-i-

APPLICATION OF EIGHT CLASS ACTION SCHOLARS FOR PERMISSION TO FILE AN AMICI CURIAE BRIEF

Pursuant to rule 8.520(f) of the California Rules of Court, Eight Class

Action Scholars seek permission to file the attached Brief of amici curiae in

support of Respondents.

STATEMENT OF INTEREST

Amici are all professors of law with academic interest and experience

in fee jurisprudence and its relationship to promoting law enforcement

through private litigation to advance the public interest. (A list of signatories

appears on the cover sheet and in Appendix A.) We respectfully submit this

Brief to explain the policy imperatives, as informed by academic literature,

economic analysis, and case law, for relying on the percentage-of-the-fund

method to determine attorneys’ fees in most common fund cases.

HOW THE PROPOSED BRIEFING WILL ASSIST THE COURT

The proposed Brief provides legal and policy analysis regarding

determination of attorneys’ fees in common fund cases. Amici are academics

with expertise in civil procedure and complex litigation. Because the issues

in this appeal require analysis of complex policy issues implicating the

public interest, we offer this Brief to assist the Court.

The Court’s resolution of this appeal will have a broad effect.

California fee jurisprudence dictates class counsel compensation in all

actions brought under California law. (See, e.g., Mangold v. Calif. Pub.

Utils. Comm’n (9th Cir. 1995) 67 F.3d 1470, 1478 [“[W]e follow other

circuits that apply state law in calculating the fee.”], citing Davis v. Mutual

Life Ins. Co. of New York (6th Cir. 1993) 6 F.3d 367, 382-383, cert. denied

(1994) 114 S.Ct. 1298; Riordan v. Nationwide Mutual Fire Ins. Co. (2d Cir.

1992) 977 F.2d 47, 53; Northern Heel Corp. v. Compo Indus. (1st Cir. 1988)

851 F.2d 456, 475.) It bears emphasis that, in addition to class actions

- ii -

venued in California state court, class actions alleging significant violations

of California law—e.g., consumer fraud, mistreatment of employees,

unreasonable trade restraints—now proceed in federal courts in California

and across the country pursuant to the Class Action Fairness Act of 2005,

Pub. L. No. 109-2, 119 Stat. 4 (“CAFA”). (See Standard Fire Ins. Co. v.

Knowles (2013) 133 S.Ct. 1345, 1350 [185 L.Ed.2d 439] [noting CAFA’s

“primary objective” of “ensuring ‘Federal court consideration of interstate

cases of national importance.’ ”], citation omitted; Cook, ed., The Class

Action Fairness Act: Law and Strategy (ABA 2013) pp. 142, 223 [stating

that CAFA effected “a landmark shift in diversity law” and has resulted in

“more opportunity to remove class actions to federal court.”].

Mindful, therefore, of the import of the Court’s decision in this case,

amici discuss in their proposed Brief the crucial and positive incentives

resulting from use of the percentage-of-the-fund method to determine

attorneys’ fees in common fund cases, as well as the preferred manner of

doing so to optimize the public benefit. The Brief also describes the

detrimental incentives of the so-called lodestar approach, and urges this

Court to reject Appellant’s radical argument that lodestar should be the

exclusive method for awarding fees in common fund cases under California

law. Amici respectfully submit that the Court should instead draw upon the

authoritative position of the Third Circuit Task Force, as adopted by the

American Law Institute, to clarify the law of California.

DISCLOSURE

No party, or counsel for any party, in the matter pending before this

Court either authored the proposed amici curiae Brief in whole or in part or

made any monetary contribution intended to fund its preparation or

submission. No person or entity has made any monetary contribution

intended to fund the preparation or submission of this Brief.

- iii -

CONCLUSION

For the foregoing reasons, amici curiae Eight Class Action Scholars

respectfully request that the Court accept the accompanying Brief for filing

and consideration.

Dated: December 14, 2015 Respectfully submitted,

/s/ Elizabeth J. Cabraser Elizabeth J. Cabraser (#083151) Lieff Cabraser Heimann & Bernstein, LLP 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 (415) 956-1000

Counsel for Amici Curiae Eight Class Action Scholars

TABLE OF CONTENTS

Page

-iv-

PRELIMINARY STATEMENT .................................................................. 1 

ARGUMENT ............................................................................................... 3 

I.  THE PERCENTAGE METHOD IN COMMON FUND CASES HAS A LONG AND VENERABLE HISTORY. ................. 3 

A.  In California, as Elsewhere, One Who Creates a Fund for a Common Benefit Is Entitled to a Percentage of That Fund. ........................................................................................ 3 

B.  The “Lodestar” Approach, Which Awards Fees on the Basis of Hours Expended and Reasonable Hourly Rates, Has Been Largely Abandoned in Common Fund Cases. ........ 5 

C.  The Influential Third Circuit Task Force Recommends Applying the Percentage Method in Most Common Fund Cases. .............................................................................. 8 

D.  A Distinguished Group of ALI Experts, Following the Third Circuit Task Force, Reached Consensus That Most Common Fund Cases Call for Application of the Percentage Method. ................................................................. 9 

II.  THE PERCENTAGE METHOD HAS COMPELLING ADVANTAGES BECAUSE IT ALIGNS THE INCENTIVES OF ATTORNEYS AND AGGRIEVED CLASSES TO PROMOTE DETERRENCE AND RELIEF. ................................... 10 

A.  Class Actions Are Essential to Law Enforcement and Deterrence of Wrongdoing, But Also Entail Considerable Risk and Advancement of Professional Time and Costs—So There Must Be Sufficient Incentive to Pursue Them. ..................................................................... 11 

B.  In Common Fund Cases, the Percentage Method Is Superior to the Lodestar Approach. ....................................... 14 

1.  The Lodestar Approach Creates an Incentive to Spend Time Performing Legal Work. ........................ 14 

2.  The Percentage Method Creates an Incentive to Secure a Generous and Swift Recovery. .................... 16 

TABLE OF CONTENTS (continued)

Page

- v -

III.  THIS COURT SHOULD INSTRUCT TRIAL COURTS ON HOW TO APPLY THE PERCENTAGE METHOD. ...................... 21 

A.  Theoretically, the Percentage Should Be Set Early in the Case to Settle Incentives and Expectations. .......................... 21 

B.  Use of a Benchmark to Set the Fee Percentage Is Widespread and Accomplishes the Same Goals. .................. 22 

C.  The Benchmark Should Ordinarily Be Awarded, But It May Be Adjusted Upward or Downward Based on Exceptional Results, Unusual Litigation Risks or Complexity, and/or Counsel’s Performance. ......................... 23 

D.  Attorneys’ Fees Should Not Be Proportionally Reduced in Larger Cases. ..................................................................... 25 

E.  The Counterargument That Class Counsel Should Not Receive Windfalls Substantially Underestimates Both the Costs and the Social Value of Class Litigation. .............. 28 

F.  The Third Circuit Task Force, the ALI, and the Ninth Circuit Treat the Use of a Lodestar Cross-Check as Discretionary. ........................................................................ 29 

CONCLUSION .......................................................................................... 33 

APPENDIX A ............................................................................................ 34 

CERTIFICATE OF WORD COUNT ........................................................ 35 

CERTIFICATE OF SERVICE ................................................................... 36 

 

 

 

TABLE OF AUTHORITIES

Page

- vi -

CASES

Allapattah Services v. Exxon Corp. (S.D.Fla. 2006) 454 F.Supp.2d 1185 ........................................... 25, 26, 27

Amchem Prods., Inc. v. Windsor (1997) 521 U.S. 591 [117 S.Ct. 2231, 138 L.Ed.2d 689] ........................ 11

American Pipe & Constr. Co. v. Utah (1974) 414 U.S. 538 [94 S.Ct. 756, 38 L.Ed.2d 713] .............................. 12

Apple Computer, Inc. v. Super. Ct. (2005) 126 Cal.App.4th 1253 [24 Cal.Rptr.3d 818] ........................... 7, 17

Barboza v. West Coast Digital GSM, Inc. (2009) 179 Cal.App.4th 540 [102 Cal.Rptr.3d 295] ............................... 15

Blue Chip Stamps v. Super. Ct. (1976) 18 Cal.3d 381 [134 Cal.Rptr. 393, 556 P.2d 755] ................................... 11

Blum v. Stenson (1984) 465 U.S. 886 [104 S.Ct. 1541, 79 L.Ed.2d 891] ................... passim

Boeing Co. v. Van Gemert (1980) 444 U.S. 472 [100 S.Ct. 745, 62 L.Ed.2d 676] .............................. 3

Brown v. Phillips Petroleum Co. (10th Cir. 1988) 838 F.2d 451 ................................................................. 24

Camden I Condominium Ass’n v. Dunkle (11th Cir. 1991) 946 F.2d 768 ....................................................... 9, 20, 23

Central R.R. & Banking Co. v. Pettus (1885) 113 U.S. 116 [5 S.Ct. 387, 28 L.Ed. 915] ...................................... 3

Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43 [75 Cal.Rptr.3d 413] ......................... 4, 19, 23

City of Detroit v. Grinnell Corp. (2d Cir. 1974) 495 F.2d 448, abrogated by Goldberger v. Integrated Resources (2d Cir. 2000) 209 F.3d 43 ........................................................................ 7

TABLE OF AUTHORITIES (continued)

Page

- vii -

Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695 [63 Cal.Rptr. 724, 433 P.2d 732] ......................... 11

Davis v. Mutual Life Ins. Co. of New York (6th Cir. 1993) 6 F.3d 367, cert. denied (1994) 114 S.Ct. 1298 ........................................................... ii

Deposit Guaranty Nat’l Bank v. Roper (1980) 445 U.S. 326 [100 S.Ct. 1166, 63 L.Ed.2d 427] .................... 11, 28

Estate of Stauffer (1959) 53 Cal.2d 124 [346 P.2d 748] ...................................................... 20

Estate of Trynin (1989) 49 Cal.3d 868 [264 Cal.Rptr. 93, 782 P.2d 232] ........................... 5

Fox v. Hale & Norcross Silver Mining Co. (1895) 108 Cal. 475 [41 P. 328] ................................................................ 3

Glendale City Employees’ Assn. v. City of Glendale (1975) 15 Cal.3d 328 [124 Cal.Rptr. 513, 540 P.2d 609] ......................... 4

Goldberger v. Integrated Resources (2d Cir. 2000) 209 F.3d 43 ........................................................ 7, 8, 15, 31

Hanlon v. Chrysler Corp. (9th Cir. 1998) 150 F.3d 1011 ................................................................... 5

