CALIFORNIA ATTORNEY'S FEES

Three-Fer From Recent California And ABA Monthly Magazines/Papers

 

No. 1: Ellen Peck Reviews “Fees, Fee Agreements & Arbitrations” in December 2009 Edition of CALIFORNIA BAR JOURNAL.

     Ellen R. Peck, an Escondido sole practitioner and former State Bar Court judge, made these points in her recent California Bar Journal article:

• Except in limited circumstances, most private attorneys have to notify clients they do not carry legal malpractice insurance or that it has lapsed/been terminated (Cal.Rule Prof. Conduct 3-410);
• Incentive awards to class action representatives are discretionary and should not be a bargain point in a fee or retainer agreement (Rodriguez v. West Publishing Corp., 563 F.3d 948, 958-959 (9^th Cir. 2009));
• Interest calculations for collecting attorneys must be based on a 365 or 366 day year, not a 360 year, under penalty of being a False Advertising Act violation (Karton v. Dougherty, 171 Cal.App.4^th 133, 138 n.1 (2009));
• A retainer agreement’s predispute agreement for binding fees/costs arbitration is enforcement after Mandatory Fee Arbitration Act requirements are exhausted, with the State Bar website having a good sample form for such an arbitration clause (Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4^th 557, 574-575 (2009));
• A lawyer must consider withdrawing from representation or making disclosures to clients if he/she contemplates including a Civil Code section 1542 waiver in a settlement agreement with a client over a fee dispute, based on the legal malpractice waiver repercussions flowing from the release (State Bar Standing Comm. on Prof. Responsibility & Conduct Formal Opinion No. 2009-178)); and
• Lawyers are generally prohibited from charging, collecting, or receiving any advance fees or other compensation in connection with loan modification legal services (Bus. & Prof. Code, sec. 6106.3(a); Civ. Code, sec. 2944.6).

No. 2: Hon. Edward G. Weil Indicates Prior Settlement Communications In Fee Disputes May Be Admissible in His Article, “Are Settlement Talks Confidential?”, Published in the December 2009 Edition of CALIFORNIA LAWYER.

     Hon. Edward G. Weil, a Contra Costa County Superior Court Judge and former California deputy attorney general, cautions that prior settlement communications may be admissible in fee dispute litigation, especially private attorney general fee hearings, fee “catalyst” cases, and ambiguous settlement agreement disputes. He also has a nice compendium about the confidentiality and admissibility of settlement discussions in other contexts.

No. 3: Four Substantive Legal Practice Areas Dominate Malpractice Claims Since 1985, Reports James Podgers in “Practice Pitfalls,” Found In the December 2009 Edition of the ABA JOURNAL.

     The ABA Journal article confirms that, between 1985 and 2007 (based on information published in the ABA Standing Committee on Lawyers’ Professional Liability’s annual Profile of Legal Malpractice Claims), four practice field areas have been and still are at the top of the list: plaintiffs personal injury; real estate; family law; and estate, trust and probate. The percentage of all claims reported in the ABA study for 2007 in these top four practice fields break down this way:

• Plaintiffs personal injury – 21.56% (pretty steady, with 21.65% in 1995);
• Real estate – 20.05% (up the most in the top 4, with 14.35% in 1995);
• Family law—10.33% (up slightly, with 9.13% in 1995); and
• Estate, trust and probate – 9.68% (up some, with 7.59% in 1995).

Settlements: Whether Conditional Or Unconditional In Nature, Discretion Is Abused By Not Restoring To Civil Active List When Terms Of Settlement—Including Fee-Shifting Features—Are Disputed

 

Fifth District So Decides In Unpublished Decision of Interest to All Litigators. 

     In a refrain used by us and other bloggers, we do stress there are some decisions that are must reading for certain practitioners. Well, the next one is—for all attorneys notifying the trial court about a conditional or unconditional settlement. It not only “schools” us on the rules, but shows how dismissals based on technicalities will not easily carry the day if challenged on appeal.

     Anguiano v. Bays, Case No. F055197 (5^th Dist. Oct. 27, 2009) (unpublished) concerned a dispute about the terms of a settlement, which mainly revolved around whether defendant compromised in a way that allowed the plaintiff to seek attorney’s fees and expert fees. (A dispute, of course, which interests us, given that the emphasis is on fee recovery—the “bottom line” in many, many civil disputes.)

    Above:  King Philip Settlement House.  Fall River, Massachusetts.

