Summary
In a decision with immediate consequences for class action settlement practice, the Third Circuit Court of Appeals late last week vacated, for the second time, a $3.7 million fee award in Gelis v. BMW of North America, LLC. The court held that limits on lodestar multipliers from the landmark Perdue case apply to contractual fee-shifting arrangements governed by federal law just as they apply in statutory fee-shifting cases.
The Upshot
- District of New Jersey Origins: The court vacated a $3.7 million fee award arising from a District of New Jersey consumer class action alleging defective timing chains in BMW vehicles, the second vacatur of the same award.
- Perdue Is Now the Default: For class action defendants, the decision makes the strong presumption from Perdue v. Kenny A. against lodestar enhancement the default rule in every federal-law settlement fee dispute in the Third Circuit.
- Subsumed Factors Cannot Justify Enhancement: Contingency risk (City of Burlington v. Dague) and case complexity are already built into the lodestar and cannot support a multiplier. Courts may not rely on the same factors both to approve the hours claimed and to enhance the resulting lodestar.
- The Baseline Lodestar Gets Scrutiny Too: The court separately held the district court abused its discretion by approving all 2,877 claimed hours—where more than 80 percent were billed by partners at partner rates—without evidence that premium rates purchased commensurate efficiency.
- Three Questions Remain Open: The court expressly declined to decide whether Perdue applies to contractual fee-shifting awards treated as constructive common funds, equitable common-fund awards, or fee provisions governed by state law.
The Bottom Line
Gelis II gives class action defendants in the Third Circuit a structural advantage in post-settlement fee litigation. Defendants negotiating settlements where the parties cannot reach a specific agreement on attorneys’ fees can leverage these protections by specifying that federal law governs the fee application and that fees will be paid separately from class relief. And, independent of any multiplier dispute, the decision reaffirms that top-heavy staffing by class counsel is a freestanding ground of attack on the baseline lodestar.
In a decision with immediate consequences for class action settlement practice, the Third Circuit vacated, for the second time, a $3.7 million fee award in Gelis v. BMW of North America, LLC, No. 24-2721 (3d Cir. June 11, 2026). Judge Krause, writing for a unanimous panel, held that Perdue's limits on lodestar multipliers apply to contractual fee-shifting arrangements governed by federal law just as they apply in statutory fee-shifting cases.
What Happened
In September 2017, plaintiffs sued BMW in a putative class action claim alleging that certain BMW vehicles were sold with defective timing chains. After partial dismissal, the amended complaint asserted 20 federal and state causes of action on behalf of a nationwide class and 12 state-specific subclasses. The parties settled but did not agree on a specific amount in attorneys’ fees. Instead, the settlement agreement set two guideposts: class counsel agreed to request no more than $3.7 million, and BMW agreed not to oppose a fee application of up to $1.5 million.
Class counsel applied for the full $3.7 million, and BMW opposed. The district court used the lodestar method, found counsel's 2,713 claimed hours reasonable, and then applied a 1.94 multiplier based on the Gunter percentage-of-fund factors, including the size of the fund, the skill and efficiency of the attorneys, the complexity and duration of the litigation, and the risk of nonpayment. As the Third Circuit observed, that multiplier yielded a fee award of exactly $3.7 million.
In the first appeal, Gelis v. BMW of North America, LLC (Gelis I), 49 F.4th 371 (3d Cir. 2022), the court vacated the award because the record could not support it: class counsel submitted only three, single-page summary charts, using vague descriptions of the work performed. On remand, class counsel supplemented the record with detailed billing statements and again requested $3.7 million, this time claiming 2,877 hours at a pre-multiplier average rate of $726 per hour. The district court reduced the multiplier from 1.94 to 1.75, which once again produced an award of exactly $3.7 million. BMW appealed a second time.
The Third Circuit again vacated, on two independent grounds. First, the panel held that the settlement agreement was a fee-shifting arrangement governed by federal law, and that Perdue's framework therefore applied: a court may enhance the lodestar only in rare and exceptional circumstances, supported by specific evidence, that are not already subsumed in the baseline calculation. The district court's enhancement rested in part on contingency risk and complexity, factors that Dague and Perdue treat as subsumed in the lodestar, and the court compounded the error by relying on complexity both to approve the hours and to justify the multiplier.
Second, the panel held that the baseline lodestar was itself unreasonable. More than 80 percent of the 2,877 hours were billed by partners at partner rates, including 262 hours drafting complaints (222 by partners for pleadings the court noted were largely identical to one another), 374 hours for discovery, and 172 hours for negotiation and settlement, including 97 hours for sending three partners to mediation. Citing its longstanding Ursic v. Bethlehem Mines line, the court explained that premium rates are paid for efficiency and expertise, and that courts must scrutinize whether partner-heavy staffing produces work commensurate with the rates charged.
Why It Matters
Virtually every class action settlement obligates the defendant to pay "reasonable attorneys' fees" that must be approved by the court, and plaintiffs' counsel routinely seek lodestar multipliers in the 1.5x to 2.5x range. Before Gelis II, fee applicants in the Third Circuit could argue that Perdue's restrictive standard was confined to statutory fee-shifting. That argument is now foreclosed where federal law governs. The decision also aligns the Third Circuit with the Sixth, Ninth, and 11th Circuits, which reached the same conclusion in Linneman v. Vita-Mix Corp., Chambers v. Whirlpool Corp., and In re Home Depot Inc., making the rule effectively the national consensus and useful persuasive authority in other circuits.
For in-house counsel, the practical effect is leverage at two stages. At the negotiation stage, this ruling provides leverage to ask class counsel to lower fee demands because lodestar multipliers are now off the table in most instances. At the fee-application stage, Gelis II supplies a direct objection to any enhancement based on subsumed factors and a reaffirmed, independent basis for challenging partner-heavy billing on routine tasks.
What Is Likely to Happen Next
The case returns to the District of New Jersey for a third determination of the fee award, which will be the first application of the new framework and is worth watching for how rigorously the efficiency analysis is applied. More broadly, plaintiffs' counsel may respond by attempting to structure future settlements to route fees through the class recovery and argue for constructive common-fund treatment, or by invoking state law where settlement terms permit, because both paths fall within the questions Gelis II expressly reserved. Defendants should anticipate those moves at the negotiation table, where the choice-of-law and payment-structure provisions are still within their control.
Ballard Spahr's Product Liability and Mass Tort and Class Action Litigation Groups regularly defend automotive manufacturers and consumer product companies in class action litigation, including post-settlement fee disputes, and counsel clients on settlement structuring across the country.
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