Roos v. Honeywell International, Inc.

Filed 11/10/15
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
JOEL I. ROOS et al.,
Plaintiffs and Respondents,
A142156
v.
HONEYWELL INTERNATIONAL, INC., (San Francisco
Super. Ct. No. CGC-04-436205)
Defendant and Respondent, and
ART ROGERS et al.,
Objectors and Appellants.
Four objectors—Art Rogers, Chuck Congdon, Richard Moser, and Amanda
Waldenville—appeal from the trial court’s order approving an $8.15 million settlement of
a class action against Honeywell International Inc. and awarding a portion of the
settlement as fees to class counsel. The trial court found that the objectors failed to
establish they had standing, but it then rejected Rogers’s objection on timeliness grounds
and rejected the other three objectors’ objections on their merits. Except for the ruling on
standing, we affirm. In doing so, we reject the objectors’ arguments that the court
improperly (1) approved the distribution of residual settlement funds and (2) awarded
class counsel excessive attorney fees because the award amounted to 37.5 percent of the
settlement fund.
BACKGROUND
This case began over a decade ago. The complaint generally alleged that
respondent Honeywell engaged in uncompetitive and illegal conduct to increase its
market share of round thermostats and to use its dominant market position to overcharge
customers. Honeywell denied the allegations, “substantial motion practice and
1
discovery” ensued, the parties “vigorously litigated the case,” and protracted settlement
discussions were “[d]ifficult and contentious.” The plaintiff class certified in February
2012 is composed of “persons residing in California who purchased one or more . . .
[r]ound [t]hermostats . . . indirectly from . . . Honeywell . . . in California during the
[c]lass [p]eriod for their own use and not for resale.” The class period is defined as from
June 30, 1986, to December 5, 2013.
In 2013, the parties reached a settlement and asked the trial court to preliminarily
approve it. The court initially declined to do so because it had concerns about the notice
proposed to be sent to class members to inform them about the details of the deal. These
concerns were subsequently addressed to the court’s satisfaction, and on February 4,
2014, the court preliminarily approved the settlement. The notice of settlement was
subsequently published and distributed to class members in a manner that is not
challenged in this appeal.
The notice included both short and long forms. The long version was distributed
and posted on a website, and the short version was published in various print
publications. These notices were written in plain English, and they included a number of
advisements. In the long form, the class and class period were defined, and the amount
of the proposed monetary settlement was stated, as follows: “If you are a resident of
California and bought one or more Honeywell round thermostats any time between
June 30, 1986 and December 5, 2013, for your own use and not for resale [¶] you could
get money from an $8,150,000 settlement.” (Initial capitals changed to lower case,
boldface omitted.) It explained that “[a]fter deduction of attorneys’ fees, the notice and
claims administration costs, a service award to Class Plaintiffs, and litigation expenses,
approximately $4.25 million is estimated to be available for distribution to eligible class
member claimants.” The short form stated, “If you bought a Honeywell Round
Thermostat in California you could get $18 or more from a settlement.” (Initial capitals
changed to lower case, boldface omitted.)
The long form described how the funds available to claimants would be
distributed: “The distribution plan provides for a payment of $18 for each Honeywell
2
Round Thermostat purchased by an eligible claimant,” and it described how remaining
funds not used to pay claims, attorney fees, or costs would be distributed: “[I]f the
Settlement Fund is not depleted by the payment to eligible claimants, the remaining
money will be distributed to public or non-profit organizations, primarily in California
and Vermont. Any distributions will be approved by the Court and will further the
purposes of the lawsuit or promote justice. If the total amount claimed from the
Settlement exceeds the amount of the Settlement Fund, the distribution to each claimant
would be reduced proportionately.” Throughout this opinion, we will refer to the
settlement provision authorizing the distribution of residual funds as the “cy près term.”1
The notice also told class members how class counsel would be paid: “How will
the lawyers be paid? [¶] . . . Class Counsel, who have advanced significant sums over
many years in litigating these cases, will ask the Court for attorneys’ fees of up to 37.5%
of the total Settlement Funds, plus reimbursement of their costs and expenses.” The
notice explained that a hearing on counsel’s request for fees would be held: “The Court
will hold a hearing on May 2, 2014 to consider whether to approve the Settlement and a
request for attorneys’ fees of up to 37.5%.” (Boldface omitted.) Class members were
informed that additional information about counsel’s fee request was available: “The
attorneys’ motion for fees, costs, and expenses including payments to the Plaintiff Class
Representatives will be available when filed on or about April 25, 2014, at
www.RoundThermostats.com.”
Finally, class members were notified how they could object or exclude themselves
from the settlement: “How do I object to or comment on the Settlement? [¶] . . . Any
response must be postmarked by April 18, 2014, and mailed to [address].” (Boldface
omitted.) “If you stay in the Settlement Class, you may object to the Settlement by April
18, 2014.” Class members who wanted to exclude themselves from the settlement were
1
Cy près is a rule of judicial construction designed to facilitate the intent of the parties
who have agreed to distribute funds for charitable purposes. (Garner, Dict. of Modern
Legal Usage (3d ed. 2011) p. 241.)
3
told that “[m]ore information on how to exclude yourself from or object to the Settlement
is included in a detailed notice available at www.RoundThermostats.com.”
In response to the notice, thousands of claims were submitted and no class
member sought to be excluded. But four people, the objectors, filed objections. The
three objectors other than Rogers, whom we discuss separately below, opposed the cy
près term and the amount of the potential award for attorney fees. Congdon stated that he
was “a member of the settlement class” and asserted “under oath that [he] purchased one
or more products covered by the settlement.” He objected to “the lawyers[’] plan to ask
for attorneys’ fees in the amount of 37.5% of the settlement fund” because “there is no
explanation, much less a credible explanation why [they] should recover such a high
percentage.” Moser asserted “under oath that [he] purchased on[e] or more products
covered by the proposed settlement,” and he objected that “[t]he requested attorneys’ fees
in the amount of 37.5% is excessive” and “[t]he proposed cy pres benefit is
inappropriate.” Waldenville also stated she was “a member of this class action
settlement” and asserted “under oath that [she] purchased one Honeywell round
thermostat as referenced in the notice.” She objected on the basis that, in her view,
Honeywell’s conduct justified an award higher than $18 per thermostat, “especially
relative to legal fees of over $3,000,000, which seems like an outrageous amount[,]
almost 40%.”