In re Activision Blizzard, Inc. Stockholder Litig. (Del. Ch. May 21, 2015) No. CV 8885, 2015 WL 2438067, 2015 Del. Ch. LEXIS 140 ....................................................................... 17

In re Auction Houses Antitrust Litig. (S.D.N.Y. 2000) 197 F.R.D. 71 ......................................................... 13, 26

In re Cendant Corp. Litig. (3d Cir. 2001) 264 F.3d 201 .............................................................. 26, 31

In re Continental Illinois Sec. Litig. (7th Cir. 1992) 962 F.2d 566 ............................................................. 13, 19

TABLE OF AUTHORITIES (continued)

Page

- viii -

In re GCC Richmond Works Cases (Contra Costa Super. Ct. 1995) J.C.C.P. No. 2906 ................................. 27

In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig. (3d Cir. 1995) 55 F.3d 768 ........................................................................ 7

In re Quantum Health Resources, Inc. (C.D.Cal. 1997) 962 F.Supp. 1254 .................................................... 12, 14

In re Rite Aid Corp. Sec. Litig. (3d Cir. 2005) 396 F.3d 294 .............................................................. 16, 26

In re SmithKline Beckman Corp. Sec. Litig. (E.D.Pa. 1990) 751 F.Supp. 525 .............................................................. 12

In re Southwest Airlines Voucher Litig. (7th Cir. 2015) 799 F.3d 701 ................................................................... 16

In re Synthroid Mktg. Litig. (7th Cir. 2001) 264 F.3d 712 ............................................................ passim

In re TFT-LCD (Flat Panel) Antitrust Litig. (N.D.Cal. Apr. 3, 2013) No. M 07-1827 SI, 2013 WL 1365900, 2013 U.S. Dist. LEXIS 49885 ................................................................. 27

In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, & Prods. Liab. Litig. (C.D.Cal. June 17, 2013) No. 8:10ML-02151-JVS, Dkt. 3802 .................................................. 26, 27

Internal Improvement Fund Trustees v. Greenough (1881) 105 U.S. 527 [26 L.Ed. 1157] ........................................................ 3

Johnson v. Georgia Highway Express, Inc. (5th Cir. 1974) 488 F.2d 714 ................................................................... 24

Jonsson v. USCB, Inc. (C.D.Cal. May 28, 2015) No. CV 13-8166, 2015 U.S. Dist. LEXIS 69934 ................................................................. 30

Ketchum v. Moses (2001) 24 Cal.4th 1122 [104 Cal.Rptr.2d 377, 17 P.3d 735] ........ 7, 19, 22

TABLE OF AUTHORITIES (continued)

Page

- ix -

Knoff v. City & County of San Francisco (1969) 1 Cal.App.3d 184 [81 Cal.Rptr. 683]............................................. 5

Laffitte v. Robert Half Int’l, Inc. (2014) 231 Cal.App.4th 860 [180 Cal.Rptr.3d 136] ................................. 1

Lealao v. Beneficial Calif., Inc. (2000) 82 Cal.App.4th 19 [97 Cal.Rptr.2d 797] .............................. passim

Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429 [97 Cal.Rptr.2d 179, 2 P.3d 27] ................ 1, 11, 28

Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp. (3d Cir. 1973) 487 F.2d 161, declined to follow in In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig. (3d Cir. 1995) 55 F.3d 768 .................................................................... 7, 8

Mangold v. Calif. Pub. Utils. Comm’n (9th Cir. 1995) 67 F.3d 1470 ...................................................................... i

Mashburn v. Nat’l Healthcare, Inc. (M.D.Ala. 1988) 684 F.Supp. 660 ........................................................... 18

McDaniel v. County of Schenectady (2d Cir. 2010) 595 F.3d 411 .................................................................... 32

Mills v. Electric Auto-Lite Co. (1970) 396 U.S. 375 [90 S.Ct. 616, 24 L.Ed.2d 593] ................................ 3

Muehler v. Land O’Lakes, Inc. (D.Minn. 1985) 617 F.Supp. 1370 .......................................................... 12

Northern Heel Corp. v. Compo Indus. (1st Cir. 1988) 851 F.2d 456 ..................................................................... ii

Parker v. City of Los Angeles (1974) 44 Cal.App.3d 556 [118 Cal.Rptr. 687] ........................................ 4

Petrovic v. Amoco Oil Co. (8th Cir. 1999) 200 F.3d 1140 ........................................................... 24, 31

TABLE OF AUTHORITIES (continued)

Page

- x -

Phillips v. Asset Acceptance, LLC (7th Cir. 2013) 736 F.3d 1076 ................................................................. 12

Quinn v. State (1975) 15 Cal.3d 162 [124 Cal.Rptr. 1, 539 P.2d 761] ............................. 3

Reiter v. Sonotone Corp. (1979) 442 U.S. 330 [99 S.Ct. 2326, 60 L.Ed.2d 931] ............................ 11

Riordan v. Nationwide Mutual Fire Ins. Co. (2d Cir. 1992) 977 F.2d 47 ........................................................................ ii

Sanders v. City of Los Angeles (1970) 3 Cal.3d 252 [90 Cal.Rptr.169, 475 P.2d 201] .............................. 4

Serrano v. Priest (1977) 20 Cal.3d 25 [141 Cal.Rptr. 315, 569 P.2d 1303] ................. 5, 6, 8

Standard Fire Ins. Co. v. Knowles (2013) 133 S.Ct. 1345 [185 L.Ed.2d 439] ................................................. ii

Staton v. Boeing Co. (9th Cir. 2003) 327 F.3d 938 ..................................................................... 5

Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495 [89 Cal.Rptr.3d 615] ................................... 4

Swedish Hospital Corp. v. Shalala (D.C.Cir. 1993) 1 F.3d 1261 [303 App.D.C. 94] ............................. passim

Thayer v. Wells Fargo Bank (2001) 92 Cal.App.4th 819 [112 Cal.Rptr.2d 284] ................................. 13

Tornes v. Bank of Am. (S.D.Fla. 2011) 830 F.Supp.2d 1330 ................................................. 12, 26

Vasquez v. Super. Ct. (1971) 4 Cal.3d 800 [94 Cal.Rptr. 796, 484 P.2d 964] ....................... 1, 11

Vizcaino v. Microsoft Corp. (9th Cir. 2002) 290 F.3d 1043 ........................................................... 14, 23

TABLE OF AUTHORITIES (continued)

Page

- xi -

STATUTES

Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 .............. ii

Code of Civil Procedure, § 1021.5 ............................................................ 1, 6

RULES

California Rules of Court, rule 3.769 .......................................................... 29

California Rules of Court, rule 8.204(c)(1) ................................................. 35

California Rules of Court, rule 8.520(f) ......................................................... i

LAW REVIEW ARTICLES

Baker, Perino & Silver, Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions (2015) 115 Colum. L.Rev. 1371 .................................................. 21, 29, 30

Coffee, The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action (1987) 54 U.Chi. L.Rev. 877 ....................................................... 10, 15, 16

Coffee, Understanding the Plaintiff’s Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions (1986) 86 Colum. L.Rev. 669 ............................................................ 14, 28

Eisenberg & Miller, Attorneys’ Fees and Expenses in Class Action Settlements: 1993-2008 (2010) 7 J. Empirical Legal Stud. 248 ..................................... 9, 23, 25, 29

Fitzpatrick, An Empirical Study of Class Action Settlements and Their Fee Award (2010) 7 J. Empirical Legal Stud. 811 ..................................... 9, 23, 25, 29

Fitzpatrick, Do Class Action Lawyers Make Too Little? (2010) 158 U.Pa. L.Rev. 2043 ................................................................. 23

TABLE OF AUTHORITIES (continued)

Page

- xii -

Gilles & Friedman, Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers (2006) 155 U.Pa. L.Rev. 103 ................................................................... 32

Issacharoff, Class Action Conflicts (1997) 30 U.C. Davis L.Rev. 805 ...................................................... 13, 28

Leubsdorf, The Contingency Factor in Attorney Fee Awards (1981) 90 Yale L.J. 473 ............................................................................. 5

Macey & Miller, Judicial Review of Class Action Settlements (2009) 1 J. Legal Analysis 167 ................................................................ 24

Macey & Miller, The Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform (1991) 58 U.Chi. L.Rev. 1 ................................................................. 12, 21

Morawetz, Bargaining, Class Representation, and Fairness (1993) 54 Ohio St. L.J. 1 ......................................................................... 10

Niebler, In Search of Bargained-for Fees for Class Action Plaintiffs’ Lawyers: The Promise and Pitfalls of Auctioning the Position of Lead Counsel (1999) 54 Bus. Law 763 .......................................................................... 17

Robinson, An Empirical Study of Settlement Conference Nuts and Bolts (2012) 17 Harv. Negot. L.Rev. 97 ........................................................... 17

Schwartz, The Rise of Contingent Fee Representation in Patent Litigation (2012) 64 Ala. L.Rev. 335 ................................................................. 18, 19

Silver, Due Process and the Lodestar Method: You Can’t Get There from Here (2000) 74 Tul. L.Rev. 1809 ..................................................................... 19

TABLE OF AUTHORITIES (continued)

Page

- xiii -

OTHER AUTHORITIES

4 Alba Conte & Herbert B. Newberg, Newberg on Class Actions (4th ed. 2002) § 14:6 ......................................................................... 18, 24

American Law Institute, Principles of the Law of Aggregate Litigation (2010) § 3.13 .................................................................................... passim

Cook, ed., The Class Action Fairness Act: Law and Strategy (ABA 2013) ............................................................................................... ii

Court Awarded Attorney Fees: Report of the Third Circuit Task Force (1985) 108 F.R.D. 237 ............................................................... 2, 8, 15, 21

Hensler, Class Action Dilemmas: Pursuing Public Goals for Private Gain: Executive Summary (RAND 2000) .......................................................................................... 29

Kritzer, Risks, Reputations, and Rewards: Contingency Fee Legal Practice in the United States (2004) ...................................................................................................... 17

Manual for Complex Litigation (4th ed. 2004) ................................................................................. 9, 18, 24

Task Force on Contingent Fees, Tort Trial and Insurance Practice Section of the American Bar Association, Report on Contingent Fees in Class Action Litigation (2006) 25 Rev. Litig. 459 .............................................................. 5, 12, 22

Third Circuit Task Force Report on Selection of Class Counsel (2001) 74 Temp. L.Rev. 689 ......................................................... 7, 29, 30

- 1 -

PRELIMINARY STATEMENT

The Second District Court of Appeal held that “the percentage

approach” to determining reasonable attorneys’ fees “survives in California

class action cases” and “may be proper where, as here, there is a common

fund.” (Laffitte v. Robert Half Int’l, Inc. (2014) 231 Cal.App.4th 860,

875-878 [180 Cal.Rptr.3d 136].) Not only is this a correct statement of the

law, there are compelling policy imperatives why that should be so.

