CALIFORNIA ATTORNEY'S FEES

Section 998, Workers’ Compensation: 2/2 DCA Decides § 998 Is To Be Applied Before Lab. Code § 3856 In Determining If 998 Offeror Obtained Postoffer Costs Such That A Workers’ Comp. Fee Recovery Or Lien Is Not Factored Into The Net Judgment Calculus

2/2 DCA Reconciled Two Statutory Schemes In Coming To Its Conclusion.

            In Oakes v. Progressive Transportation Services, Case No. B305535 (2d Dist., Div. 2 Nov. 10, 2021) (partially published; 998 discussion published), a plaintiff employee was hurt by an employee of another company in a rear-end car accident, and plaintiff former employer’s workers compensation insurance carrier paid for various medical treatments.  Plaintiff then sued as defendants both the employee who hit him as well as that employee’s employer for negligence and negligence per se.  Plaintiff, although receiving a positive judgment through a jury trial, had nixed a prior CCP § 998 defense offer, with the question being whether plaintiff employee’s Labor Code section 3856 contingency lawyer fee recovery should be deducted from the judgment to arrive at a new number for purposes of seeing if the 998 offeror beat the judgment.  The 2/2 DCA had to reconcile two schemes, section 998 and Labor Code section 3856.  It determined that section 998 was applied first, which meant that the calculus went this way: (1) jury verdict amount plus plaintiff’s preoffer costs before the 998 offer; and (2) deduction of the defense 998 offer postoffer costs, to arrive in a net judgment amount.  Once that was done, the resulting judgment was in defendant’s favor because the postoffer costs ate up the “gross initial” judgment such that there was no judgment for lawyer contingency fees or employer’s worker’s compensation lien.  Put another way, section 988 took precedence over Labor Code section 3856.

Fee Clause Interpretation, POOF! After A Merits Reversal, Language Of The Fees Clause Meant That The Reversed Party Did Not Prevail

Fee Clauses Without Prevailing Party Language Have Such A Condition Implied.

            Drink Tank Ventures, LLC v. Real Soda in Real Bottles, Ltd., Case Nos. B29881/B302215 (2d Dist., Div. 2 Nov. 10, 2021) (published) is an interesting case where a “prevailing party” had its intentional interference claim reversed as a matter of law.  At the lower court, where judgment was entered on this reversed claim, the trial judge granted the “then” prevailing party $280,700 in attorney’s fees based on a nondisclosure contract clause (out of a requested $785,981, based primarily on overbilling as well as denying a multiplier request).  The attorney’s fees award also evaporated because of the reversal of the merits judgment.  The appellate court looked at the fees clause, which did not have “prevailing clause” language, but implied it under CCP § 1021 and Civil Code $ 1717.  Once what was done, based on the reversal, the fee award went POOF!

Costs: Court Transcripts, Electronic Presentations, Arbitration Transcripts, and Trial Support Vendor Fee Items Considered In Discussion Of Properly Awarded Routine Costs

Only One Item Out Of The List Was Improperly Awarded.

            The general rules for awarding routine costs to a prevailing party can be distilled down this way:  some are expressly allowable; some are expressly not allowable; and if costs are not mentioned in the first two categories, they are awardable in the courts discretion if found reasonable and necessary to the conduct of the litigation.  (Code Civ. Proc., § 1033.5(a), (b), (c)(4).)  The appellate court in Engel & Engel, LLP v. Shuck, Case Nos. B297421/B300755 (2d Dist., Div. 2 Nov. 4, 2021) (unpublished) affirmed a lower court’s award of three items of costs, but reversed one costs award as being improper.  Here are the results:  (1) trial transcripts were improperly awarded because they are not recoverable unless “court ordered” (which they were not) and are distinct from allowable court reporter fees; (2) electronic presentation expenses were proper because the lower court expressly found they were helpful; (3) arbitration transcripts were allowable because only court transcripts are expressly disallowed unless court ordered; and (4) a trial support vendor’s fee was proper because it was subsumed in the electronic presentation component. 

Costs: 2/2 DCA Refuses To Carve Out Costs Exception For Prevailing Defendant In Knox-Keene Act Cases

Costs Determination Remanded To Address Specific Objections To Claimed Costs By Kaiser.

