Laffitte v. Robert Half Int'l: Supreme Court Approves Attorney Fees Calculated as Percentage of Common Fund Class Action Settlement

In Laffitte v. Robert Half International, Inc. (2016) 1 Cal.5th 480, the California Supreme Court upheld an award of common fund attorney fees in a class action settlement. The introduction to the opinion gives a good summary of the facts and holding:

A class action employment lawsuit settled before trial for $19 million, with the agreement that no more than a third of that recovery would go to class counsel as attorney fees. In seeking the trial court's approval of the settlement, class counsel sought the maximum fee amount, $6,333,333.33. After considering information from class counsel on the hours they had worked on the case, applicable hourly fees, the course of the pretrial litigation, and the potential recovery and litigation risks involved in the case, the trial court — over the objection of one class member — approved the settlement and awarded counsel the requested fee. 

The objecting class member contends the trial court's award of an attorney fee calculated as a percentage of the settlement amount violates a holding of this court in Serrano v. Priest (1977) 20 Cal.3d 25 (Serrano III), to the effect that every fee award must be calculated on the basis of time spent by the attorney or attorneys on the case. (See Serrano III, at p. 48, fn. 23.) We disagree. Our discussion in Serrano III of how a reasonable attorney fee is calculated was made in connection with an award under the "private attorney general" doctrine. (See id. at pp. 43-47.) We clarify today that when an attorney fee is awarded out of a common fund preserved or recovered by means of litigation (see Serrano III, supra, at p. 35), the award is not per se unreasonable merely because it is calculated as a percentage of the common fund.

The Court reasoned as follows:

Attorney fee awards in class actions are subject to an abuse of discretion standard of review.

Attorney fees may be calculated in one of two ways: the percentage method (a percentage of the common fund or settlement value); or the lodestar-multiplier method (reasonable hours multiplied by reasonable hourly rates multiplied by an amount more or less than 1.0 to account for factors such as the risks taken and results achieved). Each method is subject to criticism and each has been used more commonly than the other at various times.

Since the 1980s, a majority of courts have used the lodestar-multiplier method when one side must pay the other's fees and the percentage method when the fee is paid from a common fund generated by the litigation. Some courts in common fund cases start with the percentage analysis, then use the lodestar-multiplier method to cross-check whether the fee is reasonable.

In Serrano III, the California Supreme Court affirmed an award of attorney fees in a case affecting public school financing. The litigation had not resulted in creation of a monetary fund, and the Court held that fees could not be calculated using a percentage of common fund method. Instead, the Court approved use of the lodestar-multiplier method under a private attorney general theory because the case had vindicated Constitutional public policies and benefited a large number of Californians. Serrano III did not address common fund fees and does not prohibit use of the percentage method in common fund cases. While cases since Serrano III have expressed doubts regarding the percentage method, they do not establish any rule prohibiting its use.

The trial court did not abuse its discretion by calculating fees as a percentage of the common fund created by the litigation or by cross-checking that number using the lodestar-multiplier method. The benefits of using a lodestar-multiplier cross-check "likely outweigh" the problems it may raise in some cases. Courts may, but need not, scrutinize detailed time sheets to conduct lodestar cross-checks.

The Court's holding here may not apply "when there is no conventional common fund out of which the award is to be made but only a 'constructive common fund' created by the defendant's agreement to pay claims made by class members and, separately, to pay class counsel a reasonable fee as determined by the court, or when a settlement agreement establishes a fund but provides that portions not distributed in claims revert to the defendant or be distributed to a third party or the state, making the fund's value to the class depend on how many claims are made and allowed."

Justice Werdegar wrote the opinion, with all other justices joining. Justice Liu wrote separately "to suggest practices that may help to promote accuracy, transparency, and public confidence in the awarding of attorneys' fees in class action litigation." Chief among these is that class representatives and their counsel should negotiate a fee structure and submit that structure to the court for approval at the start of the litigation. 

