CALIFORNIA ATTORNEY'S FEES

Section 1717 And Fees Clause Interpretation: Fee Denials Against Apartment Seller And Escrow Company Reversed And Remanded For Reconsideration

 

Second District, Division 7 Finds Reversal of Prejudgment Interest Issue Requires Reexamination of Prevailing Party Determination and the Escrow Instructions Fee Clauses Were Sufficiently Broad for Fee Entitlement Purposes

     In Marina Glencoe, L.P. v. Malibu Escrow Corp., Case No. B203415 (2d Dist., Div. 7 Mar. 1, 2010) (unpublished), an apartment building purchaser recovered $100,000 from an escrow company for wrongfully withholding a deposit and $9,416.43 interest from seller in litigation over a canceled real estate transaction. Buyer had also sought additional damages for tax liability damages, a claim abandoned by buyer after 16 months of litigation. The trial court refused to award any attorney’s fees to buyer, who had moved to recover more than $380,000 against both defendants pursuant to fee clauses in the purchase agreement and escrow instructions under Civil Code section 1717.

     The Second District, Division 7, in a 3-0 decision authored by Presiding Justice Perluss, reversed and remanded for reconsideration.

     Although defendants challenged the fee denial appeal as untimely, the appellate panel disagreed. Seller only sent a “Notice of Ruling,” which does not comply with the strict rules for sending a “Notice of Entry.” This meant that the longer 180-day appeal period applied, with buyer’s appeal being timely in nature. (Sadler v. Turner, 186 Cal.App.3d 245, 248 (1986).) Similarly, the court’s minute order had no “Notice of Entry” of order language and was not file stamped, meaning it did not trigger the shorter appeal periods. (Alan v. American Honda Motor Co., Inc., 40 Cal.4^th 894, 905 (2007).)

     With respect to the fee denial as to apartment seller, the Court of Appeal agreed that this was a “mixed result” case because buyer did not gain his tax liability damages, giving the lower court discretion to determine if there was a prevailing party. Under Santisas v. Goodin, 17 Cal.4^th 599 (1998) [one of our Leading Cases], nothing prevented the lower court from examining the voluntary dismissal of the tax liability claim in determining if there was a prevailing party. However, because there was a reversal on a narrow prejudgment interest issue, the fee determination was remanded for the trial court to reexamine whether buyer’s additional success on the prejudgment interest issue altered the “prevailing party” decision.

     That brought Justice Perluss and his colleagues to the fee denial as to escrow company for withholding a deposit made by buyer in the canceled transaction. Escrow company argued that the lower court correctly denied fees, because the pertinent clauses were third-party indemnity rather than general attorney’s fees clauses. The appellate court nonetheless found that one of the fee clauses allowed escrow to recover fees for performance arising out of the escrow transaction, which under section 1717’s mutuality principle meant that the clause was sufficiently broad to allow for fee recovery. (Accord, Paul v. Schoellkopf, 128 Cal.App.4^th 147, 152-154 (2005).)

Jurisdiction To Award Fees And Prevailing Party Status: Borrower Substantially Reducing Loan Exposure Through Usury Defense Awarded Fees Of $43,960

Trial Court Had Jurisdiction to Award Fees While Merits Appeal Pending and Borrower Was the Prevailing Party.

     Borrower on a loan, even after an initial appeal, reduced a loan balance to only $3,602.72 after an offset for usurious interest. The lower court refused to award costs to lender and also awarded $43,960 to borrower based on a fees clause in the promissory note.

     Lender appealed, but lost all fees/costs issues in Gilbert v. Wisdom, Case Nos. E047235, E048425 (4^th Dist., Div. 1 Feb. 4, 2010) (unpublished).

     Lender first argued that the appeal from the merits judgment, before the fee motion was filed, divested the trial court of jurisdiction to hear borrower’s fee motion. Wrong, because numerous courts of appeal have rejected similar arguments. (See, e.g., Robertson v. Rodriguez, 36 Cal.App.4^th 347, 360 (1995); Bankes v. Lucas, 9 Cal.App.4^th 365, 368 (1992).) Although relying on some isolated language in Butler-Rupp v. Lourdeaux, 154 Cal.App.4^th 918, 928 (2007), the Court of Appeal noted that Butler-Rupp, when viewed in context, did not dictate a different result.

     Lender next argued that the trial court did not explain the legal basis for the fee award. However, the appellate panel found no court rules or statutes that required such a statement of reasons for ruling on a motion for fees. (Slip Opn., p. 36; Laabs v. City of Victorville, 163 Cal.App.4^th 1242, 1272 (2008).)

     Lender also contended that borrower did not prevail for Civil Code section 1717 purposes. Wrong again. A lawsuit attacking a note as usurious is an action on the contract for purposes of fee recovery, and borrower reduced a loan balance to minimal proportions.

     Lender also challenged the striking of his costs memorandum request. However, this appellate challenge was dismissed because lender failed to appeal 60 days after the service of notice of the costs strike ruling.

Prevailing Party: California Supreme Court Decides Goodman v. Lozano

 

Plaintiff Cannot Recover Fees From Nonsettling Litigants Where Offsets From Settling Litigants Result in a Zero Judgment.

 

    The California Supreme Court, in a much anticipated decision, has decided an important “prevailing party” issue in Goodman v. Lozano, Case S162655 (Cal. Supreme Ct. Feb. 4, 2010) (published).

 

    Our state supreme court decided that plaintiffs suffering a zero judgment against nonsettling defendants, after offsets allowable for settlements made by settling defendants under CCP § 877, are not entitled to recover attorney’s fees and costs because plaintiffs did not obtain a “net monetary recovery.”

 

    The decision was authored by Justice Chin on behalf of a 7-0 court.  In the process, the high court disapproved Wakefield v. Bohlin, 145 Cal.App.4^th 963, 982-983 (2006) and distinguished several other appellate decisions. 

Indemnity And Apportionment: $402,596.40 Fee Award Affirmed In Refusal To Defend Dispute

Sixth District Found Opposing Party Forfeited Challenge to Billing Record Objections When It Failed to Attack Omissions Through Discovery Motion.

     In the next case, the Sixth District—in UDC-Universal Development, L.P. v. CH2M Hill, Case No. H033862 (6^th Dist. Jan. 22, 2010) (unpublished)—affirmed a $402,596.40 fee award under a contractual provision when sustaining a trial court’s ruling that a cross-complainant obtained more relief by obtaining a judgment for breach of the contractual duty to defend even though cross-complainant lost on its indemnification claims.

     This decision does show the considerable discretion vested in lower courts to determine the “prevailing party” when neither side achieves a complete victory. It will not be disturbed in the absence of a clear abuse of discretion, something that did not happen in this particular case.(Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858, 894 (2008).)

     However, there is also an important discovery lesson that can be derived from this unpublished decision. Appellant challenged the lower court’s failure to apportion the fees, but made a critical error in proceedings below: it failed to move to compel further responses when it did not receive certain requested billing records from the fee claimant. Both the lower and appellate courts found that this forfeited any challenges that were targeted against the billing records. So, make your discovery motions if you are the fee objector attacking any of the claimant’s billing records.

Prevailing Party: Appeal Dismissed As Moot Where Final Resolution Has Not Yet Been Reached In Entire Dispute

Sixth District Finds Challenge to Superseded Ruling is Moot.

     The next case is an illustration of the principle that prevailing party status usually cannot be determined “until the dust has finally settled.”

     In Campagna v. Gatley Properties, Case No. H034112 (6^th Dist. Jan. 21, 2010) (unpublished), after two prior appeals, the appellate court remanded the matter to the superior court for certain recalculations of rent and prejudgment interest. However, before that most recent remand, appellant moved for attorney’s fees as the prevailing party based on the judgment that was most recently remanded. Even though the trial court denied them based on finding that no side prevailed, appellant appealed the fee denial.

     On review, the appellate panel dismissed the appeal as moot. Because there was no final, final resolution of remaining issues after the remand, the prior fee award was a nullity because it was based on a superseded ruling in light of the second appellate decision. Prevailing party status would have to wait upon final rulings on remand.

Public Construction Prompt Payment Statutes: Winning Contractor, Surety, And Bonding Company Entitled To $150,000 In Fees After Prevailing Against Losing Subcontractor

Third District’s Affirmance of Prompt Payment Statute Result Ices Correctness of Fee Award.

     In one of our past posts (see January 16, 2009 discussion of the unpublished decision of Li v. Wu), we briefly discussed one of the construction prompt payment statutes. The Legislature has enacted several “prompt payment” statutes designed to make sure that payments (retention, progress, or otherwise) are promptly paid by owner, contractor or subcontractors to other construction professionals.

     Public Contract Code section 7107, one of these statutes, was at play in Martin Bros. Constr., Inc. v. Thompson Pacific Constr., Inc., Case No. C058944 (3d Dist. Dec. 4, 2009) (certified for publication).

     Section 7107(d) mandates that a general contractor must pay subcontractors within 7 days after contractor receives construction work proceeds from the public entity owner. The prevailing party in a prompt payment dispute under this provision is entitled to an award of attorney’s fees and costs. (Pub. Contract Code, sec. 7107(f).)