Meanwhile, on April 25, 2014, class counsel filed a motion for reimbursement of
their fees and costs. The motion sought an award of fees in the amount of $3,056,250
plus accumulated interest. This amount represented 37.5 percent of the settlement fund,
which was the limit on the amount of fees that could be awarded as represented in the
settlement notice to the class. According to class counsel, the amount sought was only 20
percent of the total fees they incurred. They submitted evidence that they had spent
“nearly 36,000 hours” on the case, and they maintained that their lodestar “exceeds $15
million.” The objectors did not object to this evidence or offer any contradictory
evidence.
4
A hearing to consider final approval of the settlement and the award of class
counsel’s fees was held on May 2, 2014. (Cal. Rules of Court, rule 3.769(g) [“Before
final approval, the court must conduct an inquiry into the fairness of the proposed
settlement”].) None of the objectors appeared at the hearing. The trial court then issued
its final written order and judgment on May 30, 2014. It found that the settlement was
“fair[,] reasonable[,] and adequate.” It noted that the settlement provided up to $18 per
thermostat and that this amount “captures approximately 78% of Plaintiffs’ estimated
damages.” And it found that “Class Members who submit claims stand to recoup more
than 2 times the overcharge estimated by plaintiffs’ expert and between 68-99% of the
retail price of the [round thermostat].”
The trial court rejected the objectors’ objections. It found that Rogers failed to file
his objection within the prescribed time period, and it found that this failure constituted a
“waiver of the Class Member’s right to object.” The court also found that, “[l]ike the
other Objectors, Mr. Rogers has not established that he is a member of the class.”
In a section entitled “Standing of Objectors as Class Members,” the trial court
concluded that the three remaining objectors lacked standing because their objections did
“not contain sufficient information for the court to properly determine whether the
Objectors are, in fact, members of the class.” The court found that these objectors failed
to “submit proper declarations establishing their membership in the class. Among other
defects, the declarations fail to comply with [Code of Civil Procedure] § 2015.5,”2 which
governs statements made under penalty of perjury. The court also found that the
objectors did “not reference a Honeywell Round Thermostat . . . at all” and did not
establish all the other prerequisites for class membership.
Notwithstanding its ruling that the objectors lacked standing, the trial court
nonetheless considered their objections and rejected them on both general and specific
grounds. It found the objections generally “lack[ed] evidentiary support” and failed “to
address and counter evidence relating to the fairness and adequacy of the Settlement
2
All further statutory references are to the Code of Civil Procedure.
5
[contained in court files and the parties’ pleadings], all of which were readily accessible
to objectors and their counsel via the Court’s website.” Regarding the cy près term, the
court found that it was “consistent with . . . [section] 384[, subdivision] (b),” that there
was “no authority stating that the claim value should be increased to exhaust settlement
funds,” and that the objection to it was “directed at a contingency that ha[s] not yet
occurred.” Regarding class counsel’s fee request, the court explained that it had
“reviewed further [but unspecified] evidence to support the requested costs” after the
May 2 hearing and found the request to be “fair, just and reasonable to the Class” after
considering factors such as “the results achieved, the complexity of the issues, the
experience of counsel, the contingency nature of the case, the length of time from
initiation to settlement, the lodestar and multiplier amounts, costs reasonably expended
by counsel, [and] the amount of attorneys’ fees and expenses compared to the value of
the settlement.” The court approved the settlement, and it awarded class counsel fees in
the amount of $3,056,250, plus a pro rata portion of interest that had accumulated.3
The four objectors separately appealed. Class counsel filed a motion to dismiss
the appeal, which this court denied on November 4, 2014, citing Zimmerman v. Drexel
Burnham Lambert Inc. (1988) 205 Cal. App. 3d 153, 161 [appellate courts reluctant to
grant motions to dismiss appeals because such motions permit cases to be considered
before others that precede them on the calendar]. Congdon, Moser, and Waldenville then
submitted a joint opening brief, and Rogers submitted a separate opening brief. Plaintiffs
filed a respondents’ brief, which Honeywell joined.
3
The settlement encompassed this case and a parallel action in Vermont. Class counsel
informs us that the settlement, along with the proportionate amount of attorney fees
incurred in the Vermont case, was approved by the Vermont trial court on July 1, 2014.
6
DISCUSSION
A. The Standard of Review.
We review a trial court’s decisions both approving a class action settlement and
reviewing an amount awarded for attorney fees for an abuse of discretion. (In re
Microsoft I–V Cases (2006) 135 Cal. App. 4th 706, 723 [review of approval of class action
settlement]; PLCM Group, Inc. v. Drexler (2000) 22 Cal. 4th 1084, 1095 [review of
amount awarded for attorney fees].)
Thus, in reviewing approvals of class action settlements, “[w]e do not substitute
our notions of fairness for those of the trial court or the parties to the agreement.
[Citation.] ‘To merit reversal, both an abuse of discretion by the trial court must be
“clear” and the demonstration of it on appeal “strong.” ’ ” (In re Microsoft I–V Cases,
supra, 135 Cal.App.4th at p. 723.) “ ‘[G]reat weight is accorded the trial judge’s
views.’ ” (Id. at p. 730.) “ ‘ “[S]o many imponderables enter into the evaluation of a
settlement” [citation], an abuse of discretion standard of appellate review is singularly
appropriate.’ ” (Ibid.)
A trial court may approve only a settlement of a class action that is fair, adequate,
and reasonable. (In re Microsoft I–V Cases, supra, 135 Cal.App.4th at p. 723; Dunk v.
Ford Motor Co. (1996) 48 Cal. App. 4th 1794, 1801.) The court has broad discretion in
considering whether a proposed settlement satisfies these standards, but it should
consider factors such as “the strength of the plaintiffs’ case, the risk, expense, complexity
and duration of further litigation as a class action, the amount offered in settlement, the
extent of discovery completed and the stage of the proceedings, the experience and views
of counsel, the presence of a governmental participant, and the reaction of class members
to the proposed settlement.” (In re Microsoft I–V Cases, at p. 723.)
