CALIFORNIA ATTORNEY'S FEES

Elder Financial Abuse Attorney's Fees Award Affirmed Against Attorney With Undisclosed Conflict of Interest

Second District, Division Six Sustains Award under Welfare and Institutions Code section 15657.5.

            Welfare and Institutions Code section 15657.5(a) provides for an award of costs and reasonable attorney's fees to the prevailing plaintiff where the defendant has been found liable for financial elder abuse under section 15610.30. 

            In Wood v. Jamison, Case No. B196898 (2d Dist., Div. 6 Sept. 30, 2008) (certified for publication), an attorney representing an elderly client did not disclose his conflict of interest, resulting in financial harm to his client, institutional harm to his profession, and catastrophic harm to himself.  Specifically, attorney never disclosed that he represented an elderly wife, that he took a $4,000 referral fee in a loan that wife made to attorney's real client (a younger man who wanted to open a night a club), and that he obtained $10,000 from the night club loan to repay a prior loan attorney had made to younger man.  No conflict waivers, no conflict disclosures, and no referral of the elderly wife to independent counsel.  Elderly wife defaulted on the loan and foreclosure proceedings were commenced against wife's residence (the security for the night club loan).  Elderly wife died, and her executor sued younger man, attorney, and lender.  The trial court stayed foreclosure proceedings, and the lender parties settled by reconveying the residential property in exchange for payment of loan interest.  After a bench trial, the lower court found attorney committed malpractice, breached his fiduciary duty to elderly wife, and committed financial abuse of an elder under section 15610.30(a).  The trial court also awarded attorney's fees against attorney pursuant to section 15657.7(a).  Attorney appealed.

            He lost.

            Presiding Justice Gilbert, writing for a 3-0 panel of the Second District, Division Six, found that the evidence did support a finding of financial elder abuse.  Attorney did take an undisclosed finder's fee, and he aided and abetted younger man's scheme to take the night club loan proceeds for a speculative venture inappropriate for risk taking by elderly wife.  The attorney's fees award against attorney was affirmed, and costs on appeal were awarded as well to executor of decreased elderly wife's estate.

Condominium Owner In Commercial Office Complex Denied An Award of Attorney's Fees Against Condominium Association

Court of Appeal Affirms Denial of Fee Request under Civil Code section 1354.

            Section 1354 of the Davis-Sterling Common Interest Development Act, Civil Code section 1354(d), provides that the prevailing party shall be awarded attorney's fees in an action to enforce the governing documents (usually, CC&Rs).  Because the statute contains no definition of "prevailing party," case law establishes that courts are to analyze the issue under a flexible test focusing on "which party had prevailed on a practical level."  (See Heather Farms Homeowners Association v. Robinson, 21 Cal.App.4^th 1568, 1574 (1994); Donald v. Cafe Royale, Inc., 218 Cal.App.3d 168, 185 (1990); Elster v. Friedman, 211 Cal.App.3d 1439, 1444 (1989).)  Both the lower and appellate courts in the next case used this "practical level" test in denying a fee request to a condominium owner which had a dispute over interconnection of its unit fire alarms into the condominium association's master fire alarm system.

            Owner owned a commercial condominium in a Chula Vista 13-building project managed by a condominium association.  Owner did not obtain prior approval from the association before interconnecting its unit alarm system to the master alarm system, and did not comply with a recorded declaration provision requiring the procurement of proof of insurance and naming the association as a named insured.  Owner sued association and association's president for damages, declaratory relief, and injunctive relief.  The lower court denied a TRO to owner, requiring the parties to work the matter out through submission of alarm plans to the association.  Not much later, association approved owner's submitted plans with some conditions.  Eventually, the action was dismissed at owner's request. 

            Owner then moved for $24,813 in attorney's fees under section 1354 as the "prevailing party" in the litigation.  The lower court denied the request, stating that both parties achieved what they sought to achieve—plaintiff was able to interconnect to the master alarm system, while association did obtain oversight and made the interconnection subject to certain conditions.  Owner appealed.

            In Starboard Street, LLC v. Venture Commerce Center-Eastlake Condominium Assn., Case No. D051955 (4^th Dist., Div. 1 Sept. 30, 2008) (unpublished), the Fourth District, Division One affirmed the denial of owner's fee request.

