Gamble v. Kaiser Foundation Health Plan, Inc.
4:17-cv-06621
| N.D. Cal. | Jul 19, 2019Background
- Plaintiffs Lunell Gamble and Sheila Kennedy filed a putative class action under Title VII and FEHA; their counsel sought a pre-settlement order under Rule 16 and the court’s inherent powers to prescribe settlement/fee negotiation parameters and to bless his retainer.
- Retainer provisions: counsel claimed statutory and common-law fee rights as attorney property; included an assignment of any statutory fee recoveries to counsel; allowed counsel to negotiate/settle statutory fees separately; and imposed a penalty if client waived statutory fees in settlement (client would owe counsel twice counsel’s lodestar or otherwise pay a multiplier).
- Counsel asserted defendants condition settlements on a waiver of statutory fees and that, under his retainer, clients would end up paying him directly if fees were waived, creating a potential conflict; counsel said he might withdraw if the court found a conflict.
- Plaintiffs moved for an order requiring separate negotiation of damages and statutory attorneys’ fees and for the court to decide fee disputes when parties agreed on damages but not fees.
- The court denied plaintiffs’ requested relief to dictate settlement terms, found the retainer created an inherent conflict rendering putative class counsel potentially inadequate under Rule 23, and stayed proceedings pending plaintiffs’ declaration of how they will proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court may order pre-settlement procedures requiring separate negotiation/determination of statutory attorneys’ fees | Plaintiffs sought a Rule 16 order requiring damage and statutory-fee negotiations be conducted separately and that unresolved fee disputes be submitted to the court | Defendants argued the court cannot dictate settlement terms negotiated by parties | Denied; court has no authority to dictate settlement terms or force parties to accept particular settlement provisions (Evans v. Jeff D.) |
| Whether retainer’s assignment and fee provisions create a conflict making counsel inadequate under Rule 23 | Plaintiffs’ counsel sought court confirmation that his fee agreement posed no conflict | Defendants argued retainer provisions were improper and created conflicts | Court found the retainer created an inherent conflict of interest that undermines counsel’s adequacy; proceedings stayed and plaintiffs ordered to state how to proceed |
| Enforceability of assignment of right to seek statutory fees in California and federal civil-rights context | Counsel relied on Flannery to assert attorneys may own FEHA fee awards and asserted contractual assignment | Defendants relied on Jeff D. and Pony to argue statutory fee-seeking rights vest in the prevailing party and are not transferable | Court held portions conflict with Jeff D. and Pony: plaintiffs’ assignment of the right to seek statutory federal fees is invalid; Flannery does not authorize the challenged settlement-veto provisions |
| Lawfulness of penalty provision (doubling lodestar if client waives statutory fees) and counsel’s veto power over settlements | Counsel argued contract terms were agreed and permissible; counsel invoked Venegas for enforceability of contingent-fee adjustments | Defendants and court argued the penalty effectively permits counsel to veto settlements, burdens client settlement decisions, and likely violates ethics rules and precedent | Court concluded the penalty and veto mechanism create an unlawful or at least pervasively prejudicial conflict; counsel’s conduct raises serious ethical/adequacy concerns |
Key Cases Cited
- Evans v. Jeff D., 475 U.S. 717 (1986) (statutory fee rights vest in prevailing party; court cannot force parties to accept settlements or dictate settlement terms)
- Venegas v. Mitchell, 495 U.S. 82 (1990) (statutory fee awards do not automatically displace contingent-fee contract entitlements)
- Pony v. County of Los Angeles, 433 F.3d 1138 (9th Cir. 2006) (plaintiff’s statutory right to seek attorney’s fees is not transferrable in California; retainer provisions to the contrary are void)
- Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998) (limits on court’s ability to alter settlement provisions in class actions and Rule 23 adequacy principles)
- Flannery v. Prentice, 26 Cal.4th 572 (Cal. 2001) (FEHA fee awards characterized as attorney property absent enforceable agreement; court did not decide whether clients may waive statutory fees to effect settlement)