First District Rules that Trial Court Erred by Striking Class Settlement Provision Requiring Amount of Fee Award Be Decided by Private Arbitrator: Cellphone Termination Fee Cases

On December 31, 2009, the First District issued an interesting opinion relating to whether a trial court may properly strike a class settlement provision providing that the amount of class counsel’s fee award would be resolved by private arbitration. The opinion, styled Cellphone Termination Fee Cases, __ Cal. App. 4th __ (2009), considered whether the trial court abused its discretion in refusing to approve the fee arbitration provision, where the court had already determined that the range of possible fee awards was reasonable and that there was no evidence of collusion by the parties to the settlement. The Court of Appeal concluded it did, as the trial court’s justification that the provision would impair objector participation bore no rational relationship to the court’s duties in evaluating the fairness of the settlement on behalf of the class. As reasoned by the Court, objector participation is limited to issues relating to collusion and the reasonableness of the overall fee award – both features which were not impaired by submitting the amount of the ultimate fee award to arbitration:

Objectors may participate in settlement approval proceedings relating to fees to assist in determining whether there is any indication of collusion and the reasonableness of the overall fee award. (Id. at pp. 1800-1801; accord, Microsoft, supra, 135 Cal.App.4th at p. 723.) Where, as here, the objectors have had an opportunity to present their views on those matters, in light of documentation adequate to support a reasonableness determination, and the trial court has determined there was no collusion and the fee range is reasonable, the court has satisfied the purposes of its review of the agreement on fees. (See Dunk, at p. 1801 [the court’s inquiry “‘must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of’ ” collusion and that the settlement is reasonable].) Here, the trial court’s refusal to approve the fee arbitration provision was not tethered to that purpose; that is, the trial court’s requirement of objector participation in the arbitration lacked any nexus to the goal of protecting unnamed class members, whose interests would not have been affected by the fee arbitration. Ultimately, the court misapprehended its role in the class action settlement process and failed to give “[d]ue regard . . . to what is otherwise a private consensual agreement between the parties.” (Ibid.; see also Evans v. Jeff D. (1986) 475 U.S. 717, 726-727.)

 See Slip Opinion, at 14-15.

Central to the Court’s opinion was the degree of deference that was to be given to the parties’ election to submit the amount of class counsel’s fee award to private arbitration – deference supported not only by the right of contract, but the strong public policy favoring the settlement of complex class actions. See id., at 15. At any rate, the Court’s finding of error was for not, as the appealing party (i.e. defendant Sprint) failed to demonstrate any actual prejudice.