     Briefly summarized, plaintiff reached a settlement with defendant, his ex-employer in a wrongful termination and failure to accommodate disability case, which was memorialized in plaintiff’s letter to defense counsel indicating plaintiff would “accept $15,000 as settlement in full.” Right before trial, plaintiff filed a notice of conditional settlement indicating that a request for dismissal would be filed no later than a date following a motion for attorney’s fees. The trial court set a subsequent OSC re dismissal, but the parties in the intervening period disagreed on whether fees and costs was part of their settlement. At the OSC hearing, the court dismissed the case with prejudice, finding that the motion for attorney’s fees and costs was not timely filed. Even though plaintiff filed a subsequent attorney’s/expert fees motion seeking requested fees of almost $60,000 under FEHA’s fee-shifting statute, the lower court ordered further briefing on whether the motion was untimely. Although noting its belief that there was not a meeting of the minds for entitlement to additional attorney’s fees in the putative settlement, the lower court concluded it had no jurisdiction to set aside the dismissal and restore the case to the civil trial calendar based on the earlier dismissal. Plaintiff, clearly miffed, appealed.

     Given the technical nature of the dismissal, plaintiff wisely appealed.

Consumer Statutes: Court Of Appeal Reverses Refusal To Award Reasonable Attorney’s Fees To Plaintiff Under Settlement Arrangement With Car Manufacturer

Fourth District, Division 3 Utilizes De Novo Review to Determine Plaintiff’s Entitlement to Fee Award.

     The next case demonstrates how the standard of review can be appeal determinative. The appellate panel utilized the de novo standard, which led to the conclusion that the trial court erred in denying plaintiff entitlement to fees under car lemon laws where the settlement agreement with car manufacturer called for them—even though the key issue on remand will be the amount of fees given that plaintiff’s settlement was very modest indeed.

     The Fourth District, Division 3, in Vazquez v. Hyundai Motor America, Case No. G041152 (4^th Dist., Div. 2 Oct. 13, 2009) (unpublished), confronted a situation where a plaintiff with car lemon law gripes actually settled twice with a car manufacturer given some ambiguities in the initial settlement agreement. Plaintiff apparently obtained an initial compromise by which the car dealership paid $6,000 in cash and the car manufacturer agreed to defend the fee application to be subsequently brought by plaintiff.

     (This settlement was much less than the almost $81,000 plaintiff asked for in an MSC statement, broken down as $54,000 to plaintiff and almost $27,000 in fees and costs to her attorneys.) In the second agreement, car manufacturer also agreed to reimburse plaintiff, less mileage and other offsets, the amount of $3,171.77 and also pay off her loan in return for a lawsuit dismissal and return of the car. The second agreement provided that the trial court, in binding fashion, could determine the proper amount of fees, but that if the fee award was between zero and $2,999.00, plaintiff would get a “guaranteed” minimum of $3,000 in any event. Plaintiff filed a fee motion seeking $51,012 in fees and costs, plus a multiplier enhancement of 1.5. The trial court denied fees outright, and plaintiff appealed.

     She won on appeal.

[Photo:  July 1942.  Even the oldest jalopies were out to have their tanks filled on the day before stricter gasoline rationing went into effect.  Photographer:  Marjorie Collins.  Library of Congress]

Ethics And Settlement Involving Fee Waivers: No Ethical Ramifications From Recommending Fee Waiver Settlements

State Bar’s Standing Committee Issues Formal Opinion Confirming Propriety of these Settlements.

     Formal Opinion No. 2009-176 of the State Bar’s Standing Committee on Professional Responsibility and Conduct has concluded that (a) a lawyer does not violate any ethical obligation by recommending or conveying a fee-waiver settlement offer in a given case, and (2) a lawyer does not violate any ethical obligation by recommending or conveying fee-waiver settlement offers in cases generally. However, a plaintiff’s lawyer must inform the client of a fee-waiver settlement offer and consummate the settlement in accordance with the client’s desires even if it reduces the likelihood of recovering some or all of his/her fees.

     We would like to thank Ellen R. Peck, a former State Bar Court judge and sole practitioner in Escondido, for making us aware of this opinion in her article “New State Bar Reporting Requirements,” published in the September 2009 issue of the California State Bar Journal. Ms. Peck also discusses new rules on conflicts of interest, Client Security Fund, Interest on Lawyer Trust Account, and e-mail address requirements for all members of the State Bar. (Remember: By February 1, 2010, all members must create an online profile through the bar’s secure membership system, which must include a valid e-mail address.)

