The opinion of the court was delivered by: Lifland, District Judge
This matter is before the Court on Plaintiffs' motion for attorneys' fees under California Code of Civil Procedure § 1021.5. The question presented is whether Plaintiffs' class-action lawsuit was a material factor motivating Defendant DaimlerChrysler Corporation's ("Chrysler") voluntary decision to recall vehicles installed with defective anti-lock braking systems ("ABS"). For the reasons set forth below, the Court concludes that Plaintiffs' suit was a catalyst for Chrysler's remedial action, and thus, Plaintiffs are entitled to attorneys' fees under section 1021.5.
I. Factual and Procedural Background
On October 27, 1995, Plaintiffs filed a class-action complaint claiming that Chrysler manufactured and sold vehicles from 1990 to 1993 equipped with the allegedly defective Bendix 10 ABS. (Compl. ¶ 2.) The Complaint asserted a claim under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, and common law claims for fraud and deceit, and breach of express and implied warranties.
At the time Plaintiffs filed suit, the Bendix 10 was the subject of a National Highway Traffic Safety Administration ("NHTSA") investigation, commenced in March 1994, under its authority pursuant to the National Traffic and Motor Vehicle Safety Act ("Safety Act"), 49 U.S.C. § 30101, et seq.*fn1 Prompted by consumer complaints about vehicles with the Bendix 10 ABS, the two-year NHTSA investigation sought to determine whether the Bendix 10 had a safety-related defect requiring a recall. On April 15, 1996, Chrysler voluntarily recalled its vehicles installed with the Bendix 10 ABS, ending NHTSA's investigation.
On March 3, 1996, approximately one month prior to Chrysler's Bendix 10 recall announcement, Plaintiffs amended their Complaint to extend their defect allegations to Chrysler vehicles equipped with the Bendix 9 ABS, which Plaintiffs claimed was "largely interchangeable [with the Bendix 10] and suffer[ed] from virtually identical defects." (Amended Class Action Compl. ("Amend. Compl.") ¶ 1.) Three months later in June 1996, Chrysler executives met in the first in a series of meetings that summer, to discuss, and later initiate, extending the terms of the Bendix 10 recall to vehicles with the Bendix 9 ABS. On September 6, 1996, NHTSA first informed the automaker that it would begin to investigate consumer complaints regarding the Bendix 9. About three weeks later, Chrysler officials voted to approve the Bendix 9 recall, and soon thereafter notified NHTSA, ending its Bendix 9 investigation.
The Court denied a Chrysler motion to dismiss Plaintiffs' Complaint in its entirety on March 7, 1997. Chin v. Chrysler, No. 95-5569, slip op. at 1 (D.N.J. Mar. 7, 1997). A month later, in April 1997, Chrysler formally announced the Bendix 9 ABS recall to the public, and notified its dealers and consumers.
For nearly all intents and purposes, Plaintiffs' class-action came to an end on September 11, 1998, when the Court denied Plaintiffs' motion for class certification. See Chin v. Chrysler Corp., 182 F.R.D. 448, 451, 465 (D.N.J. Sept. 11, 1998). The Court found, in part, that Plaintiffs failed to demonstrate that "'questions of law . . . common to the members of the class predominate over any questions affecting only individual members . . . .'" Id. at 451, 465 (quoting Rule 23(b)(3)). Looking to New Jersey's choice-of-law rules, the Court found that it would be necessary to apply the law of each Plaintiff's home state to determine whether Chrysler was liable. Id. at 457. Because hundreds of thousands of potential class-members existed, hailing from every state in the Union, the District of Columbia, and Puerto Rico, it would be necessary to apply 52 sets of laws if a nationwide class were certified. Id. at 451, 457. In light of the substantive variations existing from state to state in Plaintiffs' common law causes of action, the Court found that a "predominance of common legal issues as required by Rule 23(b)(3)" did not exist. Id. at 461.
Despite this setback, and despite that Chrysler's recalls were voluntary, Plaintiffs moved on January 29, 1999 under the fee-shifting provisions of the Magnuson-Moss Act, 15 U.S.C. § 2310(d)(2), for a ruling that they were entitled to attorneys' fees as the party that "finally prevail[ed]" in the action.*fn2 Using the so-called "catalyst theory," Plaintiffs claimed they "finally prevail[ed]" because their suit was the catalyst behind Chrysler's decision to order the recalls, and thus, their suit achieved the relief they sought despite not receiving a formal judgment in their favor. On December 14, 1999, the Court held that the catalyst theory could be used under the Magnuson-Moss Act's fee shifting provision, and granted Plaintiffs' motion to conduct discovery into whether, and to what extent, their suit caused Chrysler to recall vehicles with the Bendix 9 and 10 ABS. Chin v. Chrysler, No. 95-5569, slip op. at 17, 20 (D.N.J. Dec. 14, 1999).
