Hernandez v. Restoration Hardware, Inc., S233983

• Decision Date: 29 January 2018
• Docket Number: S233983
• Citation: 4 Cal.5th 260,409 P.3d 281,228 Cal.Rptr.3d 106
• Court: California Supreme Court
• Parties: Mike HERNANDEZ et al., Plaintiffs and Respondents; Francesca Muller, Plaintiff and Appellant, v. RESTORATION HARDWARE, INC., Defendant and Respondent.

4 Cal.5th 260

409 P.3d 281

228 Cal.Rptr.3d 106

Mike HERNANDEZ et al., Plaintiffs and Respondents;Francesca Muller, Plaintiff and Appellant,

v.RESTORATION HARDWARE, INC., Defendant and Respondent.

S233983

Supreme Court of California

Filed January 29, 2018

Law Office of Lawrence W. Schonbrun and Lawrence W. Schonbrun for Plaintiff and Appellant.

Patterson Law Group, James R. Patterson, Allison H. Goddard, San Diego; Stonebarger Law, Gene J. Stonebargerand Richard D. Lambert, Folsom for Plaintiffs and Respondents.

Nelson & Fraenkel, Gretchen M. Nelson, Los Angeles; Hagens Berman Sobol Shapiro and Kevin K. Green for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Respondents.

No appearance for Defendant and Respondent.

CHIN, J.

Under Code of Civil Procedure ¹ section 902, "[a]ny party aggrieved" may appeal a judgment. "It is generally held, however, that only parties of record may appeal; consequently one who is denied the right to intervene in an action ordinarily may not appeal from a judgment subsequently entered in the case. [Citations.] Instead, he may appeal from the order denying intervention." ( County of Alameda v. Carleson (1971) 5 Cal.3d 730, 736, 97 Cal.Rptr. 385, 488 P.2d 953 ( Carleson ).) The issue we address is when does an unnamed class action member become a party of record with the right to appeal a class action settlement or judgment under section 902 ? We address this issue in the context of Justice Traynor's 75-year-old decision, which held that unnamed class members do not become parties of record under section 902 with the right to appeal the class settlement, judgment, or attorney fees award unless they formally intervene in the class litigation before the action is final. ( Eggert v. Pac. States S. & L. Co. (1942) 20 Cal.2d 199, 201, 124 P.2d 815 ( Eggert ).) We conclude the Court of Appeal correctly relied on Eggert to hold that unnamed class members may not appeal a class judgment, settlement, or attorney fees award unless they intervene in the action. ( Ibid . )

FACTUAL AND PROCEDURAL BACKGROUND

In 2008, plaintiff Michael Hernandez filed a class action law suit against defendant Restoration Hardware, Inc. (RHI), alleging the company committed numerous violations of the Song-Beverly Credit Card Act (the Act) when it asked for and recorded ZIP codes from customers who used credit cards in making RHI purchases. ( Civ. Code, § 1747.08.) After several years of litigation, the court certified the case as a class action and appointed plaintiffs Mike Hernandez and Amanda Georgino as class representatives (collectively Representatives). The court also appointed the Patterson Law Group and Stonebarger Law as class counsel.

In June 2013, a notice to potential class members advised them of the pending class action and presented them with the following options: (1) they could remain as part of the class and be bound by the judgment, or (2) they could exclude themselves from the class (opt out) and not be bound by the judgment. ( Cal. Rules of Court, rule 3.766.) The notice also advised the potential class members that if they elected to remain in the class, they could appear in court through class counsel. Francesca Muller (Muller), an unnamed class member and the appellant here, received the June 2013 class action notice, but did not join the class as a party or opt out at that time. Instead, Muller's attorney filed a notice of an appearance on her behalf.

Following a bench trial, the court found RHI liable for "as many as" 1,213,745 violations of the Act, set a penalty of $30 per violation, and rendered a judgment against RHI in the amount of $36,412,350. The court ordered the parties to meet and confer on the claims process and procedures for distributing the award, "including a means for RHI to challenge the accuracy of any recorded ZIP codes."

The parties met and agreed that the judgment of $36,412,350 was based on the maximum number of violations at $30 per violation, and that sum would be treated as a common fund inclusive of any attorney fees, costs, and class representative enhancements. RHI waived its right to appeal the judgment. Muller never moved to intervene during the bench trial on the merits by filing a formal complaint in intervention under section 387.

