MICHAEL DELANEY, et al. v. ENTERPRISE RENT-A-CAR COMPANY, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4384-04T54384-04T5

MICHAEL DELANEY, individually

and on behalf of all others

similarly situated,

Plaintiff-Respondent,

v.

ENTERPRISE RENT-A-CAR COMPANY, INC.,

ELRAC, INC., and ENTERPRISE LEASING

COMPANY OF PHILADELPHIA,

Defendants-Appellants.

_________________________________________________

 

Argued March 22, 2006 - Decided May 4, 2006

Before Judges Conley and Weissbard.

On appeal from Superior Court of New Jersey,

Law Division, Ocean County, L-1160-01.

Gregory D. Call (Folger Levin & Kahn) of the

California bar, admitted pro hac vice, argued

the cause for appellants (Drinker Biddle & Reath

and Folger Levin & Kahn, attorneys; Mr. Call and

Vincent E. Gentile on the brief).

Bruce D. Greenberg argued the cause for respondent

(Lite DePalma Greenberg & Rivas, attorneys; Mr.

Greenberg on the brief).

PER CURIAM

I

Defendants, Enterprise Rent-A-Car Company (ERAC), ELRAC, Inc., and Enterprise Leasing Company of Philadelphia (collectively Enterprise or defendants) appeal a Law Division order awarding attorney's fees to class counsel in a Consumer Fraud Act (CFA) class action case. We reverse and remand.

The underlying suit alleged that Enterprise engaged in unlawful practices with respect to three products offered as options to renters of its automobiles. Optional Supplemental Liability Protection (SLP) provides the renter and authorized drivers with up to $1 million of liability protection for third party accident claims arising out of the operation of the rental car. Personal Accident Insurance (PAI) is an option that provides the renter and the renter's passengers with accidental death and accident medical expense benefits. Unlike SLP and PAI, Collision Damages Waiver (CDW) is not an insurance product. When a renter purchases CDW, Enterprise waives its contractual right to seek reimbursement from the renter for any damage that occurs while the car is under the renter's care.

Defendants began selling SLP and PAI in New Jersey in the late 1980s and early 1990s. On December 1, 1999, the New Jersey Department of Banking and Insurance (DOBI) issued a letter stating that car rental companies selling insurance products were required to register with the DOBI. As a result, defendants registered with the DOBI to sell SLP and PAI effective March 1, 2000.

Plaintiff Michael Delaney instituted this litigation on April 5, 2001. In his complaint, Delaney alleged a litany of "illegal and deceptive sales practices" engaged in by defendants, as well as violations of the insurance licensing laws. The complaint alleged, in six counts, the following causes of action: (1) violation of the licensing laws; (2) violation of the CFA; (3) fraud; (4) breach of a contractual duty of good faith and fair dealing; (5) negligence; and (6) unjust enrichment.

Defendants' motions to dismiss were denied. They subsequently filed their answers in November 2001, and discovery proceeded. On June 26, 2002, plaintiff moved for class certification. Enterprise cross-moved to dismiss certain claims based on the statute of limitations. After oral argument on September 13, 2002 and January 10, 2002, the judge issued a written opinion that certified both the registration and fraudulent sale classes. On May 2, 2003, we denied defendants' motion for leave to appeal the class certification.

Plaintiff then moved for partial summary judgment on the licensing claims contained in the first and second counts of the complaint, and defendants cross-moved for summary judgment on those same claims. In a detailed written opinion dated December 1, 2003, the judge denied plaintiff's motion for summary judgment, and granted in part and denied in part defendants' cross-motion, thereby permitting plaintiff's CFA claim on licensing to proceed. The fraudulent sales claims were unaffected by this set of motions.

Defendants sought leave to appeal the denial of summary judgment seeking dismissal of the CFA claim on registration. At that time, the parties discussed potential settlement, and defendants' motions for leave to appeal and summary judgment were adjourned. On February 17, 2004, the court appointed a mediator and a settlement was reached.

Under the terms of the settlement, class members who bought an insurance product prior to March 1, 2000, the date Enterprise registered with DOBI, were eligible for a certificate giving a discount on a future rental, valid for one year and valued at $97.58 each. The judge approved the settlement.

One of defendants' employees certified that he identified the settlement class as follows:

5. I caused a mailing list of these class members to be created as follows.

6. From the "Rental Database," which includes information about individual rental transactions during the period November 1, 1999, through February 29, 2000, I had a list created of individuals who rented in New Jersey from ELC or ELRAC, and who bought PAI or SLP. An index was created to track the number of rentals with PAI or SLP each person made during the period. 68,541 rental transactions were represented on the list.