Settlement: Attorney’s Fees Awarded When Party Seeking Enforcement Of Settlement Agreement Did Not Expressly Obtain Retention Of Jurisdiction Prior To Lawsuit Dismissal

First District, Division 3 Highlights Pitfalls of CCP Section 664.6 in the Retention of Jurisdiction Area.

     Code of Civil Procedure section 664.6 concerns judicial enforcement of settlement agreements through an expeditious motion procedure. The last sentence of this provision states: “If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.” However, that request must be made orally before the court or in a signed writing, must be made by the parties (not their attorneys, spouses, or other such agents except in certain construction defect actions), must be made before dismissal of suit, and must be granted by the court. (Wackenn v. Malis, 97 Cal.App.4^th 429, 433, 437 (2002); Hagan Engineering, Inc. v. Mills, 115 Cal.App.4^th 1004, 1010 (2003); Hines v. Lukes, 167 Cal.App.4^th 1174, 1182 (2008).) Meet all those requirements or suffer an adverse fee award from losing an enforcement motion … as the unsuccessful litigant learned in our next case for discussion.

     Steele v. Spina, Case No. A123860 (1^st Dist., Div. 3 Aug. 28, 2009) (unpublished) involved a situation that we would guess is faced by many litigants, but ultimately demonstrates the care with which retention of jurisdiction requests must be made in settlement discussions that are court supervised.

     There, parties settled a case by which two insurance carriers were to make future payments after arbitration/mediation and a note secured by a trust deed against defendants’ property was to be executed. The court accepting settlement indicated it would “maintain jurisdiction over this through completion of a written settlement agreement.” The lower court also indicated later, on the record, that this was a judicially enforceable settlement under section 664.6 after all the parties approved the settlement terms on the record. The parties’ subsequent settlement agreement indicated that the court would retain jurisdiction to enforce it and would determine if a prevailing party in any proceeding involving a claimed breach of the settlement would be entitled to attorney’s fees. The settlement agreement apparently was never filed or presented to the court, and the underlying lawsuit was dismissed with prejudice.

     Almost 6 years later, plaintiffs filed a section 664.6 motion to clarify certain terms of the settlement agreement. The lower court—a different judge because the one accepting the settlement had retired—denied the motion because no one had the previous judge actually retain jurisdiction before the lawsuit was dismissed. The lower court also awarded defendants $2,500 in attorney’s fees under the fees clause in the settlement agreement.  Plaintiffs appealed.

Civil Rights: Rejected Informal Settlement Offers Can Be Used As An Indicator Of Success For Purposes of Calculating Attorney’s Fees Lodestar

Third Circuit Court of Appeals So Holds Under 42 U.S. C. Section 1988; California State Court Decisions Split In Analogous Areas, But Ninth Circuit Disagrees.

     On July 23, 2009, the Third Circuit Court of Appeals, in Lohman v. Duryea Borough, __ F.3d __, 2009 WL 2183056 (3d Cir. 2009), affirmed a district judge’s decision to award a successful plaintiff’s attorneys only $34,251.77 in attorney’s fees/costs ($30,000 being fees) out of a requested $112,883.73 after the plaintiff recovered only $12,205 in lost wages and nominal damages following a jury trial. Employer defendant made three informal settlement offers after trial commenced, including one for $75,000, all of which were rejected. In setting the lodestar for purposes of awarding fees under the germane civil rights fee-shifting statute (42 U.S.C. section 1988), the district judge did consider the settlement offers as an indicator of the success of plaintiff in terms of what employee ultimately recovered.

     The Third Circuit affirmed the district judge’s fees/costs award, finding that consideration of the prior settlement offers was one factor that was probative on the “indicator of success” lodestar factor, following the lead of EMI Catalogue Partnership v. CBS/Fox Co., 1996 WL 280813 (S.D.N.Y. May 24, 1996) (a copyright case). The federal appeals court also found that a district judge could properly reject consideration of such offers if the negotiations occurred at an early stage of proceedings (before discovery) or if they were not a true measure of what a party was truly seeking in damages. The Third Circuit agreed with the district judge’s analysis that, even under a contingency fee arrangement of 33% or 40%, plaintiff would have obtained much more if the $75,000 offer had been successful and that plaintiff’s attorney would have received either $25,000 or $30,000 from acceptance of such an offer.

