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In re Cellphone Termination Fee Cases

December 31, 2009

CELLPHONE TERMINATION FEE CASES


Superior Court of Alameda County, Nos. JCCP 4332J, JCCP 4332K and JCCP 4332L, Bonnie Lewman-Sabraw, Judge.

The opinion of the court was delivered by: Simons, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

Appellants Sprint Spectrum, L.P., and Wirelessco, L.P. (hereafter Sprint), are defendants in the present class action relating to Sprint's practice of locking its cell phone handsets, which prevents the use of the phones on other service providers' networks. Sprint appeals from the trial court's judgment dismissing the action pursuant to the parties' settlement and awarding attorney fees to counsel for cross- appellants, named class plaintiffs Katherine Zill, William MacKenzie, and Linda MacKenzie (hereafter plaintiffs). Sprint contends the trial court erred in refusing to enforce a provision in the settlement whereby the parties agreed the amount of the attorney fee award would be determined by an arbitrator, who would select an amount within a specified range. This case presents an issue of first impression: Did the trial court abuse its discretion in refusing to approve the fee arbitration provision, where it had already determined that the range of possible fee awards was reasonable and that there was no evidence of collusion by the parties to the settlement? We conclude the court did abuse its discretion, because its ruling accorded too large a role to objecting class members in the fee setting process. However, we also conclude that Sprint has failed to show actual prejudice resulted from determination of the amount of the attorney fee award by the court rather than by the arbitrator selected by the parties. We reject the cross-appeal by plaintiffs, as well as a separate appeal by an objector to the settlement, appellant Sulekha Anand (Anand). We affirm the judgment.

BACKGROUND

In January 2006, plaintiffs filed a sixth amended consolidated complaint in this class action against Sprint. Plaintiffs alleged that cell phone handsets sold by Sprint secretly had been locked with programming locks "to make it impossible or impracticable for customers to switch cell phone service providers without purchasing a new handset."*fn2 The complaint alleged causes of action for fraudulent, unlawful, and unfair business practices, and violation of the Consumer Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.). Plaintiffs sought injunctive and declaratory relief, as well as restitution and/or disgorgement of all amounts wrongfully charged to the class members.

After discovery, the case was assigned to Judge Steven Brick for trial. Sprint filed 12 motions in limine, and, in June 2007, Judge Brick tentatively granted 10 of the motions in limine, including those seeking to exclude plaintiffs' two experts on damages.

Before Judge Brick completed a multi-day hearing on the motions and issued final rulings, the parties reached a settlement. Under the settlement, a national class would be certified, and that class would release all claims concerning Sprint's handset locking practices. Although plaintiffs had claimed nearly $800 million in damages for a California-only class, Sprint did not agree to pay any money in the settlement. Instead, Sprint, among other things, agreed to inform its customers that its handsets contain software programming locks and to unlock handsets for customers who have satisfied their contractual obligations to Sprint.

The parties were unable to reach an agreement on the amount of an attorney fee award for plaintiffs. Although plaintiffs preferred that the trial court make the determination, Sprint insisted that the amount of the award be determined in arbitration. Ultimately, the parties agreed the amount of an award for attorney fees and expenses would be determined through arbitration with a cap on the award of $2,950,000, which is a little under the hourly fees and expenses class counsel claimed to have incurred. Plaintiffs were guaranteed an award of at least $500,000, which is approximately the amount of expenses claimed by class counsel.*fn3 The parties agreed that any trial court rulings regarding attorney fees would not affect the settlement on the merits of plaintiffs' claims.

Judge Brick referred the matter to Judge Bonnie Sabraw, the judge presiding over the coordination proceeding that included the present case, for approval of the settlement. Judge Sabraw preliminarily approved the settlement and notice was given to the class. Only two class members objected to the settlement. The objectors contended the settlement was inadequate because, among other things, it did not provide compensation for any damages. Judge Sabraw rejected that objection, finding the settlement was "fair to the class given the strength of the claims and defenses in the case." The objectors also complained the fees claimed by class counsel were excessive in light of the limited benefits of the settlement. The court found reasonable the range of fees authorized by the fee provision, based on argument and documentation provided by plaintiffs.

Ultimately, however, the trial court refused to approve the fee arbitration provision. One of the objectors, Tom Gray, complained the provision did not permit him to participate in the arbitration. The only interest identified by objector Gray was an interest in ensuring the reasonableness of the fee award. Sprint was willing to allow the objectors to participate, but plaintiffs argued the agreement did not permit the objectors to do so. Class counsel informed the trial court that plaintiffs "strongly prefer to have [the trial court] determine the amount of a reasonable fee," that plaintiffs "accepted a fee arbitration with the range limitations reluctantly, only as a concession to Sprint," and that plaintiffs "certainly would not have agreed to allow objector participation in the arbitration." After taking additional evidence on collusion, the court found the fee provision was negotiated separately from the settlement on the merits and counsel had not agreed to a larger fee in exchange for a less favorable settlement. Nevertheless, the court concluded the fee arbitration provision was "void in its entirety because it improperly excluded the members of the class from the fee application process."

The trial court conducted proceedings to determine a reasonable attorney fee award. The court determined plaintiffs were entitled to a fee award under Civil Code sections 1021.5 and 1780, subdivision (d), and, based on the hours worked by class counsel and reasonable hourly rates, the lodestar amount was nearly $2.3 million. The court found that class counsel had achieved only limited success, but still awarded fees in the lodestar amount after applying positive and negative multipliers that offset each other. The court also awarded approximately $200,000 in costs for a total award of almost $2.5 million. A judgment of dismissal was entered on June 11, 2008.

Sprint filed a timely appeal, challenging the trial court's refusal to approve the fee arbitration provision. Plaintiffs filed a timely cross-appeal, challenging the court's failure to include in the award approximately $300,000 in expenses. Anand also appealed, challenging the reasonableness of the fee award.*fn4 We jointly consider all the appeals and issue a single opinion. (Consumer Privacy Cases (2009) 175 Cal.App.4th 545, 551 & fn. 3.)

DISCUSSION

I. Appeal No. 122768 (Sprint and Plaintiffs)

A. The Trial Court Erred in Refusing to Approve the Fee Arbitration Provision

Sprint contends the trial court abused its discretion in refusing to approve the fee arbitration provision ...


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