In reviewing the amount of attorney fees awards, “[t]he appropriate test for abuse
of discretion is whether the trial court exceeded the bounds of reason. When two or more
inferences can reasonably be deduced from the facts, the reviewing court has no authority
to substitute its decision for that of the trial court.” (Shamblin v. Brattain (1988)
44 Cal. 3d 474, 478-479.) “The trial court is the best judge of the value of professional
7
services rendered in its court, and while its judgment is subject to our review, we will not
disturb that determination unless we are convinced that it is clearly wrong.” (Akins v.
Enterprise Rent-A-Car Co. (2000) 79 Cal. App. 4th 1127, 1134.)
B. The Trial Court Properly Found that Rogers’s Objection Was Untimely.
We first consider and affirm the trial court’s finding that Rogers “waived his rights
to object to the Settlement” because his objection “was untimely submitted.” The facts
surrounding the timeliness of Rogers’s objections are largely undisputed. The notice of
the proposed settlement required that any objection “must be postmarked by April 18,
2014.” (Boldface in original.) When concluding that Rogers’s “objection obviously
[was] late,” the trial court had a copy of Rogers’s objection, which was dated April 18,
2014, and a copy of the envelope in which the objection was sent. The envelope has a
metered-postage stamp dated April 18, 2014, but the United States Postal Service’s
postmark on the envelope is April 22, 2014. The evidence of this postmark is sufficient
to support an inference by the court that the objection was not mailed until April 22, even
if it was signed and the metered-postage stamp was attached on April 18.
Rogers does not directly argue that the trial court erred in finding that he filed his
objection too late. Instead, he simply asserts that “[t]his court denied respondents[’]
motion to dismiss the appeal by order dated November 4, 2014,” and contends that
respondents “muddy the issues by focusing on the standing issues already considered by
this court in ruling on the motion to dismiss.” Rogers is mistaken to the extent he
suggests that we cannot affirm the trial court’s finding that his objection was untimely
because of our earlier decision denying the motion to dismiss this appeal. A denial of
such a motion does not constitute law of the case on the substantive issue underlying the
motion and does not preclude a later consideration of the issue. (Department of
Industrial Relations v. Nielsen Construction Co. (1996) 51 Cal. App. 4th 1016, 1023, fn. 6;
see also Ferraro v. Southern Cal. Gas Co. (1980) 102 Cal. App. 3d 33, 40, disapproved on
another ground by Goodman v. Lozano (2010) 47 Cal. 4th 1327, 1330 [appellate court
will usually deny motion to dismiss when it requires detailed examination of the record or
consideration of the merits of the appeal].)
8
We conclude that substantial evidence supports the trial court’s determination that
Rogers’s objection was untimely. And because this determination provides a sufficient
independent reason for the trial court to have rejected Rogers’s claims, we decline to
address his remaining arguments.
C. The Trial Court Incorrectly Determined that the Three Objectors Failed
to Establish Standing.
We next consider the trial court’s ruling that the remaining three objectors failed
to establish their standing as “members of the class” to object to the settlement and fees
award. We conclude that this ruling was mistaken because the objectors sufficiently
demonstrated their standing by asserting in their objections that they were class members
and by otherwise complying with the prerequisites for filing objections set forth in the
notice of settlement.4
We begin by observing that the principles governing an objector’s ability to
challenge a class action settlement depend on whether the case is in federal or state court.
In federal courts, standing is governed by Article III of the United States Constitution.
“Article III of the federal Constitution imposes a ‘case-or-controversy limitation on
federal court jurisdiction,’ requiring ‘ “the party requesting standing [to allege] ‘such a
personal stake in the outcome of the controversy as to assure that concrete adverseness
which sharpens the presentation of issues.’ ” ’ [Citation.] There is no similar
requirement in our state Constitution. [Citation.]” (Grosset v. Wenaas (2008) 42 Cal. 4th
4
On appeal, the parties conflate the objectors’ standing to object to the settlement in the
trial court with their standing in this court to appeal the trial court’s rulings. All four
objectors have standing to appeal. The three objectors have standing to appeal because
the trial court rejected their objections for substantive reasons. (Rebney v. Wells Fargo
Bank (1990) 220 Cal. App. 3d 1117, 1128-1132.) And Rogers has standing to appeal the
ruling rejecting his untimely objection because orders preventing parties from effectively
intervening in a case are appealable. In the “context of a class settlement, objecting is the
procedural equivalent of intervening.” (Wershba v. Apple Computer, Inc. (2001)
91 Cal. App. 4th 224, 253 (Wershba).) Generally, when a ruling “in essence” denies leave
to intervene in an action, the aggrieved party may challenge it on appeal, provided that it
constitutes a final determination of the party’s entitlement to participate in the action. (In
re Veterans’ Industries, Inc. (1970) 8 Cal. App. 3d 902, 916; see Jun v. Myers (2001)
88 Cal. App. 4th 117, 122-123.)
9
1100, 1117, fn. 13; see Cal. Const., art. VI, § 10 [empowering superior court to
adjudicate any “cause” brought before it]; National Paint & Coatings Assn. v. State of
California (1997) 58 Cal. App. 4th 753, 761-762 [“Our state Constitution contains no
‘case or controversy’ requirement”]; Langford v. Superior Court (1987) 43 Cal. 3d 21, 36,
fn. 6 [“California’s [standing] requirements are less stringent than those imposed by
federal law”].)
Rather than being bound by the exacting requirements of “concrete interest” of
Article III, California courts are guided by “ ‘prudential’ ” considerations in evaluating a
party’s ability to litigate an issue. (Matrixx Initiatives, Inc. v. Doe (2006)
138 Cal. App. 4th 872, 877-878.) Thus, in California courts, “[o]ne who invokes the
judicial process [has] ‘standing’ if he, or those whom he properly represents, [has] a real
interest in the ultimate adjudication because the actor has []either suffered []or is about to
suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts
and issues will be adequately presented.” (California Water & Telephone Co. v. County
of Los Angeles (1967) 253 Cal. App. 2d 16, 22-23; Calvert v. County of Yuba (2006)
145 Cal. App. 4th 613, 629.) Stated another way, litigants in California have standing
when they can show “a personal interest in the litigation’s outcome.” (Torres v. City of
Yorba Linda (1993) 13 Cal. App. 4th 1035, 1046; Bilafer v. Bilafer (2008)
161 Cal. App. 4th 363, 370.) And this is true regardless of whether they can satisfy the
more rigorous federal standards arising out of Article III.5 (See Common Cause v. Board
of Supervisors (1989) 49 Cal. 3d 432, 439-440.)
