BILL ANALYSIS
AB 456
Page 1
Date of Hearing: April 24, 2001
ASSEMBLY COMMITTEE ON JUDICIARY
Darrell Steinberg, Chair
AB 456 (John Campbell) - As Amended: April 17, 2001
SUBJECT : CLASS ACTIONS: ATTORNEY'S FEES
KEY ISSUE : SHOULD THE AMOUNT OF ATTORNEY'S FEES AWARDED TO
PREVAILING PLAINTIFF ATTORNEYS IN CLASS ACTIONS AGAINST THE
STATE, ANY OF ITS SUBDIVISIONS OR ANY NON-PROFIT ORGANIZATION BE
LIMITED?
SUMMARY : Seeks to limit awards of attorney's fees in specified
class actions. Specifically, this bill provides that, in all
class actions brought against the state, any of its
subdivisions, or any non-profit organizations, the amount of
attorney's fees awarded to the prevailing plaintiff attorneys
shall be limited, as follows:
1)The attorney's fees may not exceed $1,000 per hour or 15% of
the judgment, arbitration award or settlement amount,
whichever is less.
2)In deciding the appropriate amount, the judge, arbitrator, or
agreeing parties shall examine the attorney's billable hours
to determine whether they are reasonable and necessary and
shall review any prior settlement offers that may have been
declined.
3)If the judge or arbitrator determines that the billable hours
are not reasonable or necessary or if a reasonable settlement
offer was declined, the attorney's fee is limited to a maximum
of $500 per hour or 7.5% of the judgment, whichever is less.
EXISTING LAW :
1)Provides that, if a party refuses a formal offer to settle a
lawsuit and then fails to obtain a more favorable judgment at
trial, the party refusing the offer shall be required to pay
the costs incurred by the offering party from the time of the
offer. The "costs" that must be paid are usually limited to
the court fees paid by the offering party, expert witness
fees, and deposition costs. Even if a plaintiff wins at
trial, he or she must pay the defendant's costs if the final
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award is less than the refused offer. (Code of Civil
Procedure Section 998. All further statutory references are
to this code unless otherwise stated.)
2)Provides that, under the "American rule," each party to a
lawsuit pays their own attorney fees unless they agree
otherwise or are entitled to attorney's fees under a statutory
or judicially created exception. (Section 1021; see also
Trope v. Katz (1995) 11 Cal. 4th 274, 278-279.)
3)Provides that, in determining the amount of an award of
attorney's fees under the common fund doctrine, private
attorney general doctrine and in class actions, a court should
determine the compilation of time spent and reasonable
compensation of each attorney involved in the case. Using
these amounts as a "touchstone" or the lodestar, the court may
then increase or decrease the amounts, using a multiplier, to
reflect, among other things, the novelty and difficulty of the
questions presented, the extent to which the nature of the
litigation precluded other employment by the attorneys, and
the fact that an award against the state would ultimately be
paid by taxpayers. ( Serrano v. Priest (1977) 20 Cal. 3d 25.)
4)Provides that attorney's fees awarded to a public entity who
successfully sued another public entity under the private
attorney general doctrine shall not be increased or decreased
by the multiplier. (Section 1021.5.)
FISCAL EFFECT : The bill as currently in print is not keyed
fiscal.
COMMENTS : This measure limits awards of attorney's fees in
specified class actions. According to the author, the purpose
of the bill is to "return the focus and the settlements of class
action lawsuits to the victims. This bill will place a cap on
the fees that attorneys may receive in class action lawsuits
brought against the State of California and its entities." In
further comment on the bill, the author states:
In our system of checks and balances, it is the judicial
branch who rules on the legislature's intent of the laws
that are passed in our state. After hearing of the $88.5
million attorney's fee that was granted in the recent
action involving vehicle licensing fees (VLF), it was
abundantly clear that either our intent is unclear or
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wrong.
