NEI Contracting and Engineering, Inc. v. Hanson Aggregates Pacific Southwest, Inc. et al.
Filing
199
ORDER denying Plaintiff's 182 Motion for Attorney Fees and Costs. Signed by Judge Cynthia Bashant on 5/31/2017. (jah)
1
2
3
4
5
6
7
8
9
10
UNITED STATES DISTRICT COURT
11
SOUTHERN DISTRICT OF CALIFORNIA
12
13
NEI CONTRACTING AND
ENGINEERING, INC.,
14
15
16
17
18
Case No. 12-cv-01685-BAS(JLB)
Plaintiff,
v.
ORDER DENYING PLAINTIFF’S
MOTION FOR ATTORNEYS’
FEES AND COSTS
[ECF No. 182]
HANSON AGGREGATES, INC., et
al.,
Defendants.
19
20
Plaintiff NEI Contracting and Engineering, Inc. (“NEI”) placed orders for
21
concrete by phone with Defendant Hanson Aggregates Pacific Southwest, Inc.
22
(“Hanson”). After accepting delivery of the concrete, NEI refused to pay for it. But
23
NEI’s efforts to stiff Hanson crumbled when Hanson produced recordings of its phone
24
orders. The company paid its bill in full.
25
NEI then filed this putative class action against Hanson based on Hanson’s
26
practice of recording customers’ phone calls. It hoped to recover millions of dollars
27
in damages on behalf of a class of Hanson’s customers. NEI also sought to change
28
Hanson’s conduct. The company succeeded on the second point—part way through
–1–
12cv1685
1
the litigation, Hanson voluntarily changed its phone system’s admonition to advise
2
customers that their calls may be recorded.
3
It would turn out to be a Pyrrhic victory. By the time NEI discovered Hanson’s
4
new behavior, the company’s contingency fee counsel had already invested nearly
5
$300,000 worth of time into this case. Yet, the hope of a large class action recovery
6
never materialized. NEI proceeded to trial on its individual claim against Hanson, and
7
it lost. The company recovered nothing.
8
Now, NEI turns to California’s Private Attorney General Statute and the state’s
9
catalyst theory to try to recoup some of its counsel’s investment. By leveraging its
10
success in changing Hanson’s conduct, the company hopes to subsidize its
11
unsuccessful pursuit of a class action recovery. Thus, NEI seeks to recover all of its
12
attorneys’ fees up to the date it discovered Hanson’s new behavior. The company also
13
requests this fee amount be increased by a multiplier of 1.75—for a total bounty of
14
almost $500,000. Hanson opposes.1
15
Although NEI achieved partial success, a fee award is not appropriate. NEI
16
does not meet its burden of demonstrating the requirements under California’s Private
17
Attorney General Statute and the catalyst theory are satisfied. Consequently, for the
18
following reasons, the Court DENIES NEI’s motion.
19
20
I.
BACKGROUND2
21
Hanson sells crushed aggregates, ready-mix concrete, and soil amendments to
22
the construction industry. NEI is a general contractor that has purchased concrete
23
products from Hanson since at least 2002. As mentioned above, this case arises from
24
Hanson’s practice of recording its customers’ phone orders and a billing dispute
25
between the parties that was resolved through reference to recordings of NEI’s orders.
26
27
28
1
The Court finds this motion suitable for determination on the papers submitted and without
oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1).
2
The following background is adopted from the Court’s Findings of Fact and Conclusions
of Law (ECF No. 180) and the record in this action.
–2–
12cv1685
Hanson’s Recording Practice
1
A.
2
Hanson receives orders for ready-mix concrete and aggregate materials through
3
its dedicated phone order line. Before the order is placed, the customer generally
4
speaks with Hanson’s sales and specifications departments to determine what is
5
needed and the pricing of the order. None of these calls, nor calls to Hanson’s
6
administrative or billing departments, is recorded. However, Hanson does record all
7
calls that come into its dispatch lines, which are used when a customer actually places
8
an order.
9
Prior to July 15, 2009, Hanson used a Voice Print International (“VPI”) phone
10
system. While the VPI system was in place, Hanson used “beep tone generators” on
11
all of its telephones that received calls to the dispatch lines. The beep tone generators
12
qualified as notice of recording.
13
NEI’s owner and president is Eric Barajas. Various NEI employees, including
14
Rich Degraffenreid, Sandy LeFever, and Charles Alexander, had authority to and did
15
place orders with Hanson on behalf of NEI from job sites using their cell phones.
16
Thus, NEI employees placed orders through Hanson’s dispatch lines prior to July 15,
17
2009, and heard the audible beep tones generated by Hanson’s beep tone generators.
18
Accordingly, prior to July 15, 2009, NEI knew it was being recorded when its
19
employees called the Hanson dispatch lines and therefore consented to the recording.
20
In July 2009, Hanson replaced its VPI system with an OAISYS Talkument
21
phone system. As part of this phone system, Hanson included a pre-recorded verbal
22
admonition stating that the call “may be monitored for quality assurance” to any
23
customers calling through the dispatch lines. NEI continued to place orders with
24
Hanson after it switched to the OAISYS Talkument phone system.
25
26
B.
Billing Dispute
27
In 2011, NEI placed orders with Hanson in conjunction with its work on a
28
construction project. Mr. Degraffenreid was the superintendent on the project. He,
–3–
12cv1685
1
Mr. Alexander, and Mr. LeFever all had authority to place orders in conjunction with
2
this project. The original estimate for the project was 100 cubic yards of concrete. In
3
fact, however, the project used over 600 cubic yards of concrete. Hanson thus billed
4
NEI for this higher amount of concrete.
