Apple Computer, Inc. v. Superior Court

• Decision Date: 17 February 2005
• Docket Number: No. B177857.,B177857.
• Citation: 24 Cal.Rptr.3d 818,126 Cal.App.4th 1253
• Court: California Court of Appeals Court of Appeals
• Parties: APPLE COMPUTER, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Lawrence R. Cagney, Real Party in Interest.

24 Cal.Rptr.3d 818

126 Cal.App.4th 1253

APPLE COMPUTER, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent Lawrence R. Cagney, Real Party in Interest.

No. B177857.

Court of Appeal, Second District, Division 1.

February 17, 2005.

Pillsbury Winthrop, Richard S. Ruben, Costa Mesa, Richard E. Nielsen, Kevin M. Fong, San Francisco, and Todd G. Friedland, Costa Mesa, for Petitioner.

No appearance for Respondent.

Law Offices of Allan A. Sigel, Allan A. Sigel and Christine C. Choi, Los Angeles, for Real Party in Interest.

MALLANO, J.

Plaintiff, an attorney, is the named plaintiff in this class action suit. He was represented by the law firm where he works and by a second firm that serves as cocounsel with his firm in other cases. Defendant moved to disqualify both firms based on a conflict of interest: As the class representative, plaintiff is obligated to seek the maximum recovery for the putative class, but plaintiff and the firms may have an interest in maximizing their recovery of attorneys' fees.

The trial court denied the disqualification motion. Defendant sought review in this court by way of a petition for a writ of mandate. We issued an order to show cause why the trial court's decision should not be reversed. The firm where plaintiff works then withdrew. The second firm did not. We conclude that the trial court abused its discretion in denying the motion to disqualify the firms because an insurmountable conflict of interest exists between the class representative and class counsel, on one hand, and the putative class, on the other hand.

I BACKGROUND

On January 9, 2004, plaintiff Lawrence Cagney filed this action on behalf of himself and others similarly situated, alleging that defendant Apple Computer, Inc., had collected excess sales tax from consumers in connection with a rebate program. The complaint alleges a violation of California's unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.). In the prayer for relief, Cagney requests attorneys' fees under section 1021.5 of the Code of Civil Procedure (section 1021.5.)¹ Apple estimates that if it is found liable, each consumer would be entitled to $8.00.

Cagney was represented by two law firms, Westrup Klick LLP, where he works as an attorney, and the Law Offices of Allan A. Sigel, which serves as cocounsel with Westrup Klick in a number of class actions based on the UCL.

On July 6, 2004, Apple filed a motion to disqualify both firms on the ground that their close association with Cagney would allow them to maximize attorneys' fees to the detriment of the putative class. In support of the motion, Apple established that from 2003 to 2004, Westrup Klick and the Sigel firm had jointly filed 10 class actions under the UCL (other than this one) in which an attorney from Westrup Klick or a relative of one of the attorneys was the named plaintiff. From 2000 to 2002, there were three such cases, including one with four named plaintiffs—three Westrup Klick attorneys and the wife of one of them.

On July 23, 2004, the firms jointly filed opposition papers to the motion to disqualify. Apple filed a reply memorandum.

By order dated August 11, 2004, the trial court denied the motion, stating, "While the Court recognizes compelling federal authority that would require disqualification on similar facts if [this case were a] federal class action[ ], the controlling California authority does not appear to support disqualification." The trial court also stated "[T]he issues presented by [this] motion[ ] involve controlling questions of law as to which there are substantial grounds for difference of opinion, appellate resolution of which would be of considerable assistance to the courts and counsel handling complex class and representative actions."

On August 25, 2004, Apple filed a notice of appeal from the trial court's order (B177814).

On September 14, 2004, Apple filed a petition for a writ of mandate, challenging the same order (B177857). On September 23, 2004, we issued an order to show cause, established a briefing schedule, and calendared the matter for oral argument. We stayed Apple's appeal pending resolution of the writ petition.

