Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-01685/USCOURTS-casd-3_12-cv-01685-5/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1391 Venue

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

NEI CONTRACTING AND 

ENGINEERING, INC.,

Plaintiff,

Case No. 12-cv-01685-BAS(JLB)

ORDER DENYING PLAINTIFF’S 

MOTION FOR ATTORNEYS’ 

FEES AND COSTS

[ECF No. 182]

v.

HANSON AGGREGATES, INC., et 

al.,

Defendants.

Plaintiff NEI Contracting and Engineering, Inc. (“NEI”) placed orders for 

concrete by phone with Defendant Hanson Aggregates Pacific Southwest, Inc. 

(“Hanson”). After accepting delivery of the concrete, NEI refused to pay for it. But 

NEI’s efforts to stiff Hanson crumbled when Hanson produced recordings of its phone 

orders. The company paid its bill in full.

NEI then filed this putative class action against Hanson based on Hanson’s 

practice of recording customers’ phone calls. It hoped to recover millions of dollars 

in damages on behalf of a class of Hanson’s customers. NEI also sought to change 

Hanson’s conduct. The company succeeded on the second point—part way through 

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the litigation, Hanson voluntarily changed its phone system’s admonition to advise 

customers that their calls may be recorded. 

It would turn out to be a Pyrrhic victory. By the time NEI discovered Hanson’s 

new behavior, the company’s contingency fee counsel had already invested nearly 

$300,000 worth of time into this case. Yet, the hope of a large class action recovery 

never materialized. NEI proceeded to trial on its individual claim against Hanson, and 

it lost. The company recovered nothing. 

Now, NEI turns to California’s Private Attorney General Statute and the state’s 

catalyst theory to try to recoup some of its counsel’s investment. By leveraging its 

success in changing Hanson’s conduct, the company hopes to subsidize its 

unsuccessful pursuit of a class action recovery. Thus, NEI seeks to recover all of its 

attorneys’ fees up to the date it discovered Hanson’s new behavior. The company also 

requests this fee amount be increased by a multiplier of 1.75—for a total bounty of 

almost $500,000. Hanson opposes.1

Although NEI achieved partial success, a fee award is not appropriate. NEI 

does not meet its burden of demonstrating the requirements under California’s Private 

Attorney General Statute and the catalyst theory are satisfied. Consequently, for the 

following reasons, the Court DENIES NEI’s motion.

I. BACKGROUND2

Hanson sells crushed aggregates, ready-mix concrete, and soil amendments to 

the construction industry. NEI is a general contractor that has purchased concrete 

products from Hanson since at least 2002. As mentioned above, this case arises from 

Hanson’s practice of recording its customers’ phone orders and a billing dispute 

between the parties that was resolved through reference to recordings of NEI’s orders.

 

1 The Court finds this motion suitable for determination on the papers submitted and without 

oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1).

2 The following background is adopted from the Court’s Findings of Fact and Conclusions 

of Law (ECF No. 180) and the record in this action.

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A. Hanson’s Recording Practice

Hanson receives orders for ready-mix concrete and aggregate materials through 

its dedicated phone order line. Before the order is placed, the customer generally 

speaks with Hanson’s sales and specifications departments to determine what is

needed and the pricing of the order. None of these calls, nor calls to Hanson’s 

administrative or billing departments, is recorded. However, Hanson does record all 

calls that come into its dispatch lines, which are used when a customer actually places 

an order. 

Prior to July 15, 2009, Hanson used a Voice Print International (“VPI”) phone 

system. While the VPI system was in place, Hanson used “beep tone generators” on 

all of its telephones that received calls to the dispatch lines. The beep tone generators 

qualified as notice of recording. 

NEI’s owner and president is Eric Barajas. Various NEI employees, including 

Rich Degraffenreid, Sandy LeFever, and Charles Alexander, had authority to and did 

place orders with Hanson on behalf of NEI from job sites using their cell phones. 

Thus, NEI employees placed orders through Hanson’s dispatch lines prior to July 15, 

2009, and heard the audible beep tones generated by Hanson’s beep tone generators. 

Accordingly, prior to July 15, 2009, NEI knew it was being recorded when its 

employees called the Hanson dispatch lines and therefore consented to the recording.

In July 2009, Hanson replaced its VPI system with an OAISYS Talkument 

phone system. As part of this phone system, Hanson included a pre-recorded verbal 

admonition stating that the call “may be monitored for quality assurance” to any 

customers calling through the dispatch lines. NEI continued to place orders with 

Hanson after it switched to the OAISYS Talkument phone system.

B. Billing Dispute

In 2011, NEI placed orders with Hanson in conjunction with its work on a 

construction project. Mr. Degraffenreid was the superintendent on the project. He, 

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Mr. Alexander, and Mr. LeFever all had authority to place orders in conjunction with 

this project. The original estimate for the project was 100 cubic yards of concrete. In 

fact, however, the project used over 600 cubic yards of concrete. Hanson thus billed 

NEI for this higher amount of concrete.