            Using the Heather Farms pragmatic test for determining the "prevailing party," the Court of Appeal found that the lower court correctly recognized that both sides achieved relief:  owner obtained the interconnection, but association was able to approve the interconnection upon certain terms (including a proof of insurance requirement).  The appellate panel was influenced by the fact that owner had initially neither sought association approval nor obtained proof of insurance such that "[t]o allow [owner] fees under these circumstances would encourage the violation of the governing documents of common interest developments."

Governor Schwarzenegger Vetoes AB 1830, Which Targeted Mortgage Brokers

Governor Cites Unilateral Fee-Shifting Attorney’s Fees Provision As One Basis For His Veto.

            Recently, on September 25, 2008, California Governor Arnold Schwarzenegger vetoed AB 1830, pending legislation sponsored by Assemblyman Ted Lieu (Democrat—Torrance).  AB 1830 would have expanded mortgage broker regulation and contained a provision that borrowers must be awarded attorney’s fees if they are prevailing parties for violations of the proposed prohibitions in AB 1830.

            As one basis for his veto of AB 1830, Governor Schwarzenegger cited his distaste of the attorney’s fees provision of the proposed legislation.  He believed that it made mortgage brokers liable for technical violations and was not enthralled with the attorney’s fees provision that was unilateral in nature—borrowers get fees if they prevail, but mortgage brokers do not recoup them if they win. 

            For more on AB 1830 and other consumer-oriented legislation that was signed into law or vetoed, see this September 26, 2008 article from the San Francisco Chronicle which was posted on SFGate. 

            

Recent Title IX Suit Settlement Demonstrates How Fee-Shifting Statute Impacts The Structure of A Compromise

$450,000 of the Settlement Was For Reimbursement of Attorney’s Fees.

            Title IX is one of the federal fee-shifting attorney’s fees statutes that encourages litigants to confront various forms of discrimination.  It does play a role in settlements, as we next discuss in connection with a recent compromise reached between a California public school and a former swim coach.

            San Diego State former swim coach Deena Deardurff Schmidt recently gained $1.45 million in a settlement of her Title IX sexual discrimination lawsuit against the school.  The settlement broke down as follows:  (1) $317,420 lump sum payment; (2) $682,580 annuity; and (3) $450,000 for attorney’s fees, some of which were going back to the plaintiff in reimbursement of what she had apparently already paid.  This settlement shows how fees do play a part in the compromise of cases with fee-shifting statutes in play. 

            For more on the settlement as well as interesting reader splits of opinion on Title IX’s efficacy and on whether San Diego State should have litigated further, see this article. 

Trial Court Ordered To Honor Personal Injury Plaintiff’ Request For Priority Payment Of Attorney’s Fees And Costs

“Equitable Apportionment” Doctrine To Be Applied on Remand.

            We welcome personal injury practitioners to one of our first blogs in their substantive area of the law.

            In Eby v. DeJong, Case No. A118498 (1^st Dist., Div. 5 Sept. 26, 2008) (unpublished), plaintiff was driving a City pickup in the course of his duties as a municipal employee when he collided with defendant’s vehicle.  Plaintiff brought a negligence suit against defendant, with City intervening to seek reimbursement for workers’ compensation benefits of $46,783.37 paid out to plaintiff.  City then assigned its lien rights to defendant as part of a settlement between these two parties only.  A jury later awarded plaintiff a net judgment (after apportioning negligence) of $27,182.40 against defendant.  Defendant, as City’s assignee, filed a motion to offset the lien against the judgment.  Plaintiff opposed the motion on the basis he was entitled to priority payment of his reasonable litigation expenses and attorney’s fees under Labor Code section 3856(b), which incorporates the doctrine of equitable apportionment.  (BLOG NOTE--When an employer benefits from a judgment obtained through the employee’s efforts alone, the trial court must apportion reasonable fees and expenses incurred in effecting the recovery, which is a priority payout from the recovery—before offsetting for employer lien rights.  See, e.g., Quinn v. State of California, 15 Cal.3d 162, 166, 169-173 (1975).  However, if the separate attorneys of the employee and employer are both active in producing the result, the apportionment doctrine does not apply and the fees come out of the client’s share of the recovery. See Crampton v. Takegoshi, 17 Cal.App.4^th 308, 318 (1993), overruled on other grounds in Phelps v. Stostad, 16 Cal.4^th 23, 34 (1997).)  The trial court granted defendant’s lien offset request and denied plaintiff’s claim for priority payment of fees and expenses. 

            Plaintiff appealed these adverse determinations, and obtained a reversal upon review.