Class action lawsuits, where plaintiffs with similar
complaints are grouped together into one consolidated suit,
were originally intended to relieve the courts of having to
try a large number of similar cases. Class actions today
have primarily lost sight of their purpose-serving a need
for the victims -and are now vehicles for "entrepreneurial
litigation". To show what a booming business this is,
recent studies show that in the past 10 years, federal
class action filings have increased more than 300%, which
fails in comparison to state filings which have soared to
more than 1,000% increase.
? AB 456, will place the focus of class action lawsuits
back to where it is supposed to be, the victims. By
imposing a reasonable cap of at most and in only the most
risky cases, 15% of the judgement or settlement, or $1,000
per hour which ever is less, on the attorney's fees that
the prevailing plaintiff attorneys may receive in actions
brought against the state, any of its subdivisions, or a
nonprofit organization or corporation. It should be
stressed that the values noted above are rare maximums and
that a vast majority of the attorney's fees should not be
close to those figures. (Emphasis in original.)
Availability of "Multiplier." As noted above, courts may use a
"multiplier" to enhance the fee award of a successful plaintiff
to reflect, among other things, the novelty and difficulty of
the questions presented, the extent to which the nature of the
litigation precluded other employment by the attorneys, and the
fact that an award against the state would ultimately be paid by
taxpayers. ( Serrano v. Priest , supra.) In awarding attorney's
fees, courts first determine the "lodestar." The lodestar is
simply the number of hours reasonably worked multiplied by the
reasonable hourly rate. Once the lodestar is determined, courts
have discretion to increase or decrease the lodestar amount.
Typically, courts do this as a factor or number multiplied by
the lodestar. For example, a multiplier of 1.5 means the
lodestar figure is increased by 50%.
In Woodland Hills Residents Assn. v. City Council (1979) 23
Cal.3d 917, 933, the California Supreme Court stated that
"privately initiated lawsuits are often essential to the
effectuation of the fundamental public policies embodied in
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constitutional or statutory provisions... ." Thus, adequate
attorney's fees are necessary "to entice competent counsel to
undertake difficult public interest litigation." ( San Bernadino
Valley Audobon Society, Inc. v. County of San Bernadino (1984)
155 Cal.App.3d 738, 755.)
To carry out these purposes, courts have discretion to award
multipliers. Multipliers are awarded in relatively few cases.
Courts consider many factors in deciding whether or not to award
multipliers. One factor used is the "results obtained" factor.
This factor is affected by the litigation tactics of the
defendant. "[E]xcessively vexatious and often unreasonable
opposition" has justified a multiplier. (See, e.g., Crommie v.
PUC (N.D. Cal. 1994) 840 F. Supp. 719, 726.) Other factors
considered by courts include the "significant public interest
value," ( Crommie , 840 F.Supp. at 726) novelty and complexity,
and the contingent nature of the action. Courts also use
multipliers when attorneys represent "undesirable" plaintiffs,
or when the lawsuit itself is unpopular. (See e.g., Gomez v.
Gates (C.D. Cal. 1992) 804 F.Supp. 69.) Again, the
justification for these multipliers is to encourage competent
attorneys to take on difficult cases.
ARGUMENTS IN SUPPORT: In support of the measure, the Civil
Justice Association of California states:
Assembly Bill 456 is a step toward improving current class
action law under which too often too many suits end up with
consumers receiving little or no compensation and lawyers
pocketing huge amounts of money. Under a limit on
attorney's fees, plaintiffs' lawyers will be less likely to
focus on maximizing their compensation at their clients'
expense. AB 456 would stem the conflict of interest that
plaintiff lawyers face and help ensure fair settlements in
these cases for the individuals who have been harmed.
In explaining its support for the bill, the California Chamber
of Commerce notes:
The California Chamber of Commerce SUPPORTS AB 456 because
it attempts to reform the current system where plaintiffs'
lawyers receive more money than the people they represent
in class action suits against our members.
AB 456 requires class action attorney fees be the lesser
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amount of $1,000 per hour, or 15% of the damages actually
paid to class members. In deciding on an appropriate
amount, the attorney's billable hours may be examined to
determine whether they are reasonable and necessary. AB
456 would help to ensure that the money our members pay in
damages to consumers actually goes to the consumers who
have been injured.