     Here, the trial court concluded that defendants (a contractor, its surety, and its bonding company) did not violate the prompt payment statute, awarding them $150,000 in fees. That merits determination was affirmed on appeal, which means the fee award stood also.

Fee Clause Interpretation, 998 Offers, And Routine Costs: A Three-Fer In One Case—And A Resultant POOF! Upon Reversal Of The Fee Award

Substantial Fee Award Reversed Because Fees Provision Did Not Reach Noncontract Recovery, While Rest of Trial Court’s Fee/Costs Orders Affirmed on Appeal.

     In Gaggero v. First Federal Bank of California, Case No. B207273 (2d Dist., Div. 1 Nov. 30, 2009) (unpublished), Borrower voluntarily dismissed with prejudice his equitable, statutory and breach of contract claims, on the eve of a jury trial, after the trial court held a pretrial hearing on contractual interpretation issues and indicated that the defense would be entitled to a nonsuit or directed verdict. Lender filed a costs bill and moved for an award of attorney’s fees. After determining that Lender was not entitled to fees for Borrower’s dismissal of the contract claim, the trial court did award Lender $1.5 million in fees and $22,000 in costs (after disallowing some other routine costs to Lender) for prevailing on the noncontract (primarily tort and statutory) claims. The trial court also disallowed Lender’s expert witness fees on the ground that its Code of Civil Procedure section 998 offer was not made in good faith. Both sides appealed.

     On appeal, the substantial fee/costs award went POOF!, but the lower court’s other rulings were sustained.

Prevailing Party And Fee Clause Interpretation Issues: Court Of Appeal Sustains Trial Court Denial Of Fees To Either Side

Fourth District, Division 1 Utilizes “Pragmatic” Prevailing Party Test and Determines Narrow Fee Clause Did Not Allow For Recovery on Successful Tort Claim.

     In a dispute involving a brokerage arrangement with respect to a mobile home, seller won a small compensatory and punitive damages jury verdict against brokers for breach of fiduciary duty, although seller lost a contractual claim and brokers lost a contract-based cross-claim after having it dismissed because no supporting evidence was presented at trial. Seller moved for $89,772.50 in contractual attorney’s fees for prevailing on his tort claim, and brokers moved for $61,217.50 in contractual fees and costs for obtaining a directed verdict on seller’s breach of contract claim. The trial court denied fees to either side, and both sides appealed claiming each one respectively should have been awarded fees.

     The Fourth District, Division 1 affirmed the fee denials in Whitton v. AAAmerican Pacific Manufactured Homes, Inc., Case No. D053737 (4^th Dist., Div. 1 Nov. 24, 2009) (unpublished).

     The appellate court found that under the Hsu v. Abbara, 9 Cal.4^th 863 [one of our Leading Cases] “pragmatic” test, brokers did not prevail overall despite defensing seller’s contract claim through a directed verdict. The reason is that broker suffered a defeat by losing their contract cross-claim, with no authority being cited to show that the trial court had to ignore this defeat when determining if brokers prevailed for purposes of fee recovery.

     That brought the panel to seller’s claim that it was entitled to fees under a fees clause for winning his tort claim. Not so, said the Court of Appeal. The fee clause at issue was very narrow, only encompassing contractual enforcement rather than broader claims “arising out of” the agreement. The fiduciary duty claim was not brought to enforce the agreement. (Exxess Electronixx v. Heger Realty Corp., 64 Cal.App.4^th 698, 709 (1998).) Thus, the more narrow nature of the fees clause prevented seller from recovering his fees, meaning the lower court’s interpretation of the contract was correct.

Fee Clause Interpretation: Broadly-Worded Fees Clause Gave Rise To Fee Exposure For Non-Contract Claims

Second District, Division 8 Affirms $250,000 Fee Award to Prevailing Defendants.

     A broadly-worded attorney’s fees provision—such as one allowing for fee recovery in “any action whatsoever arising from rights and obligations established under [the] Bylaws, including but not limited to actions for damages resulting from a breach of these Bylaws or actions for specific enforcement hereof”—can give rise to substantial fee exposure to the losing party, as the next case attests to.

     Plaintiffs lost various contractual and tort claims against defendants associated with a residential water supplier, which had an attorney’s fees clause in its bylaws covering the overall dispute. Plaintiffs lost summary judgment/adjudication motions and voluntarily dismissed remaining claims (including dismissal of certain contractual claims). Defendants moved for recovery of up to $650,000 in fees under the bylaws fee clause, with the trial court awarding fees of $250,000.

     Upon the subsequent appeal of plaintiffs, the Court of Appeal affirmed in Fernandez v. SPV Water Co., Case No. B203902 (2d Dist., Div. 8 Nov. 10, 2009) (unpublished).

     Because defendants prevailed, they were entitled to costs as a matter of right even though the judgment failed to mention costs at all. (Code Civ. Proc., sec. 1032(b).) Although defendants were not entitled to recover fees for the dismissed contractual claims under Santisas v. Goodin, 17 Cal.4^th 599, 615-617 (1998) [one of our Leading Cases], this did not impact upon the availability of fee recovery under the non-contract claims which were undisputedly covered by the broadly-worded fees clause (a key exception even under Santisas).

Prevailing Party: Defendants City And Landlord Win Summary Judgment and Gain $184,605 Fee Award As Prevailing Parties Under Civil Code Section 1717

Both Determinations Affirmed on Appeal.

     In Marinos v. City of Rocklin, Case Nos. C058958/C060844 (3d Dist. Nov. 4, 2009) (unpublished), defendants City and landlord prevailed on a summary judgment motion based on plaintiffs not complying with a notice provision in a settlement agreement with a fees clause. The trial court then awarded defendants $184,605 in attorney’s fees (a 30% reduction from the requested fees of $265,066.50) to defendants as prevailing parties under the fees clause.

     Plaintiffs appealed, and lost.

     They initially argued that the fee motion was untimely because it was filed after the costs memorandum deadline. Not so, said the appellate panel. Fee recovery is governed by CRC, rule 3.1702(b), which is tied to the time period for appealing the underlying merits judgment. Here, defendants timely filed within 30 days after denial of the new trial motion.

     Plaintiffs next argued that the two law firms representing the defendants unreasonably duplicated efforts. The problem with this contention is that the fee award is resolved under an abuse of discretion standard deferential to the lower court’s ruling. (Maughan v. Google Technology, Inc., 143 Cal.App.4^th 1242, 1249 (2006).) Although the notice issue was ultimately determinative, both sides vigorously litigated many issues and engaged in lots of discovery and law and motion practice. The fee claimants provided 112 pages of detailed invoices, such that more than adequate substantiation of work effort was presented before the lower court. Given that the trial judge did reduce the requested fees by 30%, plaintiffs did not do enough in simply posing unreasonableness rhetorical questions rather than “show” the appellate court that the award was patently unreasonable.

     They then argued that the fee motion was deficient because the defendants did not file copies of their fee agreements in connection with the motions. This one lost “ . . . as plaintiffs fail to offer any authority on that point.” (BLOG OBSERVATION—This argument was likely not going to prevail given that, under the Business and Professions Code, fee agreements are confidential attorney-client communications.)

     Because plaintiffs did not meet their burden in showing error, the fee award was sustained on appeal.

Prevailing Party: Tenant Properly Denied Attorney’s Fees As Prevailing Party Where Landlord Got To Obtain Some Of A Security Deposit And Tenant Obtained Some Of The Security Deposit

Second District, Division 7 Sustained “No Prevailing Party” Determination Under Civil Code Section 1717.

     One of our leading cases is Hsu v. Abbara, 9 Cal.4^th 863 (1995). It is must reading for all litigators, and might save your client a substantial amount of fees if you can talk the clients into believing that Civil Code section 1717 fees are discretionary when there is no clear prevailing party. Unless there is a clear winner (monetarily or based on pragmatic grounds), you face long odds to obtain a reversal of a “no prevailing party” determination case in which there are mixed results (even if the results still might tilt in favor of one side). The next case is a nice illustration of that principle. Remember, judges are human beings that try to decide things fairly. They are loathe to hit one side or the other where the results are mixed.

     In Choudhury v. Lancaster Realty Holdings, Case No. B209443 (2d Dist., Div. 7 Oct. 20, 2009) (unpublished), landlord and tenant got into a dispute boiling down to what amount of a security deposit could be retained by landlord. Long story short, landlord got a substantial portion of the deposit, but tenant was entitled to return of some portion of the deposit as improper holdover rent. Both parties sought attorney’s fees, but were rebuffed when the trial court ruled that neither party prevailed in the security deposit declaratory relief action.

     Result? Affirmed. Under Hsu, other than a clear win--a mixed result--means no prevailing party. Under the circumstances, the trial court’s decision, under which one party won something and the other party won something, was reasonable and hardly constituted an abuse of discretion.

Prevailing Party: Broadly-Worded Fees Clause Gave Rise To Fee Exposure Even Under Santisas

Sixth District Also Resolves Joinder, Motion Timeliness, and Apportionment Issues.

     The next case is a virtual “issue cross-over” study for such subjects as prevailing party after a dismissal without prejudice (Santisas issue); joinder; motion timeliness; and apportionment. Walewski v. Williams, Case No. H033026 (6^th Dist. Oct. 8, 2009) (unpublished) is worth reading to see how each of these issues panned out.