Mr. Barajas, who was reviewing the Hanson invoices for the project, thought 

the bill was too high. He did not make inquiry of any of NEI’s employees who placed 

the orders whether the bills were correct or not. Instead, he requested proof from 

Hanson that the orders belonged to NEI. Hanson provided copies of the original 

invoices for the concrete orders, but Mr. Barajas still disputed the bills and requested 

proof that the amount of concrete billed was actually delivered to NEI. Hanson then 

provided copies of the delivery tickets for the concrete NEI ordered. The delivery 

tickets were signed by NEI employees at the construction site who accepted delivery 

of the concrete. However, because many of the signatures were illegible, Mr. Barajas 

refused to pay the charges.

In response, Hanson filed a lawsuit against NEI and its bond company on 

December 8, 2011, seeking approximately $66,266.98, plus costs and fees, for unpaid 

invoices. Mr. Barajas countered that the concrete billed by Hanson could not have 

been concrete for the construction project at issue because the project did not require 

the particular strength of concrete being billed. Hanson replied by producing on 

March 8, 2012, recordings of phone calls with NEI employees that proved NEI had 

ordered the particular strength of concrete for the project. 

After being confronted with invoices, signed delivery tickets, and recordings 

of NEI employees ordering the concrete, Mr. Barajas acquiesced and settled the case 

on behalf of NEI in May 2012 and paid the amount invoiced. Hanson agreed to waive 

any attorneys’ fees or interest requested. NEI did not object to Hanson’s recording 

practice during this billing dispute.

//

//

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C. CIPA Action

Shortly thereafter, on July 6, 2012, NEI filed the present action against Hanson

under California’s Invasion of Privacy Act (“CIPA”) and the Class Action Fairness 

Act. The company did not try to resolve this dispute before filing suit. NEI’s initial 

pleading raised a putative class claim under California Penal Code section 632, which 

prohibits the recording of confidential communications. The company, however, 

ultimately abandoned this claim in favor of a claim under California Penal Code 

section 632.7, which prohibits the recording of cell phone calls without consent. Thus, 

NEI’s Second Amended Complaint filed on October 29, 2013, alleged Hanson

violated section 632.7 by recording its customers’ phone calls without their consent. 

NEI sought $5,000 in statutory damages per violation of section 632.7. It also sought 

injunctive relief enjoining Hanson’s alleged violation of section 632.7.

D. Change in Hanson’s Conduct

On December 23, 2013—a few months after NEI filed its Second Amended 

Complaint and clarified its theory of relief—Hanson changed the admonition that 

customers hear when calling its dispatch lines. The new admonition informs 

customers that their calls “may be monitored or recorded for quality assurance.” 

Hanson disclosed this change on August 8, 2014, in a response to a written discovery 

request, which NEI’s counsel reviewed on August 11, 2014. (Campion Decl. ¶ 3, Ex. 

A, ECF Nos. 182-2, 183-3.)

E. Trial

Ultimately, after the Court resolved a motion for summary judgment and 

various motions related to class certification, NEI’s individual claim and request for 

injunctive relief remained for trial. Before trial, the Court ruled that NEI could 

potentially recover $5,000 for every one of the forty-four cell phone calls Hanson 

allegedly recorded without NEI’s consent. Hence, NEI’s potential recovery at trial 

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was $220,000. However, the morning of trial, NEI informed the Court and Hanson 

that it would be proceeding on only one cell phone call between NEI’s principal Mr. 

Barajas and Hanson on November 21, 2011, and would, therefore, only be seeking 

damages of $5,000 along with injunctive relief. The parties orally waived their right 

to a jury and proceeded by way of bench trial.

Following trial, the Court ruled against NEI on the merits and entered judgment 

in favor of Hanson. Although it lost at trial, NEI now brings a motion to recover the 

amount of attorneys’ fees it incurred up until August 11, 2014—the date it discovered 

Hanson had changed its conduct. Specifically, NEI seeks to recover its claimed actual 

fees of $283,397.50, increased by a multiplier of 1.75, for a total of $495,945.63 in 

attorneys’ fees.

II. ANALYSIS

NEI brings its request for attorneys’ fees under California’s Private Attorney 

General Statute, Cal. Civ. Proc. Code § 1021.5. Under this provision, “a court may 

award attorneys’ fees to a successful party against one or more opposing parties” if 

the action “has resulted in the enforcement of an important right affecting the public 

interest” and several additional requirements are satisfied. Cal. Civ. Proc. Code § 

1021.5. 

Section 1021.5 is “[a]n important exception” in California “to the American 

rule that litigants are to bear their own attorney fees.” Graham v. DaimlerChrysler 

Corp., 34 Cal. 4th 553, 565 (2004). California enacted the provision “as a codification 

of the private attorney general doctrine of attorney fees developed in prior judicial 

decisions.” Maria P. v. Riles, 43 Cal. 3d 1281, 1288 (1987). This doctrine “rests upon 

the recognition that privately initiated lawsuits are often essential to the effectuation 

of the fundamental public policies embodied in constitutional or statutory provisions, 

and that, without some mechanism authorizing the award of attorney fees, private 

actions to enforce such important public policies will as a practical matter frequently 

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be infeasible.” Woodland Hills Residents Ass’n, Inc. v. City Council, 23 Cal. 3d 917, 

933 (1979). “Thus, the fundamental objective of the doctrine is to encourage suits 

enforcing important public policies by providing substantial attorney fees to 

successful litigants in such cases.” Riles, 43 Cal. 3d at 1289. 

To accomplish this objective, the California Supreme Court has “taken a broad, 

pragmatic view of what constitutes a ‘successful party’ ” under section 1021.5.

