On August 19, 2016, in Galloway v. The Kansas City Landsmen, LLC, the US Court of Appeals for the Eighth Circuit sided with the Seventh Circuit in holding that 28 U.S.C. § 1712 is a permissive statute that grants a court discretion in deciding the method by which it calculates attorneys' fees in a class action case ( (8th Cir. Aug. 19, 2016)).

John Galloway, on behalf of himself and a class of consumers (plaintiffs), alleged that 21 Budget rental car businesses (defendants) willfully violated the Fair and Accurate Credit Transactions Act (FACTS) by issuing receipts that contained more than five digits of customers' credit card numbers.

The parties reached a settlement in which class members were provided coupons for redemption. The parties agreed that the certificates were a non-cash benefit to the plaintiffs and that 28 U.S.C. § 1712, the Coupon Settlements provisions in the Class Action Fairness Act of 2005 (CAFA), governed the award of a reasonable attorneys' fee for class counsel.

Plaintiffs moved for attorneys' fees under § 1712, requesting that the court use the lodestar method in calculating the award to class counsel. In its discretion, the district court calculated an amount less than plaintiffs had requested using the lodestar method, with adjustments, to arrive at a reasonable attorneys' fee. Plaintiffs appealed.

The Eighth Circuit affirmed the judgment but disagreed with the lower court's reasoning regarding the permissive nature of the statute. Courts use two principal methods in exercising their discretion to award reasonable attorneys' fees:

On appeal, plaintiffs argued that § 1712 gave class counsel the right to select the method under which its fees were calculated by the court. The Eighth Circuit held that, while class counsel can propose a certain method, the court has discretion to accept or reject that proposal.

Plaintiffs further argued that the district court erred in construing § 1712 as mandating that any fee award attributable to the coupon portion of the settlement must be based solely on the value of coupons redeemed. With circuits split on the issue, the district court followed the Ninth Circuit majority's analysis in In re HP Inkjet Printer Litig., 716 F.3d 1173, 1181-83 (9th Cir. 2013), which held that § 1712(a) and (b) are not permissive, but rather provide that "a district court must calculate attorneys' fees for coupon awards as a percentage of the redeemed value and must use the lodestar method to calculate fees for injunctive relief."

On appeal, however, the Eighth Circuit found that the Seventh Circuit's interpretation of § 1712 in In re Southwest Airlines Voucher Litig., 799 F.3d 701, 707 (7th Cir. 2015) was more consistent with the substantial discretion district courts have always enjoyed in determining a reasonable attorneys' fee for the prevailing party in a class action case. In that case, the Seventh Circuit concluded that § 1712(a)-(c) is a permissive statute that "permits a district court to use the lodestar method to calculate attorney fees to compensate class counsel for the coupon relief obtained for the class," while bearing in mind potential for abuse.

The court held that the district court erred by following the HP Inkjet mandatory approach in applying § 1712(a)-(c) without explicitly stating that the award was based on an exercise of the court's discretion to determine a reasonable attorneys' fee, but that the error was harmless. As a result, the Eighth Circuit affirmed the district court, while adopting the Seventh Circuit's analysis in Southwest that § 1712 permits a court discretion to apply either the of the two principal methods, or some combination of the two, with or without adjustments.