Robbins v. Alibrandi
Court of Appeal of California, First Appellate District, Division One
February 4, 2005, Filed
STEIN, J.—Plaintiffs, stockholders of BankAmerica Corporation (BankAmerica), brought a shareholder derivative suit on behalf of BankAmerica, against a number of former members of the board of directors of BankAmerica and Security Pacific Corp. (Security Pacific), alleging, generally, that defendants had mismanaged both companies, with the result that the companies [***2] ultimately paid $ 187.5 million to settle claims by the State of California and the City of San Francisco. Plaintiffs and defendants agreed to settle this suit, and, by separate agreement, further agreed that the companies' successor, BankAmerica Corporation (BofA) would pay plaintiffs $ 5 million for attorney fees and expenses incurred in litigating the action.
A number of stockholders, including Angelo and Mary Perone (objectors) objected to the settlement, to the agreement to pay attorney fees, or both. BofA, however, favored both agreements, and urged the trial court to approve them. The trial court, agreeing with BofA, approved the settlement and the [*444] negotiated fee award. Objectors appeal. They do not complain about the substantive terms of the settlement. They contend that the attorney fees are too high, asserting that they do not accurately reflect the value of the services performed by plaintiffs' attorneys.
CA(1)(1) This appeal ] concerns the obligation of a trial court to review an agreement to pay attorney fees negotiated as part of the settlement of a shareholder derivative action. We hold that the trial court has such a duty, but that, unlike the obligation of a court when fashioning [***3] a fee award, the court's task in a negotiated settlement of fees is to determine if the negotiated fee is fair. That task requires the court to review the settlement as a whole, including the fee award, to ensure that it was fairly and honestly negotiated, is not collusive and adequately protects the interests of the corporation and of the shareholders. The court is entitled to recognize that the corporation may have a legitimate business interest in settling a marginal case, including paying the plaintiffs' attorney fees, as a means of avoiding the costs of litigation. Nonetheless, the plaintiffs' attorneys owe an ethical and fiduciary duty to their clients—the shareholders, and through them to the corporation itself—to limit fees to an amount that represents the value of the work done. Therefore, although a negotiated fee may represent a reasoned business decision to settle, a negotiated fee that exceeds a fair and reasonable fee for the attorneys' contribution may not be approved. We reverse and remand for such a determination.
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127 Cal. App. 4th 438 *; 25 Cal. Rptr. 3d 387 **; 2005 Cal. App. LEXIS 341 ***; 2005 Cal. Daily Op. Service 2058; 2005 Daily Journal DAR 2821
JANET ROBBINS et al., Plaintiffs and Respondents, v. JOSEPH ALIBRANDI et al., Defendants and Respondents; ANGELO PERONE et al., Objectors and Appellants.
Subsequent History: [***1] The Publication Status of this Document has been Changed by the Court from Unpublished to Published March 7, 2005.
Prior History: Superior Court of the City and County of San Francisco, No. 988043, Tomar Mason, Judge.
Disposition: Reversed and remanded.
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Business & Corporate Law, Corporate Governance, Shareholders, General Overview, Governments, Fiduciaries, Legal Ethics, Client Relations, Attorney Fees, Shareholder Actions, Actions Against Corporations, Costs & Attorney Fees, Shareholder Duties & Liabilities, Civil Procedure, Class Actions, Derivative Actions, Compromise, Settlements, Settlement Agreements, Remedies, Costs & Attorney Fees, Contracts Law, Contract Interpretation, Fiduciary Responsibilities, Record Inspection & Maintenance, Inspection Rights, Shareholders, Business & Corporate Compliance, Contracts Law, Types of Contracts, Settlement Agreements, Affirmative Defenses, Fraud & Misrepresentation, Appeals, Standards of Review, Abuse of Discretion, Judicial Officers, Judges, Discretionary Powers