Civil Code Section 1717: Victorious Defendant In Case Involving Promissory Note Entitled To Fees, Even Though Foreclosure Contemplated Further Action—Prevailing Party Status Established Where Plaintiff Allowed Foreclosure Remedy To Lapse

 

First District, Division 2 Deals With Interesting Finality Issue With Respect to Prevailing Party Status.

     The interesting (and fun) part of this blog is reviewing unpublished decisions that actually confront very challenging issues arising from the array of procedural twists that can (and do) occur in civil litigation.

    The next one deals with a situation where a prevailing party was found because a plaintiff lost under a promissory note and then failed to timely pursue foreclosure remedies under an equitable mortgage—establishing defendant as the prevailing party under Civil Code section 1717.

     In Penna v. Ergur, Case Nos. A117629, A118491, & A118699 (1^st Dist., Div. 2 Sept. 29, 2009) (unpublished), defendant executed a promissory note with a fees clause in favor of plaintiff, but no trust deed was signed (even though the parties contemplated that it would be secured). Plaintiff sued to recover under the note, and defendant brought a cross-claim for fraud and negligent performance of contract. Defendant’s cross-claims were dismissed in an unconventional procedural context, but plaintiff’s note/common count claims went to trial. The trial court held the note was an equitable mortgage such that defendant’s one action rule/security first defense was well taken. Importantly, the trial court also denied a motion to amend to allow plaintiff to foreclose on the mortgage, finding that the failure to allege this earlier was prejudicial given the dismissal of defendant’s cross-claims. Defendant moved to recover fees as the prevailing party, with the trial court awarding him $85,230 fees out of a requested $116,000 in fees and costs.

     Plaintiff appealed.

Prevailing Party and Nonstatutory Costs: Trial Court Award Of $643,606.76 In Fees Is Affirmed Even Though Defendant Eventually Lost Summary Judgment Trial and Appellate Segments

Court of Appeal Does Strike Nonstatutory Costs Award, Following Ripley Over Bussey.

     In Gaggero v. Yura, Case No. B203780 (2d Dist., Div. 5 Sept. 14, 2009) (unpublished), defendant won a purchase agreement dispute with a contractual fees clause after the trial court found that a condition precedent—CC&Rs—was not agreed on between both sides. (Seller did not want to allow any dogs; co-contributor Mike and his Labrador Riffle say “boo.”) Defendants then moved for an award of $63,829.18 in costs (including both statutory and nonstatutory costs) and $645,492.50 in fees. The trial court awarded almost the full request to defendant--$63,806.18 in costs and $643,606.76 in fees. Plaintiff appealed.

     With respect to costs, the appellate panel did modify the judgment to delete nonstatutory costs, preferring to follow Ripley v. Pappadopoulos, 23 Cal.App.4^th 1616, 1624-1625 (1994) (disallowing nonstatutory costs) over Bussey v. Affleck, 225 Cal.App.3d 1162, 1167 (1990) (allowing nonstatutory costs award). (BLOG REVIEW—Ripley is the majority view on this issue, as we have discussed on our previous June 5, 2008 general subject matter post as well as June 4, 2008 post on Richlin Security and November 5, 2008 post on Ekstrom. See discussion of this split in Carwash of America-PO v. Windswept Ventures No. 1, 97 Cal.App.4^th 540, 544 (2002).) So, add the Second District, Division 5 to the list of courts that endorse Ripley.

     That brought up the propriety of the substantial fee award. That issue came down fully in defendant’s favor. Prevailing parties are entitled to an award of fees, in the trial court’s discretion, for unsuccessful activities. (City of Sacramento v. Drew, 207 Cal.App.3d 1287, 1303 (1989).) In this case, defendant did obtain fees rightfully for unsuccessfully attempting to uphold a lower court summary judgment victory, even though the appellate court reversed the grant in an earlier opinion. “Having obtained a summary judgment, it was reasonable for the trial court to conclude that defendant was justified in attempting to uphold that judgment on appeal” (Slip Opn., at p. 29.)

     BLOG FAVORITE QUOTE—“The process of litigation is often more a matter of flail than flair; if the criteria of [Code of Civil Procedure] section 1021.5 are met the prevailing flailer is entitled to an award of attorney fees.” City of Sacramento, supra, 207 Cal.App.3d at 1303.

Prevailing Party In Discrete Proceeding: Dismissal Of Action So Matter Can Be Arbitrated Entitles Defendant To Fee Award Under Civil Code Section 1717

Fourth District, Division 2 Likes Profit Concepts Management Reasoning.

     Our inaugural post way back in May 2008 discussed Profit Concepts Management., Inc. v. Griffith, 162 Cal.App.4^th 950 (2008) [one of our Top 10 Cases of 2008]. This case held that a victor on a motion to quash for lack of personal jurisdiction—even though further litigation might be likely in a different forum—was a prevailing party under Civil Code section 1717 with respect to recovery of attorney's fees. The jurisprudence is still evolving in this area, although numerous cases have held that discrete proceeding wins can give rise to award of 1717 fees. Now, the Fourth District, Division 2 has added yet another procedural context in which fees can be awarded—significantly adopting the reasoning in Profit Concepts Management.

     In Imperial Cabinets, Inc. v. Regency Highlands, Inc., Case No. E047131 (4^th Dist., Div. 2 Sept. 3, 2009) (unpublished), a defendant (a successor general contractor who assumed a contract with an attorney's fees and arbitration clauses) obtained a dismissal with prejudice of subcontractor plaintiff's breach of contract claim because plaintiff finally provided on the eve of trial a copy of the subcontract showing there was an arbitration clause. The trial court decided that the matter should go to arbitration and dismissed the action with prejudice. However, the lower court refused to award defendant its requested $36,900 in fees and $2,974.15 in costs under Civil Code section 1717 for obtaining a dismissal of the court action.

     Defendant appealed. Guess what?

Prevailing Party: Voluntary Settlement Of Contractually-Based Claims, Even Though In Tort Or Equity, Prevents Award Of Fees Under Santisas

Fifth District So Rules In Unpublished Decision, Rejecting That “Labels” Rather Than Substance Are Governing. 

     Santisas v. Goodin, 17 Cal.4^th 599 (1998) [one of our Leading Cases] held that Civil Code section 1717 bars an action voluntarily dismissed as a result of a settlement to the extent contract claims were involved in the dismissed action. In the next case, Santisas was found applicable, with the appellate court rejecting arguments that the “labels” on causes of action should determine their substance as far as determining if contract or noncontract claims were at issue.

     In Norris v. Herrera, Case No. F056374 (5^th Dist. Aug. 27, 2009) (unpublished), landlords and tenants were locked in litigation over no-assignment/no-subletting/purchase option clauses in a written lease with a fees provision. Eventually, the parties reached a settlement by which a purchase option was exercised and tenants became owners of the property. The complaint and cross-complaint in the action were voluntarily dismissed pursuant to the settlement. Tenants then moved to recoup $53,532.75 in fees under Civil Code section 1717, arguing they prevailed against the claims in landlords’ complaint. The lower court denied the request, and tenants appealed.

     The Fifth District, in a 3-0 decision authored by Acting Presiding Justice Wiseman, affirmed. Landlords’ claims were for ejectment (tort), declaratory relief (equitable, asking for a declaration that tenants breached the lease), and quiet title (real property claim). In arguing for a reversal, tenants claimed that the court must be limited to the labels attached to the causes of action in the complaint, finding that their claims were noncontractual rather than contractual in nature. That did not sit well at all with the Fifth District: “The tenants’ view that the labels control over the substance is not supported by authority or reason.” (Slip Opn., p. 4.) It found that the relief sought by tenants was for nothing but a set of alleged breaches of contract. “ There is no authority for the idea that a lawsuit is a contract action only when the remedies sought are damages or an eviction order, however.” (Slip Opn., p. 7.) Substance prevailed in this one, not the “labels” on the underlying claims.

Prevailing Party: Plaintiff Who Dismissed Action But Beat Back Defense Fee Request Was Not Prevailing Party Under Civil Code Section 1717 In The Overall Sense So As To Garner Fees For Beating Opposition Fee Request

Second District, Division 6 Follows Presley and Mustachio in so Deciding.

     The beginning quote in this case nicely summarizes the lesson from the next case: “A party who prevails on appeal is not necessarily the prevailing party in an action.”

     Wood v. Santa Monica Escrow Co., Case No. B205939 (2d Dist., Div. 6 Aug. 13, 2009) (certified for publication) involved a defendant escrow company that prevailed in an underlying lawsuit when the plaintiff dismissed his elder abuse and contract suit with prejudice. Defendant moved for attorney’s fees of $24,773.75 based upon a fee clause in the escrow instructions, a request denied by the trial court and affirmed by Division 6 in a prior opinion. (In that previous published decision found at 151 Cal.App.4^th 1186 (2007), the appellate court found that the elder abuse statute only allows fee recovery for a prevailing plaintiff rather than a defendant, with an award of fees to escrow company under Civil Code section 1717 frustrating the elder abuse legislative policy.) Plaintiff then tried to reverse fortunes by moving to recover his attorney’s fees on appeal for beating back defendant escrow’s earlier fee request. The trial court denied the fee motion, and the Second District, Division 6 affirmed.

