• A Divided California Supreme Court Reaffirms the Availability of Attorneys' Fees Awards Under the "Catalyst Theory"
  • December 17, 2004 | Authors: Barry S. Landsberg; Andrew H. Struve; Stacie S. Collier
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • Breaking with recent federal precedent, a deeply divided California Supreme Court has declined to abolish the "catalyst theory" of attorneys' fees, which are available when litigation causes a defendant to change its challenged behavior prior to judicial resolution of the litigation, and, hence, the lawsuit served as the "catalyst" for the modification in conduct. In 4-3 opinions in two companion cases -- Graham v. DaimlerChrysler Corp., ___ Cal. 4th ___ (No. S112862, December 2, 2004) and Tipton-Whittingham v. City of Los Angeles, ___ Cal. 4th ___ (No. S112943, December 2, 2004) -- the Court "reaffirmed [its] endorsement of" and "clarified" the catalyst theory, providing another basis upon which private attorneys general may recover attorneys' fees under California's public interest fee-shifting provision, California Code of Civil Procedure Section 1021.5. In affirming the catalyst theory's continued viability, the Court expressly rejected the U.S. Supreme Court's recent contrary decision in Buckhannon Bd. & Care Home, Inc. v. West Virginia Dept. of Health and Human Resources, 532 U.S. 598 (2001), which ended the availability of such fees in actions arising under federal law.

    In Graham, purchasers of pickup trucks sued DaimlerChrysler ("Chrysler") for breach of express warranty, based on Chrysler's alleged overstatement of the trucks' towing capacity. Before the suit was filed, Chrysler changed its marketing materials, notified buyers of the error, offered buyers compensatory cash and merchandise, and even offered to repurchase or replace the trucks when buyers demanded such a remedy. After the lawsuit was filed, Chrysler offered to repurchase or replace all of the trucks. On Chrysler's demurrer, the court dismissed the case as moot because Chrysler already had offered its customers the relief requested in the suit. The trial court nevertheless awarded $762,830 in attorneys' fees to the plaintiffs under Section 1021.5, finding that the lawsuit conferred a significant public benefit by being a catalyst for Chrysler's repurchase or replacement offer. The Court of Appeal affirmed.

    The second case, Tipton-Whittingham, was a class action filed on behalf of female officers and civil employees of the Los Angeles Police Department who alleged race and/or sex discrimination. After the case was filed the LAPD voluntarily instituted antidiscrimination measures, and the case was dismissed on joint motion of the parties. The district court awarded plaintiffs $1,703,383 in attorneys' fees under the catalyst theory. The Ninth Circuit Court of Appeals certified to the California Supreme Court the question of the viability of the catalyst theory under California law.

    Refusing to follow the lead of the U.S. Supreme Court and abolish catalyst fees altogether, the California Supreme Court majority crafted a "clarified" standard: A plaintiff must establish that "(1) the lawsuit was a catalyst motivating the defendants to provide the primary relief sought; (2) ... the lawsuit had merit and achieved its catalytic effect by threat of victory, not by dint of nuisance and threat of expense ... ; and (3) ... the plaintiffs reasonably attempted to settle the litigation prior to filing the lawsuit." The Court remanded in Graham, directing the trial court to reconsider the attorneys' fees in light of the new standard, and affirmed the viability of the catalyst theory in Tipton-Whittingham. In reaching its decision, the Court dismissed Chrysler's concerns that the catalyst theory would require a complex causal determination requiring a second major litigation, reasoning that such issues may be resolved by "relatively economical, straightforward inquiries by trial court judges ... familiar with the litigation." Similarly, the Court dismissed any concerns that the catalyst theory would encourage nuisance suits, reasoning that the possible harm by those hoping to extort fees would be outweighed by the harm of attorneys refusing public interest litigation because they may be deprived of fees.

    As part of its rationale, the majority also fashioned a broad interpretation of "successful party" -- a requirement for collecting attorneys' fees under Section 1021.5. The Court explained that a "successful party" depended on the "impact of the action, not its manner of resolution." As such, the lawsuit need not end in a favorable final judgment on the merits, a settlement or any judicial relief, as long as the lawsuit was a catalyst for defendant changing its behavior in a manner sought by the litigation.

    In a lengthy dissent, Justice Chin criticized the majority's reasoning as unfounded in California law, out of step with the rest of the country and, indeed, misaligned with the recent trend within California to narrow the scope of private attorney general actions under the Unfair Competition Law ("UCL"), which serves as a common platform for such fee requests. Justice Chin cited to the California electorate's recent strong approval of Proposition 64, which imposed standing and economic injury requirement standards for plaintiffs in UCL cases, as a telling expression of Californians' desire to align their jurisprudence with the rest of the nation in such matters. As Justice Chin put it, "At a time when Californians are increasingly concerned about extortionate lawsuits against businesses ... and worried that the legal climate in California is so unfriendly to businesses ... today's ruling goes in exactly the wrong direction ...."

    The California Supreme Court's rulings in Graham and Tipton-Whittingham breathe new life into California's public interest fee-shifting provision. The prospect of attorneys' fees is the driving force in many UCL claims, and the Court's rulings expand the circumstances under which a private plaintiff may recover under Section 1021.5. The rulings are particularly unusual in that they follow the passage of Proposition 64, which is designed to eliminate many UCL cases brought by unaffected interlopers, whose primary motivation for suit often is the recovery of attorneys' fees. In such a shifting political and legal climate, it remains to be seen how the Court's rulings will affect pending and future cases.