5
Mr. Barajas, who was reviewing the Hanson invoices for the project, thought
6
the bill was too high. He did not make inquiry of any of NEI’s employees who placed
7
the orders whether the bills were correct or not. Instead, he requested proof from
8
Hanson that the orders belonged to NEI. Hanson provided copies of the original
9
invoices for the concrete orders, but Mr. Barajas still disputed the bills and requested
10
proof that the amount of concrete billed was actually delivered to NEI. Hanson then
11
provided copies of the delivery tickets for the concrete NEI ordered. The delivery
12
tickets were signed by NEI employees at the construction site who accepted delivery
13
of the concrete. However, because many of the signatures were illegible, Mr. Barajas
14
refused to pay the charges.
15
In response, Hanson filed a lawsuit against NEI and its bond company on
16
December 8, 2011, seeking approximately $66,266.98, plus costs and fees, for unpaid
17
invoices. Mr. Barajas countered that the concrete billed by Hanson could not have
18
been concrete for the construction project at issue because the project did not require
19
the particular strength of concrete being billed. Hanson replied by producing on
20
March 8, 2012, recordings of phone calls with NEI employees that proved NEI had
21
ordered the particular strength of concrete for the project.
22
After being confronted with invoices, signed delivery tickets, and recordings
23
of NEI employees ordering the concrete, Mr. Barajas acquiesced and settled the case
24
on behalf of NEI in May 2012 and paid the amount invoiced. Hanson agreed to waive
25
any attorneys’ fees or interest requested. NEI did not object to Hanson’s recording
26
practice during this billing dispute.
27
//
28
//
–4–
12cv1685
1
C.
CIPA Action
2
Shortly thereafter, on July 6, 2012, NEI filed the present action against Hanson
3
under California’s Invasion of Privacy Act (“CIPA”) and the Class Action Fairness
4
Act. The company did not try to resolve this dispute before filing suit. NEI’s initial
5
pleading raised a putative class claim under California Penal Code section 632, which
6
prohibits the recording of confidential communications. The company, however,
7
ultimately abandoned this claim in favor of a claim under California Penal Code
8
section 632.7, which prohibits the recording of cell phone calls without consent. Thus,
9
NEI’s Second Amended Complaint filed on October 29, 2013, alleged Hanson
10
violated section 632.7 by recording its customers’ phone calls without their consent.
11
NEI sought $5,000 in statutory damages per violation of section 632.7. It also sought
12
injunctive relief enjoining Hanson’s alleged violation of section 632.7.
13
Change in Hanson’s Conduct
14
D.
15
On December 23, 2013—a few months after NEI filed its Second Amended
16
Complaint and clarified its theory of relief—Hanson changed the admonition that
17
customers hear when calling its dispatch lines. The new admonition informs
18
customers that their calls “may be monitored or recorded for quality assurance.”
19
Hanson disclosed this change on August 8, 2014, in a response to a written discovery
20
request, which NEI’s counsel reviewed on August 11, 2014. (Campion Decl. ¶ 3, Ex.
21
A, ECF Nos. 182-2, 183-3.)
22
23
E.
Trial
24
Ultimately, after the Court resolved a motion for summary judgment and
25
various motions related to class certification, NEI’s individual claim and request for
26
injunctive relief remained for trial. Before trial, the Court ruled that NEI could
27
potentially recover $5,000 for every one of the forty-four cell phone calls Hanson
28
allegedly recorded without NEI’s consent. Hence, NEI’s potential recovery at trial
–5–
12cv1685
1
was $220,000. However, the morning of trial, NEI informed the Court and Hanson
2
that it would be proceeding on only one cell phone call between NEI’s principal Mr.
3
Barajas and Hanson on November 21, 2011, and would, therefore, only be seeking
4
damages of $5,000 along with injunctive relief. The parties orally waived their right
5
to a jury and proceeded by way of bench trial.
6
Following trial, the Court ruled against NEI on the merits and entered judgment
7
in favor of Hanson. Although it lost at trial, NEI now brings a motion to recover the
8
amount of attorneys’ fees it incurred up until August 11, 2014—the date it discovered
9
Hanson had changed its conduct. Specifically, NEI seeks to recover its claimed actual
10
fees of $283,397.50, increased by a multiplier of 1.75, for a total of $495,945.63 in
11
attorneys’ fees.
12
13
II.
ANALYSIS
14
NEI brings its request for attorneys’ fees under California’s Private Attorney
15
General Statute, Cal. Civ. Proc. Code § 1021.5. Under this provision, “a court may
16
award attorneys’ fees to a successful party against one or more opposing parties” if
17
the action “has resulted in the enforcement of an important right affecting the public
18
interest” and several additional requirements are satisfied. Cal. Civ. Proc. Code §
19
1021.5.
20
Section 1021.5 is “[a]n important exception” in California “to the American
21
rule that litigants are to bear their own attorney fees.” Graham v. DaimlerChrysler
22
Corp., 34 Cal. 4th 553, 565 (2004). California enacted the provision “as a codification
23
of the private attorney general doctrine of attorney fees developed in prior judicial
24
decisions.” Maria P. v. Riles, 43 Cal. 3d 1281, 1288 (1987). This doctrine “rests upon
25
the recognition that privately initiated lawsuits are often essential to the effectuation
26
of the fundamental public policies embodied in constitutional or statutory provisions,
27
and that, without some mechanism authorizing the award of attorney fees, private
28
actions to enforce such important public policies will as a practical matter frequently
–6–
12cv1685
1
be infeasible.” Woodland Hills Residents Ass’n, Inc. v. City Council, 23 Cal. 3d 917,
2
933 (1979). “Thus, the fundamental objective of the doctrine is to encourage suits
3
enforcing important public policies by providing substantial attorney fees to
4
successful litigants in such cases.” Riles, 43 Cal. 3d at 1289.