     Writing on behalf of a 3-0 panel, Presiding Justice Gilbert relied on Presley of Southern California v. Whelan, 146 Cal.App.3d 959, 961 (1983) and Mustachio v. Great Western Bank, 48 Cal.App.4^th 1145, 1149-1150 (1996) to determine that Civil Code section 1717 fees are only awarded to the overall winner in the litigation—in this case, defendant escrow that was dismissed with prejudice. The appeal of the denial of the attorney’s fees did not decide who won the overall lawsuit. The appellate panel also distinguished appellate routine costs, which were recoverable by plaintiff for winning the prior appeal, from appellate attorney’s fees, which entails a completely different contextual analysis of what litigant prevailed in the overall context of the litigation.

Special Fee Shifting Statute: Stung by District Court's Denial of Fees, Appellant Gets Some Relief from Ninth Circuit in Mosquito Spraying Case

 

Ninth Circuit Explains Standards for Collecting Fees under Clean Water Act.

     The next case involves alphabet soup:  GCMAD, NPDES, EPA, CWA, and the spraying of adulticides.  Translation:  Gem County Mosquito Abatement District, National Pollutant Discharge Elimination System, Environmental Protection Agency, Clean Water Act, and the spraying of pesticides used to kill adult mosquitoes. St. John's Organic Farm, et al. v. Gem County Mosquito Abatement District, et al., Case No. 07-35797 (9th Cir., filed July 16, amended Aug. 3, 2009) (for publication).

     Plaintiffs Saint John’s Organic Farm and Peter Dill sued under the citizen-suit provisions of the Clean Water Act, 33 U.S.C. § 1365, against GCMAD and Gem County, alleging pesticide discharges into the waters of the United States without an NPDES permit violated the CWA Gem County Mosquito Abatement District and Gem County (collectively, “GCMAD”). Dill alleged that GCMAD’s discharges of pesticides directly into United States waters, without an NPDES permit, violated the CW.   Dill and GCMAD settled the suit. The Settlement Agreement limited GCMAD’s pesticide spraying and provided an application for “costs of litigation (including reasonable attorney and expert witness fees)” under 33 U.S.C. § 1365(d) could be made to the district court.

     The district court denied a request by plaintiffs for fees, holding that they were not prevailing parties, and that fees were not appropriate.  The Court of Appeals, in an opinion authored by Justice William A. Fletcher, with a separate concurrence written by Justice Tallman, reversed and remanded to the district court for a determination of whether fees were appropriate under the standards articulated in the opinion.

     Plaintiffs satisfied the three tests necessary to be declared prevailing parties:  (1) the settlement was judicially enforceable; (2) there was a material alteration of the legal relationship between the parties; and (3) there was actual relief on the merits in favor of plaintiffs.

     The Court of Appeal adopted the “special circumstances” standard elaborated in Newman v. Piggie Park Enterprises, Inc., 390 U.S. 400 (1968), as the proper standard for determining whether an award of attorney’s fees to a prevailing plaintiff is “appropriate” under § 1365(d).   In Piggie Park, the Supreme Court held, “one who succeeds in obtaining an injunction under [Title II] should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.”  Now the district court will have to decide whether there are any "special circumstances" that would render  unjust an award to Saint John's Organic Farm and Peter Dill.

     To hear what the Dalai Lama has to say about mosquitoes, just click on the video below..

 

Arbitration: Second District, Division Two Affirms Order Denying Attorney's Fees For Client Who Defeats Petition to Confirm Amended Arbitration Award, Because He Failed to Bring to Court's Attention that the Original Award Should Have Been Confirmed

Court of Appeal Notes that Strict Limitations of CCP 1286 are Seldom Acknowledged in Case Law, But Does Acknowledge Those Limitations This Time.

     On February 18, 2009, we did a post on Karton v. Dougherty, a case in which a $1,146,578.38 default judgment with interest of $159,679.92 in favor of Beverly Hills attorney David S. Karton was vacated for lack of notice to his client.  Based on the proposition that no publicity is bad publicity, Mr. Karton is now the beneficiary of a second published Court of Appeal opinion in 2009, involving a fee dispute with a client, Karton v. Segreto, Case No. B211129 (2nd District, Div. 3, July 30, 2009) (certified for publication).  This case is must reading for practitioners who want to understand the pitfalls in amending or correcting an arbitration award.  The 3-0 opinion is authored by Justice Croskey.

     The attorney and the client proceeded with non-binding arbitration under the Mandatory Fee Arbitration Act (MFAA). No one sought a trial de novo within 30 days of the arbitration award, so under the MFAA, the award became binding and final.  However, although the client was willing to pay the amount of the award, the attorney, who was successful in arbitration, was not satisfied with the amount awarded by the arbitrators, and petitioned the trial court to "correct" the award to include additional sums, which petition the trial court denied.  The attorney then sought to "amend" the award.  When the client then moved for a trial de novo, the attorney petitioned the trial court to confirm the amended award, which petition the trial court denied.  The client then requested attorney's fees as prevailing party, which the court denied.  The attorney appealed from the denial of the petition to confirm the amended award, and the client cross-appealed from the denial of his petition for attorney's fees.  (We considered adding a new category to our blog, "procedural mare's nest", but stuck with the more sedate existing categories of "arbitration" and "prevailing party".).

Appellate Reversal: Court of Appeal Publishes Costa Serena Decision

Case Holds that Reversal Moots Appeal of Attorney's Fees Denial Order.

     On July 17, 2009, the Fourth District, Division 1 certified for publication a previously unpublished decision, Costa Serena Owners Coalition v. Costa Serena Architectural Committee, Case No. D052903 (4^th Dist., Div. 1 filed June 24, 2009; published July 17, 2009). This case held that an order denying attorney's fees becomes moot when the appellate court issues the right type of reversal. We discussed this decision in our earlier June 24, 2009 post.

Civil Code Section 1717 And Alter Ego Case: Litigant Beating Alter Ego Theory Entitled to Fee Award

Second District, Division 4 Affirms $20,000 Fees/Cost Award to Alter Ego Winner.

     In Legacy Construction and Development, Inc. v. De Francesca, Case No. B208851 (2d Dist., Div. 4 July 13, 2009) (unpublished), a defendant, following presentation of plaintiff’s declaratory relief case, obtained a ruling that he was not the alter ego of a separate corporation being sued in the case. Winning defendant was eventually awarded fees and costs of almost $20,000 under Civil Code section 1717 (based on a contract fees clause between Legacy and the separate defendant corporation).

     The Second District, Division 4 affirmed the award. Relying on Pueblo Radiology Medical Group, Inc. v. Gerlach, 163 Cal.App.4^th 826, 829 (2008) [reviewed in our June 5, 2008 post], the appellate panel found that defendant was a prevailing party notwithstanding that the plaintiff might obtain relief against other parties. The favorable alter ego finding did “end the case” against the one defendant who beat the alter ego exposure. Beyond that, the amount of the award was reasonable—winning defendant had asked for $42,130 in fees, but the trial court only awarded $19,150 (plus costs).

Civil Code Section 1717 And Mediation Clause: Real Estate Buyer Losing Fraud Case Suffers $122,100 Adverse Fee Award

Second District, Division 6 Also Interprets Mediation Requirement in CAR Form Contract.

     Buyers sometimes get confused over their obligations under CAR real estate form contracts, especially the ones involving an award of attorney’s fees (which clauses have been held to reach fraud/nondisclosure claims). One of the most frequent causes of confusion is the mediation requirement. Buyer’s failure to satisfy her end of the mediation requirement, coupled with a loss of her suit based on the statute of limitations, was deadly as far as fee exposure was concerned.

     In Carradine v. Cowell, Case No. B210910 (2d Dist., Div. 6 July 13, 2009) (unpublished), residential real estate sellers prevailed after a court trial, with the judge determining that buyer’s fraud/nondisclosure suit was time barred. The trial court awarded sellers all of their attorney’s fees of $121,100 under a CAR fees clause with a mediation requirement. The award was affirmed by the Second District, Division 6, in a 3-0 opinion authored by Acting Presiding Justice Yegan.

     Buyer argued that sellers were ineligible for fee recovery under the CAR fees clause because they refused to mediate. However, buyer misread the clause—it required her to pursue mediation before resorting to court action, something she did not do. Buyer thereby waived enforcement of this provision. Beyond that, the award was hardly an abuse of discretion; after all, sellers incurred fees because buyer waited too long to file her lawsuit—“There is nothing arbitrary, capricious or irrational about requiring appellant to pay the full cost of her intransigence.”

Prevailing Party: Unsuccessful Injunctive Action Was Discrete Legal Proceeding Allowing For Award Of Civil Code Section 1717 Fees

First District, Division 4 Follow Acosta-Otay Line of Cases.

     There has been quite a splash of jurisprudence lately on the question of when a prevailing party can be adjudged in mixed legal-arbitration proceedings. The next case is the latest addition to the case law on this subject.

