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Kristy Schwarm, Patricia Foronda, and Josann Ancelet, On v. Henry Craighead

September 26, 2011

KRISTY SCHWARM, PATRICIA FORONDA, AND JOSANN ANCELET, ON BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
HENRY CRAIGHEAD, AN INDIVIDUAL, DISTRICT ATTORNEY TECHNICAL SERVICES, LTD., A NEVADA CORPORATION, DBA COMPUTER SUPPORT SERVICES, AKA CHECK RESTITUTION/PROSECUTION PROGRAM, JOHN Q. LAWSON, AN INDIVIDUAL, MARY A. CHASE, AN INDIVIDUAL; AND DOES 1 THROUGH 20, INCLUSIVE, DEFENDANTS.



ORDER RE: MOTION FOR ATTORNEYS' FEES AND COSTS AND CLASS REPRESENTATIVES INCENTIVE AWARD AND MOTION TO APPROVE PLAN OF DISTRIBUTION OF FUNDS

Based on defendants Henry Craighead and District Attorney Technical Services, Ltd.'s ("DATS") collection efforts for checks returned due to insufficient funds, plaintiff Kristy Schwarm initiated this class action on June 29, 2005, alleging claims for (1) violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692-1692p; (2) violations of the Civil Rights Act, 42 U.S.C. § 1983, based on alleged procedural due process violations; (3) state constitutional procedural due process violations; (4) fraudulent misrepresentation; and (5) negligent misrepresentation. Currently before the court are plaintiffs' motions for attorneys' fees, costs, and incentive payments and for approval of the planned distribution of funds.

I. Factual and Procedural Background On March 4, 2006, this court certified the case as a class action for "[a]ll persons who wrote checks in California to whom DATS mailed collection demands concerning dishonored checks, since June 29, 2003," and up until the date of the court's Class Certification Order. (Docket No. 42.) The court named Schwarm as the class representative and subsequently granted plaintiffs' motion to add plaintiffs Patricia Foronda and Josann Ancelet as class representatives. (Docket No. 134.) There are approximately 36,000 class members in this action.

After DATS filed Chapter 7 bankruptcy, this action was automatically stayed on August 28, 2006, pursuant to 11 U.S.C. § 362(a). On September 20, 2006, this court lifted the automatic stay as to Craighead only and, on May 5, 2008, granted plaintiffs' motion for summary judgment with respect to Craighead's violations of subsections 1692e(2)-(5), (9)-(11),

(14), 1692f(1), and 1692g(a) of the FDCPA. Schwarm v. Craighead, 552 F. Supp. 2d 1056, 1069-82 (E.D. Cal. 2008). In the same Order, the court denied plaintiffs' motion for summary judgment on their claims based on alleged violations of their federal and state procedural due process rights. Id. at 1082-87. Three months later, plaintiffs sought summary judgment on the issue of damages, and the court awarded plaintiffs actual damages against Craighead in the amount of $741,387.05. Schwarm v. Craighead, No. 2:05-1304, 2008 WL 3286797, at *2-3 (E.D. Cal. Aug. 6, 2008).

In DATS' bankruptcy, plaintiffs filed claims in excess of four million dollars and ultimately received $160,282.78 from the bankruptcy estate. After the bankruptcy court issued a Final Decree indicating that the administration of the estate was complete, the automatic stay as to DATS was lifted. (Docket No. 213.) The court then granted plaintiffs' motion for summary judgment with respect to DATS' violations of subsections 1692e(2)-(5), (9)-(11), (14), 1692f(1), and 1692g(a) of the FDCPA and entered final judgment in favor of plaintiffs against Craighead and DATS, holding them jointly and severally liable to plaintiffs in the amount of $741,387.05. Schwarm v. Craighead, No. 2:05-1304, 2011 WL 1232837 (E.D. Cal. Mar. 31, 2011). In that same Order, the court approved plaintiffs' decision to abandon their remaining claims. See id. at *4.