Any paradigm designed to encourage rational actors to pursue the

interests of others should be constructed so as to best bring about that result.

While counsel representing a proposed class have legal and ethical

obligations to protect and advance the best interests of the class as a

whole—and most counsel adhere assiduously to those obligations—it is

beneficial to frame a compensation system for their work that reinforces

those obligations. Employing the percentage-of-recovery method to

determine a reasonable fee for attorneys whose work has brought about a

monetized (or monetizable) fund benefiting a class necessarily and properly

aligns the incentives of class counsel with those they represent. By tethering

class counsel’s fees directly to the result they obtain for the class—and

ensuring that the better the class does, the better the attorneys do—the

percentage method furthers the class action’s central objectives: deterrence

and compensation. (See Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429,

434-435, 445-446 [97 Cal.Rptr.2d 179, 2 P.3d 27]; Vasquez v. Super. Ct.

(1971) 4 Cal.3d 800, 807-810 [94 Cal.Rptr. 796, 484 P.2d 964].) The

lodestar approach, while appropriate in other contexts (such as in certain

cases under statutes with fee-shifting provisions, and in certain cases

implicating the private attorney general statute, Code Civ. Proc., § 1021.5),

motivates class counsel to focus on building their hours instead of obtaining

a just, speedy—and maximum—recovery for the class.

- 2 -

These contrasting incentives—and the hard lessons of

experience—led an influential task force, convened by the United States

Court of Appeals for the Third Circuit, to recommend that courts employ the

percentage method to determine attorneys’ fees in most common fund cases.

(Court Awarded Attorney Fees: Report of the Third Circuit Task Force

(1985) 108 F.R.D. 237.)1 Twenty-five years later, the American Law

Institute, after careful study and discussion among judges, practitioners, and

academics in the field, endorsed this recommendation in its authoritative

treatise. (See ALI, Principles of the Law of Aggregate Litigation (2010)

§ 3.13(b).)2 For all the same reasons, all federal Circuits now embrace the

percentage method for common fund cases. Amici respectfully submit that

this Court should follow the Task Force, the ALI, and the federal Circuits.

Doing so not only ensures proper alignment of incentives to secure

maximum recovery for victims and, crucially, deterrence of wrongdoing

harmful to Californians, but it has the added benefit of establishing

predictability in private enforcement: courts applying California law should

ordinarily rely on the percentage method to determine a reasonable fee when

class counsel’s efforts have resulted in a monetized (or monetizable)

common fund.

1 One of us (Arthur Miller) was the reporter for the Third Circuit Task Force. 2 One of us (Charles Silver) was a reporter for the ALI’s Principles of the Law of Aggregate Litigation treatise.

- 3 -

ARGUMENT

I. THE PERCENTAGE METHOD IN COMMON FUND CASES HAS A LONG AND VENERABLE HISTORY.

A. In California, as Elsewhere, One Who Creates a Fund for a Common Benefit Is Entitled to a Percentage of That Fund.

The United States Supreme Court “has recognized consistently that a

litigant or a lawyer who recovers a common fund for the benefit of persons

other than himself or his client is entitled to a reasonable attorney’s fee from

the fund as a whole.” (Boeing Co. v. Van Gemert (1980) 444 U.S. 472, 478

[100 S.Ct. 745, 62 L.Ed.2d 676]; see also Mills v. Electric Auto-Lite Co.

(1970) 396 U.S. 375, 393 [90 S.Ct. 616, 24 L.Ed.2d 593]; Central R.R. &

Banking Co. v. Pettus (1885) 113 U.S. 116, 123 [5 S.Ct. 387, 28 L.Ed. 915].)

Furthermore, a reasonable fee under this doctrine “is based on a percentage

of the fund bestowed on the class . . . .” (Blum v. Stenson (1984) 465 U.S.

886, 900, fn. 16 [104 S.Ct. 1541, 79 L.Ed.2d 891].)

This “common fund” doctrine has longstanding roots in equity.

(Internal Improvement Fund Trustees v. Greenough (1881) 105 U.S. 527,

531-537 [26 L.Ed. 1157].) The doctrine has similarly deep roots in

California law. (See Quinn v. State (1975) 15 Cal.3d 162, 167 [124 Cal.Rptr.

1, 539 P.2d 761] [recognizing that it avoids unjust enrichment].) In a

nineteenth-century decision, this Court affirmed a procedure by which a

court-appointed receiver awarded “plaintiff’s attorneys, as compensation for

their services, twenty-five per cent of all moneys” in a common fund. (Fox v.

Hale & Norcross Silver Mining Co. (1895) 108 Cal. 475, 476 [41 P. 328].)

The Court explained that “[t]he action was not prosecuted by the plaintiff in

his own right or for his own exclusive benefit. He sued in behalf of the

corporation to recover a fund in which others were equally interested,” and

therefore “clearly was entitled to an allowance out of the moneys collected of

his reasonable expenses, including counsel fees.” (Id. at p. 477.)

- 4 -

Later precedents of this Court are to the same effect. In Glendale City

Employees’ Association v. City of Glendale, the Court upheld an attorneys’

fee award based on a percentage of the common fund in a suit by a city

employees’ association for back pay.

It is not necessary to find this suit a proper class action in order to uphold the portion of the judgment awarding counsel for plaintiffs 25 percent of all retroactive salaries and wages received. That award may be sustained under the rule that a litigant who creates a fund in which others enjoy beneficial rights may require those beneficiaries to pay their fair share of the expense of litigation. [Citations.]

(Glendale City Employees’ Assn. v. City of Glendale (1975) 15 Cal.3d 328,

341, fn. 19 [124 Cal.Rptr. 513, 540 P.2d 609].) And in another decision

this Court left intact an order awarding attorneys’ fees as a percentage of the

recovery of retroactive wage increases by firefighters and police officers.

(Sanders v. City of Los Angeles (1970) 3 Cal.3d 252, 263 [90 Cal.Rptr.169,

475 P.2d 201].)

Likewise, divisions of the Court of Appeal have approved fee awards

based upon a percentage of a common fund created through counsel’s

efforts. (See, e.g., Sutter Health Uninsured Pricing Cases (2009) 171

Cal.App.4th 495, 512 [89 Cal.Rptr.3d 615] [affirming percentage-based fee

award from common fund]; Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th

43, 63 [75 Cal.Rptr.3d 413] [holding that “fees based on a percentage of the

benefits are in fact appropriate in large class actions when the benefit per

class member is relatively low”]; Parker v. City of Los Angeles (1974) 44

Cal.App.3d 556, 567-568 [118 Cal.Rptr. 687] [affirming fee award of

one-third of damages to residential property owners in inverse condemnation

action]; Knoff v. City & County of San Francisco (1969) 1 Cal.App.3d 184,

- 5 -

203-204 [81 Cal.Rptr. 683] [finding “contingent percentage” award of

attorneys’ fees appropriate in representative action].)

B. The “Lodestar” Approach, Which Awards Fees on the Basis of Hours Expended and Reasonable Hourly Rates, Has Been Largely Abandoned in Common Fund Cases.

In the early 1970s, some courts began to apply the so-called lodestar

approach in common fund cases, attempting to calculate attorneys’ fees by

reference to professional time and task records and “reasonable” hourly

rates. (See generally Lealao v. Beneficial Calif., Inc. (2000) 82 Cal.App.4th

19, 27-28 & fn. 2 [97 Cal.Rptr.2d 797] [describing history]; Task Force on

Contingent Fees, Tort Trial and Insurance Practice Section of the American

Bar Association, Report on Contingent Fees in Class Action Litigation

(2006) 25 Rev. Litig. 459, 467-468 [same].)3

The lodestar trend culminated in Serrano v. Priest (1977) 20 Cal.3d

25 [141 Cal.Rptr. 315, 569 P.2d 1303]. The plaintiffs won a declaratory

judgment that California’s system for financing its public schools was void,

as violative of the state constitution’s guarantee of equal protection. (Id. at p.

3 The lodestar trend was a natural byproduct of cases proceeding in the federal courts under 1960s-era civil rights legislation with fee-shifting provisions. (See, e.g., Leubsdorf, The Contingency Factor in Attorney Fee Awards (1981) 90 Yale L.J. 473, 477-478.) In such “injunctive relief class actions, courts often use a lodestar calculation because there is no way to gauge the net value of the settlement or any percentage thereof.” (Hanlon v. Chrysler Corp. (9th Cir. 1998) 150 F.3d 1011, 1029.) Some cases, of course, “cannot be conveniently categorized with either the statutory fee-shifting cases or the common-fund and common-benefit cases.” (Estate of Trynin (1989) 49 Cal.3d 868, 877 [264 Cal.Rptr. 93, 782 P.2d 232].) Where claims arising under fee-shifting statutes settle for a common fund, the trial court has discretion to use the percentage method. (See Staton v. Boeing Co. (9th Cir. 2003) 327 F.3d 938, 967-969 & fns. 18 & 19 [explaining that “[a]pplication of the common fund doctrine to class action settlements does not compromise the purposes underlying fee-shifting statutes.”].)

- 6 -

31 & fn. 1.) The Court held that this judgment entitled the plaintiffs’

attorneys to a reasonable fee, to be paid by the defendant state officers in

their official capacities, based upon a private attorney general theory and “a

careful compilation of the time spent and reasonable hourly compensation of

each attorney . . . involved in the presentation of the case.”4 (Id. at pp.

42-49.) Notably, this Court distinguished the many common fund authorities

because it could “find no such ‘fund’ in this case.” (Id. at p. 35 & fn. 5.) The

United States Supreme Court similarly distinguished the common fund

doctrine, under which the percentage method applies, from the statutory

fee-shifting context in which the lodestar method normally applies. (Blum,

supra, 465 U.S. at p. 900, fn. 16.)

Appellant’s argument here loses sight of this distinction,

overemphasizing Serrano’s dictum that the “starting point” for a fee

determination must be a “calculation of the attorney’s services in terms of the

time he has expended on the case.” (Br. of Appellant at pp. 7-16, citing

Serrano, supra, 20 Cal.3d at p. 49, fn. 23, citations omitted.) That

four-decade-old footnote should not constrain this Court’s analysis: the

lodestar is not, and should not be, the universal starting (or ending) point for

determining attorneys’ fees. Indeed, despite Appellant’s selective quotation,

no California court and no federal court applying California fee law has ever

so held, as that would flatly contradict the percentage fee precedent and

approach established by this Court and consistently followed elsewhere.