     In Turner v. Schultz, Case Nos. A121642, A121707 (1^st Dist., Div. 4 July 13, 2009) (certified for publication), the First District, Division 4—in a “close” case on the issue—decided that a trial court correctly awarded $82,280.78 in attorney’s fees to defendants that successfully beat plaintiff’s declaratory and injunctive relief efforts in court to forestall arbitration of a dispute between the parties based on a contractual fees clause covering legal actions. Plaintiff’s legal action was designed to stay arbitration, unlike other disparate legal proceedings to compel arbitration. However, the Court of Appeal followed Acosta v. Kerrigan, 150 Cal.App.4^th 1124, 1131-1132 (2007) and Otay River Constructors v. San Diego Expressway, 158 Cal.App.4^th 796, 996-998 (2008) over other cases, finding that there was a discrete legal proceeding where fees were warranted—“an independent complaint for declaratory and injunctive relief.”

     Even if plaintiff won future fees after prevailing in the arbitration, the legal action was separate and he lost his effort to forestall the arbitration. “It was [plaintiff] who initiated both actions [by first seeking arbitration and then commencing a court action claiming the entire agreement was void]; he must accept the consequences of forcing defendants to fight on two fronts.” (Slip Opn., p. 12.)

Statutory Fees: Attorney's Fees Motion Preserves Fee Request, With Claimants Not Having To File Costs Memorandum Seeking Fees

Second District, Division 3 Rebuffs Contrary Technical Argument.

     In Brownstein v. Smith, Case No. B205864 (2d Dist., Div. 3 July 1, 2009), plaintiff lost a condominium dispute against other condo owners arising out of CC&Rs. Defendants were entitled to seek fees under Civil Code section 1354(a), a fee-shifting provision applying to parties seeking to successfully enforce CC&Rs. Defendants filed a motion seeking to recover $171,611.11 in fees and costs against plaintiff, with the bulk ($162,722.14) being for fees. The trial court eventually awarded defendants fees and costs of $161,223.74.

     The miffed plaintiff appealed, primarily arguing that defendants were precluded from recovering fees because they failed to file a costs memorandum in which fees were requested.

     This did not go very far. The appellate panel found that the proper method to recovery attorney's fees as an item of costs is to file a noticed motion. (Chinn v. KMR Property Management, 166 Cal.App.4^th 175, 194 (2008); Code Civ. Proc., § 1033.5(c)(5).) The trial court award of fees was affirmed, and the appellate court remanded so that defendants could seek recovery of appellate fees against the unsuccessful plaintiff.

Civil Code Section 1717: Sixth District Affirms Trial Court Denial Of Fees To Defendant Where Plaintiff Dismissed Both Contract And Fraud Claims

 

Sixth District Applies Reasoning of Santisas.

     The next case shows how appellate courts apply a pragmatic standard in gauging whether a party prevailed in order to recover attorney's fees, even after a voluntarily dismissal of a fraud count where fees might be recoverable under an expansive Purchase Agreement clause.

     Almog v. Mueller, Case No. H032984 (6^th Dist. June 30, 2009) (unpublished) involved a situation where plaintiffs and defendant vied over contract and fraud claims based on deposit and purchase agreements to develop four adjacent lots of undeveloped real property. The dispute centered over who was responsible for lot line changes. While the litigation was pending, the lot line revisions were finalized and plaintiffs voluntarily dismissed their suit. Defendants sought to recover $3,388.05 in costs and $28,832.90 in attorney's fees as the "prevailing parties." The trial court awarded costs but refused to award fees after finding defendants did not prevail. Defendants appealed.

Surveyor, Chicot Farms, Arkansas.  1939.  Library of Congress

Homeowner Associations: Two Neighbors Duke It Out—One Neighbor Finally Prevails On Appeal, Meaning A Prior Denial of Fees Was Erroneous

Fourth District, Division 3 Remands for Fee Redetermination in “Acrid Dispute Between Neighbors.”

     Disputes between homeowner associations and members or neighbors in a common interest subdivision seem to result in overboilings of emotions and (ultimately) litigation resources. Many times, the final result—where both sides seek to recoup hefty attorney’s fees—results in a “wash,” with trial courts determining there was no prevailing party. Other times, the lower court gives the victor a substantial share of the spoils, much to the chagrin of the outwardly outraged opponent (who generally appeals, loses, and owes more fees). Well, here is another one—except that is involves neighbors in a common interest subdivision with CC&Rs. You know that the result could not be good when the appellate court deciding a fee award denial characterized it as a case arising out of “an acrid dispute between neighbors.”

     In Harm v. Hetman, Case No. G040454 (4^th Dist., Div. 3 June 25, 2009) (unpublished), quite a neighborhood donnybrook was involved, with litigation brought by Mr. Hetman in which he charged that neighbors, the Harms (maybe appropriately named, if you continue on, from the other side’s perspective), violated CC&RS and created a nuisance by (1) building a stucco wall obstructing Hetman’s views; (2) retaining a contractor that damaged Hetman’s brick planter wall when jackhammering construction on Harms’ property, and (3) maliciously planting 30 trees across the neighbors’ property line that would grow over 10 feet in height, so as to create the equivalent of a “spite fence.” The trial court enjoined the stucco wall construction, while the jury found Harms were not negligent with respect to the jackhammering contractor and did not maliciously plant the trees to annoy Mr. Hetman. After trial, Harms filed a motion to recover $201,150 in attorney’s fees for prevailing on the two claims, a request which was denied. Appeals ensued on the merits judgment and fee award denial.

              Pebbled Stucco Wall.  Library of Congress.

Appellate “Bear Costs” Disposition Does Not Bar Further Attorney’s Fees

Fourth District, Division 1 Also Finds Waiver Where Apportionment Argument Not Made in Trial Court.

     A short unpublished decision, K2 Construction, Inc. v. Anjani Investments, Inc., Case No. D053717 (4^th Dist., Div. 1 June 15, 2009), stresses a couple of important principles that may be encountered when appealing a fee award. (Plaintiff won a $370,409 damages award and was later awarded $54,679 in fees under a contractual fees clause.) Here are the points reinforced in K2 Construction:

• An earlier appellate disposition that refuses to award costs to a future prevailing party, unless specified otherwise, does not prevent the eventual winner from moving to recover attorney’s fees (Cal. Rules of Court, rule 8.278(d)(2); Butler-Rupp v. Lourdeaux, 154 Cal.App.4^th 918, 922-928 (2007)); and
• Defendant’s failure to ask the trial court to apportion out fees on unsuccessful claims was waived by not raising it in the fee opposition during the course of lower court proceedings (Baychester Shopping Center, Inc. v. San Francisco Residential Rent Stabilization & Arbitration Bd., 165 Cal.App.4^th 1000, 1007-1008 (2008)).

     Needless to say, the fee award was affirmed on appeal.

Federal Routine Costs and Civil Rights Fees: Ninth Circuit Rejects Creative “Prevailing Party” Costs Claim By Losing Plaintiff And Remands Denial Of Defense Fees Decision For Reconsideration

Illinois Sitting Judge Shadur Raises Alchemy Analogy in Court of Appeal Decision.

     Federal court costs are routinely rewarded to the prevailing party—especially the party winning a summary judgment motion or trial against a plaintiff. Even though this happened in the context of a summary judgment proceeding, the plaintiffs in the next case tried to argue they actually “won” because certain victorious positions set up the possibility for future wins by the plaintiffs in future cases. The defense also can recoup attorney’s fees if the plaintiffs’ civil rights case is frivolous. The next case discusses the creative cost argument raised by plaintiff and the defense plea that it might be entitled to fees if a clearer record was present on the frivolity ground for a fees award.

     In San Diego Police Officers’ Assn. v. San Diego City Employees’ Retirement System, Case No. 07-56004 (9^th Cir. June 10, 2009) (for publication), the Ninth Circuit affirmed a summary judgment granted in favor of the City of San Diego-related defendants and against the San Diego Police Officers’ Association based on various civil rights violations arising from pension contractual rights violations. The district judge determined that defendants, as prevailing parties, were entitled to an award of routine costs but denied recovery of attorney’s fees to either side. Both sides appealed the costs orders.

     The Ninth Circuit, in a 3-0 opinion authored by Senior District Judge Shadur (sitting by designation), affirmed the summary judgment, affirmed the costs award against the plaintiff, and remanded the fee determination for further consideration.

     German Alchemist.   From woodcut.  Attributed to Holbein (the Elder).

     First up (for purposes of this blog) was the consideration of the costs award. Plaintiff argued that it actually prevailed despite entry of summary judgment in the defense’s favor, premised on the argument that one adverse finding in the process might mean plaintiff could gain concessions in future negotiations or get mileage in future cases. The Ninth Circuit’s reaction? Here you go: “Association seeks to emulate the alchemists in the Middle Ages in its effort to transmute the base metal of its total loss on the merits into the gold of ‘prevailing party’ status by asserting that the district court’s order materially altered its relationship with [Defendants] . . . . That just won’t work, and not just because any purported ‘prevailing party’ status for Association is wholly counterintuitive. After all, Association has obtained no judgment, consent decree or settlement that it can enforce against [Defendants] . . . . Its unproved and attenuated prospect of a better chance to assert a claim for the payment of wages and retirement benefits in some future case finds no support in the caselaw for ‘prevailing party’ status in this case.” (Slip Opn., at 6934.)

  

 

     Next up was the fee denial under the federal civil rights statute.

