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 Courts 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. Commn (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
-i-

venued in California state court, class actions alleging significant violations

of California lawe.g., consumer fraud, mistreatment of employees,
unreasonable trade restraintsnow 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 CAFAs
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 Courts 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 Appellants 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.

- ii -

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

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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .................................................................. 1
ARGUMENT ............................................................................................... 3
I.

II.

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

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 CostsSo 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
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TABLE OF CONTENTS
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Page
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 Counsels 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

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TABLE OF AUTHORITIES
Page
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 Assn 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
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TABLE OF AUTHORITIES
(continued)
Page

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 Natl 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

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Page

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
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TABLE OF AUTHORITIES
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Page

Knoff v. City & County of San Francisco

(1969) 1 Cal.App.3d 184 [81 Cal.Rptr. 683]............................................. 5
Laffitte v. Robert Half Intl, 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. Commn
(9th Cir. 1995) 67 F.3d 1470 ...................................................................... i
Mashburn v. Natl 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 OLakes, 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

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TABLE OF AUTHORITIES
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Page

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

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TABLE OF AUTHORITIES
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Page

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 Plaintiffs 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

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TABLE OF AUTHORITIES
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Page

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 Attorneys 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 Cant Get There from
Here
(2000) 74 Tul. L.Rev. 1809 ..................................................................... 19

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TABLE OF AUTHORITIES
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Page

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

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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 Intl, 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
wholeand most counsel adhere assiduously to those obligationsit 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 counsels fees directly to the result they obtain for the classand
ensuring that the better the class does, the better the attorneys dothe
percentage method furthers the class actions 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, speedyand maximumrecovery for the class.

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These contrasting incentivesand the hard lessons of

experienceled 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 counsels efforts have resulted in a monetized (or monetizable)
common fund.

One of us (Arthur Miller) was the reporter for the Third Circuit Task Force.

One of us (Charles Silver) was a reporter for the ALIs Principles of the
Law of Aggregate Litigation treatise.

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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 attorneys 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 plaintiffs 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.)
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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 counsels
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,

-4-

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 Californias system for financing its public schools was void,
as violative of the state constitutions guarantee of equal protection. (Id. at p.

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.].)

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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.)
Appellants argument here loses sight of this distinction,
overemphasizing Serranos dictum that the starting point for a fee
determination must be a calculation of the attorneys 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 Courts analysis: the
lodestar is not, and should not be, the universal starting (or ending) point for
determining attorneys fees. Indeed, despite Appellants 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-ofthe-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.

-6-

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.)
Appellants 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 Serranos 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
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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 lodestars 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
Brothersone of the authorities relied upon in Serranos 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 plaintiffs 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
-8-

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 feesand 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 Assn 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 Forces 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

-9-

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.

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A.

Class Actions Are Essential to Law Enforcement and

Deterrence of Wrongdoing, But Also Entail Considerable
Risk and Advancement of Professional Time and
CostsSo 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 Natl 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
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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 OLakes, 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 Attorneys 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
counselyet 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.
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(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 classs 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.

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

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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 settlements size,
[the lodestar] formula facilitates the ability of defendants
and the plaintiffs 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 attorneys normal
billing rate and assessing whether the attorneys 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
Plaintiffs 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 counsels pay is
uncorrelated to class members recovery. Instead, in effect, counsels 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 courts lodestar calculation.]; Vizcaino v. Microsoft Corp. (9th Cir.
2002) 290 F.3d 1043, 1050, fn. 5 [lodestar leads counsel to expend more
- 14 -

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 [lodestars] emphasis on hours worked, lawyersincluding
defense counsel who typically bill their clients on an hourly basishave
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
litigationa good that serves the legitimate interests of all parties, the
courts, and the public.
The lodestar approach also undermines class counsels 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
- 15 -

Airlines Voucher Litig. (7th Cir. 2015) 799 F.3d 701, 711 [assumption giving
rise to judicial scrutiny of class action settlements and attorneys feesthat
class counsel behave as economically rational actors who seek to serve their
own interests first and foremostmay not hold in all cases].) But only
good can come from a fee regime that consistently and correctly aligns class
counsels 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 attorneys 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
- 16 -

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
classs 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 attorneys 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.].)

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quality of the time expended. (Mashburn v. Natl 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
- 18 -

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 attorneys progress, a
contingency agreement typically governs the representation. (See Silver,
Due Process and the Lodestar Method: You Cant 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 attorneys 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].)

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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].)

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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 suits 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 Attorneys 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
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counsels 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 work7but 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].)

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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 Counsels 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

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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 settlements 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 depositedclosets 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.

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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 ofand impairsthe 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 plaintiffs 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
- 25 -

$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. 8:10ML02151-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.].)
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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 counsels incentives to go after the most difficult dollars in a
casethe later dollarsand 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.,
- 27 -

Coffee, Understanding the Plaintiffs 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
formulaone that operates, much like the Internal Revenue Code, to award
the plaintiffs 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.

Appellants 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
actiondeterrencewould 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 counsels
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 plaintiffse.g.,

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

purchase another product by the same manufacturer at a discountwhile 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 counsels 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

- 29 -

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].)

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.

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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 indictmentsas sometimes
happens, for example, in the antitrust contextthese 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 groups position, consider again this
briefs earlier example of a representation agreement which provides that the
- 31 -

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 plaintiffs attorneys have amassed
only $100,000 in lodestar. Their economic incentive is to reject the
offerdepriving the client of certain, substantial, and speedy reliefand 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 cases 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 classs 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 prejudicialrift 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.)
- 32 -

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

- 33 -

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

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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

- 35 -

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-