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Court of Appeal, First District, Division 1, California.

David B. GOLD, Plaintiff and Appellant, v. Charles R. SCHWAB et al., Defendants and Respondents.


Decided: December 16, 1986

David B. Gold, San Francisco, pro se. Richard A. Rogoff, San Francisco, for plaintiff and appellant. Robert E. Gooding, Jr., Steven L. Mayer, Kenneth G. Hausman, David B. Goodwin, Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, for defendants and respondents Schwab, Quackenbush and Pearson. Melvin R. Goldman, Michael M. Carlson, Morrison & Foerster, Winslow Christian, San Francisco, for defendants and respondents Bankamerica Brokerage Co. now known as Bankamerica Corp. and The Charles Schwab Corp.

Appellant, a professional law corporation, brought an action against respondents 1 to recover $1.68 million for legal services it rendered in connection with the acquisition of CSC by BAC.   The trial court granted respondents' motion for summary judgment.   Following entry of judgment dismissing appellant's action, this appeal was filed.

A brief summary of the relevant factual background reveals the following.   In November of 1981 BAC publicly announced that it intended to acquire CSC for a price of $52.8 million, to be paid to the shareholders of CSC for all shares of the company.   On November 19, 1982, BAC and CSC entered into a merger agreement which called for BAC to pay between 1.8 and 2.6 million in newly issued shares of BAC stock to CSC shareholders, the exact price to be computed according to market conditions.

Appellant was retained by CSC shareholder Peter H. Moss (hereafter “Moss”) to investigate the claim that Schwab, then President, Chairman of the Board, Chief Executive Officer and largest shareholder of CSC, had breached his fiduciary duties to minority shareholders of the company by securing a lucrative position with the surviving corporation upon completion of the merger;  failing to negotiate and obtain sufficient consideration from BAC for the shares of CSC;  and exerting undue influence over the CSC Board of Directors during merger negotiations.   Appellant was retained to represent the interests of Moss, the remaining minority shareholders of the corporation, and CSC in a derivative capacity.

Through appellant, Moss advised BAC by letter dated December 7, 1982, of his opposition to the merger on the ground that the proposed purchase price for the CSC shares was inadequate.   On December 16, 1982, appellant met with counsel for BAC and CSC, and opined that the terms of the merger agreement were unfair to minority shareholders.   At the meeting, appellant also advised attorneys for the two merging corporations that a derivative and class action complaint had been prepared and would be filed in federal court unless the consideration offered to CSC shareholders was increased.

On December 17, 1982, counsel for respondents requested that appellant delay filing of the complaint while Moss' claims were considered.   On December 20, 1982, appellant sent a copy of the complaint to counsel for respondents, and the following day the merger agreement was amended to increase the number of shares BAC offered to CSC shareholders from 2.2 million—the amount computed as payable under the earlier formula—to 2.6 million.   That amendment resulted in distribution of approximately an additional $8.4 million to CSC shareholders as a result of the merger.

Moss then withdrew his opposition to the merger, which was consummated in accordance with the amended agreement.   By this action, appellant seeks recovery of attorneys' fees for the services it rendered in challenging the original merger agreement.

Appellant contends that the trial court erred in finding no legal basis for an award of attorney's fees.   Appellant seeks attorney's fees under three theories:  the substantial benefit rule;  the private attorney general rule;  and an unjust enrichment theory.   Appellant submits that triable issues of fact remain to be litigated as to each of these three theories of recovery, making entry of summary judgment in favor of respondents erroneous.

