Professional Documents
Culture Documents
2015-12-14 - Amici Curiae Eight Class Action Scholars
2015-12-14 - Amici Curiae Eight Class Action Scholars
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CONCLUSION
For the foregoing reasons, amici curiae Eight Class Action Scholars
respectfully request that the Court accept the accompanying Brief for filing
and consideration.
Dated: December 14, 2015
Respectfully submitted,
/s/ Elizabeth J. Cabraser
Elizabeth J. Cabraser (#083151)
Lieff Cabraser Heimann &
Bernstein, LLP
275 Battery Street, 29th Floor
San Francisco, CA 94111-3339
(415) 956-1000
Counsel for Amici Curiae Eight
Class Action Scholars
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .................................................................. 1
ARGUMENT ............................................................................................... 3
I.
II.
B.
C.
D.
B.
2.
TABLE OF CONTENTS
(continued)
Page
III. THIS COURT SHOULD INSTRUCT TRIAL COURTS ON
HOW TO APPLY THE PERCENTAGE METHOD. ...................... 21
A.
B.
C.
D.
E.
F.
The Third Circuit Task Force, the ALI, and the Ninth
Circuit Treat the Use of a Lodestar Cross-Check as
Discretionary. ........................................................................ 29
CONCLUSION .......................................................................................... 33
APPENDIX A ............................................................................................ 34
CERTIFICATE OF WORD COUNT ........................................................ 35
CERTIFICATE OF SERVICE ................................................................... 36
-v-
TABLE OF AUTHORITIES
Page
CASES
Allapattah Services v. Exxon Corp.
(S.D.Fla. 2006) 454 F.Supp.2d 1185 ........................................... 25, 26, 27
Amchem Prods., Inc. v. Windsor
(1997) 521 U.S. 591 [117 S.Ct. 2231, 138 L.Ed.2d 689]........................ 11
American Pipe & Constr. Co. v. Utah
(1974) 414 U.S. 538 [94 S.Ct. 756, 38 L.Ed.2d 713].............................. 12
Apple Computer, Inc. v. Super. Ct.
(2005) 126 Cal.App.4th 1253 [24 Cal.Rptr.3d 818] ........................... 7, 17
Barboza v. West Coast Digital GSM, Inc.
(2009) 179 Cal.App.4th 540 [102 Cal.Rptr.3d 295] ............................... 15
Blue Chip Stamps v. Super. Ct. (1976)
18 Cal.3d 381 [134 Cal.Rptr. 393, 556 P.2d 755] ................................... 11
Blum v. Stenson
(1984) 465 U.S. 886 [104 S.Ct. 1541, 79 L.Ed.2d 891]................... passim
Boeing Co. v. Van Gemert
(1980) 444 U.S. 472 [100 S.Ct. 745, 62 L.Ed.2d 676].............................. 3
Brown v. Phillips Petroleum Co.
(10th Cir. 1988) 838 F.2d 451 ................................................................. 24
Camden I Condominium Assn v. Dunkle
(11th Cir. 1991) 946 F.2d 768 ....................................................... 9, 20, 23
Central R.R. & Banking Co. v. Pettus
(1885) 113 U.S. 116 [5 S.Ct. 387, 28 L.Ed. 915]...................................... 3
Chavez v. Netflix, Inc.
(2008) 162 Cal.App.4th 43 [75 Cal.Rptr.3d 413] ......................... 4, 19, 23
City of Detroit v. Grinnell Corp.
(2d Cir. 1974) 495 F.2d 448,
abrogated by Goldberger v. Integrated Resources
(2d Cir. 2000) 209 F.3d 43 ........................................................................ 7
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TABLE OF AUTHORITIES
(continued)
Page
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TABLE OF AUTHORITIES
(continued)
Page
TABLE OF AUTHORITIES
(continued)
Page
- ix -
TABLE OF AUTHORITIES
(continued)
Page
-x-
TABLE OF AUTHORITIES
(continued)
Page
STATUTES
Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 .............. ii
Code of Civil Procedure, 1021.5 ............................................................ 1, 6
RULES
California Rules of Court, rule 3.769 .......................................................... 29
California Rules of Court, rule 8.204(c)(1) ................................................. 35
California Rules of Court, rule 8.520(f) ......................................................... i
LAW REVIEW ARTICLES
Baker, Perino & Silver, Is the Price Right? An Empirical Study of
Fee-Setting in Securities Class Actions
(2015) 115 Colum. L.Rev. 1371.................................................. 21, 29, 30
Coffee, The Regulation of Entrepreneurial Litigation: Balancing Fairness
and Efficiency in the Large Class Action
(1987) 54 U.Chi. L.Rev. 877 ....................................................... 10, 15, 16
Coffee, Understanding the Plaintiffs Attorney: The Implications of
Economic Theory for Private Enforcement of Law Through Class and
Derivative Actions
(1986) 86 Colum. L.Rev. 669............................................................ 14, 28
Eisenberg & Miller, Attorneys Fees and Expenses in Class Action
Settlements: 1993-2008
(2010) 7 J. Empirical Legal Stud. 248..................................... 9, 23, 25, 29
Fitzpatrick, An Empirical Study of Class Action Settlements and Their Fee
Award
(2010) 7 J. Empirical Legal Stud. 811..................................... 9, 23, 25, 29
Fitzpatrick, Do Class Action Lawyers Make Too Little?
