Zalewa v. Tempo Research
Filed 3/1/13 Zalewa v. Tempo Research CA2/2
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
TWO
PEARLINE ZALEWA et al.,
Plaintiffs and Respondents,
v.
TEMPO RESEARCH CORPORATION
et al.,
Defendants and Appellants.
B238142
(Los Angeles
County
Super. Ct.
No. BC319156)
APPEAL from
a judgment of the Superior Court
of
County.
Charles F. Palmer, Judge.
Reversed and remanded.
Dickstein Shapiro, Arthur
Silbergeld, Christine de Bretteville for Defendants and Appellants.
Altshuler
Berzon, Michael Rubin, Eileen B. Goldsmith; Law Offices of Joseph D.
Tuchmayer, Joseph D. Tuchmayer; Law Offices of Todd Arron, Todd S. Arron for
Plaintiffs and Respondents.
___________________________________________________
We remanded this employment case to the trial court to
determine (1) if attorney fees are authorized by statute following our reversal
of the judgment in favor of plaintiffs, and (2) if fees are authorized, are
they warranted by the facts of the case.
On remand, both sides submitted demands for attorney fees to the trial
court. The court awarded fees to
plaintiff former employees as the “prevailing party†under Labor Code section
218.5.
We
reverse. Plaintiffs were not the
prevailing party: they lost the case
because their demands for bonuses were unfounded. Given that plaintiffs had no right to bonuses
after they were laid off, defendants’ payment of money to some former employees
during the litigation was a gift that cannot be viewed—as a matter of law—as a
“catalyst†warranting an award of attorney fees to plaintiffs.
FACTS
name="_ftnref2" title="">[2]
Plaintiffs
are former employees of defendant Rifocs, a fiber optics company. In 1999, Rifocs merged with codefendant
Textron. The merged entity was
subsequently acquired by codefendant Tempo Research Corporation. The 1999 merger agreement contained a bonus
clause. The bonus was intended to reward
key employees for past performance and give them an incentive to remain with
the company after the merger. Plaintiff
employees were not third party beneficiaries of the merger agreement, which
expressly forbids them from suing to enforce its terms.
To qualify
for a bonus, plaintiffs had to be employed by the corporation at the end of the
calendar year from 2000 through 2003.
Plaintiffs received bonuses pursuant to the merger agreement beginning
in December 2000. Plaintiff Laws
received a bonus of $10,000 for 2000-2001 and Zalewa received a bonus of
$75,000 for 2000-2002.
In 2001, defendants began employee
layoffs because the market for fiber optics cooled. Defendants’ employment roster declined from
125 employees in April 2001 to seven employees in 2003. After being laid off, plaintiffs received no
further bonuses; however, they were entitled to—and received—severance
pay. They signed releases agreeing not
to sue on any claim arising from their employment with defendants.
In 2004, plaintiffs filed suit
alleging Labor Code violations, unfair
business practices, breach of contract, conversion, promissory estoppel, bad
faith, and private attorney general (PAGA) penalties. In July 2005, defendants offered payments to
laid-off employees, though not to the plaintiffs. After defendants made the payments,
plaintiffs amended their complaint to allege a class action and assert a new
claim for a “residual bonus.†A class
was certified in 2007.
A bench trial was conducted in
2008. The court found that plaintiffs
are entitled to recover a direct bonus, but no residual bonus Because the bonus was unpaid wages, plaintiffs
were awarded prejudgment interest and attorney fees under § 218.5. The court denied penalties to plaintiffs,
finding that it would be unjust because defendants voluntarily tendered almost
all of the outstanding direct bonus amounts to class members. The court awarded 11 employees $0 because
they were paid more money by
defendants than they were owed. The
remaining eight former employees were awarded sums ranging from $455 to
$35,719. The court awarded plaintiffs’
counsel attorney fees of $881,715. The
court rejected plaintiffs’ claim under PAGA for lack of standing, because
plaintiffs left defendants’ employ before PAGA took effect in 2004.
Plaintiffs appealed the judgment
because they felt entitled to residual bonuses and waiting time penalties,
among other things. Defendants
cross-appealed, challenging the trial court’s award of a direct bonus, its
invalidation of the releases signed by plaintiffs, and the court’s award of
attorney fees.
This Court reversed the judgment in
favor of plaintiffs.