            In Long Beach Memorial Medical Center v. Kaiser Foundation Health Plan, Inc., Case Nos. B304183/ B306322 (2d Dist., Div. 2 Nov. 4, 2021 partially published; costs discussion unpublished), Kaiser was the prevailing defendant for costs because no relief was obtained against it and it obtained no relief in a Knox-Keene Act emergency medical services case.  The appellate court found that it was error for the lower court to deny costs.  The other side argued that the appellate court should fashion an exception for cases under the Act, but the court refused on the ground that it is “not our role to rewrite statutes [inclusive of the general costs statutes].”  The matter was remanded to consider opponents’ objections to specific items.

Trade Secrets: Law Firm Loosing Trade Secret Case Against Former Employee, A Transactional Attorney, Properly Assessed With Costs Of $51,477.44 And $714,382.50 In Fees Under Civil Code Section 3426.4

Appellate Court Rejected That A Frivolousness, Rather Objectively Specious, Standard Governed.

            Civil Code section 3426.4 is the fee-shifting statute under California’s Uniform Trade Secret Act.  It allows a trial court to discretionarily award reasonable fees and costs to a prevailing defendant where a misappropriation claim “is made in bad faith,” which under interpretive case law means satisfying both an objective speciousness prong and a subjective bad faith in bringing/maintaining the claim prong.  (Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4^th 1240, 1262 (2002).) 

            Plaintiff law firm learned the sting of that provision when it lost its CUTSA claim against a former employee transactional attorney in SwedelsonGottlieb v. Noland, Case Nos. A156334/A156766 (1^st Dist., Div. 3 Nov. 2, 2021) (unpublished).  Right after he was passed over for equity partner and he set up his own firm in which multiple clients chose to go with him, law firm sued.  The problem was that they could not prove that defendant attorney had used any trade secrets (not even discussing over 300 documents the firm previously claimed were trade secrets), either because they were not or were publicly shared with clients/third parties, as well as not being able to show that former attorney improperly solicited clients away.  The lower court found against plaintiff, subsequently awarding defendant $51,477.44 in costs and $714,382.50 in section 3426.4 attorney’s fees.

            The 1/3 DCA affirmed.  Both prongs of section 3426.4 were met, rejecting the notion that a more stringent frivolousness standard supplanted the objective speciousness prong.  The timing of the law firm’s suit, in tandem with it lacking evidence to show trade secrets were misappropriated, sealed the result.  Ouch! – and attorney can now be awarded more appellate fees and was awarded appellate costs by the reviewing court. 

SLAPP, Substantiation Of Reasonableness Of Fees: $23,100 SLAPP Fee Award Affirmed On Appeal, Minus A Small Amount For A Nonrelated Demand Letter

Lack Of Evidentiary Challenges To Hourly Rates Justified No Reduction, And Block Billing Does Not Have To Be Reduced Depending On The Circumstances.

            In Nejad v. Abernathy, Case Nos. B304481/ B307759 (2d Dist., Div. 4 Nov. 1, 2021) (unpublished), the lower court granted $23,362.50 to a SLAPP winner, which was affirmed on appeal except for a demand letter not required under the SLAPP statute so as to reduce the award a little less to $23,100.  The appellate court rejected challenges to the hourly rates because no evidence was introduced to challenge the rates.  With respect to a block billing challenge, the trial judge has discretion not to reduce block billing—but it depends on very particular circumstances and the nature of the billing entries.  Based on a detailed record by the lower court in granting fees, the deferential abuse of discretion standard showed that the award should be sustained.

Insurance: Intervenor Obtaining Substantial Contribution Into Insurance Rate Making Process Entitled To About $650,000 In Fees

Proposition 103 Fee-Shifting Provision Was Liberally Construed In Favor Of Intervenor “Watch Dogs.”

            State Farm Gen. Ins. Co. v. Lora, Case No. D077731 (4^th Dist., Div. 1 Oct. 29, 2021) (published) is one of the first decisions under Proposition 103, which has a fee-shifting provision allowing an award of advocacy fees to a consumer representative which makes a “substantial contribution” to efforts relating to adoption of an order in an insurance rate hearing decision making process.   (Ins. Code, § 1861.10.)  The consumer advocacy intervenor was able to prevent an insurer from sealing certain records in a positive manner along the rate-making process.  The lower court awarded intervenor about $650,000 in fees, a conclusion affirmed by the appellate court.  The “substantial contribution” language was to be interpreted liberally, such that fee compensation should be allowed for unsuccessful alternative arguments (as opposed to losing on unsuccessful claims).

