Fee Awards in Class Actions Vary Widely

Posted on May 8, 2012 by Peter Felsenfeld

As reported in the San Francisco Daily Journal, (subscription required), there is a wide disparity in attorney fees awarded in class actions. Though many jurisdictions provide fee award guidelines, judges are largely left to their discretion to decide what is fair.

The Journal reports that several recent awards have raised eyebrows. For example, an Arizona federal court last month approved $50 million in fees for securities firm Barrack, Rodos & Bacine after it achieved a $145 million settlement against the Apollo Group, Inc. for misleading investors. That fee far exceeded the amount awarded to lawyers who recovered four times as much for Countrywide Financial investors last year.

The Ninth Circuit Court of Appeals has established a guideline that fee awards should be set at approximately 25 percent of the final award, the Journal reports. Judges, however, have discretion to assess factors such as the amount of time attorneys actually worked, and reasonable rates and expenses.

The firm Robbins Geller recently drew the ire of U.S. District Judge Justin Quackenbush for unreasonable expenses. The Journal reports that the judge threatened sanctions upon discovering that the firm sought $125,000 for an in-house investigator that was paid only $30,000. The lawyers also sought reimbursement for a $400 meal that included an expensive wine.

According to the Journal, cost markups are a common practice, especially among plaintiffs firms that attempt to cover overhead from costly litigation. Defense firms are not immune from the practice either, though their clients are more likely to monitor the invoices for unjustified expenses.

The Journal reports that class members sometimes must file objections to fee awards in order to learn the details of a request. That happened in the New York federal case of Cassese v. Washington Mutual, Inc., where the relationship between plaintiffs and their attorneys deteriorated to the point that the firm sought to depose its former clients. The judge eventually ordered the firm to pay plaintiffs’ new lawyer nearly $19,000 for his costs in opposing the deposition.

Attorney Fees are Properly Awarded Under Prison Litigation Reform Act

Posted on May 8, 2012 by David J. McMahon

In Balla v. State of Idaho, 2012 DJDAR 4848 (2012), the Ninth Circuit Court of Appeals granted attorney fees in a class action brought under the provisions of the Prison Litigation Reform Act. The case began in the 1980s. The appeal arises out of a crisis which began at the end of 2008 relating to the retransfer of inmates back to the State of Idaho (the “State”). The State brought the prisoners back to the State even though it lacked the facilities to house or care for them. The class action was initiated on behalf of the prisoners and the complaint alleged a myriad of constitutional violations.

After nine years of litigation, the district court found the State had violated the prisoners’ constitutional rights and granted the plaintiffs an injunction to remedy the constitutional violations.

The law firm of Stoel Rives LLP had been appointed by the court as counsel for the class. After learning of the State’s plan to house prisoners, allegedly in violation of the prior injunction, Stoel Rives filed a contempt motion against the State. In response, the State took measures to comply with the injunction. Due to the State’s remedial actions, the court denied the contempt motion. Despite losing the motion, the district court thereafter awarded Stoel Rives its attorney fees and costs. The State appealed the fee award.

The Ninth Circuit affirmed the trial court’s ruling. The court noted that under the Prisoner Litigation Reform Act, attorney fees shall not be awarded, except to the extent that the fee was incurred in enforcing the plaintiff’s constitutional rights.

The court noted that a previously granted injunction was sufficient to meet the statutory threshold. The Ninth Circuit affirmed the award on that basis.

Chairperson of Insurance Board Denied Claim for Attorney Fees

Posted on May 7, 2012 by David J. McMahon

In Thornton v. California Unemployment Insurance Appeals Board, 2012 DJDAR 4796 (2012), the California Court of Appeal for the Fourth Appellate District decided a legal question pertaining to the reimbursement of attorney fees incurred during a law enforcement investigation. The public employee incurred the fees relating to allegations of conflict of interest.

Cynthia Thornton was appointed to the California Unemployment Insurance Appeals Board (“the Board”). Subsequently, she was elevated to chairperson of the organization.

While she was chairperson of the Board, the director of the organization offered her an Administrative Law Judge (“ALJ”) position. She had previously taken an examination and passed it, which made her eligible to serve as an ALJ. The director and a lawyer for the Board told her that it was appropriate for her to take the ALJ job. She accepted the job on that basis.

