July 21, 2008
MARY MACHULSKY, INDIVIDUALLY AND ON BEHALF OF THOSE SIMILARLY SITUATED, PLAINTIFFS,
LILLISTON FORD, INC. AND LILLISTON ENTERPRISES, INC., D/B/A LILLISTON CHRYSLER DODGE JEEP AND/OR LILLISTON CHRYSLER PLYMOUTH/DODGE TRUCK AND/OR LILLISTON CHRYSLER PLYMOUTH/ DODGE TRUCK JEEP AND/OR LILLISTON CHRYSLER PLYMOUTH/ DODGE TRUCK JEEP, INC. AND LILLISTON NISSAN, INC., DEFENDANTS-RESPONDENTS, AND GARY WEBB, INTERVENOR-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-0437-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: November 28, 2007
Before Judges Cuff, Lisa and Lihotz.
The primary issue in this case is whether a party granted intervenor status in a class action is eligible for an incentive award. Assuming an intervenor is eligible for such an award, the subsidiary issue is whether the intervenor in this case should have received an incentive award. We also address the fee awarded to counsel for the intervenor. We hold that an intervenor may receive an incentive award if the effort of the intervenor demonstrably enhances the benefits received by the class. We reverse and remand for consideration of the intervenor's application for an incentive award, as well as an explanation of the amount awarded to intervenor counsel.
Plaintiff Mary Machulsky purchased a 2001 Dodge Durango from defendant Lilliston Chrysler Plymouth/Dodge Truck Jeep, Inc. (Lilliston). In her complaint alleging violation of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -166, and common law fraud, Machulsky maintained that Lilliston failed to provide customers with an itemized disclosure of documentary charges (registration and title fees) and overcharged her and other customers for documentary fees. Machulsky brought her complaint on behalf of herself and a class consisting of "all individuals who purchased or leased a motor vehicle from [d]efendants, who were charged Registration and Title Fee[s], who were not given an itemized disclosure of the excess charges such as the Registration and Title Fee[s]. The class . . . also include[s] all individuals who purchased or leased a motor vehicle from Defendants and were charged excessive Documentary Fees." On July 9, 2004, Machulsky's motion for class certification was granted.
Soon thereafter, a proposed settlement was reached between the parties. According to the notice mailed to potential class members, each member would receive a $200 coupon valid for three years to be used toward the future purchase or lease of another vehicle from defendant. The coupon would be transferable to any of the class members' immediate families. Gary Webb filed a motion to intervene and opposition to the proposed settlement. His motion to intervene was granted; Machulsky's motion to approve the settlement and for counsel fees was denied.
Subsequently, another class member sought to intervene, and she and Webb joined to seek to replace Machulsky as class representative; and Webb moved to participate in discovery. The motion to intervene by the other class member was denied, as was the motion to substitute the class representative. Webb was allowed to participate in discovery, and he joined Machulsky's motion for summary judgment against Lilliston. Summary judgment was entered in favor of plaintiffs on the inflated title and registration claim, but Lilliston prevailed on its cross-motion for summary judgment on the inflated documentary fee claim.
Thereafter, Machulsky and Lilliston agreed to a revised settlement. The revised settlement required Lilliston to pay each class member the full amount of any overcharge, to provide each class member with a $200 coupon to be applied to the lease or purchase of a new automobile from defendant, to pay counsel fees, to pay a class representative incentive fee and reimbursement of costs, to pay the costs of administration and notice to the class, and to cease and desist from its failure to disclose and itemize charges. Webb objected to the proposed settlement citing the absence of claim forms. The judge approved the settlement conditioned on the preparation of a claim form by Lilliston and submission by Lilliston of the form to class members.
Machulsky applied for a counsel fee award of $85,000 and costs of $2500. She also sought a $2500 lead plaintiff incentive award. In the settlement, Lilliston agreed to pay fees and costs of $42,500 and an incentive award of $2500 and reserved the right to object to an award in excess of those amounts. Webb applied for a $1000 "objector stipend" and a $30,968.25 counsel fee award. The judge awarded Machulsky a $2500 incentive award and $55,000 counsel fee and costs award. The judge denied Webb's incentive or objector stipend but awarded him $7000 in attorneys' fees, and $1463.25 in costs.
In rejecting Webb's petition for a stipend, the judge stated, "Mr. Webb's status was certainly ultimately uncertain and I don't believe that there's a basis to award any funds for Mr. Webb." He found, however, that counsel for intervenor Webb performed services that benefited and advanced the resolution of the case. He also stated that "the Court believes not only that those -- that particularly those initial efforts and certainly the rejection of the initial settlement, and as far as that's concerned, even the analysis of the second settlement, is the result partly at least of the role of the [intervenor law] firm."