Graham, 34 Cal. 4th at 565. “In determining whether a plaintiff is a successful party 

for purposes of section 1021.5, ‘[t]he critical fact is the impact of the action, not the 

manner of its resolution.’ ” Id. at 566 (quoting Folsom v. Butte Cty. Ass’n of Gov’ts, 

32 Cal. 3d 668, 685 (1982)). Therefore, the “trial court in its discretion ‘must 

realistically assess the litigation and determine, from a practical perspective, whether 

or not the action served to vindicate an important right so as to justify an attorney fee 

award’ under section 1021.5.” Id. (quoting Woodland Hills, 23 Cal. 3d at 938). 

Under this pragmatic approach, “[i]t is not necessary for a plaintiff to achieve 

a favorable final judgment to qualify for attorneys’ fees so long as the plaintiff’s 

actions were the catalyst for the defendant’s actions, but there must be some relief to 

which the plaintiff’s actions are causally connected.” Coal. for a Sustainable Future 

in Yucaipa v. City of Yucaipa, 238 Cal. App. 4th 513, 521 (2015). Thus, the “catalyst 

theory” for defining a “successful party” allows “an award of attorney fees even when 

the litigation does not result in a judicial resolution if the defendant changes its 

behavior substantially because of, and in the manner sought by, the litigation.” Id.; 

see also Vasquez v. State, 45 Cal. 4th 243, 260 (2008) (“[O]f necessity, a plaintiff who 

has not succeeded in obtaining ‘a judicial resolution’ or ‘a judicially recognized 

change in the legal relationship between the parties’ must obtain attorney fees under 

the catalyst theory, or not at all.” (citations omitted)).

To recover fees under the catalyst theory, “a plaintiff must establish that (1) the 

lawsuit was a catalyst motivating the defendants to provide the primary relief sought; 

(2) that the lawsuit had merit and achieved its catalytic effect by threat of victory, not 

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by dint of nuisance and threat of expense . . . ; and, (3) that the plaintiff[ ] reasonably 

attempted to settle the litigation prior to filing the lawsuit.” Tipton-Whittingham v. 

City of Los Angeles, 34 Cal. 4th 604, 608 (2004). This theory “saves judicial resources 

by encouraging the plaintiff to discontinue its litigation after the defendant acquiesces 

to the remedy initially sought.” Marine Forests Soc’y v. Cal. Coastal Comm’n, 160 

Cal. App. 4th 867, 877 (2008).

Accordingly, if the catalyst theory applies, the plaintiff is considered a 

“successful party” under section 1021.5. See Graham, 34 Cal. 4th at 567. The 

plaintiff, however, must still then satisfy section 1021.5’s remaining requirements to 

obtain a fee award. Cal. Civ. Proc. Code § 1021.5. These requirements are 

“established when ‘(1) plaintiffs’ action “has resulted in the enforcement of an 

important right affecting the public interest,” (2) “a significant benefit, whether 

pecuniary or nonpecuniary has been conferred on the general public or a large class 

of persons,” and (3) “the necessity and financial burden of private enforcement are 

such as to make the award appropriate.” ’ ” Millview Cty. Water Dist. v. State Water 

Res. Control Bd., 4 Cal. App. 5th 759, 768 (2016) (quoting Summit Media LLC v. City 

of Los Angeles, 240 Cal. App. 4th 171, 187 (2015)). The party seeking fees under 

section 1021.5 has the burden “to demonstrate all elements of the statute[.]” Id. (citing 

Norberg v. Cal. Coastal Comm’n, 221 Cal. App. 4th 535, 545–546 (2013)). If the 

catalyst theory’s and section 1021.5’s requirements are established, the court then 

determines the appropriate fee award by applying the lodestar method and gauging 

“whether the lodestar figure should be augmented or diminished by one or more 

relevant factors.” Cates v. Chiang, 213 Cal. App. 4th 791, 820 (2013). 

In this case, NEI lost at trial. Therefore, the company did not succeed in 

obtaining “a judicial resolution” that changed Hanson’s conduct. See Vasquez, 45 Cal. 

4th at 260. NEI must then attempt to “obtain attorney fees under the catalyst theory, 

or not at all.” See id. Recognizing this limitation, the company argues this case 

satisfies all of the requirements for it to proceed under section 1021.5 on a catalyst 

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theory basis. In short, NEI believes that because its lawsuit caused Hanson to change 

its call admonition to warn customers that their calls may be recorded, NEI should 

recover all of its attorneys’ fees up until the date it discovered Hanson’s new behavior. 

(Mot. 1:2–2:23.)

The Court is unconvinced. NEI does not demonstrate a fee award is appropriate 

under section 1021.5 on a catalyst theory basis for several reasons. Initially, the 

company does not show it obtained the primary relief it was seeking in this lawsuit. 

Second, NEI fails to demonstrate it reasonably attempted to settle this case before 

filing it. Third, NEI does not establish that the financial burden of private enforcement 

makes a fee award appropriate. The Court will expound on each of these reasons in 

turn.

A. Primary Relief Sought

In non-catalyst cases under section 1021.5—those cases where the plaintiff 

succeeds in obtaining judicial relief—“it is sufficient if the plaintiff achieved partial 

success or succeeded on any significant issue in the litigation which achieved some of 

the benefit the plaintiff sought in bringing suit.” Marine Forests Soc’y, 160 Cal. App. 