5
To accomplish this objective, the California Supreme Court has “taken a broad,
6
pragmatic view of what constitutes a ‘successful party’ ” under section 1021.5.
7
Graham, 34 Cal. 4th at 565. “In determining whether a plaintiff is a successful party
8
for purposes of section 1021.5, ‘[t]he critical fact is the impact of the action, not the
9
manner of its resolution.’ ” Id. at 566 (quoting Folsom v. Butte Cty. Ass’n of Gov’ts,
10
32 Cal. 3d 668, 685 (1982)). Therefore, the “trial court in its discretion ‘must
11
realistically assess the litigation and determine, from a practical perspective, whether
12
or not the action served to vindicate an important right so as to justify an attorney fee
13
award’ under section 1021.5.” Id. (quoting Woodland Hills, 23 Cal. 3d at 938).
14
Under this pragmatic approach, “[i]t is not necessary for a plaintiff to achieve
15
a favorable final judgment to qualify for attorneys’ fees so long as the plaintiff’s
16
actions were the catalyst for the defendant’s actions, but there must be some relief to
17
which the plaintiff’s actions are causally connected.” Coal. for a Sustainable Future
18
in Yucaipa v. City of Yucaipa, 238 Cal. App. 4th 513, 521 (2015). Thus, the “catalyst
19
theory” for defining a “successful party” allows “an award of attorney fees even when
20
the litigation does not result in a judicial resolution if the defendant changes its
21
behavior substantially because of, and in the manner sought by, the litigation.” Id.;
22
see also Vasquez v. State, 45 Cal. 4th 243, 260 (2008) (“[O]f necessity, a plaintiff who
23
has not succeeded in obtaining ‘a judicial resolution’ or ‘a judicially recognized
24
change in the legal relationship between the parties’ must obtain attorney fees under
25
the catalyst theory, or not at all.” (citations omitted)).
26
To recover fees under the catalyst theory, “a plaintiff must establish that (1) the
27
lawsuit was a catalyst motivating the defendants to provide the primary relief sought;
28
(2) that the lawsuit had merit and achieved its catalytic effect by threat of victory, not
–7–
12cv1685
1
by dint of nuisance and threat of expense . . . ; and, (3) that the plaintiff[ ] reasonably
2
attempted to settle the litigation prior to filing the lawsuit.” Tipton-Whittingham v.
3
City of Los Angeles, 34 Cal. 4th 604, 608 (2004). This theory “saves judicial resources
4
by encouraging the plaintiff to discontinue its litigation after the defendant acquiesces
5
to the remedy initially sought.” Marine Forests Soc’y v. Cal. Coastal Comm’n, 160
6
Cal. App. 4th 867, 877 (2008).
7
Accordingly, if the catalyst theory applies, the plaintiff is considered a
8
“successful party” under section 1021.5. See Graham, 34 Cal. 4th at 567. The
9
plaintiff, however, must still then satisfy section 1021.5’s remaining requirements to
10
obtain a fee award. Cal. Civ. Proc. Code § 1021.5. These requirements are
11
“established when ‘(1) plaintiffs’ action “has resulted in the enforcement of an
12
important right affecting the public interest,” (2) “a significant benefit, whether
13
pecuniary or nonpecuniary has been conferred on the general public or a large class
14
of persons,” and (3) “the necessity and financial burden of private enforcement are
15
such as to make the award appropriate.” ’ ” Millview Cty. Water Dist. v. State Water
16
Res. Control Bd., 4 Cal. App. 5th 759, 768 (2016) (quoting Summit Media LLC v. City
17
of Los Angeles, 240 Cal. App. 4th 171, 187 (2015)). The party seeking fees under
18
section 1021.5 has the burden “to demonstrate all elements of the statute[.]” Id. (citing
19
Norberg v. Cal. Coastal Comm’n, 221 Cal. App. 4th 535, 545–546 (2013)). If the
20
catalyst theory’s and section 1021.5’s requirements are established, the court then
21
determines the appropriate fee award by applying the lodestar method and gauging
22
“whether the lodestar figure should be augmented or diminished by one or more
23
relevant factors.” Cates v. Chiang, 213 Cal. App. 4th 791, 820 (2013).
24
In this case, NEI lost at trial. Therefore, the company did not succeed in
25
obtaining “a judicial resolution” that changed Hanson’s conduct. See Vasquez, 45 Cal.
26
4th at 260. NEI must then attempt to “obtain attorney fees under the catalyst theory,
27
or not at all.” See id. Recognizing this limitation, the company argues this case
28
satisfies all of the requirements for it to proceed under section 1021.5 on a catalyst
–8–
12cv1685
1
theory basis. In short, NEI believes that because its lawsuit caused Hanson to change
2
its call admonition to warn customers that their calls may be recorded, NEI should
3
recover all of its attorneys’ fees up until the date it discovered Hanson’s new behavior.
4
(Mot. 1:2–2:23.)
5
The Court is unconvinced. NEI does not demonstrate a fee award is appropriate
6
under section 1021.5 on a catalyst theory basis for several reasons. Initially, the
7
company does not show it obtained the primary relief it was seeking in this lawsuit.
8
Second, NEI fails to demonstrate it reasonably attempted to settle this case before
9
filing it. Third, NEI does not establish that the financial burden of private enforcement
10
makes a fee award appropriate. The Court will expound on each of these reasons in
11
turn.
12
13
A.