(2010) 158 U.Pa. L.Rev. 2043................................................................. 23
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TABLE OF AUTHORITIES
(continued)
Page
Gilles & Friedman, Exploding the Class Action Agency Costs Myth: The
Social Utility of Entrepreneurial Lawyers
(2006) 155 U.Pa. L.Rev. 103................................................................... 32
Issacharoff, Class Action Conflicts
(1997) 30 U.C. Davis L.Rev. 805...................................................... 13, 28
Leubsdorf, The Contingency Factor in Attorney Fee Awards
(1981) 90 Yale L.J. 473 ............................................................................. 5
Macey & Miller, Judicial Review of Class Action Settlements
(2009) 1 J. Legal Analysis 167 ................................................................ 24
Macey & Miller, The Plaintiffs Attorneys Role in Class Action and
Derivative Litigation: Economic Analysis and Recommendations for
Reform
(1991) 58 U.Chi. L.Rev. 1 ................................................................. 12, 21
Morawetz, Bargaining, Class Representation, and Fairness
(1993) 54 Ohio St. L.J. 1 ......................................................................... 10
Niebler, In Search of Bargained-for Fees for Class Action Plaintiffs
Lawyers: The Promise and Pitfalls of Auctioning the Position of Lead
Counsel
(1999) 54 Bus. Law 763 .......................................................................... 17
Robinson, An Empirical Study of Settlement Conference Nuts and Bolts
(2012) 17 Harv. Negot. L.Rev. 97 ........................................................... 17
Schwartz, The Rise of Contingent Fee Representation in Patent Litigation
(2012) 64 Ala. L.Rev. 335 ................................................................. 18, 19
Silver, Due Process and the Lodestar Method: You Cant Get There from
Here
(2000) 74 Tul. L.Rev. 1809 ..................................................................... 19
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TABLE OF AUTHORITIES
(continued)
Page
OTHER AUTHORITIES
4 Alba Conte & Herbert B. Newberg, Newberg on Class Actions
(4th ed. 2002) 14:6 ......................................................................... 18, 24
American Law Institute, Principles of the Law of Aggregate Litigation
(2010) 3.13 .................................................................................... passim
Cook, ed., The Class Action Fairness Act: Law and Strategy
(ABA 2013) ............................................................................................... ii
Court Awarded Attorney Fees: Report of the Third Circuit Task Force
(1985) 108 F.R.D. 237............................................................... 2, 8, 15, 21
Hensler, Class Action Dilemmas: Pursuing Public Goals for Private Gain:
Executive Summary
(RAND 2000) .......................................................................................... 29
Kritzer, Risks, Reputations, and Rewards: Contingency Fee Legal Practice
in the United States
(2004) ...................................................................................................... 17
Manual for Complex Litigation
(4th ed. 2004)................................................................................. 9, 18, 24
Task Force on Contingent Fees, Tort Trial and Insurance Practice Section of
the American Bar Association, Report on Contingent Fees in Class Action
Litigation
(2006) 25 Rev. Litig. 459 .............................................................. 5, 12, 22
Third Circuit Task Force Report on Selection of Class Counsel
(2001) 74 Temp. L.Rev. 689 ......................................................... 7, 29, 30
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PRELIMINARY STATEMENT
The Second District Court of Appeal held that the percentage
approach to determining reasonable attorneys fees survives in California
class action cases and may be proper where, as here, there is a common
fund. (Laffitte v. Robert Half Intl, Inc. (2014) 231 Cal.App.4th 860,
875-878 [180 Cal.Rptr.3d 136].) Not only is this a correct statement of the
law, there are compelling policy imperatives why that should be so.
Any paradigm designed to encourage rational actors to pursue the
interests of others should be constructed so as to best bring about that result.
While counsel representing a proposed class have legal and ethical
obligations to protect and advance the best interests of the class as a
wholeand most counsel adhere assiduously to those obligationsit is
beneficial to frame a compensation system for their work that reinforces
those obligations. Employing the percentage-of-recovery method to
determine a reasonable fee for attorneys whose work has brought about a
monetized (or monetizable) fund benefiting a class necessarily and properly
aligns the incentives of class counsel with those they represent. By tethering
class counsels fees directly to the result they obtain for the classand
ensuring that the better the class does, the better the attorneys dothe
percentage method furthers the class actions central objectives: deterrence
and compensation. (See Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429,
434-435, 445-446 [97 Cal.Rptr.2d 179, 2 P.3d 27]; Vasquez v. Super. Ct.
(1971) 4 Cal.3d 800, 807-810 [94 Cal.Rptr. 796, 484 P.2d 964].) The
lodestar approach, while appropriate in other contexts (such as in certain
cases under statutes with fee-shifting provisions, and in certain cases
implicating the private attorney general statute, Code Civ. Proc., 1021.5),
motivates class counsel to focus on building their hours instead of obtaining
a just, speedyand maximumrecovery for the class.
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One of us (Arthur Miller) was the reporter for the Third Circuit Task Force.
One of us (Charles Silver) was a reporter for the ALIs Principles of the
Law of Aggregate Litigation treatise.
-2-
ARGUMENT
I.
Later precedents of this Court are to the same effect. In Glendale City
Employees Association v. City of Glendale, the Court upheld an attorneys
fee award based on a percentage of the common fund in a suit by a city
employees association for back pay.
It is not necessary to find this suit a proper class action
in order to uphold the portion of the judgment awarding
counsel for plaintiffs 25 percent of all retroactive
salaries and wages received. That award may be
sustained under the rule that a litigant who creates a
fund in which others enjoy beneficial rights may require
those beneficiaries to pay their fair share of the expense
of litigation. [Citations.]
