CALIFORNIA ATTORNEY'S FEES

Fees As Damages: Fees Incurred In Prior Action And Malicious Prosecution Action Properly Awarded As Damages

   Second District, Division 6 Affirms Substantial Fees As Damages, Minus An Offset.

     Substantial fee awards do not necessarily always arrive in the form of postjudgment costs awards. Rather, they can be, and often are, awarded as damages by a trier of fact in certain actions, especially malicious prosecution lawsuits.

     Saby v. Louks, Case No. B209906 (2d Dist., Div. 6 Nov. 23, 2009) (unpublished) is a good example of when fees are awarded as damages.

     There, neighbors were engaged in quite a donnybrook. Briefly stated, neighbors with dogs believed their other neighbors “ratted” them out to local animal control authorities, causing wife of the dog owners—who worked at Blue Cross—to hack into the health insurance records of one of the other neighbors and then threatening to cancel that health insurance through actions outside of the employment authority of the Blue Cross employee. Litigation and a related arbitration ensued, with dog owners eventually dismissing their action against other neighbors with prejudice. Non-dog neighbors brought a malicious prosecution and abuse of discretion suit against dog-owning neighbors and their litigation attorney, with the attorney settling with non-dog neighbors for a pretrial amount of $17,500 and non-dog owners “lighting” up their neighbors with an award of $305,106.04 in economic damages (consisting of attorneys fees paid by non-dog owners to their counsel in the prior proceedings and malicious prosecution suit) and $25,000 in economic damages. Among other things, losing neighbors appealed the award of economic damages to non-dog owners as attorney’s fees and argued that the judgment had to be offset by the $ 17,500 settlement paid by their attorney.

     On appeal, both sides did get something.

     Dog owners lost the challenge to the $305,106.04 in economic damages. Legal fees incurred in the prior underlying proceedings and the malicious prosecution action were properly awarded as damages in the malicious prosecution suit brought by non-dog neighbors. However, the $17,500 settlement by losing neighbors’ attorney should have been allowed as an offset under Code of Civil Procedure section 877(a). So, a substantial award was sustained on appeal, minus a prior settlement offset, in favor of non-dog-owning neighbors. (BLOG OBSERVATION—Co-contributor Mike cannot comment on the merits, because Labrador Riffle does not bark very much, unless she is not getting enough Milk Bones.)

SLAPP/Malicious Prosection Damages Interplay: SLAPP Fee Ruling Is Not Collateral Estoppel On Awarding Special Damages In Subsequent Malicious Prosecution Case

Second District Determines SLAPP Ruling Does Determine Amount of Motion to Strike Fees, But Remaining Attorney’s Fees Are Fair Game and Defendant Bears Burden of Allocating Out Unreasonable Fees.

The next decision is an interesting one that we predict will have more and more play as SLAPP motions and later malicious prosecution awards interact in seriatim litigation involved between bitterly engaged parties. The case is Jackson v. Yarbray, Case No. B204321 (2d Dist., Div. 7 Nov. 10, 2009) (certified for partial publication), authored by Presiding Justice Perluss on behalf of a 3-0 panel of the Second District, Division 7.

Plaintiffs (earlier, successful defendants) won a substantial $3.1 million malicious prosecution award against certain defendants (earlier plaintiffs suing and losing to the malicious prosecution plaintiffs) in a Los Angeles bench trial, arising from plaintiffs’ successful defense of an action commenced in Riverside. (An attorney firm was exonerated in the L.A. malicious prosecution action.) Malicious prosecution plaintiffs appealed the trial court’s refusal to award further special damages in the form of fees and costs incurred in their defense of the Riverside action, keeping in mind the plaintiffs (defendants at the time) did partially win an anti-SLAPP motion after the Fourth District, Division 2 so held and were awarded fees of $77,000 by the Riverside judge for prevailing on the motion. (See ComputerXpress, Inc. v. Jackson, 93 Cal.App.4^th 993, 1020 (2001).) [As a quick aside, the SLAPP victors had requested $300,720 in fees, but were only awarded $77,000.] In the malicious prosecution trial, the attorney firm successfully moved to preclude introduction of fees other than the $77,000 fee award, a motion granted by the trial court—but with the understanding that this did not preclude introduction of fees as special damages.