 In accordance with Code of Civil Procedure section 1021, the traditional practice in this state, as in the rest of the country, is for each party to bear its own costs and attorney's fees absent an express or implied agreement to the contrary.  (Bauguess v. Paine (1978) 22 Cal.3d 626, 634, 150 Cal.Rptr. 461, 586 P.2d 942;  Baker v. Pratt (1986) 176 Cal.App.3d 370, 378, 222 Cal.Rptr. 253.)   A number of nonstatutory exceptions to this rule have evolved, one being the “substantial benefit rule,” which permits an award of attorney's fees in the exercise of the trial court's discretion when a litigant, proceeding in a representative capacity, obtains relief resulting in substantial benefits, whether of a pecuniary or nonpecuniary nature, upon others.  (Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 505, 198 Cal.Rptr. 551, 674 P.2d 253;  Serrano v. Priest (1977) 20 Cal.3d 25, 34, 141 Cal.Rptr. 315, 569 P.2d 1303 (Serrano III );  Residents Ad Hoc Stadium Com. v. Board of Trustees (1979) 89 Cal.App.3d 274, 293, 152 Cal.Rptr. 585.)   The substantial benefit rule is based upon the premise that those who have been enriched at another's expense may be required to bear their fair share of costs entailed in producing the benefits so obtained by yielding some of those benefits in the form of attorney's fees.   (Serrano III, supra, 20 Cal.3d at p. 34, 141 Cal.Rptr. 315, 569 P.2d 1303;  People ex rel. Deukmejian v. Worldwide Church of God (1981) 127 Cal.App.3d 547, 557, 178 Cal.Rptr. 913;  Save El Toro Assn. v. Days (1979) 98 Cal.App.3d 544, 548, 159 Cal.Rptr. 577.)  “The theory is designed to avoid unjust enrichment of those recipients of the benefit who have not been obliged to retain counsel.”  (Rich v. City of Benicia (1979) 98 Cal.App.3d 428, 433, 159 Cal.Rptr. 473.)

“Although an award of attorney's fees will render the benefited parties ‘involuntary clients' of the attorneys, equitable considerations justify charging those who have obtained an economic windfall with the costs of obtaining such benefits.   So long as the costs bear a reasonable relation to the benefits, the ‘involuntary client’ who retains a substantial gain from the litigation generally will have no just cause of complaint.”  [Citations.]  Save El Toro Assn. v. Days, supra, 98 Cal.App.3d 544, 548–549, 159 Cal.Rptr. 577.)

Appellant claims that by its action respondents received substantial benefits in the form of an additional $8.4 million in BAC stock, and so in accordance with equitable principles should be compelled to pay a proportionate share of the attorney's fees incurred in producing such benefits.

Respondents reply that appellant is not entitled to attorney's fees because no complaint was filed and no court action ensued.   Respondents suggest that “participation in a judicial proceeding or its equivalent is a prerequisite for a fee award” under the substantial benefit rule.   While no case in California has yet either granted or denied an award of attorney's fees in the absence of actual litigation, respondents insist that to expand the scope of the substantial benefit rule to provide for an attorney's fee award where no suit was filed is inconsistent with the philosophy of the courts to move “ ‘cautiously in expanding the nonstatutory bases on which awards of attorney's fees may be predicated.’ ”  (Gray v. Don Miller & Associates, supra, 35 Cal.3d 498, 507, 198 Cal.Rptr. 551, 674 P.2d 253;  Bauguess v. Paine, supra, 22 Cal.3d 626, 636, 150 Cal.Rptr. 461, 586 P.2d 942.)

The substantial benefit rule is based upon equitable considerations (Consumers Lobby Against Monopolies v. Public Utilities Com. (1979) 25 Cal.3d 891, 906, 160 Cal.Rptr. 124, 603 P.2d 41), and seeks to prevent unjust enrichment by spreading the costs of legal action proportionately among those receiving the benefits.  (Mills v. Electric Auto-Lite (1970) 396 U.S. 375, 393–394, 90 S.Ct. 616, 626–627, 24 L.Ed.2d 593;  Woodland Hills Residents Assn., Inc. v. City Council (1979) 23 Cal.3d 917, 944, 154 Cal.Rptr. 503, 593 P.2d 200;  Save El Toro Assn. v. Days, supra, 98 Cal.App.3d 544, 549, 159 Cal.Rptr. 577.)   Like other equitable exceptions to the rule denying attorney's fees, it serves an important public policy objective by providing individuals with an incentive to initiate litigation which benefits a larger group.  (Gray v. Don Miller & Associates, supra, 35 Cal.3d 498, 506, 198 Cal.Rptr. 551, 674 P.2d 253;  Bauguess v. Paine, supra, 22 Cal.3d 626, 636, 150 Cal.Rptr. 461, 586 P.2d 942.)

 In our view, the objectives of the substantial benefit rule are furthered by applying it to cases in which attorneys are retained, and fees incurred, even if no complaint is filed.   As the case before us demonstrates, an ascertainable class may benefit just as significantly and concretely without resort to actual litigation as by the filing of a complaint and pursuit of a judgment.   In such a case, the policy of preventing unjust enrichment and effectuating cost-spreading is at least equally served where a dispute is resolved without litigation.   Unless there were some prospect of recovering attorney's fees, a party seeking to confer a benefit upon himself and others would lack incentive to retain counsel to investigate a claim and negotiate a settlement.

