Litwin v. iRenew Bio Energy Solutions, LLC , 226 Cal. App. 4th 877 ( 2014 )

Filed 5/28/14
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
SERYL LITWIN et al., B248759
Plaintiffs and Respondents, (Los Angeles County
Super. Ct. No. BC447114)
v.
iRENEW BIO ENERGY SOLUTIONS,
LLC,
Defendant and Respondent;
BERT CHAPA,
Objector and Appellant.
APPEAL from a judgment of the Superior Court of Los Angeles County. Kenneth
R. Freeman, Judge. Reversed with directions.
Lang, Hanigan & Carvalho, Timothy R. Hanigan for Objector and Appellant.
Kirtland & Packard, Michael Louis Kelly, Behram V. Parekh, Heather M. Baker
for Plaintiffs and Respondents.
Weintraub Tobin Law Corporation, David R. Gabor for Defendant and
Respondent.
______________________________
*
Pursuant to California Rules of Court, rules 8.1100 and 8.1110, only section 2 in
the Discussion of this opinion is certified for publication.
Plaintiffs filed class action lawsuits against iRenew Bio Energy Solutions, LLC,
Harvest Trading Group, Inc., and Harvest Direct, LLC (collectively defendants) for
advertising a bracelet made by iRenew as a revolutionary bracelet that uses the body’s
“biofield” to improve strength and wellness. Alleging the advertising claims were false,
plaintiffs sought injunctive relief and damages on behalf of all persons in the United
States who purchased an iRenew bracelet. Defendants agreed to settle the lawsuit, and
the trial court approved a settlement agreement in which defendants would create a fund
to reimburse class members for the purchase cost of the bracelet. Pursuant to the
agreement, the trial court awarded $215,000 in attorney fees. Appellant Burt Chapa, a
class member, objected to the settlement, alleging the trial court abused its discretion in
awarding attorney fees and the notice afforded class members violated due process. We
disagree with the first contention but agree with the second. Therefore, we reverse.
Statement of Facts
1. The Lawsuit
On October 7, 2010, Seryl Litwin filed a class action lawsuit against iRenew for
false and misleading advertising in violation of the False Advertising Act (Bus. & Prof.
Code, § 17500), the Unfair Competition Law (Bus. & Prof. Code, § 17200), and the
Consumer Legal Remedies Act (Civ. Code, § 1750), alleging iRenew’s claims that its
bracelet balanced the body’s biofield to improve wellness, balance, flexibility, and
strength were false and misleading to the average consumer. Litwin sought injunctive
relief, restitution, compensatory damages, and punitive damages.
On January 7, 2011, April Garton filed a class action lawsuit against Harvest
Trading Group and Harvest Direct, the marketers of the iRenew bracelet, for injunctive
and related equitable relief for false and misleading advertising, alleging the advertising
of the iRenew bracelet to improve a person’s biofield, “a subtle human energy field” that
oversees the body’s coordination and regulation, was false and unsupported by competent
and reliable scientific evidence. The cases were subsequently consolidated.
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2. The Proposed Settlement
Prior to class certification, the parties reached a settlement agreement. Under the
proposed settlement, defendants agreed to reform their advertising of the iRenew bracelet
and create a settlement pool of up to $1,300,000, less fees, costs, and expenses, to
reimburse class members for the purchase price of the bracelet, including shipping and
handling. If the aggregate value of the claims exceeded the maximum amount available
from the settlement pool, reimbursement per claim would be adjusted downward on a pro
rata basis. In exchange, class members agreed to release all claims against defendants.
The settlement class included “all persons who purchased for personal use, and not
for re-sale, the iRenew Bracelet in the United States from January 2009, until the date of
the preliminary approval order, except for the judge presiding over [the] matter.” The
settlement agreement provided for notice to class members in three forms: mail or email
to any class members’ known address, publication in People Magazine, and postings on a
settlement Web site and other related Web sites.
Pursuant to the proposed settlement, plaintiffs’ counsel agreed not to seek legal
fees and costs in excess of $215,000, and the class representatives each agreed not to seek
incentive awards in excess of $2,500.
