Lodestar Method (California)

In Lealao v. Beneficial California Inc. (2000) 82 Cal.App.4th 19, 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, 141 Cal. Rptr. 315, 569 P.2d 1303. . . . Our 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. " (Ibid.) "'The lodestar is the basic fee for comparable legal services in the community; it may be adjusted by the court based on factors including . . . (1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, (4) the contingent nature of the fee award. The purpose of such adjustment is to fix a fee at the fair market value for the particular action. In effect, the court determines, retrospectively, whether the litigation involved a contingent risk or required extraordinary legal skill justifying augmentation of the unadorned lodestar in order to approximate the fair market rate for such services.'" (Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 579, 21 Cal. Rptr. 3d 331, 101 P.3d 140; see Chodos v. Borman (2014) 227 Cal.App.4th 76, 92, 173 Cal. Rptr. 3d 266.) The court in Lealao was discussing the circumstances in which trial courts could use the percentage of fund method, rather than the lodestar method, to calculate the amount of attorneys' fees to award to class counsel. The court explained that "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, as will be seen, the lodestar methodology may also be utilized in this context." (Lealao v. Beneficial California, Inc., supra, 82 Cal.App.4th at p. 26.) The court noted that, "because the common fund doctrine 'rests squarely on the principle of avoiding unjust enrichment' , attorney fees awarded under this doctrine are not assessed directly against the losing party (fee shifting), but come out of the fund established by the litigation, so that the beneficiaries of the litigation, not the defendant, bear this cost (fee spreading). 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, as the Ninth Circuit then noted, there commenced a 'ground swell of support for mandating the percentage-of-the-fund approach in common fund cases.' Prior to 1977, when the California Supreme Court decided Serrano v. Priest, supra, 20 Cal.3d 25, California courts could award a percentage fee in a common fund case. After Serrano . . . , it is not clear whether this may still be done." (Id. at p. 27.) Subsequent judicial opinions have made it clear that a percentage fee award in a common fund case "may still be done." For example, in Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43, 75 Cal. Rptr. 3d 413 the court stated that "the Lealao court did not purport to mandate the use of one particular formula in class action cases. The method the trial court used here and that was discussed in Lealao are merely different ways of using the same data--the amount of the proposed award and the monetized value of the class benefits--to accomplish the same purpose: to cross-check the fee award against an estimate of what the market would pay for comparable litigation services rendered pursuant to a fee agreement. " (Id. at p. 65.) Therefore, "fees based on a percentage of the benefits are in fact appropriate in large class actions when the benefit per class member is relatively low . . . ." (Id. at p. 63.) In Consumer Privacy Cases, supra, 175 Cal.App.4th 545 the court explained that "regardless of whether attorney fees are determined using the lodestar method or awarded based on a 'percentage-of-the-benefit' analysis under the common fund doctrine, '"the ultimate goal . . . is the award of a 'reasonable' fee to compensate counsel for their efforts, irrespective of the method of calculation." ' It is not an abuse of discretion to choose one method over another as long as the method chosen is applied consistently using percentage figures that accurately reflect the marketplace. " (Id. at pp. 557-558; accord, Chavez v. Netflix, Inc., supra, 162 Cal.App.4th at pp. 65-66; see Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387, 397, 25 Cal. Rptr. 3d 514 the common fund doctrine is "frequently applied in class actions when the efforts of the attorney for the named class representatives produce monetary benefits for the entire class"; Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 254 "courts recognize two methods for calculating attorney fees in civil class actions: the lodestar/multiplier method and the percentage of recovery method".)