Another consideration deserves comment.   The law favors settlement of disputes without resort to litigation.   This being so, it seems to us inappropriate to punish appellant for obtaining a benefit without the necessity of a formal lawsuit, particularly where respondents specifically asked appellant to delay filing a complaint pending negotiations.

Respondents suggest that “[t]o expand the substantial benefit exception in the corporate context would convert every person's threat to sue a corporation over a proposed corporate decision into a potential separate lawsuit for legal fees,” thus “add[ing] to the dockets of already crowded courts,” increasing “corporations' legal bills,” and producing “a chilling effect upon corporate decision making.”   We find these arguments unpersuasive.

It is difficult to imagine that the “flood of attorneys' fees lawsuits” feared by respondents will result from extending the substantial benefit rule to include prelitigation attorney's fees.   The requirement of demonstrating a causal connection between plaintiff's legal action and substantial benefit to an ascertainable class of persons—rather than a mere voluntary change in the defendant's conduct—(Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal.3d 348, 352, 188 Cal.Rptr. 873, 657 P.2d 365;  Northington v. Davis (1979) 23 Cal.3d 955, 960, fn. 2, 154 Cal.Rptr. 524, 593 P.2d 221), properly limits recovery of attorney's fees under the substantial benefits rule and insures that cost-spreading will occur only where there has been an award.   Nuisance-value complaints are negated or minimized by the requirement that only “ ‘substantial’ benefits will entitle the successful stockholder to attorneys' fees.”  (Fletcher v. A.J. Industries, Inc. (1968) 266 Cal.App.2d 313, 324, 72 Cal.Rptr. 146.)

Nor does it seem likely to us that corporations faced with the spectre of attorney's fees will be reluctant to “make unilateral prelitigation concessions․”  If the concession is voluntary and “unilateral”—that is, not induced by the efforts of counsel—an attorney fee award is improper for lack of the requisite “causal connection.”  (Westside Community for Independent Living, Inc. v. Obledo, supra, 33 Cal.3d 348, 352, 188 Cal.Rptr. 873, 657 P.2d 365.)   If, on the other hand, the corporation faces the prospect of a lawsuit, it may in fact be persuaded to make prelitigation concessions to avoid greater attorney's fees which might be incurred were legal proceedings to be initiated.

In Fletcher v. A.J. Industries, Inc., supra, 266 Cal.App.2d 313, 72 Cal.Rptr. 146, a shareholder's derivative suit was resolved through settlement rather than judgment, resulting in significant benefits in the form of changes in corporate management policies and procedures which inured to the benefit of all shareholders and the corporation itself.   In upholding an attorney fee award under the substantial benefit theory, the court declared:  “[i]t is not significant that the ‘benefits' found were achieved by settlement of plaintiffs' action rather than by final judgment.   The authorities recognizing the substantial-benefit rule have permitted attorneys' fee awards in settled cases.  [Citation.]  This is in keeping with the law's general policy favoring settlements․”  (Id., at p. 325, 72 Cal.Rptr. 146;  see also Westside Community for Independent Living, Inc. v. Obledo, supra, 33 Cal.3d 348, 352, 188 Cal.Rptr. 873, 657 P.2d 365.)

In our opinion, it adds nothing to respondent's claim that a complaint was prepared but not filed.   As we have said, the policy underlying the substantial benefit rule is at least equally served if attorney's fees are awarded where others have been enriched as a direct result of plaintiff's legal efforts.   Without litigation, it may indeed be more difficult for plaintiff to prove the requisite causal connection between the legal fees incurred and benefits provided.   That factual issue is not, however, amenable to resolution by summary judgment.

Our conclusions are consonant with the federal rule in analogous cases.   In several such federal court cases, attorney's fees have been awarded where action by a shareholder and his attorney short of filing a complaint resulted in a corporation's recovery of illegal “short-swing” profits from a corporate officer (Securities Exchange Act of 1934, § 16(b), 15 U.S.C.A. § 78p(b)).   In Blau v. Rayette-Faberge, Inc. (2d Cir.1968) 389 F.2d 469, the shareholder suspected a corporate officer of insider trading in the securities of the corporation in violation of section 16(b), and retained an attorney to investigate the claim.   The attorney subsequently notified the corporation of the cause of action under section 16(b) and the facts upon which it was based.   He also “requested the corporation to institute suit ․ to recover the short-swing profit, ․” adding that the shareholder would commence an action if the corporation failed to do so.  (Id., at p. 470.)   A complaint was prepared, but never filed because the corporation reached a settlement with the offending officer to recover the short-swing profits.  (Ibid.)  The shareholder thereafter sued for attorney's fees.

