So, you’re a defendant in a class action brought pursuant to California law and you are able to prevail at trial and have been found not liable for false advertising.  Assuming the case was brought under California’s Consumer Legal Remedies Act, which has a fee-shifting provision providing for the payment of fees to successful plaintiffs’ attorneys, you are probably thinking that you dodged a bullet and are now off the hook for any attorneys’ fees incurred by plaintiffs’ counsel, right?

If you modified business practices criticized in the lawsuit after its initiation, THINK AGAIN!

Under California’s Private Attorney General Act, Cal. Civ. Proc. Code § 1021.5, a successful party may be awarded attorneys’ fees if an action has resulted in the enforcement of an “important right” affecting the public interest if:

(a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the      general public or a large class of persons,
(b) the necessity and financial burden of private enforcement, or of enforcement by one    public entity against another public entity, are such as to make the award appropriate, and
(c) such fees should not in the interest of justice be paid out of the recovery, if any.

A plaintiff need not win a lawsuit to be deemed a “successful party” under the statute because the “critical fact” in making this determination “is the impact of the action, not the manner of its resolution.”  Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 566 (2004).  Courts have held that a plaintiff is a successful party in a lawsuit “whenever it obtains the relief sought in its lawsuit, regardless of whether that relief is obtained through a voluntary change in the defendant’s conduct, through a settlement, or otherwise.”  Hogar v. Comty Dev. Comm’n of City of Escondido, 157 Cal. App. 4th 1358, 1365 (2007).

Defendants in false advertising class actions are particularly vulnerable to this type of fee award if, for example, they were to change product packaging, labeling or advertising to remove problematic language that initially led to class action claims.  Such modifications could lead a court to conclude that even though there is no liability, the fact that the lawsuit was brought caused a change in business practice, conferring a “significant benefit” on the general public, thereby entitling plaintiffs to a fee award.

This was the result in Henderson v. J.M. Smucker Co., 2013 WL 3146774 (C.D. Cal. 2013), a case based on allegations that defendant Smuckers had made “misleading health and wellness claims” in the marketing of its Uncrustables and Crisco Shortening Products.  Although the case was dismissed, the court concluded that because Smuckers removed high fructose corn syrup from its products and changed certain labels, plaintiff was entitled to recover fees, although leaving the amount of fees to be determined at a later date.

Such a result gives a clear warning to defendants in the consumer products industry: change business practices that have given rise to lawsuits at your own peril because you could be liable for attorneys’ fees even without a determination of liability.*

*Post-script – the Court in Henderson ruled on the amount of the fees that could be reclaimed in a February 28, 2014 order.  Case 2:10-cv-04524-GHK (VBKx), Dkt. 314.  Although plaintiffs sought more than $3 million in fees, Judge King found that the poor performance by plaintiffs’ counsel merited only “10% of the lodestar,” knocking the fees down to a mere $72,297.90.