Semiannual Guide to Expert Witnesses April 2005 / $4 EARN MCLE CREDIT The Intersection of Probate and Family Law page 29 Class Wars Los Angeles lawyer Brad W. Seiling explains how successful class action lawsuits can result in malpractice claims page 22 PLUS New Punitive Damages Tax page 14 Solvent Tenants in Bankruptcy page 18 Trademark Infringement Damages page 36 April 2005 Vol. 28, No. 2 FEATURES 22 Class Wars BY BRAD W. SEILING In the wake of a recent appellate decision, class counsel may face a greater likelihood of malpractice claims and attacks on class settlements 29 Tales of Two Courts BY HOWARD S. KLEIN Family court proceedings may give rise to issues that eventually must be settled in probate court Plus: Earn MCLE credit. MCLE Test No. 136 appears on page 31. 36 Marked Recovery BY ANTONIO R. SARABIA II The new provision for statutory damages in trademark infringement cases has already created a substantial body of case law 41 Special Section Semiannual Guide to Expert Witnesses The magazine of The Los Angeles County LosAngelesLawyerBar Association DEPARTMENTS 10 Barristers Tips 79 Computer Counselor Invoking the procedure for judicial Technology trends affecting the practice disqualification of law BY GAVIN HACHIYA WASSERMAN BY GORDON ENG 14 Practice Tips 84 Closing Argument Assessing the impact of the new law on A Washington fable for our time punitive damages BY KEITH PAUL BISHOP BY JAMES J. FARRELL AND JEREMY G. SUITER 81 Classifieds 18 Practice Tips Filing bankruptcy by solvent tenants to cap 82 Index to Advertisers landlords’ claims Cover photograph by Tom Keller BY DAVID S. KUPETZ 83 CLE Preview CLASS To ward off objectors, class counsel may solicit the guidance of judges and mediators in the settlement process by Brad W. Seiling WARS funny thing hap- the class’s recovery, even though those claims Janik poses for class action settlements, it is pened to a law were not part of the trial court’s certifica- useful to understand how the court of appeal firm on the way to tion order. Janik appears to be the first could conclude that seemingly successful class collecting a $90 reported California decision recognizing that counsel potentially breached their duties to the million judgment class counsel can be liable in malpractice class. The underlying litigation in Janik was in favor of its cli- based on its successful representation of a cer- one of the seminal cases in the area of wage ents. One of the tified class. The duties articulated in Janik and hour law in California. The case involved clients—a member extend beyond actions for legal malpractice a class action against Farmers Insurance on of a certified class and potentially raise a new obstacle to class behalf of more than 2,400 claims adjusters to of more than 2,000 insurance claims settlements. recover nonpayment of overtime wages. The Aadjusters—sued the attorneys for malpractice. Class settlements are often criticized and complaint, which was filed in 1996, asserted The California Court of Appeal has allowed challenged as collusive deals between greedy a single cause of action under the Labor the claim to proceed as a second putative class counsel out to line their pockets and Code. In 1998, the trial court certified a class class action. This recent appellate decision unscrupulous defendants trying to buy an of all claims adjusters who worked for raises some obvious questions. Where could inexpensive resolution of claims alleging seri- Farmers from October 1, 1993 (three years these attorneys possibly have gone wrong? ous injury to consumers. The sweeping ratio- prior to the filing of the complaint), to the date When is a $90 million judgment not enough? nale announced in Janik would apply equally of trial. The court of appeal’s answers to these ques- to class counsel that settle class claims, even After notice was sent and class members tions have wide-ranging significance in class if they achieve substantial benefits for the were given the opportunity to opt out of the action litigation. class. Dissatisfied class members (and the In Janik v. Rudy, Axelrod & Zieff,1 the counsel who represent them) now may attack Brad W. Seiling is a partner in Manatt, Phelps & court of appeal held that class counsel owed class counsel for breaching duties to a set- Phillips and is cochair of the firm’s Unfair Comp- its clients (members of the class in the under- tlement class by selling out the class’s claims etition Practice Group. He specializes in the defense lying litigation) a duty to consider and assert too cheaply. of class action lawsuits and lawsuits brought under the Unfair Competition Law. KEN SUSYNSKI additional claims that could have increased Before examining the conundrum that Los Angeles Lawyer April 2005 23 class, class counsel successfully moved for exclusive forum to challenge the adequacy of issue presented in Ferguson was whether a summary adjudication on the ground that class