Noting that reimbursement of attorney's fees often provides the “sole stimulus for the enforcement of § 16(b),” (Id., at p. 472), the court approved an attorney fee award although no complaint had been filed by the shareholder, explaining:  “ ‘[t]he distinction is urged by the defendant that the complaint here does not allege that an action was commenced.   It would appear that the purpose of the statute would be as effectively thwarted if such distinction were to be approved as if reimbursement were to be denied entirely.   If the objective is the recovery by the corporation of unlawful profits, would it be reasonable to say that a stockholder shall be entitled to all his expenses if he needs to bring suit, but that he shall be denied reimbursement where the same benefit to the corporation has resulted without the necessity of legal proceedings and at less expense?   This would be penalizing efficiency and expediency.’ ”  (Ibid., quoting from Dottenheim v. Emerson Elec. Mfg. Co. (E.D.N.Y.1947) 7 F.R.D. 195, 197.)  (Emphasis added.)

The substantial benefit rule serves the same policy as does awarding attorney's fees in section 16(b) actions:  to prompt individuals to diligently pursue a legal remedy that will benefit a larger class of persons by offering reimbursement in the form of attorney's fees if the effort is successful.   (Neal v. County of Stanislaus (1983) 141 Cal.App.3d 534, 538, 190 Cal.Rptr. 324;  Blau v. Rayette-Faberge, Inc., supra, 389 F.2d 469, 472.)   Thus, we can find no logical basis for an artificial distinction denying attorney's fees under the substantial benefit rule simply because the plaintiff succeeds without filing a formal complaint.   We think we should approve, not punish, efforts to resolve disputes outside the courtroom.   And we repeat that we find the fear of a proliferation of attorney's fees suits to be imaginary in light of the plaintiff's burden of showing a clear causal connection between legal effort and benefits produced.   We conclude that appellant's failure to file a complaint is no impediment to its right to recover fees on a substantial benefit theory.2

Respondents BAC and CSC argue that since they did not profit from appellant's legal efforts, they should incur no liability pursuant to the substantial benefit rule.   The two corporations, they insist, were not allies, but rather adversaries of appellant and its client Moss.   BAC also points out that it actually suffered a detriment as a result of appellant's intervention, in the form of an additional $8.4 million payment for the acquisition of CSC.

 Before directly addressing this issue, we will repeat that the aim of the substantial benefit rule is “․ to avoid unjust enrichment of those recipients of the benefit who have not been obliged to retain counsel” (Rich v. City of Benicia, supra, 98 Cal.App.3d 428, 433, 159 Cal.Rptr. 473), and that, in order to justify an award of attorney's fees under this theory, the benefits conferred, either pecuniary or nonpecuniary, must be substantial, actual and concrete.  (Save El Toro Assn. v. Days, supra, 98 Cal.App.3d 544, 549, 159 Cal.Rptr. 577;  Bruno v. Bell (1979) 91 Cal.App.3d 776, 784, 154 Cal.Rptr. 435.)   Moreover, the defendant against whom the fees are awarded need not directly benefit from the legal services, provided, however, that reimbursement is proper where a substantial benefit has been conferred upon the members of an ascertainable class, and provided also that such a fee award will operate to spread the costs proportionately among them.  (Woodland Hills Residents Assn., Inc. v. City Council, supra, 23 Cal.App.3d 917, 944, 154 Cal.Rptr. 503, 593 P.2d 200;  Serrano III, supra, 20 Cal.App.3d 25, 40, fn. 10, 141 Cal.Rptr. 315, 569 P.2d 1303.)   Additionally, the fee applicant must establish a “benefit common to himself and to those who are asked to share in the expense” of the legal services.  (County of Inyo v. City of Los Angeles (1978) 78 Cal.App.3d 82, 91, 144 Cal.Rptr. 71.)   Recently, quoting from County of Inyo at p. 91, 144 Cal.Rptr. 71 in Baker v. Pratt, supra, 176 Cal.App.3d 370, 379, 222 Cal.Rptr. 253, the court explained:  “ ‘[t]he substantial benefit phrase would gain increased accuracy if the adjective common were inserted after substantial.’ ”

