Posts belonging to Category Settlements

Lafitte v. Robert Half: CA Supreme Court Upholds Percentage of the Recovery Method for Calculating Fee Awards

In Laffitte v. Robert Half International Inc., No. S222996 (Cal. Aug. 11, 2016) (slip op. available here), the California Supreme Court joined “the overwhelming majority” of the nation’s courts in holding that judges may award fees in class actions as a percentage of a common fund created for the class’ benefit (the “percentage of the recovery method”). Slip op. at 27. Prior to Laffitte, some litigants—often class settlement objectors—had argued that the high court’s earlier ruling in Serrano v. Priest required judges to use only the “lodestar method” for calculating fees: “The starting point of every fee award . . . must be a calculation of the attorney’s services [measured by] the time he has expended on the case.” Serrano v. Priest, 20 Cal.3d 25, 26 (1977) (“Serrano III”). However, the California Supreme Court had not directly addressed on the issue before Laffitte.

Laffitte involved a $19 million common fund that was established to settle the claims of a class of staffing professionals who had been misclassified by their staffing agency, Robert Half, as exempt under the Labor Code, and thereby were disentitled to overtime, meal breaks, rest breaks, and other benefits guaranteed to non-exempt employees. As part of the settlement, plaintiffs’ counsel requested one-third of the common fund ($6,333,333) as a contingency fee. One class member, David Brennan, filed several objections to the settlement, including an objection to the requested fee. Brennan claimed that the fee request was unreasonable because it exceeded the contingency fee plaintiffs’ counsel would be entitled to under the lodestar method (counsel’s lodestar was $2,968,620).

The trial court overruled Brennan’s objections to the settlement. With respect to fees, the court found that the requested contingency fee was reasonable under both the percentage of the recovery and lodestar methods. On appeal, Brennan claimed that the trial court had erred by using the percentage of the recovery method to calculate the fee, and made mistakes in its application of the lodestar method, such as relying only on summaries of counsel’s billing records (rather than the actual billing records) and by awarding more than double counsel’s lodestar. The California Court of Appeal rejected these arguments, finding that the trial court had not abused its discretion by awarding a percentage of the common fund in attorneys’ fees, nor by performing a lodestar calculation based on the declarations of counsel to confirm the reasonableness of the fee as a percentage of the recovery.

On appeal to the California Supreme Court, Brennan again argued that calculating the fee award as a percentage of the settlement ran afoul of Serrano III. The court disagreed, finding that Serrano III was factually distinguishable:

The quoted text [from Serrano III] . . . concern[s] calculation of a fee awarded under the private attorney general theory. In Serrano III, this court simply did not address the question of what methods of calculating a fee award may or should be used when the fee is to be drawn from a common fund created or preserved by the litigation. For this reason, the passages quoted cannot fairly be taken as prohibiting the percentage method’s use in a common fund case . . . . Since Serrano III, we have several times, in fee shifting cases, endorsed the lodestar . . . method of calculating an attorney fee award; none of our decisions involved a case where the fee was to be awarded from a common fund created or preserved by the litigation.

Id. at 20-22 (internal citations omitted; emphasis in original).

The California Supreme Court ultimately found that “whatever doubts may have been created by Serrano III,” use of the percentage method to calculate a fee in a common fund case, where the award serves to spread the attorney fee among all the beneficiaries of the fund, does not in itself constitute an abuse of discretion. “The recognized advantages of the percentage method . . . convince us [that it] is a valuable tool that should not be denied our trial courts.” Id. at 27 (internal citations omitted). Turning to the facts of the case, the California Supreme Court held that the trial court had not abused its discretion by awarding one-third of the common fund as a contingency fee, nor by double-checking the reasonableness of the percentage fee through a lodestar/multiplier calculation based on billing summaries, stating, “[a] lodestar cross-check [] provides a mechanism for bringing an objective measure of the work performed into the calculation of a reasonable attorney fee. If a comparison between the percentage and lodestar calculations produces an imputed multiplier far outside the normal range, . . . the trial court will have reason to reexamine its choice of a percentage.” Id. at 28-29 (internal citations omitted).

