Lealao v. Beneficial California, Inc

In Lealao v. Beneficial California, Inc. (2000) 82 Cal.App.4th 19, the Court discussed the distinction between the payment of attorney fees under a fee-shifting statute from the payment of fees under a fee-spreading common fund theory. (Lealao, supra, 82 Cal.App.4th at pp. 26-28.) In the former, the court usually awarded "reasonable" attorney fees based on the lodestar method. "The lodestar . . . is produced by multiplying the number of hours reasonably expended by counsel by a reasonable hourly rate," which may be increased or decreased by a applying a positive or negative multiplier. (Id. at p. 26.) In contrast, "fee spreading occurs when a settlement or adjudication results in the establishment of a separate or so-called common fund for the benefit of the class. Because the fee awarded class counsel comes from this fund, it is said that the expense is borne by the beneficiaries. Percentage fees have traditionally been allowed in such common fund cases, although . . . the lodestar methodology may also be utilized in this context." (Ibid.) In Lealao, the Court concluded that the attorney fees paid to the consumers' counsel in a class action against a lender could not be based purely as a percentage of the class recovery, even if the ascertainable amount of money the lender had actually paid to satisfy the valid claims under the settlement was deemed to be a common fund. (Ibid.) Since no common fund had been created, we held that the trial court had not abused its discretion in refusing to "award class counsel a fee calculated purely as a percentage of the class recovery . . . ." (Ibid.)The Court noted in Lealao that, under federal law, "the amount of fees awarded in a common fund case may be determined under either the lodestar method or the percentage-of-the-benefit approach , although, about a decade ago . . . a 'ground swell of support arose for mandating the percentage-of-the-fund approach in common fund cases.' " (Lealao, supra, 82 Cal.App.4th at p. 27.) The Court stated that "the primacy of the lodestar method in California was established in 1977 in Serrano v. Priest (1977) 20 Cal.3d 25... The California Supreme Court declared: '"The starting point of every fee award ... must be a calculation of the attorney's services in terms of the time he has expended on the case."'" (Id. at p. 26.) The court added that "in so-called fee shifting cases, in which the responsibility to pay attorney fees is statutorily or otherwise transferred from the prevailing plaintiff or class to the defendant, the primary method for establishing the amount of 'reasonable' attorney fees is the lodestar method. The lodestar (or touchstone) is produced by multiplying the number of hours reasonably expended by counsel by a reasonable hourly rate. Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative 'multiplier' to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained, and the contingent risk presented. " (82 Cal.App.4th at p. 26.)