Judge Gregory Keosian, Case BC664669 2022-12-15 Tentative Ruling

Plaintiff’s Counsel Joshua Falakassa and Mehrdad Bokhour’s Motion to Require Counsel to Distribute Attorney Fees is DENIED.

On September 1, 2022, this court granted final approval of the class action settlement in this matter, including a gross settlement of $1.2 million, with $400,000 of this amount to be distributed as attorney fees. Counsel Joshua Falakassa and Mehrdad Bokhour move to have $100,000 of the attorney fee award allocated to them, pursuant to a Joint Prosecution and Fee-sharing Agreement (JPA) executed between moving parties and Plaintiff’s other counsel Christopher Hamner and Christopher Olsen on June 9, 2022, between the preliminary approval of the class action settlement and its final approval. Under that agreement, moving parties are to receive 25% of the fee award from the settlement, while Olsen and Hamner are to receive 75%. (Falakassa Decl. Exh. A.) Thus while moving parties were owed $100,000 under this agreement from the $400,000 fee award, Olsen and Hamner have not apportioned these funds to them. (Falakassa Decl. ¶ 17.)

Hamner and Olsen in opposition contend that moving parties initially appeared in this action as counsel for Anthony Williams, a plaintiff in another class action against Defendant Sonic Automotive, seeking to intervene in this action to object to preliminary approval of the class action settlement. They claim that they executed the JPA at moving parties’ insistence, or else moving parties could renew their objections at the final approval hearing and on appeal. (Olsen Decl. ¶¶ 17–18.) Hamner and Olsen note that they sought fees for 607.7 hours of work, while moving parties performed 30.4 hours of work in this case. (Olsen Decl. ¶ 17.)

In the papers submitted for final settlement approval, moving parties submitted declarations outlining the fees they had incurred in this action. (See 8/18/2022 Bokhour and Falakassa Declarations.) These declarations disclosed that moving parties were attorneys of record for Ismael Torres and Anthony Williams (Id. at ¶ 1), and that Plaintiffs had signed a fee sharing and joint prosecution agreement, but did not attach the agreements or otherwise describe their terms. (08/18/2022 Bokhour Decl. ¶ 18; 8/18/22 Falakassa Decl. ¶ 15.) The proposed order for final approval made no mention of such an agreement, but included a proposed apportionment of $100,000 to moving parties. (8/18/22 Proposed Order.) This court ordered no such apportionment in its final ruling however, beyond approval of the $400,000 in attorney fees provided for in the settlement.

The parties here do not dispute that their prior, limited references to the JPA did not satisfy Rule 3.769 of the California Rules of Court, which requires that “[a]ny agreement, express or implied, that has been entered into with respect to the payment of attorney's fees or the submission of an application for the approval of attorney's fees must be set forth in full in any application for approval of the dismissal or settlement of an action that has been certified as a class action.” (CRC Rule 3.769, subd. (b).)

The parties also make reference to the case Mark v. Spencer (2008) 166 Cal.App.4^th 219, 228, in which the court held that “the parties' failure to fully disclose the fee-splitting agreement to the . . . court when they petitioned for approval of the class action settlement bars later enforcement of the agreement.” Moving parties argue that this case is distinguishable, as no party “conceal[ed]” the existence of the JPA from the court when it made its final approval, as was the case in Mark v. Spencer, and in any event they do not seek to enforce the agreement in a separate action. (Motion at pp. 4–5.) What’s more, moving parties argue that to fail to enforce the JPA would work an unjust enrichment upon Hamner and Olsen, who executed the JPA and offered a proposed order based on its terms. (Motion at pp. 5–6.) Moving parties accordingly argue that Hamner and Olsen are equitably estopped from disclaiming the agreement. (Ibid.)

The cases make clear that fee allocation in a common fund setting is not just a matter of private agreement between lawyers and their clients . . . . Rather, such an allocation is done through the equitable power of the court to prevent unjust enrichment. In the usual case, the court's power is employed to prevent the unjust enrichment that would accrue to some beneficiaries of the litigation by “fee spreading” the cost of the litigation so it is not borne entirely by the parties that pursued recovery for the benefit of themselves and others. . . . But it is equally apparent that courts awarding attorneys’ fees from a common fund recovery ensure that those fees are reasonable and don't unjustly enrich the attorneys at their clients’ expense.

Moving parties are not entitled to relief here. First, the JPA is not enforceable under Mark v. Spencer, as neither party to the agreement made full disclosure of its terms at the time of final approval of the settlement. Hamner and Olsen are not equitably estopped from disclaiming the agreement, as moving parties contend, because even though they did not disclose the terms of the JPA, neither did they prevent moving parties themselves from doing the same. (See Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal.App.4^th 172, 186 [holding party was equitably estopped from asserting violation of ethical rules to render an agreement unenforceable, when that same party prevented the enforcing party from complying with the ethical rules].)

The agreement is also not enforceable, as it would not be equitable to order the apportionment that moving parties seek. Hamner and Olsen assert that the the JPA was executed at moving parties’ insistence, under the threat that moving parties would resume their objections to the settlement on appeal, further delaying payment to the class, if they did not obtain a share of the proceeds. (Olsen Decl. ¶¶ 16–17.) Moving parties do not dispute this characterization of the facts in reply, but only argue that these facts do not demonstrate the existence of a conflict of interest. (Reply at pp. 1–2.) [1] They do demonstrate, however, that enforcing the JPA would effect a compensation to moving parties “on some basis other than for legal services performed” on behalf of the class, and would work an unjust enrichment in their favor. (Mark, supra, 166 CalApp.4^th at p. 227.)

[1] Moving parties object that under the terms of the JPA, co-counsel communications are protected from disclosure. (Reply at p. 3.) The relevant provision, however, operates prospectively — “all materials and communications . . . shall be exchanged pursuant to a common interest privilege” (Falakassa Decl. Exh. A, italics added) — and does not prevent disclosure of the circumstances of the agreement’s formation.