Subsequently, a state auditor began to investigate the Board’s hiring practices. The auditor referred Thornton’s ALJ hiring to the Attorney General and the district attorney. Thornton hired an attorney to advise her about the investigation.

Thornton was subsequently informed that no charges would be filed against her. She then filed a claim for reimbursement of the attorney fees incurred by her in the investigation. The claim was rejected. She then sued the Board for reimbursement of the attorney fees. The trial court sustained the Board’s demurrer to the complaint without leave to amend. Thornton appealed the grant of the demurrer.

The court of appeal affirmed the decision of the trial court. The court of appeal noted that a public employer must “defend” its employees in any “civil action or proceeding” brought against the employee in her official or individual capacity. If the entity fails to do so and the employee hires her own counsel to defend the action or proceeding, the employee is entitled to recover attorney fees incurred in defending the action or proceeding.

On appeal, however, Thornton argued that the phrase “civil action or proceeding” includes an “investigation” that does not ultimately lead to a lawsuit. The court of appeal determined that a public employer is only required to defend employees in civil court proceedings, not prelitigation investigations. The fee claim was denied on that basis.

Attorney, Not the Client, is Entitled to Retain Attorney Fees in Wage and Overtime Litigation

Posted on May 4, 2012 by David J. McMahon

In Henry M. Lee Law Corp. v. Superior Court, 2012 DJDAR 4763 (2012), the California Court of Appeal for the Second Appellate District decided a novel case arising out of wage and overtime litigation brought under Labor Code Sections 1194(a) and 226(e). The potential for recovery of fees in employment cases can be a significant factor in evaluating liability and can drive settlement. The unique question presented by this case was whether the client or the attorney was entitled to the fee award.

The plaintiff filed suit against a tour company. The plaintiff was represented by counsel. The complaint alleged causes of action for wage and hour violations as well as for alleged wrongful termination. The jury awarded the plaintiff $62,246.74 in compensatory damages as well as $300,000 in attorney fees under Labor Code Sections 1194(a) and 226(e).

The trial court stayed enforcement of the fee award in part to determine whether the undertaking (bond) posted by the tour company to pursue an appeal was sufficient. Soon thereafter, the plaintiff filed a substitution of attorney form in the trial court. She substituted herself in as counsel of record for her prior retained counsel. Later, the same lawyer, purportedly to act on behalf of her client, filed an ex parte application to vacate the stay of enforcement of the attorney fee award. Clearly, what was shaping up was a battle over entitlement to the significant sum of attorney fees awarded by the trial court.

The trial court denied the application to vacate the stay. The court based the decision on the fact that the lawyer was no longer “counsel of record” for the plaintiff. Counsel then filed an ex parte application seeking leave to intervene in the action. The trial court denied the motion to intervene.

The former counsel of record then filed a writ seeking to overturn the trial court’s denial of the petition to intervene. The court of appeal reversed the trial court’s decision, noting that under Labor Code Section 1194, any employee who receives less than the legal minimum wage or overtime compensation to which the employee may be entitled can pursue the unpaid sums in a lawsuit.

The court of appeal also cited Labor Code Section 226(e). That statute states that an employee who is injured by an employer’s failure to timely provide accurate wage statements is entitled to recover a penalty and attorney fees.

The court of appeal relied on Flannery v. Prentice, 26 Cal. 4th 572 (2001), which held that in California Fair Employment and Housing Act (FEHA) cases, the fee award “to the party” goes to counsel absent a specific contract to the contrary. Thus, absent a contract determining a different disposition of an attorney fee award, attorney fees awarded under the statutes is payable to the attorney, not the client.

For Better or For Worse, Court Finds Joint 998 Offer To Husband and Wife Sufficient Basis For Expert Witness Fees and Costs Award

Posted on May 1, 2012 by David J. McMahon

By David J. McMahon and Tino X. Do

In Farag v. ArvinMeritor Inc., 2012 DJDAR 5206 (April 24, 20120), the California Court of Appeal for the Second Appellate District affirmed a post-judgment order denying plaintiffs’ motion to tax expert witness costs. Defendant sought these costs pursuant to California Code of Civil Procedure section 998 after defeating plaintiffs’ claims at trial.