Instead, as the Second District Court of Appeal clarified, “attorney fees

awarded under the common fund doctrine are based on a ‘percentage-of-

the-benefit’ analysis,” whereas, broadly speaking, “those under a fee-shifting

statute are determined using the lodestar method . . . .” (Apple Computer, 4 Following Serrano, the Legislature codified this private attorney general basis for fee-shifting, at Code of Civil Procedure section 1021.5.

- 7 -

Inc. v. Super. Ct. (2005) 126 Cal.App.4th 1253, 1270 [24 Cal.Rptr.3d 818],

citations omitted; accord Blum, supra, 465 U.S. at p. 900, fn. 16.)

Appellant’s heavy reliance on Ketchum v. Moses (2001) 24 Cal.4th

1122 [104 Cal.Rptr.2d 377, 17 P.3d 735], is unavailing, both because that

case did not involve a common fund and because the Court expressly stated

that it was “not mandating a blanket ‘lodestar only’ approach,” even in the

statutory fee-shifting context. (Id. at p. 1136, italics added.) In Ketchum this

Court held that awards to prevailing counsel under California fee-shifting

statutes may be enhanced “for the purpose, e.g., of compensating the

attorney who agreed to undertake such representation at the risk of

nonpayment or delayed payment, in an amount approaching the market rate

for comparable legal services.” (Id. at pp. 1136-1139.)

As for the two federal cases cited in Serrano’s footnote 23, they are no

longer good law. (See Goldberger v. Integrated Resources (2d Cir. 2000)

209 F.3d 43, 47-50 [abrogating City of Detroit v. Grinnell Corp. (2d Cir.

1974) 495 F.2d 448, 469-471]; In re GMC Pick-Up Truck Fuel Tank Prods.

Liab. Litig. (3d Cir. 1995) 55 F.3d 768, 821-822 [holding that the percentage

method should be the principal method applied in the common fund setting,

notwithstanding Lindy Brothers Builders, Inc. v. American Radiator &

Standard Sanitary Corp. (3d Cir. 1973) 487 F.2d 161, 167-169]; see also

Third Circuit Task Force Report on Selection of Class Counsel (2001) 74

Temp. L.Rev. 689, 705 [“A percentage fee, tailored to the realities of the

particular case, remains superior to any other means of determining a

reasonable fee for class counsel.”].) Over time, several drawbacks and

negative incentives of the lodestar method came to light. The Second Circuit

well put it:

As so often happens with simple nostrums, experience with the lodestar method proved vexing. Our district courts found that it created a temptation for lawyers to run

- 8 -

up the number of hours for which they could be paid. For the same reason, the lodestar created an unanticipated disincentive to early settlements. But the primary source of dissatisfaction was that it resurrected the ghost of Ebenezer Scrooge, compelling district courts to engage in a gimlet-eyed review of line-item fee audits. There was an inevitable waste of judicial resources.

(Goldberger, supra, 209 F.3d at pp. 48-49, citations omitted.) Therefore,

courts began to discontinue lodestar’s use in common fund cases.

C. The Influential Third Circuit Task Force Recommends Applying the Percentage Method in Most Common Fund Cases.

The 1985 report of the Third Circuit Task Force marked an important

turning point in the resurgence of the percentage method. (See Court

Awarded Attorney Fees: Report of the Third Circuit Task Force (1985) 108

F.R.D. 237.) The Task Force identified nine “deficiencies” of the lodestar

approach, including that it “increases the workload of an already overtaxed

judicial system” and stimulates a desire among class counsel “to keep the

litigation alive despite a reasonable prospect of settlement, to maximize the

number of hours to be included in computing the lodestar.” (Id. at pp.

246-249.) Hence, the Task Force rejected the approach of Lindy

Brothers—one of the authorities relied upon in Serrano’s footnote 23. (See

Serrano, supra, 20 Cal.3d at p. 49, fn. 23, citing, inter alia, Lindy Brothers,

supra, 487 F.2d at pp. 167-169.) The Task Force concluded that the trial

court “in the traditional common-fund situation,” as well as in statutory cases

likely to produce a fund large enough to cover attorneys’ fees, should

“attempt to establish a percentage fee arrangement agreeable to the Bench

and to plaintiff’s counsel,” at “the earliest practicable” stage of litigation.

(1985 Third Circuit Task Force Report, supra, 108 F.R.D. at p. 255, fn.

omitted.)

Today, the overwhelming majority of state and federal jurisdictions

- 9 -

use percentage-of-the-fund as the primary method for determining fees in

common fund cases, with lodestar largely reserved for (1) cases in which it is

difficult to ascribe a monetary value to class-wide relief, and (2) certain cases

implicating fee-shifting provisions. (See Manual for Complex Litigation

(4th ed. 2004) § 14.121 [“After a period of experimentation with the lodestar

method . . . the vast majority of courts of appeals now permit or direct district

courts to use the percentage-fee method in common-fund cases.”], citations

omitted; see also Fitzpatrick, An Empirical Study of Class Action Settlements

and Their Fee Award (2010) 7 J. Empirical Legal Stud. 811, 832 [finding the

lodestar method used in only 12 percent of class settlements]; Eisenberg &

Miller, Attorneys’ Fees and Expenses in Class Action Settlements:

1993-2008 (2010) 7 J. Empirical Legal Stud. 248, 267 [“From 2003 to 2008,

only 9.6 percent of [common fund class] cases used the lodestar method”].)

As thoroughly demonstrated in Respondents’ Brief, all federal Circuits now

endorse the percentage-of-recovery method to guide the award of common

fund fees—and some Circuits require its use. (See Swedish Hospital Corp. v.

Shalala (D.C.Cir. 1993) 1 F.3d 1261 [303 App.D.C. 94]; Camden I

Condominium Ass’n v. Dunkle (11th Cir. 1991) 946 F.2d 768.)

D. A Distinguished Group of ALI Experts, Following the Third Circuit Task Force, Reached Consensus That Most Common Fund Cases Call for Application of the Percentage Method.

In its oft-cited 2010 treatise on aggregate litigation, the American

Law Institute, drawing upon the Third Circuit Task Force’s empirical and

analytical work, finds that “most courts and commentators now believe that

the percentage method is superior,” and concludes that it “should be the

method utilized in most common-fund cases . . . .” (ALI, Principles of the

Law of Aggregate Litigation, supra, § 3.13(b) & cmt. b.) The ALI further

concludes that the lodestar method should normally be used in statutory

- 10 -

fee-shifting cases and may also be “suitable in cases seeking solely

nonmonetizable injunctive or declaratory relief or where the court

determines that the percentage method would be unfair in a particular case.”

(Id., §§ 3.13(b), (c) & cmt. b.) Amici believe that the position of the ALI and

the Third Circuit Task Force is consistent with California law and policy,

carries significant weight, and should be reaffirmed by this Court.

II. THE PERCENTAGE METHOD HAS COMPELLING ADVANTAGES BECAUSE IT ALIGNS THE INCENTIVES OF ATTORNEYS AND AGGRIEVED CLASSES TO PROMOTE DETERRENCE AND RELIEF.

The percentage method returned to favor along with the rise of law

and economics and its focus on the incentives of those governed by legal

rules. (See, e.g., Coffee, The Regulation of Entrepreneurial Litigation:

Balancing Fairness and Efficiency in the Large Class Action (1987) 54

U.Chi. L.Rev. 877, 878 [stressing “the incentives that the law holds out so as

to motivate attorneys to perform as we believe informed clients would want

them”]; Morawetz, Bargaining, Class Representation, and Fairness (1993)

54 Ohio St. L.J. 1, 5 [noting that “[t]he law and economics literature has

suggested that clients are unable to monitor their attorneys’ behavior in the

class setting and that fee structures should be altered to better align attorney

incentives with the interests of the client class.”].) A presumption that

attorneys’ fees will be awarded in common fund cases based upon a

percentage of the fund, in our view and that of most courts and commentators

to have considered the question presented here, establishes the right set of

incentives to optimize private enforcement of California law.

- 11 -

A. Class Actions Are Essential to Law Enforcement and Deterrence of Wrongdoing, But Also Entail Considerable Risk and Advancement of Professional Time and Costs—So There Must Be Sufficient Incentive to Pursue Them.

This Court has long prioritized “the role of the class action in

deterring and redressing wrongdoing.” (Linder, supra, 23 Cal.4th at pp.

445-446, quoting Blue Chip Stamps v. Super. Ct. (1976) 18 Cal.3d 381, 387

[134 Cal.Rptr. 393, 556 P.2d 755] (conc. opn. of Tobriner, J.).) A business

that “wrongfully exacts a dollar from each of millions of customers will reap

a handsome profit; the class action is often the only effective way to halt and

redress such exploitation.” (Linder, supra, 23 Cal.4th at p. 446, quoting Blue

Chip Stamps, supra, 18 Cal.3d at p. 387 (conc. opn. of Tobriner, J.), citing

Vasquez, supra, 4 Cal.3d at p. 808, and Daar v. Yellow Cab Co. (1967) 67

Cal.2d 695, 715 [63 Cal.Rptr. 724, 433 P.2d 732]; accord Amchem Prods.,

Inc. v. Windsor (1997) 521 U.S. 591, 617 [117 S.Ct. 2231, 138 L.Ed.2d 689]

[“The policy at the very core of the class action mechanism is to overcome

the problem that small recoveries do not provide the incentive for any

individual to bring a solo action prosecuting his or her rights.”], citation

omitted; Deposit Guaranty Nat’l Bank v. Roper (1980) 445 U.S. 326,

338-339 [100 S.Ct. 1166, 63 L.Ed.2d 427] [“[A]ggrieved persons may be

without any effective redress unless they may employ the class-action

device.”]; Reiter v. Sonotone Corp. (1979) 442 U.S. 330, 344 [99 S.Ct. 2326,

60 L.Ed.2d 931] [antitrust class actions have a “significant” deterrent

effect].)

But, absent adequate counsel compensation that encourages the

pursuit of such claims, the public policy to induce compliance with the law

would be compromised. To deter corporate or employer misconduct,

attorneys must be given incentives to invest their own time and money in

class actions despite the risk of earning nothing. (See, e.g., Lealao, supra, 82

- 12 -

Cal.App.4th at pp. 47, 53 [finding that “awards that are too small can . . . chill

the private enforcement essential to the vindication of many legal rights and

obstruct the representative actions that often relieve the courts of the need to

separately adjudicate numerous claims.”]; In re SmithKline Beckman Corp.