ARGUMENTS IN OPPOSITION: The Western Center on Law & Poverty
opposes this measure, stating:
The rigid arithmetic formula established in the bill would
discourage legal protection of important rights which do
not have large monetary value. The availability of
attorney's fees in class action cases often permits
enforcement of laws which would otherwise be violated with
impunity. This applies to a wide array of laws protecting
the public and disadvantaged communities, including ethnic
minorities and the poor. Often, the monetary claims in a
class action case are nonexistent or less important than
injunctive relief. This is commonly the case in litigation
brought by lawyers representing indigent clients.
Similarly, arduous and creative legal work may take years
and result in a recovery which may be significant for the
injured plaintiffs but may not be as much as the attorney's
fees required to win the case. This is precisely the type
of case which statutes such as Code of Civil Procedure
1021.5, the private attorney general statute, were meant to
encourage. ?
There are many instances when injured persons would not
receive justice if it were not for statutory provisions
that allow for attorney's fees to be awarded to the
prevailing party. For example, in class action wage and
hour cases, the damages for each member of the class may be
relatively low, even though the harm committed was
cumulatively significant. Attorney's fees in those cases,
if charged to the class, would eat up the entire damage
award. Thus, the potential for an attorney's fee award is
a significant incentive for lawyers to take cases they
might not otherwise take. Artificially limiting this
incentive will surely lead to some not getting the justice
they deserve.
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Consumer Attorneys of California (CAOC) also opposes the
measure, arguing that it "would thwart the purpose of class
action lawsuits: to protect consumers." CAOC further states:
The California Supreme Court recently addressed the issue
of the appropriate standard for awarding prevailing
plaintiff attorney's fees in Ketchum v. Moss (2001) 24
Cal.4th 1122. The court rejected a flat hourly rate in
favor of a lodestar approach which is the basic fee for
comparable legal services in a community. Under that
approach, the fee may be adjusted by the court based on
factors including, (1) the novelty and difficulty of the
questions involved, (2) the skill displayed in presenting
them, (3) the extent to which the nature of the litigation
precluded other employment by the attorney, (4) the
contingent nature of the fee award. ?
Examples of the types of cases that would be affected by AB
456 include Saenz v. Roe (1999) 526 U.S. 489, a class
action seeking injunctive relief challenging the durational
residency requirements of the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 (welfare to
work), and Serrano v. Priest (1977) 20 Cal.3d 25, a class
action challenging California's public school funding
scheme. ?
If the relief sought is injunctive, the bill is especially
onerous. For example, if the plaintiff class receives
nominal damages of $1, but wins injunctive relief, the fees
would be $.15, even where the class obtained substantial
injunctive and/or declaratory relief. Further, the AB 456
scheme ignores cost issues, which can be substantial and
are often paid out of the attorney's fees.
Pending Related Legislation.
AB 1504 (Robert Pacheco) would provide a method by which to
determine attorney fees in actions arising from a motor vehicle
accident and would require that, in a dispute involving damages
resulting from a motor vehicle accident, the attorney
representing the plaintiff make a written demand prior to filing
suit. The bill would require the demand to remain open, and the
defendant's offer in response to the demand to remain in effect,
for specified periods of time. The measure is scheduled to be
heard by this Committee in May.
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Prior Related Legislation.
AB 1912 (Ashburn) of 1998, which would have permitted a court to
award attorney's fees to a public entity sued as a defendant if
the public entity is the prevailing party in a private attorney
general action and the court finds that an award is "in the
interest of justice," died in this Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce
Civil Justice Association of California
Consulting Engineers and Land Surveyors of California
Tustin Chamber of Commerce
Opposition
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
Congress of California Seniors
Consumer Attorneys of California
Engineers and Scientists of California
Foundation for Taxpayer and Consumer Rights
Hotel Employees, Restaurant Employees International Union
Region 8 States Council of the United Food & Commercial Workers
Mexican American Legal Defense and Educational Fund
Western Center on Law and Poverty
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334