Plaintiffs husband and wife sued defendant, among many others, after the husband was disabled by mesothelioma. Plaintiffs alleged that the husband was exposed to defendant’s asbestos-containing products while working on cars. Prior to trial, defendant served a section 998 offer to compromise of $0.01 on plaintiffs jointly. Plaintiffs did not accept this offer and proceeded to trial. The jury returned a verdict in defendant’s favor. Defendant then submitted a memorandum of costs for approximately $11,033 for expert witness fees as well as $2,173 in expert travel costs, based on the rejected section 998 offer. Plaintiffs filed a motion to tax these costs which was denied.

On appeal, Plaintiffs claimed that the section 998, made jointly and unallocated to husband and wife, was void in the absence of a showing the offer provided fair and reasonable value. The appellate court rejected this claim.

The appellate court first found that plaintiffs failed to properly raise the issue of whether a section 998 offer made jointly to a husband and wife was void in the trial court, and therefore waived the ability to raise it on appeal.

The court also rejected plaintiff’s claim as a prior court in Barnett v. First National Ins. Co. of America, 184 Cal.App.4th 1454 (2010) concluded that a section 998 offer could be made jointly to spouses because, under California’s community property law, a cause of action for personal injury damages is community property and either spouse can accept an offer to settle that claim on behalf of the community. The court found that defendant’s joint section 998 offer was valid, and affirmed the post-judgment order.

 

No Attorney Fees Can Be Awarded for Non-Payment of Rest Breaks, California Supreme Court Rules

Posted on May 1, 2012 by Barger & Wolen LLP

by Michael A.S. Newman

In Kirby v. Immoos Fire Protection, Inc., the California Supreme Court held that neither California Labor Code section 1194 nor section 218.5 authorize the payment of attorney fees in an action seeking recovery for denial of required rest breaks under section 226.7.

Section 1194 authorizes recovery of attorney fees by a prevailing employee on a claim for unpaid minimum or overtime wages. It provides for one-way fee-shifting to plaintiffs.

Section 218.5, by contrast, provides for attorney fees to be paid to the prevailing party in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. It is thus a two-way fee-shifting statute. However, it is also limited, since it does not apply to any action for which attorney’s fees are recoverable under section 1194.

Section 226.7 imposes an obligation upon employers to provide mandated meal and rest breaks.

Plaintiffs, employees of Defendant (“IFP”), sued the employer for nonpayment of mandated rest breaks, but subsequently dismissed this claim. IFP sought roughly $50,000 of attorney fees for successfully defending this claim.

The first question the Supreme Court had to address was whether attorney fees would have been recoverable under 1194. The Supreme Court found that fees would not have been recoverable under 1194, since rest breaks do not constitute a type of “minimum wage,” as Plaintiffs had argued.

The second question was whether, in that case, attorney fees were recoverable under the two-way fee-shifting of section 218.5. Here, it was IFP that argued that non-payment of rest breaks constituted a “wage,” and therefore qualified under section 218.5. Again, the Supreme Court disagreed. Rest breaks do not constitute wages of any kind.

Thus, the Court held, attorney fees were not recoverable in actions seeking mandated rest breaks under section 226.7.

What makes this case interesting (and a little ironic) from a procedural standpoint is that it was the defendant employer seeking the attorney fees, and the employee plaintiffs who resisted. Thus, in losing their claim for attorney fees, the employer ended by establishing law generally advantageous to employers. And in winning this battle over the payment of roughly $50,000 in fees, the employees essentially nullified the ability of future plaintiffs to seek attorney fees in actions based on the denial of required rest breaks.

Originally posted on Barger & Wolen's Employment Law Observer blog.

District Court Doesn't 'Like' Facebook In Fee Award Decision

Posted on April 26, 2012 by David J. McMahon

By David J. McMahon and Tino X. Do

In Cohen v. Facebook, Inc., (April 10, 2012), the U.S. District Court for the Northern District of California denied defendant’s request for attorneys fees under a statutory fee-shifting provision. The court concluded that defendant was not entitled to recover fees because it could not be deemed a “prevailing party” given that it had obtained dismissal of the action due to lack of jurisdiction.

In a putative class action, plaintiffs alleged that defendant violated California Civil Code § 3344 by using the names and likenesses of members of the Facebook social network, without authorization or compensation, to promote a separate service. Section 3344(a) states that the:

prevailing party in any action under this section shall also be entitled to attorney’s fees and costs.” 