Arbitration, Fee Clause Interpretation, Landlord/Tenant: 1/3 DCA Affirms Trial Court’s Denial Of Attorney Fees To Prevailing Tenant

Fees Incurred For The Court Proceedings Were Part Of The Arbitration Process Called For In The Lease For Resolving Fair Market Rent Value And Not Recoverable Under The Prevailing Party Provision Which Applied To An Action Involving A Breach Of The Contract Or Determination of Rights

            In California Union Square L.P. v. Saks & Company LLC, Case No. A162043 (1^st Dist., Div., 3 October 29, 2021) (published), defendant tenant exercised its option to renew its lease following the initial 25-year term.  Because landlord and tenant were unable to agree on the fair market value of the base rent, the dispute resolution provision of the lease was triggered – which mandated arbitration.  Tenant ultimately prevailed after two arbitrations and multiple litigation proceedings in superior, federal, and appellate courts – including a petition for review with the California Supreme Court (which was denied).   Tenant then moved for roughly $1 million in attorneys’ fees – expressly noting that, pursuant to the fees provision of the lease, it was seeking fees incurred only in court proceedings, not any of the fees or costs incurred in the two arbitrations.   The trial court denied tenant’s motion following full briefing and a hearing.

            Tenant argued on appeal that the trial court erred because the parties’ lease – although providing that arbitration costs were to be divided equally between the parties – included a provision mandating “that the prevailing party in any action or proceeding to enforce the [l]ease or obtain a declaration of rights under the [l]ease recover its attorneys’ fees and costs from the losing party.”  Tenant claimed this prevailing party provision controlled the allocation of fees for the various court proceedings.  The appellate panel disagreed – finding the court proceedings were not undertaken for the purpose of enforcing or obtaining a “declaration of rights” under the lease, such as a dispute over a contractual term or obligation.  Rather, the court proceedings arose from the parties’ obligations under the provision for disputes on the fair market value of the base rent requiring arbitration.  As a result, the fees incurred for the court proceedings were a part of the process for resolving the value of the base rent and not recoverable under the prevailing party provision.

Section 998: Trial Court’s Granting Of Former Employer’s Motion To Tax Plaintiff’s Post-§ 998 Costs Based On Plaintiff’s Failure To Accept § 998 Offer Reversed On Appeal

Former Employer Had The Burden Of Proving A Valid § 998 Offer Had Been Made, But Belatedly Attached The § 998 Offer To Its Reply Papers Instead Of Its Moving Papers

            In Snoeck v. Exaktime Innovations, Case Nos. B302178/B304054 (2d Dist., Div. 3 October 29, 2021) (unpublished), plaintiff sued former employer for violations of the Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.). After a five-day trial, the jury returned a verdict in former employer’s favor – with exception to one cause of action for which plaintiff was awarded $130,088 in damages.  Afterward, plaintiff moved to recover costs, but the trial court granted former employer’s motion to tax from the date plaintiff rejected former employer’s $500,000 Code Civ. Proc., § 998 offer to compromise, and awarded plaintiff $49,353.46 after taxing $30,056.44. 

            Plaintiff appealed and the 2/3 DCA reversed with direction that the trial court enter a new order awarding plaintiff $79,409.90 in costs.  The problem was that former employer – with the burden of proving a valid § 998 offer had been made – failed to include a copy of its § 998 offer in its moving papers. Instead, former employer attached a copy to its counsel’s reply declaration after plaintiff opposed the motion to tax based on former employer’s failure to meet its burden to demonstrate it made a valid § 998 offer, and objected on hearsay and secondary evidence grounds to defense counsel’s description of the § 998  offer.  Citing Carbajal v. CWPSC, Inc., 245 Cal.App.4th 227, 241(2016) for the general rule that new evidence is not permitted with reply papers, the panel found the trial court abused its discretion by permitting former employer to submit the § 998 offer with its reply papers.  Submitting new evidence with reply papers should be permitted only in the exceptional case and, in such an event, the other party should be allowed to respond to the new evidence - which was not the case and did not happen here.   

Requests for Admission: Trial Court Did Not Err In Denying “Costs Of Proof” Sanctions Where Trial Court Implied A License Based On Recorded Documents

RFA Denials Were Properly Based On Documents Which Would Not Necessarily Conclude An Implied License Was At Issue.

