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Lofton v. Wells Fargo Home Mortgage

California Court of Appeals, First District, Third Division

October 22, 2014

DAWN LOFTON et al., Plaintiffs,
WELLS FARGO HOME MORTGAGE, Defendant DAVID MARK MAXON, Intervener and Respondent; INITIATIVE LEGAL GROUP, APC, Objector and Appellant.

Superior Court of the City and County of San Francisco No. CGC -12-523966 Honorable Harold E. Kahn Judge

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Klinedist, Natalie P. Vance Gregory T. Fayard Leah A. Plaskin; Arnold & Porter and Sean M. SeLegue for Objector and Appellant.

Chavez & Gertler, Mark A. Chavez Nance F. Becker; Zitrin Law Office, Richard Zitrin; Anderson Law and David C. Anderson for Intervener and Respondent.

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This case was brought on behalf of home mortgage consultants working for Wells Fargo Home Mortgage (Wells Fargo) seeking damages for unpaid wages. It was filed by class counsel in 2005. In 2006, Appellant Initiative Legal Group, APC, (ILG) filed a similar action in the Los Angeles Superior Court. The initiation of similar claims by different lawyers on behalf of the same or a similarly described class is neither novel nor rare. (See generally Thayer v. Wells Fargo Bank (2001) 92 Cal.App.4th 819 [112 Cal.Rptr.2d 284]; In re Vitamin Cases (2003) 110 Cal.App.4th 1041 [2 Cal.Rptr.3d 358].) A customary course for such multiple actions is coordination or effectively the consolidation of the proceedings before the first court to acquire jurisdiction over the dispute under the doctrine of concurrent exclusive jurisdiction. (Franklin & Franklin v. 7-Eleven Owners for Fair Franchising (2000) 85 Cal.App.4th 1168, 1175 [102 Cal.Rptr.2d 770].)

In many respects, that did not happen with these cases. The litigation proceeded on different tracks. In the San Francisco case discovery proceeded apace. In the Los Angeles case, a class that was originally certified was decertified in 2010, and the case was broken up into several different lawsuits asserting identical individual claims on behalf of 600 plaintiffs.

But in one critical respect, the actions were joined as a practical matter. They were coordinated for mediation of a settlement, and agreements to resolve all claims were reached before the same mediator on the same day. A common fund was agreed upon to resolve the class action and a separate common fund was agreed upon to resolve the many individual actions filed on behalf of ILG’s clients. At the preliminary approval hearing for the class action settlement, the court was told that ILG’s clients would opt out of the class action. Moreover, ILG informed the trial judge who presided over the class action that ILG was concerned that if the class settlement were approved, its clients would in effect become represented by class counsel and ILG would be unable to communicate directly with them about the class action case.

This theoretical difficulty was worked out at the hearing. But contrary to the explanation of the settlement that had been provided to the court, ILG assisted its class member clients in securing the benefits of the class action settlement rather than in opting out of the class and thereby seek recompense from the $6 million common fund ILG had obtained. The question thus arises as to what was the import of the common fund settlement obtained by ILG if its clients participated in the class settlement?

According to ILG, the settlement was for its attorney fees for services ILG performed on the aborted class action and the 600 individual cases. ILG

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explained to its clients that while it “thought” the $6 million it obtained in settlement represented attorney fees, it was willing to pay from the settlement $750 to each plaintiff for a claim it said was arguably not resolved in the class action. ILG later increased the amount payable to its clients to $1,750 after intervenor David Mark Maxon objected to ILG’s final proposed allocation of the settlement proceeds. Of course, this proposal would still leave ILG with approximately $4.95 million of the $6 million settlement as attorney fees. It is manifest that ILG intended to effectuate distribution of the almost $5 million in fees to itself without court approval. Such a move by lawyers representing so many plaintiffs in a common fund situation appears to us unprecedented. It is fraught with the potential for conflicts of interest, fraud, collusion and unfairness. (Cf. Consumer Privacy Cases (2009) 175 Cal.App.4th 545, 552-556 [96 Cal.Rptr.3d 127].)

The trial court in this class action issued a temporary restraining order (TRO) requiring ILG to, among other things, deposit into a secure escrow account under the control and supervision of the court the settlement proceeds it contends represent attorney fees for the actions it brought against Wells Fargo on behalf of its approximately 600 former clients, one of whom is intervener David Maxon. ILG argues that the court lacked jurisdiction to issue the TRO, abused its discretion in issuing the TRO and relied on inadmissible evidence in issuing the TRO.

In this unusual context, we hold that the trial court presiding over the class action properly enjoined ILG from distributing or taking action to distribute the proceeds of its settlement to itself. The court presiding over the class action had concurrent exclusive jurisdiction to consider the propriety of the settlement of class member claims, even for those class members represented by ILG on class or related claims. Moreover, the trial court had a duty to ensure the fees claimed by ILG were reasonable in light of the overall result ILG achieved. The TRO is affirmed.

Factual and Procedural Background

In 2005, Attorneys Kevin McInerney and James Clapp (class counsel) initiated class action litigation against Wells Fargo seeking damages for wage claims on behalf of thousands of home mortgage consultants who had allegedly been misclassified as exempt employees. In 2006, ILG filed a putative class action alleging similar claims on behalf of a similar class. Although a class was initially certified in the ILG case, that class was decertified in 2010. Once it became clear that its case would not be proceeding as a class action, ILG filed multiple lawsuits, each with 30 to 90 plaintiffs, on behalf of its 600 clients, including Maxon.

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In February 2011, ILG, Wells Fargo and class counsel engaged in a mediation of all pending claims. In April 2011, class counsel moved for preliminary approval of a proposed settlement class and settlement in the present action (hereafter the class action or Lofton settlement). Pursuant to the terms of the agreement, Wells Fargo agreed to pay $19 million, including attorney fees to class counsel, to settle the claims of all members of the settlement class. The settlement class was described in notices as all individuals employed by Wells Fargo at any time from February 10, 2001, through March 26, 2011, as overtime exempt home mortgage consultants. The gross recovery for each class member who submitted a timely claim was projected to be approximately $7,300.

At the preliminary approval hearing in this class action, ILG asked the court for a brief continuance explaining that it represented 600 clients with individual lawsuits against Wells Fargo who “if the court grants the motion [for approval of the class settlement]... will suddenly become represented by class counsel and it will be a little bit of a problem for us to communicate with them if they are actually represented.” Class counsel opposed the continuance explaining, “These individuals’ cases that these gentlemen have been referring to were essentially settled on the very same day in front of the very same mediator.... Everything else was worked out. Wells [Fargo] has a separate settlement agreement with these folks. [¶]... Indeed, the thought of the settlement was that these gentlemen... would have their individual plaintiffs opt out. If they did not, they would be covered by the proposed class settlement.” Class counsel agreed, however, that they would not contact anyone who was independently represented by ILG. Judge Loretta Giorgi granted preliminary approval of the class action settlement.

In June 2011. class counsel moved for approval of $6,333,333 in attorney fees and costs. Their moving papers reiterated that during the February 2011 mediation, the parties reached a “settlement for the class of $19,000,000 and a settlement of the individual ILG lawsuits of $6,000,000." A footnote in the briefing informed the court that, “Approximately 600 HMCs filed individual suits using the offices of [ILG]. The settlement negotiated on February 15, 2011 with ILG called for a gross settlement of approximately $6,000,000 or an average gross distribution of $10,000 per individual plaintiff. Wells rationalized this higher figure by the fact that these individuals had been willing to sign a retainer agreement and commence a separate lawsuit. It was contemplated that the ILG clients would recover from the richer per capita fund secured ...

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