(Glendale City Employees Assn. v. City of Glendale (1975) 15 Cal.3d 328,
341, fn. 19 [124 Cal.Rptr. 513, 540 P.2d 609].) And in another decision
this Court left intact an order awarding attorneys fees as a percentage of the
recovery of retroactive wage increases by firefighters and police officers.
(Sanders v. City of Los Angeles (1970) 3 Cal.3d 252, 263 [90 Cal.Rptr.169,
475 P.2d 201].)
Likewise, divisions of the Court of Appeal have approved fee awards
based upon a percentage of a common fund created through counsels
efforts. (See, e.g., Sutter Health Uninsured Pricing Cases (2009) 171
Cal.App.4th 495, 512 [89 Cal.Rptr.3d 615] [affirming percentage-based fee
award from common fund]; Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th
43, 63 [75 Cal.Rptr.3d 413] [holding that 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]; Parker v. City of Los Angeles (1974) 44
Cal.App.3d 556, 567-568 [118 Cal.Rptr. 687] [affirming fee award of
one-third of damages to residential property owners in inverse condemnation
action]; Knoff v. City & County of San Francisco (1969) 1 Cal.App.3d 184,
-4-
In the early 1970s, some courts began to apply the so-called lodestar
approach in common fund cases, attempting to calculate attorneys fees by
reference to professional time and task records and reasonable hourly
rates. (See generally Lealao v. Beneficial Calif., Inc. (2000) 82 Cal.App.4th
19, 27-28 & fn. 2 [97 Cal.Rptr.2d 797] [describing history]; Task Force on
Contingent Fees, Tort Trial and Insurance Practice Section of the American
Bar Association, Report on Contingent Fees in Class Action Litigation
(2006) 25 Rev. Litig. 459, 467-468 [same].)3
The lodestar trend culminated in Serrano v. Priest (1977) 20 Cal.3d
25 [141 Cal.Rptr. 315, 569 P.2d 1303]. The plaintiffs won a declaratory
judgment that Californias system for financing its public schools was void,
as violative of the state constitutions guarantee of equal protection. (Id. at p.
-5-
31 & fn. 1.) The Court held that this judgment entitled the plaintiffs
attorneys to a reasonable fee, to be paid by the defendant state officers in
their official capacities, based upon a private attorney general theory and a
careful compilation of the time spent and reasonable hourly compensation of
each attorney . . . involved in the presentation of the case.4 (Id. at pp.
42-49.) Notably, this Court distinguished the many common fund authorities
because it could find no such fund in this case. (Id. at p. 35 & fn. 5.) The
United States Supreme Court similarly distinguished the common fund
doctrine, under which the percentage method applies, from the statutory
fee-shifting context in which the lodestar method normally applies. (Blum,
supra, 465 U.S. at p. 900, fn. 16.)
Appellants argument here loses sight of this distinction,
overemphasizing Serranos dictum that the starting point for a fee
determination must be a calculation of the attorneys services in terms of the
time he has expended on the case. (Br. of Appellant at pp. 7-16, citing
Serrano, supra, 20 Cal.3d at p. 49, fn. 23, citations omitted.) That
four-decade-old footnote should not constrain this Courts analysis: the
lodestar is not, and should not be, the universal starting (or ending) point for
determining attorneys fees. Indeed, despite Appellants selective quotation,
no California court and no federal court applying California fee law has ever
so held, as that would flatly contradict the percentage fee precedent and
approach established by this Court and consistently followed elsewhere.
Instead, as the Second District Court of Appeal clarified, attorney fees
awarded under the common fund doctrine are based on a percentage-ofthe-benefit analysis, whereas, broadly speaking, those under a fee-shifting
statute are determined using the lodestar method . . . . (Apple Computer,
4
-6-
Inc. v. Super. Ct. (2005) 126 Cal.App.4th 1253, 1270 [24 Cal.Rptr.3d 818],
citations omitted; accord Blum, supra, 465 U.S. at p. 900, fn. 16.)
Appellants heavy reliance on Ketchum v. Moses (2001) 24 Cal.4th
1122 [104 Cal.Rptr.2d 377, 17 P.3d 735], is unavailing, both because that
case did not involve a common fund and because the Court expressly stated
that it was not mandating a blanket lodestar only approach, even in the
statutory fee-shifting context. (Id. at p. 1136, italics added.) In Ketchum this
Court held that awards to prevailing counsel under California fee-shifting
statutes may be enhanced for the purpose, e.g., of compensating the
attorney who agreed to undertake such representation at the risk of
nonpayment or delayed payment, in an amount approaching the market rate
for comparable legal services. (Id. at pp. 1136-1139.)
As for the two federal cases cited in Serranos footnote 23, they are no
longer good law. (See Goldberger v. Integrated Resources (2d Cir. 2000)
209 F.3d 43, 47-50 [abrogating City of Detroit v. Grinnell Corp. (2d Cir.
1974) 495 F.2d 448, 469-471]; In re GMC Pick-Up Truck Fuel Tank Prods.