Sec. Litig. (E.D.Pa. 1990) 751 F.Supp. 525, 534 [concluding that “[a] large

segment of the public might be denied a remedy for violations . . . if

contingent fees awarded by the courts did not fairly compensate counsel for

the services provided and the risks undertaken.”], citation omitted; Muehler

v. Land O’Lakes, Inc. (D.Minn. 1985) 617 F.Supp. 1370, 1376 [“If the

plaintiffs’ bar is not adequately compensated for its risk, responsibility, and

effort when it is successful, then effective representation for plaintiffs in

these cases will disappear.”]; see also Tornes v. Bank of Am. (S.D.Fla. 2011)

830 F.Supp.2d 1330, 1367; In re Quantum Health Resources, Inc. (C.D.Cal.

1997) 962 F.Supp. 1254, 1257.)

Significantly, in many if not most cases, class members (apart from

the named class representatives themselves) are dispersed, unsophisticated,

and unable to closely monitor their attorneys. (See American Pipe & Constr.

Co. v. Utah (1974) 414 U.S. 538, 552 [94 S.Ct. 756, 38 L.Ed.2d 713];

Swedish Hospital Corp., supra, 1 F.3d at p. 1269; Phillips v. Asset

Acceptance, LLC (7th Cir. 2013) 736 F.3d 1076, 1080-1081; Macey &

Miller, The Plaintiffs’ Attorney’s Role in Class Action and Derivative

Litigation: Economic Analysis and Recommendations for Reform (1991) 58

U.Chi. L.Rev. 1, 3.) This is why courts are asked to monitor class

counsel—yet there is only so much busy judges can do. (See 2006 ABA

Report on Contingent Fees in Class Action Litigation, supra, 25 Rev. Litig.

at pp. 488-489 [“Even with the best data on what other courts have done,

courts that decide what fees to award class counsel face an enormous

task.”].) The challenge is rendered more acute when, as often happens,

courts entertaining fee petitions lack the benefit of adversarial proceedings.

- 13 -

(See In re Continental Illinois Sec. Litig. (7th Cir. 1992) 962 F.2d 566,

573-574; Swedish Hospital Corp., supra, 1 F.3d at p. 1269; In re Auction

Houses Antitrust Litig. (S.D.N.Y. 2000) 197 F.R.D. 71, 77.)

There is, accordingly, consensus that the invisible hand of incentives

best motivates class action lawyers. “[T]he most effective way to police

class action practice is to provide the proper incentives for class counsel to

diligently prosecute the class’s interests.” (Issacharoff, Class Action

Conflicts (1997) 30 U.C. Davis L.Rev. 805, 829.)5

California courts are particularly “sensitive to the need to encourage

‘private attorneys general’ willing to challenge injustices in our society.

Adequate fee awards are perhaps the most effective means of achieving this

salutary goal.” (Thayer v. Wells Fargo Bank (2001) 92 Cal.App.4th 819, 839

[112 Cal.Rptr.2d 284].) Moreover, “[s]o long as the plaintiffs’ attorneys

recover only to the extent that the class is benefitted, they can vigorously

prosecute the action and invest according to the merits of the case.”

(Issacharoff, Class Action Conflicts, supra, 30 U.C. Davis L.Rev. at p. 830.)

As explained more fully below (see Section II.B.2, infra), use of the

percentage method helps level the litigation playing field by giving counsel

an incentive to bring important cases and to invest in their effective

prosecution, e.g., by hiring specialized experts, commensurate with the

defendants’ own investments.

5 Appellant also cites this article, which largely encapsulates amici’s views on the key question before this Court. (Br. of Appellant at p. 22.)

- 14 -

B. In Common Fund Cases, the Percentage Method Is Superior to the Lodestar Approach.

1. The Lodestar Approach Creates an Incentive to Spend Time Performing Legal Work.

Courts over the past generation repudiated lodestar because it created

terrible incentives and imposed gross burdens on trial judges:

[B]y severing the fee award from the settlement’s size, [the lodestar] formula facilitates the ability of defendants and the plaintiff’s attorneys to arrange collusive settlements that exchange a low recovery for a high fee award. In addition, the lodestar formula essentially places the court in the position of a public utility commission that regulates the “fair” return the attorney receives by both determining the attorney’s normal billing rate and assessing whether the attorney’s time was reasonably expended. At a minimum, such an undertaking imposes a substantial burden on the already overloaded judicial system . . . .

(Lealao, supra, 82 Cal.App.4th at p. 30, quoting Coffee, Understanding the

Plaintiff’s Attorney: The Implications of Economic Theory for Private

Enforcement of Law Through Class and Derivative Actions (1986) 86

Colum. L.Rev. 669, 691, fns. omitted.) No third party, let alone a court

managing a crowded docket, can easily collect and evaluate the vast amount

of information needed to accurately gauge whether individual expenditures

of attorney time were or were not worthwhile.

Further, under the lodestar approach, class counsel’s pay is

uncorrelated to class members’ recovery. Instead, in effect, counsel’s pay

depends on how long they can drag a case out. (See, e.g., Quantum Health

Resources, supra, 962 F.Supp. at p. 1256 [lodestar “creates an incentive to

keep litigation going in order to maximize the number of hours included in

the court’s lodestar calculation.”]; Vizcaino v. Microsoft Corp. (9th Cir.

2002) 290 F.3d 1043, 1050, fn. 5 [lodestar leads counsel “to expend more

- 15 -

hours than may be necessary on litigating a case so as to recover a reasonable

fee.”]; 1985 Third Circuit Task Force Report, supra, 108 F.R.D. at p. 248

[“Because of [lodestar’s] emphasis on hours worked, lawyers—including

defense counsel who typically bill their clients on an hourly basis—have

little or no incentive to settle cases at the earliest appropriate opportunity.”];

Coffee, The Regulation of Entrepreneurial Litigation, supra, 54 U.Chi.

L.Rev. at pp. 887-888 [“Obviously, the lodestar creates an incentive for

delay. Once time is equated with money, unmonitored lawyers have reason

to engage in ‘makework’ or overstaffing.”].) The lodestar approach thus

creates incentives for class counsel to “churn” their hours to garner payouts

for wasted or no effort, to capture a share of the recovery that would

otherwise go to the class. That plainly reduces the efficacy of the class action

mechanism.

The incentive to churn is already a feature of compensation for

corporate defense counsel, who are typically paid on an hourly basis. By

contrast, the percentage method counteracts incentives toward makework

with an efficiency/economy incentive that reduces the cost and delay of civil

litigation—a good that serves the legitimate interests of all parties, the

courts, and the public.

The lodestar approach also undermines class counsel’s incentive to

press for more recovery for the class beyond a certain amount. Why bargain

hard for a large recovery when hard bargaining entails risks and a smaller

settlement will generate a fee that covers the time counsel has expended? To

be sure, most class action attorneys are conscientious and take their duties to

the class seriously without regard to how they are compensated, and this

brief should not be read to suggest otherwise. (See, e.g., Barboza v. West

Coast Digital GSM, Inc. (2009) 179 Cal.App.4th 540, 546-547 [102

Cal.Rptr.3d 295] [class counsel owe a fiduciary duty to the class they

represent]; Goldberger, supra, 209 F.3d at p. 48 & fn. 2; In re Southwest

- 16 -

Airlines Voucher Litig. (7th Cir. 2015) 799 F.3d 701, 711 [assumption giving

rise to judicial scrutiny of class action settlements and attorneys’ fees—that

“class counsel behave as economically rational actors who seek to serve their

own interests first and foremost”—“may not hold in all cases”].) But only

good can come from a fee regime that consistently and correctly aligns class

counsel’s incentives with those of the class. While there is generally a range

of reasonable outcomes in a class case, the percentage method promotes the

maximal ones and lodestar promotes cheaper ones.

Why? Suppose that a representation agreement for an individual

action provides that attorneys are to receive 30 percent of any recovery or

three times their lodestar, whichever is lower. Under such an arrangement,

the attorneys lack an economic incentive to settle for a fund of more than ten

times their lodestar. For instance, once they have amassed $1 million in

lodestar, they would be economically indifferent between settling for $10

million and settling for $30 million. Needless to say, protracted litigation

that results in suboptimal recoveries benefits neither class members

(compensation) nor society at large (deterrence).

2. The Percentage Method Creates an Incentive to Secure a Generous and Swift Recovery.

The percentage method avoids these problems and aligns the relevant

interests. First, in most basic terms, the more the class recovers, the more

class counsel receive. (See, e.g., In re Rite Aid Corp. Sec. Litig. (3d Cir.

2005) 396 F.3d 294, 300 [“The percentage-of-recovery method is generally

favored in common fund cases because it . . . rewards counsel for success and

penalizes it for failure.”], quotation marks and citation omitted; Coffee, The

Regulation of Entrepreneurial Litigation, supra, 54 U.Chi. L.Rev. at p. 887

[“[E]ven uninformed clients can align their attorney’s interests with their

own by compensating them through a percentage-of-recovery fee

formula”].) Second, the faster the attorneys resolve the case, the more they

- 17 -

make per hour. (See, e.g., Swedish Hosp. Corp., supra, 1 F.3d at p. 1269

[“[I]n the common fund case, if a percentage-of-the-fund calculation

controls, inefficiently expended hours only serve to reduce the per hour

compensation of the attorney expending them.”].)6 Both of these incentives

(for a generous and swift recovery) are good for class members. Indeed, “the

measure of the recovery is the best determinant of the reasonableness and 6 Amici acknowledge that total recovery and speed of recovery can be traded off against each other in a way that deviates from what is best for the class: attorneys can increase their hourly rate by settling quickly for less when the class’s true interest is to litigate longer for more. (See Apple Computer, supra, 126 Cal.App.4th at p. 1265 [observing that “[i]n any class action there is always the temptation for the attorney for the class to recommend settlement on terms less favorable to his clients because a large fee is part of the bargain.”], citation omitted.) But this just means the percentage method is not perfect; it remains vastly superior to the lodestar method. We believe the imperfections can be minimized through carefully drawn guidelines for setting the percentage and for the approval of settlements themselves. (See Section III, infra.) For example, some contingency fee agreements mitigate this problem by setting a substantially higher fee percentage for trial than for settlement recovery. (See Robinson, An Empirical Study of Settlement Conference Nuts and Bolts (2012) 17 Harv. Negot. L.Rev. 97, 112 [“In many instances, the attorney’s fee would be 33% of a settlement, but 40% if it goes to trial.”]; Kritzer, Risks, Reputations, and Rewards: Contingency Fee Legal Practice in the United States (2004) p. 39 & Tbl. 2.4 [estimating that 31 percent of Wisconsin contingency fee practitioners rely on such tiered fees].) As the Delaware courts have held, this graduated structure could be replicated in class actions to prevent distortion of settlement versus trial incentives and to inhibit “sweetheart” deals. (See In re Activision Blizzard, Inc. Stockholder Litig. (Del. Ch. May 21, 2015) No. CV 8885, 2015 WL 2438067, at pp. *37-38, 2015 Del. Ch. LEXIS 140, at pp. *118-120; see also Niebler, In Search of Bargained-for Fees for Class Action Plaintiffs’ Lawyers: The Promise and Pitfalls of Auctioning the Position of Lead Counsel (1999) 54 Bus. Law 763, 795 [“Increasing the attorneys’ fee as litigation moves into phases that are more complex and demanding or that require significant additional investment of time makes intuitive sense. Class counsel will only invest such additional effort if the marginal return on that effort exceeds the return that could be earned by prosecuting another claim.”].)

