Although false advertising class action law in California is generally (and accurately) perceived as bending over backwards to advantage plaintiffs, recent fee award decisions may make plaintiffs’ lawyers more wary about bringing lawsuits that are not slam dunk victories.
This week, Judge George H. Wu out of the Central District of California slammed plaintiff attorneys by awarding them a modest $11,368.25 in fees, out of a requested $1.9 million fee award.
In Red v. Kraft Foods, Inc., plaintiff attorneys filed a class action claiming that Kraft engaged in false advertising under the CLRA, UCL and FAL by falsely marketing various products as healthy, including the popular “Teddy Grahams,” which plaintiffs claimed were falsely marketed as healthy snacks for children despite containing high fructose corn syrup and other processed ingredients.
The lawsuit was largely a failure. Plaintiffs unsuccessfully attempted to certify a class three different times. On the last round of class certification briefing, as plaintiffs attempted to certify an injunctive relief class, Kraft argued that injunctive relief claims were moot because it was no longer using certain of the challenged health statements. This argument was rejected, but the court said it would accept the argument “if and only if Kraft agree[d] to stipulate to a Court Order” preventing it from using the statements again.
Kraft agreed, signed a stipulation and the court denied certification.
Following the denial, plaintiffs’ counsel submitted their first fee request in 2013 for $3.3 million, claiming they had been successful in their lawsuit by (1) enjoining Kraft from using certain phrases on its packaging; and (2) causing Kraft to change its business practices. This fee award was knocked down to $101,702.38 – based on the court’s statement that plaintiffs succeeded on a “very, very minor point,” – the agreement by Kraft to cease using advertising phrases that it mostly stopped prior to the filing of the lawsuit.
Incredibly, after inking individual settlement agreements for the named plaintiffs (with a modest monetary recovery), plaintiff’s counsel came back seeking more fees, this time $1.9 million – primarily for work that the court already considered in the first fee request – and requesting a 1.25 lodestar multiplier for “exceptional results.”
Plaintiffs’ attorneys in false advertising cases typically seek recovery of fees under one (or both) of two California provisions: California’s Private Attorney General Act, Cal. Civ. Proc. Code § 1021.5, and California’s Consumer Legal Remedies Act, Cal. Civ. Code § 1780(e).
Under the CLRA, a party must “prevail” in the case in order to be entitled to fee recovery. Although various courts have interpreted this in different ways (such as if the party receives a “net monetary recovery”), Judge Wu opted for the “pragmatic approach,” an assessment of whether the party reached its litigation objectives.
The Private Attorney General Act is ostensibly more forgiving, allowing for recovery if the action resulted in the enforcement of an “important right” affecting the public interest – which is defined as:
(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 aware appropriate, and
(c) such fees should not in the interest of justice be paid out of the recovery, if any.
Known as “catalyst damages,” this statute has been used by plaintiffs to eke out fees even in the face of a loss, if they can argue a defendant altered business practices in response to the suit, thereby achieving some benefit for the public.
Here, Judge Wu did not substantively address § 1021.5, except to say in a footnote that the small individual cash settlements did not make plaintiffs “successful” because the settlements did nothing to benefit the general public.
The court conceded plaintiffs could be considered prevailing parties under the CLRA because the individual settlements were greater than the $100-$200 dollars Kraft suggested the claims were worth, and because they had obtained injunctive relief. The court also noted, however, that because many of plaintiffs’ claims were dismissed, certification was denied multiple times, there was no finding of liability, the individual claims were settled, and plaintiffs were the only parties taking an appeal, it would be difficult to see how plaintiffs could consider the case a practical victory.
Ultimately, the court held that the individual plaintiffs could be deemed to have modestly prevailed, but pointedly noted that whether an award is justified and how much the award should be are two different questions. The court slammed the amount of plaintiffs’ fee request as “grossly inflated” and essentially seeking reconsideration of the request previously rejected by the court.
The court slashed the request first to $45,000 (to only cover fees incurred settling the claims). Then, determining that even that amount was “plainly excessive,” Judge Wu knocked it down by another 75% to $11,000, citing Judge King’s ruling in Henderson v. J.M. Smuckers Co. (which reduced a fees request – propounded by the same counsel as counsel for Red in this matter – by 90%) and stating that plaintiffs’ counsel demonstrated “poor judgment.”
In a litigation landscape that, as of late, seems to give every advantage to plaintiffs’ attorneys seeking fees, it is heartening to see that courts are pushing back and considering what good is really achieved by these largely lawyer-driven lawsuits. At the end of the day, decisions like these may make plaintiffs’ attorneys reconsider pressing forward in a lawsuit that, ultimately, could be a pyrrhic victory.