Primary Relief Sought
14
In non-catalyst cases under section 1021.5—those cases where the plaintiff
15
succeeds in obtaining judicial relief—“it is sufficient if the plaintiff achieved partial
16
success or succeeded on any significant issue in the litigation which achieved some of
17
the benefit the plaintiff sought in bringing suit.” Marine Forests Soc’y, 160 Cal. App.
18
4th at 878. “However, in catalyst cases, the defendant must have provided the plaintiff
19
with the primary relief sought.” Id.
20
For instance, in Marine Forests Society, the plaintiff nonprofit corporation’s
21
primary goal was to enjoin the California Coastal Commission from requiring the
22
plaintiff “to remove an experimental man-made reef that it had planted on the ocean
23
floor.” 160 Cal. App. 4th at 870. The plaintiff “raised every conceivable theory . . . to
24
prevent this from occurring,” including an argument that the Coastal Commission’s
25
structure violated the California Constitution’s separation of powers clause. Id. at 878.
26
“In other words, its primary objective was to preserve the artificial reef.” Id. The
27
lawsuit did not save the reef. Id. However, the case did lead to a determination that
28
the Coastal Commission’s structure violated the California Constitution—causing the
–9–
12cv1685
1
legislature to change the Coastal Commission’s governing statutes. Id. at 870, 878.
2
Based on this partial success, the trial court awarded attorneys’ fees to the plaintiff
3
under the catalyst theory for part of the litigation, rationalizing that “[a] significant
4
goal of the litigation was to ensure that the composition of the Coastal Commission
5
complied with the separation of powers doctrine.” Id. at 878 (alteration in original).
6
The California Court of appeal reversed. 160 Cal. App. 4th at 881. It reasoned
7
that the allegations of the plaintiff’s complaint “disclose[d] that its primary goal was
8
to save its reef, not to” challenge the Coastal Commission’s structure. Id. at 878. The
9
Coastal Commission, however, “did not provide the primary relief that [the plaintiff]
10
sought.” Id. at 879. Accordingly, because the plaintiff “failed to establish that [the]
11
defendant provided the primary relief sought in its litigation,” the Court of Appeal
12
held the trial court erred in awarding fees under the catalyst theory. Id.
13
Here, NEI argues that Hanson’s recording practice “was the basic underlying
14
problem sought to be remedied in this action.” (Mot. 2:3–4.) And, because Hanson
15
changed its conduct, NEI claims its action “was the catalyst in bringing about the
16
relief sought in the litigation.” (Id. 7:16–17; see also id. 7:23–8:10.) The complication
17
with this argument is that it does not acknowledge that NEI was seeking other relief
18
in this case—namely, to recover not only tens of thousands of dollars in damages on
19
its own behalf, but also potentially millions of dollars in damages on behalf of a class
20
of Hanson’s customers. At the pleadings stage, NEI alleged the amount in controversy
21
exceeded $5 million, and this figure neared $1.053 billion when the company later
22
sought class certification.3 Further, because NEI omits mention of the other relief it
23
was seeking, the company fails to argue in its motion that its goal of changing
24
Hanson’s admonition was “the primary relief sought.” See Marine Forests Soc’y, 160
25
Cal. App. 4th at 878.
26
27
28
3
NEI requested $5,000 in statutory damages per violation and claimed that Hanson had
recorded 210,668 phone calls in violation of CIPA.
– 10 –
12cv1685
1
Moreover, changing Hanson’s admonition was not NEI’s primary goal. Rather,
2
the Court finds this goal was incidental to NEI and its counsel’s primary objective of
3
obtaining damages on an individual and classwide basis. This conclusion is supported
4
by the fact that NEI continued to prosecute this case after learning Hanson changed
5
its conduct. If NEI was primarily seeking to change Hanson’s conduct, it likely would
6
not have continued to litigate this case through trial. See Marine Forests Soc’y, 160
7
Cal. App. 4th at 877 (noting the catalyst theory “saves judicial resources by
8
encouraging the plaintiff to discontinue its litigation after the defendant acquiesces to
9
the remedy initially sought”). In the same vein, the company discloses that its counsel
10
incurred “approximately 2 ½ to 3 times” more in attorneys’ fees to prosecute this case
11
after discovering Hanson’s changed behavior. (Opp’n 18:21–23; Campion Decl. ¶ 4.)
12
Again, if NEI had already obtained the primary relief it was seeking, it would not have
13
incurred double to triple the amount of attorneys’ fees to continue with this case—
14
unless that is, as the Court concludes, NEI’s primary goal was to obtain damages,
15
particularly a common fund recovery.
16
In sum, NEI fails to argue that Hanson provided NEI with the primary relief it
17
was seeking by changing the admonition customers hear when placing phone orders.
18
Further, the Court finds changing Hanson’s conduct was not NEI’s primary objective
19
in this case. Accordingly, NEI does not demonstrate the catalyst theory’s first
20
requirement is satisfied.
21
22
B.
Reasonable Attempt to Settle Before Filing Suit
23
“In order to be eligible for attorney fees under section 1021.5” in a catalyst
24
case, “the plaintiff must have engaged in a reasonable attempt to settle its dispute with
25
the defendant prior to litigation.” Graham, 34 Cal. 4th at 560–61; accord Vasquez, 45
26
Cal. 4th at 253; Tipton-Whittingham, 34 Cal. 4th at 608. “Lengthy prelitigation
27
negotiations are not required, nor is it necessary that the settlement demand be made
28
by counsel, but a plaintiff must at least notify the defendant of its grievances and
– 11 –
12cv1685
1
proposed remedies and give the defendant the opportunity to meet its demands within
2
a reasonable time.” Graham, 34 Cal. 4th at 577.
