Tuesday, April 22, 2008
Court Affirms $2 Million Award of Attorney Fees
By SHERRI M. OKAMOTO, Staff Writer
The Court of Appeal for the First Appellate District found that the methodology employed by a trial court in calculating an attorney fee award of over $2 million as part of a $7 million class action settlement was not an abuse of discretion.
Div. One affirmed the award, which was calculated by using the percentages that a hypothetical enhanced fee would represent of the sum of the fee plus the aggregate value of the benefits claimed by class members.
Frank Chavez filed a class action suit against Netflix Inc., a membership-based on-line movie rental service for allegedly false and misleading advertising. Pursuant to the amended settlement agreement entered into by the parties, Netflix agreed to provide one month of free DVD rental services or upgrades to class members who claimed the benefit.
San Francisco Superior Court Judge Thomas J. Mellon Jr. affirmed the settlement agreement and awarded the class attorney fees.
Mellon reduced the proposed lodestar amount from $1,198,200 to $805,000 to account for duplicative work, excessive billing for document review, and time spent negotiating the amended settlement agreement, then established the lodestar multiplier by using the percentage of the fees awarded divided by a sum including both the class benefit and the amount of the fee award.
He adjusted the multiplier upward based on “the success achieved, the quality of the representation, and most particularly the rate of acceptance of the benefit offered to class members.”
Mellon calculated the total value of benefits claimed by 697,532 class members at $7,293,600 by multiplying the prices Netflix then charged for its services times the number of class members who had enrolled for benefits, and viewed the resulting number as equivalent to a contingency fee percentage ranging from 20 to 40 percent of total recovery after deducting costs.
Mellon awarded $2,040,000, or 21.8 percent of the total settlement value, including fees.
Four individuals then objected to the award as excessive and unsupported, and claimed in part that the factors Mellon relied upon to justify an upward adjustment of the lodestar were duplicative.
On appeal, Justice Sandra L. Margulies wrote that the Court of Appeal found no error or abuse of discretion in the trial court’s methodology. She noted that a lodestar enhancement based on “quality of representation” involves considerations that are not included in the factors justifying the hourly rates used for the lodestar calculation.
Margulies also reasoned that the “success achieved” and the “rate of acceptance of the benefit” factors were not necessarily identical. She wrote that the former “is a general category that includes all of the positive results achieved by the litigation,” while the later “focuses on a single, very specific factor that measures one aspect of the overall success achieved.” Accordingly, she concluded that the trial court did not err in mentioning both factors, while primarily relying on the more specific factor.
Further, although the objectors contended that the trial court should have employed the lodestar calculation methodology from Lealao v. Beneficial California, Inc. (2000) 82 Cal.App.4th 19, Margulies found the method used by the trial court and the method in Lealao were “merely different ways of using the same data—the amount of the proposed award and the monetized value of the class benefits—to accomplish the same purpose: to cross-check the fee award against an estimate of what the market would pay for comparable litigation services rendered pursuant to a fee agreement.”
Concluding that the trial court’s methodology accurately reflected the marketplace, she found that the trial court did not abuse its discretion in applying a percentage figure at the low end of the typical contingency contractual arrangement in order to calculate the multiplier in the context of this settlement.
Acting Presiding Justice William D. Stein and Justice Douglas E. Swager joined Margulies in her opinion.
Adam J. Gutride of Gutride Safier LLP who represented the class said that the attorney fees awarded were appropriate. Considering that the class obtained more than $7 million in benefits, he said “those fees were well earned given the amount of work in achieving that benefit.”
Counsel for the objectors and Netflix could not be reached for comment.
The case is Chavez v. Netflix, 08 S.O.S. 2247.
Copyright 2008, Metropolitan News Company