On appeal, Webb argues that successful objectors should receive an incentive award. He also contends that the judge dramatically reduced his request for counsel fees without explanation. Lilliston responds that the intervenor's counsel was not entitled to an award of any fees because it did not represent a member of the class and did not participate in securing the settlement or enhancing the approved settlement.
Lilliston takes no position on the issue of whether the court had the authority to award an incentive fee to an intervenor.
Lilliston's argument, that Webb's attorneys do not qualify for a counsel fee award because Webb is not a member of the class and because intervenor's counsel did not contribute to the enhancement of the settlement, suffers a serious procedural flaw. Lilliston did not file a cross-appeal.
In order to seek relief from any portion of the trial court action, Lilliston was required to file a cross-appeal. R. 2:3-4; In re Liquidation of Integrity Ins. Co., 281 N.J. Super. 364, 374 (App. Div. 1995), aff'd and remanded, 147 N.J. 128 (1996); Semexant v. MIL Ltd., 252 N.J. Super. 318, 322-23 (App. Div. 1991). Lilliston's response is an unequivocal attack on the fee award. These arguments are barred due to its failure to file a cross-appeal.
As noted earlier in this opinion, it is unclear whether the judge denied intervenor's application for an incentive award or stipend due to the disposition of the class claim regarding documentary fees or whether the judge believed he lacked authority to do so. We will assume he believed he had no authority to do so because it would be anomalous to award fees to an unsuccessful party.
Incentive awards to class representatives in class actions are a recognized element of agreements to resolve class actions. See, e.g., In Re Compact Disc Minimum Advertised Price Antitrust Litigation, 292 F. Supp. 2d 184, 189 (D. Me. 2003); Lachance v. Harrington, 965 F. Supp. 630, 652 (E.D. Pa. 1997); In re SmithKline Beckman Corp. Sec. Litig., 751 F. Supp. 525, 535 (E.D. Pa. 1990); Ingram v. Coca-Cola Co., 200 F.R.D. 685, 694 (N.D. Ga. 2001). In Compact Disc, supra, the court approved a proposed settlement that included an incentive award to two named plaintiffs because they "put forth some effort in pursuit of the class." 292 F. Supp. 2d at 189. In Lachance, the court approved an incentive award of $1000 for named plaintiffs.
Courts have identified a number of valid reasons for granting class representative awards:
[t]he plaintiff's role in these cases is to protect the interests of the class and foot the bill for the litigation. However, the public policy favoring private civil litigation as a means to promote certain important social values often fails to provide adequate compensation or incentive for plaintiffs to take on this burden simply on principle. The representative assumes substantial risk, not just of losing the time and costs of litigation, but also of retaliation or collateral notoriety.
In general, class representatives are entitled to reimbursement of expenses if the suit is successful, but not compensation for their services. In addition, the named plaintiff is a party to the litigation and not a witness, and so cannot be compensated for witness fees or travel expenses incurred in giving a deposition during discovery. [Clinton A. Krislov, Scrutiny of the Bounty: Incentive Awards for Plaintiffs in Class Litigation, 78 Ill. B.J. 286 (1990) (internal citations omitted).]
It follows that whether to grant incentive awards is entirely within the trial court's discretion. Montgomery v. Aetna Plywood, Inc., 231 F.3d 399, 408 (7th Cir. 2000), cert. denied, 532 U.S. 1038, 121 S.Ct. 2000, 149 L.Ed. 2d 1003 (2001); Dunleavy v. Nadler (In re Mego Fin. Corp. Sec. Litig.), 213 F.3d 454, 458 (9th Cir. 2000). In determining whether to grant an award and the size of such awards, one court identified five factors:
1) the risk to the class representative in commencing suit, both financial and otherwise;
2) the notoriety and personal difficulties encountered by the class representative;
3) the amount of time and effort spent by the class representative;
4) the duration of the litigation; and
5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation.
[Van Vraken v. Atl. Richfield Co., 901 F. Supp. 294, 299 (N.D. Cal. 1995) (internal citations omitted).]
Other courts have relied on three factors, the essence of which are subsumed in the Van Vraken factors:
(1) the action taken by the class representatives to protect the interests of class members and others and whether these actions resulted in a substantial benefit to class members;
(2) whether the class representatives assumed substantial direct and indirect financial risk; and
(3) the amount of time and effort spent by the class representatives in pursuing the litigation.
[Enter. Energy Corp. v. Columbia Gas Transmission Corp., 137 F.R.D. 240, 250 (S.D. Ohio 1991); Spicer v. Chicago Bd. Options Exch., 844 F. Supp. 1226, 1266 (N.D. Ill. 1993).]