            We have posted, many times, on “costs of proof” sanctions under CCP § 2033.420.  Most generally, these awards or denial of requests under that provision are factually oriented.  Badger v. Terribilini, Case No. A161178 (1^st Dist., Div. 3 Oct. 28, 2021) (unpublished), confirms that this is the usual case.  There, a dispute arose as to whether there was an irrevocable license on an adjacent lot, with the trial court determining there was an implied license not facially dependent on the express wording of the recorded documents.  The trial judge denied “costs of proof” sanctions, a ruling affirmed on appeal.  The RFA denials were made in good faith given that intent is subject to proof, and nothing showed that the contested issues were denied wrongfully given the heavily-contested intent issue.

Fee Clause Interpretation, Reasonableness Of Fees: Attorney Awarded Prior Frivolous Appeal Sanctions Denied “Second Bite” Request For Civil Code § 1717 Additional Fees Based On Prior Representations Made To Court Of Appeal On Reasonableness Of Work

Also, Fee Clause With “Incurred” Language Means That Fees Did Need To Be Incurred.

            The result in Korff v. Goodrich, Case No. A160917 (1^st Dist., Div. 2 Oct. 27, 2021) (unpublished) shows the wisdom in the saying “pigs get fat, hogs get slaughtered,” coined by Rubbery Figures, a satirical rubber puppet series screened in Australia in the 1890s. 

            What happened in this dispute between caregiver and deceased husband’s daughter, which led to a will contest and an eventual settlement agreement with a fees clause, is that caregiver took position inconsistent from the settlement and eventually lost three appeals after adverse decisions were made at the trial court stage.  The appellate court earlier determined that the appeals were frivolous, awarding fees as sanctions to the main prevailing party’s attorney in the sum of $49,875 (but totaling $91,084 as to other attorneys involved)—with the main attorney indicating to the appellate court that this amount represented 142.5 hours at $350/hour.  Then, before the lower court, the main attorney sought another $103,000 in compensation for additional hours at a $675 hourly rate.

            The lower and appellate courts did not buy it, with the reviewing court affirming the lower court’s denial of the requested additional compensation.  After all, main attorney’s “additional ask” contradicted representations made to the appellate court such that he was judicially estopped from claiming otherwise.  Also, the fee submissions raised the specter that there was duplicative work by three attorneys (“too many cooks in the kitchen”).  Finally, attorneys asking for additional fees did not show that their client actually “incurred” fees, although such a requirement in a fee agreement is something which must be satisfied.  (San Diego Partnership v. San Dieguito River Valley Regional etc. Authority, 61 Cal.App.4^th 910, 915, 919 (1998). 

Ethics: Simultaneous Representation Of Corporation And Major Shareholder For Common Goal Not Related To Corporate Mgmt./Control May Not Be A Conflict, But A Dispute Over Corporate Mgmt. Can Create A Conflict Between The Corporation And Major Shareholder

Discussion Occurred When Corporate Attorney Sought To Collect Unpaid Fees.

            When a trial court granted and disallowed some unpaid fees by a corporate attorney representing the corporation and major shareholder, separately and together at times, the Fifth District in Cyril Lawrence, Inc. v. K.S. Aviation, Inc., Case No. F079662 (5^th Dist. Oct. 26, 2021) (unpublished) reminded us that there may not be a conflict between representing a corporation and a major shareholder, depending on the circumstances.  Where the corporation, major shareholder, and other shareholders are unified in interest in opposing a third party claim not implicating management issues, simultaneous representation of the corporation and a major shareholder will not pose a problem.  However, where there is a dispute about corporate management or control, it would be a conflict to represent both the corporation and major shareholder as against other shareholders.  (Buehler v. Sbardellati, 34 Cal.App.4^th 1527, 1540 (1995).) 

Costs, Experts, Section 998: Trial Court’s Costs Award To Prevailing Plaintiffs, Which Accounted For Costs From Two Trials Where First Trial Resulted In Mistrial Due To Plaintiffs’ Counsel, Affirmed On Appeal

Trial Court’s Order Awarding Costs Did Not Operate As An Improper Reconsideration Of A Previous Order, And Defendants Failed To Support With Any Authority Their Contention That Plaintiffs Could Not Recover Fees Where Their Attorney Caused Mistrial.

            In Esparza v. Win Distribution, Case No. E072880 (4^th Dist., Div. 2 October 25, 2021) (unpublished), the 4/2 DCA analyzed whether a party whose counsel’s conduct resulted in a mistrial but prevailed at a second trial can recover costs from both trials.

