California Supreme Court Validates Percentage-Based Attorney Fees in Common Fund Class Actions

California Supreme Court Validates Percentage-Based Attorney Fees in Common Fund Class Actions

Introduction

The case Mark LAFFITTE et al. v. ROBERT HALF INTERNATIONAL INC., et al. (1 Cal.5th 480), decided by the Supreme Court of California on August 11, 2016, addresses a pivotal issue in class action litigation: the method of calculating attorney fees from a common fund. The plaintiffs, represented by class counsel, sought to have attorney fees awarded as one-third of a $19 million settlement, a practice that was challenged based on precedents set by SERRANO v. PRIEST and related cases.

Summary of the Judgment

The Supreme Court of California affirmed the Court of Appeal's decision, upholding the trial court's approval of a $6,333,333.33 attorney fee, which represented one-third of the $19 million settlement fund. The objecting class member challenged the fee as excessive and allegedly in violation of Serrano III, which traditionally emphasized the lodestar method (hours worked multiplied by an hourly rate) for determining fees. However, the Supreme Court clarified that awarding a percentage of a common fund does not violate Serrano III, provided the percentage method is applied reasonably and can be cross-checked with the lodestar method to ensure fairness.

Analysis

Precedents Cited

The judgment extensively references the Serrano series of cases, particularly Serrano III, which initially questioned the validity of percentage-based attorney fees in California. Other significant cases include:

  • Fox v. Hale & Norcross Silver Mining Co. – Approved a 25% fee from a common fund.
  • Farmers & Merchants Nat. Bank of Los Angeles v. Peterson – Upheld a 5% fee award from settlements.
  • Glendale City Employees' Assn., Inc. v. City of Glendale – Supported a 25% fee in a labor action.

The Court distinguished these precedents by emphasizing that Serrano III did not categorically prohibit percentage-based fees in common fund cases.

Impact

This judgment has significant implications for future class action litigations in California:

  • Validation of Percentage Method: Provides a clear endorsement for using percentage-based fee awards in common fund cases, subject to reasonableness checks.
  • Encouragement of Early Settlements: Aligning attorney incentives with settlement outcomes may lead to more efficient resolution of class actions.
  • Judicial Discretion: Reinforces the trial court's role in balancing fee awards through both percentage and lodestar methods.
  • Guidance for Future Cases: Clarifies the applicability of Serrano III and related precedents, reducing uncertainty in fee award practices.

Moreover, the decision harmonizes California's approach with prevailing federal and state practices, fostering consistency in class action fee determination.

Complex Concepts Simplified

Common Fund Doctrine

The common fund doctrine allows class counsel to be compensated from a settlement fund created for the benefit of the class members. This ensures that counsel is paid from the same resource that benefits the plaintiffs.

Percentage Method vs. Lodestar Method

  • Percentage Method: Calculates attorney fees as a fixed percentage of the recovered fund. This method rewards success and incentivizes early settlements.
  • Lodestar Method: Determines fees based on the number of hours worked multiplied by a reasonable hourly rate. It emphasizes the actual work performed.

Abuse of Discretion Standard

This legal standard gives courts broad discretion in decision-making. An appellate court will not overturn a lower court's decision unless it is found to be arbitrary, unreasonable, or outside the bounds of reasoned judgment.

Conclusion

The California Supreme Court's affirmation in Mark LAFFITTE et al. v. ROBERT HALF INTERNATIONAL INC., et al. solidifies the legitimacy of the percentage-based attorney fee method in common fund class actions, provided that such awards are reasonable and subject to cross-checks with the lodestar method. This decision not only clarifies the application of Serrano III but also aligns California's practices with broader legal standards, promoting fairness and efficiency in class action litigations.

Case Details

Year: 2016
Court: Supreme Court of California

Judge(s)

Kathryn Mickle Werdegar

Attorney(S)

Law Office of Lawrence W. Schonbrun and Lawrence W. Schonbrun, for Plaintiff and Appellant. Law Offices of Kevin T. Barnes, Kevin T. Barnes, Gregg Lander, Los Angeles; Law Offices of Joseph Antonelli, Joseph Antonelli, Janelle Carney, Chino Hills; Hilaire McGriff and Mika M. Hilaire, Los Angeles, for Plaintiffs and Respondents. Paul Hastings, Judith M. Kline, Los Angeles, and M. Kirby C. Wilcox, San Francisco, for Defendants and Respondents. Altshuler Berzon, Michael Rubin, San Francisco; Jocelyn D. Larkin, Robert Schug ; and Richard Rothschild, Los Angeles, for Impact Fund, Western Center on Law and Poverty, Asian Americans Advancing Justice–Asian Law Caucus, Bet Tzedek, Centro Legal de la Raza, California Rural Legal Assistant Foundation, Disability Rights Education and Defense Fund, East Bay Community Law Center, Justice in Aging, Law Foundation of Silicon Valley, Legal Aid Association of California, Legal Aid Society of San Mateo County, Public Advocates, Public Counsel, The Public Interest Law Project and Worksafe as Amici Curiae on behalf of Plaintiffs and Respondents and Defendants and Respondents. Lieff Cabraser Heiman & Bernstein, Elizabeth J. Cabraser, San Francisco, Jonathan D. Selbin ; Girard Gibbs and Jordan Elias for Professor Christine Bartholomew, Professor Erwin Chemerinsky, Professor John C. Coffee, Jr., Professor Joshua P. Davis, Professor Nora Freeman Engstrom, Professor Brian T. Fitzpatrick, Professor Arthur R. Miller and Professor Charles Silver as Amici Curiae on behalf of Plaintiffs and Respondents and Defendants and Respondents. Capstone Law, Glenn A. Danas and Ryan H. Wu, Los Angeles, for Working Wardrobes as Amicus Curiae on behalf of Plaintiffs and Respondents and Defendants and Respondents. Kabateck Brown Kellner, Richard L. Kellner and Brian S. Kabateck, Los Angeles, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Respondents and Defendants and Respondents. Law Offices of Martin N. Buchanan and Martin N. Buchanan, Oceanside, for Professor William B. Rubenstein as Amicus Curiae.

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