This is not to say that payments to class representatives are without their opponents:
The threshold question is whether a named plaintiff is ever entitled to a fee. The basis for an award of fees in a common-fund case . . . is restitutionary, and the law of restitution (excepting salvage in admiralty) generally confines the right to restitution to professionals, such as doctors and lawyers. If you dive into a lake and save a drowning person, you are entitled to no fee. The named plaintiff is not a professional; he is, at most, a public-spirited member of the class. Yet the usual formulations of the common-fund doctrine describe the plaintiff rather than his lawyer as the person entitled to be compensated for the expenses he has incurred in conferring a benefit on the (other) beneficiaries of the common fund. [In re Cont'l Ill. Sec. Litig., 962 F.2d 566, 571 (7th Cir. 1992) (citations omitted).]
See also U.S. Bioscience Sec. Litig., 155 F.R.D. 116, 121 (E.D. Pa. 1994) (stating "[t]he practice of approving incentive awards has recently attracted what seems to us to be trenchant and persuasive criticism."); Weseley v. Spear, Leeds & Kellogg, 711 F. Supp. 713, 720 (E.D. N.Y. 1989) (stating "[a] class representative is a fiduciary to the class. If class representatives expect routinely to receive special awards in addition to their share of the recovery, they may be tempted to accept suboptimal settlements at the expense of the class members whose interests they are appointed to guard."). This opposition has led to an often reluctant acceptance of incentive awards with a placement of qualifying limitations on such awards:
Awards to named plaintiffs are appropriate compensation for the time and expense they incur in serving as class representatives. The consumers who fight on behalf of an entire class should be reasonably compensated for their efforts when those efforts are successful. For anything more than modest sums in the range of $2,000-3,000, the amounts of such awards should be based on the amount of time and money expended in connection with prosecuting the case, or other special circumstances. [National Association of Consumer Advocates, Standards and Guidelines for Litigating and Settling Consumer Class Actions, 176 F.R.D. 375, 387 (1997).*fn1 ]
Based on the commonly identified factors and policy considerations, the judge appropriately awarded Machulsky a $2500 incentive award. Webb does not challenge the propriety of such award. He contests the denial of his application for a similar, albeit smaller award.
We have identified no authority or policy reason to prohibit an incentive award to an intervenor, although in the case of an intervenor there must be a demonstration that the intervenor made actual contributions to the successful resolution of the class action. Stated differently, an intervenor who simply "tags along" with the actions taken and the arguments advanced by the class representative adds nothing to the ultimate resolution of the matter and deserves no award beyond that recovered by unnamed class members.*fn2
The intervenor must demonstrate that actions taken on behalf of the class resulted in a substantial benefit to the class and that he assumed substantial direct and indirect financial risk. The intervenor must document the time and expense expended on the matter and any particular difficulties encountered in advancing the interests of class members. The judge may consider the duration of the risk and the personal benefit (or lack thereof) derived from the litigation by the intervenor. The decision is, of course, vested in the discretion of the trial judge, who will analyze the application and articulate the decision in accordance with these factors and any other factor relevant to the particular application.
Webb argues that he became a "de facto" lead plaintiff. This contention seems overblown. On the other hand, the record reveals that the arguments advanced by him contributed to rejection of the initial settlement and modification of the final settlement. In fact, the judge noted the positive impact of the intervenor's action in his discussion of his decision to award attorneys' fees to intervenor counsel. In short, Webb may be entitled to an incentive award. We, therefore, reverse the order denying an objector stipend or incentive award and remand for further consideration in light of this ruling.
Webb submitted a counsel fee request for $32,505. The court awarded $7000. Webb argues that we should remand for a detailed explanation of the fee award. We agree.
In making his award, the judge recited the efforts made by Webb to enhance the settlement. The judge found that the objections lodged by Webb achieved a better substantive and procedural settlement for the class members. There is no basis to question these basic findings of fact that support the decision to allow counsel fees to intervenor counsel. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974).
The decision omits, however, any findings in support of the amount of the award. We expect an analysis of the reasonableness and necessity of the work performed, the reasonableness of the time expended and the fee charged, and the results achieved on behalf of the class. Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 22-23 (2003). In the case of an intervenor, the judge should analyze the work performed by the intervenor in comparison to the work performed by counsel for the class representative. When all of the requisite factors have been identified and analyzed, an appellate tribunal will rarely disturb the fee award. Rendine v. Pantzer, 141 N.J. 292, 317 (1995). All of this is missing in this case and we must, therefore, remand for reconsideration of the fee award.
In short, we hold that a judge may grant an incentive award to an intervenor under appropriate circumstances. The order denying the motion for an incentive award is reversed and remanded for consideration in accordance with this opinion. The fee award is also remanded for a statement of reasons in support of the fee award.
Reversed and remanded. We do not retain jurisdiction.