Liab. Litig. (3d Cir. 1995) 55 F.3d 768, 821-822 [holding that the percentage
method should be the principal method applied in the common fund setting,
notwithstanding Lindy Brothers Builders, Inc. v. American Radiator &
Standard Sanitary Corp. (3d Cir. 1973) 487 F.2d 161, 167-169]; see also
Third Circuit Task Force Report on Selection of Class Counsel (2001) 74
Temp. L.Rev. 689, 705 [A percentage fee, tailored to the realities of the
particular case, remains superior to any other means of determining a
reasonable fee for class counsel.].) Over time, several drawbacks and
negative incentives of the lodestar method came to light. The Second Circuit
well put it:
As so often happens with simple nostrums, experience
with the lodestar method proved vexing. Our district
courts found that it created a temptation for lawyers to run
-7-
The 1985 report of the Third Circuit Task Force marked an important
turning point in the resurgence of the percentage method. (See Court
Awarded Attorney Fees: Report of the Third Circuit Task Force (1985) 108
F.R.D. 237.) The Task Force identified nine deficiencies of the lodestar
approach, including that it increases the workload of an already overtaxed
judicial system and stimulates a desire among class counsel to keep the
litigation alive despite a reasonable prospect of settlement, to maximize the
number of hours to be included in computing the lodestar. (Id. at pp.
246-249.) Hence, the Task Force rejected the approach of Lindy
Brothersone of the authorities relied upon in Serranos footnote 23. (See
Serrano, supra, 20 Cal.3d at p. 49, fn. 23, citing, inter alia, Lindy Brothers,
supra, 487 F.2d at pp. 167-169.) The Task Force concluded that the trial
court in the traditional common-fund situation, as well as in statutory cases
likely to produce a fund large enough to cover attorneys fees, should
attempt to establish a percentage fee arrangement agreeable to the Bench
and to plaintiffs counsel, at the earliest practicable stage of litigation.
(1985 Third Circuit Task Force Report, supra, 108 F.R.D. at p. 255, fn.
omitted.)
Today, the overwhelming majority of state and federal jurisdictions
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and economics and its focus on the incentives of those governed by legal
rules. (See, e.g., Coffee, The Regulation of Entrepreneurial Litigation:
Balancing Fairness and Efficiency in the Large Class Action (1987) 54
U.Chi. L.Rev. 877, 878 [stressing the incentives that the law holds out so as
to motivate attorneys to perform as we believe informed clients would want
them]; Morawetz, Bargaining, Class Representation, and Fairness (1993)
54 Ohio St. L.J. 1, 5 [noting that [t]he law and economics literature has
suggested that clients are unable to monitor their attorneys behavior in the
class setting and that fee structures should be altered to better align attorney
incentives with the interests of the client class.].) A presumption that
attorneys fees will be awarded in common fund cases based upon a
percentage of the fund, in our view and that of most courts and commentators
to have considered the question presented here, establishes the right set of
incentives to optimize private enforcement of California law.
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A.
This Court has long prioritized the role of the class action in
deterring and redressing wrongdoing. (Linder, supra, 23 Cal.4th at pp.
445-446, quoting Blue Chip Stamps v. Super. Ct. (1976) 18 Cal.3d 381, 387
[134 Cal.Rptr. 393, 556 P.2d 755] (conc. opn. of Tobriner, J.).) A business
that wrongfully exacts a dollar from each of millions of customers will reap
a handsome profit; the class action is often the only effective way to halt and
redress such exploitation. (Linder, supra, 23 Cal.4th at p. 446, quoting Blue
Chip Stamps, supra, 18 Cal.3d at p. 387 (conc. opn. of Tobriner, J.), citing
Vasquez, supra, 4 Cal.3d at p. 808, and Daar v. Yellow Cab Co. (1967) 67
Cal.2d 695, 715 [63 Cal.Rptr. 724, 433 P.2d 732]; accord Amchem Prods.,
Inc. v. Windsor (1997) 521 U.S. 591, 617 [117 S.Ct. 2231, 138 L.Ed.2d 689]
[The policy at the very core of the class action mechanism is to overcome
the problem that small recoveries do not provide the incentive for any
individual to bring a solo action prosecuting his or her rights.], citation
omitted; Deposit Guaranty Natl Bank v. Roper (1980) 445 U.S. 326,
338-339 [100 S.Ct. 1166, 63 L.Ed.2d 427] [[A]ggrieved persons may be
without any effective redress unless they may employ the class-action
device.]; Reiter v. Sonotone Corp. (1979) 442 U.S. 330, 344 [99 S.Ct. 2326,
60 L.Ed.2d 931] [antitrust class actions have a significant deterrent
effect].)
But, absent adequate counsel compensation that encourages the
pursuit of such claims, the public policy to induce compliance with the law
would be compromised. To deter corporate or employer misconduct,
attorneys must be given incentives to invest their own time and money in
class actions despite the risk of earning nothing. (See, e.g., Lealao, supra, 82
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Cal.App.4th at pp. 47, 53 [finding that awards that are too small can . . . chill
the private enforcement essential to the vindication of many legal rights and
obstruct the representative actions that often relieve the courts of the need to
separately adjudicate numerous claims.]; In re SmithKline Beckman Corp.
Sec. Litig. (E.D.Pa. 1990) 751 F.Supp. 525, 534 [concluding that [a] large
segment of the public might be denied a remedy for violations . . . if
contingent fees awarded by the courts did not fairly compensate counsel for
the services provided and the risks undertaken.], citation omitted; Muehler
v. Land OLakes, Inc. (D.Minn. 1985) 617 F.Supp. 1370, 1376 [If the
plaintiffs bar is not adequately compensated for its risk, responsibility, and
effort when it is successful, then effective representation for plaintiffs in
these cases will disappear.]; see also Tornes v. Bank of Am. (S.D.Fla. 2011)
830 F.Supp.2d 1330, 1367; In re Quantum Health Resources, Inc. (C.D.Cal.
1997) 962 F.Supp. 1254, 1257.)
Significantly, in many if not most cases, class members (apart from
the named class representatives themselves) are dispersed, unsophisticated,
and unable to closely monitor their attorneys. (See American Pipe & Constr.