The opinion is available here.

New Labor Code Section Targets Choice-of-Law, Choice-of-Venue Provisions

On September 25, 2016, Governor Brown signed into law Senate Bill 1241, enacting new Labor Code section 925. Effective January 1, 2017, section 925 provides as follows:

(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: 

(1) Require the employee to adjudicate outside of California a claim arising in California. 

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute. 

(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney’s fees. 

(d) For purposes of this section, adjudication includes litigation and arbitration.  

(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.  

(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.

Legislative Counsel's Digest states: 

Existing law regulates the terms and conditions of labor contracts. Existing law prohibits an employer from requiring an employee or applicant for employment to agree, in writing, to any term or condition that is known by the employer to be illegal. Existing law creates the Division of Labor Standards Enforcement, which is under the direction of the Labor Commissioner, and generally commits to the commissioner the authority and responsibility for the enforcement of employment laws.  

This bill, for contracts entered into, modified, or extended on or after January 1, 2017, would prohibit an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would require the employee to adjudicate outside of California a claim arising in California or deprive the employee of the substantive protection of California law with respect to a controversy arising in California. The bill would make any provision of a contract that violates these prohibitions voidable, upon request of the employee, and would require a dispute over a voided provision to be adjudicated in California under California law. The bill would specify that injunctive relief is available and would authorize a court to award reasonable attorney’s fees. The bill would provide that adjudication includes litigation and arbitration for purposes of these provisions. The bill would except from these provisions a contract with an employee who was represented by legal counsel, as specified. 

Sandquist v. Lebo Automotive: Under Arbitration Agreement at Issue, Arbitrator Decides Whether Class Arbitration is Available

The California Supreme Court has issued an important decision on the availability of class arbitration: Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233. 

Timothy Sandquist worked for Lebo Automotive, Inc., as a car salesman. On Sandquist's first day of employment, his manager gave him approximately 100 pages of forms to complete as a condition of his employment. Among those pages were three arbitration agreements.

Twelve years later, Sandquist sued Lebo individually and on behalf of others, alleging race discrimination against non-Caucasian workers. The trial court compelled individual arbitration, and, upon learning that all putative class members were subject to the same arbitration policies, dismissed the class allegations with prejudice. The Court of Appeal reversed in part, holding that the trial court should have allowed the arbitrator to decide whether class arbitration was available.

The Supreme Court granted review and affirmed the Court of Appeal, holding as follows: 

No universal rule allocates the decision regarding the availability of class arbitration to either the court or the arbitrator. Instead, he parties' agreement determines who will decide. State law applies generally to disputed issues of contract interpretation and governs here, at least in the first instance. 

Each of the three arbitration policies at issue contained similar, comprehensive language. Each extended to all claims "arising from, related to, or having any relationship or connection whatsoever" with Sandquist's employment. Both Sandquist's substantive claims and the procedural question presented, whether he could pursue those claims in class arbitration, arose from his employment with Lebo. Clauses excluding certain issues from the arbitrator's purview did not prevent the arbitrator from deciding the availability of class arbitration. As a result, under state contract law, the parties' contract gave the issue to the arbitrator.

Existing California law does not establish a presumption that the question should be determined by the court, rather than by the arbitrator. California law does include a "strong presumption" that courts should determine the jurisdiction of arbitrators, but this does not mean that the court must determine the availability of class arbitration. Rather, it means that the court must decide the preliminary issue: Does the arbitrator have jurisdiction to decide whether class arbitration is available?

The Federal Arbitration Act (FAA) does not impose an "interpretive presumption that, as a matter of federal law, preempts state law rules of contract interpretation and alters the conclusion state law would otherwise reach here." The Unites States Supreme Court in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 held that the arbitration agreement in that case allocated the class arbitration availability question to the arbitrator, "Green Tree contains no controlling view concerning what presumption, if any, the FAA requires when interpreting the parties' agreement as to who decides class arbitration availability."