3
“[T]his requirement is fully consistent with the basic objectives behind section
4
1021.5 and with one of its explicit requirements—the ‘necessity . . . of private
5
enforcement’ of the public interest.” Graham, 34 Cal. 4th at 577. “Awarding attorney
6
fees for litigation when those rights could have been vindicated by reasonable efforts
7
short of litigation does not advance that objective and encourages lawsuits that are
8
more opportunistic than authentically for the public good.” Id. Thus, the requirement
9
that the plaintiff engage in reasonable settlement efforts prior to filing suit “is an
10
important categorical rule in section 1021.5 catalyst cases and cannot be ignored
11
merely because the court believes it would be equitable for the plaintiff to receive a
12
fee award or that plaintiff had a good excuse for failing to engage in these efforts.”
13
Cates, 213 Cal. App. 4th at 816.
14
That said, the rule requiring a reasonable settlement attempt “should not be
15
applied to bar an attorney fees recovery where to do so would defeat the core purpose
16
of the statute.” Cates, 213 Cal. App. 4th at 816. It should not be invoked “blindly
17
without any consideration of whether the [settlement attempt] would have made any
18
difference in the need for the lawsuit and whether the plaintiff’s motivations were
19
directed toward seeking the relief demanded, as opposed to the recovery of attorney
20
fees.” Id. at 817; see also Carian v. Dep’t of Fish & Wildlife, 235 Cal. App. 4th 806,
21
815 (2015) (“[I]f the trial court finds that attempts to settle the dispute by the plaintiff
22
would have been futile, the plaintiff may not be barred from recovering section 1021.5
23
attorney fees because of the lack of a settlement attempt.”).
24
To illustrate, in Carian, the California Court of Appeal affirmed the denial of
25
a request for attorneys’ fees under section 1021.5 where the trial court found the
26
plaintiff did not make a reasonable pre-litigation attempt to settle his dispute. 235 Cal.
27
App. 4th at 819–20. There, the plaintiff was seeking to reopen a recreational trail. Id.
28
at 811. He argued he satisfied the reasonable settlement attempt requirement because
– 12 –
12cv1685
1
he met with an employee of the California Department of Fish and Wildlife about the
2
trail and notified the state attorney general of his intent to seek to reopen the trail. Id.
3
at 812. The trial court rejected this argument. Id. at 813. The court reasoned that the
4
plaintiff should have at least approached the state agency that had the ultimate
5
authority to allow access to the trail—the California Fish and Game Commission—
6
as opposed to the Department of Fish and Wildlife, which merely enforces the
7
Commission’s regulations. Id. at 813, 818. The trial court also found the plaintiff
8
offered no evidence that it would have been futile to make further settlement efforts
9
before filing suit. Id. at 819. Thus, the court denied the plaintiff’s request for fees. Id.
10
at 813. Reviewing for an abuse of discretion, the Court of Appeal affirmed for the
11
same reasons. Id. at 816–20; see also Mundy v. Neal, 186 Cal. App. 4th 256, 259
12
(2010) (applying the catalyst theory to a fee request under a different statute than
13
section 1021.5 and concluding the plaintiff could not succeed because she did not give
14
the defendant an opportunity to remedy the problem before filing suit).
15
In this case, NEI does not demonstrate that it made any effort—let alone a
16
reasonable one—to settle the action beforehand. The company nevertheless argues
17
that it should be excused from this requirement because it believes attempting to settle
18
the case would have been futile. (Mot. 9:1–10:21.) NEI does not submit any evidence
19
with its motion to support this position. (See id. 10:9–21.) It does, however, advance
20
two arguments on this point. First, the company claims any pre-litigation settlement
21
attempt would have been futile because once the case was filed, Hanson “did not
22
engage in any conduct that would support any other conclusion.” (Mot. 10:11–13.)
23
Specifically, NEI highlights that Hanson “argued for years—even at trial—that it
24
believed” its prior admonition to customers that their calls may be monitored was
25
adequate. (Id. 10:12–15.) The company also notes Hanson “even filed for summary
26
judgment on that issue, which was denied.” (Id. 10:15–16.)
27
This argument is unpersuasive. Most of the conduct NEI highlights occurred
28
after Hanson had already changed its admonition, not before—minimizing its
– 13 –
12cv1685
1
relevance. This distinction also separates this case from the decision recognizing a
2
futility exception that NEI relies upon—Cates v. Chiang, 213 Cal. App. 4th 791
3
(2013). There, once the plaintiff’s grievance was brought to the defendant
4
commission’s attention, the commission continued to engage in actions showing that
5
it believed it had done nothing wrong for four years. Id. at 815. The commission then
6
finally acquiesced after it received an unfavorable appellate decision in the case. Id.
7
at 802. The Court of Appeal reasoned that this conduct, among other evidence,
8
supported the trial court’s determination that a pre-litigation settlement attempt would
9
have been futile. Id. at 815. In contrast here, although NEI continued to defend its
10
prior admonition, the company had already changed its conduct moving forward—
11
indicating it was not stalwartly opposed to modifying its phone system’s admonition.
12
Further, there is a reasonable explanation for why Hanson continued to defend its
13
prior admonition: NEI continued to prosecute this case and pursue its primary
14
objective of recovering sizable damages based on Hanson’s past conduct. Thus, this
15
argument does not persuade the Court that a request from NEI to Hanson to change
16
its admonition prior to NEI filing suit would have been futile.
17
As for NEI’s second argument in support of futility, the company argues that
18
because Hanson changed its admonition seventeen and a half months after NEI filed
19
suit, “it is beyond dispute Hanson would not have simply changed its [admonition]
20
because [NEI]’s counsel asked them to do so.” (Mot. 10:11–13.) The Court disagrees.