- 18 -

quality of the time expended.” (Mashburn v. Nat’l Healthcare, Inc.

(M.D.Ala. 1988) 684 F.Supp. 660, 690; see 4 Alba Conte & Herbert B.

Newberg, Newberg on Class Actions (4th ed. 2002) § 14:6 [explaining that

“the fund itself represents the benchmark from which reasonableness is

measured.”]; Manual for Complex Litigation (Fourth), supra, § 21.71

[reiterating the “fundamental focus” on “the result actually achieved”],

citation omitted.) The percentage method consequently motivates attorneys

to marshal the resources needed to increase claim values, improving

remedies for and deterrence of widely felt legal transgressions.

So too, by tethering attorney compensation to results obtained, the

percentage method prevents wasteful and frivolous litigation by

discouraging the plaintiffs’ bar from applying time and resources to less

meritorious cases that are unlikely to succeed. (See Schwartz, The Rise of

Contingent Fee Representation in Patent Litigation (2012) 64 Ala. L.Rev.

335, 344 [“Sophisticated lawyers are unwilling to invest their time on a

contingent basis unless they believe that the claim is worth money. Thus, the

cases selected by contingent lawyers should have merit,” at least according

to their own professional judgment].)

These are not the only virtues of the percentage method. It is also

relatively easy to apply and is unencumbered by significant administrative

costs, as courts need not scrutinize voluminous detailed time records. And,

especially where hourly payment for the legal services would be unlikely

absent a class action, the percentage method approximates the relevant

market. (See, e.g., Swedish Hospital Corp., supra, 1 F.3d at p. 1270 [“We

adopt a percentage-of-the-fund methodology . . . primarily because it is more

efficient, easier to administer, and more closely reflects the marketplace.”].)

Disposition or dismissal without recovery leaves class action

attorneys empty-handed. As a result, their work is analogous to legal work in

the contingency fee market. It follows that they should obtain “the fee they

- 19 -

would have received had they handled a similar suit on a contingent fee

basis, with a similar outcome, for a paying client.” (Continental Illinois,

supra, 962 F.2d at p. 572.) California authorities, too, so hold. (See Chavez,

supra, 162 Cal.App.4th at p. 66 [recognizing that the hallmark of a

reasonable fee is that it “accurately reflect[s] the marketplace.”]; Ketchum,

supra, 24 Cal.4th at p. 1136 [identifying “the market rate for comparable

legal services” as a reference point]; Lealao, supra, 82 Cal.App.4th at p. 47

[concluding “it will otherwise be economic for defendants to increase

injurious behavior.”].)

The market for legal services confirms that the percentage method

yields superior incentives. When private plaintiffs, like most absent class

members, are unable to closely monitor their attorney’s progress, a

contingency agreement typically governs the representation. (See Silver,

Due Process and the Lodestar Method: You Can’t Get There from Here

(2000) 74 Tul. L.Rev. 1809, 1842-1843 [finding that “contingent percentage

compensation arrangements dominate plaintiff representations” and that

“[s]ome sophisticated clients have offered contingent fees of thirty-three

percent in enormous cases.”], fns. omitted; Blum, supra, 465 U.S. at p. 904

(conc. opn. of Brennan, J.) [“In tort suits, an attorney might receive one-third

of whatever amount the Plaintiff recovers. In those cases, therefore, the fee

is directly proportional to the recovery.”].) Even when sophisticated

businesses enter into a contingency agreement with an attorney to pursue

claims for relief, the agreement typically sets the attorney’s fee at a certain

percentage of an eventual recovery. (See Schwartz, The Rise of Contingent

Fee Representation in Patent Litigation, supra, 64 Ala. L.Rev. at p. 337

[“For decades, contingent fee representation has been widely used in United

States civil litigation in many fields,” even, increasingly, in high-stakes

patent litigation].)

- 20 -

Simply put, courts do not protect the interests of class members, or of

the citizens who bear the costs of wrongdoing in the absence of needed class

action law enforcement, by using a fee formula seldom used even by

sophisticated plaintiffs who hire lawyers on contingency. Rather, there is

consensus that “because the percentage-of-the-benefit approach ‘is

result-oriented rather than process-oriented, it better approximates the

workings of the marketplace’ than” lodestar. (Lealao, supra, 82 Cal.App.4th

at p. 48, citation omitted.) Thus, based on the foregoing, “the percentage of

the fund approach is the better reasoned in a common fund case.” (Camden,

supra, 946 F.2d at p. 774.)

* * *

Faced with the weight of this authority, Appellant responds with the

claim that the common fund doctrine involves only “entitlement questions”

and is “unrelated to the method to be used to calculate the amount of the

attorneys’ fee.” (Reply Br. of Appellant at p. 8.) To the contrary, the

percentage method goes hand-in-hand with the common fund doctrine.

(Blum, supra, 465 U.S. at p. 900, fn. 16.) “Indeed, every Supreme Court case

addressing the computation of a common fund fee award has determined

such fees on a percentage of the fund basis” where the claims did not arise

under a statute with a fee-shifting provision. (Camden, supra, 946 F.2d at p.

773.) That remains true, and by reaffirming the sound application of these

principles, this Court will promote “encouragement of the attorney for the

successful litigant, who will be more willing to undertake and diligently

prosecute proper litigation for the protection or recovery of the fund if he is

assured that he will be promptly and directly compensated should his efforts

be successful.” (Estate of Stauffer (1959) 53 Cal.2d 124, 132 [346 P.2d

748].)

- 21 -

III. THIS COURT SHOULD INSTRUCT TRIAL COURTS ON HOW TO APPLY THE PERCENTAGE METHOD.

How should courts go about deciding how much of a common fund to

allocate to attorneys’ fees?

A. Theoretically, the Percentage Should Be Set Early in the Case to Settle Incentives and Expectations.

In an ideal world, courts would fix the fee percentage at the beginning

of class cases, to settle incentives and expectations, while reserving the

ability to adjust the fee later on. (See ALI, Principles of the Law of

Aggregate Litigation, supra, § 3.13(d) [stating that “[i]n appropriate cases,

courts should consider defining the expected fee recovery as a percentage set

early in the litigation rather than after the fact,” subject to future adjustment];

1985 Third Circuit Task Force Report, supra, 108 F.R.D. at p. 255

[recommending that courts “attempt to establish a percentage fee

arrangement” at “the earliest practicable moment”], fn. omitted; see also In

re Synthroid Mktg. Litig. (7th Cir. 2001) 264 F.3d 712, 718 [“The best time

to determine this rate is the beginning of the case, not the end (when

hindsight alters the perception of the suit’s riskiness, and sunk costs make it

impossible for the lawyers to walk away if the fee is too low).”]; Baker,

Perino & Silver, Is the Price Right? An Empirical Study of Fee-Setting in

Securities Class Actions (2015) 115 Colum. L.Rev. 1371 [proposing that

courts in securities class actions set a fee percentage ex ante by reference to a

negotiated fee agreement between class counsel and a sophisticated lead

plaintiff].) Courts might also fix the percentage ex ante using auctions. (See,

e.g., Macey & Miller, The Plaintiffs’ Attorney’s Role in Class Action and

Derivative Litigation, supra, 58 U.Chi. L.Rev. at pp. 6-7, 106-118.)

Yet auctions have proved problematic in practice, and trial judges

have been reluctant to set fee percentages ex ante. Instead, they almost

always select the percentage when the case is over, after they have observed

- 22 -

counsel’s performance, learned more about the evidence and the legal claims

and defenses, and assessed the outcome. (See 2006 ABA Report on

Contingent Fees in Class Action Litigation, supra, 25 Rev. Litig. at pp.

482-485 [analyzing ex ante versus ex post issue and recommending that

courts determine attorneys’ fees at the conclusion of cases, in part because of

the unpredictable nature of class litigation].)

In order to provide realistic advice, the balance of our brief provides

suggestions on how trial courts should set fees once a case has concluded.

B. Use of a Benchmark to Set the Fee Percentage Is Widespread and Accomplishes the Same Goals.

The next best alternative to setting fee percentages ex ante is to rely

on what is known as a “benchmark” or “presumptive” fee percentage. Under

this method, class counsel receive a standard percentage unless other

considerations overcome the presumption that it should be awarded. This

method is now firmly ingrained in class action jurisprudence; we support it.

It is less clear what the benchmark should be. Ideally, courts would

mimic the market in non-class litigation to avoid a drain of high-caliber

attorneys away from class action work7—but no market parallels the market

for legal services in class cases involving small claims that rational plaintiffs

would not otherwise pursue. This is effectively a distinct (and critical)

7 As the First District Court of Appeal stated: “Given the unique reliance of our legal system on private litigants to enforce substantive provisions of law through class and derivative actions, attorneys providing the essential enforcement services must be provided incentives roughly comparable to those negotiated in the private bargaining that takes place in the legal marketplace, as it will otherwise be economic for defendants to increase injurious behavior.” (Lealao, supra, 82 Cal.App.4th at p. 47; accord Ketchum, supra, 24 Cal.4th at p. 1136; Synthroid, supra, 264 F.3d at p. 718 [holding that “in common-fund cases, courts must do their best to award counsel the market price for legal services, in light of the risk of nonpayment and the normal rate of compensation in the market”].)

- 23 -

market. We do know, however, that standard contingency percentages for

individual suits, including those brought by large companies, range from

one-third to 40 percent of a recovery. (See p. 17, fn. 6 & p. 19, supra.) We

believe those percentages should be discounted somewhat in estimating a

touchstone for compensating class counsel, given the economies of scale that

class actions achieve by decreasing the per capita cost of legal

representation. (See Fitzpatrick, Do Class Action Lawyers Make Too Little?