The defendant filed a Federal Rule of Civil Procedure Rule 12(b)(6) motion to dismiss the complaint that challenged the plaintiffs’ allegations that they had suffered “injury in fact” as unduly conclusory. This motion was granted but with leave to amend, and therefore did not render defendant a “prevailing party” for fee-shifting purposes.

Plaintiffs filed a First Amended Complaint that claimed a right to recover based on the alleged violation of §3344, and defendant submitted a second motion to dismiss that invoked both Rule 12(b)(1) (lack of standing) and 12(b)(6) (failure to state a claim). Defendant argued that “mere allegation of statutory violation” does not confer jurisdiction under Article III for a federal court to hear a plaintiff’s claim. 

Defendant’s second motion to dismiss was granted without leave to amend, based on the determination that plaintiffs lacked the requisite “injury in fact” necessary under federal Constitutional standards to support jurisdiction. 

The court then rejected defendant’s contention that even if it obtained a dismissal based on lack of jurisdiction, it could still be a prevailing party because it achieved its litigation objections on a practical level. 

While the court found that no California court had addressed the specific question at issue, it cited a California appellate decision that recognized that the interpretation of “prevailing party” should not be so broad as to include every defendant who obtains a dismissal or judgment that may appear favorable. The court also questioned whether a federal court even has the jurisdiction to award attorney fees once it has determined that it lacks jurisdiction to hear the merits of the controversy. 

Finally, the court held that the nature of the dismissal defendant obtained did not warrant characterizing it as having prevailed under §3344 for fee-shifting purposes because the decision in effect was only that plaintiffs had sued in the wrong forum, not that the claims failed for any substantive reason.

 

FEHA-Related Fee Claims Must Be Based on a Finding that the Claim is Actually Frivolous

Posted on April 18, 2012 by David J. McMahon

In Baker v. Mulholland Security and Patrol Inc., 2012 DJDAR 4093 (2012), the California Court of Appeal for the Second Appellate District overturned an award of expert witness fees granted to the prevailing defendant in employment related litigation. The appellate court overturned the award of expert witness fees to the defendant, concluding that the trial court applied an erroneous legal standard in granting the award.

The plaintiff began working for a security company. Almost immediately, the company received complaints about the plaintiff’s work‑related capabilities. After being notified of the work‑related criticisms, the plaintiff complained that the security firm’s client made racist and discriminatory remarks to him. Nonetheless, the plaintiff was soon terminated from employment.

The plaintiff sued the security company under the provisions of California’s Fair Employment and Housing Act (“FEHA”).  In defense, the security company filed a motion for summary adjudication, claiming that it decided to terminate the plaintiff due to his poor job performance, well prior to learning of the alleged discriminatory remarks. The trial court concluded that the employer had a valid basis for the decision to fire the plaintiff, and the motion for summary adjudication was granted. The employer then moved to recover expert witness fees.

The trial court ruled that the employer was entitled to costs, including expert fees. The court of appeal reversed the ruling concluding that trial court used an improper legal standard.

The court of appeal noted that a prevailing party under FEHA is entitled to attorney fees where an action is frivolous, unreasonable or without foundation. The court stated that the question presented by this appeal was whether a claim for expert witness fees recovery had to be judged by the same standard used for attorneys’ fees. The court noted that FEHA allows recovery of expert witness fees, “within the court’s discretion.” The court of appeal noted, however, that a defendant who wins may recover attorney fees when the plaintiff’s action was frivolous, unreasonable or without foundation. The trial court concluded it was not necessary to find that the lawsuit was actually “frivolous” in granting witness the fee award.

The court of appeal noted that the same standard for recovery of attorneys’ fees should be utilized with regard to expert fees. Because the trial court awarded fees without making the required finding the award was overturned.

 

Court Invalidates Fee Award Premised on Financial Ramifications on Non-Prevailing Party

Posted on April 17, 2012 by David J. McMahon

In Walker v. Ticor Title Co. of California, 2012 DJDAR 3467 (2012), the California Court of Appeal for the First Appellate District reversed an award of attorney fees. In granting the fee award, the trial court considered the plaintiff’s financial circumstances when determining the reasonable value of contractual fees awarded to one of the defendants who substantially prevailed at trial. The court of appeal concluded that the trial court erred in reducing the attorney fee award on the basis of the plaintiff’s limited financial resources.