First, the trial court improperly
invalidated the releases signed by plaintiffs after finding that defendants
reasonably and in good faith believed that they did not owe plaintiffs a
bonus. In a bona fide dispute over
wages, defendants can legitimately offer plaintiffs money in return for their
release of all claims. There was no
evidence that the releases were coerced or improperly obtained. We wrote that plaintiffs “could, and did,
accept payments that exceeded their earned severance, in return for releasing
all claims, when there was a bona fide dispute over the wages owing. This is proper, even if the payment made by
defendants was less than the bonus amounts claimed by the employees.â€
Second, the trial court erred by
finding that plaintiffs are entitled to a direct bonus. Although plaintiffs benefit from the bonus
clause, the merger agreement prohibits them from suing to enforce its
terms. Further, plaintiffs did not rely
on any written or oral promises from defendants that they would receive a bonus
even if they were laid off from their jobs due to depressed economic
conditions. Because plaintiffs are not
entitled to a bonus after they were laid off, they are not entitled to waiting
time penalties, other Labor Code penalties, or prejudgment interest.
Finally, we reversed the trial
court’s award of $881,715 in attorney fees.
We remanded the case to the trial court to determine whether an award of
attorney fees is authorized by statute and warranted by the facts. Notably, we did not specify that either plaintiffs or defendants might be entitled
to fees.
On remand, the parties filed
cross-motions for attorney fees.
Plaintiffs requested an award of $307,146 as the prevailing party
pursuant to § 218.5, reasoning that this litigation was the catalyst for
defendants’ July 2005 payments.
Plaintiffs did not request attorney fees for litigation occurring after
the 2005 payments, because the claims that went to trial were found by this
Court to lack merit.
Defendants countered with a request
for $2,210,360 in costs and attorney fees incurred at trial and on appeal. Defendants argued that they are the
prevailing parties: the appeal showed that they had no obligation
to pay anything to plaintiffs. Like
plaintiffs, defendants relied upon § 218.5 as authority for their right to
recover attorney fees. In opposition to
plaintiffs’ request for fees, defendants observed that their 2005 payments were
made to nonparties, not to plaintiffs, and plaintiffs are not the prevailing
parties because they did not recover any relief against defendants at
trial. In defendants’ view, the
“catalyst†theory is inapposite because no public interest was vindicated by
plaintiffs’ lawsuit.
THE TRIAL COURT’S RULING
The trial
court denied defendants’ motion for attorney fees. Citing § 218.5, the court granted plaintiffs’
motion for fees, finding that plaintiffs are the prevailing parties, even if
they did not obtain a favorable judgment in the litigation. The court reasoned that plaintiffs’ lawsuit
was a catalyst, provoking defendants to make the 2005 payments to some former
employees. Plaintiffs initially won
their lawsuit in the trial court and other employees recovered their bonuses
from defendants in administrative proceedings:
these factors demonstrated that the lawsuit was not frivolous,
groundless or unreasonable. Finally,
plaintiffs made demands for their bonus before the action was filed but were
rebuffed, demonstrating that the litigation was necessary. Plaintiffs’ attorneys were awarded a total of
$346,947.
1. Appeal and Review
The appeal arises from a postjudgment order awarding
attorney fees and costs. (Code Civ.
Proc., § 904.1, subd. (a)(2); Raff
v. Raff (1964) 61 Cal.2d 514, 519; Breckler
v. Thaler (1978) 87 Cal.App.3d 189, 193.)
An attorney fee award generally is reviewed for an abuse of discretion;
however, when the parties dispute whether the trial court was legally
authorized to make an award because “the criteria for making an award†were
unmet, this calls for statutory construction and presents a question of
law. (Conservatorship of Whitley (2010) 50 Cal.4th 1206, 1213-1214;
37 Cal.4th 1169. 1175.) Specifically, we
are asked whether § 218.5 permits, under a catalyst theory, an award of
attorney fees to plaintiffs who did not prevail on any of the claims made in
their lawsuit. Review is de novo,
because the issue is whether there is a legal basis for awarding attorney
fees. (Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1426;
144 Cal.App.4th 140, 149.)
2. Overview of § 218.5
Section
218.5 reads, in relevant part, “In any action brought for the nonpayment of
wages . . . the court shall award reasonable attorney’s fees and costs to the
prevailing party if any party to the action requests attorney’s fees and costs
upon the initiation of the action.†The
statute is a reciprocal fee recovery provision that works in favor of either
employees or employers, whichever is the prevailing party in a lawsuit claiming
unpaid wages. (Earley v. Superior Court,
supra, 79 Cal.App.4th at p.
1427.) In employee class action suits,
class representatives assume a fiduciary responsibility on behalf of absent
parties and are potentially responsible for defense fees if their case
fails. (Id. at pp. 1434-1436.) An
unpaid bonus is treated as a claim for unpaid wages. (Hunter
v. Ryan (1930) 109 Cal.App. 736, 738.)