     The Third Circuit also distinguished or found that other frequently cited cases in the areas did not categorically reject consideration of the informal settlement offers in the lodestar analysis. See Ortiz v. Regan, 980 F.2d 138, 140-141 (2d Cir. 1992); Clark v. Sims, 28 F.3d 420 (4^th Cir. 1994); Cooper v. State of Utah, 894 F.2d 1169 (10^th Cir. 1990). For another case that came to a similar result of the Third Circuit in Lohman, see Moriarty v. Svec, 233 F.3d 955, 967 (7^th Cir. 2000) (a “substantial settlement offer,” even if the offer is noncompliant with F.R.Civ. P. 68, can cut off fees incurred after the date of the offer). The Third Circuit also did not find that the consideration of the prior settlement offers was improper even when defendant’s offers were informal rather than made under Rule 68.

     So how do California state decisions weigh in on this issue? They are split. Although occurring primarily in analogous substantive areas, one says a fee reduction is improper (given the existence of California Code of Civil Procedure section 998, Rule 68’s state analog), while another did allow for consideration of rejected informal offers. Compare Greene v. Dillingham Construction N.A., Inc., 101 Cal.App.4^th 418, 425-426 (2002) [FEHA case; fee request should not be reduced for rejecting informal offer] with Meister v. Regents of University of California, 67 Cal.App.4^th 437, 449-450 (1998) [Information Practices Act of 1977 case; plaintiffs were “penalized” for rejection of reasonable informal offers]. A recent decision, City of Novato v. MCCE Development, 2009 WL 1695943 at *23-24 (lst Dist. June 17, 2009) [reviewed in our June 18, 2009 post], noted the conflict, but did not have to resolve it because the settlement at issue had primarily non-monetary components that made it difficult to value for lodestar reduction purposes. So, stay tuned with us, because there will be more jurisprudence on this issue at the California state level.

     But what about the Ninth Circuit Court of Appeals? We do not think they would follow Lohman. In a case involving an award of contractual attorney’s fees under California Civil Code section 1717, the Ninth Circuit in Berkla v. Corel Corp., 302 F.3d 909, 922 (9^th Cir. 2002) found that informal settlement offers were not probative on the issue—adhering to the view that a Rule 68 offer was needed to shift the “balance of power.” Why do we say that? Berkla expressly disagreed with Meister, finding it was further suspect by relying on Marek v. Chesny, 473 U.S. 1 (1985), a case evaluating success when a Rule 68 offer was made. Berkla was also recently followed by a district court in Gregor Leasing Corp. v. Potrero, 2008 WL 4830751 at *4 (N.D.Cal. Nov. 6, 2008) (Conti, D. J.).

Lemon Law: Reject An Early Settlement Offer In the Ballpark … And Suffer The Consequences!

Fourth District, Division 2 Reminds Fee-Shifting Plaintiffs To Not Eschew Early Compromise Proposals.

     The next case reminds all of us that the system is geared for resolution—resolution being another word for settlement early on in the game, under the right circumstances, under the right case, and under reasonable efforts to resolve the matter.

Miss Rose Cade , who has also been nominated "Southern California's Swat the Jinx Girl"-- Queen of the Lemons.  February 13, 1920.  Library of Congress

     Lemon law attorneys representing plaintiff apparently rejected an early settlement offer that offered to restore the status quo and pay fees as determined by the court. Plaintiff did not accept the offer and then moved for substantial fees. Guess what happened at the trial and appellate court levels? Answer: Read on, especially if you want to be tough and unyielding—and you may not like the result.

     In Lopez-Bradley v. Hyundai Motor America, Case No. E045233 (4^th Dist., Div. 2 May 7, 2009) (unpublished), plaintiff sued under California’s Lemon Law to repair, replace, or rectify problems relating to a 2003 Hyundai Elantra in the wake of mechanical problems occurring after 27,000 miles. Defendant manufacturer offered to replace the car with a comparably equipped 2006 model with a statutory mileage reduction for prior use of the car or offer a reimbursement deal along similar lines. Plaintiff rejected the informal offers, and made no counteroffer. The case eventually settled for $11,000, although plaintiff reserved the right to move for attorney’s fees under Lemon Law fee-shifting statutes.

     Plaintiff predictably sought fees of $56,880 for 65.8 hours of attorney time billed at rates ranging from $400-500 per hour—keeping in mind the settlement was $11,000.

     The trial court awarded fees in the amount of $3,600, finding that the reasonable amount of attorney time to resolve the dispute was no more than 12 hours at a rate of $330 per hour. In pragmatic fashion, the lower court found that most of the time expended on the case occurred after defendant made reasonable offers to settle and that most expenses would have been avoided had plaintiff’s counsel engaged in good faith negotiation.

