In Laffitte v. Robert Half International, Inc., No. BC321317, ___ Cal.App.4th ___ (Oct. 29, 2014; pub. ord. Nov. 21, 2014), the California Court of Appeal affirmed a $19,000,000 settlement that included an attorneys’ fee award of one-third the settlement amount.  Mark Lafitte filed a wage and hour class action suit against Robert Half International alleging violations of the Labor and Business and Professions Codes.  The parties settled, and the terms provided that Robert Half would pay a gross settlement amount of $19,000,000, of which class counsel’s attorneys’ fees would be no more than 6,333,333.33.  Additionally, the proposed settlement included a “clear sailing” provision assuring that Robert Half would not oppose the court’s fee award if the amount was less than or equal to the specified amount.

David Brennan, a member of the class, objected to the proposed settlement arguing that the class notice and fee award were improper.  The trial court granted final approval of the settlement, including the $6,333,333 fee award.  On appeal, Brennan argued that the settlement notice denied class members due process, that the court erred by using an improper method for calculating attorneys’ fees, and that class counsel breached their fiduciary duty by including the “clear sailing” provision. The court of appeal affirmed the order granting final approval of the settlement.

First, the court held that the class notice did not violate class members’ due process rights because it adequately described the settlement’s terms and the options open to dissenting class members, thus satisfying California Rules of Court rule 3.769.  Brennan argued that under Federal Rule of Civil Procedure 23(h), class counsel must file their motion for attorneys’ fees prior to the time that dissenting class members are required to file their objections.  The proposed settlement required dissenters to object before class counsel filed its fee motion depriving class members of information necessary to evaluate whether to object.  The court rejected Brennan’s argument noting that rule 23 does not bind California courts.  California courts only look to rule 23 where California precedent is lacking, and California cases interpreting rule 3.769 merely require that class notice contain an explanation of the proposed settlement and the procedures for objecting to it.  Because the class notice adequately described the attorneys’ fees that class counsel had requested and clearly outlined the procedures for objecting, the court held that the class notice did not violate class members’ due process rights.

Second, the court affirmed the trial court’s use of a percentage approach for calculating class counsel’s fee award because a common fund existed from which to draw the fees.  Brennan argued that Lealao v. Beneficial California, Inc., 82 Cal. App. 4th 19 (2000) established the lodestar method— multiplying a reasonable number of hours expended by a reasonable hourly rate—as the primary method for calculating attorneys’ fees in California.  But the court recognized that courts allow fees based on a percentage-of-the-benefits approach where those fees are derived from a common settlement fund (especially where the benefit per class member is relatively low).  Further, the trial court used the loadstar method to crosscheck the fees’ reasonableness.  Brennan disputed the 2.13 multiplier the court applied to the loadstar to reach its 6.3 million dollar award, in part, because class counsel failed to submit sufficiently detailed records of the hours spent on the litigation.  However, the court noted that California courts do not require detailed time records to calculate a fee award.  The declarations class counsel submitted describing the hours spent, the difficulty of the issues, the contingent nature of the case and the requisite skill necessary sufficiently established the loadstar value and justified the 2.13 multiplier.

Finally, the court rejected Brennan’s argument that class counsel breached their fiduciary duties by including a “clear sailing” provision in the amended settlement agreement.  The court recognized that settlements including such “clear sailing” provisions contain the inherent risk that class counsel may collude with defendants to reduce the overall settlement for a higher attorneys’ fee.  However, the court reaffirmed that, at least in California, there is no blanket prohibition on “clear sailing” provisions.  The court noted that there were no other warning signs of collusion: class counsel did not receive a disproportionate distribution of the settlement, the settlement agreement did not provide for payment of attorneys’ fees separate from the common fund, and there was no arrangement that unpaid fees would revert to the defendants directly, rather than back to the common fund.  Therefore, there was no evidence of any collusion and class counsel did not breach their fiduciary duty by including the “clear sailing” provision.

The Laffitte court mentioned one of the Seventh Circuit’s three cases criticizing class action settlements (previously discussed on this blog), noting that Judge Posner has written that “clear sailing” clauses are not per se unreasonable.  Laffitte illustrates that attorneys’ fees continue to be the source of objections and further litigation in class action settlements.