            Judge Reardon, sitting by assignment from the Alameda County Superior Court and authoring a 3-0 decision, determined the focal factual issue was whether City’s counsel played an active role in obtaining the judgment in plaintiff’s favor.  Even under the deferential substantial evidence review standard, the appellate court could find no evidence of active participation by City’s counsel in the litigation.  It rejected these proffers as bases for finding active participation:

·        A conclusory assertion that does not demonstrate anything more than a “tag along,” failing to describe the employer’s attorney’s services and hours expended (Hartwig v. Zacky Farms, 2 Cal.App.4^th 1550, 1556-1557 (1992));

·        Actively participating in the case, but failing to actively participate so as to help procure a recovery (Luque v. Herrera, 81 Cal.App.4^th 558, 562 (2000));

·        Merely retaining separate counsel or filing a complaint in intervention or a lien (Hartwig, supra, 2 Cal.App.4^th at 1556);

·        Token attendance at a deposition in which only a few questions were asked (Kindt v. Otis Elevator Co., 32 Cal.App.4^th 452, 459-460 (1995));

·        Plaintiff’s failure to obtain a net recovery in light of the fact that the employer still obtains a benefit from the judgment (Draper v. Aceto, 26 Cal.4^th 1086, 1088-1089, 1094-1095 (2001)); or

·        The rules applicable to noticed motions for attorney’s fees under California Rules of Court, rule 3.1702, are applicable to the allocation of judgment proceeds between a workers’ compensation lien and fees/costs incurred by an employee plaintiff in producing a result that benefits the employer. 

The case was remanded for the lower court to apply the equitable apportionment doctrine and requiring the determined sum to be paid out first from the judgment.

Court of Appeal Affirms Award Of About $57,500 To Trial Attorney Suing Former Client For Successful Trial Efforts

Six-Plus Hours During Trial Not Deemed Unreasonable For Litigation Attorney's Efforts.

            Client retained a trial litigation Attorney less than two months before a trial in which she claimed ownership to an Oakland condominium even though her relatives paid significant mortgage expenses and loan interest costs on the condominium.  Attorney hit the ball out of the park during an 8-day jury trial, receiving a direct verdict by which Former Client gained possession of a $450,000 property and did not have to reimburse relatives during their years of occupancy.  Attorney submitted billings for what even Former Client conceded was a "good result."  Even though Former Client had previously paid $18,000, she balked at paying the remainder of $50,000 owed to Attorney for trial activities.  Attorney sued Former Client under the written retainer agreement between the two.  After a bench trial, Attorney recouped a fee judgment of $57,562.87 (the remainder plus prejudgment interest). 

            Appleton v. Tu, Case No. A118006 (1^st Dist., Div. 4 Sept. 26, 2008) (unpublished) dealt with Former Client's appeal of the fee judgment in favor of Attorney.  Former Client did not prevail, because the Court of Appeal affirmed. 

            The fees claimed by Attorney were not exorbitant.  Former Client was horrified that a trial litigator could bill more than six hours per day to the Client's case.  Get real, was the appellate panel's response.  Here are bullet points for litigators to savor:

·       "Six of the eight trial days exceed 12 hours, which is not surprising.  Contrary to [Former Client's] supposition, long hours are not unusual for an attorney, especially one trying a case."

·       Responding to Former Client's contention that Attorney could not have worked six hours out of a seven hour day—"The central flaw in this logic is that there are not seven hours in a work day for trial attorneys, who routinely work into the night on behalf of their clients."

            The bloggers, who are both trial litigators, would like to thank Justice Sepulveda (and the First District, Division Four panel endorsing Appleton) for its recognition that trial days well exceed 6-7 hours per day—in fact, we can attest that they sometimes double or treble these amounts depending on the nature of the case.  (However, 7 hour days during trial are not the norm, but the base minimum in our experience.) 

Trial Court Improperly Struck Attorney’s Fees Prayer Where Complaint Demonstrated That Plaintiff Was The Catalyst For A Municipal Change In Position.

Complaint Resulting In Governmental Changes Suggested Basis for Fee Award Under CCP section 1021.5.

            In our May 21, 2008 post, we explored Camenisch v. Superior Court, 44 Cal.App.4^th 1689, 1698 (1996), which cautions against striking attorney’s fees prayer requests at the pleading stage unless a full opportunity for discovery has occurred.  A recent First District, Division Two unpublished decision also follows this logic in reversing a trial court’s striking of a request where a plaintiff’s tax refund lawsuit had already resulted in a change of position by the City of Rohnert Park.

