Graham v. Daimlerchrysler Corp. (34 Cal. 4th 553, 2004)

Opinion

MORENO, J.

In this case defendant offered to repurchase a truck that had been marketed with false statements about its towing capacity. This offer came after a lawsuit plaintiffs filed against defendant seeking this repurchase remedy, but before any kind of court judgment was rendered. Plaintiffs were awarded substantial attorney fees under Code of Civil Procedure section 1021.5. Defendant raises several issues regarding those fees. The first is whether we should reconsider the catalyst theory, recognized by this court in Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal.3d 348 [188 Cal.Rptr. 873, 657 P.2d 365] (Westside Community). Under the catalyst theory, attorney fees may be awarded even when litigation does not result in a judicial resolution if the defendant changes its behavior substantially because of, and in the manner sought by, the litigation. We conclude the catalyst theory should not be abolished but clarified. In order to be eligible for attorney fees under section 1021.5, a plaintiff must not only be a catalyst to defendant’s changed behavior, but the lawsuit must have some merit, as discussed below, and the plaintiff must have engaged in a reasonable attempt to settle its dispute with the defendant prior to litigation. Because these limitations on the catalyst theory are to some degree new and were not addressed by the parties or the trial court, we remand for reconsideration of the trial court’s award of attorney fees in this case.

Defendant also contends the trial court erred in concluding that the present lawsuit substantially benefited a large group of people or the general public, as required by section 1021.5. We conclude the trial court did not abuse its discretion in making that conclusion. Finally, defendant, while conceding that a plaintiff could be awarded attorney fees for attorney fee litigation, contends that these fees should not be enhanced beyond the “lodestar” amount. We do not endorse such a categorical rule, but we explain below that fees for fee litigation usually should be enhanced at a significantly lower rate than fees for the underlying litigation, if they are enhanced at all. We therefore will remand the cause to the trial court to recalculate the amount of the fee in light of the principles discussed below, assuming it finds on remand that plaintiffs are eligible for some attorney fees.

I. Statement of Facts

The facts, taken largely from the Court of Appeal’s opinion, are as follows:

DaimlerChrysler incorrectly marketed its 1998 and 1999 Dakota R/T trucks as having a 6,400-pound towing capacity when they could actually tow only 2,000 pounds. The error occurred because the Dakota R/T was a sporty version of an existing truck model, which could tow 6,400 pounds. However, to obtain a sporty design, DaimlerChrysler lowered the suspension on the Dakota R/T, thus reducing its towing capacity.

The reduced towing capacity was a potential risk factor. The lowered suspension meant that towing more than 2,000 pounds would cause the suspension to bottom out, stressing the frame and increasing fatigue and wear. The DaimlerChrysler response team considered this a potential safety issue.

Buyers who wanted to tow more than 2,000 pounds were told they could do so only if their Dakota R/T was modified with a trailer hitch costing $300. The factory installed some of these hitches, while other buyers who wanted to tow had dealer-installed or after-market hitches attached.

Nationwide, DaimlerChrysler sold or leased fewer than 7,000 of the Dakota R/T’s in the two relevant years. Fewer than 1,000 affected R/T’s were sold in California during the two years.

By February 1999, DaimlerChrysler set up a response team to address the problem. By June 1999, DaimlerChrysler had taken steps to replace the incorrect marketing materials, owners manuals, and engine and door labels for not-yet-sold Dakota R/T’s, although public agency investigation revealed that brochures misrepresenting the trucks’ towing capacity were still being distributed as of August 1999. DaimlerChrysler also had notified existing buyers of the error, told them not to attempt to tow more than 2,000 pounds, and provided them with the same modified materials. Simultaneously, DaimlerChrysler began to address remedial measures for customers who had bought or leased their Dakota R/T’s under the incorrect marketing program.

Many Dakota R/T buyers never intended to tow more than 2,000 pounds. When informed by DaimlerChrysler of the error, most of those customers were satisfied with DaimlerChrysler’s offers of cash and merchandise.

Initially, DaimlerChrysler offered $300 refunds to buyers who had purchased hitches of that amount. By the summer, DaimlerChrysler authorized dealers to repurchase or replace Dakota R/T’s on a case-by-case basis, but only for customers who demanded such a remedy.