7. To the resulting list, I had added entries from a spreadsheet sent to me by Counsel, which gave the names and addresses of individuals, and number of Qualifying Rentals, for people who had submitted claims for a total of 2,577 rental transactions.

8. Counsel provided me lists of individuals to be excluded from the mailing list. I understood that the Court had approved the exclusion of these individuals from the mailing list and from the Delaney settlement class. After the exclusions were processed, there were 70,838 rental transactions represented on the list.

9. I had the address information for these individuals updated by using the U.S. Postal Service National Change of Address database.

10. In addition, Counsel provided me some changes of address, which I understand came from class members through the Settlement Administrator or through Class Counsel. Where changes of addresses could be identified with individuals, those address changes were processed in the mailing list.

11. The resulting list included 55,624 individuals, who were to receive a total of 70,838 certificates.

As a result of a mailing error, an additional 1503 certificates were mailed to 408 individuals included in the 55,624 people who received the initial mailing.

Class counsel sought an attorney's fee award of $2.8 million, comprising a lodestar of $1,787,806 with a 60% enhancement. On November 9, 2004, the trial judge issued a written opinion explaining that he would use the lodestar method, pursuant to Rendine v. Pantzer, 141 N.J. 292 (1995). After class counsel submitted detailed time records and defendants submitted their objections, the court held a second oral argument on February 8, 2005. On March 3, 2005, the judge issued a written opinion setting the lodestar at $1,412,677 with a 15% enhancement.

II

At the outset, we note that defendants do not appeal the trial judge's exercise of discretion with regard to individual billing entries. In fact, defendants indicate that "[a]s a result of the trial court's careful review, plaintiff's lodestar was reduced from over $1.7 million to $1.4 million." Rather, defendants argue on appeal that the trial court failed to properly apply Furst v. Einstein Moomjy, Inc., 182 N.J. 1 (2004) and Rendine, supra, 141 N.J. at 292, in determining the amount of the fee award. We agree.

Under specific statutory enactments, courts are authorized to award a "reasonable" attorney's fee to the prevailing party. Rendine, supra, 141 N.J. at 322. The CFA specifically provides that a prevailing plaintiff is entitled to reasonable attorney's fees, filing fees, and costs. N.J.S.A. 56:8-19; Wanetick v. Gateway Mitsubishi, 163 N.J. 484, 490 (2000). As in Furst, supra, 182 N.J. at 21, "defendants do not contest that the statute grants plaintiff the right to an award of counsel fees; rather, they claim that the award was excessive and thus unreasonable."

A trial court's fee determination will be disturbed "only on the rarest of occasions, and then only because of a clear abuse of discretion." Rendine, supra, 141 N.J. at 317. In order to avoid ancillary litigation over counsel fee awards, an appellate court may exercise original jurisdiction and modify the counsel-fee award fixed by the trial court. Id. at 344.

In determining a reasonable fee award, a trial court must analyze the factors set forth in Rendine and state its reasons for awarding a particular fee. Furst, supra, 182 N.J. at 21 (2004). Rule of Professional Conduct (R.P.C.) 1.5(a) directs that a lawyer's fee be "reasonable" and lists the factors that must be considered in determining the reasonableness of a fee:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services;

(8) whether the fee is fixed or contingent.

[R.P.C. 1.5(a).]

Accordingly, those factors "must inform the reasonableness of a fee award in . . . every case." Furst, supra, 182 N.J. at 22.

Under fee-shifting statutes, the first step in the process is to determine the "lodestar," which is arrived at by multiplying the number of hours reasonably expended by a reasonable hourly rate. Rendine, supra, 141 N.J. at 334-35. Determination of the lodestar amount is the "most significant element in the award of a reasonable fee" because it requires the trial court to "evaluate carefully and critically the aggregate hours and specific hourly rates advanced by counsel for the prevailing party to support the fee application." Id. at 335. "In addition, the attorney's presentation of billable hours should be set forth in sufficient detail to permit the trial court to ascertain the manner in which the billable hours were divided among the various counsel." Rendine, supra, 141 N.J. at 337. Then, the trial court must "determine whether the assigned hourly rates for the participating attorneys are reasonable." Ibid.