5
Some California decisions suggest that state courts should look to federal decisions
when considering issues of class-action standing. (See Consumer Cause, Inc. v.
Mrs. Gooch’s Natural Food Market, Inc. (2005) 127 Cal. App. 4th 387, 395-396;
Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal. App. 3d 134, 139.) But
appreciating the differences between federal and state standing principles helps prevent
the inadvertent incorporation of federal jurisdictional precepts into state rules on
standing. (Jasmine Networks, Inc. v. Superior Court (2009) 180 Cal. App. 4th 980, 989-
993.) Such incorporation can lead to the mistaken view that statutory or other
preconditions for objecting to class settlements, such as the objections’ timing and form
requirements, control the question of standing. As the court pointed out in Jasmine
10
The trial court ruled that the objectors failed to establish their standing because
they did not prove their class membership by submitting “proper declarations” in
compliance with section 2015.5, which governs statements made under penalty of
perjury, and did not otherwise prove they were, “in fact, members of the class.” We
conclude that this burden was too onerous under the circumstances.
To be sure, class membership is an essential prerequisite for standing to object.
Objectors to a class settlement who are not members of the class typically cannot
demonstrate standing—under either the federal case-or-controversy standard or under the
state personal-interest standard—because they will not be affected by the settlement.
(See Rubenstein, Newberg on Class Actions (5th ed. 2011) § 13:22.) But the nature of
the evidence needed for objectors to show their class membership is governed by the
notice of settlement, not by evidentiary requirements about which they are never told.
The notice here, in the section entitled “How do I object to or comment on the
Settlement?” (boldface omitted) explained that “[i]f you have not excluded yourself and
if you have comments about, or disagree with, any aspect of the Settlement, you may
express your views to the Court by writing to the address below. Include your name,
address, telephone number, the case name and number, proof of purchase, a brief
explanation of your comment or objection, and your signature.” (Italics added.) All
three objectors submitted objections that included their names, addresses, telephone
numbers, the case name and number, an explanation of their objections, and their
signatures.
All three objectors also asserted that they were class members and had purchased a
product covered by the settlement. Specifically, Congdon stated he was “a member of
Networks, “The term [standing] is sometimes used . . . to describe some particular
substantive condition imposed by the Legislature on a statutory cause of action.”
(Jasmine Networks, at p. 993, italics in original.) But “such conditions on suit possess no
special qualities. They are not jurisdictional, as evidenced by the fact that they can be
forfeited by a defendant who fails to seasonably assert them. [Citation.] We question the
utility of cloaking them in the quasi-jurisdictional mantle of ‘standing.’ ” (Ibid.; see also
13A Wright et al., Fed. Prac. & Proc., Standing (3d ed. 2008) § 3531, p. 1.)
11
the settlement class” and asserted “under oath that [he] purchased one or more products
covered by the settlement.” Moser asserted “under oath that [he] purchased on[e] or
more products covered by the proposed settlement.” And Waldenville also stated she
was “a member of this class action settlement,” and asserted “under oath that [she]
purchased one Honeywell round thermostat as referenced in the notice.” Although no
additional proof of purchase was provided, respondents concede that such proof was
unnecessary for claimants seeking a refund for two or fewer thermostats.
Nowhere in the notice were objectors told that they needed to establish each and
every element of class membership, much less do so in compliance with section 2015.5.
True enough, a section of the notice listed the criteria for membership in the class, which
excluded class members if they bought a thermostat but resold it, bought a thermostat
directly from Honeywell, or bought a thermostat as a pre-installed fixture in a real
property transaction. But the notice did not say that objectors had to show, much less
under penalty of perjury, that they fell outside these exclusions. And although class
counsel questioned and contested the objectors’ standing by, for example, pointing to an
objector’s out-of-state address, they presented no evidence to rebut the objectors’
statements that they were class members. We conclude that the objectors sufficiently
established their personal interest in the settlement by stating that they were class
members who had purchased a thermostat covered by the settlement and by otherwise
complying with the notice’s requirements. (See Wershba, supra, 91 Cal.App.4th at
pp. 235-236 [suggesting failure to submit documentary proof of class membership does
not resolve standing question when “the notice to class members did not clearly inform”
the objectors that such proof was required].)
Accordingly, we conclude that the trial court’s ruling that the objectors failed to
establish their standing was incorrect, and we therefore turn to the objectors’ substantive
arguments.
12
D. The Trial Court Properly Approved the Cy Près Term and Awarded
Attorney Fees.
The three objectors argue that the trial court improperly approved the settlement’s
cy près term and the amount of fees awarded to class counsel. We ultimately reject these
arguments, but we first dismiss respondents’ claim that the three objectors waived these
arguments by failing to assert them below. In fact, these arguments were made in the
trial court. As we have discussed, Congdon specifically objected that “the lawyers plan
to ask for attorneys’ fees in the amount of 37.5% of the settlement fund. However, there
is no explanation, much less a credible explanation why [they] should recover such a high
percentage.” Moser objected that “[t]he requested attorneys’ fees in the amount of 37.5%
[was] excessive” and “[t]he proposed cy pres benefit [was] inappropriate.” And
Waldenville objected that Honeywell’s conduct justified an award higher than $18 per
thermostat “especially relative to legal fees of over $3,000,000, which seems like an
outrageous amount[,] almost 40%.” These collective objections sufficiently preserved
the objectors’ ability to argue on appeal that the cy près term should not have been
approved and that the award of attorney fees to class counsel was excessive.
At the same time, however, we conclude that the three objectors failed to raise,
and thereby forfeited, their specific argument that they were deprived of adequate
information to contest the fees because the motion for reimbursement was filed after the
settlement was preliminarily approved. Although Congdon raised this argument below,
none of the three objectors reiterated the argument on appeal until their reply brief.
Points not raised in a party’s opening brief are considered abandoned unless good reason
is shown for failing to raise them. (Roehl v. Ritchie (2007) 147 Cal. App. 4th 338, 352.)
No such reason has been shown here, and we accordingly limit our analysis to the issues
whether the trial court improperly approved the cy près term and whether the fees
awarded to class counsel were excessive.
13
1. The trial court properly exercised its discretion in approving
the cy près term.
