Legislative Update - SB 1202

One of the many pending bills seeking to curb the ability of employees to bring class actions to enforce their legal rights against employers is SB 1202 (Harman). SB 1202 would amend section 1021.5 of the Code of Civil Procedure to allow judges to withhold part of the plaintiff's attorney's fees in class action lawsuits until class members have been contacted and have received their portion of the settlement funds.

Existing law allows a court, upon motion, to award attorney's fees to a successful party against one or more opposing parties in any action that has resulted in the enforcement of an important right affecting the public interest, if certain conditions are met. This bill would authorize the judge in a class action to order a part of the attorney's fees awarded pursuant to this provision to be withheld until all class members have received their portion of the settlement funds.

The actual amendment looks like this:

Section 1021.5 of the Code of Civil Procedure is
amended to read:
1021.5. (a) Upon motion, a court may award
attorneys' attorney' s fees
to a successful party against one or more opposing parties in any
action which that has resulted in the
enforcement of an important right affecting the public interest if
: (a) a all of the following are met:
(1) A significant benefit,
whether pecuniary or nonpecuniary, has been conferred on the general
public or a large class of persons , (b)
the .
(2) The necessity and financial
burden of private enforcement, or of enforcement by one public entity
against another public entity, are such as to make the award
appropriate , and (c) such .
(3) Those fees should not ,
in the interest of justice , be paid out of the
recovery, if any. With
(b) With respect to actions
involving public entities, this section applies to allowances
against, but not in favor of, public entities, and no claim shall be
required to be filed therefor, unless one or more successful parties
and one or more opposing parties are public entities, in which case
no claim shall be required to be filed therefor under Part 3
(commencing with Section 900) of Division 3.6 of Title 1 of the
Government Code.
Attorneys'
(c) Attorney's fees awarded to a
public entity pursuant to this section shall not be increased or
decreased by a multiplier based upon extrinsic circumstances, as
discussed in Serrano v. Priest , (1977)
20 Cal. 3d Cal.3d 25, 49.
(d) In an action based on Section 382, the judge may order a part
of the attorney's fees awarded pursuant to this section to be
withheld until the class members have received their portion of the
settlement funds.

Section (d) is the major deal point. Frankly, we're not so sure why everyone is excited about this. We've never even tried to structure a class action settlement in such a way that we would get our money before the class members get their money. We did once present a settlement agreement for preliminary approval which was worded in such a way that the judge thought it ambiguous enough to possibly mean that the attorney's fees, which were being deducted from the gross settlement proceeds, would be the first thing paid, and the judge withheld preliminary approval until we cleared that up for him. Those fees were not based upon section 1021.5, but if there is a significant difference that, under current law, allows the lawyers to get their fees under section 1021.5 before class member shares get distributed, we've never heard of it.

Supposedly, Tom Harman advanced this bill to prevent abuses like one which occurred in a Kentucky case in which the judge and the class counsel cheated the class by letting millions of dollars get funneled into a charity that the judge oversaw. But the bill wouldn't prevent that sort of abuse at all, because it merely provides that the judge "may" order a part of the fees to be paid later. If your judge was crooked, he or she probably wasn't going to exercise a lot of discretion to protect the class in the first place. It sounds like yet another legislative "fix" offered by Senator Harman for a problem that is merely theoretical.

The bill was voted down in committee, 3-2, on March 25, but a motion for reconsideration passed 5-0 that same day. If someone can explain that process to us, by all means, leave a comment.

Comments

[Victor]

I have an unrelated question about possible legislation. Have you heard whether the Legislature will be considering a fix for the Supreme Court's decision in Jones v. The Lodge at Torrey Pines? thanks

[michael walsh]

We haven't been following that issue as closely and we have nothing to report.

[Steve Kane]

This legislation reflects the mistaken belief that class actions benefit only the attorneys. A few years ago I represented a class consisting of elderly persons defrauded in an international banking scheme. The class members got about 45% of their losses back through the bankruptcy court, but we were able to recover enough from a corporate defendant to increase their recovery to 98% of what had been taken from them. One class member got a check for $186,000.00. It was more than half of her life savings. I doubt that you could convince this lady that class actions only reward the lawyers.

A few bad apples, including some bad judges, have given class actions a bad name and corporations and insurance companies have certainly encouraged this.

As you point out, this bill is a solution without a problem.

[Kimberly A. Kralowec]

The problem with subd. (d) is that it would have been used to withhold the class attorneys' fees until every last one of the class members has received their share of the settlement. In other words, rather than ordering that the attorneys' fees be paid simultaneously with the class members' shares (which is how it usually works in my experience), the attorneys will have to wait until all the undeliverable mail comes back, skip-traces are done, new checks sent out, etc. etc. Another problem with subd. (d) is that it assumes that plaintiffs' attorneys are going to breach their ethical duties to the class absent a financial incentive not to. I have personally worked on a case in which significant work remained to be done to make sure all of the payments were received by all the class members, and I knew I was not going to be paid another dime for all of that work beyond the lump-sum fee that had already been awarded. Yet I did this work because that's part of class counsel's responsibility, ethical and otherwise. No court order withholding part of my fees was necessary to motivate me to complete my work on the case and fulfill my obligations to the class.