State of California v. Levi Strauss & Co.

LUCAS, J., Concurring and Dissenting.

I concur in the majority opinion to the extent that it affirms the judgment and remands the cause to the trial *489 court for further proceedings, including disposition of the settlement “residue” in an appropriate manner.

I dissent, however, to the majority’s glowing approval of the “consumer trust fund” device as a possible distribution method in cases of this kind, and to the majority’s strong suggestion, approaching a direction, that the settlement residue be allocated to the creation of such a fund. In my view, while the trust fund device, and other “fluid recovery” methods, might be appropriate in certain limited situations, this is not one of them.

By way of background, the Court of Appeal in Bruno v. Superior Court (1981) 127 Cal.App.3d 120, 123-124 [ 179 Cal.Rptr. 342 ], explained the concept of “fluid recovery” as follows: “The topic of fluid class recovery regularly arises in class actions . . . where the class has many members with relatively small individual claims. In such circumstances, if the class recovers a favorable judgment, it is likely that only a fraction of the class members will have the desire, and documentation, to file an individual claim for part of the damages. Fluid class recovery is thus invariably suggested as a way to distribute the usually substantial amount of remaining damages. The theory underlying fluid class recovery is that since each class member cannot be compensated exactly for the damage he or she suffered, the best alternative is to pay damages in a way that benefits as many of the class members as possible and in the approximate proportion that each member has been damaged, even though, most probably, some injured class members will receive no compensation and some people not in the class will benefit from the distribution; or, as one commentator states it, ‘where funds cannot be delivered precisely to those with primary legal claims, the money should if possible be put to the “next best” use.’ [Citation.]

“Fluid class recovery normally will be accomplished by either one of the two methods suggested by petitioners. The defendant may be required to lower prices for a period of time or the residue of damages may be given to the state to be used to benefit class members. [Citation.]” Although Bruno was entirely silent on the issue, the majority argues that a desirable variation on the second method of fluid recovery is to establish an independent organization—a consumer trust fund—to benefit the class.

Here, however, the trial court specifically found: “The proposed plan of distribution is the best feasible method of giving each class member a reasonable opportunity to claim his or her respective share of the settlement fund; the proposed plan of distribution has adequate safeguards to insure against any undue or fraudulent claims being paid from the settlement fund; there is no basis for concluding that the proposed plan of distribution dis *490 criminates against any class members . . . .” Clearly, the trial court did not abuse its discretion in rejecting alternative proposals.

All parties hereto agree that fluid class recovery may possibly serve in an appropriate case as an alternative to more traditional distribution systems. As Bruno, supra, indicates, where the injured class members cannot be compensated exactly for the damage they suffered because, for example, of their probable lack of interest in filing a claim or their inability to document their entitlement to a share of the proceeds, a court may consider fluid recovery. ( 127 Cal.App.3d at p. 123 .)

On the other hand, any kind of “fluid recovery,” including the creation of a trust fund, may be inappropriate, in a particular case, because of an insufficient “correlation” or “overlap” between the injured class of persons and the class to be benefitted by the form of recovery proposed. (Id., at p. 132.)

Although it is unclear the extent to which the parens patriae provisions of the Cartwright Act apply to this case, those provisions afford guidance to the trial courts (see Vasquez v. Superior Court (1971) 4 Cal.3d 800, 820 [ 94 Cal.Rptr. 796 , 484 P.2d 964 , 53 A.L.R.3d 513 ]), and they reflect a policy favoring individual recovery wherever possible. Among other things, those provisions (1) limit recovery of damages to “Any person who is injured in his business or property ...” (Bus. & Prof. Code, § 16750, subd. (a)), (2) authorize the Attorney General “to secure monetary relief ... for injury sustained by . . . natural persons to their property ...”(§ 16760, subd. (a)(1)), and (3) mandate that each injured person be given “a reasonable opportunity to secure his appropriate portion of the monetary relief” so awarded (id., subd. (e)(1)). Finally, the act provides that any funds awarded by the court as monetary relief which are not “exhausted by distribution ... [to injured persons] shall be treated . . . as . . . unclaimed property” subject to escheat to the state. (Id., subd. (e)(3).)

Applying the considerations previously set forth in Bruno, supra, to the present case, the trial court’s distribution plan reasonably assures that the settlement fund will be paid to those consumers actually injured by Levi Strauss’ alleged misconduct, thereby obviating any resort to a trust fund remedy. The size of individual claims evidently was not so trivial as to discourage their filing, as approximately 1.3 million claims were filed; the average family ultimately may recover from $10 to $12 according to Levi Strauss’ calculations. Moreover, lack of documentation was no obstacle to individual recovery in this case, for the trial court relieved claimants of that obligation, recognizing the likelihood that few potential class members *491 would have retained any proof of purchase or similar confirmatory documents.

