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Gamble v. Kaiser Foundation Health Plan, Inc.

United States District Court, N.D. California

July 19, 2019

Lunell Gamble, et al., Plaintiffs,
v.
Kaiser Foundation Health Plan, Inc., et al., Defendants.

          ORDER DENYING PLAINTIFFS' RULE 16 MOTION FOR AN ORDER ADDRESSING SETTLEMENT POSTURE AND POTENTIAL CONFLICT OF INTERESTS; STAYING ACTION; DIRECTING PLAINTIFFS' COUNSEL TO FILE STATUS STATEMENT DKT NO. 110

          Yvonne Gonzalez Rogers, United States District Court Judge.

         Plaintiffs Lunell Gamble and Sheila Kennedy are the named plaintiffs in this putative class action alleging claims arising under Title VII, 42 U.S.C. §2000e et seq., and the California Fair Employment and Housing Act (“FEHA”), Govt. Code §12900 et seq. Plaintiffs bring this unusual motion pursuant to Rule 16 of the Federal Rules of Civil Procedure and the Court's inherent powers to control the conduct of attorneys who appear in proceedings before it. Plaintiffs seek an order dictating in advance the parameters of any settlement negotiations with defendants.[1]Perhaps more importantly, the motion requests that the Court give its imprimatur to plaintiffs' counsel's fee agreement and confirm that it poses no conflict of interest with the named plaintiffs or the class.

         As further detailed herein, plaintiffs' counsel has included in his fee agreement an express assignment of rights to negotiate statutory fees separate from plaintiffs' damages, as well as retention of the right to agree to the settlement of statutory fees separate from his clients. Plaintiffs' counsel represents to the Court that, because defendants insist on a waiver of statutory attorneys' fees as part of any settlement, his clients would be obligated to pay him twice his lodestar directly in the event of settlement per the terms of his retainer agreement. Plaintiffs' counsel seeks the Court's determination whether the agreement creates a conflict of interest. Indeed, during the April 22, 2019 case management conference, counsel indicated that he would not want to continue with the case if the Court determined that the agreement would put him in conflict with his clients. (TR at 21:2-13.)

         Having carefully considered the papers in support of and in opposition to the motion and the admissible evidence[2], and good cause appearing, the Court Orders as follows:

         The motion for an order requiring attorneys' fees to be separately negotiated or determined by the Court in connection with a settlement is Denied. No. court has the authority to dictate the terms of settlement, even of a class action. Evans v. Jeff D., 475 U.S. 717, 726 (1986) (“Rule 23(e) wisely requires court approval of the terms of any settlement of a class action, but the power to approve or reject a settlement negotiated by the parties before trial does not authorize the court to require the parties to accept a settlement to which they have not agreed.”); see also Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) (“Neither the district court nor [courts of appeals] have the ability to delete, modify or substitute certain [settlement] provisions.”), overruled on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). Plaintiffs offer no authority to support the relief they seek in this regard.

         The Court further Orders that this action is Stayed and that plaintiffs shall file a statement regarding how they will proceed in light of the Court's determination that putative class counsel would not be adequate due to the inherent conflict of interest created by plaintiff's counsel's retainer agreement. The reasons follow.

         I. Terms of the Agreements

         According to plaintiffs' counsel, the retainer agreements between him and the plaintiffs state:

All attorneys' fees recovered pursuant to any statutory or common law fee-shifting provisions, Federal and California, for work done in connection with this litigation are property of the attorneys, as provided by California law (Flannery v Prentice) and shall not be regarded as property of the client.

         (Declaration of Jeremy Friedman, Dkt. No. 111, ¶ 5.) At the same time, the agreements purport to provide for attorneys' fees to be paid either on a contingent basis or by statutory fee award:

Client has been given the choice of paying monthly for attorneys' fees on an hourly rate basis and for costs, as an alternative to a contingent fee. Client understands that if she chooses to pay fees on an hourly rate basis, rather than a contingent fee basis, she must pay all fees and costs even if the claims are lost. Clients knowingly and voluntarily agrees to pay fees on a contingent fee basis, or have statutory fees paid at a rate that is a multiple of Attorneys' then-current non[-]contingency hourly rate (Ketchum v. Moses), because fees are not paid before any amount is recovered and Client will not owe any attorneys' fees if she does not prevail against defendants.

(Id. at ¶ 7, emphasis supplied.) However, pursuant to Section 6 of the retainer agreements, quoted below, the provision to pay fees on a contingent or statutory fee award basis does not apply if the client waives attorneys' fees as part of a settlement. Rather, the client must pay Mr. Friedman twice his lodestar:

It is agreed that no settlement of these claims may be made without Client's prior agreement. If, in settlement of this litigation, Client waives the right to recover attorneys' fees, costs or expenses (including partial waivers or compromises) without the consent of Attorneys, Client agrees to pay Attorneys: for waiver of fees, Attorneys' lodestar amount (their then-current hourly rate, as stated in section 5, as of the date of recovery times the number of hours expended on the case) times a contingent-risk multiplier of 2.0; and for waiver of costs, all of the costs advanced by attorneys in this case, whether or not a positive recovery is made by Client. Client understands that this agreement may give rise to potential disputes and conflicts between Attorneys and Client at the time of settlement, and in particular, where the defendants offer a settlement conditioned on the waiver, partial waiver or compromise of fees or costs and Attorneys are unwilling to agree to the waiver, partial waiver or compromise. Client understands that this agreement to pay the difference between Attorneys' statutory fees and costs and the amount of fees and costs paid in settlement may limit, or even nullify Client's recovery, and dissuade her from agreeing to a settlement with the defendants. Client has been advised of the option of seeking additional legal counsel on the topic. Client expressly agrees to this provision because she knows that otherwise Attorneys would be unwilling to enter into this agreement.

(Id. ΒΆ 8, emphasis supplied.) With respect to how any award of attorneys' fees will be credited, and the potential conflict of interest that might ...


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