Thayer v. Wells
From Stroock & Stroock & Lavan: The California Court of Appeal recently decided Thayer v. Wells Fargo Bank, N.A., 2001 Cal. App. LEXIS 775 (Oct. 2, 2001), concluding that, under appropriate circumstances, a court awarding attorneys' fees using a "lodestar" method may apply a negative multiplier to reduce the fee award. While not unprecedented, the use of a negative multiplier is nevertheless uncommon; accordingly, the decision may prove useful to defendants arguing for a reduction in fee awards, particularly in cases where a substantial amount of work is duplicated among multiple plaintiffs' attorneys, where the defendant makes a strategic decision to settle early or where the defendant has remedied the allegedly wrongful conduct and plaintiffs' counsel have nonetheless continued with litigation.

In Thayer, five separate class actions were filed by nine different law firms against Wells Fargo Bank, N.A. ("Wells Fargo") after Wells Fargo notified approximately 164,000 customers that, as of their next statement, their "free" checking accounts would be subject to regular monthly service and maintenance fees. With minor differences, all five actions sought relief under the Consumers Legal Remedies Act, California Civil Code Section 1750, et seq., and California's Unfair Competition Law, California Business and Professions Code Section 17200, et seq. Concurrent with its first answer, Wells Fargo informed plaintiffs and their counsel that it had changed its position on the monthly fee issue. Six days later, counsel in one of the class actions proposed terms for the settlement of all five cases and, four days after that, Wells Fargo mailed a letter to the 164,000 affected customers reinstating their fee waivers for life. Subsequently, the parties reached an agreement in principle as to settlement, and, shortly afterward, plaintiffs' counsel notified the court that the only remaining question was that of attorneys' fees.

Wells Fargo did not dispute plaintiffs' right to attorneys' fees; however, protracted settlement negotiations and motion practice, including with respect to coordination of the actions, delayed execution of the settlement by nearly a year. The trial court ultimately awarded attorneys' fees among the nine participating plaintiffs' firms approximating $1.1 million, using a "lodestar" based on attorney time records and billing rates and a multiplier of two, which the court applied to the first and third "periods" of the litigation. After filing an appeal, Wells Fargo entered into settlement agreements regarding eight of the nine attorneys' fees awards. Both Wells Fargo and the sole holdout, represented by attorney Sherman Kassof ("Kassof"), appealed the amount of the remaining award.

On appeal, Wells Fargo did not challenge the lodestar arrived at by the trial court, but claimed that the amount of time spent on the case by Kassof was unreasonable and that the trial court should have used a negative multiplier. The Court of Appeal agreed. In a harshly critical examination of the course of the litigation, the court determined that duplication of effort was the "hallmark" of the proceeding--observing, for example, that plaintiffs' attorneys spent approximately 20% of their total billed time communicating among themselves, more than twice the time spent communicating with the defendant or court. As to Kassof himself, the court observed that, while plaintiffs in the other cases were "invariably" represented by a single attorney at hearings and status conferences and had effectively designated informal liaison counsel, Kassof and his co-counsel appeared personally on virtually every occasion even though they did little more than concur with the attorneys who made the bulk of the presentations.

Holding that there was no "reasonable basis" for the trial court's award to Kassof, the court concluded that application of a negative multiplier reducing Kassof's basic lodestar award was warranted. Although the Court of Appeal declined to set the amount of the award itself or give any specific direction to the trial court, the court noted that it was foreclosing the option of denying Kassof any award only because Wells Fargo had not previously made such an argument. As for Kassof's cross-appeal, which the Court opined would qualify for a "chutzpah award" in the Federal Circuit, the Court held that courts awarding fees using a lodestar method where the class recovery could be monetized were authorized to use a positive multiplier based on the amount of the award where appropriate, but were not required to do so.

While it is difficult to predict the impact that Thayer will have on courts in California, at least two results appear likely. First, despite its unique facts, by expressly endorsing negative multipliers, Thayer likely will serve as a counterweight to existing California case law, where use of a positive multiplier often is taken for granted. Thus, defendants may argue to limit the size of any multiplier used, particularly in non-common-fund cases, even if the use of a negative multiplier is inappropriate. Second, by focusing on the duplication of effort inherent in multiple class action cases, and by castigating the trial court for failing to take a more active role, Thayer may make trial courts more cognizant of the (at least perceived) benefits of active management of class actions and counsel by the courts.


2003 The Federalist Society