3. Preliminary Approval and Notice
On May 24, 2012, the trial court granted class certification for settlement
purposes, and preliminarily approved the settlement agreement with minor changes. The
parties provided the court with exemplars of two versions of the proposed class notice: a
long, explanatory notice, and a short, succinct notice. The court approved the content and
form of the provided exemplars.
Both notices included information on the settlement agreement, the procedure to
submit a claim, the procedure for class members to exclude themselves from the
settlement, and information on objecting to the settlement. The short notice, under a
section entitled, “What are my options?,” stated class members could “Object to the
settlement and appear in Court,” and directed class members to the long notice. The long
notice, in a section discussing class members’ right to object, stated, “You can object to
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the Settlement if you don’t like some part of it. You must give reasons why you think the
Court should not approve it and you must appear and speak at the Final Approval
Hearing (see the section on the ‘Court’s Fairness Hearing’ below) concerning your
objection, in order to have standing to raise any objection and/or any appeal related to the
Court’s decision on that objection.” In the section on the court’s fairness hearing, the
notice informed class members, “If you send an objection, you or your attorney will need
to come to Court to talk about it or the Court will not consider it.” The short notice was
published in People Magazine and posted on the Internet. The long notice was sent by
email or mail directly to class members with known addresses and posted on the Internet.
4. Appellant’s Objections
After notice of the settlement was issued, appellant objected to the proposed
settlement agreement. His main objection was that the settlement left an insufficient
amount for the class after attorney fees, costs, and expenses were deducted from the $1.3
million fund. Appellant also objected to the proposed attorney fee request as excessive,
and to the language in the notice requiring objectors to attend the final approval hearing
to have their objections heard. Appellant argued requiring objectors to appear personally
at the final approval hearing was unreasonable and violated class members’ due process
rights.
On December 18, 2012, the court requested clarification regarding the value of the
class claims, expressing concern that there were insufficient funds to pay administrative
costs and class members’ claims. The parties provided that 19,685 claims had been
submitted during the claims period, totaling $692,683.44. The parties also clarified that
administrative fees were capped at $325,000, pursuant to a contract with the claims
administrator. Accordingly, the final amounts to be paid by defendants under the
settlement were as follows: $692,683.44 for class claims, $215,000 for attorney fees and
costs, $5,000 for class representatives’ incentive payments, and $325,000 for
administrative fees, for a total of $1,237,683.44.
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5. Final Approval
Plaintiffs then filed a motion for final approval of the settlement. In their
memorandum of points and authorities in support of the motion, plaintiffs stated their
counsel incurred $246,206.25 in attorney fees, calculated pursuant to the lodestar method,
and $5,221.64 in costs. Per the settlement agreement, plaintiffs’ counsel requested
$215,000 in attorney fees and costs.
On March 1, 2013, the trial court issued an order granting final approval of the
settlement, finding it to be fair, reasonable, and adequate. The court found the notice
plan constituted the best notice practicable under the circumstances and provided
sufficient notice to class members. Although appellant did not attend the final approval
hearing because it was prohibitively expensive for him to do so, the court considered and
overruled his objections, finding there would be sufficient funds to pay class members’
claims.
The trial court ordered defendants to make $1,237,683.44 available for the
settlement. The court awarded $2,500 to each named plaintiff and $5,221.62 in costs to
plaintiffs’ counsel. The court then determined plaintiffs’ counsel’s fee request of
$209,778.86 represented a negative multiplier of .852 to the amount of fees incurred,
which were $246,206.25. The court found the fee request was reasonable, and awarded a
total of $215,000 for attorney fees and costs.
This appeal followed.
Discussion
1. Attorney Fees
Appellant argues the trial court abused its discretion in awarding $215,000 in
attorney fees and costs. We disagree.
We review a trial court’s determination of reasonable attorney fees under the
abuse of discretion standard. (Lealao v. Beneficial California, Inc. (2000) 82
Cal.App.4th 19, 25.) “We start from the proposition that ‘“the experienced trial judge is
the best judge of the value of professional services rendered in his court, and while his
judgment is of course subject to review, it will not be disturbed unless the appellate court
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is convinced that it is clearly wrong.”’” (Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th
43, 64.)
