An objector has no standing to challenge a class action fee award where he has no financial interest in the award and fails to show harm as a result of the award

In Glasser v. Volkswagon of American, Inc. (9th Cir. May 17, 2011), the Ninth Circuit considered objector-appellant David Murray's contention that the district court erred when it awarded attorneys’ fees and costs to plaintiff-appellee Jacob Glasser.  Glasser challenged the inadequacy of disclosures by Volkswagon about the limited availability of "smart keys" for certain Audi and Volkswagon vehicles.  Soon after the case was filed, the parties initiated settlement discussions.  As part of those discussions, Glasser evidently learned that replacement key technology was available through independent dealers and agreed that Volkswagon had not fixed the price of replacement keys.  Volkswagon agreed to make additional disclosures about "smart keys," but no monetary benefit was obtained for the class.

The trial court approved a settlement in which the class was notified of the agreement to make new disclosures and Volkswagon's agreement to either pay an agreed-upon amount of attorney's fees or let the trial court decide fees if the parties did not reach agreement on that issue.  Murry filed an objection to the settlement.  The district court awarded plaintiff attorney's fees in the amount of $417,663.75, costs and expenses in the amount of $16,614.40, and an incentive award to Glasser in the amount of $2,500.

The Court began with a discussion of Article III standing.  The Court observed that fees paid from common funds confer standing on objectors because the fees reduce the fund:

When attorneys’ fees are paid out of a common fund, from which both the class recovery and the fee award are paid, a class member who participates in the settlement generally has standing to challenge the fee award because any reduction in the fee award results in an increase to the class recovery.

Slip op., at 6356.  But the Court then concluded that Murray failed to satisfy his obligation to establish Article III standing:

Murray does not contend that Plaintiff’s counsel colluded with VW to orchestrate an excessively high fee award in exchange for an unfair settlement for the class. Had he alleged as much, he may have been able to meet the requirements of Article III standing under a “constructive common fund theory.” See Lobatz, 222 F.3d at 1147. However, Murray has expressly disclaimed recovery under a “constructive common fund” theory. Instead, he argues Plaintiff’s claims were entirely meritless from the beginning of the lawsuit. Further, he claims only that an excess fee award will cause VW to pass along the cost to its shareholders and customers, and that he may somehow benefit as a consumer from any savings that may result from the denial or reduction of the award.

Slip op., at 6537.  The appeal was then dismissed for lack of standing.  Oops.  I suppose an assertion of a "constructive common fund" theory will become the new standard refrain for objectors, particularly in consumer class actions.

Kullar v. Foot Locker generating more precedent, this time on a disqualification issue

So, I'm back after a vacation, and just in time.  Luckily, nothing at all happened while I was gone.  Today, however, we receive a new nugget of precedent from one of those cases that keeps on giving.  In Kullar v. Foot Locker Retail, Inc. (January 18, 2011), the Court of Appeal (First Appellate District, Division Three) reviewed a denial of a motion to disqualify counsel representing the objectors to a proposed class action settlement in Kullar.  If this doesn't ring a bell for you, let me recap.  Kullar (the 2008 opinion: Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008)) reversed an order granting approval to a proposed class action settlement after concluding that the information provided to the trial court was insufficient to permit the court to conclude that the settlement was fair, adequate and reasonable.

How does this lead to a motion to disqualify?  Glad you asked.  The Court sums up as well as I could the procedural maneuvering leading to the motion to disqualify:

Prior to the trial court's approval of the settlement in the Kullar action (Kullar v. Footlocker, No. CGC-05-447044 (Kullar)), Echeverria, represented by the same attorneys, had filed a partially overlapping putative class action against Foot Locker and others in the Alameda County Superior Court (Echeverria v. Footlocker, No. RG07317036 (Echeverria I)). Because of the pendency of the settlement in the Kullar action, the Alameda court entered an order staying Echeverria I, which remained in effect through the pendency of the Kullar appeal. On April 15, 2009, one month after issuance of the remittitur in Kullar, Echeverria and the two other objectors represented by Q&W filed an action in the San Francisco Superior Court, where Kullar was pending, asserting the same claims as were alleged in the stayed Alameda action (Echeverria v. Footlocker, No. CGC-09-487345 (Echeverria II)). Based on the pendency of identical claims in Echeverria I, the San Francisco court on July 29, 2009, stayed proceedings in Echeverria II. In subsequent proceedings in Kullar, the court considered the additional showing made to establish the fairness of the proposed settlement, the three objectors' renewed objections to settlement approval, and on October 22, 2009, the court again granted final approval of the class settlement. Echeverria dismissed the Alameda action and on November 17, 2009, the San Francisco court lifted the stay in Echeverria II.