 We readily perceive that neither BAC nor CSC had interests in common with appellant's client during the pendency of the merger dispute.   Both corporations were apparently attempting to consummate the merger according to agreed terms.   The minority shareholder whom appellant represented opposed and attempted to block the merger, thus placing himself in an adversary position vis-a-vis the corporations.   Appellant thus obviously acted solely on behalf of the minority shareholders of CSC, rather than in the interests of the corporations.  (Baker v. Pratt, supra, 176 Cal.App.3d 370, 379–380, 222 Cal.Rptr. 253.)   The minority shareholders and the corporations were not similarly situated with regard to the merger dispute;  they had no mutuality of interests.  (Ibid.)  Rather than being part of the ascertainable class of beneficiaries, the corporations, particularly BAC, occupied a position adverse to the CSC's minority shareholders.   In such circumstances, as was said in County of Inyo v. City of Los Angeles, supra, 78 Cal.App.3d 82, 91, 144 Cal.Rptr. 71:  “[t]he dominating quest for justice which prompted equity to grant the award is silent when the applicant has waged his lawsuit for an objective adverse to the interest of the party who is now asked to pay for it․  Legal services on behalf of an openly or covertly hostile interest are invariably barred.”

Appellant relies on Mills v. Electric Auto-Lite, supra, 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593, to argue that its insistence upon a fair price for the shares of CSC benefited the corporate respondents.   In Mills, minority shareholders brought suit to set aside a merger on the ground that a proxy statement sent to solicit votes in favor of the merger by the acquired corporation was misleading and hence violated federal securities laws.   The United States Supreme Court found that an attorney fee award against the “corporation or its survivor” was proper under the substantial benefit rule.  (Id., at p. 390, 90 S.Ct. at p. 624.)   The court reasoned that the minority shareholders had “rendered a substantial service to the corporation and its shareholders” by insuring “fair and informed corporate suffrage․”  (Id., at p. 396, 90 S.Ct. at p. 627.)   Such “corporate therapeutics” was considered justification for an award of attorney's fees against the corporation, which had been a “nominal defendant” in the suit.  (Id., at pp. 395–396, 90 S.Ct. at pp. 627–628.) 3

Here, however, the primary goal of appellant's client was not to remedy unfair corporate practices, but merely to obtain additional consideration for the minority shareholders of CSC.   True, the complaint drafted by appellant alleged abuse of corporate control (by Schwab) for individual gain, and breach of fiduciary duties, but its dominant if not exclusive purpose was the realization of pecuniary gain for the CSC shareholders.   And in fact, the only gain realized by appellant's efforts was increased compensation for CSC minority shareholders.   In short, the record clearly shows appellant's client was interested, not in corporate therapeutics, but in securing a higher price for the CSC shares.

In Jutkowitz v. Bourns, Inc. (1981) 118 Cal.App.3d 102, 173 Cal.Rptr. 248, the majority owners of a corporation, Bourns, Inc., arranged a merger plan to buy out minority shareholders and “make the corporation ‘private,’․”  (Id., at p. 105, 173 Cal.Rptr. 248.)   Jutkowitz, a minority shareholder, brought class actions to enjoin the stock purchases at the announced figure of $17 per share, alleging a “sham and a collusive attempt to ‘squeeze out’ the minority shareholders at an unfair price.”  (Id., at p. 106, 173 Cal.Rptr. 248.)   The suits were ultimately settled, with the minority shareholders receiving an increased amount per share from the merger.   The court declined to award attorney's fees under the substantial benefit rule.   Distinguishing Mills, the court found that no benefit was conferred upon the corporation by the litigation and settlement, explaining that in bringing the class actions the minority shareholder “had a single objective and that was to benefit himself directly and other minority shareholders indirectly.   No benefit to Bourns, Inc. was within his contemplation.   Any award of fees imposed directly against Bourns could not possibly operate to spread the costs proportionately among those persons benefited.”  (Id., at p. 113, 173 Cal.Rptr. 248.)

It is plain to us from the present record that appellant's client had a similar motive in threatening to sue to block the proposed merger:  to increase the amount to be received by CSC minority shareholders.   BAC, as the surviving corporation, did not benefit, but in fact suffered, from appellant's efforts.   Under such circumstances, we deem it absurd that they should be required to pay any part of appellant's attorney's fees.  (County of Inyo v. City of Los Angeles, supra, 78 Cal.App.3d 82, 91, 144 Cal.Rptr. 71.)   We find no error in the trial court's grant of summary judgment in favor of the corporation defendants CSC and BAC.