After conducting negotiations with RHI, Representatives then moved for attorney fees "equivalent to 25 percent of the total judgment recovered for the class." The trial court requested that Representatives submit a supplemental motion for attorney fees with a "lodestar calculation" as a cross-check on the fee request. Representatives calculated the fee amount using a lodestar calculation and multiplier that showed class counsel spent over 3,500 hours on the litigation and incurred advanced costs and fees of nearly $2.7 million. Representatives also submitted reasons for supporting "application of a ‘multiplier’ to the lodestar calculation." RHI agreed not to oppose the requested fee award if class counsel sought no more than 25 percent of the total recovery. (See Ruiz v. California State Automobile Assn. Inter-Insurance Bureau (2013) 222 Cal.App.4th 596, 598, 165 Cal.Rptr.3d 896 [allowing counsel for plaintiff class to seek attorney fees award with defendant's assurance not to oppose fee application if amount is less than or equal to specified dollar amount].)

Muller was served with the attorney fees motion and a copy of class counsel's percentage of the common fund calculation, but did not object to the proposed total fee award. Instead, on August 29, 2014, she filed a "Request for Clarification" and asked to appear telephonically at the settlement fairness hearing on the fee proposal. The request stated that "[t]he parties' pleadings do not indicate that class members were notified of the settlement of the attorney fees issue and of the hearing on September 5, 2014, to approve [c]lass [c]ounsel's fee request." The trial court permitted Muller to file her request.

Before its scheduled fairness hearing on the proposed class attorney fees settlement, the court issued its tentative ruling on the fee request, determining that (1) California law permits a percentage award in common fund cases, (2) courts use a 25 percent fee figure as a "starting benchmark," and (3) a fee at or above the benchmark was appropriate because of the risks counsel incurred when they brought the action and the result they obtained in the litigation. All parties and Muller's attorney received a copy of the tentative ruling by e-mail.

On September 5, 2014, the court held a fairness hearing on Representatives' attorney fees application. Muller, who appeared telephonically through her counsel, objected to the court's consideration of the proposed fee award. (See Cal. Rules of Court, rule 3.769(f) [allows unnamed class members to appear and object to settlement but is silent regarding any right to appeal denial of objections].) Her principal claim was that the fee award violated class action procedure because class members were not given notice of their right to appear and comment on the proposed attorney fees settlement following the bench trial on the merits. The court noted, and counsel acknowledged, that there was no authority to support the claim that the court should have given the class additional notice (besides the initial class certification notice) of the subsequent settlement fairness hearing on the proposed attorney fees award. Muller also claimed that the court was required to calculate the fee award using the "lodestar multiplier approach," rather than a "percentage of the fund approach," but did not argue the court's tentative ruling rendered the fee award excessive.

After the hearing on the settlement of the proposed fee award, the court issued a "Second Amended Minute Order" denying Muller's request for clarification and approving the fee and costs requests. On September 29, the court filed its final judgment that tracked the parties' claims process and granted class counsel's requested attorney fees award. Class counsel then distributed a notice of the judgment to class members, including instructions for the claims process.

Muller did not file a section 663 motion to vacate the judgment; instead she filed a notice of appeal. She limited her appeal to the attorney fees award, renewing her claim that in failing to provide class members with notice of the fee negotiations and proposed settlement with RHI, Representatives and class counsel breached their fiduciary duties to the class. Muller also reiterated her claim that the court should have used the lodestar multiplier approach to calculate the fee award.

Representatives challenged Muller's claims on their merits. They also challenged Muller's right to file her appeal because she was neither a "party" nor "aggrieved" by the trial court's alleged erroneous judgment as required under section 902 and our decision in Eggert, supra , 20 Cal.2d at page 201, 124 P.2d 815. The court dismissed Muller's appeal for lack of standing, concluding it was bound to follow Eggert under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937 (decisions of state supreme court are binding on all other state courts; courts of inferior jurisdiction may not overrule higher court decisions). The Court of Appeal also concluded that Muller cited no persuasive authority to support her argument that changes to federal procedural rules for managing class actions in federal trials undermine the analysis of state statutes limiting who may appeal. We granted Muller's petition for review on the right to appeal issue only.

DISCUSSION

The class action is codified in section 382, and its procedural rules for class certification, notice, settlement, and judgment appear in our California Rules of Court, rules 3.760 - 3.771. The action is a product of the court's equitable jurisdiction that rests on considerations of necessity, convenience, and the belief that in large cases,...