(2010) 158 U.Pa. L.Rev. 2043, 2055.) Accordingly, some courts, such as the

Ninth and Eleventh Circuits, adopted a benchmark of 25 percent. (See

Vizcaino, supra, 290 F.3d at pp. 1047-1048; Camden, supra, 946 F.2d at p.

775.)

A generation after the 25 percent benchmark emerged, it has become

conventional wisdom and generally defines compensation in the market for

class action services. (See, e.g., Chavez, supra, 162 Cal.App.4th at p. 66, fn.

11 [affirming 27.9 percent fee as “not out of line” with fees in similar cases].)

Empirical research shows that 25 percent is now the mean and median fee

award in all class action settlements. (See Fitzpatrick, An Empirical Study of

Class Action Settlements and Their Fee Awards, supra, 7 J. Empirical Legal

Stud. at p. 831; Eisenberg & Miller, Attorneys’ Fees and Expenses in Class

Action Settlements, supra, 7 J. Empirical Legal Stud. at p. 260.) We think it

makes sense to conform California law to Ninth Circuit law on this point.

C. The Benchmark Should Ordinarily Be Awarded, But It May Be Adjusted Upward or Downward Based on Exceptional Results, Unusual Litigation Risks or Complexity, and/or Counsel’s Performance.

The benchmark operates as a presumption. It should normally be

awarded. Otherwise, there might as well not be a benchmark at all.

This is not to say that a trial court lacks discretion to depart from the

benchmark upon appropriate findings. For example, where a recovery

- 24 -

comes after a trial or a post-trial appeal, a clear rationale exists to adjust the

percentage upward. (See p. 17, fn. 6, supra.) An adjustment may also be

warranted where class counsel obtained an exceptionally good (or bad)

result: the court should examine how the recovery at hand compares to the

expected value of the case. (See Manual for Complex Litigation (Fourth),

supra, § 14.121, citing Newberg on Class Actions, supra, § 14:6.) The

case-specific analysis should further consider whether continuing litigation

would present unusual risks or complexity. (Cf. Petrovic v. Amoco Oil Co.

(8th Cir. 1999) 200 F.3d 1140, 1150 [holding that the “most important”

factor in adjudging a settlement’s fairness is “the strength of the case for

plaintiffs on the merits, balanced against the amount offered in settlement”],

citations omitted.)8 And, of course, especially high- or low-quality

performance by counsel can also militate for departing from the benchmark

in appropriate circumstances.

In conducting this analysis, moreover, the court will learn whether

class counsel can come forward with enough information for the comparison

even to be made. Did class counsel litigate the case long enough to know

what it is worth? Is the settlement sufficiently fair to be approved? We think 8 Some federal courts have enumerated a dizzying array of factors for arriving at the percentage. (See, e.g., Brown v. Phillips Petroleum Co. (10th Cir. 1988) 838 F.2d 451, 454-456 [setting out 12 factors, but indicating that “the amount involved and the results obtained” may merit “greater weight”], citing Johnson v. Georgia Highway Express, Inc. (5th Cir. 1974) 488 F.2d 714, 717-719.) These multi-factor tests resemble “commodious closets into which the residues of past cases can be deposited—closets that never need to be reorganized or cleaned out because the tests are suggestive only.” (Macey & Miller, Judicial Review of Class Action Settlements (2009) 1 J. Legal Analysis 167, 172.) Judge Easterbrook likewise points out that the “consider-everything” approach “lacks a benchmark; a list of factors without a rule of decision is just a chopped salad.” (Synthroid, supra, 264 F.3d at p. 719.) In our view, less is more, and courts applying California law should focus on the most important metrics, outlined above in Section III.C.

- 25 -

this inquiry constitutes the best means to counteract the incentive to settle too

early for too little.

D. Attorneys’ Fees Should Not Be Proportionally Reduced in Larger Cases.

Some courts have slashed fee percentages in larger class settlements.

(See Fitzpatrick, An Empirical Study of Class Action Settlements and Their

Fee Awards, supra, 7 J. Empirical Legal Stud. at pp. 837-839; Eisenberg &

Miller, Attorneys’ Fees and Expenses in Class Action Settlements, supra, 7 J.

Empirical Legal Stud. at pp. 270-271.) Amici oppose lowering fee

percentages for larger settlements. Whatever superficial appeal that

approach may have, it loses sight of—and impairs—the essential function of

class actions. As a result, it should have no place in California law.

Lowering fee percentages as settlements become larger blunts

attorneys’ incentives (1) to push for larger recoveries, and (2) to invest their

time and money in the very class actions promising the greatest deterrence:

big ones. A leading decision found that,

if courts were to hold that the percentage should decline sharply after, say, the $ 100 million threshold was passed, then plaintiff’s counsel in a case such as this would have had little incentive to hold out for nine long years for the $ 1.2 billion recovery that it obtained. . . . Moreover, if such a formula were mandated, defendants would quickly come to understand that plaintiffs’ counsel lacked an incentive to maximize the recovery (at least beyond some threshold), and they could exploit this lack of incentive.

(Allapattah Services v. Exxon Corp. (S.D.Fla. 2006) 454 F.Supp.2d 1185,

1213, citation omitted.)

Consider the following example: if courts award class counsel 30

percent of settlements if they are under $100 million, but only 20 percent of

settlements if they are over $100 million, then rational class counsel will

prefer to settle cases for $90 million (yielding a $27 million fee) instead of

- 26 -

$125 million (a $25 million fee). Such negative incentives led the Seventh

and Third Circuits, among other courts, to decline to endorse a

bigger-is-smaller approach. (See Synthroid, supra, 264 F.3d at p. 718

[remarking that rational clients in the private marketplace would never agree

to such an arrangement]; Rite Aid, supra, 396 F.3d at p. 303 [rejecting

challenge to decision not to employ sliding scale]; see also In re Cendant

Corp. Litig. (3d Cir. 2001) 264 F.3d 201, 284, fn. 55 [the position that “the

percentage of a recovery devoted to attorneys fees should decrease as the size

of the overall settlement or recovery increases” has been “criticized by

respected courts and commentators” on the grounds “that such a fee scale

often gives counsel an incentive to settle cases too early and too cheaply.”];

Tornes, supra, 830 F.Supp.2d at p. 1367 [“While some reported cases have

advocated decreasing the percentage awarded as the gross class recovery

increases, that approach is antithetical to the percentage of the recovery

method . . . , the whole purpose of which is to align the interests of Class

Counsel and the Class by rewarding counsel in proportion to the result

obtained. By not rewarding Class Counsel for the additional work necessary

to achieve a better outcome for the class, the sliding scale approach creates

the perverse incentive for Class Counsel to settle too early for too little.”],

emphasis in original, citing Allapattah Services, supra, 454 F.Supp.2d at p.

1213; In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales

Practices, & Prods. Liab. Litig. (C.D.Cal. June 17, 2013) No. 8:10ML-

02151-JVS, Dkt. 3802, at p. 17, fn. 16 [“[D]ecreasing a fee percentage based

only on the size of the fund would provide a perverse disincentive to counsel

to maximize recovery for the class.”], citing Allapattah Services, supra, 454

F.Supp.2d at p. 1213; Auction Houses, supra, 197 F.R.D. at p. 80 [“Again,

this method can create an incentive to settle quickly and cheaply, when the

returns to effort are highest, rather than investing additional time and

maximizing plaintiffs’ recovery.”].)

- 27 -

For these reasons, courts applying California law often award similar

attorneys’ fee percentages in larger class settlements as in smaller ones.

(See, e.g., In re GCC Richmond Works Cases (Contra Costa Super. Ct. 1995)

J.C.C.P. No. 2906 [in coordinated environmental and toxic tort proceedings,

court awarded 26.8 percent of $180 million common fund]; Toyota Motor

Corp. Unintended Acceleration, supra [provisionally awarding 26.4 percent

of $757 million common fund benefiting consumers]; In re TFT-LCD (Flat

Panel) Antitrust Litig. (N.D.Cal. Apr. 3, 2013) No. M 07-1827 SI, 2013 WL

1365900, at pp. *7-8, 2013 U.S. Dist. LEXIS 49885, at pp. *68-74 [awarding

28.5 percent of $1.08 billion antitrust settlement benefiting indirect

purchasers], citing Allapattah Services, supra, 454 F.Supp.2d at pp.

1210-1211.)

If this Court nonetheless were to find that a bigger-is-smaller

approach may sometimes be acceptable, amici suggest that the Court also

make clear that any reductions are to be applied on a marginal rather than an

absolute basis. In other words, this would be a sliding scale for fees, similar

to how income tax is calculated, but in reverse: class counsel would

presumptively receive the benchmark percentage of the recovery up to a

certain level, with a reduced percentage applying only to sums above that

level and the percentages across all brackets totaled to arrive at the award.

(See Synthroid, supra, 264 F.3d at p. 721.) Such an approach at least would

not give class counsel the warped incentive to take a smaller settlement over

a larger one, as discussed in our example above. But we do not want to leave

the impression that we support a sliding fee scale. That approach clearly

blunts class counsel’s incentives to go after the most difficult dollars in a

case—the later dollars—and thereby pushes them to settle early so they can

move on to the more lucrative early dollars in other cases. Consequently,

many scholars believe that, if fees are to be adjusted at all based upon

settlement size, they should go up as settlement values increase. (See, e.g.,

- 28 -

Coffee, Understanding the Plaintiff’s Attorney, supra, 86 Colum. L.Rev. at

p. 697 [“[T]he most logical answer to this problem of premature settlement

would be to base fees on a graduated, increasing percentage of the recovery

formula—one that operates, much like the Internal Revenue Code, to award

the plaintiff’s attorney a marginally greater percentage of each defined

increment of the recovery.”].)

E. The Counterargument That Class Counsel Should Not Receive Windfalls Substantially Underestimates Both the Costs and the Social Value of Class Litigation.

Appellant’s stated concern that large fee awards might lessen respect

for the justice system is misplaced. Expert witness fees and overhead costs

continue to mount, and attorneys must be given the proper incentives to

pursue cases deterring violations and benefiting large groups of victims,

notwithstanding the resources, both out of pocket and in time, such cases

require prosecuting attorneys to advance. Otherwise, attorneys would stop

bringing these cases, and the paramount purpose and effect of the class

action—deterrence—would be compromised. (See Deposit Guaranty,

supra, 445 U.S. at pp. 338-339; Linder, supra, 23 Cal.4th at pp. 434-435,

445-446; see also Br. of Respondent at pp. 1, 5 [in this case, class counsel’s

11-year prosecution of wage-and-hour claims precluded other legal work].)

