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Rejecting federal precedent, the California Supreme Court on Thursday clarified, but refused to abolish, so-called catalyst fees in the state. The sharply divided 4-3 votes in two companion cases affirmed that such fees — awarded to parties whose suits result in changes beneficial to the public — are permissible in private attorney general actions, but only as long as they are based on meritorious complaints and there has been a “reasonable attempt” to settle. “What is objectionable about elimination of the catalyst theory is not only that in a given case an attorney will be unjustly deprived of fees,” Justice Carlos Moreno wrote for the majority, “but that attorneys will be deterred from accepting public interest litigation if there is the prospect they will be deprived of such fees after successful litigation.” He was joined by Chief Justice Ronald George and Justices Joyce Kennard and Kathryn Mickle Werdegar. In dissent, Justice Ming Chin — joined by Justices Marvin Baxter and Janice Rogers Brown — accused the majority of going farther than any other court has gone. “Lest California truly become a mecca for plaintiffs and plaintiffs’ attorneys throughout the country,” Chin wrote, “we need to be at least somewhat in step with the rest of the country.” The court’s holding marks a significant departure from the U.S. Supreme Court, which abolished catalyst fees from federal law in 2001′s Buckhannon Board & Care Home Inc. v. West Virginia Department of Health and Human Services, 532 U.S. 598. The Buckhannon majority said a prevailing party cannot recover fees if a dispute is resolved without a judicial order. The California Supreme Court made enough changes to the catalyst theory to feel compelled to send one of the cases back to Los Angeles County Superior Court to reconsider the fees awarded. In the other, it shipped the case back to the 9th U.S. Circuit Court of Appeals, which had sought advice on the state law issues. In Graham v. DaimlerChrysler Corp., 04 C.D.O.S. 10557, the automaker had sought relief from $760,000 in fees imposed after jurors found it hadn’t responded to complaints about the towing capacity of its Dakota R/T truck brand until a class action had been filed. In Tipton-Whittingham v. City of Los Angeles, 04 C.D.O.S. 10570, Los Angeles had been slapped with almost $2 million in fees after a federal judge found that the city had responded to sexual discrimination claims in the police department only after female employees sued. In both cases, however, no orders demanding change had been issued and the suits had been dismissed after the defendants addressed the problems. DaimlerChrysler and Los Angeles had argued they acted voluntarily and, therefore, no catalyst fees should have been awarded. In reaching their decision, the majority justices declared the catalyst theory sound “in concept.” But they also put limitations on claims, saying that the lawsuit must not be “frivolous, unreasonable or groundless” and that the record must show that the suit was a catalyst in changing the defendant’s conduct. They also adopted the attorney general’s proposal that catalyst fees cannot be sought unless there is some effort by the plaintiffs to resolve the dispute. “Lengthy pre-litigation negotiations are not required,” Moreno wrote, “but a plaintiff must at least notify the defendant of its grievances and proposed remedies and give the defendant the opportunity to meet its demands within a reasonable time.” In yet another blow to the defense, the court rejected arguments that catalyst fees could never be enhanced. But the justices also said that, in most cases, enhancements for fee litigation should be lower than enhancements for the underlying litigation. In remanding, the court held that the enhanced fees in the DaimlerChrysler fee litigation might be unwarranted. Chin dissented that the suit against the automaker wasn’t necessary because steps had been taken to remedy the problem and the state AG and Santa Cruz County district attorney’s office had already begun investigating. “With this case as a warning,” he wrote, “future defendants may surrender to attorney fee demands, no matter how unmeritorious, rather than risk a substantial award of attorney fees down the road.” Chin also warned that the ruling against the city of Los Angeles sets a bad precedent that will ultimately cost taxpayers. “A large award like this against a school district could consume tax resources needed for teachers, textbooks, computers, music, art and sports programs,” he wrote. “Such an award could devastate, even bankrupt, a smaller governmental entity.” Some lawyers were joyous over the rulings. In fact, Carol Sobel, who represented the plaintiffs suing Los Angeles, laughed wildly when contacted. “This is a critical issue for civil rights litigants,” she said. “If we had lost this issue, it could have dramatically altered who would have been willing to take these cases and how they would have been litigated.” Richard Pearl, the Berkeley, Calif., lawyer who opposed DaimlerChrysler, said the conditions imposed by the high court won’t be hard to meet. “At a time when public interest lawyers are often criticized for protecting consumers and civil rights victims,” he said, “this is a real positive reaffirmation of the importance of the work they do and gives them an opportunity to do it.” Theodore Boutrous Jr., the Gibson, Dunn & Crutcher partner who represented DaimlerChrysler, expressed pleasure that the court had remanded his case. But he also registered his dismay that the courts “declined to abolish” the catalyst theory, which he called “bad for California’s legal system” and an incentive to “bounty hunting” by plaintiff attorneys. Beth Orellana, an associate at L.A.’s Bergman & Dacey who represented the city, could not be reached for comment.

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