultimately arriving upon the settlement that produced the initially highlighted $50,000 or so award (a sum that resulted from relatively few claims, of course) in January of 2019. Subsequently, pointing to the “exceptional” result they’d purportedly achieved, the musicians’ attorneys requested an astonishing $6 million or so in fees.

The district court then turned to a magistrate judge to evaluate the multimillion-dollar request. And after recalculating based upon a number of factors and adjusted figures (“almost 20% of the hours spent on the case were unreasonable or improperly block-billed”), this magistrate judge recommended approximately $860,000 in attorneys’ costs.

Finally, the district court accepted part of the magistrate judge’s determination, opted against applying a “negative 0.5 multiplier,” and, in the process, settled on the aforementioned $1.7 million – an award that Judge Lee emphasized “is more than thirty times larger than the amount paid to class members.”

“We hold that courts must consider the actual or realistically anticipated benefit to the class—not the maximum or hypothetical amount—in assessing the value of a class action settlement,” Judge Lee explained in his opinion, proceeding to drive home that “the district court should disregard the theoretical $20 million settlement cap and instead start with the $52,841.05 that the class claimed.”

“Except in extraordinary cases,” the judge continued, “a fee award should not exceed the value that the litigation provided to the class. … No rational person would spend, say, $1 million in legal fees—and endure the hassles and headaches of litigation—to recover only relief that is a small fraction of that amount. Likewise, it is unreasonable to award attorneys’ fees that exceed the amount recovered for the class, absent meaningful nonmonetary relief or other sufficient justification.”

As the district court reconsiders the legal fees, it “should determine the class action settlement’s actual value to the class members and then award attorneys’ fees proportional and reasonable to the benefit received by the class,” Judge Lee spelled out in conclusion.