Lawyers representing T-Mobile users dealt a huge blow by court

The new ruling notes that almost immediately after class counsel filed a case on behalf of customers from around the US, a settlement discussion began. Less than a month after the complaint was filed, a settlement was reached.

It was decided that individual customers would be eligible for a payment of up to $25,000 for out-of-pocket losses caused by the breach. Customers who didn't submit proof of loss were entitled to $25 or $100 if they were from California. On top of that, T-Mobile offered free identity-defense and monitoring service for two years. And lastly, T-Mobile said it would spend an additional $150 million to improve security.

Class counsel expected a fee award of 22.5 percent of the settlement fund, or $78.75 million. 

Those who opposed the fee award said that the settlement resulted in a so-called "megafund," which was defined as a settlement involving $100 million or more

It was argued that in megafund settlements, the high recoveries are often the result of a class's size instead of the counsel's effort. The idea behind this argument is that when funds reach high proportions, even normal percentages result in "fees of such a high magnitude that they would provide a windfall to class counsel."

In short, it was implied that attorneys were getting a windfall for little effort.

The class counsel countered that by saying that while 22.5 percent may sound high, if you consider the fact that T-Mobile said it would spend an additional $150 million for security, they are essentially only asking for 15.75 percent of the $500 million fund.

The district court had said that class counsel were all highly skilled, were able to obtain relief for the class members quickly, and had requested fees in line with those received by other counsel in similar cases.

The lawyers spent more than eight thousand hours on the case and were expecting to spend another three thousand hours.

The appeals court has concluded that the fee awarded was unreasonable and notes that the earlier decision factored in the projected future hours of work. However, since the class counsel worked on the case for only a few months, they didn't have to invest "the time and effort to yield a return like the one the court awarded."

To put things into perspective, if the fee is permitted, the attorneys could make around $7,000 to $9,500 an hour, something no class member would be willing to pay to an attorney for help with a case. In light of that, even half of what was requested, which works out to $3,500 to $4,750 per hour, "could hardly be considered a penalty."

This is not to be taken as a declaration that the appeals court thinks the class counsel didn't do a good job, as they have been commended for representing the class well.