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Lofton v Wells Fargo and Maxon v ILG

Chavez & Gertler represents Wells Fargo employees in suit to recover funds wrongfully claimed as attorneys’ fees by Los Angeles attorneys Initiative Legal Group.

Plaintiffs and attorneys who bring class action claims owe a high fiduciary duty to protect the interests of all members of the class. To protect against possible collusion, class action lawyers are not entitled to recover any legal fees unless the fees are disclosed to and approved by the court. In Lofton v Wells Fargo, Chavez & Gertler sued a group of attorneys for a serious violation of those duties that impugned the judicial process and deprived the class members of millions of dollars paid to settle their claims.

In July 2011, Wells Fargo entered into a $19 million class action settlement that provided several thousand of its “home mortgage consultants” with compensation for wages and benefits, and awarded $6.3 million in attorneys’ fees to the lawyers appointed to represent the class. Unbeknownst to the court that approved the settlement or to the class members, another law firm, Initiative Legal Group (“ILG”), negotiated with Wells Fargo to receive an additional $6 million as compensation for 600 of the class members who had separately retained ILG to litigate similar wage and hour claims on their behalf. ILG did not tell its clients about its side settlement. Instead, almost a year later, it paid each of them $750 and retained the balance of the funds – about $5.5 million – as its attorneys’ fees.

One of the home mortgage consultants smelled a rat. As a result of his efforts, Chavez & Gertler and its co-counsel obtained a Temporary Restraining Order (TRO) requiring ILG to pay the funds into court while the matter was litigated. When it issued the TRO, the court found that, “It is manifest that ILG intended to effectuate distribution of the almost $5 million in fees to itself without court approval. Such a move by lawyers representing so many plaintiffs in a common fund situation appears to us unprecedented. It is fraught with the potential for conflicts of interest, fraud, collusion and unfairness.”

After further briefing, the court reiterated that finding and ordered that all of the funds that had been claimed by ILG must instead be distributed to the members of the settlement class. ILG appealed, and on September 28, 2018 the Court of Appeal issued a lengthy opinion fully affirming those findings. Among other things, the Court held that: “Nothing in this record demonstrates that ILG’s services in securing $750 for each of its 600 clients and facilitating their participation in Lofton were worth the $5.5 million it claimed for itself in attorneys’ fees. On this record, the court was correct to deny ILG any part of the $5.5 million and instead direct that it be awarded to the Lofton class that included ILG’s 600 clients.”

The appellate decision will become final 30 days after it was issued (October 28, 2018). To read a copy of the opinion, click here.

A separate suit against ILG for breach of fiduciary duty and legal malpractice, seeking additional damages for its 600 clients, is also pending.