A recent The Recorder story, “California Supreme Court Scrutinizes Class Action Fee Awards,” reports that the California Supreme Court seemed skeptical of arguments that it should lay down a host of new safeguards to prevent windfall payments for class action lawyers.
Lawrence Schonbrun, a frequent Bay Area class-action fee objector, contended before the court that granting plaintiffs attorneys a simple percentage of any class action settlement carries huge risk of overcompensating them and depriving the class of their money.
Schonbrun also argued that courts should appoint a "class guardian" in settlements of over $1 million, and allow that guardian to call an expert witness to scrutinize class counsel's estimate of how much damages would be if a case was carried through to a win.
His fight in this specific case is with Kevin Barnes, a Los Angeles employment and personal injury lawyer who reached a $19 million settlement in a wage-and-hour class action brought by recruiters against Silicon Valley staffing firm Robert Half International in 2012. Barnes seeks a third of the settlement as fees.
Schonbrun said the 1977 decision Serrano III, which involved financing for public schools, prohibits attorneys from getting a percentage-based cut of a so-called common fund settlement.
But at least two of the justices, including Chief Justice Tani Cantil-Sakauye, weren't buying his claim that they'd need to overturn Serrano to rule against him. They pointed out that in that case, the attorney wasn't actually paid from a common pool of money awarded to the plaintiffs, but rather directly by the defendant.
In addition, the chief justice noted that the language of the decision that Schonbrun was referring to was contained only in a footnote. "It seems like it's dicta, especially when there was no common fund in the first place," Cantil-Sakauye said.
She and Justice Ming Chin also seemed sympathetic to arguments by Barnes and Michael Rubin of Altschuler Berzon, who argued as amici on the plaintiffs side, that trial courts should have discretion in their scrutiny of class counsel compensation.
Schonbrun roundly rejected that idea. "I don't think it's sufficient to say, 'Oh, the court knows what they're doing,'" he said. "That's not transparency."
Still, he seemed to make some headway with arguments that the so-called "lodestar cross-checks" attorneys often use to justify their percentage fee requests are essentially drawn out of thin air. "They want more money. That's what this is about. And there is no principled reason to give it to them," Schonbrun said.
Justice Goodwin Liu expressed puzzlement about how attorneys arrive at the "multiplier" that they use when calculating their final fee request.
The idea behind the multiplier is that aside from an hourly rate, class counsel should get less or more depending on the difficulty of the case. In the Robert Half case, the multiplier was 2.13, which Schonbrun argued was reverse-engineered to get the attorneys to their desired one-third figure.
"How do we know what is a reasonable number?" Liu asked Rubin.
"We don't," Rubin answered, conceding that there is no "mathematical precision" to the multiplier. Instead, he contended, the number is determined by a "market" that has been established over time through various court decisions.
Liu, however, compared that notion to the idea behind exorbitant executive pay: that those in the C-suite should be paid so highly simply because that's how much their peers are paid. "I think there's a sort of circularity to that," he said.