A trial court should not passively accept submissions by counsel to support the lodestar amount. Ibid. Thus, the inquiry is not satisfied by simply compiling raw totals of hours worked. Ibid. (citing Copeland v. Marshall, 641 F.2d 880, 891 (D.C. Cir. 1980)). Stated differently, "[i]t does not follow that the amount of time actually expended is the amount of time reasonably expended." Ibid. The court can reduce the hours claimed by the number of hours "spent litigating claims on which the party did not succeed and that were 'distinct in all respects from' claims on which the party did succeed." Institutionalized Juveniles v. Sec. of Pub. Welfare, 758 F.2d 897 (3d Cir. 1985) (quoting Hensley v. Eckerhart, 461 U.S. 424, 440, 103 S. Ct. 1933, 1943, 76 L. Ed. 2d 40, 55 (1983)); see also Rendine, supra, 141 N.J. at 335.

Although damages recovered are a factor bearing on the reasonableness of counsel fee awards, fee-shifting statutes do not require proportionality between damage recoveries and counsel-fee awards. Rendine, supra, 141 N.J. at 336. "Nevertheless, if the specific circumstances incidental to a counsel-fee application demonstrate that the hours expended, taking into account the damages prospectively recoverable, the interests to be vindicated, and the underlying statutory objectives, exceed those that competent counsel reasonably would have expended to achieve a comparable result, a trial court may exercise its discretion to exclude excessive hours from the lodestar calculation." Ibid.

Pertinent to this appeal, "a trial court should reduce the lodestar fee if the level of success achieved in the litigation is limited as compared to the relief sought." Ibid. "If . . . a plaintiff has achieved only partial or limited success, the product of hours reasonably expended on the litigation as a whole times a reasonable hourly rate may be an excessive amount. This will be true even where the plaintiff's claims were interrelated, nonfrivolous, and raised in good faith." Ibid. (quoting Hensley, supra, 461 U.S. at 436, 103 S. Ct. at 1941, 76 L. Ed. 2d at 52). While there is "no per se requirement that there be a close relationship between recovery and fees awarded for services rendered, . . . when a substantial portion of a claim sought is ultimately rejected, that circumstance should be considered along with other factors, including those contained in R.P.C. 1.5(a), to determine a reasonable award of attorney's fees." N. Bergen Rex Transp. v. Trailer Leasing Co., 158 N.J. 561, 573-74 (1999).

After determining the appropriate lodestar amount, the trial court "should consider whether to increase that fee to reflect the risk of nonpayment in all cases in which the attorney's compensation entirely or substantially is contingent on a successful outcome." Ibid.; see also New Jerseyans for a Death Penalty Moratorium v. N.J. Dep't of Corr., 185 N.J. 137, 156-57 (2005) (noting that contingent basis of litigation is threshold requirement for enhancement). "[A] counsel fee awarded under a fee-shifting statute cannot be "reasonable" unless the lodestar, calculated as if the attorney's compensation were guaranteed irrespective of result, is adjusted to reflect the actual risk that the attorney will not receive payment if the suit does not succeed." Id. at 338. The court's job is to "determine whether a case was taken on a contingent basis, whether the attorney was able to mitigate the risk of nonpayment in any way, and whether economic risks were aggravated by the contingency of payment." Id. at 339 (quoting Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 483 U.S. 711, 747, 107 S. Ct. 3078, 3098, 97 L. Ed. 2d 585, 612 (1987), (Delaware Valley II) (Blackmun, J., dissenting).

While the court is authorized to award a contingency enhancement based on the risk of nonpayment, "that principle does not preclude a trial court, in exercising its discretion to award a reasonable attorney's fee, from also taking into account in certain cases the likelihood of success." Id. at 340. Likewise, "in cases in which the likelihood of success is unusually strong, a court may properly consider the inherent strength of the prevailing party's claim in determining the amount of contingency enhancement." Id. at 341. The judge "should consider the result achieved and the extent of its significance for the public interest." Gallo v. Salesian Soc'y, 290 N.J. Super. 616, 658 (App. Div. 1996). Typically, contingency enhancements in fee-shifting cases should range between five and fifty percent of the lodestar fee; the enhancement usually ranges between twenty and thirty-five percent. Rendine, supra, id. at 343.