            A family of four personal injury plaintiffs prevailed in a second jury trial following a mistrial of the first.  Afterward, the trial court awarded plaintiffs $188,057.53 in ordinary costs which accounted for both trials after partially granting defendants’ motion to tax.  Because plaintiff husband’s portion of the award exceeded the $10 million Code Civ. Proc., § 998 offer of compromise he made to defendants, the trial court also awarded him $366,976.42 in expert witness fees plus prejudgment and postjudgment interest exceeding $2 million.

            Defendants, a commercial truck driver and his employer, appealed the judgment and argued, alternatively, that their motion to tax costs from the first trial had been improperly denied and resulted in an improper award of expert fees and prejudgment interest to plaintiffs. Relying on Mullin v. Rousseau, 112 Cal.App. 719 (1931), argued that plaintiffs could not be awarded costs for both the first and second trial when their own attorney’s closing argument prompted the mistrial. 

            The 4/2 DCA disagreed and affirmed the judgment, including the costs award.  Although Mullin also involved the plaintiff prevailing at a second trial after plaintiff’s counsel caused a mistrial in the first trial, costs for both trials being awarded to plaintiff, and defendant’s motion to tax costs from the first trial being denied – Mullin is inapposite. In Mullin, the trial court charged the costs of the first trial to plaintiff as a penalty for the attorney’s misconduct. When the trial court subsequently awarded plaintiff with those same costs from the first trial, that award operated as an order reconsidering the prior costs award – which was improper.  Here, the trial court denied defendants’ request for the attorney fees and costs of the first trial as Code Civ. Proc., § 128.5 sanctions – finding plaintiff’s counsel’s made an honest mistake during closing arguments which did not warrant the imposition of sanctions. Therefore, the trial court’s order was not improper as it did not operate as a reconsideration of a previous order.  Additionally, defendants failed to support their contention with any authority.

SLAPP: 1/2 DCA Affirms Trial Court’s Attorney Fees Award To Successfully SLAPPing Defendant That Included A Reduction To The Hourly Rates Charged By His Counsel

No Abuse Of Discretion In Basing Lodestar On Local Sonoma County Counsel Rates Rather Than Major Metropolitan San Francisco Bay Area Rates When Defendant Did Not Demonstrate Impracticability Or Impossibility Of Hiring Local Counsel.

            The only question before the 1/2 DCA in Gentile v. Cohodes, Case No. A161721 (1^st Dist., Div. 2 October 25, 2021) (unpublished), was whether the trial court – in its award of attorney fees to successfully SLAPPing defendant – abused its discretion by reducing the hourly rates charged by defendant’s attorneys.

            Defendant claimed that the lodestar utilized by the trial court was improperly based on rates charged by law firms practicing in Sonoma County (where the case was brought) rather than firms in the San Francisco Bay area and was not based on similar work.  The appellate panel found no abuse of discretion, rejected defendant’s arguments, and affirmed.

            First, the ordinary rule in setting the lodestar, which is in the trial court’s discretion, is that the relevant geographic market for determining a reasonable hourly billing rate is the location where the trial court sits – unless the party claiming fees demonstrates that local counsel was unavailable or otherwise impracticable to hire, something not done in this case.  Next, defendant bore the burden of demonstrating that the fees he sought were reasonable.  However, defendant provided no evidence of rates specific to Sonoma County – leaving the trial court with no choice but to make its determination as to the reasonable rates based on its own familiarity with local billing rates for comparable legal work and on the evidence submitted by plaintiff related to Sonoma County rates.

SLAPP: No Abuse Of Discretion Nor Improper Legal Analysis In Trial Court’s Separate Awards To Five Groups Of Successfully SLAPPing Defendants Totaling $280,098.15

Plaintiff’s Federal Claim Did Not Preempt SLAPP Fee Award Which Trial Court Reduced From Requested $516,548.13 After Considering Hours Reasonably Expended And Duplicative Efforts, And Plaintiff Demonstrated No Abuse Of Discretion.

