A recent The Recorder story, “Plaintiffs Shop Slammed by Appeal Court for Suspect Fees,” reports that a $5 million fee award that was based on a $6 million recovery was sent back to San Francisco Superior Court for a new round of hearings after First District Court of Appeals described it as “fraught with the potential for conflicts of interest, fraud, collusion and unfairness.”
The First District Court of Appeals ordered a trial judge to consider whether “some or all of the fees” earned by Initiative Legal Group (ILG) should be disgorged, saying the Century City firm’s conduct “appears to be unprecedented.” The published decision in Lofton v. Wells Fargo Home Martgage is a win for attorneys at Carlson Calladine & Peterson and Chavez & Gertler, who accused Initiative Legal Group and its principals of cheating clients out of millions while misleading the judge who supervised the litigation.
Lofton is a wage-and-hour case that attorneys Kevin McInerney and James Clapp brought on behalf of home-mortgage consultants in San Francisco Superior Court in 2005. ILG brought a similar action in Los Angeles Superior Court on behalf of California class members in 2006. That class was decertified and ILG refiled the case as several separate suits on behalf of 600 individual consultants. The cases were mediated together in 2011, with the Lofton class action settling for $19 million—about $2,000 per class member after fees and expenses—and ILG’s case settling for $6 million—or about $10,000 per plaintiff before fees and expenses.
In seeking fees from S.F. Superior Court Judge Loretta Giorgi, the attorneys said they expected the consultants represented by ILG to opt out of the Lofton settlement and collect from the ILG fund. But none of them did because ILG encouraged them to file class claims, according to the First District. Meanwhile, ILG kept all of the $6 million as its attorney fee, save a $750 payment to each plaintiff in exchange for release of claims.
One plaintiff, David Maxon, refused the payment, leading ILG to offer an additional $1,000 to all plaintiffs a few months later. Maxon again refused and, represented by Marc Chavez and Richard Zitrin, persuaded S.F. Superior Court Judge Harold Kahn to freeze the remaining $5 million while they brought a fraud and malpractice suit against ILG. Kahn said the record appeared to reflect “egregious misconduct and bad faith on the part of ILG.”
At arguments earlier this month and in an opinion, the appellate court expressed similar concerns. “It is manifest that ILG intended to effectuate distribution of the almost $5 million in fees to itself without court approval,” Justice Peter Siggins wrote for a unanimous panel. “Such a move by lawyers representing so many plaintiffs in a common fund situation appears to us unprecedented.”
Siggins wrote that “there is a question on this record whether ILG is entitled to any fees at all” because of the duplicative nature of the ILG cases. Even if they are entitled, ILG may have to “disgorge some of all of the fees” if Maxon can provide misconduct, Suggins wrote.