Appellate court affirms that $5 million should be paid to class members in Wells Fargo suit, not law firm

By Sandra Lane | Oct 17, 2018

SACRAMENTO – The 1st District Court of Appeal, Division Three affirmed an earlier judgment from a trial court, ruling that $5 million in settlement proceeds could not be paid to a legal group for representing homeowners who sued Wells Fargo Bank concerning home mortgages.

The trial court ruled in 2015 that no legal fees would be paid to the Initiative Legal Group (ILG), and that the monies would go to members of the class action who participated in the settlement.

“On remand, the trial court concluded that ILG was not entitled to an award of attorney’s fees. The monies on deposit with the court were instead directed to be paid to the class members of Lofton v. Wells Fargo Home Mortgage (Lofton) who participated in the settlement, including ILG’s clients. ILG and parties who sought to intervene and vacate the Lofton and ILG settlements appealed. We affirm,” Judge Peter J. Siggins wrote in the Sept. 28 ruling.

In reviewing the history of this case, the court approved a temporary restraining order in 2014 that required ILG to deposit some $5 million in settlement claims in an escrow account to be supervised by the court. ILG said the $5 million represented attorneys’ fees for the cases of 600 clients who were suing Wells Fargo.

However, a restraining order was issued to conserve the $5 million because it was believed that ILG’s clients had already been compensated through a $19 million class action awarded in Lofton v. Wells Fargo Home Mortgage. The allegation was that ILG was paying itself without court approval.

“The factual and procedural background portion of our Lofton I opinion sets forth the unique factual context of this case. In part, those facts showed that ILG concealed from the Lofton court and its class member clients the $6 million settlement with Wells Fargo for payment of its attorney’s fees in violation of California Rules of Court,” Siggins wrote.

“In light of ILG’s attempt to arrogate to itself millions in fees for claims resolved in Lofton, we queried whether the record would support any fee award to ILG and indicated that, if the allegations supporting the temporary restraining order were true, 'it would be within the court’s jurisdiction to review the supplemental fee agreement and to order the ILG attorneys to disgorge some or all of the fees already received,'” Siggins said.

In conclusion, Siggins said, “The trial court has a substantial interest in preserving the proceeds of a settlement that arguably should have been allocated and approved within the context of the class action proceedings."

Also sitting on the three-judge panel were Judge Stuart R. Pollak and Judge Martin J. Jenkins, who concurred.

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