Plaintiffs filed a motion for attorneys' fees, costs, and incentive payments for the class representatives and a motion for approval of the disbursement of the $160,286.78 plaintiffs received from DATS' bankruptcy estate. (Docket Nos. 233, 246.) According to plaintiffs, it is unlikely they will be able to recover any additional money from Craighead personally. (Docket No. 247.) Papers filed by Craighead in the DATS bankruptcy proceeding in 2008 showed that he held no non-exempt assets. (Docket No. 198.) The April 2010 asset discovery that plaintiffs served on Craighead revealed no new assets. (Docket No. 247.) Plaintiffs state that they are serving post-judgment asset discovery as well, but "have no reason to believe that he will disclose any significant assets subject to execution." (Id.)

Plaintiffs filed a motion seeking approval of their proposed method of notifying class members of the pending motions. (Docket No. 241.) After making several adjustments to plaintiffs' proposals, the court ordered that notice be sent to all class members and gave class members until August 25, 2011, to file any objections they might have to plaintiffs' motions for attorneys' fees, costs, and incentive payments and for disbursement. (Docket No. 260.)

Two such objections were timely filed by individual class members. (Docket Nos. 263, 264.) The first objects to the plan but fails to give any of the class member's reasons for objecting. (Docket No. 263.) The second focuses on the class member's objections to defendants' behavior and also does not give any of the member's reasons for objecting to the planned disbursement. (Docket No. 264.) According to plaintiffs, they contacted the second class member, Mr. Thomas Irving, who stated that his objection to the proposed distribution plan was his belief that he should receive some compensation for the harm caused to him by defendants' actions. (Docket No. 267.) Plaintiffs were unable to contact the first objecting class member. (Id.)

Defendant Henry Craighead filed responses to plaintiffs' motions for attorneys' fees and costs and for approval of the disbursement plan. (Docket Nos. 258, 259.) In neither document did Craighead voice objections to the attorneys' fees requested or the planned distribution. Rather, he raised objections to final decisions reached earlier in these proceedings and in related proceedings in the bankruptcy court. These arguments are irrelevant to the motions currently before the court.

II. Discussion

A. Award of Attorneys' Fees, Costs, and Incentive Payments "At the fee-setting stage when fees are to come out of the settlement fund, the district court has a fiduciary role for the class." Rodriguez v. W. Publ'g Corp., 563 F.3d 948, 968 (9th Cir. 2009). Attorneys "seek fees on their own behalf, which may be contrary to their clients' interests." Fischel v. Equitable Life Assurance Soc'y of the U.S., 307 F.3d 997, 1006 (9th Cir. 2002). For this reason, district courts must "look out for the interests of the beneficiaries, to make sure that they obtain sufficient financial benefit after the lawyers are paid." Fla. ex rel. Butterworth v. Exxon Corp., 109 F.3d 602, 608 (9th Cir. 1997).

"Class actions commonly produce a common fund from which attorney's fees are drawn, with the residue to be paid to the class." Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1326 (9th Cir. 1999). Courts use their equitable powers when determining whether and in what amount to award attorneys' fees out of a class fund. Florida v. Dunne, 915 F.2d 542, 944 (9th Cir. 1990).

"It is well established that an award of attorneys' fees from a common fund depends on whether the attorneys' 'services benefited [sic] the fund---whether they tended to create, increase, protect or preserve the fund.'" Class Plaintiffs v. Jaffe & Schlesinger, P.A., 19 F.3d 1306, 1308 (9th Cir. 1994) (quoting Lindy Bros. Builders, Inc. v. Am. Radiator, Etc., 540 F.2d 102, 112 (3d Cir. 1976)). An attorney should be paid fees out of a common fund if the attorney has "succeed[ed] on any significant issue in the litigation which achieves some sort of benefit the parties sought in bringing the suit." Hensley v. Eckerhart, 461 U.S. 424, 433 (1983).

Heading into the litigation in this case, plaintiffs wanted to recover the money defendants tricked them into paying and stop defendants' illegal collection practices. In their initial Complaint, plaintiffs sought both monetary damages and injunctive relief. (Compl. at 18-19.) Over the course of these proceedings, defendant DATS filed for bankruptcy and ended its check collection business, and plaintiffs have won summary judgment motions declaring defendants' collection ...


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