Under the settlement, the claims administrator is to review claims submitted by
class members and determine which ones should be approved. A full award of $18 per
thermostat is to be made if the settlement funds allow for it after attorney fees and other
costs are deducted. If they do not, payments are to be reduced pro rata. But if residual
funds remain after full awards are made, they are to be distributed under the cy près term
“consistent with [section] 384,” which allows distributions to certain nonprofit
organizations. Before a distribution can be made to a particular entity, the distribution
must be approved by the trial court.
The three objectors argue that the trial court erred in approving the cy près term
because the court did not consider distributing the residual funds to the class claimants.
The court rejected the argument when Moser made it below because Moser had pointed
“to no authority stating that the claim value must be increased to exhaust settlement
funds” and because the objection was “directed at a contingency that has not yet
occurred.” We agree with the trial court. California law specifically authorizes such a
distribution, and one is particularly appropriate in cases, such as this one, where the class
members will necessarily obtain full relief before the provision is triggered.
Under section 384, subdivision (b), after the trial court receives a report of “the
total amount that was actually paid to the class members[,] . . . the court shall amend the
judgment to direct the defendant to pay the sum of the unpaid residue, plus interest . . . to
nonprofit organizations or foundations to support projects that will benefit the class or
similarly situated persons, or that promote the law consistent with the objectives and
purposes of the underlying cause of action, to child advocacy programs, or to nonprofit
organizations providing civil legal services to the indigent.” This provision was adopted
by the Legislature “to ensure that the unpaid residuals of class action litigation are
distributed, to the extent possible, in a manner designed either to further the purposes of
the underlying causes of action, or to promote justice for all Californians.” (§ 384,
subd. (a).)
14
The propriety of a cy près term might be less certain if a proposed settlement
asked class members to accept paltry relief, but that is not the case here. The cy près
term only comes into play if the full award of $18 per thermostat is made to eligible
claimants. In findings that have never been contested, the trial court found that the
settlement “captures approximately 78% of [the class’s] estimated damages” and
claimants “stand to recoup more than 2 times the overcharge estimated by plaintiffs’
expert and between 68-99% of the retail price of the [round thermostat].”
We conclude it was well within the trial court’s discretion to approve the cy près
term since it is authorized by state law and will be triggered only if claimants receive a
recovery that adequately compensates them for their injuries.
2. The trial court properly exercised its discretion in awarding attorney
fees.
The three objectors contend that the trial court abused its discretion in awarding
attorney fees because the award amounted to 37.5 percent of the settlement funds. They
contend that an award of fees amounting to such a high percentage of the settlement
funds is impermissible under certain federal authority, which they urge us to adopt. They
also argue that the court abused its discretion in awarding fees because it inadequately
reviewed class counsel’s billing records. We are not persuaded by either argument.
a. Additional background.
The notice to the class of the proposed settlement in this case included a section
entitled “How will the lawyers be paid?” (Boldface omitted.) This section explained that
class counsel “will ask the Court for attorneys’ fees of up to 37.5% of the total Settlement
Funds.” All parties agree that the approval of the notice containing this language
effectively capped the amount of fees that could be awarded to class counsel at
37.5 percent of the settlement fund.
In California, a provision providing for the payment of attorney fees in an
application to approve a settlement of a California class action must identify how the fees
are to be paid. (Cal. Rules of Court, rule 3.769(b).) Counsel seeking the fees have the
15
burden to establish the reasonableness of the request, and in most instances fees are
awarded, as they were here, upon noticed motion. (§ 1033.5, subd. (c)(5).)
In their motion requesting fees, class counsel sought $3,056,250 for fees, an
amount equal to 37.5 percent of the $8.15 million settlement. With their motion, they
submitted evidence that they had spent “nearly 36,000 hours” on the case. They
multiplied the number of hours spent on the case by a reasonable hourly rate to come to a
total figure that “exceed[ed] $15 million.” This meant that the amount of fees requested
by virtue of the cap came to about 20 percent of the total fees that class counsel claimed
to have incurred.
The objectors did not challenge class counsel’s evidence about the number of
hours billed, the appropriate billing rate for this type of case, the procedural history or
complexity of the litigation, or counsel’s experience.6 But they did contend that the size
of the potential fees award as a percentage of the settlement fund was excessive as a
matter of law. Thus, we limit our review to this contention.
b. The applicable legal standards.
We begin by discussing the applicable legal standards. When a settlement of a
class action provides for the payment of fees, the “fairness of the fees must be assessed
independently of determining the fairness of the substantive settlement terms.”
(Consumer Privacy Cases (2009) 175 Cal. App. 4th 545, 555.) “The court has a duty,
independent of any objection, to assure that the amount and mode of payment of attorney
fees are fair and proper, and may not simply act as a rubberstamp for the parties’
6
The uncontested evidence shows that the litigation was long and protracted. It involved
federal proceedings, multiple appeals, extensive discovery, and copious motions,
including two motions for class certification and two motions for summary judgment. In
the trial court’s words, the “parties vigorously litigated this case for nearly a decade.”
Each law firm representing the class submitted declarations identifying the name and
position of each biller, the tasks performed by each person, the category, the number of
hours devoted to each task and category, and the resulting lodestar amounts. Evidence
was also submitted showing that the fee award, which reflected a rate of $85 for each
hour worked, was significantly lower than the average hourly market rate charged in
complex antitrust actions and was lower than the average hourly market rate class
counsel had been awarded in other cases.
16
agreement.” (Ibid.) This duty arises because a request for fees under a settlement
agreement “represents a departure from the norms of the justice system. The defendants,
having settled, have little interest in the division of the spoils. Individual class members,
whose numbers are scattered and who often lack a singular interest sufficient to prompt
intervention, rarely object. . . . [¶] Because the adversarial system breaks down at this
point of litigation, just as the interests of the class and its counsel begin to diverge, the
Court effectively becomes a fiduciary whose charge is to protect the class against
excessive fees.” (In re AOL Time Warner, Inc. Securities and “ERISA” Litigation,
(S.D.N.Y., Oct. 25, 2006, No. 02 CIV. 5575) 2006 WL 3057232, at *8; see also
Consumer Privacy Cases, at p. 555.)