However, three months after Plaintiffs completed discovery, on May 29, 2001, the Supreme Court of the United States decided in Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep't of Health and Human Res., 532 U.S. 598, 610 (2001), that "the 'catalyst theory' is not a permissible basis for the award of attorney's fees under the [Fair Housing Amendments Act of 1988] and the [Americans With Disabilities Act of 1990]." In light of Buckhannon, Chrysler filed a motion for reconsideration of the Court's December 14, 1999 order. Plaintiffs counterargued that Buckhannon was inapposite. Alternatively, they cross-moved for attorneys' fees under the fee-shifting provision of California Code of Civil Procedure § 1021.5, for their assertion of state law causes of action on behalf of the 25 named Plaintiffs who are citizens of California.
The Court granted Chrysler's motion for reconsideration on August 14, 2003, holding that Buckhannon precluded using the catalyst theory under the Magnuson-Moss Act. Chin v. DaimlerChrysler Corp., No. 95-5569, slip op. at 8 (D.N.J. Aug. 14, 2003). As for Plaintiffs' cross-motion, the Court found that while California courts permit parties to use the catalyst theory to meet section 1021.5's "successful party" requirement, it was unclear whether they would continue to do so after Buckhannon. Id. at 15-16. Noting that the identical question of law had recently been certified to the Supreme Court of California by the Ninth Circuit, id. at 18 (citing Tipton-Whittingham v. City of Los Angeles, 316 F.3d 1058, 1060 (9th Cir. 2003)), the Court deferred judgment on the question, pending the California Supreme Court's resolution of the issue, id. at 19.
On December 2, 2004, in the companion cases of Tipton-Whittingham v. City of Los Angeles, 34 Cal. 4th 604, 608 (2004), and Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 560-61 (2004), the California Supreme Court ruled that attorney's fees are recoverable using a catalyst theory under section 1021.5, and, in Graham, mapped out a three-part test for determining whether a party qualifies.
Plaintiffs now argue that they satisfy Graham's three-part test and therefore should be awarded attorneys' fees under section 1021.5. Defendants contend that Plaintiffs' suit was not a material cause-in-fact of their decisions to recall the Bendix 9 and 10 ABS. Oral argument was heard on September 25, 2006.
II. Subject-Matter Jurisdiction and Choice-of-Law
This Court has supplemental jurisdiction, pursuant to 28 U.S.C. § 1367(a), over Plaintiffs' common law fraud and deceit, and breach of express and implied warranty claims.*fn3 See Chin v. DaimlerChrysler Corp., No. 95-5569, slip op. at 1-6 (D.N.J. Dec. 5, 2005). It is axiomatic that "[a] federal district court sitting in diversity or exercising supplemental jurisdiction over state law causes of action must apply the applicable substantive law of the State as interpreted by the State's highest court." Doe v. Div. of Youth & Family Servs., 148 F. Supp. 2d 462, 493 n.6 (D.N.J. 2001) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)). As the Court ruled on September 11, 1998, New Jersey choice-of-law rules dictate that it is necessary to apply the substantive law of each Plaintiff's home state. Chin, 182 F.R.D. at 457. Twenty-five Plaintiffs are citizens of the state of California. (Third Compl. ¶¶ 13-136.) Under Erie, section 1021.5 is a "substantive" state rule of law, and accordingly, this Court will apply that statute here in determining whether the 25 California Plaintiffs are entitled to attorneys' fees. Chin v. DaimlerChrysler Corp., No. 95-5569, slip op. at 9-11 (D.N.J. Aug. 14, 2003).*fn4
A. California Code of Civil Procedure § 1021.5 and the Catalyst Theory
California Code of Civil Procedure § 1021.5 permits the award of attorneys' fees to a "successful party" in certain actions that "result in the enforcement of an important right affecting the public interest . . . ."*fn5 The California legislature enacted section 1021.5 as an exception to the so-called "American Rule" that litigants bear the cost of their own attorneys' fees. Graham, 34 Cal. 4th at 565. The fee-shifting provision codified the common law "private attorney general" doctrine of attorney fees developed in prior judicial decisions, which sought "to encourage suits enforcing important public policies by providing substantial attorney fees to successful litigants in such cases." Maria P. v. Riles, 743 P.2d 932, 935 (Cal. 1987) (citing Woodland Hills Residents Ass'n v. City Council of Los Angeles, 593 P.2d 200, 208 (Cal. 1979)).
