Cal. Supreme Court to Hear Hernandez v. Restoration Hardware Appeal

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Professional objectors make a handsome living exploiting the flaws in class action rules, particularly regarding the objector’s right to appeal. While well-taken objections focus on deficiencies in a settlement that the court may have missed, often forcing parties to return to renegotiate terms more favorable to the class, professional objectors specialize in boilerplate filings that will likely be denied but that the objector then may appeal, often holding up the class settlement for years. This is the source of leverage for professional objectors. To avoid a protracted appeal, the class or class counsel will sometimes pay what amounts to a ransom to these unscrupulous objectors. Even if class counsel refuses to give in and defeats the objector on appeal, the ensuing delay causes substantial harm to class members.

However, professional objectors may soon see their leverage substantially reduced. In June of 2016, the California Supreme Court granted review in Hernandez v. Restoration Hardware, Inc., No. S233983, to decide the broad question of whether an objector must first intervene before having standing to appeal. The court below dismissed Francesca Muller’s appeal because she had not attempted to intervene but merely interposed an objection to a fee award. See Hernandez v. Restoration Hardware, Inc., 245 Cal. App. 4th 651, 662-63 (2016) (slip op. available here, superseded by grant of review). Muller had ample opportunity to participate as a party. Upon receipt of the class notice (after a contested certification motion), Muller had filed a notice of appearance for her attorney, Lawrence Schonbrun, who represented the objector-appellant in the recently-issued Laffitte v. Robert Half Int’l, Inc., 1 Cal. 5th 480 (2016), among other objectors. Slip op. at 3. She was thereafter represented in the case, but she did not move to intervene or move to join in the action or replace the existing class representative. Id. Only after the Hernandez plaintiffs obtained a verdict for $36.4 million on Song-Beverly Credit Card claims after a bench trial —and only after the plaintiffs moved for attorneys’ fees—did Muller object. At the hearing, she marshalled many of the same objections raised by Mr. Schonbrun in Laffitte—that class members should have been given notice of the fee application, and that attorneys’ fees must be calculated under the lodestar-multiplier method—all of which were overruled. Id. at 3-7. She then appealed.

The intermediate appellate court dismissed Muller’s appeal for lack of appellate standing, relying on a decades-old high court decision, Eggert v. Pac. States S. & L. Co., 20 Cal.2d 199 (1942). Eggert, like this case, involved an appeal by a class member who objected to a fee award in a case litigated to judgment, without having moved to intervene. Slip op. at 11. Although it recognized that a different rule may apply to settlements (see id. at 14 n.6), the intermediate court passed up an opportunity to craft a narrow opinion limited to cases litigated to judgment. Instead, the court expressly disapproved of the influential Trotsky v. Los Angeles Fed. Sav. & Loan Assn., 48 Cal.App.3d 134 (1975), its progeny and its federal analogues, all of which conferred appellate standing on absent class members who filed timely objections to a class action settlement. Id. at 13-16. The intermediate court further reasoned that even if Eggert did not apply, California policy and the objectives of the class action device are better served by a rule that limits appellate standing to class members who tried to intervene. Id. at 16. The contrary rule, allowing each class member to individually appeal, would result in class actions that are “unmanageable and unproductive.” Id.

However, given the prevailing trend in favor of conferring appellate standing to objectors (see, e.g., Devlin v. Scardelletti, 536 U.S. 1 (2002), Powers v. Eichen, 229 F.3d 1249 (9th Cir. 2000)), the California Supreme Court is unlikely to fully endorse the decision below. More likely, the California Supreme Court will affirm on narrow grounds, restricting objectors’ appellate standing only in actions litigated to judgment.

Authored By:
Ryan Wu, Senior Counsel