Normally, parties in litigation are required to bear their own attorney fees under
what is known as the “American rule.” (See Musaelian v. Adams (2009) 45 Cal. 4th 512,
516.) Two exceptions to this rule are relevant here. The first is when a statute provides
for attorney fees to be awarded to the prevailing party. This exception is referred to as
“fee-shifting” because it shifts responsibility for paying the fees to the wrongdoer.
(Lealao v. Beneficial California, Inc. (2000) 82 Cal. App. 4th 19, 26 (Lealao).) Fee-
shifting statutes usually further a socially desirable policy, such as encouraging the
enforcement of certain laws by parties who have comparatively fewer resources.
(Turner v. Association of American Medical Colleges (2011) 193 Cal. App. 4th 1047,
1060.)
The second exception to the American rule is when litigation results in a monetary
fund for the benefit of a class, such as in this case. These cases are known as “common-
fund” cases, and they permit attorney fees to be paid out of the fund. (Lealao, supra, 82
Cal.App.4th at p. 26.) Allowing fees to be paid from the fund is justified by the notion
that the class would be unjustly enriched if it were allowed to benefit from the litigation
without sharing in its costs. (Boeing Co. v. Van Gemert (1980) 444 U.S. 472, 478.)
Because the costs of attorney fees are spread among the entire class, this exception is
sometimes referred to as “fee-spreading.” (Lealao, at p. 26.)
17
In fee-shifting cases, requests for attorney fees are typically measured under the
lodestar method. Under this method, the trial court multiplies the hours class counsel
reasonably expended by reasonable hourly rates, and this calculation can be enhanced or
reduced by a multiplier depending on a number of factors. (Ketchum v. Moses (2001)
24 Cal. 4th 1122, 1132.) These factors include the novelty and difficulty of the issues, the
skill displayed by class counsel, the extent to which the litigation precluded other work
by class counsel, the relief obtained, and the contingent nature of the fee award. (Ibid.)
In California courts, the lodestar method is the primary basis for calculating and awarding
attorney fees. (Serrano v. Priest (1977) 20 Cal. 3d 25, 48, fn. 23.) “ ‘The starting point of
every fee award, once it is recognized that the court’s role in equity is to provide just
compensation for the attorney, must be a calculation of the attorney’s services in terms of
the time he has expended on the case. Anchoring the analysis to this concept is the only
way of approaching the problem that can claim objectivity, a claim which is obviously
vital to the prestige of the bar and the courts.’ ” (Ibid., quoting with approval City of
Detroit v. Grinnell Corp. (2d Cir. 1974) 495 F.2d 448, 470.) By separating the fee award
from the substantive relief obtained, the lodestar method encourages counsel to accept
cases the Legislature has deemed to be socially beneficial but may be difficult to evaluate
because the relief may include injunctive and other nonmonetary remedies. (Lealao,
supra, 82 Cal.App.4th at p. 33.)
In common-fund cases in federal court, requests for attorney fees are frequently
awarded under a percentage-of-recovery method. (Lealao, supra, 82 Cal.App.4th at
p. 26.)7 Under this method, fees are awarded as a percentage of the fund created by the
7
Federal courts have had an on-again, off-again attraction to the percentage-of-recovery
method. (See In re Washington Public Power Supply System Securities Litigation (9th
Cir. 1994) 19 F.3d 1291, 1297-1298 [describing the “circular” journey of federal courts’
reliance on the percentage-of-recovery method].) In discussing the federal-court history
of the percentage-of-recovery method, the Lealao court observed the method was
generally preferred by federal courts before the 1970’s. (Lealao, supra, 82 Cal.App.4th
at p. 26.) But in the early 1970’s, many federal courts adopted the lodestar method,
“stimulated by the view” that the percentage-of-recovery method was “yielding fee
awards that were excessive and unrelated to the work actually performed by counsel.”
18
settlement. (Id. at p. 27.) Federal courts have increasingly modified this method by
allowing trial courts to increase or reduce awards based on many of the same factors
considered under the lodestar method. (See, e.g., McDaniel v. County of Schenectady (2d
Cir. 2010) 595 F.3d 411, 422.) The extent to which the percentage-of-recovery method
should be relied upon in common-fund cases litigated in California courts remains
unresolved.8
Neither the lodestar method nor the percentage-of-recovery method is perfect, and
both have plenty of critics. The shortcomings of the lodestar method include that it can
“(1) ‘increase[] the workload of an already overtaxed judicial system,’ (2) [be]
‘insufficiently objective and produce[] results that are far from homogenous,’
(3) ‘create[] a sense of mathematical precision that is unwarranted in terms of the realities
of the practice of law,’ (4) ‘[be] subject to manipulation by judges who prefer to calibrate
fees in terms of percentages of the settlement fund or the amounts recovered by the
plaintiffs or of an overall dollar amount,’ (5) ‘encourage[] lawyers to expend excessive
hours, and . . . engage in duplicative and unjustified work,’ (6) ‘create[] a disincentive for
the early settlement of cases,’ (7) deprive[] trial courts of ‘flexibility to reward or deter
lawyers so that desirable objectives, such as early settlement, will be fostered,’
(8) ‘work[] to the particular disadvantage of the public interest bar,’ and (9) result[] in
‘confusion and lack of predictability.’ ” (Lealao, supra, 82 Cal.App.4th at p. 29.) As the
Second Circuit succinctly put it, the lodestar method creates “an unanticipated
disincentive to early settlements, tempt[s] lawyers to run up their hours, and compel[s]
(Id. at p. 28, fn. 2.) In 1985, however, federal courts started to once again prefer the
percentage-of-recovery method because of perceived weaknesses in the lodestar method.
Presently, some federal courts rely exclusively on the percentage-of-recovery method,
while others allow varying degrees of consideration of the lodestar method in conjunction
with the percentage-of-recovery method. (Id. at pp. 29-31.)
8
Our state Supreme Court has accepted review in a case that will likely shed light on the
issue, as it concerns whether a trial court may “anchor its calculation of a reasonable
attorney’s fees award in a class action on a percentage of the common fund recovered.”
(Laffitte v. Robert Half International, Inc. (Brennan), review granted Feb. 25, 2015,
S222996.)
19
[trial] courts to engage in gimlet-eyed review of line-item fee audits.” (Wal-Mart Stores,
Inc. v. Visa U.S.A., Inc. (2d Cir. 2006) 396 F.3d 96, 121.)
