MIKE HERNANDEZ et al., Plaintiffs and Respondents; FRANCESCA MULLER, Plaintiff and Appellant, v. RESTORATION HARDWARE, INC., Defendant and Respondent.
S233983
Supreme Court of California
January 29, 2018
Ct.App. 4/1 D067091; San Diego County Super. Ct. No. 37-2008-00094395-CU-BT-CTL
CHIN, J.
FACTUAL AND PROCEDURAL BACKGROUND
In 2008, plaintiff Michael Hernandez filed a class action law suit against defendant Restoration Hardware, Inc. (RHI), alleging the company committed numerous violations of the Song-Beverly Credit Card Act (the Act) when it asked for and recorded ZIP codes from customers who used credit cards in making RHI purchases. (
In June 2013, a notice to potential class members advised them of the pending class action and presented them with the following options: (1) they could remain as part of the class and be bound by the judgment, or (2) they could exclude themselves from the class (opt out) and not be bound by the judgment. (
Following a bench trial, the court found RHI liable for “as many as” 1,213,745 violations of the Act, set a penalty of $30 per violation, and rendered a judgment against RHI in the amount of $36,412,350. The court ordered the parties to meet and confer on the claims process and procedures for distributing the award, “including a means for RHI to challenge the accuracy of any recorded ZIP codes.”
The parties met and agreed that the judgment of $36,412,350 was based on the maximum number of violations at $30 per violation, and that sum would be treated as a common fund inclusive of any attorney fees, costs, and class representative enhancements. RHI waived its right to appeal the judgment. Muller never moved to intervene during the bench trial on the merits by filing a formal complaint in intervention under
After conducting negotiations with RHI, Representatives then moved for attorney fees “equivalent to 25 percent of the total judgment recovered for the class.” The trial court requested that Representatives submit a supplemental motion for attorney fees with a “lodestar calculation” as a cross-check on the fee request. Representatives calculated the fee amount using a lodestar calculation and multiplier that showed class counsel spent over 3,500 hours on the litigation and incurred advanced costs and fees of nearly $2.7 million. Representatives also submitted reasons for supporting “application of a ‘multiplier’ to the lodestar calculation.” RHI agreed not to oppose the requested fee award if class counsel sought no more than 25 percent of the total recovery. (See Ruiz v. California State Automobile Assn. Inter-Insurance Bureau (2013) 222 Cal.App.4th 596, 598 [allowing counsel for plaintiff class to seek attorney fees award with defendant‘s assurance not to oppose fee application if amount is less than or equal to specified dollar amount].)
Muller was served with the attorney fees motion and a copy of class counsel‘s percentage of the common fund calculation, but did not object to the proposed total fee award. Instead, on August 29, 2014, she filed a “Request for Clarification” and asked to appear telephonically at the settlement fairness hearing on the fee proposal. The request stated that “[t]he parties’ pleadings do not indicate that class members were notified of the settlement of the attorney fees issue and of the hearing on September 5, 2014, to approve [c]lass [c]ounsel‘s fee request.” The trial court permitted Muller to file her request.
Before its scheduled fairness hearing on the proposed class attorney fees settlement, the court issued its tentative ruling on the fee request, determining that (1) California law permits a percentage award in common fund cases, (2) courts use a 25 percent fee figure as a “starting benchmark,” and (3) a fee at or above the benchmark was appropriate because of the risks counsel incurred when they brought the action and the result they obtained in the litigation. All parties and Muller‘s attorney received a copy of the tentative ruling by e-mail.
On September 5, 2014, the court held a fairness hearing on Representatives’ attorney fees application. Muller, who appeared telephonically through her counsel, objected to the court‘s consideration of the proposed fee award. (See
After the hearing on the settlement of the proposed fee award, the court issued a “Second Amended Minute Order” denying Muller‘s request for clarification and approving the fee and costs requests. On September 29, the court filed its final judgment that tracked the parties’ claims process and granted class counsel‘s requested attorney fees award. Class counsel then distributed a notice of the judgment to class members, including instructions for the claims process.