     Judge Shadur prefaced the Ninth Circuit’s discussion by noting that civil rights plaintiffs usually get fee awards, with defendants only recovering if they prove the plaintiff’s action was frivolous, unreasonable, or without objective foundation. (“ . . . it has been firmly established for nearly three decades that the award of attorneys’ fees under Section 1988 emulated George Orwell’s Animal Farm: ‘Some animals are more equal than others.’”)

The main problem was that the district judge did not explain her denial of the fee award, which required a remand to see exactly why she decided as she did. Otherwise, review by the federal court of appeals could not be an informed one.

     BLOG OBSERVATION—Plaintiff might have been better off not appealing at all. The merits and costs determinations were affirmed, and now it faces another hearing on a substantial fee exposure. It may still turn out all right for plaintiff, but the scales could also tip the other way!

Civil Code Section “Prevailing Party” . . . . Court Of Appeal Reverses Determination That Property Seller Getting $29.75 Million Properties Back Was Not The Winner For Fee Purposes Where Buyer Got Back $1.13 Million Deposit

Fourth District, Division 1 Rejects “You Won One, I Won One” Scoreboard Approach to Section 1717.

     This next case shows that appellate courts do indeed apply a pragmatic test when deciding whether a “prevailing party” determination rightfully gauged who obtained greater relief for purposes of awarding attorney’s fees under Civil Code section 1717. (For more discussion of the pragmatic test, go to our Leading Case list and locate Hsu v. Abbara, 9 Cal.4^th 863, 875-877 (1995).)

     Silver Creek, LLC v. Blackrock Realty Advisors, Inc., Case No. D052587 (4^th Dist., Div. 1 May 20, 2009) (certified for publication) involved a situation where a trial court determined no party prevailed for section 1717 fee recovery purposes even though seller obtained its objective of keeping properties worth $29.75 million but having to refund a $1.13 million purchase deposit to the unsuccessful buyer. (During court testimony, seller’s witnesses indicated that seller’s goal was to get the properties back on the market, not keep buyer’s deposit.) Because each side had won an issue, the lower court concluded there was no unqualified “winner.”

     That determination was reversed on appeal.

Civil Code Section 1717: Court of Appeal Reverses Fee Award Given That Neither Side Prevailed Under The Contract

Fifth District Overturns Based on a Pragmatic Assessment of Litigation Results.

     Who says that appellate courts are not pragmatic in their assessment of who prevailed for purposes of awarding attorney’s fees? That is the law after all, and the next case is an illustration of where a cause was reversed because neither side prevailed under the contract.

     Boland v. Baker, Case No. F054226 (5^th Dist. May 7, 2009) (unpublished) concerned litigation over a right of first refusal to buy adjoining property in which the trial court eventually concluded no side was entitled to damages or specific performance, because one side failed to candidly provide all the terms of the outside purchase offer so that the holder of the refusal right knew what do to initially (but was not really interested in exercising its refusal right given the pricey nature of the outside offer). Given these equities, it is no surprise that the lower court did what it did. However, the trial court did award the refusal right holders attorney’s fees and costs as prevailing parties under the purchase agreement fees clause.

     The Fifth District reversed the fees/cost award.

Civil Code Section 1717: Litigants’ Failure To Be Adjudged General Partners, Although Winning A Small Quantum Meruit Award, Justified Non-prevailing Party Conclusion

Result Was An Adverse Fee/Cost Award of Over $275,000

     In Gupta v. Shue, Case No. B198449 (Apr. 30, 2009) (unpublished), both sides engaged in bitter, protracted litigation over whether each received, by assignment, a general partnership interest in a real estate limited partnership—with the limited partnership caught in the middle of the litigation. After a jury verdict and court judgment so found, the lower court ruled that the general partnership was the prevailing party and it was entitled to an award of fees and costs. Earlier, the Second District, Division 1 reversed one aspect of the judgment and remanded for a prevailing party determination and a fee award analysis, instructing the lower court to also specify the contractual bases for the fee award, to determine if any apportionment was necessary between contract and noncontract claim, and to ensure that any fee award was not excessive. On remand, the trial court determined the general partnership was again the prevailing party and assessed fees of $265,490 and costs of $9,616.60 jointly and severally against the individual litigants unsuccessfully claiming to be the general partners. The fee award on remand was appealed, with the next case being the decision on that award.

     The unsuccessful individual litigants did not win on appeal the second time around. In doing so, the appellate panel engaged in a systematic discussion of issues that crop up frequently in cases involving awards of fees under Civil Code section 1717. Here are the most salient issues discussed:

Arbitration: Appellate Fees Awardable Upon Prior Reversal Without Awaiting the Final Result

Second District Panel Splits 2-1 on Whether Contractual Clause Allowed for Fee Recovery From Post-Arbitration Judicial Proceeding Win Before the “Dispute” Was Finally Resolved.

     The next case illustrates how even appellate jurists will come to different conclusions when construing a contractual fees clause where the matter is one for de novo review based on the absence of parol evidence. The key question was how to construe the breadth of the term “dispute.”

Civil Code Section 1717: Fee Award Reversed Because Prevailing Party Determination Is Different Than The Standard For Adjudging An Award Of Routine Costs

Second District, Division 7 Remands for Further Fee Proceedings.

     City of Los Angeles won attorney's fees against a replacement contractor selected by a bonding surety, where surety and replacement contractor entered into contractual agreements incorporating original agreements between City and the replaced contractor. Replacement contractor lost in the construction litigation, with the trial court awarding attorney's fees against contractor and in favor of City as the "prevailing party." Contractor was hit with an adverse fee award of $187,243.50. Contractor appealed.

     In D&M Construction v. Washington International Ins. Co., Case No. B195952 (2d Dist., Div. 7 Jan. 20, 2009) (unpublished), the appellate court reversed the fee award in City's favor.

Homeowner Associations: “No Prevailing Party” Determination Means No Fee Award For Either Side In Mold Insurance Proceeds Dispute

Ruling Affirmed Where Homeowner Spent Fees of At Least $35,088.50 and HOA Spent At Least $92,335.25.

     In our category “Cases: Homeowner Associations,” we have examined numerous contests between homeowners and homeowner associations (HOA) in common interest developments where attorney’s fees are often the real battle because most CC&Rs and Civil Code section 1354 allow them to be recovered. Sometimes, one side or the other wins big. (See Ritter & Ritter, Inc. v. The Churchill Condominium Assn., 166 Cal.App.4^th 103 (2008), an “honorable mention” in our survey of 2008 Top 10 cases discussed in our December 31, 2008 post.) However, more frequently, we see cases where no side obtained fee recovery—despite spending substantial sums—because the trial court found there was no “prevailing party,” a discretionary call under either Civil Code section 1717 or section 1354. (See, e.g., Pasternak v. Bear Brand Ranch Community Assn. (4^th Dist., Div. 3 unpublished), discussed in our May 22, 2008 post.) These cases, as well as any, illustrate the theme of our entire blog (as well summarized by Justice Wallin in Deane Gardenhome Assn. v. Denktas, 13 Cal.App.4^th 1394, 1399 (1993)), that attorney’s fees often are the tail that wag the “litigation dog.” The next decision we survey was a “no prevailing party” determination and counsels that homeowners-HOAs should try to work things out, long and hard, before using the courtroom as their field of battle.

Withdrawn Cross-Claim Subject to Fee Shifting Means No Prevailing Party Under Retention “Prompt Payment” Statute

 

Owners Did Not Prevail Because Contractor Withdrew Cross-Claim During Deposition and Never Pursued Recovery Under It.

     Courts like to encourage narrowing of disputes by litigants. The next case illustrates how a non-prevailing contractor avoided attorney’s fees exposure under Civil Code section 3260(g), which authorizes fees/costs to the prevailing party involving a claim that retention payments were improperly withheld to a contractor, by withdrawing the 3260 claim during litigation.

Mike and Marc's “Top Ten List” Of 2008 Attorney’s Fees Decisions

 

Who Says David Letterman Has The Only Good “Top Ten List”?

Part 1 of 2: Five of the Top Ten Decisions

     We may not have the panache of David Lettermen, but we do offer our “Top Ten List” of 2008 attorney’s fees decisions although we have no guest star to count them off! Here we go—and we thank all of you readers for following us and wish you a Happy 2009 as well. (The numbering is not intended to reflect order of importance, and we have only canvassed published decisions because they can be cited.)

     Part II with the next five, and an honorable mention, will follow soon.

10. Profit Concepts Mgt., Inc. v. Griffith, 162 Cal.App.4^th 950 (2008): Civil Code Section 1717 Fee Award Allowed For Successfully Bringing a Motion to Quash Service.

     An award of attorney’s fees was allowed under Civil Code section 1717 to a defendant who successfully moved to quash service for lack of personal jurisdiction; the resulting order to quash had finality for purposesof resolving the case brought in California.

     [Discussed in our May 11, 2008 inaugural post—Fourth District, Division 3; author: Justice Fybel]

9. Glencoe v. Neue Sentimental Film AG, 168 Cal.App.4^th 874 (2008): Litigant Fearing Loss on Potentially Dispositive Ruling Can Avoid Civil Code Section 1717 Fee Exposure By Dismissing Action With Prejudice Prior to Actual Ruling.

