Judge Harold Kahn Reads The Riot Act.
If ever a case demonstrates why settlements of class actions and fee awards to class counsel are subject to court oversight and scrutiny, this is it. Lofton v. Wells Fargo Home Mortgage v. Wells Fargo Home Mortgage, Case No. A136626 (1/3 October 22, 2014) (certified for publication).
Two separate class actions were brought by home mortgage consultants against Wells Fargo Home Mortgage seeking damages for unpaid wages: a class of 600 suing in Los Angeles, and a larger class of thousands suing in San Francisco. Contrary to what often happens, the two cases were, for the most part, neither coordinated or consolidated, proceeding instead on different tracks. However, a comprehensive settlement agreement of both matters was reached before the same mediator on the same day.
Counsel for the larger class of thousands (class counsel) then moved for approval of $6,333,333 in attorney fees and costs, explaining that the parties reached a “settlement for the class of $19,000,000 and a settlement of the individual ILG lawsuits of $6,000,000.” It was further represented that “ILG clients would recover from the richer per capita fund secured by ILG for its individual clients and opt out of the $19 million class settlement.” (Note: the ILG fund of $6,000,000 was “richer” per capita because the ILG clients were much fewer in number than the larger class).
However, as the matter unfolded, none of the 600 ILG clients opted out of the class settlement. It appeared to the trial court that this fact had not been made clear, that the participation of the 600 ILG clients in the overall settlement would dilute the class settlement, and that most of the $6,000,000 earmarked for the 600 clients would in fact go to their attorneys as fees.
When the trial court started to grasp what had happened, San Francisco Superior Court Judge Harold Kahn explained that he was deeply troubled by the situation. The judge’s extraordinary language is perhaps the most remarkable part of the opinion. The Court of Appeal repeated the judge’s comments, and so do we:
“I believe that I am obligated to completely take another look at this settlement. What appears to me based on the record is there has been egregious misconduct and bad faith on the part of ILG. And I say that recognizing those are serious words. [¶] I am troubled by what appears to be either turning a blind eye to or participation in that egregious misconduct by class counsel who was paid over $6 million, and a distinguished law firm that represents one of the great banking institutions of this country. [¶] The motion to intervene, though, seeks to intervene to represent just the interests of the ILG clients. And that may be appropriate but I am taking a look at the entire settlement. I believe that there is good cause to think that the entire class, not just the ILG clients, have been badly disserved. There is going to be extensive work on the part of all of us to get to the bottom of this. And if there is, as I believe there will be found, serious misconduct, it will be remedied.”
The Court of Appeal affirmed the TRO, holding that “the trial court presiding over the class action properly enjoined ILG from distributing or taking action to distribute the proceeds of its settlement to itself. The court presiding over the class action had concurrent exclusive jurisdiction to consider the propriety of the settlement of class member claims, even for those class members represented by ILG on class or related claims.”
And, for purposes of California Attorney’s Fees, the Court of Appeal also held, “the trial court had a duty to ensure the fees claimed by ILG were reasonable in light of the overall result ILG achieved.”
NOTE: A separate issue in the appeal, whether the trial court relied on inadmissible evidence subject to a mediation privilege, is the subject of a blog post today on California Mediation and Arbitration.