Co. v. Utah (1974) 414 U.S. 538, 552 [94 S.Ct. 756, 38 L.Ed.2d 713];
Swedish Hospital Corp., supra, 1 F.3d at p. 1269; Phillips v. Asset
Acceptance, LLC (7th Cir. 2013) 736 F.3d 1076, 1080-1081; Macey &
Miller, The Plaintiffs Attorneys Role in Class Action and Derivative
Litigation: Economic Analysis and Recommendations for Reform (1991) 58
U.Chi. L.Rev. 1, 3.) This is why courts are asked to monitor class
counselyet there is only so much busy judges can do. (See 2006 ABA
Report on Contingent Fees in Class Action Litigation, supra, 25 Rev. Litig.
at pp. 488-489 [Even with the best data on what other courts have done,
courts that decide what fees to award class counsel face an enormous
task.].) The challenge is rendered more acute when, as often happens,
courts entertaining fee petitions lack the benefit of adversarial proceedings.
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(See In re Continental Illinois Sec. Litig. (7th Cir. 1992) 962 F.2d 566,
573-574; Swedish Hospital Corp., supra, 1 F.3d at p. 1269; In re Auction
Houses Antitrust Litig. (S.D.N.Y. 2000) 197 F.R.D. 71, 77.)
There is, accordingly, consensus that the invisible hand of incentives
best motivates class action lawyers. [T]he most effective way to police
class action practice is to provide the proper incentives for class counsel to
diligently prosecute the classs interests. (Issacharoff, Class Action
Conflicts (1997) 30 U.C. Davis L.Rev. 805, 829.)5
California courts are particularly sensitive to the need to encourage
private attorneys general willing to challenge injustices in our society.
Adequate fee awards are perhaps the most effective means of achieving this
salutary goal. (Thayer v. Wells Fargo Bank (2001) 92 Cal.App.4th 819, 839
[112 Cal.Rptr.2d 284].) Moreover, [s]o long as the plaintiffs attorneys
recover only to the extent that the class is benefitted, they can vigorously
prosecute the action and invest according to the merits of the case.
(Issacharoff, Class Action Conflicts, supra, 30 U.C. Davis L.Rev. at p. 830.)
As explained more fully below (see Section II.B.2, infra), use of the
percentage method helps level the litigation playing field by giving counsel
an incentive to bring important cases and to invest in their effective
prosecution, e.g., by hiring specialized experts, commensurate with the
defendants own investments.
Appellant also cites this article, which largely encapsulates amicis views
on the key question before this Court. (Br. of Appellant at p. 22.)
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B.
Airlines Voucher Litig. (7th Cir. 2015) 799 F.3d 701, 711 [assumption giving
rise to judicial scrutiny of class action settlements and attorneys feesthat
class counsel behave as economically rational actors who seek to serve their
own interests first and foremostmay not hold in all cases].) But only
good can come from a fee regime that consistently and correctly aligns class
counsels incentives with those of the class. While there is generally a range
of reasonable outcomes in a class case, the percentage method promotes the
maximal ones and lodestar promotes cheaper ones.
Why? Suppose that a representation agreement for an individual
action provides that attorneys are to receive 30 percent of any recovery or
three times their lodestar, whichever is lower. Under such an arrangement,
the attorneys lack an economic incentive to settle for a fund of more than ten
times their lodestar. For instance, once they have amassed $1 million in
lodestar, they would be economically indifferent between settling for $10
million and settling for $30 million. Needless to say, protracted litigation
that results in suboptimal recoveries benefits neither class members
(compensation) nor society at large (deterrence).
2.
The percentage method avoids these problems and aligns the relevant
interests. First, in most basic terms, the more the class recovers, the more
class counsel receive. (See, e.g., In re Rite Aid Corp. Sec. Litig. (3d Cir.
2005) 396 F.3d 294, 300 [The percentage-of-recovery method is generally
favored in common fund cases because it . . . rewards counsel for success and
penalizes it for failure.], quotation marks and citation omitted; Coffee, The
Regulation of Entrepreneurial Litigation, supra, 54 U.Chi. L.Rev. at p. 887
[[E]ven uninformed clients can align their attorneys interests with their
own by compensating them through a percentage-of-recovery fee
formula].) Second, the faster the attorneys resolve the case, the more they
- 16 -
make per hour. (See, e.g., Swedish Hosp. Corp., supra, 1 F.3d at p. 1269
[[I]n the common fund case, if a percentage-of-the-fund calculation
controls, inefficiently expended hours only serve to reduce the per hour
compensation of the attorney expending them.].)6 Both of these incentives
(for a generous and swift recovery) are good for class members. Indeed, the
measure of the recovery is the best determinant of the reasonableness and
6
Amici acknowledge that total recovery and speed of recovery can be traded
off against each other in a way that deviates from what is best for the class:
attorneys can increase their hourly rate by settling quickly for less when the
classs true interest is to litigate longer for more. (See Apple Computer,
supra, 126 Cal.App.4th at p. 1265 [observing that [i]n any class action there
is always the temptation for the attorney for the class to recommend
settlement on terms less favorable to his clients because a large fee is part of
the bargain.], citation omitted.) But this just means the percentage method
is not perfect; it remains vastly superior to the lodestar method. We believe
the imperfections can be minimized through carefully drawn guidelines for
setting the percentage and for the approval of settlements themselves. (See
Section III, infra.) For example, some contingency fee agreements mitigate
this problem by setting a substantially higher fee percentage for trial than for
settlement recovery. (See Robinson, An Empirical Study of Settlement
Conference Nuts and Bolts (2012) 17 Harv. Negot. L.Rev. 97, 112 [In many
instances, the attorneys fee would be 33% of a settlement, but 40% if it goes
to trial.]; Kritzer, Risks, Reputations, and Rewards: Contingency Fee Legal
Practice in the United States (2004) p. 39 & Tbl. 2.4 [estimating that 31
percent of Wisconsin contingency fee practitioners rely on such tiered fees].)
