Trial Courts Possess Discretion to Raise or Lower 25% Fee Award Benchmark; Local Rules Determine Whether Awards Are Based on Gross or Net Settlement Proceeds.
The nice aspect to blogging is receiving reader questions about fee award issues in different practice areas. Recently, we received one about award of fees in minor’s compromise proceedings. That question has inspired a two-part post. Part 1, which follows, concerns the general standards governing fee awards in minor’s compromises. Part 2, which will follow on another day, explores whether the issue of reasonableness of attorney’s fees (or, for that matter, expenses by outsiders like physicians) is determined in the section 3601 proceeding or needs to be litigated in a separate action.
For now, here is Part 1 on the general standards governing fee awards in this practice area.
Under the American Rule, one usually looks for a contract or statute on which to base fee entitlement. In this area, a statute is involved. Probate Code section 3601(a) is the operative one, providing the trial court “shall make a further order authorizing and directing that reasonable expenses, medical or otherwise and including reimbursement to a parent, guardian, or conservator, costs, and attorney’s fees, as the court shall approve and allow therein, shall be paid from the money or other property to be paid or delivered for the benefit of the minor ….” California Rules of Court, rule 7.955 states that the lower court must use a reasonable fee standard in section 3601 proceedings and has discretion to approve as well as allow fees under a contingency fee agreement if the arrangement is made in accordance with law (e.g., Bus & Prof. Code sec. 6146; Fam. Code sec. 6602) and is reasonable “under all the facts and circumstances.”
However, many local superior court rules provide more quantitative and qualitative clarity to the decision making process. Many rules, for example, indicate that the lower court should in ordinary cases use as a guideline an attorney’s fees award in the amount of 25% of the net settlement amount (with “net settlement” being defined various ways, but usually meaning deduction of (1) all costs from the gross settlement amount, or (2) reimbursable medical and legal costs). According to many local rules, any award over 25% is considered extraordinary and must be supported by a strong showing of reasonableness or substantial justification. Many of the local rules indicate the lower court should consider the factors stated in Niederer v. Ferreira, 189 Cal.App.3d 1485, 1507 (1989), which include the nature of the litigation and its difficulty; the amount of money involved; the skill required and employed in handling the litigation; the attention given to the case; the attorney’s success, learning, age and experience in the particular type of work demanded; the intricacy and importance of the litigation; the labor and necessity for skilled legal training and ability in trying the case; and the amount of time spent on the case. Some rules also cite similar factors set out in 1 Witkin, Cal. Procedure, sec. 226, p. 286. See, e.g., El Dorado County Local Rule 7.10.13; Marin County Local Rule 1.11.B; former Yolo County Local Rule 8.3(d). Other local rules simply indicate reasonableness is in the trial court’s discretion, citing CRC, rule 7.955. E.g., Fresno County Local Rule 2.8.4.D. Many former rules having the 25% benchmark have been repealed.
Two unpublished cases are helpful in showing how section 3601 and local rules interact and are construed by appellate courts.
In Smart v. Andersson, 2003 WL 21977068 (2d Dist., Div. 6 Aug. 12, 2003) (unpublished), Attorney pursued a chiropractic malpractice action on behalf of a minor under a contingency agreement that adhered to the Medical Injury Compensation Reform Act (MICRA) sliding scale schedule in effect at the time (i.e., 40% of the first $50,000 of any recovery and 33 1/3% of the next $50,000). Mother accepted a $100,000 settlement on daughter’s behalf and attorney filed a petition to approve the compromise under which he sought recovery of 25% of the minor’s recovery under a former local rule which provided that such fees should not exceed 25% of the settlement amount absent unusual circumstances. The trial court only approved a 15% fee award from the gross settlement amount. The Second District, Division Six affirmed on appeal. Attorney’s principal argument was that the 25% benchmark should have been followed. This contention was rejected, with the appellate court observing: “This limitation does not mean, as [Attorney] contends, that an attorney is presumptively entitled to a 25 percent fee without a showing of good cause. Although the parties entered a contingency fee agreement providing that [Attorney] was entitled to more than 25 percent, the court was not bound by that agreement in determining the reasonable fees to be awarded.” (2003 WL 21977068 at *3.)
A challenge to a fee award under El Dorado County Local Rule 7.10.13—still in existence and fairly closely following the older rule under consideration in the decision next reviewed—was rebuffed in In re Hernandez, 2007 WL 842126 (3d Dist. Mar. 21, 2007) (unpublished). Local Rule 7.10.13 has the 25% benchmark for ordinary cases, cited Niederer as setting forth factors to use in setting a fee award, indicated the “net settlement” amount meant amount remaining after all costs are deducted from the gross settlement amount, and indicated that a separate declaration needed to be filed demonstrating facts warranting an extraordinary fee request. The local rule also reiterated that “[i]n all cases, the award of an attorney’s fees remains in the sole discretion of the Court.” Attorney argued that the lower court, which followed the local rule, should not have deducted the minor’s medical bills before calculating the 25% interest to which he was entitled. Attorney fine tuned his argument by contending the local rule was in conflict with section 3601. The Third District did not find these arguments persuasive and affirmed the fee award below. Because section 3601 only had general language, “[n]othing in this section indicates that a trial court cannot calculate attorney fees as a percentage of the net amount to be paid to the minor after deductions have been made for expenses and costs.” (2007 WL 842126 at *2.) Similarly, the appellate panel found that the local rule was consonant with governing law, because the Niederer factors were identical to the ones set out in PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1096 (2000) for determining an award of reasonable attorney’s fees. The local rule also did not mandate any particular amount; it merely indicated 25% was the benchmark in the ordinary case and that its “net settlement” definition was the general one to be used—however, it did state that the lower court possessed broad discretion in rendering the fee award, including a deviance from the benchmark and net settlement definition in the right circumstances. Attorney in Hernandez failed to file a declaration justifying a higher fee, an omission that made it easy to find no abuse of discretion with respect to the fee award under review.
However, it does appear that trial courts usually have some general “rules of thumb” that they follow, with many fee requests over 25% needing to be justified by a declaration showing the case was extraordinary or difficult in nature (using the Niederer/PLCM factors as bases for a higher fee award.)
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