Percentage of the fund is still an approved method of awarding fees in California class actions

Funny timing on this one.  In Episode 14 of the Class Re-Action podcast, our discussion turned at one point to fee awards in class actions.  We briefly mentioned Laffitte v. Robert Half International, Inc. (November 21, 2014), but didn't dive under the hood.  But now that I've had a chance to read it, I see that a postscript to the podcast is in order.  In Laffitte, the Court of Appeal (Second Appellate District, Division Seven) considered an appeal by an objector to a class action settlement.  One issue the Court touched on was the propriety of using a percentage of the fund to award fees (with a lodestar crosscheck), rather than the currently trendy approach of using lodestar with a percentage crosscheck.  Here's a rundown of the Court's opinion.

The plaintiff settled a class action lawsuit against a group of defendants related to Robert Half International Inc. for $19 million.  The trial court granted the parties’ ex parte application for an order amending the settlement agreement, class notice, and claim form. Among other things, the amended settlement agreement said that Robert Half would pay a gross settlement amount of $19,000,000. Subject to court approval, the settlement agreement listed the following payments would be made from the gross settlement amount: class counsel attorneys’ fees of not more than $6,333,333.33 (one third of the gross settlement amount) and costs not to exceed counsel’s actual costs, class representative payments not to exceed $80,000, settlement administrator fees not to exceed $79,000, civil penalties owed to the California Labor and Workforce Development Agency, and applicable payroll taxes on the employees’ recovery.

In support of their motion for attorneys’ fees, class counsel submitted declarations from the attorneys in each of the three law firms serving as class counsel. The attorneys did not submit detailed time records. The declarations stated that class counsel worked a total of 4,263.5 hours on the case (and anticipated working 200 hours on the appeal) and, using the hourly rate for each attorney, calculated that the total lodestar amount was $2,968,620 ($3,118,620 including the appeal). Class counsel requested a lodestar multiplier of between 2.03 to 2.13 for a total requested attorneys’ fee award of $6,333,333.33.

David Brennan, a member of the class, objected to the settlement and the amount awarded in attorney’s fees. The trial court overruled his objections and approved the settlement, which included an award of attorneys’ fees to class counsel of one-third of the settlement, or approximately $6.3 million. Brennan appealed from the order approving the settlement and entering final judgment, challenging both the class action settlement notice regarding the award of attorneys’ fees and the amount of attorneys’ fees awarded. Laffitte asked that the Court affirm the trial court’s order. The Robert Half defendants had no strong position on the appropriate amount of fees, but asked that the Court affirm the order “in order to bring this lawsuit to closure.”

The Court began its discussion of the challenge to attorney’s fees by observing that the Notice stated the maximum amount of fees that would be sought by class counsel:

The class notice describing the preliminarily-approved settlement included the proposed attorneys’ fees award for class counsel, a schedule for final approval, and the procedure for making objections. The notice stated: “Class Counsel, consisting of Law Offices of Kevin T. Barnes, Law Office of Joseph Antonelli, and Appell | Hilaire | Benardo LLP, will seek approval from the Court for the payment in an amount not more than $6,333,333.33 for their attorneys’ fees in connection with their work in the Actions, and an amount not more than $200,000 in reimbursement of their actual litigation expenses that were advanced in connection with the Actions. Class Counsel’s attorneys’ fees and litigation expenses as approved by the Court will be paid out of the Gross Settlement Amount.”

Slip op., at 10.  The Court then considered and rejected the argument that the motion for an award of fees should be available to the class members before the deadline to object expires, as Fed. R. Civ. P. 23 requires, as interpreted by the Ninth Circuit decision, In re Mercury Interactive Corp. Securities Litigation, 618 F.3d 988 (9th Cir. 2010):  “Rule 23 does not control in California. ‘As a general rule, California courts are not bound by the federal rules of procedure but may look to them and to the federal cases interpreting them for guidance or where California precedent is lacking. [Citations.] California courts have never adopted Rule 23 as “a procedural strait jacket. To the contrary, trial courts [are] urged to exercise pragmatism and flexibility in dealing with class actions.” [Citations.]’ ”  Slip op., at 11-12.  Instead, the Court said that California had adequate rules for notice:

California precedent and authority governing court approval of class action settlements and attorneys’ fees applications, however, are not lacking. Rule 3.769 of the California Rules of Court states the procedure for including an attorneys’ fees provision in a class action settlement agreement and for giving notice of the final approval hearing on the proposed settlement. Under rule 3.769(b) of the California Rules of Court, “[a]ny agreement, express or implied, that has been entered into with respect to the payment of attorney’s fees or the submission of an application for the approval of attorney’s fees must be set forth in full in any application for approval of the dismissal or settlement of an action that has been certified as a class action.”

Slip op., at 12.  The Court concluded that the notice given complied with Rule 3.769:

The notice given to the class members complied with California Rules of Court rule 3.769 by apprising them of the agreement concerning attorneys’ fees. The notice told the class members that class counsel could receive up to $6.3 million in attorneys’ fees. The notice also advised the class members of the procedures for objecting to the proposed settlement and appearing at the settlement hearing, where they could present their objections to any aspect of the settlement, including the amount of attorneys’ fees to be awarded to class counsel.