     A litigant facing contractual fee exposure under Civil Code section 1717 can dismiss action with prejudice, avoiding section 1717 fee exposure in the process, if the dismissal is made prior to a potentially dispositive motion ruling where the proceeding has not “ripened to the point of inevitability.”

     [Discussed in our November 26, 2008 post—Second District, Division 4; author: Presiding Justice Epstein]

8. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858 (2008): Judicial Estoppel Under Civil Code Section 1717 Not Justified Solely Because Opponent Prayed For Fee Recovery in Operative Pleadings.

     Civil Code section 1717 fees are only awardable where the opposing party actually is entitled to recover fees under a contractual fees clause; judicial estoppel cannot be based merely on the loser’s prayer for fee recovery in operative pleadings, following Leach v. Home Savings & Loan Assn.,185 Cal.App.3d 1295, 1307 (1986).

     [Discussed in our May 18, 2008 post—Sixth District; author: Presiding Justice Rushing]

7. Melbostad v. Fisher, 165 Cal.App.4^th 987 (2008): Anti-SLAPP Fee Order Entered After Entire Dismissal Is Immediately Appealable.

     Subsequent fee order in anti-SLAPP case is immediately appealable where there is an earlier judgment dismissing the entire action.

     [Discussed in our July 25, 2008 post—First District, Division 4; author: Justice Sepulveda]

6. Lange v. Schilling, 163 Cal.App.4^th 1412 (2008): Plaintiff Must Attempt to Mediate In Order to be Qualified to Recover Fees Under a CAR-Form Residential Purchase Agreement.

     Failure to attempt mediation before filing suit will disqualify a subsequent prevailing plaintiff’s fee petition based on a contractual fees/mediation clause in a California Association of Realtors’ form residential purchase agreement, tracking the reasoning of Frei v. Davey, 124 Cal.App.4^th 1506 (2004).

     [Discussed in our May 30, 2008 post—Third District; author: Justice Hull]

Part II—an upcoming post—will have the rest of our 2008 “Top Ten” and an honorable mention.

Buyer Of Used Car Awarded Attorney's Fees Of $28,591.50 Under The Automobile Sales Finance Act

Court of Appeal Finds No Prejudice In the Sequence of Entry of the Fee Award.

     The Automobile Sales Finance Act (ASFA), in Civil Code section 2983.4, has a mandatory fee-shifting provision by which the prevailing party in any action on a contract or purchase subject to the ASFA must be awarded fees, "regardless of whether the action is instituted by the seller, holder or buyer." The next case deals with the ASFA fee-shifting section and a challenge to the way in which the interim fee award was entered by the lower court.

     Williams v. Ablakhad, Case No. B204042 (2d Dist., Div. 1 Dec. 10, 2008) (unpublished) dealt with a thorny procedural morass of a case. A jury found in favor of buyer on her ASFA claims, against buyer on some other claims, and "hung" on reaching a decision on the remainder of buyer's claims. The trial court declared a mistrial on the latter claims. The jury also found for seller on his contract and conversion cross-claims. Buyer filed a judgment notwithstanding the verdict (JNOV) motion against the cross-claim verdicts, but the trial court sua sponte ordered a retrial—a determination reversed in a prior appeal by which the appellate court ordered consideration of buyer's JNOV motion and setting the case for retrial on buyer's unresolved claims. On remand, the trial court initially awarded buyer ASFA attorney's fees of $28,591.50. The lower court subsequently granted buyer's JNOV motion (getting rid of seller's verdict wins), with buyer dismissing the remainder of her claims that had been ordered to retrial. Final judgment was entered, and seller appealed.

     Buyer prevailed on appeal. Seller's main challenge to the fee award was that the lower court prematurely awarded fees to buyer after the prior successful appeal but before a final judgment had been entered and a prevailing party determined.

     The Court of Appeal determined that any sequencing error was nonprejudicial in nature. "Nothing had changed between the court's interim order and its entry of final judgment, other than [buyer] having secured even greater relief in her favor. Accordingly, [seller] has not shown any abuse of the court's discretion in awarding the attorney fees in this case. (PLCM Group, Inc. v. Drexler (2002) 22 Cal.4^th 1084, 1095.)" (Slip Opn., at p. 11.)

Television Provider Winning $1,591.38 From A Jury And A Court Injunction Is Awarded About $8.3 Million in Attorney’s Fees and Costs

 

 

District Judge Carter Awards Both Sides Fees Under the California Penal Code, the Communications Act, and the Digital Millennium Copyright Act.

     This next one is an interesting illustration of how each side can prevail and be awarded fees/costs under state and federal statutes, yet how one side can still be the “net” victor—if one discounts the multi-millions in fees paid to each side’s attorneys which were not recouped from the opponent. Strap on your sleigh bells for the ride—and here we go!

     Plaintiffs Echostar Satellite and DirecTV, the largest U.S. television providers, sued defendant NDS Group, which provided DirecTV’s security through the use of encryption technology and related “SmartCards.” It sued under various legal theories for allegations that NDS commissioned a hacking of plaintiffs’ anti-piracy cards such that the hacking ended up on the Internet, resulting in a wave of piracy forcing Echostar to replace 9 million compromised “SmartCards” at a cost of over $94.6 million. Plaintiffs submitted these claims to the jury: violations of the Digital Millennium Copyright Act (DMCA), the Communications Act (“Comm. Act”), California Penal Code sections 593(d) and 593e(b) (“Penal Code”), and the Racketeer Influenced and Corrupt Organizations Act (RICO), as well as an equitable claim under California Business & Professions Code section 17200 (“UCL”). NDS countered with a trade secret claim under California’s Uniform Trade Secrets Act (“UTSA”).

     Two titans like this ran up a lot of fees and costs, as we shall see. Following a four-week jury trial, the jury found: (1) NDS was not responsible for the Internet posting; (2) NDS had not acted with oppression, fraud, or malice, or engaged in a conspiracy; (3) NDS did violate three of the six counts involving the Comm. Act and Penal Code due to NDS’s unauthorized interception of Echostar’s signal, awarding Echostar total damages of $1,591.38 (yes, a little shy of sixteen hundred dollars), breaking down as a $45.69 award under the Comm. Act, $45.69 under one of the Penal Code sections, $500 minimum statutory damages under the Penal Code, and $1,000 minimum statutory damages under the Comm. Act; and (4) Echostar did not violate the UTSA under NDS’s counterclaim. Based on the jury’s finding on the three claims, Judge Carter did rule that NDS’s conduct constituted unlawful conduct under the UCL, entitling Echostar to some restitution and an injunction against any further “piracy.”

     So, what did the ultimate battle devolve to? You guessed it (we bet)—attorney’s fees!

     Echostar sought attorney’s fees of $15,945,095.81, plus costs and other expenses. Conversely, NDS requested an award of attorney’s fees totaling $23,914,983.74. Between the two sides (excluding hard costs and expenses), there was a total of almost $40 million spent and at issue in the fee proceedings.

     District Judge David O. Carter, in Echostar Satellite Corp., et al. v. NDS Group PLC, et al., Case No. SACV 03-950 DOC (JTLx) (C.D.Cal.), issued a December 4, 2008 opinion (Doc. No. 1191) in which plaintiffs ended up the “net” winner on the dueling fee petitions, but hardly the result that either side desired by far.

     Judge Carter did start out by setting the outer boundaries—the “American Rule” on attorney’s fees and its exceptions: absent a contract, an applicable statute, a finding that the losing party acted in bad faith, or other exceptional circumstances, each side bears its own attorney’s fees in federal court litigation. (Chang v. Chen, 95 F.3d 27, 28 (9^th Cir. 1996).) (BLOG OBSERVATION—For an explanation of the differences between the American and British Rules on attorney’s fees, see our recent December 2, 2008 post on Java Oil, Ltd. v. Sullivan.) Because the litigation spanned a decade in length and involved deposing 81 witnesses (many abroad), exceptional circumstances were present—and statutes did allow an award of fees—so as to lead to the conclusion that both parties achieved substantial successes warranting the imposition of attorney’s fees. This type of reasoning may be a bane to litigants wanting an unqualified win, but this type of “grand slam” result was not to be the result in this case.

     Attorney’s fees in favor of the prevailing party are mandatory under both the Penal Code (Pen. Code, sec. 593e(d)) and the Comm. Act (47 U.S.C. sec. 605(e)(3)(B)(iii)), the claims won by Echostar. Because no “prevailing party” definition exists under the Penal Code section, that determination is based on who won “on a practical level.” (Donner Mgt. Co. v. Schaffer, 142 Cal.App.4^th 1296, 1310 (2006).) Even though only winning on half of the claims and obtaining small damages, Echostar still prevailed on a practical level—after all, NDS was adjudged liable after a protracted jury trial and did with a court injunction under the UCL.