On July 29, 1999, the Santa Cruz County District Attorney contacted DaimlerChrysler about the problem, threatened legal action, and requested DaimlerChrysler’s input before acting. On August 10, 1999, the California Attorney General notified DaimlerChrysler it had joined the Santa Cruz County District Attorney. The public agencies requested a response by the end of August 1999.

Plaintiffs filed their case on August 23, 1999, in Los Angeles County Superior Court. Plaintiffs alleged they all bought 1999 Dakota R/T’s from various DaimlerChrysler dealers. Only Graham lived and bought his truck in California. Plaintiffs alleged DaimlerChrysler marketed, sold, and warranted their 1998 and 1999 Dakota R/T’s as capable of towing 6,400 pounds when the trucks actually could tow only 2,000 pounds. Plaintiffs alleged DaimlerChrysler acknowledged the error by letter to all purchasers dated June 16, 1999. Plaintiffs alleged they notified DaimlerChrysler of their (1) trucks’ failure to comply with the warranted towing capacity, and (2) revocation of their acceptance of their trucks on July 19, 1999. Plaintiffs sought (but never obtained) class certification for all those who bought Dakota R/T’s nationwide. Plaintiffs alleged a single breach of express warranty cause of action. Plaintiffs sought return of their purchase or lease payments, compensatory damages, and attorney fees. Also on August 23, 1999, the Detroit News contacted DaimlerChrysler’s legal counsel about plaintiffs’ case. DaimlerChrysler’s counsel claimed DaimlerChrysler had responded appropriately to the marketing error, including offering buybacks to customers who requested it. Plaintiffs faxed their complaint to DaimlerChrysler the same day. The next day, August 24, 1999, DaimlerChrysler’s employee newsletter ran an article on plaintiffs’ case.

DaimlerChrysler’s response team met throughout August 1999. The team knew about both public agency inquiries and the response deadline. Indeed, DaimlerChrysler wrote the public agencies that its internal approval process prohibited a response by August 31, but promised a response by September 8, 1999. On September 10, 1999, DaimlerChrysler issued its offer to all previous Dakota R/T buyers of repurchase or replacement. In response to later inquiries, response team members conceded they were aware of the class action lawsuit filed in California before DaimlerChrysler’s September 10, 1999, letter offering repurchase or replacement to all Dakota R/T buyers.

DaimlerChrysler demurred to the complaint. Plaintiffs filed an amended complaint, acknowledging DaimlerChrysler’s offer of, among other remedies, repurchase or replacement of the trucks for all previous buyers. The trial court sustained the demurrer without leave to amend and dismissed the case, finding it was moot because DaimlerChrysler already had offered all purchasers the relief plaintiffs sought. Meanwhile, the public agencies continued to pursue legal action against DaimlerChrysler, pointing to the fact that the erroneous marketing of the Dakota R/T continued as late as September 1999. In late 2000, DaimlerChrysler settled the public agency investigations by paying a $75,000 fine and agreeing to ensure that the marketing error did not reoccur. Nationwide, 2,549 Dakota R/T buyers opted for repurchase or replacement. Another 3,101 buyers opted for service contracts and parts coupons. The total value of these offers exceeded $15 million. Fewer than 1,000 of the R/T buyers were Californians.

Although plaintiffs’ case was dismissed, the parties continued to litigate plaintiffs’ entitlement to attorney fees. DaimlerChrysler insisted throughout that plaintiffs were not entitled to attorney fees, contending plaintiffs had no effect on DaimlerChrysler’s recognition of the problem and decision to offer all buyers repurchase or replacement. For over a year, there were hotly contested discovery and other motions to clarify the facts described above. The court held a lengthy evidentiary hearing on October 18, 2000. DaimlerChrysler contended that the Dakota R/T response team was not even aware of the litigation until after September 10, 1999, when its repurchase offer was made, a position that the trial court found to lack credibility.

The trial court filed its final order awarding attorney fees on July 6, 2001. The court concluded after its review of the declarations and documentary evidence presented that DaimlerChrysler’s “position that the lawsuit was not a catalyst was largely a transparent fabrication . . . .” It rejected DaimlerChrysler’s argument that plaintiffs’ action was unnecessary because of the enforcement action of the Santa Cruz County District Attorney and the California Attorney General. The trial court found that these agencies “had only made an inquiry and had not commenced any proceeding when plaintiffs filed this action. Further [those agencies] were only concerned with DaimlerChrysler’s false advertising materials and never sought any remedies on behalf of the consumers who acquired these vehicles while they were being misrepresented.”