On September 27, 2004—four days after we issued the order to show cause—Westrup Klick filed a notice in the trial court withdrawing as counsel for Cagney and the putative class. By letter dated October 8, 2004, Westrup Klick informed this court of its withdrawal, stating that the writ petition was moot as to it. Briefing went forward with the Sigel firm. Having read the briefs and heard oral argument, we now reach the merits of the petition.²

II DISCUSSION

"We review a trial court's ruling on a disqualification motion for abuse of discretion, and we accept as correct all express or implied findings that are supported by substantial evidence.... `However, the trial court's discretion is limited by the applicable legal principles.... Thus, where there are no material disputed factual issues, the appellate court reviews the trial court's determination as a question of law.... [A] disqualification motion involves concerns that justify careful review of the trial court's exercise of discretion.'" (Brand v. 20th Century Ins. Co./21st Century Ins. Co. (2004) 124 Cal.App.4th 594, 601, 21 Cal.Rptr.3d 380, citations omitted.)

"If the trial court denies a motion to disqualify counsel, the unsuccessful moving party can seek immediate appellate review, either by petitioning the reviewing court for a writ of mandamus, asserting that the remedy by appeal is not adequate ... or by filing a notice of appeal from the order denying disqualification.... [¶] ... A petition for extraordinary relief on the merits accompanied by a request for an immediate stay is preferable, because generally extraordinary writs are determined more speedily than appeals. The specter of disqualification of counsel should not be allowed to hover over the proceedings for an extended period of time for an appeal." (Reed v. Superior Court (2001) 92 Cal.App.4th 448, 455, 111 Cal.Rptr.2d 842, citation omitted.)

As a preliminary matter, we reject Westrup Klick's contention that its withdrawal as counsel precludes us from deciding whether its representation of Cagney gave rise to a conflict of interest. Notwithstanding the firm's withdrawal, "[w]e have discretion to decide otherwise moot cases presenting important issues that are capable of repetition yet tend to evade review." (Conservatorship of Wendland (2001) 26 Cal.4th 519, 524, fn. 1, 110 Cal.Rptr.2d 412, 28 P.3d 151.) This case raises important questions about the rights of putative class members and the conflicts of interest that may arise in representing them. And those questions may evade review if, in response to a writ petition or an order to show cause, counsel for the putative class simply withdraws from representation.³

A. Disqualification of Westrup Klick

"[The] majority of courts ... have refused to permit class attorneys, their relatives, or business associates from acting as the class representative. [¶] The most frequently cited policy justification for this line of cases arises from the possible conflict of interest resulting from the relationship of the putative class representative and the putative class attorney. Since possible recovery of the class representative is far exceeded by potential attorneys' fees, courts fear that a class representative who is closely associated with the class attorney would allow settlement on terms less favorable to the interests of absent class members." (Susman v. Lincoln American Corp. (7th Cir.1977) 561 F.2d 86, 90-91 (Susman), fns. omitted; see id. at p. 90, fns. 5, 6 & 7 [collecting cases].)⁴

"In 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. The impropriety of such a position is increased where, as here, the attorney is also the representative who brought the action on behalf of the class, and where, as here, the potential recoveries by individual members, including representatives, of the class are likely to be very small in proportion to the total amount of recovery by the class as a whole. Thus, [p]laintiffs may stand to gain little as class representatives, but may gain very much as attorneys for the class." (Graybeal v. American Savings & Loan Association (D.D.C.1973) 59 F.R.D. 7, 13-14.)

"For the same individual to attempt representation of the class as plaintiff and as counsel presents an inherent conflict of interests. Because the financial recovery for reasonable attorney's fees would dwarf the individual's recovery as a member of the class ..., the financial interests of the named plaintiffs and of the class are not coextensive. If the interests of a class are to be fairly and adequately protected, if the courts and the public are to be free of manufactured litigation, and if proceedings are to be without cloud, the roles of class representative and of class attorney cannot be played by the same person." (Turoff v. May Co. (6th Cir.1976) 531 F.2d 1357, 1360 (Turoff); accord, Pope v. City of Clearwater (M.D.Fla.1991) 138 F.R.D. 141, 144-145.)

"During settlement negotiations the putative class representatives' primary duty [is] to ensure that [class counsel] [does] not sacrifice the interests of the class in order to maximize its own recovery from the instant litigation. The seriousness of the risk that [class counsel] would do so is reflected in the long line of cases which have prevented attorneys from serving as both class representatives and class counsel. [Citations.] The risk recognized by these courts and inherent in having an attorney wear the hats of both class representative and class counsel is obvious: ordinarily, class counsel stands to gain much more in fees from a settlement than any individual class member stands to gain from the settlement itself. If...