The percentage-of-recovery method is far easier to apply and arguably “better
aligns the interests of class counsel and class members . . . [by] ty[ing] the attorneys’ fees
award to the overall result achieved rather that the hours expended by the attorneys.”
(Jones v. Dominion Resources Services (S.D.W.Va. 2009) 601 F. Supp. 2d 756, 759.) But
it has its own serious shortcomings. Basing a fee award on a percentage of a monetary
award is essentially an arbitrary measure of counsel’s efforts, and it can bestow a
windfall on class counsel when litigation efforts are modest and a large monetary award
is obtained. (See, e.g., In re Washington Public Power Supply System Securities
Litigation, supra, 19 F.3d at p. 1296 [reducing 25 percent fee request to amount equaling
4.7 percent of settlement fund because 25 percent of $687 million would have produced
an excessive award of $171.75 million]; In re High-Tech Employee Antitrust Litigation
(N.D.Cal. Sept. 2, 2015, 11-CV-02509-LHK) 2015 WL 5158730, at *8 [“find[ing] the
lodestar method preferable to blind acceptance of percentages that seem largely
untethered to the results achieved” in case involving “great disparity between the fees
requested and the average recovery of individual class members”]; Van Vranken v.
Atlantic Richfield Co. (N.D. Cal. 1995) 901 F. Supp. 294, 297-298 [reducing 40 percent
fee request to 25 percent in lengthy and complicated case because, notwithstanding
counsel’s commendable efforts, 40 percent of $76 million settlement fund was
excessive].)9
9
The concern about bestowing a windfall has led some federal courts to modify the
percentage-of-recovery method to provide for diminishing marginal rates as recoveries
increase. (See, e.g., In re Synthroid Marketing Litigation (7th Cir. 2003) 325 F.3d 974,
980 [awarding 30 percent of first $10 million, 25 percent of second $10 million,
22 percent of $10 to 46 million, and 15 percent of higher amounts].) “Many costs of
litigation do not depend on the outcome; it is almost as expensive to conduct discovery in
a $100 million case as in a $200 million case. Much of the expense must be devoted to
determining liability, which does not depend on the amount of damages; in securities
litigation damages often can be calculated mechanically from movements in stock prices.
There may be some marginal costs of bumping the recovery from $100 million to $200
20
Because of its arbitrariness, the percentage-of-recovery method can likewise
confer an unreasonably small award when litigation was protracted or the relief obtained
was monetarily modest. And in cases in which the class obtains full monetary relief
irrespective of any fees award, it seems particularly artificial and pointless to suppress the
fees award by strictly adhering to a percentage figure.
In addition to allowing both over- and under-compensation of fees, the percentage-
of-recovery method has the additional shortcomings of encouraging counsel to avoid
difficult cases, promoting premature settlements, reducing attorney accountability, and
conveying to the public an appearance of attorney impropriety or conflict when a fees
award is large and the class claimants’ recoveries are small. (See People ex rel. Dept. of
Transportation v. Yuki (1995) 31 Cal. App. 4th 1754, 1769; Chun v. Board of Trustees of
Employees’ Retirement System of State of Hawai’i (2000) 92 Hawai’i 432, 443-445.)
Still, some federal circuits have seemingly embraced the percentage-of-recovery
method as the proper standard. (See, e.g., Swedish Hospital Corp. v. Shalala (D.C. Cir.
1993) 1 F.3d 1261, 1267; Camden I Condominium Association, Inc. v. Dunkle (11th Cir.
1991) 946 F.2d 768, 711.) But most courts, including most federal courts and California
appellate courts, have recognized that both the lodestar and percentage-of-recovery
methods have their pros and cons, and these courts allow the reasonableness of a fee
request to be cross-checked by comparing one method against the other. (See, e.g., Sutter
Health Uninsured Pricing Cases (2009) 171 Cal. App. 4th 495, 503, 512 [affirming trial
court’s approval of fees award based on percentage of the recovery, after a lodestar
“ ‘cross-check to test the reasonableness of the amount’ ”]; Consumer Privacy Cases,
supra, 175 Cal.App.4th at p. 557 [considering both methods “ ‘anchors the trial court’s
analysis to an objective determination of the value of the attorney’s services, ensuring
that the amount awarded is not arbitrary’ ”]; see also Bluetooth Headset Products
million, but as a percentage of the incremental recovery these costs are bound to be low.
It is accordingly hard to justify awarding counsel as much of the second hundred million
as of the first.” (Silverman v. Motorola Solutions, Inc. (7th Cir. 2013) 739 F.3d 956,
959.)
21
Liability Litigation (9th Cir. 2011) 654 F.3d 935, 944, 945 [“we have also encouraged
courts to guard against an unreasonable result by cross-checking their calculation against
a second method,” and the “lodestar method can ‘confirm that a percentage of recovery
amount does not award counsel an exorbitant hourly rate’ ”].)
No matter which method is used, “ ‘[t]he ultimate goal . . . is the award of a
“reasonable” fee to compensate counsel for their efforts, irrespective of the method of
calculation.’ [Citations.]” (Apple Computer, Inc. v. Superior Court (2005)
126 Cal. App. 4th 1253, 1270.)
c. Analysis.
The parties build their arguments around the assumption that the trial court used
the percentage-of-recovery method in awarding fees because the amount awarded was
37.5 percent of the settlement funds. But, in our view, this assumption is mistaken.
Under the settlement approved by the trial court, the 37.5 percent figure was not the
amount of fees class counsel would be awarded but was instead the cap on the amount of
fees that could be awarded. In seeking a fees award, class counsel did not contend that
they were simply entitled to 37.5 percent of the settlement amount. Instead, they
submitted extensive lodestar evidence of the number of hours they worked and the
market rate for their services, established that the resulting lodestar calculation amounted
to a figure exceeding $15 million, but only asked for $3,056,250 because it conformed to
the 37.5 percent cap.10
Class counsel’s lodestar evidence was “entitled to credence in the absence of a
clear indication the records [were] erroneous.” (Horsford v. Board of Trustees of
California State University (2005) 132 Cal. App. 4th 359, 396.) And once this evidence
was presented, the burden shifted to the objectors to present specific objections,
supported by rebuttal evidence. (1 Pearl, Cal. Attorney Fee Awards (Cont.Ed.Bar 3d ed.
