Lealao v. Beneficial California, Inc.
| Decision Date | 10 July 2000 |
| Docket Number | No. A085992.,A085992. |
| Court | California Court of Appeals Court of Appeals |
| Parties | Richard U. LEALAO et al., Plaintiffs and Appellants, v. BENEFICIAL CALIFORNIA, INC., Defendant and Respondent. |
Robert A. Goldstein, Oakland, Daniel J. Mulligan, Jenkins & Mulligan, San Francisco, for Appellants.
D. Ronald Ryland, John D. Pernick, Sheppard, Mullin, Richter & Hampton, LLP, San Francisco, for Respondent.
Appellants Richard U. Lealao and his wife Sese Lealao, who commenced this successful consumer class action, claim that the attorney fees awarded class counsel were unreasonably low. The questions before us are whether, under the circumstances of this case, the trial court had discretion to award a fee based solely on a percentage of the class benefit or, in the alternative, to measure an award calculated under the lodestar methodology by a percentage-of-the-benefit yardstick and to adjust the lodestar upward or downward on that basis. Our answers are no to the first question and yes to the second.
Appellants filed their class action complaint in the San Francisco Superior Court on October 3, 1995. The complaint claimed that respondent, Beneficial California, Inc., a major lender which then had 130 offices in this state, wrongfully charged a penalty when persons with whom it entered into certain credit line account agreements prepaid their open-end loans, as the imposition of such a penalty was neither provided for in the agreement nor otherwise authorized. For example, in August 1993, appellants opened a credit line account with respondent that was secured by their home. When they sold the home in March 1995, respondent imposed a prepayment penalty in the amount of $8,048.20.
The original complaint alleged causes of action for (1) breach of contract, (2) breach of the duty of good faith and fair dealing, (3) money had and received, (4) unjust enrichment, (5) conversion, and (6) unfair business practice. The first amended complaint substituted a claim under the Consumer Finance Lenders Law (Fin.Code, § 24500 et seq.) for that alleging breach of the duty of good faith and fair dealing. The trial court granted respondent's demurrer without leave to amend as to the fifth cause of action for conversion, which was thereupon dismissed. On June 3, 1996, after a subsequent demurrer was overruled in its entirety, respondent filed its answer, which raised the defenses of laches, waiver and estoppel, unclean hands, comparative fault, lack of standing, that violation of the Consumer Finance Lenders Law was unintentional, and the statute of limitations. At the same time, respondent filed a cross-complaint against appellants alleging that because they had been told there would be a prepayment penalty respondent was entitled to reform the parties' credit line agreement on the ground that it failed to reflect the true intent of the parties.
In February 1997, appellants moved for class certification. Respondent resisted the motion chiefly on the ground that issues particular to individual class members predominated and that a fact-based inquiry needed to be made with respect to particular loan agreements. Respondent also maintained that appellants' claims were not typical and they were therefore not competent to represent the class. On August 13, 1997, the trial court rejected respondent's arguments and issued an order granting class certification. The class consisted of borrowers on 6,698 loans opened by respondent between October 1991 and November 1994 and closed on or before February 28, 1998, all of whom were charged prepayment penalties. Each loan was secured by real property, generally the borrower's home. The total amount of prepayment penalties imposed on the class was approximately $19,200,000; the average penalty was $2,866.53.
The settlement ultimately reached by the parties provided that respondent would pay members of the class who filed claims 77 percent of the amount they had paid as prepayment penalties. Since prepayment penalties of approximately $19,200,000 had been paid by the class, respondent effectively agreed to pay $14,784,000 if every member of the class filed a valid claim.
The settlement agreement did not require that class counsel's fee be deducted from the refunds received by members of the class, nor did it specify the amount of the fee class counsel would receive. With respect to attorney fees, the agreement provided only that respondent would pay class counsel "such reasonable attorneys' fees and costs as determined by the Court."