Of particular interest for practitioners is the California Supreme Court’s ruling that the lodestar cross-check “does not override the trial court’s primary determination of the fee as a percentage of the common fund and thus does not impose an absolute maximum or minimum on the potential fee award.” Id. at 30. Rather, “[i]f the multiplier calculated by means of a lodestar cross-check is extraordinarily high or low, the trial court should consider whether the percentage used should be adjusted so as to bring the imputed multiplier within a justifiable range, but the court is not necessarily required to make such an adjustment.” Id. In so holding, Laffitte ensures that the application of the lodestar method to cross-check the percentage fee will not undercut the reasons for applying the percentage of the recovery method in the first instance; namely, the “alignment of incentives between counsel and the class, a better approximation of market conditions in a contingency case, and the encouragement it provides counsel to seek an early settlement and avoid unnecessarily prolonging the litigation.” Id. at 27.

Authored by: 
Eduardo Santos, Associate

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

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

Woods v. Vector Marketing $6.75M Settlement Granted Prelim Approval

In June, U.S. District Judge Edward M. Chen granted preliminary approval of a $6.75 million settlement between Vector Marketing Corporation and sales representatives for alleged violations of California, Florida, Illinois, Michigan, and New York state wage and hour laws and the national Fair Labor Standards Act. See Woods, et al. v. Vector Marketing Corp., No. 14-CV-00264 (N.D. Cal. June 30, 2016), Third Revised Order Granting Plaintiff’s Motion for Preliminary Approval of Class and Collective Action Settlement (slip op. available here). Before becoming sales representatives, the plaintiffs had been trainees who attended a mandatory training program over the course of three days to learn how to sell Cutco products through in-home demonstrations. The training lasted for five hours each day, and at some point during the three-day training, recruits were required to create lists of potential customers who might want to buy Cutco products after the training ended. Vector did not pay recruits for the training time and the plaintiffs filed a lawsuit in January 2014 alleging that they qualified as employees under the respective state laws and the FLSA.

The class and collective action covered recruits who either had completed all three days of training or who partially completed training and created the customer lists. Vector had challenged the certification of these classes in 2015, arguing that the recruits were not employees and that there were significant dissimilarities between those who completed all the days but did not create customer lists and those who did create lists. Both parties agreed that application of the Portland Terminal test would resolve the question of whether the trainees were employees. Under this test, the following factors are considered:

(1) the “training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school”; (2) the “training is for the benefit of the trainee”; (3) the “trainees do not displace regular employees, but work under close observation”; (4) the “employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded”; (5) the “trainees are not necessarily entitled to a job at the completion of the training period”; and (6) the “employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.”

Order (1) Granting in Part and Denying in Part Plaintiffs’ Motion for Class Certification; and (2) Denying Defendant’s Motion to Partially Decertify FLSA Collective Action (N.D. Cal. Sept. 4, 2015) (quoting Harris II, 753 F. Supp. 2d 1006). Although the court did not decide whether the plaintiffs had been “employees” under the Portland Terminal test, Judge Chen granted class certification, holding that five of the six factors could be decided collectively and any dissimilarities could be addressed in a trial. Following certification, the plaintiffs and Vector engaged in extensive negotiations and eventually reached a settlement in December 2015.

Court papers indicate there are approximately 91,000 putative class members. The average recovery is estimated to be $42.50 per recruit after factoring in fees, costs, and enhancements. The final approval hearing of the settlement is scheduled for October 6, 2016.

Authored by: 
Anthony Castillo, Associate

Chen v. Allstate: “Pick-Off” Attempt to Moot Class Claims Fails in 9th Cir.

In Chen v. Allstate Insurance Co., Allstate asked the Ninth Circuit Court of Appeals to answer the hypothetical question raised in Campbell-Ewald v. Gomez, 136 S. Ct. 663 (Jan. 20, 2016) (previously covered on the ILJ here): whether a defendant can defeat a class action by depositing the full amount of the named plaintiff’s individual claim in an escrow account payable to the plaintiff, followed by entry of judgment for the plaintiff in that amount, thereby mooting the plaintiff’s individual claims. No. 13-16816 (9th Cir. April 12, 2016) (slip op. available here). Holding that such a tactic does not moot the class’s claims under Article III, the Ninth Circuit declined to direct the district court to enter judgment on the named plaintiff’s individual claims before he had a fair opportunity to move for class certification.