            Stutrud v. City of Rohnert Park, Case No. A118408 (1^st Dist., Div. 2 Sept. 25, 2008) (unpublished) involved a tax refund lawsuit where the trial court struck a prayer for attorney’s fees without any explanation.  The Court of Appeal reversed that determination as involving an issue that may not be resolved at the pleading stage.  Rather, plaintiff’s lawsuit forced the City to accept that the sewer fees were subject to Proposition 218 and to reenact the fees following the procedures established by Proposition 218.  City even admitted that the need for passage of a new ordinance was due to plaintiff’s victory in a prior appeal.  Citing Tipton-Whittingham v. City of Los Angeles, 34 Cal.4^th 604 (2004) and Graham v. DaimlerChrysler Corp., 34 Cal.4^th 553 (2004), the appellate panel reasoned:  “Compelling a recalcitrant municipality to comply with a constitutional provision cannot be dismissed as a negligible benefit to the citizens of Rohnert Park.  Thus, it is hardly an outlandish notion to believe that [plaintiff’s] lawsuit was the catalyst for the City’s change of position and that he may be entitled to fees for his past efforts.”  The predicate, of course, would be Code of Civil Procedure section 1021.5, the private attorney general statute authorizing an award of fees to a successful party enforcing “an important right affecting the public interest.”

            This case cautions that attorney’s fees prayer “strikes” should not be done lightly, especially where the record shows a very plausible basis for fee entitlement. 

Shareholders Denied Award Of Attorney’s Fees In Derivative Action Because Results Only Personally Benefited the Shareholders

Third District Find That Common Fund/Substantial Benefit Doctrines Were Inapplicable.

            Under the equitable “common fund” or “substantial benefit” doctrines, a shareholder who successfully pursues a derivative action that establishes a common fund or a substantial benefit to the corporation may look to the corporation to reimburse the shareholder for the costs of the litigation benefiting the corporation.  (See, e.g., Cziraki v. Thunder Cats, Inc., 111 Cal.App.4^th 552, 557-558 (2003).)  These principles were explored in the unpublished decision we next examine.

            In Wood v. Hock, Case No. C055122 (3d Dist. Sept. 24, 2008) (unpublished), the trial court denied attorney’s fees to two minority shareholders who successfully established that the president of a closely held development company breached his fiduciary duties to the plaintiffs by usurping for himself a land acquisition/development opportunity and certain construction management work.  The lower court reasoned that the lawsuit resulted entirely in personal benefit to the minority shareholders rather than in derivative benefit to the closely held corporation.

            That determination was affirmed on appeal, in a 3-0 Third District decision authored by Justice Davis.

            In affirming, the Court of Appeal examined the facts of Baker v. Pratt, 176 Cal.App.3d 370, 376-379 (1986), where one shareholder’s successful result against the co-shareholder only furthered the suing shareholder’s interests, and contrasted it against Cziraki, supra, 111 Cal.App.4^th at 554-555, 560-561, 565, where a patent manufacturer-shareholder successfully sued two exploitative shareholders so as to garner acquisition of the patents and royalties that would be split between all three shareholders.  Justice Davis found that “[t]he facts before us fall on the Baker side of the ledger,” given that the outcome benefited the personal adverse interests of the winning minority shareholders.  (Slip Opn., at p. 10.)  Thus, the common fund and substantial benefit equitable doctrines were not triggered, and the fee denial was correct.  (Accord, Avikian v. WTC Financial Corp., 98 Cal.App.4^th 1108, 1118 (2002) [“Baker makes clear that if corporate shareholders are seeking to advance their individual interests, rather than the interests of the corporation generally, no [attorney’s] fees should be awarded on a common fund or substantial benefit theory”].) 

Social Security Claimants: Ninth Circuit Clarifies Post-Gisbrecht Methodology For Determining Attorney’s Fees Awards

Federal Court of Appeals Splits 2-1 on Factor Weighing Discretion Given to District Judges.