The individual respondents acknowledge that as shareholders of CSC they received financial gain from the increase in the amount offered by BAC for the shares of the acquired corporation, but oppose appellant's request for attorney's fees from them on the ground that, since not all shareholders of CSC have been joined in the instant suit, no proper allocation of fees can be made.  (Save El Toro Assn. v. Days, supra, 98 Cal.App.3d 544, 549, 159 Cal.Rptr. 577.)   The contention lacks merit.

 Application of the substantial benefit rule requires findings that there is an ascertainable class of persons upon whom a benefit has been conferred, and that “an award ․ will operate to spread the costs proportionately among them.”  (Woodland Hills Residents Assn., Inc. v. City Council, supra, 23 Cal.3d 917, 944, 154 Cal.Rptr. 503, 593 P.2d 200.)   The class here is established beyond cavil as the shareholders of CSC.   Respondents Schwab, Pearson and Quackenbush are conspicuous members of that class.   Their share of the attorney's fees can be easily ascertained;  it should be computed in accordance with their proportionate ownership of shares in CSC.   That the remaining shareholders of CSC have not been joined in this action will not absolve the individual respondents from paying their fair share of attorney's fees.4

Appellant further contends that it is entitled to attorney's fees under the private attorney general theory, now codified in section 1021.5 of the Code of Civil Procedure.  (Rich v. City of Benicia, supra, 98 Cal.App.3d 428, 433, 159 Cal.Rptr. 473.)  Section 1021.5 provides that a court may award attorney's fees to a party if “(1) the 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';  (3) ‘the necessity and financial burden of private enforcement are such as to make the award appropriate’;  and (4) ‘such fees should not in the interest of justice be paid out of the recovery, if any.’ ”  (Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158, 166, 188 Cal.Rptr. 104, 655 P.2d 306, see also Compton Community College Etc. Teachers v. Compton Community College Dist. (1985) 165 Cal.App.3d 82, 97, 211 Cal.Rptr. 231;  see also Slayton v. Pomona Unified School Dist. (1984) 161 Cal.App.3d 538, 545, 207 Cal.Rptr. 705.)

 The fundamental objective of section 1021.5 is to encourage public interest litigation by awarding attorney's fees to successful litigants who produce benefits for a broad class of citizens.  (Terminal Plaza Corp. v. City and County of San Francisco (1986) 177 Cal.App.3d 892, 913, 223 Cal.Rptr. 379;  San Bernardino Valley Audubon Society, Inc. v. County of San Bernardino (1984) 155 Cal.App.3d 738, 754, 202 Cal.Rptr. 423;  Daniels v. McKinney (1983) 146 Cal.App.3d 42, 49.)   Thus, “․ those who have acted to protect public interest will not be forced to shoulder the cost of litigation.”  (San Bernardino Valley Audubon Society, Inc., supra, 155 Cal.App.3d at p. 756, 202 Cal.Rptr. 423.)

The trial court is vested with discretion to determine whether attorney's fees should be awarded pursuant to the statutory private attorney general rule.   (Baggett v. Gates (1982) 32 Cal.3d 128, 142, 185 Cal.Rptr. 232, 649 P.2d 874;  Schmid v. Lovette (1984) 154 Cal.App.3d 466, 477, 201 Cal.Rptr. 424.)   Its finding will be reversed on appeal only if the record reveals a prejudicial abuse of discretion amounting to a manifest miscarriage of justice.  (Baggett, supra, 32 Cal.3d at pp. 142–143, 185 Cal.Rptr. 232, 649 P.2d 874;  Slayton v. Pomona Unified School Dist., supra, 161 Cal.App.3d 538, 545, 207 Cal.Rptr. 705.)

Respondents again argue that the filing of a complaint is a prerequisite for collection of attorney's fees under the private attorney general rule.   They rely on the statutory language in section 1021.5 specifying an award of attorney's fees “․ in any action which has resulted in the enforcement of an important right affecting the public interest․”  (Emphasis added.)