As the Delaware courts have held, this graduated structure could be
replicated in class actions to prevent distortion of settlement versus trial
incentives and to inhibit sweetheart deals. (See In re Activision Blizzard,
Inc. Stockholder Litig. (Del. Ch. May 21, 2015) No. CV 8885, 2015 WL
2438067, at pp. *37-38, 2015 Del. Ch. LEXIS 140, at pp. *118-120; see also
Niebler, In Search of Bargained-for Fees for Class Action Plaintiffs
Lawyers: The Promise and Pitfalls of Auctioning the Position of Lead
Counsel (1999) 54 Bus. Law 763, 795 [Increasing the attorneys fee as
litigation moves into phases that are more complex and demanding or that
require significant additional investment of time makes intuitive sense.
Class counsel will only invest such additional effort if the marginal return on
that effort exceeds the return that could be earned by prosecuting another
claim.].)
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would have received had they handled a similar suit on a contingent fee
basis, with a similar outcome, for a paying client. (Continental Illinois,
supra, 962 F.2d at p. 572.) California authorities, too, so hold. (See Chavez,
supra, 162 Cal.App.4th at p. 66 [recognizing that the hallmark of a
reasonable fee is that it accurately reflect[s] the marketplace.]; Ketchum,
supra, 24 Cal.4th at p. 1136 [identifying the market rate for comparable
legal services as a reference point]; Lealao, supra, 82 Cal.App.4th at p. 47
[concluding it will otherwise be economic for defendants to increase
injurious behavior.].)
The market for legal services confirms that the percentage method
yields superior incentives. When private plaintiffs, like most absent class
members, are unable to closely monitor their attorneys progress, a
contingency agreement typically governs the representation. (See Silver,
Due Process and the Lodestar Method: You Cant Get There from Here
(2000) 74 Tul. L.Rev. 1809, 1842-1843 [finding that contingent percentage
compensation arrangements dominate plaintiff representations and that
[s]ome sophisticated clients have offered contingent fees of thirty-three
percent in enormous cases.], fns. omitted; Blum, supra, 465 U.S. at p. 904
(conc. opn. of Brennan, J.) [In tort suits, an attorney might receive one-third
of whatever amount the Plaintiff recovers. In those cases, therefore, the fee
is directly proportional to the recovery.].) Even when sophisticated
businesses enter into a contingency agreement with an attorney to pursue
claims for relief, the agreement typically sets the attorneys fee at a certain
percentage of an eventual recovery. (See Schwartz, The Rise of Contingent
Fee Representation in Patent Litigation, supra, 64 Ala. L.Rev. at p. 337
[For decades, contingent fee representation has been widely used in United
States civil litigation in many fields, even, increasingly, in high-stakes
patent litigation].)
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Faced with the weight of this authority, Appellant responds with the
claim that the common fund doctrine involves only entitlement questions
and is unrelated to the method to be used to calculate the amount of the
attorneys fee. (Reply Br. of Appellant at p. 8.) To the contrary, the
percentage method goes hand-in-hand with the common fund doctrine.
(Blum, supra, 465 U.S. at p. 900, fn. 16.) Indeed, every Supreme Court case
addressing the computation of a common fund fee award has determined
such fees on a percentage of the fund basis where the claims did not arise
under a statute with a fee-shifting provision. (Camden, supra, 946 F.2d at p.
773.) That remains true, and by reaffirming the sound application of these
principles, this Court will promote encouragement of the attorney for the
successful litigant, who will be more willing to undertake and diligently
prosecute proper litigation for the protection or recovery of the fund if he is
assured that he will be promptly and directly compensated should his efforts
be successful. (Estate of Stauffer (1959) 53 Cal.2d 124, 132 [346 P.2d
748].)
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III.
In an ideal world, courts would fix the fee percentage at the beginning
of class cases, to settle incentives and expectations, while reserving the
ability to adjust the fee later on. (See ALI, Principles of the Law of
Aggregate Litigation, supra, 3.13(d) [stating that [i]n appropriate cases,
courts should consider defining the expected fee recovery as a percentage set
early in the litigation rather than after the fact, subject to future adjustment];
1985 Third Circuit Task Force Report, supra, 108 F.R.D. at p. 255
[recommending that courts attempt to establish a percentage fee
arrangement at the earliest practicable moment], fn. omitted; see also In
re Synthroid Mktg. Litig. (7th Cir. 2001) 264 F.3d 712, 718 [The best time
to determine this rate is the beginning of the case, not the end (when
hindsight alters the perception of the suits riskiness, and sunk costs make it
impossible for the lawyers to walk away if the fee is too low).]; Baker,
Perino & Silver, Is the Price Right? An Empirical Study of Fee-Setting in
Securities Class Actions (2015) 115 Colum. L.Rev. 1371 [proposing that
courts in securities class actions set a fee percentage ex ante by reference to a
negotiated fee agreement between class counsel and a sophisticated lead
plaintiff].) Courts might also fix the percentage ex ante using auctions. (See,
e.g., Macey & Miller, The Plaintiffs Attorneys Role in Class Action and
Derivative Litigation, supra, 58 U.Chi. L.Rev. at pp. 6-7, 106-118.)