4th at 878. “However, in catalyst cases, the defendant must have provided the plaintiff 

with the primary relief sought.” Id.

For instance, in Marine Forests Society, the plaintiff nonprofit corporation’s 

primary goal was to enjoin the California Coastal Commission from requiring the 

plaintiff “to remove an experimental man-made reef that it had planted on the ocean 

floor.” 160 Cal. App. 4th at 870. The plaintiff “raised every conceivable theory . . . to 

prevent this from occurring,” including an argument that the Coastal Commission’s 

structure violated the California Constitution’s separation of powers clause. Id. at 878. 

“In other words, its primary objective was to preserve the artificial reef.” Id. The 

lawsuit did not save the reef. Id. However, the case did lead to a determination that 

the Coastal Commission’s structure violated the California Constitution—causing the 

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legislature to change the Coastal Commission’s governing statutes. Id. at 870, 878. 

Based on this partial success, the trial court awarded attorneys’ fees to the plaintiff 

under the catalyst theory for part of the litigation, rationalizing that “[a] significant 

goal of the litigation was to ensure that the composition of the Coastal Commission 

complied with the separation of powers doctrine.” Id. at 878 (alteration in original). 

The California Court of appeal reversed. 160 Cal. App. 4th at 881. It reasoned 

that the allegations of the plaintiff’s complaint “disclose[d] that its primary goal was 

to save its reef, not to” challenge the Coastal Commission’s structure. Id. at 878. The 

Coastal Commission, however, “did not provide the primary relief that [the plaintiff] 

sought.” Id. at 879. Accordingly, because the plaintiff “failed to establish that [the] 

defendant provided the primary relief sought in its litigation,” the Court of Appeal

held the trial court erred in awarding fees under the catalyst theory. Id.

Here, NEI argues that Hanson’s recording practice “was the basic underlying 

problem sought to be remedied in this action.” (Mot. 2:3–4.) And, because Hanson 

changed its conduct, NEI claims its action “was the catalyst in bringing about the 

relief sought in the litigation.” (Id. 7:16–17; see also id. 7:23–8:10.) The complication 

with this argument is that it does not acknowledge that NEI was seeking other relief

in this case—namely, to recover not only tens of thousands of dollars in damages on 

its own behalf, but also potentially millions of dollars in damages on behalf of a class 

of Hanson’s customers. At the pleadings stage, NEI alleged the amount in controversy 

exceeded $5 million, and this figure neared $1.053 billion when the company later

sought class certification.3 Further, because NEI omits mention of the other relief it 

was seeking, the company fails to argue in its motion that its goal of changing 

Hanson’s admonition was “the primary relief sought.” See Marine Forests Soc’y, 160 

Cal. App. 4th at 878. 

 

3 NEI requested $5,000 in statutory damages per violation and claimed that Hanson had 

recorded 210,668 phone calls in violation of CIPA.

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Moreover, changing Hanson’s admonition was not NEI’s primary goal. Rather, 

the Court finds this goal was incidental to NEI and its counsel’s primary objective of 

obtaining damages on an individual and classwide basis. This conclusion is supported 

by the fact that NEI continued to prosecute this case after learning Hanson changed 

its conduct. If NEI was primarily seeking to change Hanson’s conduct, it likely would 

not have continued to litigate this case through trial. See Marine Forests Soc’y, 160 

Cal. App. 4th at 877 (noting the catalyst theory “saves judicial resources by 

encouraging the plaintiff to discontinue its litigation after the defendant acquiesces to 

the remedy initially sought”). In the same vein, the company discloses that its counsel 

incurred “approximately 2 1⁄2 to 3 times” more in attorneys’ fees to prosecute this case 

after discovering Hanson’s changed behavior. (Opp’n 18:21–23; Campion Decl. ¶ 4.) 

Again, if NEI had already obtained the primary relief it was seeking, it would not have 

incurred double to triple the amount of attorneys’ fees to continue with this case—

unless that is, as the Court concludes, NEI’s primary goal was to obtain damages, 

particularly a common fund recovery.

In sum, NEI fails to argue that Hanson provided NEI with the primary relief it 

was seeking by changing the admonition customers hear when placing phone orders. 

Further, the Court finds changing Hanson’s conduct was not NEI’s primary objective 

in this case. Accordingly, NEI does not demonstrate the catalyst theory’s first 

requirement is satisfied. 

B. Reasonable Attempt to Settle Before Filing Suit

“In order to be eligible for attorney fees under section 1021.5” in a catalyst 

case, “the plaintiff must have engaged in a reasonable attempt to settle its dispute with 

the defendant prior to litigation.” Graham, 34 Cal. 4th at 560–61; accord Vasquez, 45 

Cal. 4th at 253; Tipton-Whittingham, 34 Cal. 4th at 608. “Lengthy prelitigation 

negotiations are not required, nor is it necessary that the settlement demand be made 

by counsel, but a plaintiff must at least notify the defendant of its grievances and 

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proposed remedies and give the defendant the opportunity to meet its demands within 

a reasonable time.” Graham, 34 Cal. 4th at 577.