     The Fourth District, Division 2 issued a tentative decision by which it proposed to affirm the judgment. (BLOG OBSERVATION—This one division of the Fourth District issues tentative decisions before argument for guidance of the parties. No other intermediate appellate courts have this protocol.) Plaintiff then moved to dismiss the appeal, which was granted by the appellate court.

     BLOG UNDERVIEW—The lesson from this case is pretty evident: try to work out a problem with the opponent; if you refuse reasonable offers to settle, you will not get much sympathy from courts along the way.

Sanctions: $1,857.50 Sanctions Against Insurer Vacated As Unauthorized Under Statute Or Court Rule

 

Second District, Division 7 Reverses Award in Published Decision.

     For years, insurance carriers have raised due process concerns to their participation in mediation and mandatory settlement conferences, although more and more court rules require their participation in these processes. However, the next case illustrates that carriers are not subject to “bad faith” settlement negotiation sanctions in the absence of an explicit court rule authorizing same—which was missing in the situation before the appellate court. Also, even with such a rule, the case raises doubts that a carrier can be penalized for bad faith settlement sanctions in any event.

     In Vidrio v. Hernandez, Case No. B207391 (2d Dist., Div. 7 Apr. 13, 2009) (certified for publication), the Second District, Division 7 reversed a $1,857.50 monetary sanctions imposed against an insurer because of a trial court’s belief that it had failed to negotiate in good faith at a mandatory settlement conference, despite the fact that the carrier attended the conference, met all procedural MSC requirements, but only offered a pittance of what the lower court apparently felt was fair.

CCP Section 664.6: Reserve Jurisdiction Or Forfeit The Ability To Enforce Fee Settlements

Fourth District, Division 3 Strictly Enforces Jurisdictional Retention Dictates.

     Code of Civil Procedure section 664.6, we hope, becomes well known to litigators and other attorneys hoping to summarily enforce settlement agreements in pending California actions. Without going into all of its nuances (which include strict requirements that the parties themselves assent to the settlement terms), there is a nice settlement retention proviso allowing for dismissal and settlement tradeoffs: “If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.” That proviso was determinative in the next case, Hetman v. Santa Ana Unified School Dist. (Quintilone II), Case No. G040214 (4^th Dist., Div. 3 Mar. 25, 2009) (unpublished).

Settlement Stipulation Calling For Deed Of Trust Implicitly Bound Defaulting Party To Fees Clause Even Though Stipulation Had No Such Clause

Second District, Division Four So Holds in Interesting Settlement Stipulation Default Dispute.

     In past posts, we have explored some cases that hold the absence of a fees clause in a settlement stipulation prevents a creditor from obtaining a fee recovery after the debtor defaults. See our October 29, 2008 post on Stansbury and Execute Sports. However, as the next case demonstrates, general principles in this area are hard to elucidate, because the specific structure of a settlement may dictate a different result. That is exactly what occurred in USA Aisiqi Shoes, Inc. v. Huang, Case No. B204798 (2d Dist., Div. 4 Nov. 12, 2008) (unpublished).

     Huang involved a settlement agreement reached between an Employer and Employee by which Employee agreed to pay Employer a specified amount and execute a third trust deed on his residence as security for the monetary obligation. After Employee defaulted under the settlement (which did not have a fees clause or specify that the trust deed would contain such a provision), the trial court entered a stipulated judgment, including an award of $16,250 in attorney's fees against Employee, and had a court-appointed elisor execute a trust deed on Employee's behalf (which trust deed did contain a fees clause). While a nonjudicial foreclosure was proceeding, Employee paid off the settlement except for the attorney's fees award. Employee then quitclaimed the residence to his wife. Employer then moved for an award of fees in the amount of $41,616 for having to enforce the settlement agreement, with the trial court awarding fees of $40,326 against Employee. Employee properly appealed the postjudgment fee award, but lost upon review by the Second District when it affirmed the fee award in Employer's favor.

     Justice Willhite, on behalf of a 3-0 panel, did acknowledge that the settlement agreement was silent as to whether the trust deed would contain an attorney's fees clause. However, he resorted to custom and practice in resolving the issue: "By agreeing to secure his monetary obligation to [Employer] by executing a deed of trust, [Employee] implicitly agreed to be contractually bound to pay attorney fees in 'any action or proceeding purporting to affect the security [of the deed of trust] or the rights or powers of Beneficiary'" under the trust deed fee clause. (Slip Opn., at p. 7.) Beyond that, Employee's failure to contest the award of initial fees in the first settlement enforcement proceeding waived his right to challenge the inclusion of a fees provision in the trust deed.