21
A passage of time, alone, does not demonstrate a reasonable attempt to settle the case
22
beforehand would have been futile. Moreover, NEI’s emphasis on the length of time
23
that elapsed between the filing of this case and the change in Hanson’s admonition
24
overlooks the events that were unfolding in this case. During most of this time period,
25
NEI’s pleadings—none of which even mentioned Hanson’s original admonition—
26
were uncertain. NEI initially sought relief under California Penal Code section 632,
27
which prohibits the eavesdropping or monitoring of confidential communications. A
28
conversation is confidential under this section “if a party to that conversation has an
– 14 –
12cv1685
1
objectively reasonable expectation that the conversation is not being overheard or
2
recorded.” Flanagan v. Flanagan, 27 Cal. 4th 766, 768 (2002); see also Kight v.
3
CashCall, Inc., 231 Cal. App. 4th 112, 122 (2014). Given that Hanson’s initial
4
admonition warned its customers that their calls may be monitored, their calls were
5
arguably not confidential communications under section 632 because the customers
6
lacked a reasonable expectation that their conversations were not being overheard or
7
recorded. See Flanagan, 27 Cal. 4th at 768; Kight, 231 Cal. App. 4th at 122. Hanson,
8
therefore, had a colorable defense to NEI’s original action based on its prior
9
admonition.
10
Yet, in its Second Amended Complaint, NEI abandoned its section 632 claim
11
in favor of a claim under section 632.7. This provision prohibits the recording of a
12
cell phone call without consent, but it does not contain a requirement that the cell
13
phone call be a confidential communication. See Cal. Penal Code § 632.7. Hanson’s
14
original admonition, by itself, was not sufficient to foreclose liability under this
15
section. The company revised its admonition only several months after NEI clarified
16
its theory of relief. Thus, because a lapse of time by itself is unconvincing, and
17
because NEI’s theory of relief was uncertain for most of this time period, the Court is
18
not persuaded by NEI’s argument that the length of time between when it filed suit
19
and Hanson changed its conduct demonstrates futility.
20
In addition to advancing these two unpersuasive arguments, NEI relies on
21
MacDonald v. Ford Motor Co., 142 F. Supp. 3d 884 (N.D. Cal. 2015), to support its
22
futility position. NEI informs this Court that the MacDonald court “found a
23
prelitigation demand there would have been futile.” (Mot. 9:18–19; see also id. 10:4–
24
6.) Indeed, a review of the MacDonald court’s order reveals it did reach this
25
conclusion—because “the Parties agree[d] that any attempt by Plaintiffs to settle th[e]
26
case would have been futile.” 142 F. Supp. 3d at 895. Hanson has made no comparable
27
concession in this case. The Court consequently rejects NEI’s attempt to rely on
28
MacDonald to support its position.
– 15 –
12cv1685
1
Accordingly, NEI does not establish that it engaged in any effort to settle this
2
case before filing it. The company also does not show that a reasonable settlement
3
attempt would have been futile. NEI therefore does not satisfy its burden of
4
demonstrating this requirement of the catalyst theory is satisfied.
5
6
C.
7
Last, the Court shifts to discussing one of the conditions under section 1021.5
8
that must be satisfied in all cases: “the necessity and financial burden of private
9
enforcement” must be “such as to make the award appropriate.” Cal. Civ. Proc. Code
10
§ 1021.5. This condition “really examines two issues: [1] whether private enforcement
11
was necessary and [2] whether the financial burden of private enforcement warrants
12
subsidizing the successful party’s attorneys.” In re Conservatorship of Whitley, 50
13
Cal. 4th 1206, 1214 (2010).
14
15
16
Financial Burden of Private Enforcement
The Court focuses on the financial burden issue in this case. The California
Supreme Court has explained:
21
In determining the financial burden on litigants, courts have quite
logically focused not only on the costs of the litigation but also any
offsetting financial benefits that the litigation yields or reasonably could
have been expected to yield. “An award on the ‘private attorney general’
theory is appropriate when the cost of the claimant’s legal victory
transcends his personal interest, that is, when the necessity for pursuing
the lawsuit placed a burden on the plaintiff ‘out of proportion to his
individual stake in the matter.’ ”
22
Whitley, 50 Cal. 4th at 1215 (quoting Woodland Hills, 23 Cal. 3d at 941). Thus, this
23
requirement “focuses on the financial burdens and incentives involved in bringing the
24
lawsuit.” Press v. Lucky Stores, Inc., 34 Cal. 3d 311, 321 (1983).
17
18
19
20
25
Accordingly, “[i]n evaluating the element of financial burden, ‘the inquiry
26
before the trial court [is] whether there were “insufficient financial incentives to
27
justify the litigation in economic terms.” ’ ” Millview, 4 Cal. App. 5th at 768 (second
28
alteration in original) (quoting Summit Media, 240 Cal. App. 4th at 193). An award
– 16 –
12cv1685
1
under section 1102.5 is not warranted where “the plaintiff had a ‘personal financial
2
stake’ in the litigation ‘sufficient to warrant [the] decision to incur significant attorney
3
fees and costs in the vigorous prosecution’ of the lawsuit.” Id. at 768–69 (alteration
4
in original) (quoting Summit Media, 240 Cal. App. 4th at 193–94).
5
An award is not appropriate where the plaintiff has a sufficient personal
6
financial stake in the litigation because the statute “was not designed as a method for
7
rewarding litigants motivated by their own pecuniary interests who only
8
coincidentally protect the public interest.” Davis v. Farmers Ins. Exch., 245 Cal. App.
9
4th 1302, 1329 (2016) (quoting Beach Colony II v. Cal. Coastal Comm’n, 166 Cal.