     Similarly, the district court was granted discretion under the DMCA to award reasonable attorney’s fees to the prevailing party (17 U.S.C. sec. 1203(b)(5)), which says plaintiffs and defendants are to be treated equally in such a determination. The factors to be weighed in determining the DMCA prevailing party are set forth in Fogerty v. Fantasy, Inc., 510 U.S. 517, 54-535; The Traditional Cat Ass’n, Inc. v. Gilbreath, 340 F.2d 829, 833 (9^th Cir. 2003), which are degree of success obtained, frivolousness, motivation, objective unreasonableness, and the need to advance compensatory and deterrence policies. Echostar’s RICO claim was intertwined with the DMCA claim, such that the fees on this separate claim had to be considered along with the DMCA fees. (No fees were found allowable under the UCL or Lanham Act based on a lack of fee authorization or the simple fact that the Lanham Act claim was not pursued in bad faith.)

     You may be seeing where Judge Carter is going. If not, the district court essentially found that both sides partially prevailed under the foregoing statutes—Penal Code, Comm. Act, DMCA, and RICO—such that each should be awarded fees under the lodestar methodology, subject to adjustments under the factors set forth in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 69-70 (9^th Cir. 1975). [The Kerr factors are: (1) time and labor required; (2) novelty and difficulty of issues; (3) skill required to perform the legal services properly; (4) preclusion of other attorney employment; (5) customary fee; (6) whether the fee is fixed or contingency; (7) time limitations imposed by client or the circumstances; (8) amount involved and results obtained; (9) experience, reputation, and ability of attorneys; (10) “undesirability” of the case; (11) nature and length of the professional relationship with the client; and (12) awards in similar cases.]

     That brings us to the “drum roll” in the case—the fee awards made by Judge Carter.

     Because both sides partially prevailed, Judge Carter “cut the cake” this way: (1) Echostar did not prevail on its Internet posting claims such that any unsuccessful claims should be excluded (he used a “crude” mathematical formula finding that ½ the amount of fees should be awarded based on Echostar winning 3 out of 6 claims); (2) NDS’s requested fees had to be reduced initially by ½ because it only prevailed on the DMCA and RICO claims; (3) NDS’s fees should be decreased ¼ because its billings seemed excessive given that the quality of work was equipoised with that of Echostar (where the fees were $8 million less); and (4) Echostar was entitled to a large award—an increased $5 million—for ultimately convincing a jury that some claims deserved compensation.

     The “bottom line” was that Echostar was to receive fees of $12,972,547.91 plus full costs of suit, whereas NDS recovered fees of $8,968,118.90 and no costs. As reported in an article on the DSS website entitled “Dish Network Awarded $8.3 Million in Attorney Fees,” there must have been substantial costs of almost $4.3 million because the “offsetting” difference in the fee awards was a little over $4 million in favor of the Echostar plaintiffs (apparently now affiliated with Dish Network).

     This decision illustrates the width breadth of discretion vested in judges to apply equitable factors when fashioning fee awards where “prevailing party” statutes allow such an exercise of discretion by the trial courts.

     Incidentally, some individual former NDS employees and another individual outside defendant sued by plaintiffs sought to recoup fees after they were successful in winning motions to dismiss. The former employees sought fees of $261,475.38 under the DMCA, the Lanham Act, and the California Penal Code, while the outside individual sought to recover fees of over $74,000. Both requests were denied, with Judge Carter principally finding that (1) there was no evidence these defendants actually paid any fees (with the award of fees to NDS being sufficient), (2) the complaints were dismissed for technical reasons such that these would not be considered victories on a “practical level,” and (3) the DMCA claims were neither unreasonable nor frivolous. (See Echostar Satellite Corp., supra, Doc. Nos. 1192 & 1193.) Again, the equities predominated in these companion fee rulings.

Civil Code Section 1717: Fees Are Not Awardable Where Plaintiff Dismisses Action With Prejudice After The Start of Trial

Second District, Division Four Also Rejects That Letter Containing Purported CCP Section 998 Offer Was Valid Where Opposing Party Not Given Full Statutory Period Within Which to Accept.

     Presiding Justice Epstein, writing for a 3-0 panel of the Second District, Division Four, recently authored an interesting opinion in which attorney’s fees were not allowed under either Civil Code section 1717 or Code of Civil Procedure section 998. We digest the decision below, which is Glencoe v. Neue Sentimental Film AG, Case No. B203931 (Nov. 25, 2008) (certified for publication).

     The facts go like this. Landlord sued tenant for delinquent rent under a lease with a fees clause as well as related entities under the theory they were tenant’s alter egos. (This alter ego theory potentially meant the fees clause allowed recovery to the winner of the alter ego contest under Reynolds Metals, one of our Leading Cases.) A bench trial proceeded against one of the related entities, with the lower court bifurcating the case to hear the alter ego liability phase first. Landlord moved for judgment under Code of Civil Procedure section 631.8, but the lower court did not rule and indicated it wanted to review extensive evidence submitted by both sides. Before any ruling was made on the section 631.8 motion, landlord voluntarily dismissed the action with prejudice. Related entity claimed it prevailed, moving for recovery of attorney’s fees based on the fees clause under Civil Code section 1717 or based on a pretrial letter settlement offer postured under Code of Civil Procedure section 998. The lower court refused to award fees, prompting an appeal that was affirmed upon review.

     The section 1717 issue was settled based on the literal language of subdivision(b)(2), which “bars recovery of section 1717 attorney fees regardless of when the dismissal is filed” given that (b)(2) contains no temporal limitation. (See Topanga and Victory Partners v. Toghia, 103 Cal.App.4^th 775, 782 n. 3 (2002), reviewed in our

June 19, 2008 post.) In reaching this conclusion, Justice Epstein distinguished other situations—where rulings or judgment had “ripened to the point of inevitability” (e.g., demurrer sustained without leave, demurrer sustained with leave but no amendment timely filed, and summary judgment ruling because there was no opposition)—from the situation before the panel, where the plaintiff dismissed the action with prejudice before any ruling was made. “Its intent was to end the litigation, not to manipulate the judicial process to avoid its inevitable end. This was entirely proper.” (Slip Opn., at p. 4.)

     Related entity did not fare well on its section 998 argument. Section 998 allows 30 days for acceptance or, if made 10 days before trial or arbitration, acceptance prior to either of these events. Defendant’s offer—made much prior to trial—allowed well under 30 days for acceptance, which legally meant that the offer was revoked so as to not function as an “offer” for purposes of cost benefits under section 998. (See Marcey v. Romero, 148 Cal.App.4^th 1211, 1216 (2007).)

     This case well illustrates that a litigant who does not “hold his cards too long” way well be able to dismiss before a dispositive ruling where there is still some doubt as to the outcome, avoiding attorney’s fees exposure under section 1717 by deft decision making.

Civil Code Section 1717: Litigant Losing A Demurrer With Leave And Failing To Amend Can Be Exposed To An Adverse Fee Award Despite Ongoing Litigation Between Other Named Parties

Litigant Failing to Dismiss After Losing a Demurrer With Leave May Be in Danger, Fourth District, Division Two Rules.

     Under Santisas v. Goodin, 17 Cal.4^th 599, 602, 622 (1998) [see our Leading Cases], litigants potentially exposed to fee awards under Civil Code section 1717 can avoid adverse consequences by voluntarily dismissing their actions way short of actual adjudications against them. However, what happens to litigants that simply allow an action to be dismissed after losing a pleading motion with leave to amend and after opting not to amend? The answer is peril at least from a fee exposure perspective, as the next case—Maudsley v. Eslamieh, Case No. E045298 (4^th Dist., Div. 2 Nov. 24, 2008) (unpublished)—demonstrates.

     Maudsley involved a plaintiff seeking to enforce terms of a recorded easement with covenants and restrictions against defendants, with the easement containing a fees clause. This, of course, triggers the potential application of Civil Code section 1717, which allows the prevailing party in a dispute involving a contractual fees clause to recover a fee award. Defendants successfully demurred to a first amended complaint, but plaintiff was granted leave to amend. Plaintiff failed to amend and failed to voluntarily dismiss the action as to himself as a plaintiff. The defense obtained a judgment of dismissal against a plaintiff, and the trial court awarded attorney’s fees against him based on the recorded easement fees clause.

     Plaintiff appealed unsuccessfully to the Fourth District, Division Two.

     Initially, he argued that the award was premature because the litigation was ongoing as to other parties such that it was impossible to determine who “prevailed.” Wrong, said the appellate panel. As between plaintiff and the demurring defendants, the litigation was concluded so that a prevailing side could be determined—and that prevailing party side happened to be the defendants winning the judgment of dismissal. (First Sec. Bank of Cal. v. Paquet, 98 Cal.App.4^th 468, 474-475 (2002).)

     Plaintiff next tried to fit the facts into the Santisas paradigm. The only problem was that the facts did not fit into the paradigm. Even though plaintiff had the opportunity to voluntarily dismiss before the time had run to file an amended pleading, he failed to do so and suffered a subsequent judgment of dismissal. Santisas was no lifesaver under the circumstances.

     Finally, plaintiff argued the fee award was improper because he was not a party to the contract with the fees provision. This argument was unavailing because plaintiff, had he prevailed, would have been entitled to an award of fees. Section 1717’s reciprocity principles meant that defendants were likewise entitled to fees for prevailing given that plaintiff would have reaped fees for a victory. (See Milman v. Shukhat, 22 Cal.App.4^th 538, 544-545 (1994).)

     The fees award was affirmed, and the Court of Appeal awarded costs to defendants—meaning more fees can be applied for in the future for the winning respondents on appeal.