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In Kirby v. Immoos Fire Protection Inc., 2010 DJDAR 11569 (2010) the Third Appellate District of the California Court of Appeal decided an appeal challenging an award of attorneys fees to an employer who successfully defended against allegations of labor violations by two employees.

Anthony Kirby and Rich Leech (hereinafter “Plaintiffs”) filed suit against Immoos Fire Protection Inc. The complaint alleged six causes of action for violations of various labor laws as well as unfair competition (Business & Professions Code §17200).

The trial court rejected the Plaintiffs’ motion for class action certification. The Plaintiffs then dismissed with prejudice their complaint as to all causes of action. The trial court awarded the Defendant attorney fees of $49,846.05 for its defense of three of the six causes of action, including Labor Code violations and the §17200 claims. The Plaintiffs appealed the decision awarding the Defendant attorneys fees.

The Court of Appeal noted that Labor Code § 218.5 provides for fee shifting in favor of the party that prevails on a claim for unpaid wages. The court noted, however, that § 218.5 does not allow employers to recover fees in any action for minimum or overtime wages.

The Plaintiffs’ complaint included causes of action involving failure to pay minimum wages as well as other, non‑wage claims. The court rejected the Plaintiffs’ argument that a prevailing Defendant may not recover fees in a case that includes a claim for unpaid minimum or overtime wages. The court noted that attorney fees may still be awarded for unrelated claims subject to the fee‑shifting provisions of § 218.5.  

The Court of Appeal concluded that the trial court’s award of attorney fees for Immoos non‑wage related defense was proper. However, attorney fees awarded on two other causes of action was overruled as the award was miscalculated.

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by David J. McMahon and Tino X. Do

In Nelson v. Pearson Ford Co., D054369 (July 15, 2010), the Fourth Appellate District upheld the trial court’s judgment awarding attorney fees to plaintiff class representative under the Automobile Sale Finance Act (“ASFA”), and denied costs to defendant in its claim under California Code of Civil Procedure Section 998.

Nelson involved a class action against the Pearson Ford car dealership for alleged violations of the ASFA, Consumers Legal Remedies Act (“CLRA”) and California Unfair Competition Law (“UCL”) arising from a backdated car sale contract that resulted in a car buyer paying interest for a time period when no contract existed, and for erroneously adding insurance premium to the sales price of the car which resulted in additional sales tax and financing charges. 

Two separate classes were certified by the trial court: the backdating class and the insurance class. 

Following a bench trial, the trial court found Pearson Ford liable under the ASFA to only the insurance class, liable to both classes under the UCL, and not liable to either class under the CLRA. The trial court granted certain remedies under the ASFA and the UCL, and awarded Nelson his attorney fees and costs under the ASFA. Both parties appealed. 

The appellate court reversed the trial court as to the portion of the judgment finding Pearson Ford not liable to the backdating class under the ASFA and the CLRA. The court also found that the trial court erred in the remedies it awarded under the ASFA and the UCL. The court upheld the trial court’s ruling on the award of attorney fees and costs.

Attorney fees in this matter were not awarded under the UCL, which does not permit this type of remedy, but under the AFSA, a statute that specifically grants the recovery of attorney fees to the prevailing party. 

The appellate court noted that Pearson Ford did not challenge the trial court’s conclusion that Nelson was the prevailing party for both classes under the ASFA (Civ. Code section 2983.4), or dispute the awarded amount. Instead, Pearson Ford argued that the trial court should have taken into consideration the fact that it had made a Section 998 offer of $500,000 before trial, and that Nelson failed to obtain a more favorable judgment at trial. 

The appellate court, while noting that a valid settlement offer can be made under Section 998 in a certified class action, agreed with the trial court that the Section 998 offer at issue was invalid because it was a lump-sum offer to two classes. The court stated that it would be impossible to determine whether either class received a less favorable result at trial than it would have received under the offer.