10
Because the court did not employ a percentage-of-recovery method in awarding fees,
we need not resolve the parties’ dispute over whether there is a 25 percent “benchmark”
for percentage-of-recovery awards in federal court and whether such a benchmark should
apply in California proceedings.
22
2010) §§ 11.58-11.60.) But the objectors submitted no such evidence, and they did not
sustain their burden by simply complaining that the amount requested was excessive.
(Premier Medical Management Systems, Inc. v. California Ins. Guarantee Assn. (2008)
163 Cal. App. 4th 550, 564 [“General arguments that fees claimed are excessive,
duplicative, or unrelated do not suffice”]; see also Avikian v. WTC Financial Corp.
(2002) 98 Cal. App. 4th 1108, 1119; Children’s Hospital and Medical Center v. Bonta
(2002) 97 Cal. App. 4th 740, 782.)
In considering the reasonableness of the fee request here, the trial court could
therefore accept the undisputed lodestar evidence to assure itself that the cap applied, i.e.,
that 37.5 percent of the settlement fund—$3,056,250—was less than the lodestar. It
could accept that class counsel spent over 35,000 hours on the case, that the lodestar
exceeded $15 million, and that the award would compensate class counsel in the amount
of approximately $85 per hour. We can find nothing wrong with the trial court’s
approach or with its conclusion that the “[the award] falls well within the range of what is
reasonable for complex antitrust class actions generally and under the specific
circumstances of this case.”
In our view, a trial court acts appropriately—and it certainly does not abuse its
discretion—when it accepts in a common-fund case a cap on fees, even a cap that is
phrased in terms of a percentage of the recovery, when the application of the cap results
in a lower award than would be authorized under the lodestar method. The lodestar
method is, after all, the primary means of calculating the reasonableness of attorney fees
in California. (Serrano v. Priest, supra, 20 Cal.3d at p. 48, fn. 23.) When a court applies
a cap to reduce this presumed reasonable amount, and thereby increases class relief, we
cannot see how anyone is harmed, least of all the class members, including any
objectors.11 Applying such a cap is consistent with and furthers the trial court’s
responsibilities to protect the class from having to pay excessive fees to class counsel.
11
This is not necessarily true when a trial court considers whether to increase a fee award
above the lodestar by comparing the lodestar to a higher percentage-of-recovery
calculation. (See Lealao, supra, 82 Cal.App.4th at p. 49.)
23
The trial court here found its fees award to be “fair, just and reasonable to the
Class” after considering factors such as “the results achieved, the complexity of the
issues, the experience of counsel, the contingency nature of the case, the length of time
from initiation to settlement, the lodestar and multiplier amounts, costs reasonably
expended by counsel, [and] the amount of attorneys’ fees and expenses compared to the
value of the settlement.” We simply cannot conclude on this record that the trial court
abused its discretion in approving the settlement and awarding attorney fees in the
approved amount.
d. The trial court’s review of the records.
The objectors argue that the trial court “did not adequately review the hours
expended.” Again, we disagree.
To begin with, the record reflects that the trial court did review the records. The
court specifically mentioned its concerns about some of the reimbursements sought,
requested additional information, and stated it had “reviewed further [albeit unspecified]
evidence to support the requested costs” after the May 2 settlement-approval hearing.
The court then found the fee request to be “fair, just and reasonable to the Class” after
considering the factors mentioned above. We have no basis upon which to accept the
objectors’ contention that the trial court failed to adequately review the records. (See
Wershba, supra, 91 Cal.App.4th at pp. 254-255.)
Furthermore, the trial court’s review of the evidence was in the context of
determining whether the 37.5 percent cap applied. “Of course, where used as a mere
cross-check, the hours documented by counsel need not be exhaustively scrutinized by
the district court.” (Goldberger v. Integrated Resources, Inc. (2d Cir. 2000) 209 F.3d 43,
50.) The record reflects that the trial court more than satisfied its obligation. It observed,
“Ordinarily, I would have some difficulty with the amount of evidence that I was
provided to justify the amount of work that was put into this case. I say ‘ordinarily,’ but
in this particular case, we have some really unique circumstances. We have almost ten
24
years of litigation. We have [a 37.5] percent lodestar,[12] which plaintiffs claim is about
20 percent of what was actually incurred. So even if I thought, for example, that some of
the fees and the rates and the fees were unreasonable, we might get up to 50 percent of
the lodestar or something like that.” Stated differently, the court reviewed the billing
records and had some concerns with them, but found that these concerns, even if
validated by a more meticulous review of the records, would not come close to reducing
the lodestar by 80 percent so as to place in doubt the application of the 37.5 percent cap.
We think that the court’s observations and approach were eminently reasonable.13
DISPOSITION
The judgment is affirmed. Costs are awarded to respondents.
12
The court used the word “lodestar,” but the point it was making can only be understood
if it intended to refer to the 37.5 percent cap.
13
In another indication that it was not simply rubber stamping class counsel’s request, the
court questioned class counsel’s requested expenses. Class counsel were permitted to
submit additional evidence supporting their request for these expenses.
25
_________________________
Humes, P.J.
We concur:
_________________________
Margulies, J.
_________________________
Banke, J.
Roos v. Honeywell (A142156)
26
Trial Court: San Francisco County Superior Court
Trial Judge: Honorable Curtis E. A. Karnow
Counsel for Objector and Law Offices of Darrell Palmer, Joseph Darrell Palmer
Appellant Art Rogers:
Counsel for Objector and Koch & Scow, Steven B. Scow
Appellant Amanda Waldenville
Counsel for Objector and Denise H. Gibbon
Appellant Chuck Congdon
Counsel for Objector and Law Office of Michael Creamer
Appellant Richard Moser:
Counsel for Plaintiff and The Mogin Law Firm, Daniel J. Mogin, Jodie M.
Respondent Joel I. Roos: Williams, Sarah B. Abshear; Abbey Spanier, Stephen
T. Rodd; Shaheen & Gordon, Christine Craig; Gross &
Belsky, Terry Gross, Adam C. Belsky, Monique
Alonso; Law Offices of Alexander M. Schack,
Alexander M. Schack
Counsel for Defendant and O’Melveny & Myers LLP, Michael Frederick Tubach,
Respondent Honeywell Christina J. Brown
International, Inc.
27