            In Gisbrecht v.Barnhart, 535 U.S. 789, 807-809 (2002), the United States Supreme Court set forth a new methodology for determining attorney’s fees in social security cases.  Under 42 U.S.C. section 406(b)(1)(A), a court rendering a judgment favorable to an attorney-represented social security claimant may allow a reasonable fee not exceeding 25% of the total past-due benefits to which the claimant is entitled, which will be paid out of the past-due benefit judgment.  Gisbrecht reversed a Ninth Circuit opinion adopting a lodestar calculation for attorney’s fees, expressing the belief that section 406(b) did not displace the normal 25% contingency fee arrangement as the standard bearer for fee recovery.  Carefully, however, Gisbrecht did indicate that district courts have considerable discretion to award fees under contingency arrangements, testing reasonableness of fees based on (1) the character of the representation; (2) the results achieved; (3) attorney fault for delay; (4) amount of benefit award compared to the amount of time spent on the case; and (5) hours spent on the representation and the lawyer’s normal hourly billing charge.  (535 U.S. at 808.)  Because the Supreme Court left a substantial leeway to the discretion of the district judge, the next Ninth Circuit case is one of the first published decisions to discuss fee awards in the wake of Gisbrecht.

            Crawford/Washington/Trejo v. Astrue, Case Nos. 06-55822, 06-55954, & 06-56284 (9^th Cir. Sept. 25, 2008) is must reading for social security claimant attorneys as far as seeking fee recovery after Gisbrecht.  The opinion was a 2-1 decision, with a poignant dissent by Circuit Judge Fletcher.

            In this Ninth Circuit opinion, the majority found that the district judges did give primacy to the contingent fee arrangements, but decided that adjustments needed to be made so that the fee was reasonable.  Adjustments were based on such factors as a readily admitted benefit award, failure to provide evidence on the riskiness of the representation, the relative non-complexity of the matter, and the excessiveness of the requested enhancements (e.g., 82%, 256%, or 279%).  The district courts, instead, awarded enhancements of 40%, 40%, and 100%, respectively to the parenthetical requested percentages.  The majority did not believe Gisbrecht prohibited lodestar calculations and adjustments, but did preclude district judges from exclusively relying on lodestar calculations and refusing to consider contingency-fee arrangements with social security claimants.  (Slip Opn., at p. 13702.)  The majority did not believe that Gisbrecht mandated a mechanistic procedure based on using the contingency fee arrangement as the baseline for any future reductions.  (Id., at pp. 13702-13703.)  The majority wanted to leave a wide ambit of discretion available to the district judges in this substantive area of the law.

            Circuit Judge Fletcher, in dissent, believed the district judges and majority circuit judges did not respect the primacy of the contingency fee arrangements as far as awarding fees under Gisbrecht.  She calculated that the attorneys received 53.5% to 73.3% less than the contingency contracts provided when compared to the actual fee awards.  Circuit Judge Fletcher opined that the majority was resurrecting a lodestar calculation test that was previously adopted by the Ninth Circuit in Gisbrecht—but reversed subsequently by the Supreme Court. 

            

Trial Court Retains Jurisdiction To Award Attorney's Fees to Prevailing Defendant After Granting A Motion To Quash Based Upon Lack of Personal Jurisdiction

Sixth District Affirms Grant of $34,492 in Attorney's Fees.

            Our first post was on May 11, 2008, surveying Profit Concepts Mgt., Inc. v. Griffith, 162 Cal.App.4^th 950, 955-956 (2008).  In that case, Justice Fybel of our local Santa Ana-based Court of Appeal affirmed an award of attorney's fees to a defendant who successfully moved to quash service for lack of personal jurisdiction.  Now, we can report that the Sixth District backed that result, squarely deciding that the trial court has jurisdiction to award fees in such a situation.

            In Shisler v. Sanfer Sports Cars. Inc., Case No. H032027 (6^th Dist. Sept. 25, 2008) (certified for publication) (Shisler II), the Sixth District held that a trial court still has power to rule upon a collateral motion for attorney's fees after granting a motion to quash for lack of personal jurisdiction.  The Sixth District did note that the same result was reached in Profit Concepts, even though the jurisdictional issue was not explicitly considered.  The appellate panel found support in Frank Annino & Sons Constr., Inc. v. McArthur Restaurant, Inc., 215 Cal.App.3d 353, 357 (1989) and Berard Construction Co. v. Municipal Court, 49 Cal.App.3d 710, 715-716 (1975), even though distinguishing Berard in one major respect—a distinction of Berard also noted previously by Justice Fybel in Profit Concepts.

            With the jurisdictional issue resolved, the appeal centered upon whether there was a statutory basis for awarding fees to defendant.  There were two potential bases:  California's Consumer Legal Remedies Act (CLRA), Civ. Code, § 1750 et seq., or the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Fla. Stat. § 501.201.  Here is how those inquiries panned out:

·       CLRA – No.  Civil Code section 1780(d) only allows a fees award to a prevailing defendant upon a showing of subjective bad faith (Corbett v. Hayward Dodge, Inc., 119 Cal.App.4^th 915, 924 (2004)), which was precluded because the trial court found there was no subjective bad faith.  (BLOG CROSS-OVER—We previously explored a similar result reached by Justice Ikola, on behalf of the Fourth District, Division Three, in the unpublished decision of Olson v. Irvine Imports, discussed in our September 25, 2008 post.)