“[T]his requirement is fully consistent with the basic objectives behind section 

1021.5 and with one of its explicit requirements—the ‘necessity . . . of private 

enforcement’ of the public interest.” Graham, 34 Cal. 4th at 577. “Awarding attorney 

fees for litigation when those rights could have been vindicated by reasonable efforts 

short of litigation does not advance that objective and encourages lawsuits that are 

more opportunistic than authentically for the public good.” Id. Thus, the requirement 

that the plaintiff engage in reasonable settlement efforts prior to filing suit “is an 

important categorical rule in section 1021.5 catalyst cases and cannot be ignored 

merely because the court believes it would be equitable for the plaintiff to receive a 

fee award or that plaintiff had a good excuse for failing to engage in these efforts.” 

Cates, 213 Cal. App. 4th at 816. 

That said, the rule requiring a reasonable settlement attempt “should not be 

applied to bar an attorney fees recovery where to do so would defeat the core purpose 

of the statute.” Cates, 213 Cal. App. 4th at 816. It should not be invoked “blindly 

without any consideration of whether the [settlement attempt] would have made any 

difference in the need for the lawsuit and whether the plaintiff’s motivations were 

directed toward seeking the relief demanded, as opposed to the recovery of attorney 

fees.” Id. at 817; see also Carian v. Dep’t of Fish & Wildlife, 235 Cal. App. 4th 806, 

815 (2015) (“[I]f the trial court finds that attempts to settle the dispute by the plaintiff 

would have been futile, the plaintiff may not be barred from recovering section 1021.5 

attorney fees because of the lack of a settlement attempt.”).

To illustrate, in Carian, the California Court of Appeal affirmed the denial of 

a request for attorneys’ fees under section 1021.5 where the trial court found the 

plaintiff did not make a reasonable pre-litigation attempt to settle his dispute. 235 Cal. 

App. 4th at 819–20. There, the plaintiff was seeking to reopen a recreational trail. Id.

at 811. He argued he satisfied the reasonable settlement attempt requirement because 

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he met with an employee of the California Department of Fish and Wildlife about the 

trail and notified the state attorney general of his intent to seek to reopen the trail. Id.

at 812. The trial court rejected this argument. Id. at 813. The court reasoned that the 

plaintiff should have at least approached the state agency that had the ultimate 

authority to allow access to the trail—the California Fish and Game Commission—

as opposed to the Department of Fish and Wildlife, which merely enforces the 

Commission’s regulations. Id. at 813, 818. The trial court also found the plaintiff 

offered no evidence that it would have been futile to make further settlement efforts

before filing suit. Id. at 819. Thus, the court denied the plaintiff’s request for fees. Id.

at 813. Reviewing for an abuse of discretion, the Court of Appeal affirmed for the 

same reasons. Id. at 816–20; see also Mundy v. Neal, 186 Cal. App. 4th 256, 259 

(2010) (applying the catalyst theory to a fee request under a different statute than 

section 1021.5 and concluding the plaintiff could not succeed because she did not give 

the defendant an opportunity to remedy the problem before filing suit).

In this case, NEI does not demonstrate that it made any effort—let alone a 

reasonable one—to settle the action beforehand. The company nevertheless argues

that it should be excused from this requirement because it believes attempting to settle 

the case would have been futile. (Mot. 9:1–10:21.) NEI does not submit any evidence

with its motion to support this position. (See id. 10:9–21.) It does, however, advance 

two arguments on this point. First, the company claims any pre-litigation settlement 

attempt would have been futile because once the case was filed, Hanson “did not 

engage in any conduct that would support any other conclusion.” (Mot. 10:11–13.) 

Specifically, NEI highlights that Hanson “argued for years—even at trial—that it 

believed” its prior admonition to customers that their calls may be monitored was 

adequate. (Id. 10:12–15.) The company also notes Hanson “even filed for summary 

judgment on that issue, which was denied.” (Id. 10:15–16.) 

This argument is unpersuasive. Most of the conduct NEI highlights occurred 

after Hanson had already changed its admonition, not before—minimizing its 

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relevance. This distinction also separates this case from the decision recognizing a 

futility exception that NEI relies upon—Cates v. Chiang, 213 Cal. App. 4th 791 

(2013). There, once the plaintiff’s grievance was brought to the defendant 

commission’s attention, the commission continued to engage in actions showing that 

it believed it had done nothing wrong for four years. Id. at 815. The commission then 

finally acquiesced after it received an unfavorable appellate decision in the case. Id.

at 802. The Court of Appeal reasoned that this conduct, among other evidence, 

supported the trial court’s determination that a pre-litigation settlement attempt would 

have been futile. Id. at 815. In contrast here, although NEI continued to defend its 

prior admonition, the company had already changed its conduct moving forward—

indicating it was not stalwartly opposed to modifying its phone system’s admonition. 

Further, there is a reasonable explanation for why Hanson continued to defend its 

prior admonition: NEI continued to prosecute this case and pursue its primary 

objective of recovering sizable damages based on Hanson’s past conduct. Thus, this 

argument does not persuade the Court that a request from NEI to Hanson to change 

its admonition prior to NEI filing suit would have been futile. 

As for NEI’s second argument in support of futility, the company argues that 

because Hanson changed its admonition seventeen and a half months after NEI filed 

suit, “it is beyond dispute Hanson would not have simply changed its [admonition] 

because [NEI]’s counsel asked them to do so.” (Mot. 10:11–13.) The Court disagrees. 