            In AWI Builders v. Alliant Consulting, Case Nos. B294662, B297189, B298699 and B300834 (2d Dist., Div. 4 October 22, 2021) (unpublished), a public works construction company sued five separate groups of defendants – with one group being the State of California and Maria Sandoval, an investigator for the Division of Labor Standards Enforcement – after being investigated for labor compliance and removed from a project rehabbing a Public Defender’s building by Riverside County.   All five groups of defendants SLAPPed back (Code Civ. Proc., § 425.16) – with the trial court granting in full the anti-SLAPP motions brought by four groups of defendants and dismissing all claims against them. As to the State defendants, the trial court granted their anti-SLAPP motion in part and dismissed all claims against State, but denied their motion as to plaintiff’s claim of violation of civil rights (42 U.S. Code § 1983) against Maria Sandoval. Afterward, all five groups separately moved for attorneys’ fees under § 425.16 – seeking a combined total of $516,548.13 (plus one group of defendants requested fees on fees of $15,475 for fees incurred to bring their fees motion).  Through five orders, after reductions to each fees request, the trial court awarded a combined total of $280,098.15. Plaintiff appealed.

            As to the fee awards, plaintiff argued that: section 425.16(c)’s mandatory fee provision is preempted by federal law when applied to a § 1983 cause of action; the trial court failed to determine whether defendants sought fees reflecting duplicative legal arguments in several of the anti-SLAPP motions; and the hours spent by one group of defendants reviewing the files on the district attorney’s investigation of plaintiff should not be awarded because that review was not necessary to the anti-SLAPP motion.

            The 2/4 DCA affirmed – concluding the trial court conducted the proper legal analysis of the fee motions and did not abuse its discretion.  The panel found plaintiff’s federal preemption argument ignored that defendants were awarded fees for prevailing on an anti-SLAPP motion, not because they prevailed on a § 1983 claim – with the purpose of § 425.16(c) being to provide relief to persons victimized by meritless, retaliatory SLAPP lawsuits because of their protected activity. (Ketchum v. Moses, 24 Cal.4th 1122, 1131(2001); Liu v. Moore, 69 Cal.App.4th 745, 750 (1999).) The trial court reduced the requested fees from each group of defendants and noted in each order that it was required to award fees only for hours reasonably expended and reduce for duplication.  Finally, the trial court addressed the investigative records review issue in its order awarding fees to that group of defendants – finding defendant group’s claim that the review and analysis of the investigative records was “inextricably intertwined” with the anti-SLAPP motion credible, and the billing reasonable – and plaintiff failed to show that the trial court’s decision was arbitrary or irrational.

Deeds of Trust, Section 1717: Trial Court’s Award Of $508,186.49 In Attorney’s Fees To Loan Servicer Acting As Agent For Mortgage Loan Owner In Judicial Foreclosure Action Affirmed On Appeal

Mortgage Loan Owner’s Entitlement To Contractual Fees Under Note And Deed Of Trust Fee Provisions Transferred To Loan Servicer When It Was Authorized To Act As Loan Owner’s Agent In Enforcing The Deed Of Trust.

            In Nationstar Mortgage v. Abalkhad, Case No. B303946 (2d Dist., Div. 1 October 22, 2021) (unpublished), homeowner in judicial foreclosure action appealed from the judgment entered against him, which included an award of $508,186.49 in attorney fees to the loan servicer for fees it incurred in enforcing the promissory note on the mortgage loan and deed of trust securing the loan.

            As to the fees, homeowner did not challenge the amount awarded. Instead, he argued – for the first time on appeal – that loan servicer was not entitled to recover fees under the attorney fees provisions in the note and deed of trust because it was not the lender.

            The 2/1 DCA affirmed – finding there could be no dispute as to the mortgage loan owner’s entitlement to contractual fees based on the fees provisions under the Note and Deed of Trust.  Because mortgage loan owner gave authority to loan servicer to act as its agent in enforcing the deed of trust, loan servicer was acting in place of mortgage loan owner, and was entitled to recover the fees it expended as if it were the mortgage loan owner. (Channel Lumber Co., Inc. v. Porter Simon, 78 Cal.App.4th 1222, 1227 (2000).)

Class Actions: Ninth Circuit Determines Vouchers Are Coupons, And Pre-Certification Settlement Must Be Reviewed With Heightened Scrutiny

Ninth Circuit Showing A Significant Trend To Review Class Action Settlements Closely, Especially Where Non-Cash Relief, Clear Sailing Provisions, And Reverter Features Are Involved.