3. The Catalyst Theory
The
catalyst theory arises from the private attorney general doctrine codified in Code
of Civil Procedure section 1021.5.
name="_ftnref4" title="">[4] It allows courts to award attorney fees to a
“successful party†in an action that results in “the enforcement of an
important right affecting the public interest†if there is (a) a significant
benefit conferred on the general public or a large class of persons, (b) the
financial burden of private enforcement makes the award appropriate, and (c)
the fees should not be paid out of any recovery. (Graham
v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 565 (Graham).)
The doctrine “‘“rests upon the
recognition that privately initiated lawsuits are often essential to the
effectuation of the fundamental public policies embodied in constitutional or
statutory provisions, and that, without some mechanism authorizing the award of
attorney fees, private actions to enforce such important public policies will
as a practical matter frequently be infeasible.â€â€™â€ (Graham,
supra, 34 Cal.4th at p. 565.) It does not apply when a lawsuit’s “primary
effect was the vindication of [plaintiff’s] personal right and economic
interest.†(Flannery v. California Highway Patrol (1998) 61 Cal.App.4th 629,
637.)
“Under the
catalyst theory, attorney fees may be awarded even when litigation does not
result in a judicial resolution if the defendant changes its behavior
substantially because of, and in the manner sought by, the litigation. . .
. In order to be eligible for attorney
fees[,] a plaintiff must not only be a catalyst to defendant’s changed
behavior, but the lawsuit must have some merit [ ] and the plaintiff must have
engaged in a reasonable attempt to settle its dispute with the defendant prior
to litigation.†(Graham, supra,
“‘A plaintiff will be considered a
“successful party†where an important right is vindicated “by activating
defendants to modify their behavior.â€â€™â€
(Graham, supra, 34 Cal.4th at p. 567.)
Plaintiff need not secure a favorable final judgment to succeed: the case may be won on a preliminary issue;
or by convincing a public agency to implement state law; or by reaching a
settlement with a corporation in a shareholder derivative suit. (Id.
at pp. 565-567, citing cases.) In
making false statements about the towing capacity of its trucks, inspiring the company
to offer to repurchase or replace the trucks.
The lawsuit caused Chrysler to change its behavior, “implicated an issue
of public safety, and [ ] benefited thousands of consumers and potentially
thousands more by acting as a deterrent to discourage lax responses to known
safety hazards.†(Id. at pp. 577-578.)
4. Plaintiffs’ Right to
Recover Attorney Fees
Plaintiffs originally brought suit in 2004 “on behalf of
themselves and the general public.†They
requested attorney fees pursuant to § 218.5. While the case was pending, but before
plaintiffs amended their complaint to include class allegations, defendants
paid money to some of the laid-off employees, but not to plaintiffs. Plaintiffs proceeded to trial, where they won
their unpaid bonus money. The victory
was short-lived, as defendants had a successful appeal.
To determine the prevailing party
under § 218.5, we import the definition used in the Code of Civil Procedure (
Cal.App.4th 1079, 1085-1087), which defines a prevailing party as “the party
with a net monetary recovery, a defendant in whose favor a dismissal is
entered, a defendant where neither plaintiff nor defendant obtains any relief,
and a defendant as against those plaintiffs who do not recover any relief
against that defendant.†(Code Civ.
Proc., § 1032, subd. (a)(4).)
Plaintiffs did not have a net monetary recovery against defendants. In fact, they recovered nothing. Under the plain language of § 218.5,
plaintiffs were not the prevailing party because all of their claims against
defendant were denied.
While no
court has yet applied the catalyst theory to a case arising from § 218.5,
plaintiffs argue that the theory should apply, based on defendants’ July 2005
payments to some former employees. It is
unclear whether the permissive fee shifting described in the catalyst theory
applies to a statute like § 218.5, which mandates
an award of attorney fees to the “prevailing party.†Assuming the catalyst theory applies to Labor
Code cases, its application does not assist plaintiffs in their quest for
attorney fees.
The opinion
in the prior appeal shows that plaintiffs had no right to collect a bonus after
they were laid off from their jobs with defendants. By extension, the laid-off, nonparty
employees who received payments from defendants in July 2005 also had no right
to collect a bonus. Had the employees
not accepted the 2005 payments, they would have received nothing in the
litigation. In the eyes of the law,
defendants’ 2005 payments were a gift, not a contractual or statutory
obligation to remit unpaid wages.