10
App. 3d 106, 114 (1985)). “Private attorney general fees are not intended to provide
11
insurance for litigants and counsel who misjudge the value of their case, and
12
vigorously pursue the litigation in the expectation of recovering substantial damages,
13
and then find that the jury’s actual verdict is not commensurate with their expenditure
14
of time and resources.” Satrap v. Pac. Gas & Elec. Co., 42 Cal. App. 4th 72, 79–80
15
(1996). Rather, section 1102.5’s “purpose is to provide some incentive for the plaintiff
16
who acts as a true private attorney general, prosecuting a lawsuit that enforces an
17
important public right and confers a significant benefit, despite the fact that his or her
18
own financial stake in the outcome would not by itself constitute an adequate
19
incentive to litigate.” Id. at 80. Thus, in gauging the financial burden, “[t]he relevant
20
issue is ‘the estimated value of the case at the time the vital litigation decisions were
21
being made.’ ” Millview, 4 Cal. App. 5th at 769 (quoting Davis, 245 Cal. App. 4th at
22
1330).
23
California courts have adopted different approaches to evaluating the financial
24
burden requirement. See Millview, 4 Cal. App. 5th at 772; see also Woodfin Suites
25
Hotel, LLC v. City of Emeryville, No. A123106, 2010 WL 894086, at *3–4 (Cal. Ct.
26
App. Mar. 15, 2010) (unpublished) (collecting numerous cases applying different
27
approaches to this factor). A straightforward approach is illustrated by the California
28
Court of Appeal’s decision in Davis v. Farmers Insurance Exchange, 245 Cal. App.
– 17 –
12cv1685
1
4th 1302, 1310 (2016). In that case, the trial court rejected the plaintiff’s request for
2
fees under section 1021.5, and the Court of Appeal affirmed on this issue. Id. at 1338.
3
In discussing the financial burden inquiry, the court determined the plaintiff’s
4
“reasonable expectation of financial benefits from the litigation was sufficient to
5
motivate him to pursue the litigation.” Id. at 1329. It noted the plaintiff “sought over
6
ten million dollars in damages for his allegedly wrongful discharge,” and “he expected
7
to recover hundreds of thousands of dollars for improper wage deductions.” Id. at
8
1330. Thus, the court concluded “it was reasonable for the [trial] court to find that at
9
every critical juncture [the plaintiff] expected a substantial financial recovery, and
10
that this was sufficient motivation to pursue the case”—making a fee award under
11
section 1021.5 inappropriate. Id.
12
In this case, NEI briefly addresses why it believes section 1021.5’s financial
13
burden requirement is satisfied. (See Mot. 16:13–23.) The company argues the cost to
14
it “far exceeded its personal interest in the case,” and NEI “had no financial incentive
15
to bring about” a change in Hanson’s conduct, “other than what it would receive as a
16
class member’s a [sic] pro rata distribution of a class-wide settlement if successful,
17
and a small incentive payment as a class representative.” (Id. 16:16–20.) In response,
18
Hanson emphasizes the amount of damages NEI was seeking on both an individual
19
and classwide basis and contends it “is ludicrous to argue that these amounts were
20
insufficient to incentivize a private action as just the opposite is true—these amounts
21
are so high that it incentivized NEI and its counsel to take a gamble on a completely
22
meritless claim that it lost on the merits after trial.” (Opp’n 14:20–15:2.). Last, in
23
replying to Hanson’s emphasis on what NEI hoped to recover, NEI argues that this
24
Court should instead focus on “the actual result” in this case and “the fees necessary
25
to reward [NEI’s] counsel for work incurred in obtaining that result.” (Reply 8:14–
26
17.)
27
The Court agrees with Hanson that NEI does not establish there were
28
“insufficient financial incentives to justify the litigation in economic terms.” See
– 18 –
12cv1685
1
Millview, 4 Cal. App. 5th at 768. At the threshold, the Court declines to adopt NEI’s
2
approach of focusing on the “actual result” in this case. That approach is not justified
3
here because it does not adequately consider the “financial incentives to participate in
4
litigation—that is, the potential financial benefits, broadly defined—regardless of the
5
actual recovery, if any, from the litigation.” Id. at 772; accord Davis, 245 Cal. App.
6
4th at 1330 (focusing on the estimated value of the case when litigation decisions
7
were made); Children & Families Comm’n of Fresno Cty. v. Brown, 228 Cal. App.
8
4th 45, 62 (2014) (noting the court is concerned with evaluating “incentives rather
9
than outcomes” under the financial burden requirement). Moreover, the California
10
Court of Appeal has cautioned that the distinction between the estimated value of the
11
case—as opposed to the “actual result”—is significant “when there is substantial
12
disparity between actual recovery and the amount the plaintiffs ‘hoped’ to recover.”
13
Satrap, 42 Cal. App. 4th at 79 (quoting Beasley v. Wells Fargo Bank, 235 Cal. App.
14
3d 1407 (1991)).
15
This action is such a case. There is a substantial disparity between NEI’s actual
16
recovery—zero—and the amount NEI and its counsel hoped to recover. NEI does not
17
provide an estimated value of this case “at the time the vital litigation decisions were
18
being made,” see Millview, 4 Cal. App. 5th at 769, but the Court is confident that it
19
was high enough to incentivize NEI to bring this case without an award of fees under
20
section 1021.5.
