Justice Ignazio Ruvolo..Photo by Jason Doiy.4-26-04.021-2004
Justice Ignazio Ruvolo..Photo by Jason Doiy.4-26-04.021-2004 ()

SAN FRANCISCO — Three plaintiffs attorneys who negotiated a creative fee agreement in a consumer class action are lucky they didn’t use more specific language.

The First District Court of Appeal ruled Friday afternoon that a “clear sailing” provision in which the parties agreed to be bound by Superior Court Judge Richard Kramer’s attorney fee award did not preclude an appeal. That’s a good thing for George Donaldson, Daniel Harris and Guy Calladine, who saw Kramer slash their $2.2 million fee request to $350,000. The appellate court sent the case back to Kramer and directed that he loosen up his standard for awarding fees in the case.

“If the parties to a contract want their agreement to encompass a waiver of the right to appeal from an anticipated judicial ruling, they must say so explicitly and unambiguously,” Justice Ignazio Ruvolo wrote. “They cannot leave their intent to be inferred from the language of the agreement.”

Ruiz v. California State Automobile Association is a class action over finance charges in an insurance company’s automobile and homeowner policies. In two bench trials, class counsel failed to prove that CSAA violated the federal Truth in Lending Act, California’s Unruh Act or various provisions of the California Insurance Code. But as a third bench trial loomed, the parties struck a deal that made available $6.5 million—or 84 cents per year for each policy holder. CSAA, the insurance arm of AAA Northern California, Nevada and Utah, also agreed to modify its billing practices.

CSAA, represented by Fletcher Alford—then of Gordon & Rees, now with Dentons­—agreed to a clear sailing provision with a twist. Class counsel could request any amount up to $2.2 million without opposition from CSAA, but Kramer would have discretion to award less, and class counsel would accept the lower of the two amounts “in full satisfaction of any and all claims for attorneys fees and costs.” The parties agreed to a similar provision capping an incentive payment to name plaintiff Ariel Ruiz to $10,000.

Kramer approved the settlement but slashed the plaintiffs’ fee request to $350,000 and Ruiz’s incentive payment to $1,250. He reasoned that all of the time spent on the first two bench trials was worthless. “All of the work conducted by plaintiff’s counsel through the conclusion of the second-phase trial resulted in a loss,” Kramer wrote. “Therefore, just like contingency fee lawyers, [it] should not be paid for.” He calculated the lodestar for the remaining work at $350,000.

Kramer added that most class members wouldn’t find the 84-cent payments “to be of any value to them whatsoever,” and estimated actual claims made at $1.1 million. Therefore, $350,000 also represented about a third of the recovery, an appropriate amount.

When class counsel sought to appeal, Alford objected. Class counsel had promised as part of the settlement not to institute “any further post-approval litigation of any kind,” he wrote in a post-trial motion.

But on Friday, the First District ruled that waiver of appellate rights must be clear and explicit, and the settlement agreement did not meet that standard.

And Judge Kramer, Ruvolo ruled, went too far by excluding fees for all of class counsel’s work on the unsuccessful bench trials. “If the issues were factually and/or legally related—as appears likely from a reading of the first amended complaint—it was an error of law, and therefore an abuse of discretion, to exclude all of the trial phase hours from the lodestar calculation,” Ruvolo wrote.

The same was true, Ruvolo added, of plaintiff Ruiz’s incentive fee. And $1.1 million valuation didn’t take into account the changes CSAA made to its billing practices. He sent the case back to Kramer for reconsideration.

Justices Timothy Reardon and James Humes concurred.

Contact the reporter at sgraham@alm.com.