Not So Clear Sailing ...

Ruiz v. California State Automobile Association Inter-Insurance Bureau, No. A136275 (D1d4 Dec. 20, 2013)

This case a must-read for anyone who drafts class action settlement documents. The court of appeal holds that a so-called “clear sailing” attorneys’ fees clause in a class action settlement agreement does not implicitly waive the class counsel’s right to appeal the trial court’s fee award.

The case is a class action against some auto and homeowners insurers over the way they billed their premiums. The case was ultimately settled for $6.5 million and some injunctive relief that the parties valued at about $3 million. The settlement agreement included a “clear sailing” provision—an agreement that defendants would not oppose the plaintiff’s application for attorneys’ fees, provided the request did not exceed $2.32 million. Under the provision, plaintiff “agreed to accept” the lesser of that amount and any amount awarded by the court. The agreement contained similar provisions regarding defendants’ non-objection to an incentive payments if up to $10,000 to Mr. Ruiz, the named plaintiff.

The trial court approved the settlement. Afterwards, it held a hearing on plaintiff’s motion for attorneys’ fees and incentive award, which, per the clear sailing agreement, defendants did not oppose. The court, however, rejected plaintiff’s calculation. It awarded only $350,000 in fees, $60,670 in costs, and a modest incentive payment of $1,250 to Mr. Ruiz. After plaintiff indicated his intent to appeal the fee award, defendants sought to specifically enforce the clear sailing agreement in the trial court as a waiver of plaintiff’s right to appeal. The trial court declined to do that. Both parties, as well as class counsel, appealed.

In the published part of the opinion, the court of appeal notes that although California courts will enforce appellate waivers, they must be “clear and express.” Reviewing alleged waiver language from other cases, the court holds that the “agreed to accept” phraseology used here was insufficiently clear to establish an appellate waiver as a matter of law. The court also rejects defendants’ argument that the trial court’s order on these issues was a consent judgment that could not be appealed from. Because the parties expressly foresaw that the court would make findings regarding the fee and incentive awards after the settlement was accepted, that part of the judgment is not by consent. Finally, the court also rejects defendants’ arguments that plaintiff’s attorneys lacked standing to appeal the fee order on their own account. “[C]lass counsel have standing, in their own right, to litigate the amount of attorney fees, both in the trial court and on appeal.” The court then goes on, in an unpublished part of the opinion, to reverse the trial court’s award on both the fees and the incentive payments because the trial court used an improper metric in its loadstar calculation.

Reversed.

Takeaway: If you are a class action defense attorney and you agree to a class action settlement containing a clear sailing provision for attorneys’ fees, you need to include express language waiving the right to appeal should the trial court award less than the full amount. Otherwise, plaintiff’s counsel will have the right to appeal, which pretty much defeats the whole point of the clause. Even if an appeal is ultimately unsuccessful, the finality of any settlement will be upset for the significant time—sixteen months in this case—it takes to resolve the appeal.