When
deciding whether to award attorney fees, the court reviews the facts “not only
to determine the lawsuit’s catalytic effect but also its merits. Attorney fees should not be awarded for a
lawsuit that lacks merit.†(
576.) Plaintiffs cannot be a “successful
party†if a reviewing court flatly rejects their case on the merits. (Marine
Forests Society v. California Coastal Com. (2008) 160 Cal.App.4th 867,
877.) Although plaintiffs’ lawsuit
provoked the 2005 payments, the lawsuit itself lacked merit, because plaintiffs
demanded bonuses and penalties that they were not entitled to collect.
A lawsuit that provokes a defendant
to make a gift is not a ground for awarding attorney fees: no significant benefit is conferred on the
public or a large class of persons by such a lawsuit (Graham, supra, 34 Cal.4th
at p. 578), and defendants engaged in no detrimental behavior that needed to be
changed. As discussed in our prior
opinion, defendants had the right to behave the way they did, laying off
employees they could not afford to keep and denying bonuses to employees who
were not on the payroll at year’s end. (Compare
Tipton-Whittingham v. City of Los Angeles
(2004) 34 Cal.4th 604, 607-610 [city instituted remedial practices in its
police department after plaintiff sued for race and sex discrimination,
justifying application of the “catalyst†theory of fee recovery];
1078, 1103 [catalyst theory applied when plaintiffs successfully challenged the
governor’s constitutional veto authority, which conferred a significant benefit
on the general public]; Hogar Dulce Hogar
v. Community Development Com. of City of Escondido (2007) 157 Cal.App.4th
1358, 1368 [plaintiffs successfully obtained an amendment to a tax sharing
agreement and a $1.35 million reimbursement to a city housing fund, giving rise
to catalyst fees].)
In sum, this lawsuit was instigated
by a handful of employees who felt entitled to collect a bonus for years after
they stopped working. By no stretch of
imagination did this lawsuit aim to vindicate an important right affecting the
public interest; nor did it confer a significant benefit on the general public or
a large class of persons; nor did it cure detrimental behavior by defendants,
who did not engage in improper conduct.
This was not a lawsuit “‘that genuinely provide[d] a public benefit.’†(Vasquez
v. State of California (2008) 45 Cal.4th 243, 255.) The catalyst theory does not apply here.
5. Defendants’ Right to Recover Attorney Fees
Section 218.5 is a reciprocal
attorney fees statute that requires an award of fees to the “prevailing partyâ€
so long as one of the parties demands those fees upon the initiation of the
action. Here, plaintiffs demanded fees
pursuant to § 218.5 when they filed suit.
Defendants were the prevailing parties on appeal, which resolved the
entire lawsuit in their favor. (Code
Civ. Proc., § 1032, subd. (a)(4) [prevailing party is the defendant if
neither plaintiff nor defendant obtains any relief, and the defendant when the
plaintiff recovers no relief against that defendant].) Plaintiffs did not prevail on any claims.
Plaintiffs contend that their
claims for fees under § 218.5 were inextricably intertwined with their PAGA
claim, making it impossible to award attorney fees to defendants as the
prevailing party under § 218.5. As the
trial court found, plaintiffs had no standing to bring a PAGA claim because
PAGA did not exist when plaintiffs were terminated from their employment with
defendants. In any event, § 218.5 lists
only one remotely pertinent exception:
“This section does not apply to any action for which attorney’s fees are
recoverable under Section 1194.â€
name="_ftnref5" title="">[5] Plaintiffs did not proceed under section
1194, a one-way fee shifting statute authorizing attorney fees to employees who
prevail on their minimum wage or overtime compensation claims.
Section 218.5 contains no equitable
exemption allowing the courts to give a pass to employees who invoke its
provisions then lose their case, causing the employer to become the prevailing
party in the litigation. Defendants are
the prevailing party under § 218.5, and are entitled to recover reasonable
attorney fees they incurred in this litigation, including the two appeals.
DISPOSITION
The postjudgment order awarding attorney fees and costs
to plaintiffs is reversed. The case is
remanded to the trial court to determine a reasonable award of attorney fees
and costs for defendants. Defendants are
entitled to recover their costs on appeal, as the prevailing party.
NOT TO
BE PUBLISHED IN THE OFFICIAL REPORTS.
BOREN,
P.J.
We concur:
ASHMANN-GERST,
J.
FERNS, J.*
_______________________________________________________________
* Judge
of the Los Angeles Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6
of the California Constitution.
name="_ftn1" title="">[1] Labor Code section 218.5 will be
referred to in this opinion as § 218.5.
name="_ftn2" title="">[2] The
facts are largely derived from our opinion in Zalewa v. Tempo Research Corporation (Sept. 27, 2010) B210429
(nonpub. opn., as modified Oct. 27, 2010).