Muller did not file a
Representatives challenged Muller‘s claims on their merits. They also challenged Muller‘s right to file her appeal because she was neither a “party” nor “aggrieved” by the trial court‘s alleged erroneous judgment as required under
DISCUSSION
The class action is codified in
” ’ “The right to appeal judgments in state civil actions, including class actions, is entirely statutory, so long as the Legislature does not ‘substantially impair the constitutional powers of the courts, or practically defeat their exercise.’ ” ’ ” (Powers v. City of Richmond (1995) 10 Cal.4th 85, 110.) Unnamed class members may become parties of record to class actions in one of two generally acceptable ways. First, they may file a timely complaint in intervention before final judgment that sets forth the grounds upon which the intervention rests. (
Second, although not a method of intervention, an unnamed party to the action may also become a named party by filing an appealable motion to set aside and vacate the class judgment under
Representatives assert that because Muller was an unnamed class member who never exercised her right to intervene during the class action by filing a complaint in intervention under
Muller, on the other hand, urges us to overrule Eggert as a “remnant of a bygone era,” that is out of step with current class action practice. She repeats her Court of Appeal argument that Eggert‘s bright-line rule has been superseded by several more recent Court of Appeal decisions that were influenced by 1966 amendments to
In Eggert, the plaintiff, as holder of a “Fidelity Definite Term Certificate” initiated a class action on behalf of himself and approximately 1,500 certificate
The court appointed a receiver to facilitate payment of the judgment and directed both the plaintiff and interested persons to show cause why it should not order fixed attorney fees. (Eggert, supra, 20 Cal.2d at p. 200.) Notice of the order was published daily until the return date. (Ibid.) At the hearing on the plaintiff‘s motion for the receiver to pay the judgment after deducting the attorney fees, an attorney representing the objectors appeared and contested the petition‘s attorney fees provision. (Ibid.) After the court granted the petition in the plaintiff‘s favor, both objectors filed an appeal on behalf of themselves and all other certificate holders who were without legal representation. (Ibid.) They also petitioned this court for a writ of supersedeas, hoping to stay the trial court‘s order to pay the attorney fees. (Ibid.)
Eggert dismissed the objectors’ appeal and denied their application for a writ of supersedeas to stay the execution of the trial court‘s fee order. (Eggert, supra, 20 Cal.2d at p. 200.) Noting that “it is a settled rule of practice in this state that only a party to the record can appeal,” Eggert refused to grant party status to the objectors (who were never named as parties of record to the class action) even though their names and interest in the action were included in the exhibit to the complaint, and their attorney had appeared at the hearing on petition for payment of attorney fees to object to the fee payment. (Id. at p. 201.) As Eggert observed,
Although Eggert‘s analysis provides the court with sound guidance for interpreting current
As the Court of Appeal observed, none of the cases on which Muller relies “made any effort to reconcile their conclusions with Eggert.” But instead, their
As the Court of Appeal noted, in focusing primarily on the “aggrieved” element of
Muller contends that even if Trotsky misinterpreted
Federal and state courts are far from uniform on whether Devlin‘s rule even applies to all class proceedings, including opt-out class actions. Some courts limit Devlin to cases in which the unnamed class members had no ability to opt out of the class and either objected or intervened during the settlement proceedings. (See, e.g., Day v. Persels & Associates, LLC (11th Cir. 2013) 729 F.3d 1309, 1318-1319, 1321 [distinguishing Devlin to hold that unnamed absent class members who do not opt out are not “parties” to the litigation under 28 U.S.C. § 636(b), (c), and noting three ways to obtain party status, including intervention under
Other federal and state courts hold that Devlin applies to all class actions, including opt-out actions filed under
We are not persuaded by the courts that have adopted Devlin as their rule. Our state common law, legislation, and procedural rules of court differ significantly from the federal common law and procedural rules. (Compare
Muller alternatively claims that because a class settlement is generally binding on all class members (assuming class representatives have complied with due process regarding notice and adequate representation), we should create an exception to Eggert that allows members to appeal their denied objections to settlement without formal intervention. (See DeLeon v. Verizon Wireless, LLC (2012) 207 Cal.App.4th 800, 807, fn. 3 [res judicata bars settling class members from thereafter seeking relief].) We decline to do so. Following Eggert and requiring intervention does not discourage unnamed class members from filing a meritorious appeal. Rather, it continues a manageable process under a bright-line rule that promotes judicial economy by providing clear notice of a timely intent to challenge the class representative‘s settlement action. Formal intervention also enables the trial court to review the motion to intervene in a timely manner. Muller had the opportunity to intervene in the trial court proceedings but chose not to do so. Instead, she made a strategic choice to wait and see if she agreed with the settlement amount and attorney fees agreement. By filing an appeal without first intervening in the action however, Muller never became an “aggrieved party”
Several policy considerations provide additional support for Eggert‘s continued viability. Meritless objections “can disrupt settlements by requiring class counsel to expend resources fighting appeals, and, more importantly, delaying the point at which settlements become final.” (Fitzpatrick, The End of Objector Blackmail? (2009) 62 Vand. L.Rev. 1623, 1634.) These same objectors who appear and object to proceedings in different class actions—also known as “professional objectors,” are thought to harm the class members whose interests they claim to protect. “First, professional objectors’ almost invariably groundless objections delay the provision of relief to class members who, in most instances, have already waited years for resolution. Second, by feeding off the fees earned by class counsel who took the risk of suing defendants on a purely contingent basis, as is the normal practice in class actions, professional objectors create a disincentive for class counsel to take on such risky matters. That disincentive clashes with the public interest, repeatedly recognized by courts, to incentivize class counsel to handle such cases.” (Greenberg, Keeping the Flies out of the Ointment: Restricting Objectors to Class Action Settlements (2010) 84 St. John‘s L.Rev. 949, 951.)