Plaintiff Florencio Pacleb sued Allstate for violations of the Telephone Consumer Protection Act stemming from automated calls made to his cell phone without his consent. In April of 2013, before a motion for class certification had been filed, Allstate initially made Plaintiff Pacleb a Rule 68 offer of judgment in the amount of $20,000 (including reasonable attorneys’ fees and costs accrued to date), which allegedly more than satisfied his individual claim. When the two named plaintiffs did not accept the offer within 14 days, Allstate then filed a motion to dismiss the plaintiffs’ entire case for lack of subject matter jurisdiction, arguing that, under Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), the district court should be required to enter judgment against Allstate and order payment to the plaintiff. While the motion to dismiss was pending, the other named plaintiff accepted the offer, though Pacleb did not; then, the district court denied Allstate’s motion. After the Supreme Court decided Campbell-Ewald, Allstate took the additional step of depositing the $20,000 in a bank escrow account and offering to cease sending Pacleb non-emergency telephone calls and text messages.

On appeal, Allstate argued that the judgment to which it consented would offer complete relief to the plaintiff and that the district court should be compelled to enter judgment on those terms, thus mooting the plaintiff’s individual claims and rendering the remaining class allegations insufficient to preserve a live controversy. The Ninth Circuit agreed with Allstate’s first contention only (that the offer of relief was apparently “complete”), but affirmed the district court’s denial of their motion to dismiss. The court noted that even if the district court entered judgment affording Pacleb complete relief on his individual damages and injunctive relief claims, effectively mooting those claims, Pacleb would still be able to seek certification under Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011). Pitts held that a plaintiff could continue to represent a class despite a settlement offer for complete individual relief from defendant, as long as the plaintiff could still file a timely motion for class certification at the time the offer was made. Chen now expands the logic of Pitts from mere settlement offers to actual monetary deposits and holds that, even if Pitts were not binding and Allstate could moot the plaintiff’s individual claims, the plaintiff could still seek class certification despite the absence of a live individual claim. Following the circuit’s prior analysis in Gomez, the panel determined that Pitts remained good law after the Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), because Genesis Healthcare concerned collective actions brought under the Fair Labor Standards Act rather than class actions under Rule 23 (of the Federal Rules of Civil Procedure) and that “courts have universally concluded that the Genesis discussion does not apply to class actions.” Id. at 16 (internal citations omitted).

Second, assuming Pitts was not controlling and Allstate could moot the plaintiff’s individual claims for damages and injunctive relief, the court rejected Allstate’s attempt to moot the action prior to a fair opportunity to move for class certification. The Chen court noted that placing funds in an escrow account was not the same as the actual receipt of all relief by a plaintiff and concluded that the depositing of funds into an escrow account was not enough to moot the claim because the plaintiff did not yet have the money in his possession. Lastly, the Ninth Circuit considered whether to order the district court to enter judgment before the plaintiff has had an opportunity to move for certification and concluded that doing so would be inconsistent with Campbell-Ewald:

. . . Campbell-Ewald clearly suggests it would be inappropriate to enter judgment under these circumstances. As Campbell-Ewald explained, “[w]hile a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald, 136 S. Ct. at 672. Accordingly, when a defendant consents to judgment affording complete relief on a named plaintiff’s individual claims before certification, but fails to offer complete relief on the plaintiff’s class claims, a court should not enter judgment on the individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.

Id. at 22-23 (internal citations omitted). Thus, the appeals court affirmed the district court’s ruling and denied Allstate’s motion to dismiss for lack of subject matter jurisdiction, a victory for the plaintiffs’ bar foreclosing defendant “pick-off” tactics in the Ninth Circuit.

Authored by: 
Daniela Saspe, Associate