“If the price of private policing of misconduct is a need for plaintiffs’

attorneys, and if the further consequence is that the good ones get rich, so be

it.” (Issacharoff, Class Action Conflicts, supra, 30 U.C. Davis L.Rev. at p.

830.) In truth, perceptions of class actions and the attorneys who pursue

them are informed not just by the size of legal fees but by the overall results.

As the Third Circuit Task Force observed: “The cases that account to

some extent for a negative public view of some plaintiffs’ class action

lawyers are those in which class members receive in a settlement something

perceived to be of little value or even a slap in the face of the plaintiffs—e.g.,

- 29 -

in a case involving a defective product, coupons entitling plaintiffs to

purchase another product by the same manufacturer at a discount—while the

lawyers seek and obtain what seems to be large sums of cash.” (2001 Third

Circuit Task Force Report, supra, 74 Temp. L.Rev. at p. 693.) We

accordingly believe that the best way to prevent perceptions of unfairness is

for the trial court to carefully evaluate proposed class settlements

themselves, declining to approve inadequate ones and awarding fees in

proportion to concrete results. (See Cal. Rules of Court, rule 3.769; see also

Hensler, Class Action Dilemmas: Pursuing Public Goals for Private Gain:

Executive Summary (RAND 2000) p. 31 [concluding that if courts “refuse to

approve settlements whose benefits are illusory, and award fees to class

counsel proportionate to what they actually accomplish, over the long run the

balance between public good and private gain will improve.”].) This

approach trains judicial scrutiny on the real source of the concerns.

Indiscriminately slashing fee percentages as Appellant would have courts do

punishes the good lawyers with the bad.

F. The Third Circuit Task Force, the ALI, and the Ninth Circuit Treat the Use of a Lodestar Cross-Check as Discretionary.

Lastly, courts often “cross-check” the fee percentage they are inclined

to award by examining class counsel’s lodestar. (See Fitzpatrick, An

Empirical Study of Class Action Settlements and Their Fee Awards, supra, 7

J. Empirical Legal Stud. at pp. 833-843; Eisenberg & Miller, Attorneys’ Fees

and Expenses in Class Action Settlements, supra, 7 J. Empirical Legal Stud.

at p. 279 [finding no “statistically significant difference between fees

calculated by the percentage method alone and those calculated by the

percentage method with the lodestar cross-check.”]; Baker, Perino & Silver,

Is the Price Right? An Empirical Study of Fee-Setting in Securities Class

Actions, supra, 115 Colum. L.Rev. at p. 1417 [similarly finding “no

- 30 -

statistically significant difference between fee awards using a lodestar

cross-check and fee awards under the percentage of the recovery approach.

This result supports previous academic criticisms of the lodestar

methodology.”].)9

The Third Circuit Task Force generally opposed reliance on lodestar

methodology to “cross-check” the attorneys’ fees suggested by the

percentage method. (See 2001 Third Circuit Task Force Report, supra, 74

Temp. L.Rev. at p. 776 [“Given the substantial problems with the lodestar

approach generally, the Task Force is highly skeptical about the use of the

lodestar even as a cross-check when awarding a percentage of the common

fund.”].) So too, under the ALI principles, courts are not required to perform

a lodestar cross-check (but they retain discretion to do so, “particularly in

cases in which there is uncertainty about the true value of the judgment or

settlement”). (ALI, Principles of the Law of Aggregate Litigation, supra, §

3.13, cmt. b.) The same goes for courts within the Ninth Circuit. (See, e.g.,

Jonsson v. USCB, Inc. (C.D.Cal. May 28, 2015) No. CV 13-8166, 2015 U.S.

Dist. LEXIS 69934, at p. *27 [noting that “a lodestar ‘cross-check’ is not

required” in the Ninth Circuit].)

9 Appellant cites this 2015 article in arguing for a pure lodestar model (Reply Br. of Appellant at pp. 31-32, 35-36) without disclosing its statement, grounded in empirical research, that “the time and resources lawyers devote to tracking lodestar amounts and the enormous number of hours that some judges spend reviewing firm billing records is largely a waste of time.” (Baker, Perino & Silver, Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions, supra, 115 Colum. L.Rev. at p. 1417.) In short, the latest data indicate the percentage method does not lead to excessive fees, but rather is a useful tool for reaching the “right” fee for a particular case.

- 31 -

When it comes to the issue of a lodestar cross-check, amici are not in

complete agreement and so take no position here. We nonetheless lay out the

basic debate as it may assist the Court.

On one hand, some courts and commentators regard the cross-check

as a useful tool to prevent class counsel from reaping an excessive fee in

certain cases from the pure application of the percentage method. (See, e.g.,

Petrovic, supra, 200 F.3d at p. 1157 [finding that a lodestar cross-check “is

sometimes warranted” to assess whether the result suggested by the

percentage method “is overly generous.”]; Cendant Corp., supra, 264 F.3d at

p. 285 [explaining that “[t]he goal of this practice is to ensure that the

proposed fee award does not result in counsel being paid a rate vastly in

excess of what any lawyer could reasonably charge per hour, thus avoiding a

‘windfall’ to lead counsel.”].) Particularly for class actions that

“piggy-back” on government investigations or indictments—as sometimes

happens, for example, in the antitrust context—these authorities seek to

avoid fee awards out of proportion to what the attorneys actually did. The

concern is that such “windfalls” can take money out of the hands of class

members, and may generate or reinforce negative public perceptions of the

justice system. And “where used as a mere cross-check, the hours

documented by counsel need not be exhaustively scrutinized . . . .”

(Goldberger, supra, 209 F.3d at p. 50.)

Other courts and commentators regard these concerns as overstated,

in part because they believe the overriding function of the class action is to

deter corporations from committing violations for fear that they will be

forced to pay large sums. These authorities oppose the lodestar cross-check

on the grounds that it reintroduces many of the same incentives undermining

deterrence and class compensation that jettisoning the lodestar model sought

to dispel. To understand the second group’s position, consider again this

brief’s earlier example of a representation agreement which provides that the

- 32 -

attorneys pursuing an individual action are to receive either 30 percent of any

recovery or three times their lodestar, whichever is lower. Now suppose the

defendant extends a generous $500 million settlement offer after the

pleadings have been upheld, when the plaintiff’s attorneys have amassed

only $100,000 in lodestar. Their economic incentive is to reject the

offer—depriving the client of certain, substantial, and speedy relief—and to

continue to work the case. A lodestar cross-check can produce this same

detrimental incentive in the class context. Given a parallel scenario in a

jurisdiction where a lodestar cross-check is required, the most class counsel

can expect to earn is a low multiple of $100,000, despite the case’s high

value. It is in the class members’ interest to agree to a generous early

settlement in these circumstances. But a lodestar cross-check makes it not in

their attorneys’ interest to do so.

At a later stage, too, the ceiling imposed by a lodestar cross-check can

dissuade class counsel from trying a high value case, even when a trial is in

the class’s best interest, if a smaller pretrial settlement will assure counsel of

recovering a multiple of their existing lodestar. (See McDaniel v. County of

Schenectady (2d Cir. 2010) 595 F.3d 411, 418 [“While under the lodestar

method lawyers share the ‘downside’ risk of trial (i.e., the possibility of an

adverse judgment, and hence no fee), they do not share in the potential

economic ‘upside’ (i.e., fees as a percentage of a large common fund),

especially since trial requires comparatively fewer hours than the process of

trial preparation.”].) Thus, a cross-check not only can create a divergent—

and prejudicial—rift in interests between class counsel and their clients, but

some scholars have also argued that its mandatory application “seriously

undermines the value of deterrence, aligning incentives to cap the amount of

social costs the corporate wrongdoer is forced to internalize.” (Gilles &

Friedman, Exploding the Class Action Agency Costs Myth: The Social Utility

of Entrepreneurial Lawyers (2006) 155 U.Pa. L.Rev. 103, 142.)

- 33 -

CONCLUSION

Amici respectfully submit that attorneys’ fees in most common fund

cases under California law should be awarded as a percentage of the fund.

The holding of the Court of Appeal should be affirmed.

Dated: December 14, 2015 Respectfully submitted,

LIEFF, CABRASER, HEIMANN & BERNSTEIN, LLP

/s/ Elizabeth J. Cabraser

Elizabeth J. Cabraser

/s/ Jonathan D. Selbin Jonathan D. Selbin 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 Telephone: (415) 956-1000 Facsimile: (415) 956-1008 ecabraser@lchb.com jselbin@lchb.com GIRARD GIBBS LLP

/s/ Jordan Elias

Jordan Elias 601 California Street, 14th Floor San Francisco, CA 94108 Telephone: (415) 981-4800 Facsimile: (415) 981-4846 je@girardgibbs.com

Counsel for Amici Curiae Eight Class Action Scholars

- 34 -

APPENDIX A

Amici curiae are:

Professor Christine Bartholomew, SUNY Buffalo School of Law

Professor Erwin Chemerinsky, University of California, Irvine School of Law

Professor John C. Coffee, Jr., Columbia Law School

Professor Joshua P. Davis, University of San Francisco School of Law

Professor Nora Freeman Engstrom, Stanford Law School

Professor Brian T. Fitzpatrick, Vanderbilt University Law School

Professor Arthur R. Miller, New York University School of Law

Professor Charles Silver, University of Texas at Austin School of Law

- 35 -

CERTIFICATE OF WORD COUNT

[California Rules of Court, rule 8.204(c)(1)]

Pursuant to the California Rules of Court, I hereby certify that this

Brief uses 13-point Roman type and contains 10,205 words, including

footnotes and headings. I have relied on the count of the computer program

used to prepare this Brief.

Dated: December 14, 2015 GIRARD GIBBS LLP

/s/ Jordan Elias Jordan Elias

CERTIFICATE OF SERVICE

I hereby certify that I am over the age of 18 and that today I caused a

true and correct copy of the foregoing document to be sent via U.S. mail to

the following counsel of record in this appeal:

Kevin T. Barnes Law Offices of Kevin T. Barnes 5670 Wilshire Blvd., Suite 1460 Los Angeles, CA 90036

Judith M. Kline Paul Hastings LLP 515 South Flower St., 25th Floor Los Angeles, CA 90071

Lawrence W. Schonbrun Law Offices ofLawrence W. Schonbrun 86 Eucalyptus Rd. Berkeley, CA 94705

Dated: December 14,2015 GIRARD GIBBS LLP

/s/ Jordan Elias Jordan Elias

- 36-