     In summarizing why the result was sound, the appellate panel observed: "Unlike the typical situation involving a deed of trust which contains an attorney fee provision and a nonjudicial foreclosure results, the matter now before us is unique in that it involves a settlement agreement by which the parties agreed to execution of a deed of trust as security for the monetary obligation created by the settlement. The obligation to pay attorney fees arose out of the contract, i.e., the deed of trust, but not in the context of nonjudicial foreclosure proceedings. Rather, it occurred as an outgrowth of the stipulated judgment, and was based upon the trial court's continuing jurisdiction to enforce the settlement agreement." (Slip Opn., at p. 9.)

     BLOG OBSERVATION—We were very intrigued over the use of "elisor." So, we consulted the web, which indicates that it goes back to English law practice where the court appointed a person to execute the duties of a sheriff when the sheriff was disqualified on account of conflicts of interest or prejudice. In modern practice, it seems that this means a person appointed by the court to execute an act if the person ordered to perform the act refuses to do so. Co-contributor Marc Alexander recently had a case in Orange County Superior Court where a defendant, much like the one in Huang, was ordered to execute, as part of a settlement on the court record, certain reconveyances under penalty of having the clerk or an elisor execute for the recalcitrant defendant.

Attorney’s Fee Award Reversed Where Stipulated Settlement Did Not Have A Clear Provision Allowing For Fee Recovery

Second District, Division Seven Overturns Fee Award Where No Explicit Provision Allowed For Fee Recovery When Enforcing Stipulated Settlement.

     Under the American rule governing attorney’s fees awards (as codified in Code of Civil Procedure section 1021), a prevailing litigant generally is not entitled to an attorney’s fees award in the absence of express statutory or contractual provisions. (Trope v. Katz, 11 Cal.4^th 274, 278 (1995); Carr Business Enterprises, Inc. v. City of Chowchilla, 166 Cal.App.4^th 14, 23 (2008).) The absence of a clear contractual provision allowing for recovery of attorney’s fees in a stipulated settlement agreement usually forecloses the potential judgment creditor from recouping fees expended in enforcing the settlement arrangement.

     Stansbury v. Bronn, Case No. B197272 (2d Dist., Div. 7 Oct. 27, 2008) (unpublished) illustrates these principles.

     There, a trust dispute was settled through a written settlement agreement reached after a day-long mediation. Trustee successfully moved to enforce the settlement agreement under Code of Civil Procedure section 664.6 (the summary enforcement procedure), with the trial court also awarding trustee $ 13,482.79 in attorney’s fees and $351.19 in costs incurred in enforcing the settlement agreement.

     Although the losing party lost the merit component of the appeal, the Second District, Division Seven—in a 3-0 opinion authored by Presiding Justice Perluss—reversed the fee award in trustee’s favor. The standard of review was de novo because the case involved contractual interpretation without conflicting extrinsic evidence.

     The general rule, the appellate panel reminded us, is that a contract’s silence on the right to recover attorney’s fees means no such fees may be awarded by the court. (Carr Business Enterprises, supra, 166 Cal.App.4^th at 23.) Trustee tried to defend the fee award by referring to a settlement provision allowing the recovery of fees and costs that “have been expended in connection with the action or [the settlement] agreement.” This did not work, because the Court of Appeal observed that this provision related solely to fees already incurred at the time the agreement was executed, not fees required to pursue future litigation to enforce the agreement. Because there was no explicit authorization for fee recovery in the settlement agreement, attorney’s fees were not recoverable.

     A different matter for the costs award. Unless costs were actually waived in the settlement agreement, they were recoverable. (Code Civ. Proc., sec. 1032(b),(c).)

     BLOG OBSERVATION NO. 1—A similar result was reached in Greentree Financial, Inc. v. Execute Sports, Inc., 163 Cal.App.4^th 495 (2008), litigated by co-contributor Mike Hensley. There, the Fourth District, Division Three concluded there was no basis for an award of attorney’s fees in enforcing a stipulated settlement based on the lack of an express provision authorizing such an award.

     BLOG OBSERVATION NO. 2—Stansbury also has a nice discussion of California’s adherence to objective intent test with respect to contractual interpretation, citing several decisions for the proposition that unexpressed subjective intent is irrelevant to the proper interpretation of a contract. (See, e.g., Cedars-Sinai Medical Center v. Shewry, 137 Cal.App.4^th 964, 980 (2006).)