Several individuals (“Plaintiffs”) sued Ticor Title Co. of California (“Ticor”) and Zak Khan (“Khan”), alleging that the defendants were involved in a fraudulent refinance scheme.  The plaintiffs alleged that Khan acted as an agent for a mortgage brokerage firm and misrepresented or concealed facts to lure the plaintiffs into mortgage transactions.

Plaintiffs alleged that Defendant Ticor, which acted as the escrow holder for the loan closings, failed in its duty to supervise by not overseeing the signature process for the transactions. The jury found in favor of Ticor. The jury did render a verdict in the Plaintiffs’ favor versus Khan.

The plaintiffs then filed a motion for judgment notwithstanding the verdict or a new trial, which the trial court denied. Ticor then filed a motion for attorney fees under a fee provision in the contracts. The trial court awarded Ticor $884,043 in fees. Both sides filed an appeal of the fee award.

The court of appeal vacated and remanded the trial court’s decision on fees. The court of appeal noted that the availability of a contractual fees award is based on the language of the applicable contract. The court of appeal noted, however, that equitable considerations are also an integral part of the analysis. The court stated, however, that although equitable considerations are a factor in considering a fee award, a losing party’s financial condition may not be considered in setting the fees awarded pursuant to contract. On that basis, the court of appeal concluded that the trial court erred in awarding fees to Ticor. The court remanded the case to the trial court for further proceedings.

 

Plaintiff Wins Expert Costs and Attorney Fees Pursuant to Code of Civil Procedure Section 998(D)

Posted on April 6, 2012 by David J. McMahon

In SCI California Funeral Services Inc. v. Five Bridges Foundation, 2012 DJDAR 2018 (2012), the California Court of Appeal, First Appellate District decided an important decision under California Code of Civil Procedure Section 998(d).

The underlying record and the appellate decision are extremely lengthy and detailed. This blog post focuses solely on the issues implicated by the court’s decision concerning Code of Civil Procedure Section 998(d), the California offer of judgment statute.

SCI California Funeral Services Inc. (“SCI”) entered into a contract with an entity subsequently acquired by Five Bridges Foundation.The contract related to an agreement to purchase all of the assets of a cemetery. 

The asset purchase agreement stated that SCI would acquire real estate.The deal also included an option to buy extra acreage and an easement to post business signs. SCI did not receive the option or easement in a timely manner. As a result, SCI filed suit against Five Bridges, alleging causes of action for breach of contract. Five Bridges countersued SCI for numerous business torts.

Prior to trial, SCI made an offer to resolve the case via a CCP § 998 offer. Five Bridges rejected the offer tendered by the plaintiff. Later, the trial court ruled in favor of SCI, awarding the plaintiff substantially more than the 998 offer it had tendered to the defendant.

The judge ruled that Five Bridges was liable for failure to meet the contractual obligation concerning the easement. SCI moved for an award of post‑offer attorney fees under Code of Civil Procedure Section 998(d).The trial court denied the motion. 

SCI also moved for its reasonable attorney fees under California Civil Code § 1717, a different statutory basis for the award of fees. The trial court also denied the fee request under that statute. SCI filed an appeal of the trial court’s decision.

The court of appeal partially reversed the decision of the trial court.

The court noted that under California Civil Procedure Section 1032, the prevailing party in litigation is entitled to recover statutory costs in any action or proceeding. SCI argued on appeal that because it was entitled to a cost award under CCP Section 1032, it was also entitled to its reasonable attorney fees.  

Section 998(d) provides that if an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment, the defendant may be required to pay post‑offer costs of services of expert witnesses in addition to the plaintiff’s costs. In addition, under CCP § 1033.5, that statute sets forth the categories of recoverable costs under CCP § 1032. Section 1033.5 includes “attorney fees when authorized by contract.”

The court of appeal stated that because SCI was the party with a “net monetary recovery,” it was deemed the prevailing party. In response, Five Bridges argued that under Section 998(d), SCI was only entitled to expert witness fees, and not post‑offer attorney fees. The court of appeal rejected the argument and held that under that statute, expert witness fees are an additional item of costs awardable to a plaintiff, and thus, are not the sole item of costs available to a plaintiff that recovers in excess of a pretrial offer. The court ruled that SCI was entitled to its reasonable attorney fees too.