            The Ninth Circuit certainly has taken a much closer scrutiny of coupon/voucher/non-cash relief settlements in a series of decisions we have posted on in the past under our category “Class Actions”—Kim (our Aug. 17, 2021 post); Briseno (our June 1, 2021 post); and Chambers (our Nov. 11, 2020 post).  Baerbel McKinney-Drobins v. Massage Envy Franchising, LLC, No. 20-15539 (9^th Cir. Oct. 20, 2021) (published) is another published opinion which exemplifies this trend.

            There, a pre-certification class action settlement was reached between class members (users of spa products and services through a membership arrangement) and defendant.  The settlement provided vouchers to class members, with there being a $10 million settlement “floor” such that the issued vouchers not requested by class members would be increased pro rata in value so as to reach this “floor” amount.  The settlement had a “clear sailing” provision by which the defense would not object to a $3.3 million fee request by class counsel.  It also had a reverter provision by which any fee amount awarded under $3.3 million would revert back to the defendant rather than the class.  6.2% of the class requested vouchers (under $3 million in value), so that those requesting them had their vouchers adjusted upward so the vouchers ranged from $36.28 - $180.68.  The district judge approved the settlement as fair and reasonable, finding this was not a CAFA “coupon” settlement.  However, he awarded class counsel $2,612,500, 25% of the $10 million face amount after making an adjustment for $450,000 in notice/class administration costs.

            The Ninth Circuit vacated and remanded the settlement, including the fee award. 

            Most crucial to its determination was that the vouchers were CAFA “coupons,” which required a different examination on the actual redemption rates of the issued vouchers—not the $10 million face value of the vouchers.  The Ninth Circuit panel (3-0, but with a concurring opinion) found that a de novo review analysis applied on whether a coupon was involved, determining a coupon was truly involved under its Online DVD opinion.  (The concurring justice wanted an en banc review of Online DVD.) That alone required a restudy.

            However, the panel also indicated that this pre-certification settlement needed heightened scrutiny, with certain “red flags” of collusion between class counsel and defendant potentially being present.  Specifically, the presence of non-cash relief, the clear sailing provision, and the reverter were indicia that defendant reached a settlement unduly benefiting class counsel rather than the interest of the class.  These factors needed to be looked at further on remand.

Fee Clause Interpretation, Section 1717: Where Cross-Complaint Did Not Involve Any Enforcement Or Promise Breaches Of A Purchase Agreement With A Fees Clause, Attorney’s Fees Lacked Any Entitlement Basis

Section 1717 Did Not Change The Analysis, Because The Scope Of The Fee Clause Can Only Relate To Contractual Claims—Meaning CCP § 1021 Must First Be Overcome.

            Otay Land Co., LLC v. U.E. Limited LLC, Case No. D077274 (4^th Dist., Div. 1 Oct. 20, 2021) (unpublished) reminds us that Civil Code section 1717 reciprocity principles do not kick in unless the fees clause, by its terms, covers the claims which are at issue in the case.  If not, CCP § 1021 is not overcome, and section 1717 makes no difference.

            In this case, plaintiff/cross-defendant prevailed on its positive claims and on the claims of defendant/cross-complainant such that plaintiff/cross-defendant was the prevailing party.  Cross-complainant had prayed for attorney’s fees in its prayer, with the trial judge denying an earlier motion to strike because a 1998 purchase agreement was at least proffered as a basis for fee entitlement.  The purchase agreement had a contractual fees clause which read this way: “If any legal action . . . is brought for the enforcement of this Agreement, or because of a breach, default, or misrepresentation in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees.”  After its win, plaintiff/cross-defendant moved for fees under the purchase agreement, a request denied by the trial court.

            The 4/1 DCA affirmed the fee denial.  Nothing in the two cases fell within the scope of the fee clause, with misrepresentation allegations only relating to an adverse possession claim rather than having causal connection with the 1998 purchase agreement containing the fees clause.  Plaintiff/cross-defendant argued that Civil Code section 1717 altered the result, but the appellate court reminded everyone that its reciprocity principle only applies if the fee clause could be interpreted broadly enough to encompass the claims at issue in the cases—meaning Code of Civil Procedure section 1021 (leaving the parties to strike their own bargain on fee recovery) having to be surmounted before section 1717 is considered.  Finally, plaintiff/cross-defendant claimed that the other side was estopped from denying fee entitlement based on the prayer in the cross-complaint and earlier motion to strike victory; however, this was rejected because a mere assertion of the right to fees does not operate as an estoppel where there is no true fee entitlement under the contractual clause.  (R.W.L. Enterprises v. Old Castle, Inc., 17 Cal.App.5^th 1019, 1035-1036 (2017).) 