The United States Supreme Court has recognized that “a litigant or a lawyer who
recovers a common fund for the benefit of persons other than himself or his client is
entitled to a reasonable attorney’s fee from the fund as a whole.” (Boeing Co. v. Van
Gemert (1980) 444 U.S. 472, 478.) “‘[T]he fee setting inquiry in California ordinarily
begins with the “lodestar,” i.e., the number of hours reasonably expended multiplied by
the reasonable hourly rate. . . . The lodestar figure may then be adjusted, based on
consideration of factors specific to the case, in order to fix the fee at the fair market value
for the legal services provided.’” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1134; see
also Serrano v. Priest (1977) 20 Cal.3d 25, 49, fn. 23.) “To withstand scrutiny on appeal
when [the lodestar] method is used, the record need only show the court awarded fees
using that approach”; “[n]o specific findings reflecting the court’s calculations [are]
required.” (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1810; Wershba v.
Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 254.)
Here, the record indicates the trial court awarded fees using the lodestar method.
In support of the motion for final approval of the settlement agreement, plaintiffs
represented that their attorneys incurred fees of $246,206.25, calculated using the lodestar
method. Plaintiffs’ counsel then requested $209,778.86 in fees and $5,221.64 in costs,
for a total of $215,000, pursuant to the settlement agreement. In its final approval order,
the trial court determined plaintiffs’ counsel’s fee request of $209,778.86 represented a
negative multiplier of .852 to the amount of fees incurred under the lodestar method, and
was therefore reasonable.
Appellant nevertheless argues the trial court abused its discretion in awarding
attorney fees equal to 31 percent of the value of class members’ claims. This argument
has no merit. Although the practice of awarding attorney fees based solely on a
percentage of the common fund had been adopted by some federal courts (see Lealao v.
Beneficial California, Inc., supra, 82 Cal.App.4th at pp. 27-31), “[t]he award of attorney
fees based on a percentage of a ‘common fund’ recovery is of questionable validity in
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California.” (Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1809.) Appellate
courts in California have, however, adopted the practice of cross checking the lodestar
amount against the value of the class recovery to determine whether the trial court used
the appropriate multiplier in the lodestar analysis. (Lealao v. Beneficial California, Inc.,
supra, 82 Cal.App.4th at p. 45.) To determine the percentage of the class recovery that
plaintiffs’ counsel received, we consider the amount of attorney fees awarded compared
to the common fund as a whole. (See Boeing Co. v. Van Gemert, supra, 444 U.S. at p.
478.)
When we cross-check the fee award against the value of the common fund, we
find no abuse of discretion. Here, the attorney fees constituted only 16.5 percent of the
total fund potentially available under the settlement agreement, well within the range of
acceptable attorney fee awards.1 Even if we were to compare the attorney fees awarded
to the value of class claims, as appellant urges, the fee award is in line with class action
fee awards. Here, the attorney fee award of $215,000 represents 31 percent of the value
of class members’ claims. “‘Empirical studies show that, regardless whether the
percentage method or the lodestar method is used, fee awards in class actions average
around one-third of the recovery.’ [Citation.]” (Chavez v. Netflix, Inc., supra, 162
Cal.App.4th at p. 66, fn. 11.) The trial court was therefore well within its discretion in
awarding attorney fees of $215,000.
2. Notice
Appellant also challenges the sufficiency of notice given to class members,
arguing the requirement that objectors attend the final approval hearing to have their
objections heard violated class members’ due process rights. We agree.
“While our review of the manner of giving notice is governed by the abuse of
discretion standard, our review of the content of notice may be de novo. ‘“To the extent
1
Appellant argues plaintiffs’ counsel should not have received a percentage of the
potential recovery that was not expended, here about $62,000. Even considering solely
what defendants were required to pay under the settlement agreement, $1,300,000 less
$62,000, attorney fees represented only 17 percent.
