Daily Blast August 11, 2016

Today, the California Supreme Court provided a long overdue answer to a question on the minds of class action attorneys across California; whether attorney fees can be calculated as a percentage of recovery in class action cases. In Laffitte v. Robert Half International Inc. (Aug. 11, 2016, S222996) __ Cal.App.4th __, the court clarified that “when an attorney fee is awarded out of a common fund preserved or recovered by means of litigation, the award is not per se unreasonable merely because it is calculated as a percentage of the common fund.” (Slip opn., p. 2.)

This case arose from a class action settlement of $19 million with up to one-third ($6,333,333.33) available to class counsel for attorney fees. (Slip opn., pp. 1-2.) One class member objected to the settlement, arguing that the attorney fee award was excessive. (Id. at p. 3.) The trial court overruled the class member’s objections and approved the settlement. (Id. at pp. 3-4.) The trial court applied the percentage method in awarding attorney fees. (Id. at p. 3.) The court determined the amount to be reasonable by cross-checking the award using the lodestar method with a 2.03 to 2.13 multiplier. (Ibid.) The court determined that such an award was reasonable due to the difficulty of the case and the risk of taking the case on a contingent fee basis. (Id. at pp. 3-4.) The objecting class member appealed the judgment, arguing that the fee award was invalid under Serrano v. Priest (1977) 20 Cal.3d 25 (“Serrano III”) because it was not based on the amount of time the attorneys spent on the case. (Id. at pp. 2, 5.) The Court of Appeal affirmed. (Id. at p. 5.) The California Supreme Court granted review. (Ibid.)

The Supreme Court held that “Serrano III does not preclude [an] award of a percentage fee in a common fund case.” (Slip opn., p. 18.) The court discussed at length the percentage-of-recovery and lodestar methods of calculating attorney fee awards, and the current trend in federal courts toward using the percentage method or a combination of the two methods, particularly in common fund cases. (Id. at pp. 8-17.) The court recognized the problems inherent in each method: the percentage method can over-compensate attorneys in cases that settle quickly and the lodestar method can incentivize unduly drawn-out litigation and overburden courts. (Id. at pp. 8-11.)

Addressing California law, the court distinguished Serrano III and a number of other cases that “cast doubt on the use of the percentage method to determine attorney fees in California class actions.” (Slip opn., pp. 18-27 quoting Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1809.) The court reasoned that these cases did not address fees awarded from a common fund, nor did they endorse the lodestar method to the exclusion of all others (Slip opn., pp. 22-23, 26-27.) As such, the Supreme Court held that the trial court did not abuse its discretion in using a percentage method for its primary calculation of the fee award. (Id. at p. 28.) The court likewise held that the trial court did not abuse its discretion by utilizing a “lodestar cross-check” to determine the reasonableness of the percentage fee. (Ibid.)

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