First District, in Unpublished Opinion, Provides Guidance on How Trial Judges Weight Circumstances In Arriving At Fee Awards.
One of our readers, Larry H., asked us in late June 2008 whether there are any decisions demonstrating if trial courts assign specific numerical values to the various multiplier factors articulated in Serrano v. Priest, 20 Cal.3d 25, 49 (1977) and Ketchum v. Moses, 24 Cal.4th 1122, 1132 (2001). We are not aware of any California state decisions following a quantitative approach. (If any readers know otherwise, let us know). However, two First District decisions—a recent unpublished case and an April 2008 published opinion—do provide some guidance on how trial courts qualitatively rank certain factors in reaching a class action fee award order.
The unpublished decision, Flat Glass Cases, Case No. A118478 (1st Dist., Div. 5 June 30, 2008) (unpublished), involves a class action fee award made by San Francisco Superior Court Judge Richard Kramer (who also gets a Wikipedia entry), who has sat in the complex department for a fair number of years. In November 2006, class plaintiffs in a coordinated California class action involving allegations of manufacturer price fixing conspiracy settled with the last nonsettling manufacturer for $2,500,000. Judge Kramer awarded attorney’s fees and costs in the amount of $756,002.59, taking a lodestar of $350,476.75 for 10 firms and applying a 2.0 multiplier. (The award broke down as $750,000 in fees and $6,002.59 in costs.) Judge Kramer also determined the fee award was justified because it was approximately 30% of the settlement fund. Some objectors appealed, with the First District, Division Five—in a 3-0 decision authored by Presiding Justice Jones—affirming the fee award.
The appellate panel evaluated the lodestar determination, finding that a multiplier can range from 2 to 4 “or even higher.” (Slip Opn., at p. 7, citing Wershba v. Apple Computer, Inc., 91 Cal.App.4th 224, 255 (2001).) (BLOG OBSERVATION—Some trial courts have applied multipliers between 4 and 12 to counsel’s lodestar in antitrust cases. See, e.g., Natural Gas Anti-Trust Cases I, II, III & IV, 2006 WL 5377849 at *4 (San Diego Superior Ct. Dec. 11, 2006) (Prager, J.).) Justice Jones then provided some interesting insight into Judge Kramer’s qualitative analysis in determining if the lodestar was reasonable, quoting the trial court’s on-the-record thinking. The factors he weighted were: (1) comparison of the docket of the case with attorney declarations on what was done as well as the judge’s knowledge of what was done in the case; and (2) evaluation of the lodestar based on the judge’s 24 years of legal practice in class action cases and on his five years of experience as a complex litigation judge. Based on these factors, Judge Kramer found the lodestar to be reasonable.
As far as determining to use a 2.0 multiplier, Judge Kramer assigned special significance to these factors: (1) similar multiplier used in other reported cases (such as Wershba); (2) the high risk nature of taking an antitrust case on a contingency basis (a factor that cannot be weighted in federal cases, see City of Burlington v. Dague, 505 U.S. 557, 562-563 (1992)); and (3) the high risks involved when there were numerous prior settlements and this was the last manufacturer in the chain of defendants (“the long-term risk factor”). (Slip Opn., p. 9.) The appellate court found no abuse of discretion in making the award based on this explicit reasoning by Judge Kramer. Justice Jones noted that a federal district judge had granted summary judgment to the remaining manufacturer, a ruling reversed in part by a federal appellate court—a development that showed that victory was uncertain for the state court plaintiffs and a reinforcement of weighting the long-term risk factor in the fee award calculus. (Slip Opn., at pp. 12-13.)
The trial judge also ruled that counsel for the 10 firms seeking fees should determine the internal distribution between the various firms, subject to judicial supervision in the event of disagreements. Objectors challenged this procedure, but the First District panel found that many federal decisions had approved this inter se distribution procedure, especially citing Rebney v. Wells Fargo Bank, 220 Cal.App.3d 1117, 1142 (1990); In re Agent Orange Product Liability Litig., 818 F.2d 216, 223 (2d Cir. 1987); and In re Copley Pharmaceutical, Inc., 50 F.Supp.2d 1141, 1148 (D. Wyo. 1999). (BLOG CROSS-OVER OBSERVATION—The First District, Division Two criticized the practice of allowing co-liaison counsel to decide distribution of the ultimate fee award proceeds in that counsel’s discretion. See In re Vitamin Cases, 110 Cal.App.4th 1041, 1055-1056 (2003). However, the Flat Glass panel limited its impact by stating “[h]owever, the court [in Vitamin Cases] did not disapprove that method of distribution. Indeed, the court in Vitamins recognized that the Rebney court had approved the distribution of fees different from the lodestar method, and it remanded the case to the trial court so it could determine whether a distribution of fees different from the lodestar method was appropriate in that case. (Vitamins, at pp. 1056, 1060.)”.)
Earlier this year, the First District, Division One affirmed a $2,040,000 class action fee award based upon a 2.5 multiplier, representing 21.8% of the total settlement value (inclusive of fees) and 27.9% of the benefits to the class claimants. The total settlement had a value of $9,333,600 consisting of a base value of $7,293,600 plus $2,040,000 in fees. That decision is Chavez v. Netflix, Inc., 162 Cal.App.4th 43 (2008), a 3-0 opinion authored by Justice Margulies.
San Francisco Superior Court Judge Thomas J. Mellon, Jr. reduced class counsel’s proposed lodestar from almost $1.2 million to $805,000. He then enhanced the lodestar by specifically citing to these factors: (1) quality of representation (a consideration not captured by just hourly rates and a factor that cannot be considered in federal actions under Dague); (2) success achieved (all of the positive results achieved by the litigation, including changes in company policies); and (3) rate of acceptance (which Judge Mellon stressed was the most important factor in his analysis).
The Chavez panel found that these factors were perfectly appropriate to use in determining lodestar enhancement, proceeding to actually define what each of these factors meant in a pragmatic sense. (162 Cal.App. 4th at 61-62.) The Court of Appeal later found that Judge Mellon did not err in establishing the multiplier by using as a benchmark the percentage of the fees awarded divided by a sum including both the class benefit and the amount of the fee award. (Id.at 65-66.) In a footnote, the appellate court also found the award—27.9% of the benefits—was well in line with fee awards calculated using the percentage-of-the-benefit method. (Id. at 66 n. 11, quoting Shaw v. Toshiba America Information Systems, Inc., 91 F.Supp.2d 942, 972 (E.D.Tex. 2000) [“Empirical studies show that, regardless whether the percentage method or the lodestar method is used, fee awards in class actions average around one-third of the recovery.”].)
For readers wanting to see how one trial court applied both the Serrano lodestar enhancement factors and percentage-of-the-benefit method, see Judge Prager’s fee award in Natural Gas Anti-Trust Cases I, II, III & IV, supra, 2006 WL 5377849 at *3-4. Judge Prager seems to place special emphasis on “quality of representation” and “success achieved” multiplier factors, as well as observing that the final fee award fell within the 25-30% range of the benefits received by the class. We also observe that the novelty or complexity of the case, in our opinion, is another multiplier factor frequently used in enhancement (although that, too, is not allowed as a federal enhancer under Dague).