Class counsel emphasize that even though their fee was not to be paid directly out of the class recovery, they always contemplated it would be paid out of the unclaimed residual amount of funds available to the class, as may be done in cases in which a common fund is established. (See, e.g., Boeing Co. v. Van Gemert (1980) 444 U.S. 472, 480-481, 100 S.Ct. 745, 62 L.Ed.2d 676; Williams v. MGM-Pathe Communications Co. (9th Cir.1997) 129 F.3d 1026, 1027.) This understanding was communicated to members of the class in the notice of settlement approved by the court. The notice explained that respondent agreed to pay reasonable attorney fees as determined by the court, and that class counsel would seek fees in the amount of $3.5 million, which was approximately 24 percent of the "fund" created for the benefit of the class. As stated in the notice, "[c]lass counsel contends that the attorneys' fees will come out of the alleged class settlement fund of $14,784,000.00 because it is anticipated that this amount will be sufficient to pay class members who file valid claim forms and the attorneys' fees as determined by the court." The notice went on to state, however, that respondent "does not agree that a common fund has been created and contends that any attorneys' fees must be based on the amount of time spent by plaintiffs' counsel on the case."
Appellants advanced dual theories in support of their initial request for an award of $3.5 million. The first, which was consistent with the view of counsel set forth in the notice to the class, was that appellants' attorneys succeeded in creating a fund of $14,784,000 for the benefit of the class and were entitled to approximately 24 percent of that amount or $3.5 million.1 Counsel alternatively maintained this amount was also justified under the lodestar method of calculating fees, because the size of a class recovery may be used as a factor to enhance a lodestar award. Declarations filed in support of the application for fees stated that the reasonable hourly fees of appellants' attorneys ranged from $350 to $225, and that applying these rates to the more than 1,450 hours they expended on the case produced a "base lodestar" of $418,343.25. Pointing out that trial courts have broad discretion to enhance this lodestar upward to take into account various risks undertaken by counsel (see Serrano v. Priest (1977) 20 Cal.3d 25, 49, 141 Cal.Rptr. 315, 569 P.2d 1303 (Serrano III)), class counsel argued that a multiplier of 8, which would roughly justify the $3.5 million award they sought, was appropriate.
In its October 30, 1998, order approving the settlement and granting attorney fees and costs, the trial court determined that no common fund had been established and declined to utilize any multiplier to enhance fees under a lodestar calculation. Looking only to the hourly rates claimed by appellants' attorneys and paralegals, and the time they expended on the case, the court awarded reasonable attorney fees in the amount of $425,000.
On December 21, 1998, appellants filed a motion for new trial limited to the issue of attorney fees. Based on new information that the valid claims then actually filed by members of the class totaled $7.35 million, counsel used this amount rather than the amount of potential claims respondent agreed to pay ($14,748,000) as the basis of a percentage fee. Instead of the $3.5 million fee they originally sought, class counsel requested 24 percent of $7.35 million, or $1.76 million. Counsel urged the court to reach this result by adjusting the lodestar figure ($425,000) upward to $1,487,500 by a multiplier of 3.5 "based among other things on the result obtained by counsel as shown by actual payments to be made to the class."
The order granting fees of $425,000 solely on the basis of the hours counsel expended on the case, and the order denying a new trial as to attorney fees, do not set forth the court's reasoning. However, the court's orders and comments from the bench indicate its belief that in a class action case such as this—in which the class benefits are not in the form of a separate fund out of which fees are to be paid—a court has no discretion to award a percentage fee. Concluding it was compelled to employ the lodestar formula for calculating a reasonable attorney fee, the court apparently agreed with respondent that it could use a multiplier to adjust the lodestar upward only in cases in which the litigation resulted in a great public benefit or the litigation was particularly complex and difficult, and that this was not such a case.
A trial court's determination of reasonable attorney fees is reviewed under the abuse of discretion standard. (Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal.3d 348, 355, 188 Cal.Rptr. 873, 657 P.2d 365.) (City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297, 255 Cal.Rptr. 704.) Accordingly, the question before us is whether the trial court's refusal to either award a percentage fee or consider the percentage-of-the-benefit approach in...
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