Yet auctions have proved problematic in practice, and trial judges
have been reluctant to set fee percentages ex ante. Instead, they almost
always select the percentage when the case is over, after they have observed
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counsels performance, learned more about the evidence and the legal claims
and defenses, and assessed the outcome. (See 2006 ABA Report on
Contingent Fees in Class Action Litigation, supra, 25 Rev. Litig. at pp.
482-485 [analyzing ex ante versus ex post issue and recommending that
courts determine attorneys fees at the conclusion of cases, in part because of
the unpredictable nature of class litigation].)
In order to provide realistic advice, the balance of our brief provides
suggestions on how trial courts should set fees once a case has concluded.
B.
As the First District Court of Appeal stated: Given the unique reliance of
our legal system on private litigants to enforce substantive provisions of law
through class and derivative actions, attorneys providing the essential
enforcement services must be provided incentives roughly comparable to
those negotiated in the private bargaining that takes place in the legal
marketplace, as it will otherwise be economic for defendants to increase
injurious behavior. (Lealao, supra, 82 Cal.App.4th at p. 47; accord
Ketchum, supra, 24 Cal.4th at p. 1136; Synthroid, supra, 264 F.3d at p. 718
[holding that in common-fund cases, courts must do their best to award
counsel the market price for legal services, in light of the risk of nonpayment
and the normal rate of compensation in the market].)
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- 23 -
comes after a trial or a post-trial appeal, a clear rationale exists to adjust the
percentage upward. (See p. 17, fn. 6, supra.) An adjustment may also be
warranted where class counsel obtained an exceptionally good (or bad)
result: the court should examine how the recovery at hand compares to the
expected value of the case. (See Manual for Complex Litigation (Fourth),
supra, 14.121, citing Newberg on Class Actions, supra, 14:6.) The
case-specific analysis should further consider whether continuing litigation
would present unusual risks or complexity. (Cf. Petrovic v. Amoco Oil Co.
(8th Cir. 1999) 200 F.3d 1140, 1150 [holding that the most important
factor in adjudging a settlements fairness is the strength of the case for
plaintiffs on the merits, balanced against the amount offered in settlement],
citations omitted.)8 And, of course, especially high- or low-quality
performance by counsel can also militate for departing from the benchmark
in appropriate circumstances.
In conducting this analysis, moreover, the court will learn whether
class counsel can come forward with enough information for the comparison
even to be made. Did class counsel litigate the case long enough to know
what it is worth? Is the settlement sufficiently fair to be approved? We think
8
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this inquiry constitutes the best means to counteract the incentive to settle too
early for too little.
D.
$125 million (a $25 million fee). Such negative incentives led the Seventh
and Third Circuits, among other courts, to decline to endorse a
bigger-is-smaller approach. (See Synthroid, supra, 264 F.3d at p. 718
[remarking that rational clients in the private marketplace would never agree
to such an arrangement]; Rite Aid, supra, 396 F.3d at p. 303 [rejecting
challenge to decision not to employ sliding scale]; see also In re Cendant
Corp. Litig. (3d Cir. 2001) 264 F.3d 201, 284, fn. 55 [the position that the
percentage of a recovery devoted to attorneys fees should decrease as the size
of the overall settlement or recovery increases has been criticized by
respected courts and commentators on the grounds that such a fee scale
often gives counsel an incentive to settle cases too early and too cheaply.];
Tornes, supra, 830 F.Supp.2d at p. 1367 [While some reported cases have
advocated decreasing the percentage awarded as the gross class recovery
increases, that approach is antithetical to the percentage of the recovery
method . . . , the whole purpose of which is to align the interests of Class
Counsel and the Class by rewarding counsel in proportion to the result
obtained. By not rewarding Class Counsel for the additional work necessary
to achieve a better outcome for the class, the sliding scale approach creates
the perverse incentive for Class Counsel to settle too early for too little.],
emphasis in original, citing Allapattah Services, supra, 454 F.Supp.2d at p.
1213; In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales
Practices, & Prods. Liab. Litig. (C.D.Cal. June 17, 2013) No. 8:10ML02151-JVS, Dkt. 3802, at p. 17, fn. 16 [[D]ecreasing a fee percentage based
only on the size of the fund would provide a perverse disincentive to counsel
to maximize recovery for the class.], citing Allapattah Services, supra, 454
F.Supp.2d at p. 1213; Auction Houses, supra, 197 F.R.D. at p. 80 [Again,
this method can create an incentive to settle quickly and cheaply, when the
returns to effort are highest, rather than investing additional time and
maximizing plaintiffs recovery.].)
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For these reasons, courts applying California law often award similar
attorneys fee percentages in larger class settlements as in smaller ones.
(See, e.g., In re GCC Richmond Works Cases (Contra Costa Super. Ct. 1995)
J.C.C.P. No. 2906 [in coordinated environmental and toxic tort proceedings,
court awarded 26.8 percent of $180 million common fund]; Toyota Motor
Corp. Unintended Acceleration, supra [provisionally awarding 26.4 percent
of $757 million common fund benefiting consumers]; In re TFT-LCD (Flat
Panel) Antitrust Litig. (N.D.Cal. Apr. 3, 2013) No. M 07-1827 SI, 2013 WL
1365900, at pp. *7-8, 2013 U.S. Dist. LEXIS 49885, at pp. *68-74 [awarding
28.5 percent of $1.08 billion antitrust settlement benefiting indirect
purchasers], citing Allapattah Services, supra, 454 F.Supp.2d at pp.