At trial, malicious prosecution plaintiffs introduced unrebutted evidence they expended $379,000 in defense of the prior Riverside case eventually dismissed by the malicious prosecution defendants. Although deciding that the $77,000 SLAPP fees award had to be offset from this and did have collateral estoppel effect, the trial judge eventually denied any fees as malicious prosecution special damages because plaintiffs failed to allocate fees from the overall amount spent and show that they were not included in the SLAPP award.

Malicious prosecution plaintiffs appealed and obtained a reversal/remand on this issue.

Justice Perluss, on behalf of the panel, initially noted that all reasonable fees incurred in defending a malicious prosecution action are recoverable as special damages, contrasted with the situation in SLAPP motions—only reasonable fees spent on the motion to strike are recoverable as fees under the SLAPP fee-shifting statute.

The real error identified by the appellate court was the trial court’s reversal of the burden of proof on the allocation issue. Malicious prosecution defendants, not plaintiffs, are the ones having the burden of showing that fees in a malicious prosecution action were not reasonably incurred in defense of the prior case. (Bertero v. National General Corp., 13 Cal.3d 43, 60 (1974).) Although agreeing that the $77,000 SLAPP fee was an appropriate offset, the matter had to be reversed and remanded for a proper calculation of special damages in the malicious prosecution action based on the improper application of the burden of proof by the lower court.

Tort of Another and Equitable Indemnity Claims to Fees Founder

Second District, Division Seven Affirms Denial of Motions for Attorney's Fees and Sanctions

     We have written from time to time about tort of another and section 1021.6 as bases for attorney's fees.  Justice Perluss, author of a 3-0 opinion, has written a conveniently concise primer on the subjects.  State Farm Mutual Automobile Ins. Co. v. Martinez, Case No. B205248 (2nd Dist. Div. 7, July 27, 2009) (unpublished).

     Mr. Martinez, dba Manny's Transmissions, rebuilt a transmission for a truck used by Prime Building to haul construction materials.  The truck caught fire and was a total loss.  State Farm stepped into the shoes of Prime Building, its insured, and filed a subrogation claim against Mr. Martinez.

     Mr. Martinez did not believe he was responsible for the fire, and asked State Farm to preserve the evidence.  Eventually, State Farm did not wish to pay the storage costs, and the the truck was dismantled and the parts sold for salvage value.  Additionally, records relating to the claim were lost.  At this point, it did not look so good for State Farm, but be patient, dear reader, and read on.

Tort of Another: Purchasers Of Challenging Driveway Recoup Fees From Prior Action Against Prior Owner/Contractor For Negligent Construction Of Driveway Impairment

Sixth District Determines Trial Court Properly Applied “Tort of Another” Doctrine in Favor of Landowners With the Challenging Driveway.

     Co-contributors Marc and Mike have written an article on when attorney’s fees may be awarded as damages in certain cases. (See “When the American Rule Doesn’t Apply: Attorney’s Fees as Damages in California Litigation,” California Litigation, Vol. 21, No. 3 (California State Bar 2008), available for reading with thanks to the State Bar on our November 13, 2008 post.) One such instance occurs if the “tort of another” doctrine applies. The next opinion affirmed a fee award based on this doctrine.

     Bennett v. M. Lewis, Inc., Case No. H032813 (6^th Dist. May 29, 2009) (unpublished) involved residential purchasers who had to sue when their adjoining neighbors tried to prevent them from using a driveway turnout. The parties reached a settlement in which residential purchasers obtained legal title to the turnout area. Residential purchasers subsequently sued the prior owner and contractor which constructed the driveway for nondisclosure and negligent construction. Following a bench trial, residential purchasers were awarded damages against defendants on the negligent construction claim in the amount of $32,531.31, some of which included attorney’s fees they had incurred in the prior litigation against their adjoining neighbors. Among other challenges, defendants challenged the award of fees under the “tort of another” doctrine.