Additionally, class representatives do not proceed in a vacuum that protects their interests only. Our case law imposes strict fiduciary responsibilities on class representatives and class counsel to ensure the litigation proceeds in the best interests of all unnamed class members. (See, e.g., Laffitte v. Robert Half Internat., Inc. (2016) 1 Cal.5th 480, 510 [trial court acts as fiduciary ” ‘guarding
Muller also fails to justify her request that we overrule Eggert under the well-established jurisprudential rule of stare decisis that we follow prior applicable precedent even though the case, if considered anew, might be decided differently. This is so parties can “regulate their conduct and enter into relationships with reasonable assurance of the governing rules of law.” (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 481, at p. 541, and cases cited; id. at p. 540.) Although the doctrine is flexible because it permits this court to reconsider, and ultimately depart from, our own precedent when changes or developments in the law recommend it (see id., § 482, pp. 541-543), we conclude that Muller presents no persuasive reason for us to reconsider Eggert‘s rule, much less depart from it. The contours of
CONCLUSION
The Legislature has limited the right of unnamed class members to appeal by expressly requiring that class action objectors who wish to appeal be parties of record who have been aggrieved by the court‘s decision. (
CHIN, J.
WE CONCUR:
CANTIL-SAKAUYE, C. J.
CORRIGAN, J.
CUÉLLAR, J.
KRUGER, J.
NICHOLSON, J.*
* Associate Justice of the Court of Appeal, Third Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Under Eggert v. Pac. States S. & L. Co. (1942) 20 Cal.2d 199 (Eggert), absent class members must formally intervene or file a motion to vacate the judgment in order to have the right to appeal as a party. (Id. at pp. 200–201; see
Eggert long predates the development of the modern class action and the emergence of the settlement practices that now resolve the majority of class actions. In the seven decades since Eggert was decided, we have gained a better understanding of the agency problems posed by class action settlements, including the difficulties of monitoring class counsel who are often incentivized to settle and possibly collude with defendants. (See Erichson, The Problem of Settlement Class Actions (2014) 82 Geo. Wash. L.Rev. 951, 957–965; Coffee, The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action (1987) 54 U. Chi. L.Rev. 877, 883–889; see generally Issacharoff, Class Action Conflicts (1997) 30 U.C. Davis L.Rev. 805.)
In light of these understandings, the high court has concluded that nonnamed class members who object at a settlement fairness hearing are entitled to appeal. (See Devlin v. Scardelletti (2002) 536 U.S. 1, 11 (Devlin).) Devlin emphasized that the ability to appeal overruled objections “cannot be effectively accomplished through the named class representative — once the named parties reach a settlement that is approved over petitioner‘s objections, petitioner‘s interests by definition diverge from those of the class representative.” (Id. at p. 9.) Other appellate courts have also recognized this aspect of class action settlements: After a proposed settlement has been reached, the plaintiffs and defendants are no longer adversaries. “In such circumstances, objectors play an important role by giving courts access to information on the settlement‘s merits.” (Bell Atlantic Corp. v. Bolger (3d Cir. 1993) 2 F.3d 1304, 1310; see Redman v. RadioShack Corp. (7th Cir. 2014) 768 F.3d 622, 629 [“When there are objecting class members, the judge‘s task is eased because he or she has the benefit of an adversary process: objectors versus settlors.“]; Fitzpatrick, The End of Objector Blackmail? (2009) 62 Vand. L.Rev. 1623, 1630 (hereafter Fitzpatrick) [“[W]ithout objectors there would be no adversarial testing of class action settlements at all.“].)