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the trial court’s ruling is based on assertedly improper criteria or incorrect legal
assumptions, we review those questions de novo.”’ [Citations.]” (Cellphone
Termination Fee Cases (2010) 186 Cal.App.4th 1380, 1390.) Here, the purely legal
question for our review is whether notice requiring class members to attend the final
approval hearing to have their objections heard accords with due process.
“If the forum State wishes to bind an absent plaintiff concerning a claim for
money damages or similar relief at law, it must provide minimal procedural due process
protection.” (Phillips Petroleum Co. v. Shutts (1985) 472 U.S. 797, 811-812, fn.
omitted.) Procedural due process requires that affected parties be provided with “the
right to be heard at a meaningful time and in a meaningful manner.” (In re Vitamin
Cases (2003) 107 Cal.App.4th 820, 829.) To accord with due process, notice provided to
class members “must fairly apprise the class members of the terms of the proposed
compromise and of the options open to the dissenting class members.” (Cho v. Seagate
Tech. Holdings, Inc. (2009) 177 Cal.App.4th 734, 746.) Under the California Rules of
Court governing class actions, “notice of the final approval hearing must be given to the
class members in the manner specified by the court. The notice must contain an
explanation of the proposed settlement and procedures for class members to follow in
filing written objections to it and in arranging to appear at the settlement hearing and
state any objections to the proposed settlement.” (Cal. Rules of Court, rule 3.769(f).)
The language of California Rules of Court, rule 3.769(f) indicates objectors may
both file a written objection and appear at the final approval hearing, although they are
not required to do both to have their objections heard. As explained by a leading treatise
on class actions, “[i]t is unnecessary for objectors to appear personally at the settlement
hearing in order to have their written objections considered by the court.” (Newberg,
Class Actions (4th ed. 2013) § 11:56.)
Here, the notice explicitly informed class members “[i]f you send an objection,
you or your attorney will need to come to Court to talk about it or the Court will not
consider it.” Requiring class members in a nationwide class or even a statewide class to
appear at the final approval hearing or hire an attorney to have their objections heard
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works a hardship on objectors, as the benefit to the objector from the class action may be
so low that it would be cost prohibitive or physically challenging to personally assert
one’s rights at a hearing in a potentially distant location. For example, here appellant
indicated he was unable to attend the hearing because it was prohibitively expensive for
him to do so as an out-of-state class member. In contrast, if an objector is permitted to
file written objections to be considered, the burden on the court to review them is
minimal and the cost to the parties remains the same. Requiring any objector to attend
the final approval hearing does not offer a meaningful opportunity to be heard, and
therefore violates class members’ due process rights.
Adherence to these principles directly impacts the trial court’s role in determining
if the settlement is fair. That determination requires that the trial court balance several
factors, which include, among others, class member reactions to the proposed settlement
(see Cellphone Termination Fee Cases, supra, 186 Cal.App.4th at p. 1389), which the
trial court cannot accurately evaluate when members’ objections may have been stifled
by the onerous requirement that they attend the final approval hearing. Although
appellant was afforded the opportunity to be heard, there may have been many class
members whose objections were chilled. Misstating objectors’ rights such that they are
dissuaded from exercising their opportunity to be heard does not fairly apprise class
members of their options associated with the settlement. For these reasons, the order
granting final approval of the settlement must be reversed.
3. Unpaid Residual Funds
We sent a letter to the parties requesting supplemental briefing on the distribution
of unpaid residual funds. According to the facts set forth in the supplemental briefs, there
appears to be approximately $27,000 in unpaid residual funds remaining after distribution
of class claims. Pursuant to California Code of Civil Procedure section 384, the trial
court should make appropriate findings as to the distribution of those funds.
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Disposition
The order granting final approval of the settlement is reversed, and the case is
remanded for further proceedings in accordance with the views expressed herein.
Appellant is to recover his costs on appeal.
CERTIFIED FOR PARTIAL PUBLICATION
CHANEY, J.
We concur:
ROTHSCHILD, Acting P. J.
MILLER, J.*
*
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
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