Tort of Another: Plaintiffs Suing For Expenses In Suing Successor Property Owners Under Nuisance/Trespass Theories Not Entitled To Recover Fees From Predecessor Property Owners

 

Sixth District Narrowly Construes Scope of “Tort of Another” Fee Exception.

     In our November 13, 2008 post, we noted that co-contributors Marc and Mike wrote an article on recovering attorney’s fees as damages in the Vol. 21, No. 3 issue of the 2008 California Litigation. One of the discussed topics was the “tort of another” exception to the American Rule for recovery of attorney’s fees. We discussed how narrowly this exception has been construed by the relevant jurisprudence. The next recent case reinforces this conclusion.

Attorney’s Fees Not Recoverable As Compensatory Damages Under Uniform Fraudulent Transfer Act or “Tort of Another” Doctrine

 

Fourth District, Division Three Reverses Wide-ranging Fee Award and Remands For Narrower Determination.

     We have seen the litigants in the next case before. (See our posts of June 2, 2008 and August 27, 2008, where the McMahons have suffered adverse fee awards and sanctions in a long-standing battle with a homeowners association.) Here, they obtained a reversal of a substantial fee award made as part of a compensatory damage “prove-up” and a remand for a new trial on the damages issue. In the process, Justice Ikola, writing for a 3-0 panel of our local Court of Appeal, faced some interesting legal issues relating to fee entitlement under the Uniform Fraudulent Transfer Act (UFTA) or the “tort of another” doctrine.

     In Palacio Del Mar Homeowners Assn. v. McMahon (Palacio VI), Case No. G039731 (4^th Dist., Div. 3 Dec. 1, 2008) (unpublished), after McMahons failed to appear at trial, Palacio (the HOA) introduced evidence and was awarded $570,000 in compensatory damages, $250,000 in punitive damages, and an unspecified amount of attorney’s fees and costs. McMahons lost their motion to set aside the judgment, prompting the appeal in Palacio VI.

     They did better this time, because the five other appeals were losses for them.

     The bulk of the compensatory damage award—around $500,000—represented attorney’s fees and costs by Palacio in maintaining the fraudulent transfer action after the much smaller judgment was satisfied. Justice Ikola initially concluded that Palacio could not recover its attorney’s fees as compensatory damages under the UFTA. Because the UFTA authorizes “any other relief the circumstances require subject to the applicable principles of equity and in accordance with applicable rules of civil procedure” (Civ. Code sec. 3439.07(a)(3)(C)), it does not authorize recovery of fees because “applicable rules of civil procedure” include the American rule requiring each side to bear his own costs unless a statute specifically provides otherwise. Nothing in the UFTA specifically provides for fee recovery, with many out-of-state authorities supporting this result. (See, e.g., Gardiner v. York, 153 P.3d 791, 795 (Utah Ct.App. 2006); Volk Constr. Co. v. Wilmescherr Drusch Roofing Co., 58 S.W.3d 897, 901 (Mo.Ct.App. 2001); Morris v. Askeland Enterprises, Inc., 17 P.3d 830, 833 (Colo.Ct.App. 2000); Selvage v. J.J. Johnson & Associates, 910 P.2d 1252, 1264 (Utah Ct.App. 1996); Golconda Screw, Inc. v. West Bottoms Ltd., 894 P.2d 260, 266 (Kan. App. 1995); Spanier v. U.S. Fid. & Guar. Co., 623 P.2d 19, 28-30 (Ariz.Ct.App. 1980).)

     That turned attention to Palacio’s reliance on the “tort of another” doctrine emanating from Prentice v. North Amer. Title Guar. Corp., 59 Cal.2d 618, 620 (1963).