The majority, characterizing the consumer trust fund device as “increasingly popular” and “widely used” (ante, pp. 475, 478), cites no case, and our research has uncovered none, that overturned a trial court’s settlement distribution plan in favor of a consumer trust fund or other “fluid recovery” long after claims had been filed and substantial monies expended in administering claim procedures. Indeed, our research has uncovered no California case in which the trial court has ever found a consumer trust fund to be appropriate. In the federal courts, several circuits have held or implied that fluid class recovery is never permissible. (Eisen v. Carlisle & Jacquelin (2d Cir. 1973) 479 F.2d 1005 , vacated on other grounds (1974) 417 U.S. 156 [ 40 L.Ed.2d 732 , 94 S.Ct. 2140 ]; Windham v. American Brands, Inc. (4th Cir. 1977) 565 F.2d 59 , cert. den. (1978) 435 U.S. 968 [ 56 L.Ed.2d 58 , 98 S.Ct. 1605 ]; In re Hotel Telephone Charges (9th Cir. 1974) 500 F.2d 86 .) At least one federal appellate court has overturned a trial court’s decision to create a consumer trust fund. (In re Folding Carton Antitrust Litigation (7th Cir. 1984) 744 F.2d 1252 .) Apart from this lack of support for fluid recovery in general, requiring such a recovery here would be unwise in light of the present status of this case. To declare nugatory at this late stage the trial court’s efforts to achieve an equitable distribution directly to injured claimants would serve no overriding public purpose. Indeed, it would result in an inexcusable waste of time, money and effort heretofore expended by the settling parties.

Both the majority and the concurring opinions of Chief Justice Bird nonetheless criticize both the terms of the settlement and the trial court’s various rulings in support thereof. In light of the fact that neither opinion would, at this late date, overturn the settlement, and indeed the intervener/appellant at oral argument stipulated that the settlement should be approved, these criticisms seem entirely misplaced. Nonetheless, in the interest of fairness to the trial judge and the parties to the settlement, I will briefly comment upon the charges which were seemingly accepted by the majority. (I do not respond to the more personal views expressed in the concurring opinion, as those views do not command majority support.)

First, the majority opinion appears to adopt the intervener’s assertion that “only a minority of class members bothered to file claims.” (Ante, p. 476.) Yet by the April 6, 1981, deadline, 1.3 million claims for 37 million pairs of men’s and boys’ jeans had been received, a substantial number of claims given the relatively small amounts which were involved. The majority also seems to credit the intervener’s argument that “a large percentage of the *492 recovery went to pay inflated or baseless claims,” and that “widespread fraud” took place. {Ibid.) I cannot agree.

The detailed statistics presented by the Attorney General showed that the average individual claim was for eight pairs of jeans over the course of five years and that the median claim was six pairs. Neither figure is inherently improbable for many people. The trial court could reasonably have concluded that most claimants made good faith estimates of their purchases and that no substantial fraud occurred. Further, the court’s requirement that the largest 5 percent of total claims be treated as suspect (requiring further verification) reasonably prevented fraudulent claims. The top 5 percent claimed 20 or more pairs over the 5-year period. Absolutely no evidence suggests that those who claimed fewer than that number (some 95 percent of the claimants) were, on a large-scale basis, overstating their claims.

The majority also seems to endorse the intervener’s suggestion that the Attorney General was awarded attorney fees which were “grossly disproportionate” to the settlement. {Id., at p. 477.) This point lacks merit. The court awarded $1.2 million to the Attorney General’s office as attorney fees. The declarations submitted in support of the fee request show that over 7,800 hours were expended by the Attorney General’s office, and other evidence confirmed that the fee awarded was reasonable in light of the professional standing of the attorneys who worked on the case, the amount of the settlement ($12.25 million) in relation to prior settlements by Levi Strauss, and the fees awarded in similar cases.

In short, the trial court acted well within its discretion in approving the settlement and ordering its distribution in the manner previously discussed. Although a substantial residue of funds remains undistributed, the question of the proper disposal of these funds is not presently before us. We should not attempt to influence the trial court’s ultimate decision in that regard by praising the “considerable merit” {ante, p. 479) of a consumer trust fund, a doubtful device which, in my view, remains essentially untested and possesses substantial countervailing disadvantages, particularly in this case.

Mosk, L, concurred.

Appellant’s petition for a rehearing was denied May 29, 1986, and the opinion was modified to read as printed above.