On May 9, 2012, Raceway Ford, Inc. was awarded $1,468,380 in attorneys’ fees plus costs against 14 named class representative plaintiffs in an automobile retail sales contract backdating class action case.The defendant was able to obtain this award because the statute, under which the plaintiffs sued, the California Automobile Sales Finance Act, has a mutual fee-shifting provision. Because Raceway Ford defeated all claims the named class representatives got hit with the full amount of the defendant’s attorneys’ fees.

The award heightens the debate on whether class action plaintiffs’ attorneys should be required to inform potential class representative plaintiffs that they could be held liable for defendants’ attorneys’ fees if the defendants prevail.

The California Legislature recently considered and then killed a bill that would have required attorneys advertising for class action plaintiffs to inform potential representative plaintiffs that they can be held liable for a defendant’s attorneys’ fees if the defendant is the prevailing party.

Under the recently proposed California bill, an attorney advertisement soliciting persons to act as class action representative plaintiffs would have had to include a disclosure stating that a plaintiff in a class action may be financially liable for the attorneys’ fees of the defendant where the defendant is the prevailing party. The proposed bill would have also required the Bar to impose a civil penalty of $2,000 against the soliciting attorney for a violation of the provision.

Even without a law requiring disclosure, failing to disclose the risk of an attorneys’ fees award to potential class representative plaintiffs could be viewed as legal malpractice. However, if such a disclosure is required it is hard to imagine that anyone would agree to be a class representative. A class representative is currently entitled to receive only the same compensation as any other class member and a Court approved “incentive fee,” which typically ranges from $2000 to $20,000. If a class representative can be liable for defendant’s attorneys’ fees that creates potential class representative liability in the hundreds of thousands to millions of dollars.

The potential for fee awards to defendants could be a welcome “wake up call” to plaintiffs’ attorneys that you can’t just file suit hoping to get a settlement and the worst that will happen is you lose some attorney time and small out of pocket costs. We will keep you informed of future developments.