All Practitioners Take Notice—You Can Still Settle Your Attorney’s Fee Dispute On Appeal … Mooting The Appeal And Letting Everyone Grumble (But Stilling The Fee Wag Toll of the Litigation Dog)

Second District, Division Five Dismisses Appeal as Moot Based on Settlement Agreement Reached During Appeal Process.

            As we blogs have chronicled for several months, attorney’s fees recoveries can make or break a litigant—unless there is untold wealth backing the litigants in many of these situations.  A prevailing litigant can gain a recovery, but it can be outstripped many times over if fees are denied because there is no fee entitlement, no “prevailing” party, or the amount requested was unreasonable or improperly substantiated.  A defending party can also partially prevail, but have the fees expended exponentially eclipsing the “victory” if similar circumstances attend – no fee entitlement; no clear prevailing party; unreasonable request for fees; improper substantiation of fees (e.g., duplicative work, block billing, and failure to apportion between compensable and noncompensable work). 

            However, not all is lost.  The system is grooved towards resolution by settlement, with a recent study suggesting that a negotiated compromise is preferable to litigating all the way to a less than idyllic conclusion.    (See our post of August 13, 2008 on September 2008 upcoming study to be published in the Journal of Empirical Legal Studies.)  The next case illustrates that a settlement during an appeal—even a settlement of a fee dispute—may well moot the appeal and allow the parties to go “grumbling” to other challenges in life.

            Beverly Wilshire Homes Association (Assn.) obtained mandate against City of Los Angeles and developer Bevcon 1, LLC, relief by which a mitigated negative declaration was set aside until an environmental impact report had been certified.  The trial court enjoined developer from further activities pending the certification and awarded Assn. attorney’s fees under the private attorney fee statute, Code of Civil Procedure section 1021.5.  City and Bevcon appealed.  During the appeal, the Assn. and developer reached a settlement agreement by which the merits were resolved, the developer agreed to pay unspecified fees and costs to Assn., and all litigation and appeals were dismissed after payment of fees and costs. 

            In Beverly Wilshire Homes Assn., Inc. v. City of Los Angeles (Bevcon 1, LLC), Case No. B201085 & B203512 (2d Dist., Div. 5 Sept. 2, 2008) (unpublished), the Court of Appeal—in a 3-0 decision authored by Presiding Justice Turner—dismissed the appeal as moot based on the settlement agreement.  The appellate panel found that the settlement of issues relating to both the development project and attorney’s fees payment resolved all issues involved on appeal.  No issues of broad public interest were likely to recur, no issues of recurrence between the parties were likely to recur, and no material factual questions remained for judicial determination.  (Morehart v. County of Santa Barbara, 7 Cal.4^th 725, 747 (1994); Cucamongans United for Reasonable Expansion v. City of Rancho Cucamonga, 82 Cal.App.4^th 473, 479-480 (2000); Giles v. Horn, 100 Cal.App.4^th 206, 228 (2002).)  Because no mootness exceptions were established, the settlement between the parties was accorded finality—and, ta!da!—the appeal was dismissed.  Goes to show you that litigation can finally end via settlement, even on appeal, and the fee recovery bleeding be stemmed.  The message:  don’t give up; assess your appeals, and do not be too proud to settle the fee issue during pendency of an appeal (especially one that you may not prevail upon at the end of the day). 

            

SECTION 998 OFFERS AND STIPULATED SETTLEMENTS—DON’T BE SILENT ABOUT FEES/COSTS OR PAY THE PRICE!

Silence Can Be Deadly Where Fees and Costs Are Not Expressly Dealt With.

            Code of Civil Procedure section 998 offers a potential fee-shifting settlement mechanism for litigants in civil cases, although the offers must be crafted and worded very carefully.  In essence, section 998 allows a litigant—up to 10 days before a scheduled trial or contractual arbitration—to serve a written offer to take judgment under specified terms.  Unless specified otherwise, the offer lapses 30 days after service.  If the offer is not accepted, and the 998 offeror obtains a more favorable judgment, the offeree is liable for offeror’s recovery of its reasonable postoffer costs, including reasonable expert witness expenses (the latter being expenses that are usually not recoverable as routine costs or as attorney’s fees).  In structuring 998 offers, the offeror generally needs to factor in the preoffer costs (including fees, if properly authorized by contract or statute) spent by the offeree before the offer or provide that the offeror will agree to the costs as determined by the trial court in a later law and motion proceeding. 

