27 Cal. App. 5th 1001
Cal. Ct. App. 5th2018Background
- Lofton class action (state court) settled for $19 million to compensate home mortgage consultants allegedly misclassified by Wells Fargo; class counsel sought court approval and notice was sent to class members.
- Initiative Legal Group (ILG) represented ~600 of the same consultants in parallel individual and small-group actions; ILG negotiated a separate, undisclosed $6 million lump-sum from Wells Fargo in 2011–2012, allocating $750 to each client and claiming the balance (~$5.4–5.5M) as attorneys’ fees.
- ILG did not disclose its separate fee arrangement to the Lofton court or class; many ILG clients participated in Lofton and did not opt out, and ILG directed clients to submit claims to the Lofton settlement administrator.
- After appellate interim relief (Lofton I) froze the ILG funds, the trial court on remand found ILG’s claimed fees belonged to the Lofton common fund, ordered the nearly $5.5 million deposited with the court distributed to Lofton claimants, and required ILG to reimburse amounts ILG had paid to three ‘‘class representative’’ clients.
- ILG appealed, challenging jurisdiction, characterization of the fees, need to vacate the Lofton settlement, privilege/due process, intervention timeliness, and disgorgement; the Court of Appeal affirmed the trial court in all respects and sent a copy to the State Bar.
Issues
| Issue | Plaintiff's Argument (Maxon/Lofton/class) | Defendant's Argument (ILG) | Held |
|---|---|---|---|
| Jurisdiction to order relief over ILG settlement proceeds | Court had authority to protect class fund and enforce settlement; remand allowed review | Trial court lacked jurisdiction / exclusive concurrent jurisdiction absent first-filed state case | Affirmed: court had equitable power, §128 and §664.6 authority; Mevorah/Lofton treated as the same controversy so jurisdiction appropriate |
| Characterization of ILG’s $5.4M as common-fund attorneys’ fees | Funds derived from claims that belonged to Lofton class; fee allocation required court review to prevent unjust enrichment | ILG: fees resulted from private agreement with clients; not part of class settlement; court should not recharacterize | Affirmed: factual findings supported that ILG clients were class members and ILG’s fee claims arose from claims extinguished by Lofton; fees belong to common fund and require court approval |
| Distribution/disgorgement of funds (including $22,500 to three clients) | Funds should be paid to class; ILG concealed deal and failed to seek court approval; payments to three clients were improper service awards/fee-splitting | ILG: funds already disbursed to clients; court cannot disgorge money it never had; if fee part of settlement, court should vacate and re-notice | Affirmed: court did not abuse discretion to deny ILG fees and direct funds to class; disgorgement/order to reimburse was supported by record and ILG’s control over fund |
| Procedural protections, privilege, intervention timeliness, and need to vacate Lofton | Class interests required protection; intervenor motions untimely; mediation/attorney-client privilege not violated by the court’s use of available representations | ILG: due process violated (couldn’t present privileged client communications); mediation privilege breached; Summers/Kaye intervention timely; court should have vacated settlement instead of reallocating funds | Affirmed: ILG failed to show prejudice or waiver; intervention untimely; mediation privilege not invaded; no vacatur required because reallocation did not materially alter Lofton terms |
Key Cases Cited
- Lofton v. Wells Fargo Home Mortgage, 230 Cal.App.4th 1050 (affirming TRO and describing jurisdictional bases for reviewing ILG fees)
- Laffitte v. Robert Half Internat., Inc., 1 Cal.5th 480 (common fund doctrine and fee-spreading in class settlements)
- Lealao v. Beneficial California, Inc., 82 Cal.App.4th 19 (trial court oversight of common fund fee awards)
- Thayer v. Wells Fargo Bank, 92 Cal.App.4th 819 (attorney fee review in common-fund contexts)
- In re Vitamin Cases, 110 Cal.App.4th 1041 (court review of fee allocations from settlements)
- Consumer Privacy Cases, 175 Cal.App.4th 545 (deferential review of trial court fee decisions and class fiduciary duty)
- Kullar v. Foot Locker Retail, Inc., 168 Cal.App.4th 116 (court must evaluate fairness of class settlements despite mediation)
- Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Inc., 225 Cal.App.4th 786 (abuse of discretion standard for injunctive relief)