California Supreme Court to decide how class action lawyers should be paid

December 16, 2015

David Brennan is one of about 4,000 current and former California employees of Robert Half International who reached a $19 million wage-and-hour class action settlement with the company in 2012. The state court judge overseeing the case awarded class counsel from the Law Offices of Kevin T. Barnes one-third of the class fund, or $6.3 million. Brennan, represented by class action ombudsman Lawrence Schonbrun, objected to the settlement, arguing that under 40-year-old California precedent, the fee award should have been based on plaintiffs’ lawyers’ hourly billings, not a percentage of the class recovery. When that argument failed to persuade the trial court and the intermediate appellate court, Brennan and Schonbrun took the case to the California Supreme Court, which agreed to hear his appeal.

Brennan’s case will determine how lawyers in class actions brought under California law – whether in state or federal court – are paid. Brennan and his lawyer believe class lawyers are entitled only to a lodestar fee based on the value of the time they spent on the litigation. Just about everyone else, including the public interest groups and eminent law professors that filed amicus briefs this week, is convinced Brennan and Schonbrun are wrong.

If you’ve ever wondered about the relative benefits and drawbacks of the lodestar and percentage-of-fund methods of setting fees for class action lawyers, briefing in the California Supreme Court case Laffitte v. Robert Half will tell you all you need to know. But this isn’t just an abstract debate over theory. Brennan is asking the court to use the “historic” opportunity of this appeal to take control of class counsel fees. He says that strict limits on class counsel fees are necessary to “preserve the public’s respect for the prestige of the judiciary (and) the public’s interest in the integrity of the bar.”

The objector claims billions of dollars depend on how the justices decide his case. His opponents say that if California defies the nationwide consensus and restricts pay to hourly rates, the state will lose the benefit of plaintiffs’ lawyers acting as watchdogs over corporate conduct. For the entire class action bar, this a case to keep an eye on.

Brennan’s argument stems from a footnote in the California Supreme Court’s 1977 decision in Serrano v. Priest, which involved fees for public interest lawyers who successfully challenged the state’s public school financing system. The footnote, citing opinions from the 2nd and 3rd Circuit U.S. Courts of Appeal, said that the starting point for a fee award “must be a calculation of the attorney’s services in terms of the time he has expended on the case.” But in the decades since Serrano, according to Brennan’s brief, California courts have paid lip service to lodestar calculations but have improperly pumped up fee awards using multipliers and enhancements based on the size of the settlement. The objector wants the state justices to reiterate the primacy of the lodestar and bar judges from boosting fee awards to multiples of hourly billings.

Class counsel Barnes’ response brief pointed out that the Serrano case didn’t involve a classwide settlement fund, so of course the fee award to plaintiffs’ lawyers had to begin with a lodestar calculation. The court’s dicta from that case, according to Barnes, does not even apply to common fund cases – and the two federal circuit decisions cited in the Serrano opinion are no longer good law.

In fact, as both Barnes and eight law professors, in an amicus brief submitted Monday, pointed out, lodestar fees for plaintiffs’ lawyers were a vogue in the 1970s, when civil rights cases began to proliferate. After complaints that basing fees on hourly billings might discourage efficiency and misalign the interests of plaintiffs’ lawyers and their clients, the 3rd Circuit appointed a task force to examine the issue. The task force, with law professor Arthur Miller (now of New York University) as its reporter, concluded that paying class counsel a percentage of the settlement fund is preferable to lodestar-based fee awards. The American Law Institute, with University of Texas professor Charles Silver as its reporter, drew on the task force findings and other analysis to conclude in its 2010 treatise on aggregate litigation that judges should use the percentage method when settlements include a common fund.

Both Miller and Silver are among the professors who signed the amicus brief in the Laffitte case, which points out that every federal circuit, including the 9th, and almost every state system permits judges to award fees as a percentage of common funds; two federal circuits require percentage-based fee awards. The most recent scholarship on the competing fee schemes found that fewer than 10 percent of fee awards in class actions are based on lodestar billings.

In a separate amicus brief filed Tuesday, the Impact Fund, the Western Center on Law and Poverty and 14 other California legal services groups argue that Brennan’s proposal to restrict fees to hourly billings would stop lawyers from taking on risky civil rights cases. If the state Supreme Court strips trial judges of the discretion to set fees, the brief warned, “the most qualified private counsel will be far less willing to pursue, or join amici and others in pursuing, such socially desirable yet professionally difficult cases on behalf of underserved groups.”

It’s rare, as you know, for class action fee challenges to reach appellate heights. More often, objectors drop appeals in exchange for a payment from class counsel. So you have to give credit to Brennan and Schonbrun for seeing their cause to the state Supreme Court. I doubt they will win, but by pushing the issue, they will clarify the law.

I emailed Schonbrun but didn’t hear back. Class counsel Kevin Barnes did not return a call for comment. The case docket did not indicate when the California justices will hear arguments.

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