The issue before this Court is whether Plaintiffs are a "successful party."*fn6 It is clear that a "party" is "successful" when it achieves a favorable final judgment from a court. See, e.g., Woodland Hills, 593 P.2d at 204-05 (remanding for application of section 1021.5 to plaintiffs' motion for fees after winning a court order against city). Even if a plaintiff's suit did not achieve a favorable final judgment, California courts have held that a party is "successful," nevertheless, if his suit "was a catalyst motivating defendants to provide the primary relief sought," thus, vindicating an important right "by activating defendants to modify their behavior." Westside Cmty for Indep. Living, Inc. v. Obledo, 657 P.2d 365, 367 (Cal. 1983) (internal quotations omitted). The California Supreme Court explained that, in fashioning section 1021.5, the state legislature looked to state and federal decisions applying the private attorney general doctrine, and in those precedents, the courts commonly applied the catalyst theory. Westside, 657 P.2d at 367 (citing Northington v. Davis, 593 P.2d 221, 224 n.2 (Cal. 1979); Fletcher v. A.J. Industries, Inc., 72 Cal. Rptr. 146 (Cal. Ct. App. 1968); Sullivan v. Com. of Pa. Dept. of Labor, 663 F.2d 443, 447-50 (3d Cir. 1981); Robinson v. Kimbrough, 652 F.2d 458, 465-66 (5th Cir. 1981); American Constitutional Party v. Munro, 650 F.2d 184, 187-88 (9th Cir. 1981)). When reaffirming the catalyst theory's applicability to section 1021.5 after Buckhannon, the California Supreme Court explained that
[t]he term 'successful party,' as ordinarily understood, means the party to litigation that achieves its objectives. . . . [W]here the ultimate goal is not an arbiter's approval, but a favorable alteration of actual circumstances, a formal declaration is not essential. . . . On this common understanding, if a party reaches the sought-after destination, then the party prevails regardless of the route taken.
Graham, 34 Cal. 4th at 571.
The Graham Court, however, did make two additions to California's catalyst theory's requirements. Previously, a party moving for fees was only required to demonstrate "a causal connection between the lawsuit and the relief obtained." Westside, 657 P.2d at 367. Seeking to prevent the catalyst theory from "rewarding a significant number of extortionate lawsuits," the Graham Court added that the "trial court must [also] determine that the lawsuit is not frivolous, unreasonable or groundless," and that the plaintiff "reasonably attempt[ed] to settle the matter short of litigation." Graham, 34 Cal. 4th at 575, 577. Chrysler does not contest that Plaintiffs have met these new requirements. It only argues that there is no causal connection between the suit and their recalls.
The California Supreme Court has described the required strength of the requisite "causal connection" in varying ways. It has said that the plaintiff's suit must have been a "factor" that was "substantial," Graham, 34 Cal. 4th at 577, "material," that "contributed in a significant way to the result achieved," Westside, 33 Cal. 3d at 353 (internal quotations omitted), or that "induced" the corrective action, Northington, 593 P.2d at 224 n.2. Despite these differing descriptions, a few boundaries can be discerned from the case law.
On the one hand, the lawsuit cannot have been "completely superfluous in achieving the improvements undertaken by defendants on plaintiff's behalf." See Westside, 657 P.2d at 368 (quoting Nadeau v. Helgemoe, 581 F.2d 275, 281 (1st Cir. 1978)). On the other hand, it is apparent that the plaintiff's lawsuit need not have been the only factor motivating the defendant's corrective action to qualify. While the adjectives used by the California Supreme Court to describe the causation standard have not always been consistent, that language has consistently indicated that a catalyst suit may be one of a number of factors influencing the defendant's decision-making process. See Graham, 34 Cal. 4th at 577 ("[T]he lawsuit was in fact a substantial causal factor in [defendant's] change in policy . . . ." (emphasis added)); Westside, 657 P.2d at 367 ("[T]here must be a causal connection between the lawsuit and the relief obtained." (emphasis added)); id. at 368 ("The federal decisions have required that a plaintiff's action be a 'material' factor or have 'contributed in a significant way' to the result achieved." (emphases added)). Moreover, the Westside Court's citation, with approval, of the Third Circuit Court of Appeals' decision in Sullivan v. Pennsylvania, see 657 P.2d at 368, further evidences that the suit need not be the lone factor.*fn7 In Sullivan, the Third Circuit, while applying the catalyst theory to the fee-shifting provisions of Title VII, 42 U.S.C. § 2000e-5(k), explained that under the "expansive view" of the causation requirement adopted by itself and other Courts of Appeals,
the [plaintiff's] action need not be the sole cause. Where there is more than one cause, the plaintiff is a prevailing party if the action was a material factor in bringing about the defendant's action. . . . To require some stricter standard of causation would mean that the defendant could hide his true motivation behind what seems a plausible alternate justification.
663 F.2d at 448 (quoting Morrison v. Ayoob, 627 F.2d 669, 671 (3d Cir. 1980) (per curiam)).
Thus, in order to be entitled to attorneys' fees under section 1021.5 utilizing the catalyst theory, Plaintiffs' suit cannot have been completely superfluous to Chrysler's remedial action; the suit must have been at least a material factor in Chrysler's decision-making.
The "appropriate benchmarks" for making this determination are "(a) the situation immediately prior to the commencement of suit, and (b) the situation today, and the role, if any played by the litigation in effecting any changes between the two." Maria P., 743 P.2d at 937. Two Chrysler recall actions ...