III

Here, the trial judge awarded class counsel a total of $1,624,579.00 in attorney's fees. In his detailed written opinion, the judge began with a determination of the lodestar fee. As to the hourly rates charged by the various attorneys involved, ranging from $290.00-$540.00, the court determined that charging at a rate of $540.00 was "unacceptable" and that the "$475.00 per hour submitted by [local counsel] is the limit by which [the] Court will approve that rate." All other rates submitted were "approved." Noting that billing commenced on January 1, 2001, the judge determined that requests for counsel fees from that date until February 5, 2001 would be excluded because the first reference to any communication with the named client, Delaney, was on the latter date. As to the commencement date of the billing for this litigation until the most recent billing submitted on November 8, 2004, the judge stated he had reviewed each request and made relevant reductions accompanied by the corresponding reason for each deduction. The judge summarized this information in his decision in chart form (including date, attorney, time, and reason for reduction). Specifically, the court commented on a certification submitted by one of the attorneys from the period of May 20, 2003 through June 13, 2002. Within that billing period, 137.09 hours were spent on "drafting a case memorandum" and "reviewing documents." The court reduced the billing for those matters because no explanation was given regarding the need for a memorandum in this ongoing matter and there was no indication of the necessity for reviewing documents which were not specifically identified.

As to travel time, the judge reduced the amount requested to $100.00 per hour because travel time is not equivalent to actual legal work performed, and thus should not be compensated at the hourly rate suggested for legal work. Thus, it is clear that the judge undertook a commendable and painstaking review of the submissions, and no one has challenged his exercise of discretion in that regard.

Then, having determined the lodestar with respect to each firm involved, the judge turned to enhancement of the lodestar, finding the appropriate enhancement to be the sum of 15%, taking into account the plaintiff's strong likelihood of success with respect to the licensing claim.

Defendants argue that the judge never considered the limited nature of plaintiff's success and that he should have decreased the lodestar because plaintiff achieved only limited success in relation to the relief sought. Specifically, defendant contends that the fee award should be reduced by at least 75%. Similarly, defendants contend that the judge failed to consider whether the time spent by plaintiff's counsel was reasonable in order to achieve the relief obtained. In addition, defendant contends that the judge erred in failing to compare the unsuccessful deceptive sales practice claims with the settled insurance registration claims.

The judge's opinion dealt only briefly with these contentions, stating:

I have considered the objections raised by the Defendant with respect to the entries. I have not accepted Defendant's position that compensation should not be awarded for unrelated claims. As noted by the United States Supreme Court in Hensley v. Eckerhart, 461 U.S. 424 (1983), where the Plaintiffs' claim for relief involves a common core of facts or will be based on related legal theories, such a suit cannot be viewed as a series of discrete claims. It is important that I focus on the significance of the overall relief obtained by the Plaintiffs. In light of this standard, I have not excluded relevant claims that have been unsuccessful.

IV

According to Rendine, supra, "a trial court should reduce the lodestar fee if the level of success achieved in the litigation is limited as compared to the relief sought." 141 N.J. at 336. See also Hensley, supra, 461 U.S. at 436, 103 S. Ct. at 1941, 76 L. Ed. 2d at 52 (where plaintiff achieves only limited success, product of hours reasonably expended on entire litigation multiplied by reasonable hourly rate may be excessive even where claims are interrelated). In our view, although otherwise exemplary, the judge's opinion does not adequately address this point. The judge relied on one cited proposition from Hensley and noted the importance of "focus[ing] on the significance of the overall relief obtained by the Plaintiffs." While the citation to Hensley was accurate, and the overall relief obtained is relevant to this analysis, the judge did not go far enough in his analysis to comport with Rendine.

In Hensley, supra, the Supreme Court indicated:

In [some] cases, the plaintiff's claims for relief will involve a common core of facts or will be based on related legal theories. Much of counsel's time will be devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim basis. Such a lawsuit cannot be viewed as a series of discrete claims. Instead the . . . court should focus on the significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the litigation.

[461 U.S. at 435, 103 S. Ct. at 1940, 76 L. Ed. 2d at 51-52.]

While the judge acknowledged this principle, he failed to consider other relevant language in Hensley, which we have referenced earlier:

If . . . a plaintiff has achieved only partial or limited success, the product of hours reasonably expended on the litigation as a whole times a reasonable hourly rate may be an excessive amount. This will be true even where the plaintiff's claims were interrelated, nonfrivolous, and raised in good faith. Congress has not authorized an award of fees whenever it was reasonable for a plaintiff to bring a lawsuit or whenever conscientious counsel tried the case with devotion and skill. Again, the most critical factor is the degree of success obtained.

