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Big Win in Lofton v. ILG

Chavez & Gertler has successfully called to account attorneys at the Los Angeles law firm Initiative Law Group, APC (“ILG”) who appropriated for themselves over $5 million in settlement funds that were paid for the benefit of hundreds of employees of Wells Fargo bank who alleged that Wells Fargo had failed to pay them certain wages and benefits to which they were entitled.

After another group of lawyers negotiated a $19 million settlement resolving the employees’ claims, ILG – who separately represented 600 of the employees – negotiated a supplemental settlement. ILG not only failed to obtain its clients’ consent to the settlement, but kept it secret from them for almost a year. While the court overseeing the case was told that the supplemental settlement money would be used to compensate ILG’s clients, ILG instead maneuvered to retain almost all of the funds for itself. In so doing, ILG violated the Rules of Court which require that all payments of class action attorneys’ fees be approved by a court, and breached its obligations to its clients.

Chavez & Gertler and its co-counsel first obtained a Temporary Restraining Order requiring ILG to place the funds in the safekeeping of the court. ILG unsuccessfully appealed. The Court of Appeal was highly critical of ILG’s conduct. In its decision Lofton v. Wells Fargo Home Mortgage (2014) 230 Cal.App.4th 1050, the Court said of ILG’s conduct: “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 ordering ILG to disgorge additional funds, the trial court subsequently ruled that all of the supplemental settlement funds must be distributed to the injured Wells Fargo employees. The court noted that, “But for the efforts of one class member, David Maxon, and his attorneys, ILG would have successfully evaded court review of its side-agreement for class action attorneys’ fees.” ILG is still resisting its obligations, and its appeal of that order is pending.

Order After June 24 Hearing.