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In Consolidated Consumer Privacy Cases, California Court of Appeal – 1st District, 2009 DJDAR 9765 (June 30, 2009), the First Appellate District approved what is sometimes referred to as the “clear sailing” doctrine concerning an attorney fee award. The award was sought under the common fund doctrine and under the “private attorney general” provisions of CCP § 1021.5.

The Utility Consumers’ Action Network (“Utility Consumers’”) sued Bank of America N.A. (hereinafter the “Bank”) and related entities for unfair competition, false advertising, invasion of privacy and related claims. Thereafter, the case was coordinated with similar actions filed against the Bank. In April of 2003, a consolidated class action complaint was filed against the Bank pursuant to court order. That complaint alleged that the Bank disclosed confidential information to unauthorized third parties for a fee. The parties reached a comprehensive settlement agreement in 2007, which provided that class counsel would seek court approval for payment of not more than $4 million in attorney fees from the Bank.

The Bank agreed not to oppose such an application by class counsel, so long as the fee award was capped at $4 million or below. The Bank did reserve the right to seek to withdraw from the agreement if the court awarded a higher amount. The arrangement not to oppose a set sum amount of attorney fees is often referred to as a “clear sailing” agreement. After approving the settlement, the trial court awarded almost $3 million to class counsel plus expenses. Numerous parties then filed an appeal, arguing that the trial court erred in approving the amount of fees to class counsel and specifically the procedural vehicle referred to as the “clear sailing” agreement.

The court of appeal affirmed. The court noted, that under the record before it, there were no terms contained in the agreement that were inappropriate. The court specifically noted that it could find no federal or California authority which condemned an agreement by the defendant to pay reasonable attorney fees as awarded by the court, up to a certain amount. The court noted that the objectors’ claims that such a payment scheme constituted a breach of fiduciary responsibility by affording class counsel on incentive to prioritize their fee claim, over the class’s recovery was not meritorious. The court even recognized that the Federal Manual for Complex Litigation acknowledged and implicitly approved of such an arrangement. 

Clear sailing agreements are a useful tool in resolving complex cases and take some of the uncertainty out of the amount and ultimate resolution of fee awards.

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The 9th Circuit Court of Appeals has provided us with an interesting analysis into the entitlement of attorneys' fees -- for both sides on appeal -- of an anti-trust class action.  In Rodriguez v. West Publishing Corporation, 08 C.D.O.S. 4853 (9th Cir., 4/23/2009), the 9th Circuit reversed and remanded the question of fees, and provided guidance to the District Court for its decision on remand.  The trial court must now decide, not only the reasonableness of class counsel's fees, but also a reasonable amount of fees being claimed by certain Objectors to the settlement. 

The class members sued West Publishing Corporation for violation of anti-trust statutes arising out of its BAR/BRI review courses.  The District Court approved a $49 million settlement between the parties, and granted class counsel a generous 1.75 multiplier up to twenty five percent of the settlement fund.  Moreover, the District Court denied fees claimed by certain Objectors, concluding Objectors played no significant role in securing the denial of any incentive awards.  Objectors claimed that certain incentive retainer agreements between class representatives and class counsel were not disclosed to the remaining class members.  These "ex ante incentive agreements" were ultimately insufficient for the 9th Circuit to reject the entire settlement, but they were held to be relevant to the question of fees.  

First, with respect to class counsel's fees, on remand the District Court was ordered to consider the effect, if any, of the conflict of interest arising out of the incentive agreements on the request for fees.  Objectors claimed the 1.75 multiplier and the twenty five percent cap were grossly excessive.  The 9th Circuit declined to address that due to the inadequacy of the record, and so directed that argument to the District Court on remand.

With respect to the Objectors' fees, the 9th Circuit also reversed and remanded the denial of fees.  The Court of Appeals ordered the District Court to determine the reasonable amount of fees to Objectors, given their contribution to the denial of the requests for incentive awards. 

This decision is a "must read" for any class action litigators.  

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