counsel’s representation. The initial stipulated dismissal of punitive damages alle- the members of the class were not exempt determination of whether counsel were ade- gations as part of an $80 million class set- from overtime regulations. This favorable quate to represent the class—a prerequisite to tlement constituted malpractice. The supreme ruling was affirmed on appeal.2 any certification order—was very different court held that lost punitive damages were not A jury then awarded the class approxi- from the determination of whether class coun- recoverable as compensatory damages in a mately $90 million in unpaid overtime wages, sel actually adequately represented the class legal malpractice action, but the court did not and that judgment was affirmed on appeal.3 throughout the litigation. The trial court in analyze the scope of class counsel’s duty to Class counsel had won a substantial award for the underlying class action never considered members of the class. Janik expressly states the class and in the process had made new law whether class counsel had adequate reason to what may have been implied in Ferguson— in the area of wage and hour class actions. forego asserting a UCL claim.6 class counsel can be held liable for failing to These results would not seem to support a There were many good reasons why the pursue claims on behalf of a class. malpractice case, but that is exactly what attorneys chose not to risk asserting a UCL In addition to recognizing new potential happened next. claim after obtaining favorable rulings on liability for class counsel, Janik also has After the trial, a second putative class certification and summary adjudication on lia- potentially broad implications for class action filed a malpractice suit alleging that class bility. When counsel filed their original com- settlements. Commentators and courts have counsel breached their duties to the class by plaint in 1996, it was not clear whether back expressed concerns that class action settle- failing to assert a claim under California’s wages were recoverable as restitution under ments offer an opportunity for attorneys to Unfair Competition Law, codified at Business the UCL. Cortez v. Purolator Air Filtration generate fees without any effective monitor- and Professions Code Section 17200 et seq., Products Company,7 the California Supreme ing by class members, particularly when the which carries a four-year statute of limitations Court’s decision recognizing that unpaid settlement has been reached prior to class period—one year longer than the limitations wages could be recovered as an item of resti- certification.12 period under the Labor Code. By not amend- tution under the UCL, was decided in 2000, There also is concern that defendants may ing the complaint to assert a UCL claim, after the trial court had certified the class in use the settlements to buy their way out of class counsel allegedly deprived the class of the underlying litigation. Class counsel did not serious situations in a relatively nominal way millions of dollars of additional unpaid wages. believe that it was even possible to amend the or to structure settlements to achieve a The trial court sustained the attorneys’ complaint to assert a claim recognized by “tremendous sales bonanza” for themselves demurrer without leave to amend and dis- the Cortez decision, and counsel certainly while providing little relief to the settlement missed the malpractice action. The demurrer would not have wanted to risk reopening class.13 This criticism applies particularly to contended that the trial court’s certification the issue of certification or to otherwise jeop- coupon settlements, which require class mem- order in the underlying litigation proscribed ardize their favorable rulings on the merits.8 bers to redeem coupons for the defendant’s the bounds of any duty the attorneys owed to Notwithstanding the “sound strategic rea- products in order to realize the benefits of the the class, and unnamed class members had no sons for not seeking to amend the complaint settlement. right to demand that class counsel assert after the Supreme Court decided Cortez,” A new legal subspecialty has developed in additional claims.4 the Janik court held that whether such tacti- recent years: lawyers who make a living rep- The court of appeal reversed, finding that cal decisions amount to a breach of a class resenting class members who challenge the the plaintiff had stated claims for negligence counsel’s duties to the class presents a ques- settlements of their class actions.14 These and breach of fiduciary duty. The court tion of fact that could not be resolved on attorneys insist on modifications to settle- rejected the attorneys’ argument that their demurrer.9 ment terms as well as fees for themselves in duty to the class was limited to competently exchange for their clients’ decision to drop prosecuting the claims that the court certified.