$15 Million In Attorney Fees Awarded In Oil Sludge MDL
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$15 Million In Attorney Fees Awarded In Oil Sludge MDL

The First Circuit Court of Appeals threw out an earlier settlement and ruled that only $15 million should be awarded to plaintiff's attorneys, down from the original $30 figure.

Tuesday, March 3, 2015 - More than $15.5 million in attorney fees were awarded to lawyers that counseled plaintiffs in the oil sludge multidistrict litigation against Volkswagen AG and Audi AG. The original settlement was vacated by the First Circuit Court of Appeals in 2012 after the attorney fees attached to the 2011 settlement were deemed to be improperly calculated according to federal law when state laws should have taken precedent.

The First Circuit Court of Appeals originally tossed the $30 million in attorney fees in July of 2012, as well as the $1.2 million in costs that had been approved. The judges determined that based on a Supreme Court precedent, the attorney fees should have been based on the guidelines given by Massachusetts state laws as opposed to the federal directions Judge Tauro employed to arrive at his $30 million figure. Volkswagen argued that the attorney fees should be reduced to roughly $7.7 million in the original appeal, demonstrating the gap that existed between the two sides before the dismissal.

U.S. District Judge Joseph L. Tauro approved the original settlement in March of 2011 which set the attorney's fees for the case at $30 million. However, he did not use the lodestar method of analysis, which Massachusetts courts are allowed to use to help determine fair attorney fees. This method combines the reasonable hours spent working on the case with a reasonable hourly rate, the resulting figure becoming the lodestar amount.

The court can then determine a magnitude by which to multiply the base lodestar amount considering the successes and risks incurred by the legal counsel receiving attorney fees. This final multiplier is where the First Circuit stepped in, which ruled the final settlement would double the original lodestar amount of $7.7 million for the attorney fees. The First Circuit ruled that because the settlement agreement worked as a contract that was governed under state law, the lodestar method should have been used to determine the attorney fees for the case.

The oil sludge lawsuits were originally filed because of defects discovered in some of the 1.8-liter turbo engines in Audi A4 models and Volkswagen Passats. The engines would accumulate hazardous oil sludge even when kept up to the manufacturers recommended level of maintenance. Plaintiffs claimed that oil sludge coming from engine coking deposits would make their vehicles more susceptible to problems both immediately an in the future. Close to 500,000 cars were affected by the oil sludge defects.

In the original settlement, Volkswagen agreed to cover the costs for all maintenance issues related to the oil sludge problems with a settlement valued by a special master at roughly $223 million. The affected vehicles include Audi A4 models from 1997-2004 and Volkswagen Passats from 1998-2004. Plaintiffs claim that both car manufacturers failed to honor the 8-year warranties that came with the engines at first, which is one factor that led to the slew of lawsuits. The settlement also offered plaintiffs eligibility for a new 10-year, 120,000-mile enhanced oil sludge warranty.

Additional awards for individual plaintiff's attorneys not included in the original settlement in addition to costs and fees documented from before the original settlement were also included in the ruling.

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