In addition to finding that plaintiffs were the successful party, the trial court found the other requirements of section 1021.5 had been met. It found that the lawsuit “resulted in the enforcement of an important right affecting the public interest, ... the protection and enforcement of consumer rights, including highway safety,” and that “as a result of the lawsuit, thousands of consumers received pecuniary benefits and enhanced safety. Thousands more are likely to benefit from it if DaimlerChrysler and/or other manufacturers are deterred from similar conduct in the future.”

The court also concluded that “DaimlerChrysler should pay plaintiffs attorneys fees in the interest of justice. Plaintiffs’ attorney fees will otherwise go unpaid. Fees cannot be paid out of the benefits conferred upon the consumers because DaimlerChrysler . . . distributed the benefits of [its] offer to the consumers without any discussion with plaintiffs or their attorneys. Justice is served by encouraging lawyers to bring meritorious consumer cases, of which this action is an example.”

The trial court found the lodestar fee amount was $329,620 through the October 18, 2000, hearing, with a multiplier of 2.25 for the fees incurred until the October 18, 2000, hearing, including fees for litigating attorney fees, and applied no multiplier for time thereafter. The court awarded no fees for work after April 23, 2001. The total award was $762,830.

The Court of Appeal affirmed. It observed that the United States Supreme Court had recently rejected the catalyst theory as a basis for attorney fee awards under various federal statutes in Buckhannon Board & Care Home, Inc. v. West Virginia Dept. of Health and Human Resources (2001) 532 U.S. 598 [149 L.Ed.2d 855, 121 S.Ct. 1835] (Buckhannon). But the court declined to follow the United States Supreme Court’s lead, noting that the catalyst theory has been long recognized in California. The court also rejected arguments that the litigation was not in the public interest and that it (fid not benefit a substantial number of people. Further, the court concluded that the trial court did not abuse its discretion in awarding fees for seeking fees, and in permitting those fees to be enhanced over the basic lodestar amount. We granted review.

II. Discussion

A. Whether the Catalyst Theory Should Be Abolished

An important exception to the American rule that litigants are to bear their own attorney fees is found in section 1021.5. As we have stated: “The Legislature adopted section 1021.5 as a codification of the private attorney general doctrine of attorney fees developed in prior judicial decisions. [Citation.] Under this section, the court may award attorney fees to a ‘successful party’ in any action that ‘has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any.’ . . . [T]he private attorney general doctrine ‘rests upon the recognition that privately initiated lawsuits are often essential to the effectuation of the fundamental public policies embodied in constitutional or statutory provisions, and that, without some mechanism authorizing the award of attorney fees, private actions to enforce such important public policies will as a practical matter frequently be infeasible.’ Thus, the fundamental objective of the doctrine is to encourage suits enforcing important public policies by providing substantial attorney fees to successful litigants in such cases.” (Maria P. v. Riles (1987) 43 Cal.3d 1281, 1288-1289 [240 Cal.Rptr. 872, 743 P.2d 932] (Maria P.).)

In order to effectuate that policy, we have taken a broad, pragmatic view of what constitutes a “successful party.” “Our prior cases uniformly explain that an attorney fee award may be justified even when plaintiff’s legal action does not result in a favorable final judgment. (Westside Community, [supra,] 33 Cal.3d 348, 352 [188 Cal.Rptr. 873, 657 P.2d 365]; see also Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311 [193 Cal.Rptr. 900, 667 P.2d 704] [although their action had become moot, plaintiffs were awarded fees under § 1021.5 because they had achieved the relief they sought through preliminary injunction].) It is also clear that the procedural device by which a plaintiff seeks to enforce an important right is not determinative of his or her entitlement to attorney fees under section 1021.5. (In re Head (1986) 42 Cal.3d 223, 228-229 [228 Cal.Rptr. 184, 721 P.2d 65].) Similarly, a section 1021.5 award is not necessarily barred merely because the plaintiff won the case on a preliminary issue. (Woodland Hills Residents] Assn., Inc. [v. City Council (1979)] 23 Cal.3d [917,] 938 [154 Cal.Rptr. 503, 593 P.2d 200].) In determining whether a plaintiff is a successful party for purposes of section 1021.5, ‘[t]he critical fact is the impact of the action, not the manner of its resolution.’ (Folsom [v. Butte County Assn, of Governments (1982)] 32 Cal.3d [668], 685 [186 Cal.Rptr. 589, 652 P.2d 437] (Folsom).) [f] The trial court in its discretion ‘must realistically assess the litigation and determine, from a practical perspective, whether or not the action served to vindicate an important right so as to justify an attorney fee award’ under section 1021.5. (Woodland Hills Residents Assn., supra, 23 Cal.3d at p. 938.)” (Maria P, supra, 43 Cal.3d at pp. 1290-1291.)