Slip op., at 13.  Positive number one from this opinion: no need to copy the approach of In re Mercury Interactive.

Next, the Court looked at the reasonableness of the fee award, noting discussion first the lodestar method of calculation:

In Lealao v. Beneficial California, Inc., supra, 82 Cal.App.4th 19 the court stated that “[t]he primacy of the lodestar method in California was established in 1977 in Serrano [v. Priest (1977)] 20 Cal.3d 25. . . . [O]ur Supreme Court declared: ‘“The starting point of every fee award . . . must be a calculation of the attorney’s services in terms of the time he has expended on the case.”’” (Id. at p. 26.) The court added that “[i]n so-called fee shifting cases, in which the responsibility to pay attorney fees is statutorily or otherwise transferred from the prevailing plaintiff or class to the defendant, the primary method for establishing the amount of ‘reasonable’ attorney fees is the lodestar method. The lodestar (or touchstone) is produced by multiplying the number of hours reasonably expended by counsel by a reasonable hourly rate. Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative ‘multiplier’ to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained, and the contingent risk presented. [Citation.]”

Slip op., at 16-17.   The Court then noted that percentage of the fund remains a viable method of awarding fees in common fund cases:

Subsequent judicial opinions have made it clear that a percentage fee award in a common fund case “may still be done.” For example, in Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43 the court stated that “the Lealao court did not purport to mandate the use of one particular formula in class action cases. The method the trial court used here and that [was] discussed in Lealao are merely different ways of using the same data—the amount of the proposed award and the monetized value of the class benefits—to accomplish the same purpose: to cross-check the fee award against an estimate of what the market would pay for comparable litigation services rendered pursuant to a fee agreement. [Citation.]” (Id. at p. 65.) Therefore, “fees based on a percentage of the benefits are in fact appropriate in large class actions when the benefit per class member is relatively low . . . .” (Id. at p. 63.)

Slip op., at 18.  In this matter, the Court held proper the trial court’s use of a percentage of the fund method with a lodestar crosscheck:

The trial court did not use the percentage of fund method exclusively to determine whether the amount of attorneys’ fees requested was reasonable and appropriate. The trial court also performed a lodestar calculation to cross-check the reasonableness of the percentage of fund award. This was entirely proper. “[A]lthough attorney fees awarded under the common fund doctrine are based on a ‘percentage-of-the-benefit’ analysis, while those under a fee-shifting statute are determined using the lodestar method, ‘[t]he ultimate goal . . . is the award of a “reasonable” fee to compensate counsel for their efforts, irrespective of the method of calculation.’ [Citations.]” (Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253, 1270.) It therefore is appropriate for the trial court to cross-check an award of attorneys’ fees calculated by one method against an award calculated by the other method in order to confirm whether the award is reasonable.

Slip op., at 19-20.  Positive number two from this opinion: focusing on the percentage of the fund is still appropriate (courts claiming otherwise are misrepresenting the authority out there, though it probably doesn't matter, since what this really points out is that any rational method for evaluating the fee against the benefit conferred).  The Court added to the beneficial discussion by holding that detailed time records are not required:

Brennan argues that, in connection with the court’s lodestar calculations, class counsel did not submit detailed attorney time records. Such detailed time records, however, are not required. “It is well established that ‘California courts do not require detailed time records, and trial courts have discretion to award fees based on declarations of counsel describing the work they have done and the court’s own view of the number of hours reasonably spent.

Slip op., at 20.  That's right - more confirmation that there is no requirement to maintain detailed time records.  Positive number three.  The Court then soundly rejected the objector’s challenge to the application of a multiplier to compare the percentage of the fund award to the lodestar.  Finally, the Court concluded that the “clear sailing” provision in the settlement agreement was not improper in general:

“While it is true that the propriety of ‘clear sailing’ attorney fee agreements has been debated in scholarly circles [citations], commentators have also noted that class action ‘settlement agreement[s] typically include[] a “clear sailing” clause . . . .’ [Citation.] In fact, commentators have agreed that such an agreement is proper. ‘[A]n agreement by the defendant to pay such sum of reasonable fees as may be awarded by the court, and agreeing also not to object to a fee award up to a certain sum, is probably still a proper and ethical practice. This practice serves to facilitate settlements and avoids a conflict, and yet it gives the defendant a predictable measure of exposure of total monetary liability for the judgment and fees in a case. To the extent it facilitates completion of settlements, this practice should not be discouraged.’ [Citation.]” (Consumer Privacy Cases, supra, 175 Cal.App.4th at p. 553, fn. omitted; see Cellphone Termination Fee Cases (2009) 180 Cal.App.4th 1110, 1120 [“[c]lass action settlements frequently contain a ‘clear sailing’ agreement, whereby the defendant agrees not to object to an attorney fee award up to a certain amount”].)

Slip op. at 24-25.  The Court then concluded that there was no reason to find the “clear sailing” provision suspect in this matter.  The trial court was affirmed and costs were awarded to the plaintiff and defendants, indicating the Court’s view of the lack of merit in the appeal.