1210-1211.)
If this Court nonetheless were to find that a bigger-is-smaller
approach may sometimes be acceptable, amici suggest that the Court also
make clear that any reductions are to be applied on a marginal rather than an
absolute basis. In other words, this would be a sliding scale for fees, similar
to how income tax is calculated, but in reverse: class counsel would
presumptively receive the benchmark percentage of the recovery up to a
certain level, with a reduced percentage applying only to sums above that
level and the percentages across all brackets totaled to arrive at the award.
(See Synthroid, supra, 264 F.3d at p. 721.) Such an approach at least would
not give class counsel the warped incentive to take a smaller settlement over
a larger one, as discussed in our example above. But we do not want to leave
the impression that we support a sliding fee scale. That approach clearly
blunts class counsels incentives to go after the most difficult dollars in a
casethe later dollarsand thereby pushes them to settle early so they can
move on to the more lucrative early dollars in other cases. Consequently,
many scholars believe that, if fees are to be adjusted at all based upon
settlement size, they should go up as settlement values increase. (See, e.g.,
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Appellants stated concern that large fee awards might lessen respect
for the justice system is misplaced. Expert witness fees and overhead costs
continue to mount, and attorneys must be given the proper incentives to
pursue cases deterring violations and benefiting large groups of victims,
notwithstanding the resources, both out of pocket and in time, such cases
require prosecuting attorneys to advance. Otherwise, attorneys would stop
bringing these cases, and the paramount purpose and effect of the class
actiondeterrencewould be compromised. (See Deposit Guaranty,
supra, 445 U.S. at pp. 338-339; Linder, supra, 23 Cal.4th at pp. 434-435,
445-446; see also Br. of Respondent at pp. 1, 5 [in this case, class counsels
11-year prosecution of wage-and-hour claims precluded other legal work].)
If the price of private policing of misconduct is a need for plaintiffs
attorneys, and if the further consequence is that the good ones get rich, so be
it. (Issacharoff, Class Action Conflicts, supra, 30 U.C. Davis L.Rev. at p.
830.) In truth, perceptions of class actions and the attorneys who pursue
them are informed not just by the size of legal fees but by the overall results.
As the Third Circuit Task Force observed: The cases that account to
some extent for a negative public view of some plaintiffs class action
lawyers are those in which class members receive in a settlement something
perceived to be of little value or even a slap in the face of the plaintiffse.g.,
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The Third Circuit Task Force, the ALI, and the Ninth
Circuit Treat the Use of a Lodestar Cross-Check as
Discretionary.
Lastly, courts often cross-check the fee percentage they are inclined
to award by examining class counsels lodestar. (See Fitzpatrick, An
Empirical Study of Class Action Settlements and Their Fee Awards, supra, 7
J. Empirical Legal Stud. at pp. 833-843; Eisenberg & Miller, Attorneys Fees
and Expenses in Class Action Settlements, supra, 7 J. Empirical Legal Stud.
at p. 279 [finding no statistically significant difference between fees
calculated by the percentage method alone and those calculated by the
percentage method with the lodestar cross-check.]; Baker, Perino & Silver,
Is the Price Right? An Empirical Study of Fee-Setting in Securities Class
Actions, supra, 115 Colum. L.Rev. at p. 1417 [similarly finding no
- 29 -
Appellant cites this 2015 article in arguing for a pure lodestar model (Reply
Br. of Appellant at pp. 31-32, 35-36) without disclosing its statement,
grounded in empirical research, that the time and resources lawyers devote
to tracking lodestar amounts and the enormous number of hours that some
judges spend reviewing firm billing records is largely a waste of time.
(Baker, Perino & Silver, Is the Price Right? An Empirical Study of
Fee-Setting in Securities Class Actions, supra, 115 Colum. L.Rev. at p.
1417.) In short, the latest data indicate the percentage method does not lead
to excessive fees, but rather is a useful tool for reaching the right fee for a
particular case.
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CONCLUSION
Amici respectfully submit that attorneys fees in most common fund
cases under California law should be awarded as a percentage of the fund.
The holding of the Court of Appeal should be affirmed.
Respectfully submitted,
LIEFF, CABRASER, HEIMANN &
BERNSTEIN, LLP
/s/ Elizabeth J. Cabraser
Elizabeth J. Cabraser
/s/ Jonathan D. Selbin
Jonathan D. Selbin
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APPENDIX A
Amici curiae are:
Professor Christine Bartholomew, SUNY Buffalo School of Law
Professor Erwin Chemerinsky, University of California, Irvine School of Law
Professor John C. Coffee, Jr., Columbia Law School
Professor Joshua P. Davis, University of San Francisco School of Law
Professor Nora Freeman Engstrom, Stanford Law School
Professor Brian T. Fitzpatrick, Vanderbilt University Law School
Professor Arthur R. Miller, New York University School of Law
Professor Charles Silver, University of Texas at Austin School of Law
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CERTIFICATE OF SERVICE
I hereby certify that I am over the age of 18 and that today I caused a
true and correct copy of the foregoing document to be sent via U.S. mail to
the following counsel of record in this appeal:
Kevin T. Barnes
Law Offices of Kevin T. Barnes
5670 Wilshire Blvd., Suite 1460
Los Angeles, CA 90036
Judith M. Kline
Paul Hastings LLP
515 South Flower St., 25th Floor
Los Angeles, CA 90071
Lawrence W. Schonbrun
Law Offices ofLawrence W. Schonbrun
86 Eucalyptus Rd.
Berkeley, CA 94705
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