Appealability, Costs, Deadlines: $10,800 Costs Recovery To Certain Defendants After Plaintiff Dismissed Case Without Prejudice And Refiled In Texas Was Not Erroneous

4/3 DCA Sides With The View That A Costs Award Entered After A Voluntary, Without Prejudice Dismissal Is Appealable.

            In Thomas v. St. Joseph Health System, Case No. G059408 (4^th Dist., Div. 3 Oct. 20, 2021) (unpublished), plaintiff doctor sued certain health care defendants in Orange County Superior Court for interference/unfair competition.  Certain defendants gained a tentative ruling by which a motion to quash based on lack of personal jurisdiction was going to be set for a final hearing, based on the notion that the case belonged in Texas.  (The lower court had allowed plaintiff to take jurisdictional-directed depositions in both California and Texas in order to oppose the motions to quash.)  Before that hearing could be held, plaintiff filed a voluntary, without prejudice dismissal and later refiled the case in Texas.  Defendants filed a costs memorandum, with the trial judge awarding $10,800 to defendants and denying a motion to strike/tax costs.  Plaintiff appealed.  The costs order was affirmed, in a 3-0 opinion authored by Orange County Superior Court Judge Linda Marks, sitting by assignment.

            In a footnote, the 4/3 DCA panel observed that there is a split in authority on whether a costs order entered after a voluntary dismissal without prejudice is an appealable order.  (Compare Gassner v. Stasa, 30 Cal.App.5^th 346, 351-355 (2018) [is] with Monn Chong Loong Trading Corp. v. Superior Court, 218 Cal.App.4^th 87, 92 (2013) [isn’t, but can be treated as a discretionary petition for writ of mandate].)  The panel sided with Gassner, but also indicated it would have reviewed it under the mandate petition alternative.

            Plaintiff argued that defendants filed the costs memorandum 9 days too late based on the 15-day deadline, but that failed because no notice of entry of dismissal was served such that the longer 180-day rule applied.

            Next, plaintiff contended that the pendency of the case in Texas meant that there was no prevailing party for costs purposes.  Not so, said the appellate court.  CCP § 1032(a)(4) allows costs to “a defendant in whose favor a dismissal is entered,” with a dictionary definition of “in favor of” supporting the position that defendants had prevailed notwithstanding the pendency of the Texas action.  (The analysis likely would have been different if attorney’s fees were involved, but the result was different for costs.)

            Plaintiff then suggested that defendant needed to file the customary Costs Worksheet, but the appellate court observed that the only initial required pleading is the costs memorandum itself (CRC, rule 3.1700(a)(1)), although it is a good idea to file the Worksheet.

            The amount of costs, mainly for in-state and Texas travel deposition expenses by counsel, were reasonable, with the fact that plaintiff’s counsel’s travel costs were $450 less not altering the result—costs do not have to be the lowest possible for purposes of reasonableness.  (Landwatch San Luis Obispo County v. Cambria Community Services Dist., 25 Cal.App.5^th 638, 646 (2018).)

Prevailing Party: Trial Court’s Awards Of Attorney’s Fees And Costs To Landlord Before Final Judgment Entered Did Require Reversal Of Awards

Fee/Costs Awards Before Final Judgment Entered Were Premature And Infirm.

            After a plaintiff tenant surrendered possession but before a final judgment was entered in an unlawful detainer action, a trial judge—thinking the case effectively was “over”—entered an attorney’s fees award to landlord as prevailing party in the sum of $221,849 (out of a requested $292,902.53) and a costs award to landlord to the tune of $8,317.57.  Tenant smartly appealed, because the appellate court in PhxCap II, LLC v. AG Mobile Restaurant Concepts, LLC, Case No. D078074 (4^th Dist., Div. 1 Oct. 19, 2021) (unpublished) reversed. 

            The reason was fairly elemental:  there can be no prevailing party until a final judgment has been reached.  (Jimenez v. City of Oxnard, 134 Cal.App.3d 856, 858 n. 3 (1982) [costs]; Butler-Rupp v. Lourdeaux, 154 Cal.App.4^th 918, 928 (2007) [section 1717 prevailing party can only be determined “by the final result of the litigation”].)  Beyond that, there were remaining landlord claims for damages which were hanging out there, with the “final judgment” only dealing with possession.  No final judgment, no prevailing party—too premature.