The catalyst theory is an application of the above stated principle that courts look to the practical impact of the public interest litigation in order to determine whether the party was successful, and therefore potentially eligible for attorney fees. We specifically endorsed that theory in Westside Community, supra, 33 Cal.3d 348. The plaintiffs in that case sued to compel the Secretary of the Health and Welfare Agency to issue regulations implementing Government Code section 11135, which bars state-funded programs from engaging in various forms of discrimination. Shortly thereafter, the defendant issued proposed regulations, thereby mooting the case. The plaintiffs filed for private attorney general fees pursuant to section 1021.5. (Westside Community, supra, 33 Cal.3d at pp. 351-352.) The defendants argued that there was no evidence the plaintiffs were successful parties because the litigation had not reached a “final judgment.” (Id. at p. 352.) We rejected that argument and cited with approval Fletcher v. A.J. Industries, Inc. (1968) 266 Cal.App.2d 313, 325 [72 Cal.Rptr. 146] (Fletcher), in which the Court of Appeal upheld an attorney fee award in a shareholder derivative action under the theory that the plaintiffs were successful in conferring a substantial benefit to the corporation, even though the litigation “was resolved through a settlement. The court held that ‘[i]t was not significant that the “benefits” found were achieved by settlement of plaintiffs’ action rather than by final judgment.’ ” (Westside Community, supra, 33 Cal.3d at p. 352, quoting Fletcher, supra, 266 Cal.App.2d at p. 325.)

We further observed that “[n]umerous federal decisions have reached the same conclusion, holding that attorney fees may be proper whenever an action results in relief for the plaintiff, whether the relief is obtained through a ‘voluntary’ change in the defendant’s conduct, through a settlement, or otherwise. (See, e.g., Sullivan v. Com. of Pa. Dept. of Labor, etc. (3d Cir. 1981) 663 F.2d 443, 447-450; Robinson v. Kimbrough (5th Cir. 1981) 652 F.2d 458, 465-466; American Constitutional Party v. Munro (9th Cir. 1981) 650 F.2d 184, 187-188.) [f] Thus, an award of attorney fees may be appropriate where ‘plaintiffs’ lawsuit was a catalyst motivating defendants to provide the primary relief sought. . . .’ (Robinson, supra, 652 F.2d at p. 465, italics added.) A plaintiff will be considered a ‘successful party’ where an important right is vindicated ‘by activating defendants to modify their behavior.’ ” (Westside Community, supra, 33 Cal.3d at pp. 352-353.)

Robinson v. Kimbrough, supra, 652 F.2d 458 (Robinson), cited with approval in Westside Community, provides a useful example of the catalyst theory’s application. The plaintiffs filed suit in federal district court alleging that Harris County, Georgia, jury commissioners had compiled jury lists, from which grand and petit juries were summoned, with disproportionately low percentages of Blacks and women, resulting in their underrepresentation on the county’s juries. One month after the complaint was filed, the jury commissioners, in a nonadversarial proceeding that did not involve the plaintiffs, requested a county judge to order them to recompile jury lists to obtain a more representative cross-section. The court order was required because the jury commissioners were not authorized to revise jury lists other than biennially, and the regular revision had been recently completed. The court granted the order and the jury lists were revised. The district court then dismissed the plaintiffs’ suit as failing to raise a substantial constitutional question. The plaintiffs appealed and the court of appeals held that, in light of the revised jury lists and certain statutory changes during the pendency of the appeal, the plaintiffs’ challenge was moot. The plaintiffs therefore never received judicial relief. (652 F.2d at pp. 460-462.)