There is also reason to question the practical and policy advantages of the Eggert rule. It is true that if absent class members do not want to be bound by a settlement or judgment, they can opt out. But class members must decide whether to opt out before they have the opportunity to object to the resolution of the class claims. That was the case here: Class members had to opt out of the litigation by August 2013, but the trial court did not issue its proposed judgment until March 2014. The fact that absent class members who do not opt out of the litigation are bound by the judgment is precisely the reason why the high court granted them the right to appeal in Devlin. (Devlin, supra, 536 U.S. at p. 10.)
Further, although a requirement that absent class members formally intervene for purposes of appeal offers “a bright-line rule” (maj. opn., ante, at p. 14), a rule that absent class members who appear and object at a settlement fairness hearing have the right to appeal is similarly clear and orderly. Moreover, objecting at the fairness hearing, just like intervention, puts the parties on sufficient notice regarding the nature of the objections and creates a record for appeal.
There is a legitimate concern that the efficiencies of a class action would be defeated by “[m]eritless objections” raised by ” ‘professional objectors.’ ” (Maj. opn., ante, at p. 15.) But, as Devlin explained, “the power to appeal is limited to those nonnamed class members who have objected during the fairness hearing,” and such appeals must be limited to the overruled objections. (Devlin, supra, 536 U.S. at p. 11.) Indeed, studies show that few class members in fact object to settlements. (Fitzpatrick, supra, 62 Vand. L.Rev. at pp. 1630–1631 [noting that “the median number of objections to a settlement was three — well less than one-tenth of one percent of class members“].) Although the possibility of lawyer-driven objector “blackmail” is real (id. at pp. 1633–1638), categorically denying objectors the right to appeal may not offer the best solution. (See Vaughn v. Am. Honda Motor Co. (5th Cir. 2007) 507 F.3d 295, 300 [“[I]mposing too great a burden on an objector‘s right to appeal may discourage meritorious appeals or tend to insulate a district court‘s judgment in approving a class settlement from appellate review.“]; Fitzpatrick, at p. 1638 [“To believe that class action objectors have the power to blackmail class counsel is not, of course, to say that all objections are an attempt to do so. Courts and commentators note that objectors can serve a very positive role in class action settlements by bringing attention to flaws in those settlements.“].)
Instead of restricting the right to appeal, courts and class counsel can invoke other mechanisms to limit the ability of professional objectors to delay class action settlements, such as imposing sanctions for frivolous appeals, expediting appeals, or requiring objectors to post a bond before taking an appeal. These approaches, among others, have been employed to varying degrees in federal class action practice. (See Lopatka & Smith, Class Action Professional Objectors: What to Do About Them? (2012) 39 Fla. St. U. L.Rev. 865, 896–918.) Other solutions can be implemented through legislation or amendments to court rules. For example, as amicus curiae Consumer Attorneys of California notes, the Advisory Committee on Federal Rule of Civil Procedure 23 recently proposed changes requiring objectors to state whether their objection “applies only to the objector, to a specific subset of the class, or to the entire class, and also state with specificity the grounds for the objection.” (Advisory Committee on Civil Rules, Report of the Advisory Committee on Civil Rules (May 12, 2016), at p. 3.)
I express no definitive view on the merits of these alternatives. I simply note that the rule announced more than 75 years ago in Eggert may no longer strike an appropriate balance among the competing policy concerns raised by this case. Many courts in California and other jurisdictions have declined to follow Eggert‘s rule. (Maj. opn., ante, at pp. 10, 13.) The Legislature may wish to revisit this issue in light of the current landscape of class action practice.
LIU, J.
Name of Opinion Hernandez v. Restoration Hardware, Inc.
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 245 Cal.App.4th 651
Rehearing Granted
Opinion No. S233983
Date Filed: January 29, 2018
Court: Superior
County: San Diego
Judge: William S. Dato
Counsel:
Law Office of Lawrence W. Schonbrun and Lawrence W Schonbrun for Plaintiff and Appellant.
Patterson Law Group, James R. Patterson, Allison H. Goddard; Stonebarger Law, Gene J. Stonebarger and Richard D. Lambert for Plaintiffs and Respondents.
Nelson & Fraenkel, Gretchen M. Nelson; Hagens Berman Sobol Shapiro and Kevin K. Green for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Respondents.
No appearance for Defendant and Respondent.
Lawrence W Schonbrun
Law Office of Lawrence W. Schonbrun
86 Eucalyptus Road
Berkeley, CA 94705
(510) 547-8070
Allison H. Goddard
Patterson Law Group
402 West Broadway, 29th Floor
San Diego, CA 92101
(619) 756-6990
Kevin K. Green
Hagens Berman Sobol Shapiro
525 B Street, Suite 1500
San Diego, CA 92101
(619) 929-3340