A passage of time, alone, does not demonstrate a reasonable attempt to settle the case

beforehand would have been futile. Moreover, NEI’s emphasis on the length of time 

that elapsed between the filing of this case and the change in Hanson’s admonition 

overlooks the events that were unfolding in this case. During most of this time period, 

NEI’s pleadings—none of which even mentioned Hanson’s original admonition—

were uncertain. NEI initially sought relief under California Penal Code section 632, 

which prohibits the eavesdropping or monitoring of confidential communications. A 

conversation is confidential under this section “if a party to that conversation has an 

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objectively reasonable expectation that the conversation is not being overheard or 

recorded.” Flanagan v. Flanagan, 27 Cal. 4th 766, 768 (2002); see also Kight v. 

CashCall, Inc., 231 Cal. App. 4th 112, 122 (2014). Given that Hanson’s initial 

admonition warned its customers that their calls may be monitored, their calls were 

arguably not confidential communications under section 632 because the customers 

lacked a reasonable expectation that their conversations were not being overheard or 

recorded. See Flanagan, 27 Cal. 4th at 768; Kight, 231 Cal. App. 4th at 122. Hanson, 

therefore, had a colorable defense to NEI’s original action based on its prior 

admonition.

Yet, in its Second Amended Complaint, NEI abandoned its section 632 claim 

in favor of a claim under section 632.7. This provision prohibits the recording of a 

cell phone call without consent, but it does not contain a requirement that the cell

phone call be a confidential communication. See Cal. Penal Code § 632.7. Hanson’s 

original admonition, by itself, was not sufficient to foreclose liability under this 

section. The company revised its admonition only several months after NEI clarified 

its theory of relief. Thus, because a lapse of time by itself is unconvincing, and 

because NEI’s theory of relief was uncertain for most of this time period, the Court is 

not persuaded by NEI’s argument that the length of time between when it filed suit 

and Hanson changed its conduct demonstrates futility.

In addition to advancing these two unpersuasive arguments, NEI relies on 

MacDonald v. Ford Motor Co., 142 F. Supp. 3d 884 (N.D. Cal. 2015), to support its 

futility position. NEI informs this Court that the MacDonald court “found a 

prelitigation demand there would have been futile.” (Mot. 9:18–19; see also id. 10:4–

6.) Indeed, a review of the MacDonald court’s order reveals it did reach this 

conclusion—because “the Parties agree[d] that any attempt by Plaintiffs to settle th[e] 

case would have been futile.” 142 F. Supp. 3d at 895. Hanson has made no comparable 

concession in this case. The Court consequently rejects NEI’s attempt to rely on 

MacDonald to support its position. 

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Accordingly, NEI does not establish that it engaged in any effort to settle this 

case before filing it. The company also does not show that a reasonable settlement 

attempt would have been futile. NEI therefore does not satisfy its burden of 

demonstrating this requirement of the catalyst theory is satisfied.

C. Financial Burden of Private Enforcement

Last, the Court shifts to discussing one of the conditions under section 1021.5 

that must be satisfied in all cases: “the necessity and financial burden of private 

enforcement” must be “such as to make the award appropriate.” Cal. Civ. Proc. Code 

§ 1021.5. This condition “really examines two issues: [1] whether private enforcement 

was necessary and [2] whether the financial burden of private enforcement warrants 

subsidizing the successful party’s attorneys.” In re Conservatorship of Whitley, 50 

Cal. 4th 1206, 1214 (2010). 

The Court focuses on the financial burden issue in this case. The California 

Supreme Court has explained:

In determining the financial burden on litigants, courts have quite 

logically focused not only on the costs of the litigation but also any 

offsetting financial benefits that the litigation yields or reasonably could

have been expected to yield. “An award on the ‘private attorney general’ 

theory is appropriate when the cost of the claimant’s legal victory 

transcends his personal interest, that is, when the necessity for pursuing 

the lawsuit placed a burden on the plaintiff ‘out of proportion to his 

individual stake in the matter.’ ” 

Whitley, 50 Cal. 4th at 1215 (quoting Woodland Hills, 23 Cal. 3d at 941). Thus, this 

requirement “focuses on the financial burdens and incentives involved in bringing the 

lawsuit.” Press v. Lucky Stores, Inc., 34 Cal. 3d 311, 321 (1983).

Accordingly, “[i]n evaluating the element of financial burden, ‘the inquiry 

before the trial court [is] whether there were “insufficient financial incentives to 

justify the litigation in economic terms.” ’ ” Millview, 4 Cal. App. 5th at 768 (second 

alteration in original) (quoting Summit Media, 240 Cal. App. 4th at 193). An award 

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under section 1102.5 is not warranted where “the plaintiff had a ‘personal financial 

stake’ in the litigation ‘sufficient to warrant [the] decision to incur significant attorney 

fees and costs in the vigorous prosecution’ of the lawsuit.” Id. at 768–69 (alteration 

in original) (quoting Summit Media, 240 Cal. App. 4th at 193–94). 

An award is not appropriate where the plaintiff has a sufficient personal 

financial stake in the litigation because the statute “was not designed as a method for 

rewarding litigants motivated by their own pecuniary interests who only 

coincidentally protect the public interest.” Davis v. Farmers Ins. Exch., 245 Cal. App. 

4th 1302, 1329 (2016) (quoting Beach Colony II v. Cal. Coastal Comm’n, 166 Cal. 

