(415) 381-5599

Judge Blasts Class Action Firm Over $5 Million Fee Grab

San Francisco Superior Court Judge Mary Wiss Photo by Jason Doiy 12-15-08 046-2008

A San Francisco judge has come down hard on a Century City class action firm, ordering it to disgorge to class members more than $5 million that it “attempted to arrogate to itself” as attorney fees.

Superior Court Judge Mary Wiss ruled Thursday that Initiative Legal Group struck a $6 million deal to settle 600 individual clients’ wage-and-hour claims with Wells Fargo Home Mortgage, then shunted the clients into a related class action against the bank where they received lower payouts. The firm, known as ILG, kept $5 million, saying it was compensation for years of work on several wage-and-hour cases against Wells Fargo.

“Having concealed its purported fee agreement from the court and having tried to appropriate those funds to itself without court approval, this court determines that ILG is not entitled to any of the claimed fees,” Wiss wrote.

Instead, the money must be paid to class members in Lofton v. Wells Fargo Home Mortgage, No. 11-509502.

Thursday’s decision culminates three years of wrangling by San Francisco solo practitioner Richard Zitrin and Mark Chavez of Mill Valley’s Chavez & Gertler, who represent the family of former ILG client David Maxon. Chavez and Zitrin have accused ILG attorneys of severe misconduct and said they were personally gratified by Thursday’s ruling.

Wiss “chose to act decisively, which I think this case calls for,” Chavez said.

“Some measure of justice was done,” said Zitrin, who is pursuing separate malpractice actions against ILG.

Klinedinst partner Natalie Vance, who represents ILG, said the firm is studying its options, including a possible appeal. “ILG continues to dispute that the class action court here had authority to take control of the fees ILG earned and its clients agreed to for representation in their individual cases litigated in other counties around the state,” she said.

Lofton is a class action that was brought by other attorneys on behalf of home-mortgage consultants in San Francisco Superior Court in 2005. ILG brought similar, individual suits on behalf of 600 consultants. The cases were mediated together in 2011, with the Lofton class action settling for $19 million—about $2,000 per class member after fees and expenses—and ILG’s cases settling for $6 million—or about $10,000 per plaintiff before fees and expenses.

In seeking approval from S.F. Superior Court Judge Loretta Giorgi, the attorneys said they expected the consultants represented by ILG to opt out of the Loftonsettlement and collect from the ILG fund. But none of them did because ILG instead encouraged them to file class claims. Meanwhile, ILG kept all of the $6 million as its attorney fees, save a $750 payment to each plaintiff in exchange for a release of claims. One plaintiff, Maxon, refused the payment, leading ILG to offer an additional $1,000 to all of the plaintiffs a few months later.

Wiss ruled Thursday that disgorgement was “the inevitable conclusion” given the facts. She also nodded to the First District Court of Appeal, which refused last year to dissolve a TRO freezing the funds. “As stated by the Court of Appeal, ‘there is a question on this record whether ILG is entitled to any fees at all,'” Wiss wrote. “Given the record before it, this court concludes that the answer to that question is ‘no.'”

The releases signed by ILG clients are immaterial, she wrote. “It does not matter that some ILG clients ‘agreed’ to an ‘allocation’ of more than $5 million in fees to ILG,” she wrote. “Approval of ILG’s class action attorneys’ fees was the exclusive province of this court, not ILG’s clients.”

ILG also argued that due process required a trial on the issue. But, Wiss wrote, “courts routinely determine the entitlement to class action attorneys’ fees through motions. As class action lawyers, ILG knows (or should know) that class action attorney’s fees require court approval.”

ILG never made an application for fees, even after Wiss offered the firm a chance, the judge wrote. Nor did ILG attorneys Marc Primo, G. Arthur Meneses, Monica Balderrama and Joseph Liu accept her invitation to speak on their own behalf at a June 24 hearing. “In the absence of an offer of evidence to support its claim to fees, this court can only conclude there is none,” Wiss wrote.

In addition to the $5 million, ILG will have to kick in an additional $500,000 to reimburse the class for the $1,000 payments ILG made to get releases from its 600 clients.