“Clear Sailing” Settlement Provisions Not Per Se Invalid Under State Law.
Computer Service Tax Cases, Case No. A139445 (1st Dist., Div. 5 Dec. 10, 2014) (unpublished) is a class action settlement appeal where 200,000 claims were filed resulting in claims to recover tax refunds of around $49.1 million. The lower court granted class counsel $11 million in fees pursuant to a “clear sailing” provision in the settlement agreement (i.e., the defense would not oppose if no more than $11 million was sought in fees, with an important wrinkle that the corporate defendant agreed to pay the fees separately).
The challenges to the fee award were not successful on appeal.
The appellate court rejected the argument that any surplus between fees awarded and the fees agreed to be paid by the defense was not a class benefit. Reason: there was no surplus left over for the defense or class to claim.
“Clear sailing” provisions are not per se invalid under California state law, notwithstanding what the Ninth Circuit might have implied otherwise in the Bluetooth decision (although nothing in the federal decision outlawed these provisions outright).
“Kicker” provisions, saying that any unawarded fees revert back to the defense, are also not per se invalid unless some collusion can be shown, not at play given there was no surplus subject to reversion and given no showing of collusiveness.
That meant the appeal actually devolved into a gripe about the reasonableness of fees, which is reviewed under a deferential abuse of discretion standard. The challenges were unsuccessful to the amount of fees because (1) declarations by counsel can adequately be a form of accepted fee substantiation under California state law; (2) fee sharing agreements were disclosed as required under CRC 3.769(b); (3) $650-825 hourly rates for 25-plus year experienced attorneys were reasonable in nature; and (4) the awarded fees were only about 22.5% of the settlement fund, so they were reasonable under the percentage of recovery methodology.