App. 3d 106, 114 (1985)). “Private attorney general fees are not intended to provide 

insurance for litigants and counsel who misjudge the value of their case, and 

vigorously pursue the litigation in the expectation of recovering substantial damages, 

and then find that the jury’s actual verdict is not commensurate with their expenditure 

of time and resources.” Satrap v. Pac. Gas & Elec. Co., 42 Cal. App. 4th 72, 79–80 

(1996). Rather, section 1102.5’s “purpose is to provide some incentive for the plaintiff 

who acts as a true private attorney general, prosecuting a lawsuit that enforces an 

important public right and confers a significant benefit, despite the fact that his or her 

own financial stake in the outcome would not by itself constitute an adequate 

incentive to litigate.” Id. at 80. Thus, in gauging the financial burden, “[t]he relevant 

issue is ‘the estimated value of the case at the time the vital litigation decisions were 

being made.’ ” Millview, 4 Cal. App. 5th at 769 (quoting Davis, 245 Cal. App. 4th at 

1330).

California courts have adopted different approaches to evaluating the financial 

burden requirement. See Millview, 4 Cal. App. 5th at 772; see also Woodfin Suites 

Hotel, LLC v. City of Emeryville, No. A123106, 2010 WL 894086, at *3–4 (Cal. Ct. 

App. Mar. 15, 2010) (unpublished) (collecting numerous cases applying different 

approaches to this factor). A straightforward approach is illustrated by the California 

Court of Appeal’s decision in Davis v. Farmers Insurance Exchange, 245 Cal. App. 

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4th 1302, 1310 (2016). In that case, the trial court rejected the plaintiff’s request for 

fees under section 1021.5, and the Court of Appeal affirmed on this issue. Id. at 1338. 

In discussing the financial burden inquiry, the court determined the plaintiff’s 

“reasonable expectation of financial benefits from the litigation was sufficient to 

motivate him to pursue the litigation.” Id. at 1329. It noted the plaintiff “sought over 

ten million dollars in damages for his allegedly wrongful discharge,” and “he expected 

to recover hundreds of thousands of dollars for improper wage deductions.” Id. at 

1330. Thus, the court concluded “it was reasonable for the [trial] court to find that at 

every critical juncture [the plaintiff] expected a substantial financial recovery, and 

that this was sufficient motivation to pursue the case”—making a fee award under 

section 1021.5 inappropriate. Id.

In this case, NEI briefly addresses why it believes section 1021.5’s financial 

burden requirement is satisfied. (See Mot. 16:13–23.) The company argues the cost to 

it “far exceeded its personal interest in the case,” and NEI “had no financial incentive 

to bring about” a change in Hanson’s conduct, “other than what it would receive as a 

class member’s a [sic] pro rata distribution of a class-wide settlement if successful, 

and a small incentive payment as a class representative.” (Id. 16:16–20.) In response, 

Hanson emphasizes the amount of damages NEI was seeking on both an individual 

and classwide basis and contends it “is ludicrous to argue that these amounts were 

insufficient to incentivize a private action as just the opposite is true—these amounts 

are so high that it incentivized NEI and its counsel to take a gamble on a completely 

meritless claim that it lost on the merits after trial.” (Opp’n 14:20–15:2.). Last, in 

replying to Hanson’s emphasis on what NEI hoped to recover, NEI argues that this 

Court should instead focus on “the actual result” in this case and “the fees necessary 

to reward [NEI’s] counsel for work incurred in obtaining that result.” (Reply 8:14–

17.)

The Court agrees with Hanson that NEI does not establish there were

“insufficient financial incentives to justify the litigation in economic terms.” See 

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Millview, 4 Cal. App. 5th at 768. At the threshold, the Court declines to adopt NEI’s 

approach of focusing on the “actual result” in this case. That approach is not justified 

here because it does not adequately consider the “financial incentives to participate in 

litigation—that is, the potential financial benefits, broadly defined—regardless of the 

actual recovery, if any, from the litigation.” Id. at 772; accord Davis, 245 Cal. App. 

4th at 1330 (focusing on the estimated value of the case when litigation decisions 

were made); Children & Families Comm’n of Fresno Cty. v. Brown, 228 Cal. App. 

4th 45, 62 (2014) (noting the court is concerned with evaluating “incentives rather 

than outcomes” under the financial burden requirement). Moreover, the California 

Court of Appeal has cautioned that the distinction between the estimated value of the 

case—as opposed to the “actual result”—is significant “when there is substantial 

disparity between actual recovery and the amount the plaintiffs ‘hoped’ to recover.” 

Satrap, 42 Cal. App. 4th at 79 (quoting Beasley v. Wells Fargo Bank, 235 Cal. App.

3d 1407 (1991)).

This action is such a case. There is a substantial disparity between NEI’s actual 

recovery—zero—and the amount NEI and its counsel hoped to recover. NEI does not 

provide an estimated value of this case “at the time the vital litigation decisions were 

being made,” see Millview, 4 Cal. App. 5th at 769, but the Court is confident that it 

was high enough to incentivize NEI to bring this case without an award of fees under 

section 1021.5.