 Here we think respondents are correct.   While the policy underlying the substantial benefit rule—prevention of unjust enrichment—lends itself to an award of attorney's fees even in the absence of a complaint, in our opinion the different objective of section 1021.5 calls for a litigation requirement.   As interpreted by our courts, the objective of the private attorney general doctrine is to “encourage suits which effectuate a strong public policy․”  (Bruno v. Bell, supra, 91 Cal.App.3d 776, 785, 154 Cal.Rptr. 435, emphasis added.)   Absent the filing of a complaint and initiation of actual litigation therefore, the requirements of § 1021.5 that an “action” be filed has been read by our courts as meaning that a lawsuit must be initiated (Bruno v. Bell ).   And “action” as used in the statute has been defined by our State Supreme Court as “a form of judicial remedy sought to protect a right or redress a wrong.  [Citations.]”  (Serrano v. Unruh (1982) 32 Cal.3d 621, 636, 186 Cal.Rptr. 754, 652 P.2d 985;  Beach Colony II v. California Coastal Com. (1985) 166 Cal.App.3d 106, 115, 212 Cal.Rptr. 485.)   Since no formal legal action was initiated here, appellant cannot seek attorney's fees under authority of the private attorney general doctrine embodied in section 1021.5.  (Beach Colony II v. California Coastal Com., supra, at pp. 115–116, 212 Cal.Rptr. 485.) 5

A further contention is that appellant's third cause of action seeking attorney's fees on a general “unjust enrichment” theory was improperly dismissed by the trial court.   In arguing for an “unjust enrichment” exception to the general rule prohibiting awards of attorney's fees appellant relies entirely upon the decision in Northington v. Davis, supra, 23 Cal.3d 955, 154 Cal.Rptr. 524, 593 P.2d 221.   In Northington, plaintiff's suit sought to prevent the City of Los Angeles from spending $9,600 in public funds to construct a helipad on the roof of a police station.   It was held that “[a]lthough such a savings could not justify an $11,000 attorney fee award [made by the lower tribunal] under the substantial benefit theory, the trial court could properly conclude under unjust enrichment principles that a reasonable portion of such savings should be made available to at least partially compensate plaintiffs' attorneys.”  (Id., at p. 962, 154 Cal.Rptr. 524, 593 P.2d 221.)

 In our view, neither Northington nor cases subsequent to it, recognize a separate unjust enrichment theory for recovery of attorney's fees.   The prohibition against unjust enrichment underlies the substantial benefit rule and is subsumed within it, as the court in Northington recognized.   (See also Woodland Hills Residents Assn., Inc. v. City Council, supra, 23 Cal.3d 917, 943, 154 Cal.Rptr. 503, 593 P.2d 200.)   Appellant has no separate claim to attorney's fees under unjust enrichment principles.

Respondents further challenge appellant's entitlement to attorneys' fees on the ground that appellant lacks standing, and that “only the client ․ may seek such an award.”   We disagree.

 Nothing in the substantial benefit or private attorney general rules either requires the client to seek attorney's fees on behalf of counsel, or denies counsel the right to directly sue for fees.   On the contrary, the substantial benefit rule springs from the court's equitable power and duty “to provide just compensation for the attorney.”  (Mandel v. Lackner (1979) 92 Cal.App.3d 747, 757, 155 Cal.Rptr. 269.)   In addition to preventing unjust enrichment, the rationale for the substantial benefit rule is “ ‘encouragement of the attorney for the successful litigant, who will be more willing to undertake and diligently prosecute proper litigation ․ if he is assured that he will be promptly and directly compensated should his efforts be successful.’ ”  (Bank of America v. Cory (1985) 164 Cal.App.3d 66, 90, 210 Cal.Rptr. 351, quoting from Estate of Stauffer (1959) 53 Cal.2d 124, 132, 346 P.2d 748;  emphasis added.)   We conclude that either the attorney or client is a proper party to bring an action for attorney's fees based upon a substantial benefit theory.  (Bank of America v. Cory, supra, 164 Cal.App.3d at pp. 90–91, 210 Cal.Rptr. 351;  Neal v. County of Stanislaus, supra, 141 Cal.App.3d 534, 190 Cal.Rptr. 324.)

 The individual respondents contend that, since appellant's proposed suit would have been filed in federal court, this court lacks jurisdiction “to award fees for work performed in connection with federal litigation.”   This rather novel contention is probably based upon respondents' erroneous assumption that attorney's fees are “costs” and hence “are limited to those incurred in the case at bench.”   In Citizens Against Rent Control v. City of Berkeley (1986) 181 Cal.App.3d 213, 224, 226 Cal.Rptr. 265, the court specifically found that federal rules limiting recovery of costs do not apply to attorney's fee awards in state courts.   There is no jurisdictional barrier to appellant's state court claim for attorney's fees under the substantial benefit rule.  (Serrano III, supra, 20 Cal.3d 25, 50, 141 Cal.Rptr. 315, 569 P.2d 1303.)

