Fed Court Rips Napster Settlement That Paid Songwriters 30 Times Less Than Their Lawyers

A federal appeals court has overturned a class action settlement in a royalties lawsuit against the re-launched Napster, sharply criticizing a deal that secured just $53,000 for songwriters while paying their lawyers a whopping $1.7 million in legal fees.

In a ruling Wednesday, the U.S. Court of Appeals for the Ninth Circuit called that agreement “unreasonable” – saying that a lower judge should not have approved a deal that saw the attorneys working on the case receive “more than thirty times the amount that the class received.”

“This case will likely make the average person shake her head in disbelief,” U.S. Circuit Judge Kenneth K. Lee wrote for a three-judge panel. “It matters little that the plaintiffs’ counsel may have poured their blood, sweat, and tears into a case if they end up merely spinning wheels on behalf of the class. What matters most is the result for the class members. Here, the benefit from this litigation was minimal.”

The ruling went against attorneys from Michelman & Robinson LLP, who did not immediately return a request for comment on Thursday.

Wednesday’s strongly-worded decision came in a lawsuit filed in 2016 by Cracker singer-songwriter David Lowery against Rhapsody International, which has since re-launched its music service as under the Napster name. It was one of several such cases filed in the mid-2010s over the failure of streaming services like Spotify to properly pay mechanical royalties to songwriters.

But the lawsuit – and its prospects for a large payout – were sharply reduced by a competing class action organized by the National Music Publishers’ Association, which eventually drained roughly 98 percent of the possible class members from Lowery’s lawsuit. The earlier case was further knee-capped by the passage of the Music Modernization Act, which largely fixed the problems that led to the litigation.

When Rhapsody did finally settle the case in 2019, it agreed to pay as much as $20 million to songwriters. But because the NMPA’s competing lawsuit had decimated the earlier case, the company only ended up paying only $52,841 to the songwriters who chose to participate.

In Wednesday’s decision, the Ninth Circuit said that awarding the lawyers who handled the case $1.7 million in legal fees might have been reasonable if the payout had really reached $20 million – but was completely unfair when the actual sum was only five figures.

“In evaluating the benefit to the class, the district court must disregard the illusory $20 million settlement cap and focus instead on the approximately $50,000 paid to class member,” Judge Lee wrote for the panel.

The appeals court said it did not matter that whether the attorneys involved had “devoted hundreds or even thousands of hours to a case” – and that this was particularly true where it had become “obvious” that that actual payout would likely be so “meager.”

“It was clear by April 2018 that Rhapsody’s NMPA settlement would likely gut the putative class here so that this lawsuit would yield only minimal financial recovery,” Judge Lee wrote.

In certain scenarios, the appeals court stressed that an outsized award to attorneys might be appropriate, like an important civil rights case, or a copyright class action that “provides a meaningful benefit to society.” But the appeals court was blunt in its assessment of the lawsuit against Napster: “This is not such a case.”