As mentioned, NEI brought this case under the Class Action Fairness Act, 

alleging the amount in controversy exceeded $5 million. The company retained two 

experienced class counsel—who assert their time is worth $720 and $500 an hour 

respectively—to pursue class relief. Had NEI succeeded in its primary objective, it 

would have been able to disperse the higher cost to litigate a class action across the 

class through the common fund doctrine. Thus, the estimated value of the case at the 

time key decisions were made—such as when NEI decided to file this action or chose 

to change its theory of relief in its Second Amended Complaint—included not only 

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NEI’s estimated recovery, but also that of the putative class members. See, e.g., In re 

Taco Bell Wage & Hour Actions, --- F. Supp. 3d ---, 2016 WL 8711436, at *4 (E.D. 

Cal. July 15, 2016) (“[T]he case law directs the Court to consider the value of the 

litigation, not the value of the individual claims in a class action.”); see also Beasley, 

235 Cal. App. 3d at 1414 (agreeing with the defendant that in the class action context 

the court should not limit its inquiry “to each plaintiff’s individual stake”), 

disapproved of on other grounds by Olson v. Auto. Club of S. Cal., 42 Cal. 4th 1142, 

1151 (2008).

That said, the Court recognizes that NEI and its counsel may have hoped—but 

did not expect—to recover the maximum amount of statutory damages in this case.

Given that few consumer class actions proceed to trial, a more realistic benchmark for 

a successful case is the amount parties were settling similar class action claims for at 

or around the time key litigation decisions were being. The following examples may 

not fit perfectly with this case’s timeline, including the period for which NEI is 

seeking to recover fees, but they provide a better indication of what the expected value 

of this case was than NEI’s claim that the only financial incentives were a small pro 

rata recovery and a class representative incentive award.

One example is from early 2014, where Judge Miller approved a CIPA 

settlement of $11.7 million for 99,884 potential class members. Reed v. 1-800 

Contacts, Inc., No. 12-cv-02359 JM BGS, 2014 WL 29011, at *1 (S.D. Cal. Jan. 2, 

2014). This case had 12,551 putative class members.4 Although an imperfect 

comparison, the $117.14 per class member settlement in Reed suggests this case may 

 

4 Because NEI provides the Court with no information on its expected value of the case, it 

is unclear when NEI discovered the exact number of potential class members. Approximately a 

month after it learned Hanson had changed its conduct, NEI brought its class certification motion, 

which stated Hanson had recorded 210,688 calls made by 12,551 unique cell phone numbers. (ECF 

No. 74-1.) Presumably, NEI discovered this information some time in advance of filing its motion 

for class certification. In addition, even in its pleadings, NEI alleged there were “thousands, if not 

more” of CIPA violations, suggesting it always believed the class was significant. (First. Am. 

Compl. ¶ 19; Second Am. Compl. ¶ 19.)

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have had an expected value of around $1.47 million. Another data point is this Court’s

own approval in 2014 of a $6 million CIPA settlement that equated to $197.49 for 

each class member. See McDonald v. Bass Pro Outdoor World, LLC, No. 13-cv-889-

BAS-DHB, 2014 WL 3867522, at *7 (S.D. Cal. Aug. 5, 2014). This outcome would 

suggest the present case had an expected value of $2.48 million. A third reference 

point is Mirkarimi v. Nev. Prop. 1, LLC, No. 12-cv-2160 BTM DHB, 2015 WL 

5022327, at *4 (S.D. Cal. Aug. 24, 2015), where Judge Moskowitz preliminarily 

approved a CIPA settlement of $14.5 million for 150,000 potential class members—

indicating NEI and its counsel could have expected to recover $1.2 million in this 

case.

Of course, in the end, NEI recovered zero damages. And with NEI providing 

no evidence of its expected value of the case at the time key litigation decisions were 

made, it is challenging to make this assessment. But the Court still concludes the 

prospect of a sizable class action recovery provided sufficient financial incentives to 

justify this litigation in economic terms. Nothing over the course of this case has 

indicated otherwise. Therefore, although the case did not pan out as NEI and its 

counsel hoped, a fee award fee under section 1021.5 is not appropriate. See Satrap, 

42 Cal. App. 4th at 79–80 (providing fees under section 1021.5 “are not intended to 

provide insurance for litigants and counsel who misjudge the value of their case, and 

vigorously pursue the litigation in the expectation of recovering substantial damages, 

and then” fail to recover an amount that is “commensurate with their expenditure of 

time and resources”).

Thus, because NEI does not demonstrate there were insufficient financial 

incentives to pursue this case at the time vital litigation decisions were being made, 

the Court concludes the financial burden of private enforcement does not make a fee 

award under section 1021.5 warranted. Further, because NEI does not satisfy this 

requirement—or the two catalyst theory requirements discussed above—the Court 

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declines to address the remaining requirements of section 1021.5 and the catalyst 

theory. 

III. CONCLUSION

In light of the foregoing, NEI has not met its burden of demonstrating a fee 

award under California’s Private Attorney General Statute, Cal. Civ. Proc. Code § 

1021.5, and the state’s catalyst theory is appropriate. The company did not obtain the

primary relief it was seeking. NEI also failed to engage in a reasonable settlement 

attempt before filing this case, and it does not demonstrate an effort would have been 

futile. Finally, NEI has not shown there were insufficient financial incentives to 

justify this litigation in economic terms. The Court consequently DENIES NEI’s 

motion for attorneys’ fees and costs (ECF No. 182). 

IT IS SO ORDERED.

DATED: May 31, 2017

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