            However, what happens if the 998 offer is silent about costs and fees?  For the offeror, failure to carefully consider the implications on this issue and simply structuring the 998 terms without an express provision on fees and costs may be disastrous, as a decision from the Fourth District, Division Three aptly illustrates.

            Justice Bedsworth, with a journalistic flourish all his own and after observing that “cautionary tales rarely have happy endings,” proceeds to publish a thoughtful decision on one peril of 998 offers “in the hope of providing a warning.”  In Engle v Copenbarger and Copenbarger, 157 Cal.App.4^th 165 (2007), rev. den., a former legal assistant sued her former law firm employer and some individual attorneys for statutory sexual discrimination as well as for some tort claims.  Defendants served a 998 offer, offering to settle for $35,000 and providing that “judgment … shall be in exchange for a release and discharge of any and all claims, of whatsoever nature (substantive and procedural) which the plaintiff may have against the defendants.”  The 998 offer said nothing expressly about fees or costs.  Plaintiff accepted, refused to sign a release that waived costs and fees, and then moved for costs/fee recovery as the prevailing party after the trial court entered judgment on the 998 offer terms.  Defendants primarily opposed on the ground that the broadly-worded release language took care of the costs/fee issue.  The trial court denied the costs/fee motion, and our local Santa-Ana based court reversed on the appeal brought by plaintiff.

            Justice Bedsworth iterated that a 998 offer silent on costs and fees allows the prevailing party entitlement to recover costs and, if authorized by contract or statute, to recover attorney’s fees.  “If [defendants] meant the offer to include [plaintiff’s] attorney fees, it was a simple enough matter to spell out that condition.”  The appellate court did not buy that the broadly-worded release clause in the 998 offer waived the fee claim, reasoning:  “We do not know why the release was written in terms broader than the offer.  But we are convinced the bright-line rule exists precisely to avoid disputes such as this one about whether there was manipulation or misunderstanding.  We think that is a good reason for a bright-line rule and see no cause to depart from it here.  If [defendant law firm] wanted a fee waiver, it should have put one in the offer.  Since the offer was silent on fees, it did not bar a later fee motion.”

            998 offers are not the only context where a settling litigants needs to be careful on how they deal with costs and fee issues. 

            As we noted in our June 12, 2008 post on Benson v. Little, stipulated settlement language can be problematic for a settling party if not clear in dealing with the costs/fee issue (or, as in that case, preserving the issue for future resolution in the event of a performance default).   Most parties insert language in settlement agreements or stipulations that “each side bears its own costs, fees and expenses in the litigation and in the preparation and signing of this agreement/stipulation.”  This type of language is highly suggested in order to end disputes and prevent surprise endings of an unintended nature.

            For example, in Folsom v. Butte County Ass’n of Governments, 32 Cal.3d 668, 676 (1982), elderly and disabled citizens filed suit against local government for failure to provide proper transit services (a real concern for the aged).  The parties settled, after local government agreed to make some corrections, with a consent decree which was silent on the issue of attorney’s fees and costs.  Bad move.  The California Supreme Court decided that the prevailing parties—there, the elderly and disabled—were entitled to seek fees and costs, as an incident to a judgment entered as part of the consent decree, where the settlement document happened to be silent on the issue of fees/costs. 

            One also needs to be careful in settlements that are silent on fees and costs, but provide that there will be a dismissal of the underlying action.  True, a pretrial dismissal of contract claims means that no fees will be awarded under the reasoning of Santisas v. Goodin, 17 Cal.4^th 599 (1998) (one of our Leading Cases).  However, the same result likely does not follow if statutory fee-shifting claims are involved.  There is case law holding that Santisas does not apply to bar these types of statutory claims.  (See, e.g., Parrott v. Mooring Townhomes Ass’n, Inc., 112 Cal.App.4^th 873, 878-880 (2003), rev. den.; Damian v. Tamondong, 65 Cal.App.4^th 1115, 1124 (1998).)  So, if a defendant settles with a plaintiff in a statutory fee-shifting case and does not expressly cover the costs/fee issue, the plaintiff may move for fees and surprise the defendant with an additional exposure that the defendant did not expect.

            Moral of the story:  deal with costs/fees issues in 998 offers and settlement documents in an upfront, unconditional manner.   Inadvertence or strategic silence may bite the litigant who does not expressly deal with the issue.