Friday, September 26, 2003
‘Catalyst’ Fee Award for Lottery Changes Overturned
By DAVID WATSON, Staff Writer
The Third District Court of Appeal yesterday overturned a $352,000 fee award won by a woman whose lawsuit brought about changes in the California Lottery’s scratch-off game procedures.
The appellate court said the award made by then-Sacramento Superior Court—now U.S. District Judge—Morrison C. England Jr. to Amy Stanley under the state’s “private attorney general” statute, Code of Civil Procedure Sec. 1021.5, could not be upheld because England had sustained the lottery’s demurrer to her complaint.
Writing for the appellate panel, Justice Daniel Kolkey said the issue posed by the case was “whether a plaintiff may be deemed a ‘successful party’ entitled to recover attorney fees—where all of plaintiff’s claims have been denied as a matter of law and plaintiff has never received any type of judicial relief during the proceeding.”
“We conclude that the term, ‘successful party,’ cannot be stretched that far.”
Stanley’s suit against the California State Lottery Commission alleged the lottery continued selling scratcher tickets after all the major prizes had already been awarded or claimed. It sought damages and equitable relief on theories including breach of contract, breach of express and implied warranty, breach of the implied covenant of good faith and fair dealing, and breach of the Lottery Commission’s duty under Government Code Sec. 8880.24 to ensure that the State Lottery complied with the letter and spirit of the laws governing false advertising.
After England sustained, without leave to amend, the lottery’s demurrer to all causes of action other than the Sec. 8880.24 claim, Stanley amended her complaint to seek an injunction ordering the lottery to comply with the statute by ceasing to advertise its major prizes unless it notified purchasers when those prizes were no longer available.
In response the lottery again demurred, claiming the request for injunctive relief was moot because it had already modified game procedures to ensure that ticket sales for each game would stop once the last top prize had been given out.
Though England rejected that argument, he eventually ruled there was no private right to enforce Sec. 8880.24 and that the lottery, as a state agency, was immune from Stanley’s suit under Government Code Sec. 815.6. But he awarded Stanley fees under Sec. 1021.5, ruling the suit served as a “catalyst” for “significant changes” in the scratch-off game.
Kolkey conceded that the “catalyst” theory for awarding Sec. 1021.5 fees was adopted by the state Supreme Court in Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal.3d 348. But he said England abused his discretion in awarding fees to Stanley.
While the state high court has construed “successful party” under Sec. 1021.5 as having a broader meaning than prevailing party, Kolkey said, he noted that the law permits a fee award only where the action results in “the enforcement of an important right affecting the public interest.”
The statute’s use of the word “enforcement” implies that a fee award is only appropriate where the action somehow compels the result sought, the justice explained.
“[A]n action can hardly ‘compel’ such an outcome where the action is deemed meritless as a matter of law and has never resulted in the issuance of any judicial relief,” Kolkey declared.
The justice said that in all the reported cases upholding private attorney general fee awards where the plaintiff did not win the lawsuit “the court issued some form of relief...or the successful party achieved a binding settlement to resolve the action....”
“[W]e are aware of no case that has deemed a plaintiff ‘successful’ within the meaning of section 1021.5 where the trial court has denied all of the plaintiff’s claims as a matter of law and granted plaintiff no interim relief during the course of the proceedings.”
England’s award stretched the catalyst theory “beyond its logical breaking point” by making “a legally meritless action the catalyst for the enforcement of a right the action was deemed unable to enforce,” Kolkey said.
“[R]espect for our Legislature’s use of the term ‘successful party’ in the context of an action that ‘has resulted in the enforcement of an important right’ precludes an interpretation of section 1021.5 that authorizes an award of attorney fees incurred by a party whose claims have all been denied as a matter of law, against whom a judgment has been entered, and to whom no interim judicial relief has been granted.”
Fee awards under such circumstances would only “encourage nuisance suits,” contrary to the purpose of the statute, Kolkey said.
Kolkey also pointed out that the issue of whether the “catalyst” theory of private attorney general fee awards is still viable in California in light of the U.S. Supreme Court’s ruling in Buckhannon Board and Care Home, Inc. v. West Virginia Department of Health and Human Resources (2001) 532 U.S. 598 is now before the state Supreme Court in Graham v. DaimlerChrysler Corp., S112862.
Justices Coleman A. Blease and Vance W. Raye concurred.
The case is Stanley v. California State Lottery Commission, C041036.
Copyright 2003, Metropolitan News Company