21
As mentioned, NEI brought this case under the Class Action Fairness Act,
22
alleging the amount in controversy exceeded $5 million. The company retained two
23
experienced class counsel—who assert their time is worth $720 and $500 an hour
24
respectively—to pursue class relief. Had NEI succeeded in its primary objective, it
25
would have been able to disperse the higher cost to litigate a class action across the
26
class through the common fund doctrine. Thus, the estimated value of the case at the
27
time key decisions were made—such as when NEI decided to file this action or chose
28
to change its theory of relief in its Second Amended Complaint—included not only
– 19 –
12cv1685
1
NEI’s estimated recovery, but also that of the putative class members. See, e.g., In re
2
Taco Bell Wage & Hour Actions, --- F. Supp. 3d ---, 2016 WL 8711436, at *4 (E.D.
3
Cal. July 15, 2016) (“[T]he case law directs the Court to consider the value of the
4
litigation, not the value of the individual claims in a class action.”); see also Beasley,
5
235 Cal. App. 3d at 1414 (agreeing with the defendant that in the class action context
6
the court should not limit its inquiry “to each plaintiff’s individual stake”),
7
disapproved of on other grounds by Olson v. Auto. Club of S. Cal., 42 Cal. 4th 1142,
8
1151 (2008).
9
That said, the Court recognizes that NEI and its counsel may have hoped—but
10
did not expect—to recover the maximum amount of statutory damages in this case.
11
Given that few consumer class actions proceed to trial, a more realistic benchmark for
12
a successful case is the amount parties were settling similar class action claims for at
13
or around the time key litigation decisions were being. The following examples may
14
not fit perfectly with this case’s timeline, including the period for which NEI is
15
seeking to recover fees, but they provide a better indication of what the expected value
16
of this case was than NEI’s claim that the only financial incentives were a small pro
17
rata recovery and a class representative incentive award.
18
One example is from early 2014, where Judge Miller approved a CIPA
19
settlement of $11.7 million for 99,884 potential class members. Reed v. 1-800
20
Contacts, Inc., No. 12-cv-02359 JM BGS, 2014 WL 29011, at *1 (S.D. Cal. Jan. 2,
21
2014). This case had 12,551 putative class members. 4 Although an imperfect
22
comparison, the $117.14 per class member settlement in Reed suggests this case may
23
24
25
26
27
28
4
Because NEI provides the Court with no information on its expected value of the case, it
is unclear when NEI discovered the exact number of potential class members. Approximately a
month after it learned Hanson had changed its conduct, NEI brought its class certification motion,
which stated Hanson had recorded 210,688 calls made by 12,551 unique cell phone numbers. (ECF
No. 74-1.) Presumably, NEI discovered this information some time in advance of filing its motion
for class certification. In addition, even in its pleadings, NEI alleged there were “thousands, if not
more” of CIPA violations, suggesting it always believed the class was significant. (First. Am.
Compl. ¶ 19; Second Am. Compl. ¶ 19.)
– 20 –
12cv1685
1
have had an expected value of around $1.47 million. Another data point is this Court’s
2
own approval in 2014 of a $6 million CIPA settlement that equated to $197.49 for
3
each class member. See McDonald v. Bass Pro Outdoor World, LLC, No. 13-cv-889-
4
BAS-DHB, 2014 WL 3867522, at *7 (S.D. Cal. Aug. 5, 2014). This outcome would
5
suggest the present case had an expected value of $2.48 million. A third reference
6
point is Mirkarimi v. Nev. Prop. 1, LLC, No. 12-cv-2160 BTM DHB, 2015 WL
7
5022327, at *4 (S.D. Cal. Aug. 24, 2015), where Judge Moskowitz preliminarily
8
approved a CIPA settlement of $14.5 million for 150,000 potential class members—
9
indicating NEI and its counsel could have expected to recover $1.2 million in this
10
case.
11
Of course, in the end, NEI recovered zero damages. And with NEI providing
12
no evidence of its expected value of the case at the time key litigation decisions were
13
made, it is challenging to make this assessment. But the Court still concludes the
14
prospect of a sizable class action recovery provided sufficient financial incentives to
15
justify this litigation in economic terms. Nothing over the course of this case has
16
indicated otherwise. Therefore, although the case did not pan out as NEI and its
17
counsel hoped, a fee award fee under section 1021.5 is not appropriate. See Satrap,
18
42 Cal. App. 4th at 79–80 (providing fees under section 1021.5 “are not intended to
19
provide insurance for litigants and counsel who misjudge the value of their case, and
20
vigorously pursue the litigation in the expectation of recovering substantial damages,
21
and then” fail to recover an amount that is “commensurate with their expenditure of
22
time and resources”).
23
Thus, because NEI does not demonstrate there were insufficient financial
24
incentives to pursue this case at the time vital litigation decisions were being made,
25
the Court concludes the financial burden of private enforcement does not make a fee
26
award under section 1021.5 warranted. Further, because NEI does not satisfy this
27
requirement—or the two catalyst theory requirements discussed above—the Court
28
– 21 –
12cv1685
1
declines to address the remaining requirements of section 1021.5 and the catalyst
2
theory.
3
4
III.
CONCLUSION
5
In light of the foregoing, NEI has not met its burden of demonstrating a fee
6
award under California’s Private Attorney General Statute, Cal. Civ. Proc. Code §
7
1021.5, and the state’s catalyst theory is appropriate. The company did not obtain the
8
primary relief it was seeking. NEI also failed to engage in a reasonable settlement
9
attempt before filing this case, and it does not demonstrate an effort would have been
10
futile. Finally, NEI has not shown there were insufficient financial incentives to
11
justify this litigation in economic terms. The Court consequently DENIES NEI’s
12
motion for attorneys’ fees and costs (ECF No. 182).
13
IT IS SO ORDERED.
14
15
DATED: May 31, 2017
16
17
18
19
20
21
22
23
24
25
26
27
28
– 22 –
12cv1685
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?