[Hensley, supra, 461 U.S. at 436, 103 S. Ct. at 1941, 76 L. Ed. 2d at 52.]

We conclude that in this case the successful claims can be segregated from the unsuccessful. Over 2,000,000 purchasers of defendants' products were included in the complaint. At most, the settlement class includes 300,000 purchasers; out of which only 55,624 class members received discount coupons valid for one year. All claims other than the insurance registration claims were dismissed without prejudice. In fact, in a similar case filed in California, plaintiff's counsel stated that "the settlement in Delaney dismisses in the same fashion proposed here persons . . . having alleged Misleading Sale Claims, which are the claims similar to those asserted in this action." This apparent disparity between the relief sought and the results achieved, even in the absence of actual redemption information, should have been addressed in detail by the judge in his written decision. However, on remand, the judge will now be able to consider the number and monetary value of the certificates actually redeemed, since the one-year redemption period has expired.

In the same vein, the trial judge was required to determine whether the time expended on this litigation is equivalent to the time competent counsel reasonably would have spent to achieve a similar result. See Furst, supra, 182 N.J. at 22. In order to have adequately addressed this factor, the judge should have discussed the relief obtained by the settlement. Here, that did not occur. Without more, the judge noted that "[i]t is important that I focus on the significance of the overall relief obtained by the Plaintiffs."

As stated, the settlement resulted in 55,624 class members receiving discount coupons valid for one year from the date of issuance. Whether competent counsel reasonably would have expended the time spent to achieve a comparable result was not addressed in the court's opinion. Although the judge meticulously considered each billing entry, line by line, in assessing the reasonableness of the time spent, his opinion fails to address the substantive nature of the aggregate award as required by Furst, supra, 182 N.J. at 22, and Rendine, supra, 141 N.J. at 336.

Although the judge made clear that he would not completely exclude compensation for relevant claims that were unsuccessful, he did not adequately address the reasonableness of the award in light of the fact that approximately two-thirds of plaintiff's time was spent on the unsuccessful deceptive sales practice claims and one-third on the insurance registration claims. As acknowledged by the judge, a substantial portion of plaintiff's claim was ultimately rejected; accordingly, the judge should have considered that along with other factors, including those enumerated in R.P.C. 1.5(a), which include the novelty of the issue, the time and labor required to conclude the matter, and the results obtained. See Death Penalty Moratorium, supra, 185 N.J. at 154-55.

Defendants' lack of registration with DOBI "was a fact recognized by all and admitted to by [defendants]." The trial judge noted this when considering the fee enhancement, but failed to consider it when determining the lodestar. "'[O]ne can fairly conclude that from the outset the plaintiff had a very strong case and objectively viewed, the risk that plaintiff['s] counsel would come away empty handed was remote.'" Rendine, supra, 141 N.J. at 341 (quoting Hall v. Borough of Roselle, 747 F.2d 838, 843-44 (3d Cir. 1984) (internal citation omitted)). Whether the time spent by plaintiff's counsel was reasonable, taking into account the damages prospectively recoverable, the interests to be vindicated, and the underlying statutory objectives, is within the discretion of the judge, but from this record we are unable to discern whether these factors were considered in setting the fee award. See Furst, supra, 182 N.J. at 22; Rendine, supra, 142 N.J. at 336. A more detailed discussion and evaluation is required.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

 

The original complaint named only ERAC and ELRAC as defendants. An amended complaint added Enterprise Leasing. ERAC is apparently the parent company of ELRAC and Enterprise Leasing. Since the case was eventually settled, the roles of the several defendants is not significant for the purposes of the issue before us. Accordingly, we will refer to them collectively as Enterprise or defendants.

Those class members who purchased PAI prior to July 30, 1993 and those who purchased PAI or SLP during the three-month period between November 1, 1999 and March 1, 2000 are included in the settlement class. SLP was not sold prior to 1993. Claims by purchasers of SLP and PAI between July 30, 1993 and November 1, 1999 are barred by the res judicata effect of prior class action settlements. Purchasers of either insurance product after March 1, 2000 do not have insurance registration claims and accordingly are excluded from the settlement.

Notably, the court also failed to consider the "results achieved," see Furst, supra, 182 N.J. at 23, in determining the fee enhancement of fifteen percent. On remand, the judge should consider this factor in calculating the enhancement.

(continued)

(continued)

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A-4384-04T5

May 4, 2006