In general, the FAA presumes that courts should decide gateway questions of arbitrability, "e.g., whether there is an enforceable arbitration agreement or whether it applies to the dispute at hand." On the other hand, the FAA presumes that questions regarding procedures to be applied in arbitration will be decided by the arbitrator. Availability of class arbitration is not a gateway question of arbitrability. It is a question of contract interpretation and procedure to which arbitrators are well suited.

Two further considerations weigh in favor of allowing the arbitrator to decide the question. First, doing so is more consistent with the desire for expeditious results in arbitration. Second, doubts concerning an arbitration agreement's scope are resolved in favor of arbitration. 

Justice Werdegar wrote the opinion, with Chief Justice Cantil-Sakauye and Justices Liu and Cuéllar joining. Justice Kruger dissented, arguing that under the FAA, the availability of class arbitration is a "gateway question of arbitrability" that is presumptively for the court to decide. Justices Chin and Corrigan joined in the dissent. 

The opinion is available here.

Augustus v. ABM Security Services: Cal. Supremes Hold that Labor Code Prohibits On-Duty and On-Call Rest Periods

Jennifer Augustus worked for ABM Security Services as a security guard. ABM required its guards to keep their pagers and radios on and to remain vigilant and responsive as needed during their rest periods. Augustus sued ABM in 2005 for violating California's rest period requirements. The trial court certified a class, granted summary judgment for Augustus, and entered judgment for $90 million. The Court of Appeal reversed, holding that the law does not require employers to provide off-duty rest periods, and moreover, "simply being on call" does not constitute performing work.

The Supreme Court reversed the Court of Appeal, holding as follows:

California law "requires employers to authorize off-duty rest periods — that is, time during which an employee is relieved from all work-related duties and free from employer control." This reading is consistent with existing law: Labor Code section 226.7, which prohibits employers from requiring any employee "to work during any rest or meal period..."; the requirement enunciated in Brinker v. Superior Court (discussed here) that employers must "relieve the employee of all duty and relinquish any employer control over the employee and how he or she spends the time" during meal periods; the provision of Wage order 5 that allows employers to keep certain employees on duty during their rest periods "only in starkly limited circumstances"; and the position taken by the Division of Labor Standards Enforcement (DLSE) in a number of opinion letters.

An employer cannot "satisfy its obligation to relieve employees from duties and employer control during rest periods when the employer nonetheless requires its employees to remain on call." 

Employees forced to remain on call during a 10-minute rest period must fulfill certain duties: carrying a device or otherwise making arrangements so the employer can reach the employee during a break, responding when the employer seeks contact with the employee, and performing other work if the employer so requests. These obligations are irreconcilable with employees' retention of freedom to use rest periods for their own purposes. 

Citing Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 586. 

Employers may reschedule rest periods when necessary, but may not require employees to remain on duty or on call during those rest periods. Employers who cannot relieve their employees of all duties during rest periods may either (a) provide another rest period if one is interrupted or (b) pay the premium for missed rest periods. 

Justice Mariano-Florentino Cuéllar, who joined the Court in January, 2015, wrote the opinion, joined by Chief Justice Cantil-Sakauye and Justices Werdegar, Chin, Corrigan, and Liu. Justice Kruger wrote separately, agreeing that employers must provide off-duty rest periods, but dissenting from the portion of the opinion holding that on-call rest periods violate the law, and arguing that the record on appeal did not support the judgment. 

The opinion is available here. 

Blog Re-Boot for the New Year

If you read my blog regularly (or used to), you've noticed that I haven't written in quite a while. Other than recently advertising my Advanced Mediation Conference, I haven't posted at all since May.

Well, that's changing with the new year. My resolution is to get back to the business of keeping my blog up to date with the most recent and most important developments. To that end, I'm starting with a series of posts on the biggest developments of 2016. And I'll throw in newer cases and legislation as we go.

As always, I hope you find it useful.

Steve