     The problem with McMahons’ reliance on this doctrine is that it properly focuses only upon fees incurred in an action against a third party. (See Golden West Baseball Co. v. Talley, 232 Cal.App.3d 1294, 1302-1303 (1991) [doctrine inapplicable where plaintiff sought to recoup fees from principal for fees incurred against agent; only one true party involved].) If “tort of another” could be stretched this far, Justice Ikola observed, “attorney fees could be recovered in every civil action.” (Slip Opn., at p. 10.) Palacio did not fare better in arguing that fees could be recovered against joint tortfeasors; the doctrine did not allow Palacio to recover from McMahons any fees incurred in prosecuting UFTA claims against any transferees who were joint tortfeasors. (Vacco Industries, Inc. v. Van Den Berg, 5 Cal.App.4^th 34, 57 (1992); but see Filip v. Bucurenciu, 129 Cal.App.4^th 825, 837 (2005).) However, the “tort of another” doctrine did allow potential recovery to Palacio for fees incurred in connection with transfers to innocent transferees (third parties who are not joint tortfeasors), requiring remand to see if Palacio could prove any such fees as “compensatory damages.”

     BLOG UNDERVIEW—Co-contributors Marc and Mike recently surveyed the “tort of another” doctrine in an article entitled “When the American Rule Doesn’t Apply: Attorney’s Fees as Damages in California Legislation,” which was published in Vol. 21, No. 3 of California Litigation (which came out in November 2008). The article can be found on our post of November 13, 2008, and we thank the California State Bar (whose Litigation Section publishes California Litigation) for allowing us to link to it. Our discussion of “tort of another” is at pages 20-22 of the article; for another case that holds that the doctrine does not apply in essentially a two-party lawsuit (even though there may be more nominal parties), see David v. Hermann, 129 Cal.App.4^th 672, 689 (2005).

     Some of you may wonder what happened to the punitive damage award in Palacio VI. That, too, was reversed because Palacio had failed to submit meaningful current evidence of McMahons’ income, expenses, assets, or liabilities, something that is required in California in order to recover punitive damages. (See Baxter v. Peterson, 150 Cal.App.4^th 673, 680 (2007).) Palacio relied on McMahons’ sale of two properties in 2000 and appraisal of their house in 2004, but this information was outdated and said nothing about the sales proceeds/equity involved in the respective situations. No retrial was allowed, because Palacio had a “full and fair opportunity to present [its] case for punitive damages,” citing Baxter, supra, 150 Cal.App.4^th at 681 and Kelly v. Haag, 145 Cal.App.4^th 910, 919-920.

     McMahons finally won an appeal that will likely prevent them from being exposed to the brunt of the $750,000-plus judgment overturned upon review.

     The opinion’s discussion of fees under UFTA and the “tort of another” doctrine is must reading for parties or practitioners confronting these issues.

“TORT OF ANOTHER,” “TORT OF ANOTHER,” NO, NO, NO, NO.

Second District Confirms That the “Tort of Another” Exception Applies to Third Party Actions, Not Direct Actions Against Joint Tortfeasors.

            Infac Mgt. Corp. v. Infac India Group LLC,Case No. B195247 (2d Dist., Div. 4, May 19, 2008) (unpublished) reminds us that the “tort of another exception” to the American Fees Rule—the rule that fees are not recoverable unless allowed under a contract or by statute—is not broad in nature.  Rather, this exception only applies to recovery of attorney’s fees necessitated by having to participate in true third-party actions.  No more, no less, but an indispensable element nonetheless.

            In Infac, plaintiff sought recovery of attorney’s fees in prosecuting an action against others in order to obtain relief from a prior judgment.  The only problem is that the action was against joint tortfeasors, not third parties. 

            Were fees awardable in such circumstances?  No, said the Second District, in an unpublished decision which happens to be a stark reminder about the constraints of this narrow doctrine.

            The Court of Appeal observed that the “tort of another” exception applied only where a plaintiff prosecuted or defended an action against a third party to protect his interests, citing Prentice v. North American Title Guar. Corp., 59 Cal.2d 618, 620 (1963).

            In the case before the Infac court, the plaintiff had brought a direct suit against joint tortfeasors, not third parties.  (Slip Opn., at p. 29.) 

            The result:  no, no, no, to triggering of the “tort of another” exception; the plaintiff was not allowed to claim fees under this exception, a result reached by a lower court and affirmed on appeal by the reviewing court.