First District, Division 5 Faces First Impression Issue in Reviewing Trial Court’s Refusal to Enforce Arbitration Provision In Class Action Fee Resolution Arena.
Well, we kick off our 2010 review of jurisprudence with an interesting decision from the First District, Division 5 in the class action area.
In Cellphone Termination Fee Cases, Case Nos. A122765/A122768 (1st Dist., Div. 5 Dec. 31, 2009) (certified for partial publication—but not posted until Jan. 4, 2010), the Court of Appeal decided that the lower court erred in failing to approve an arbitration fee provision calling for arbitration of attorney’s fees in the aftermath of a class action settlement where the lower court had already determined that the settlement was reasonable with respect to the range of fee recovery and was not collusive in nature. Although the parties to a class action agreed to a floor and ceiling in fee recovery, the lower court determined that the arbitration provision was void in entirety because it improperly excluded absent class members from the fee application process, a ruling found infirm on appeal. The trial court went ahead and later awarded plaintiffs fees of $2.3 million and costs of approximately $200,000 after invalidating the arbitration provision. However, there is the rub: the appellate court determined that no reasonable arbitrator would have reached a different result (a Watson type of no prejudice standard applied to a hypothetical arbitration), given that the fee award was within the proverbial ballpark and was noncollusive.
Fascinating decision, we might say, in many respects. A key to the result was that the class objectors were not impacted by any fee decision because it did not come out of a common fund—rather, class members still obtained the same relief no matter what the decision by the arbitrator or the court; only the defendant was aggrieved and had a real stake in the fee controversy. Objectors were allowed to weigh in on the reasonableness determination, and that was sufficient.