Pigs get fat and hogs get slaughtered, so the saying goes. As we’ve noted before on Oct. 7, June 5, and Dec. 18, courts are starting to examine attorney fee awards in class action settlements much more closely, and the results often aren’t exactly pretty.
The most recent example is the case of Lofton v. Wells Fargo Home Mortgage, Case No. A136626 (Cal. App. Oct. 22, 2014). The Lofton case really involved two cases with a convoluted procedural history, but bear with us and we’ll try to skip any unnecessary details.
The underlying matter was a garden-variety wage and hour dispute over whether California home mortgage consultants were properly classified as exempt. The Lofton case was brought in state court in San Francisco, and purported to cover the entire state of California. A second similar action was brought in Los Angeles Superior Court by a different set of attorneys. The second case, of course, should have been consolidated with the first or stayed—a matter the court noted but for which there was no explanation.
The Los Angeles case, which involved 600 class members, did not fare especially well, and was ultimately decertified. The attorneys then filed a series of additional lawsuits seeking smaller classes. A potential new set of issues was avoided when the parties decided to mediate the San Francisco and Los Angeles cases together, resulting in a settlement.
Under that settlement the defendant agreed to pay $25 million to settle all claims, including $6 million that was supposed to settle the claims of the 600 Los Angeles class members. That’s $10,000 per Los Angeles class member. To effect the settlement, the 600 were to opt out of the Lofton class and settle their claims with the $6 million pool of funds. The remaining $19 million was to fund the settlement for the remaining (not Los Angeles) case members.
But here the shenanigans begin. The Los Angeles attorneys did not cause any of the 600 to opt out of the Lofton case, and the court’s opinion suggests doubt as to whether they ever intended to do so. They then took the position that the class members’ funds should come from the Lofton case and that the entire $6 million was theirs. After diluting the Lofton settlement, they created their own claim procedure for the $6 million settlement pool and proposed to the 600 members that they each take $750 (leaving the attorneys with $5.5 million). After one class member objected, they increased the amount to each class member by $1,000. That would have left the class with $1.05 million and the lawyers with just under $5 million, or 82.5% of the settlement proceeds.
In an action rich in irony, the objecting class member then filed his own class action against the Los Angeles firm that had purported to represent him. The trial judge ultimately enjoined the law firm from dispensing any of the settlement proceeds, and the law firm appealed.
The court of appeals affirmed, using very strong language about the manner in which the Los Angeles attorneys had behaved. Among other things, according to the court, it was troubled by their lack of candor as to the opt-out of their clients (thus lowering the amounts for the Lofton plaintiffs) and their fees, as well as the communications with their own clients. It also questioned the statements of class counsel as to the participation of the Los Angeles class members in the settlement.
In a particularly pointed remark, the court noted “there is a question on this record whether [the Los Angeles firm] is entitled to any fees at all” given the existence of the Lofton litigation.
The Lofton case is just another in a growing line of opinions questioning attorney fee awards and, in many instances, exposing less-than-stellar conduct by the lawyers trying to support or hide the awards they seek. The most disturbing aspect of this case was the magnitude and complexity of the efforts taken to direct so much money to the attorneys at the expense of the class members. Cases such as this will only heighten court scrutiny in the future.
The bottom line: Attorney fee awards are falling under greater scrutiny in class action litigation, and the use of convoluted procedures may only make the problem worse.