Nonetheless, the court of appeals in subsequent proceedings affirmed that plaintiffs may be entitled to an award of attorney fees pursuant to the Civil Rights Attorney’s Fees Award Act of 1976 (42 U.S.C. § 1988). Rejecting the argument that the plaintiffs were not a “prevailing party,” the court agreed with other federal appellate courts that recovery of attorney fees under the act “is not dependent upon plaintiffs’ ability to secure formal judicial relief by way of injunction or otherwise. Rather, these opinions have focused upon the type of relief obtained from the defendants as a result of the lawsuit. [Citations.] Common to these decisions is the recognition that plaintiffs may recover attorneys’ fees if their lawsuit is a substantial factor or a significant catalyst in motivating the defendants to end their unconstitutional behavior.” (Robinson, supra, 652 F.2d at pp. 465—466.) The court therefore remanded the case for “the purpose of determining whether plaintiffs’ lawsuit was a substantial factor or significant catalyst in bringing about an end to the unconstitutional underrepresentation of blacks and women in the Harris County jury lists.” (Id. at p. 467.)

The Westside Community court, although endorsing the catalyst theory found in Robinson and other federal cases, nonetheless went on to conclude that no attorney fees were owed in that case because there was no demonstrable causal connection between the lawsuit and the government’s action. (Westside Community, supra, 33 Cal.3d at pp. 353-354.)

We continue to conclude that the catalyst theory, in concept, is sound. The principle upon which the theory is based—that we look to the “impact of the action, not its manner of resolution” (Folsom, supra, 32 Cal.3d at p. 685)—is fully consistent with the purpose of section 1021.5: to financially reward attorneys who successfully prosecute cases in the public interest, and thereby “ ‘prevent worthy claimants from being silenced or stifled because of a lack of legal resources.’ ” (Folsom, supra, 32 Cal.3d at p. 683.) We therefore reaffirm our endorsement of the catalyst theory.

DaimlerChrysler argues that we should reevaluate that endorsement in light of the rejection of the catalyst theory by the United States Supreme Court in Buckhannon, supra, 532 U.S. 598. At the outset we state what hardly needs stating: that United States Supreme Court interpretation of federal statutes does not bind us to similarly interpret similar state statutes. Indeed, in the realm of attorney fees for private attorneys general, this court has markedly diverged from United States Supreme Court precedent. In Serrano v. Priest (1977) 20 Cal.3d 25 [141 Cal.Rptr. 315, 569 P.2d 1303] (Serrano III), an opinion that predated the effective date of section 1021.5 (see Serrano v. Unruh (1982) 32 Cal.3d 621, 624, fn. 1 [186 Cal.Rptr. 754, 652 P.2d 985] (Serrano IV)), this court rejected the holding of Alyeska Pipeline Co. v. Wilderness Society (1975) 421 U.S. 240 [44 L.Ed.2d 141, 95 S.Ct. 1612] that attorney fees cannot be awarded on a private attorney general theory absent express statutory authorization. (Serrano III, supra, 20 Cal.3d at pp. 46-47.) More recently, we unanimously declined to follow the United States Supreme Court’s rejection of the use of a contingency fee multiplier in calculating private attorney general fees. (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1137-1139 [104 Cal.Rptr.2d 377, 17 P.3d 735] (Ketchum).) We reaffirmed that the “ ‘fashioning of equitable exceptions’ to the California rule that parties must bear their own costs ‘is a matter within the sole competence of this court.’ ” (Id. at p. 1137.) As explained below, we do not find the reasoning of the five-to-four majority in Buckhannon persuasive, and decline to apply its holding to section 1021.5.

In Buckhannon, the plaintiffs sued alleging that certain state law requirements imposed on their assisted living facility violated the Fair Housing Amendments Act of 1988 (42 U.S.C. § 3601 et seq.) and the Americans with Disabilities Act of 1990 (42 U.S.C. § 12101 et seq.). After the state legislature changed the requirements in a way that vindicated the plaintiffs’ position, the plaintiffs sought attorney fees under the relevant statutes, both of which permit attorney fees for the “prevailing party.” (See 42 U.S.C. § 3613(c)(2) [“[T]he court, in its discretion, may allow the prevailing party ... a reasonable attorney’s fee and costs”] and 42 U.S.C. § 12205 [“[T]he court. . . , in its discretion, may allow the prevailing party ... a reasonable attorney’s fee, including litigation expenses, and costs”].)

A good deal of the Buckhannon court’s reason for rejecting the catalyst theory turns on the definition of “prevailing party.” The Buckhannon majority found the term “prevailing party” to be “a legal term of art,” defined according to Black’s Law Dictionary (7th ed. 1999) at page 1145 as “ ‘[a] party in whose favor a judgment is rendered, regardless of the amount of damages awarded