Slip op., at 2-3.  The Court then describes the motion to disqualify filed by Foot Locker, which argued that representation of objectors on the one hand and potential class members on the other created a conflict.  The trial court rejected that argument as did the Court of Appeal.  I don't find the outcome surprising.  But the opinion does offer some interesting comments, where the Court briefly discusses the obligations of counsel to putative class members prior to certification:

Initially, since no class has yet been certified in Echeverria II (and no class was ever certified in Echeverria I), no attorney-client relationship has yet arisen between Q&W and the members of the putative class. (Atari, Inc. v. Superior Court (1985) 166 Cal.App.3d 867, 873 [“We cannot accept the suggestion that a potential (but as yet unapproached) class member should be deemed 'a party . . . represented by counsel' even before the class is certified; we respectfully disagree to this extent with the federal courts which apparently would accept it.”]; Sharp v. Next Entertainment, Inc. (2008) 163 Cal.App.4th 410, 433, citing comment 25 to rule 1.7 of the ABA Model Rules of Professional Conduct [“When a lawyer represents or seeks to represent a class of plaintiffs or defendants in a class-action lawsuit, unnamed members of the class are ordinarily not considered to be clients of the lawyer for purposes of applying paragraph (a)(1) of this Rule [that restricts representation when there are concurrent conflicts of interest] . . .”]; In re McKesson HBOC, Inc. Securities Litigation (N.D.Cal. 2000) 126 F.Supp.2d 1239, 1245; Cal. Compendium on Prof. Responsibility, L.A. County Bar Assn. Formal Opn. No. 481 (March 20, 1995).)  

Foot Locker cites cases that clearly are inapposite to establish that an attorney may incur fiduciary obligations to an individual even though an attorney-client relationship has not arisen. Most involve situations where there were preliminary consultations between the individual and the attorney looking to the retention of the attorney but the potential client did not hire the attorney. (People ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135; Beery v. State Bar (1987) 43 Cal.3d 802.) Closer to the mark is the court's statement in In re GMC Pick-up Truck Fuel Tank Prod. Liab. Litig. (3rd Cir. 1995) 55 F.3d 768, 801: “Beyond their ethical obligations to their clients, class attorneys, purporting to represent a class, also owe the entire class a fiduciary duty once the class complaint is filed.” This statement—which, it should be noted, recognizes that putative class members are not clients of the attorney—was made in the context of considering the propriety of certifying a settlement class, with little application to the present situation. Moreover, assuming that Q&W assumed some fiduciary obligations to members of the putative class they seek to represent, no authority has been cited suggesting that those obligations preclude the attorneys from urging that a proposed settlement in related litigation is not in the best interests of the class. (Compare Schick v. Berg (2004) U.S. Dist. LEXIS 6842, *19 (S.D.N.Y. 2004, affd. (2d Cir. 2005) 430 F.3d 112 [attorney owed putative class member a duty not to prejudice putative class member's rights in the action in which class certification was sought, but duty did not extend to refraining from advising a third party to sue putative class member].)

Slip op., at 5-6.  After reading these remarks, I now believe that it is unclear in California whether the majority approach follows or diverges from the federal cases suggesting a fiduciary obligation extends to putative class members prior to certification.  It seems likely, however, that regardless of the answer as to where California is on the issue, the obligations to the unknown putative class members do not rise to the same level as that of the obligations to a represented client.  The ability to harmonize this question is complicated by authority indicating that class counsel can replace a proposed class representative for the good of the class, which, in one way of looking at it, suggests that the interests of the putative class can rise high enough to squeeze the initial client to the sidelines.