 Respondents contend, finally, that the action for attorney's fees was properly dismissed because appellant improperly seeks an award based upon value conferred rather than reasonable value of services performed.   It is of course true that attorney's fees under the substantial benefit or private attorney general theories cannot include a contingent fee as appellant has requested.   (Jutkowitz v. Bourns, Inc., supra, 118 Cal.App.3d 102, 110, 173 Cal.Rptr. 248.)   Instead, fees must be based upon the time the attorney has spent on the case, with appropriate enhancement for results produced.  (Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 322, 193 Cal.Rptr. 900, 667 P.2d 704.)   According to the guidelines set forth in Serrano III, supra, 20 Cal.3d 25, 48–49, 141 Cal.Rptr. 315, 569 P.2d 1303, in calculating the amount of attorney's fees to be awarded, the trial court must “first determine a ‘touchstone’ or ‘lodestar’ figure based on ‘a careful compilation of the time spent and reasonable hourly compensation for each attorney ․ involved in the presentation of the case.’ ”  (Press v. Lucky Stores, Inc., supra, 34 Cal.3d at p. 322, 193 Cal.Rptr. 900, 667 P.2d 704;  Slayton v. Pomona Unified School Dist., supra, 161 Cal.App.3d 538, 553, 207 Cal.Rptr. 705.  “That figure may then be increased or reduced by the application of a ‘multiplier’ after the trial court has considered other factors concerning the lawsuit.”  (Ibid.)

 While appellant clearly cannot recover a contingent fee of $1.68 million as requested in its complaint, the action is not susceptible to dismissal for that reason.   If otherwise proper, the award of attorney's fees will be computed on the basis of the reasonable value of services performed and in accordance with the guidelines stated in Serrano III and its progeny.

In summary, we find that the trial court erred in dismissing appellant's cause of action against the individual respondents for attorneys' fees under the substantial benefit rule.   In all other respects, the judgment is affirmed.   The case is remanded to the trial court for proceedings consistent with the views expressed herein.   Costs are awarded to appellant.


1.   Respondents are BankAmerica Corporation, hereafter (“BAC”), The Charles Schwab Corporation (hereafter “CSC”), Charles R. Schwab (hereafter “Schwab”), William L. Pearson (hereafter “Pearson”), and Hugo Quackenbush (hereafter “Quackenbush”).

2.   We are not convinced to reach a contrary conclusion by the recent opinion of the United States Supreme Court in North Carolina Department of Transportation v. Crest Street Community Council, Inc. –––U.S. ––––, 107 S.Ct. 336, 93 L.Ed.2d 188 (hereafter Crest Street), where a claim for attorney's fees under the Civil Rights Attorney's Fees Awards Act (42 U.S.C. § 1988) was denied for lack of a formal court action to redress violations of civil rights laws.   Crest Street involved a distinct statutory scheme and interpretation of specific statutory language requiring “an action or proceeding.”   The court relied upon the “plain language” and “legislative history” of section 1988 to rule that “only a court in an action to enforce one of the civil rights laws listed in § 1988 may award attorney's fees.”  (107 S.Ct. at p. 342.)   The substantial benefit rule is completely distinguishable from the federal statute under consideration in Crest Street.   Thus, we do not find Crest Street persuasive here.

3.   See also Fletcher v. A.J. Industries, Inc., supra, 266 Cal.App.2d 313, 324–325, 72 Cal.Rptr. 146, where the court declared:  “The final question in the present case is whether the benefits realized by the corporation were sufficiently ‘substantial’ to warrant the award.   To find that they were, the trial court need not determine that abuses existed in the corporate management, and that the action corrected them.   It will suffice if the court finds, upon proper evidence, that the results of the action ‘maintain the health of the corporation and raise the standards of “fiduciary relationships and of other economic behavior,” ’ or ‘prevent[s] an abuse which would be prejudicial to the rights and interests of the corporation or affect the enjoyment or protection of an essential right to the stockholder's interest.’  (Bosch v. Meeker Coop. Light & Power Assn., supra [ (1961) 257 Minn. 362], 101 N.W.2d 423 at pp. 426, 427:  (italics added.)”

4.   Neither, of course, can appellant recover from these respondents a greater portion of attorney's fees than their proportionate share of the benefits received.

5.   This conclusion makes it unnecessary for us to also consider respondents' claim that appellant did not confer a sufficient benefit upon the public to justify an attorneys' fees award under section 1021.5.

NEWSOM, Associate Justice.

RACANELLI, P.J., and HOLMDAHL, J., concur.