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.