·       FDUTPA – Yes.  Because the motion to quash ruling was tantamount to a final judgment and the appellate process had been exhausted by plaintiff in unsuccessfully challenging the result in Shisler I, the Florida fee-shifting provision in FDUTPA was sufficiently broad to allow defendant entitlement to fees.  Because plaintiff's lawsuit indicated that Florida law governed, the FDUTPA provisions were substantive in nature so as to be a predicate for a fee award. (Cf.  Miller v. Union Pac. R.R. Co., 147 Cal.App.4^th 451, 458 (2007).) 

So, in the end, defendant's fee award was affirmed. 

Successful Plaintiff Who Protects, Preserves Or Increases A Fund In A Probate Proceeding May Be Entitled To Compensation Under Equitable “Common Fund” Principles

First District, Division One Discusses This Equitable Doctrine.

            In our September 16, 2008 post, we discussed Estate of Daley, which summarized the normal compensation principles applicable in probate proceedings.  Usually, the court awards compensation as either “ordinary” or “extraordinary” in categorical nature.  “Extraordinary compensation” includes attorney’s fees that the probate court, in its discretion, may award to the personal representative and his/her attorney to compensate unusual activities.  (Prob. Code, secs. 10801, 10811; Estate of Hilton, 44 Cal.App.4^th 890, 895 (1996).)  However, the First District, Division One, in the unpublished decision of Estate of Morra, Case No. A119574 (1^st Dist., Div. 1 Sept. 24, 2008) (unpublished), reminds us that there are equitable doctrines that do allow persons other than personal representatives or their attorneys to obtain compensation for legal services.

            Morra involved a situation where a son filed a probate petition of his father Louis’s estate after his stepmother Bobbye claimed control over the universe of the couple’s community assets.  Both the probate and appellate courts rejected Bobbye’s claim and ordered the estate to be funded with Louis’s 50% share of community assets.  However, the probate court declined to reimburse son for any attorney’s fees incurred in pursuing his successful probate petition.  He appealed, and enter the appellate court to pass upon this fee denial.

            Justice Margulies, writing on behalf of a 3-0 panel of the 1/1 DCA, reversed the fee denial to son.

            After noting the ordinary “extraordinary compensation” rules which usually operate, the appellate panel highlighted an equitable exception (or add-on, depending on your perspective).  Where a probate plaintiff succeeds in protecting, preserving or increasing a fund for the benefit of himself or others, compensation may be awarded from the fund pursuant to the equitable “common fund” doctrine.  (See Estate of Reade, 31 Cal.2d 669, 671-672 (1948); accord, Estate of Stauffer, 53 Cal.2d 124, 131-132 (1959); Hutchinson v. Gertsch, 97 Cal.App.3d 605, 614-615 (1979); Estate of Gopcevic, 228 Cal.App.2d 280, 281 (1964).) 

            Applied to the facts before it, one could make the argument that Louis’s estate was funded solely as a result of the efforts of son John, who filed a probate petition and prevailed over Bobbye’s argument that all of Louis’s assets were subject to distribution under her new living trust.  As Justice Margulies succinctly summarized:  “Had John Morra taken no action, Bobbye’s position would have left Louis’s estate bare.  On its face, this appears to be an appropriate situation for application of the common fund doctrine.”  (Slip Opn., at p. 9.) 

            Because the probate court failed to consider the impact of the “common fund” doctrine, the fee denial was reversed and remanded for reconsideration.  (BLOG OBSERVATION—Given the language used by the appellate panel, we would be surprised if son John does not obtain a recovery of fees upon remand.)

            

            

Consumer Legal Remedies Act Is Generally Non-Reciprocal In Nature

Fourth District, Division Three Affirms Denial of Fee Award Where Trial Court Found No Bad Faith on the Part of Losing Plaintiff; Automobile Sales Finance Act Did Not Provide Basis For Fee Award Either.

            Certain truisms abound in the California attorney’s fees area.  Each side bears their own respective costs (including attorney’s fees) in the absence of a contract of statute dictating otherwise.  The primary contractual fee authorization section, Civil Code section 1717, is imbued with mutuality—except in rare instances, one-sided attorney’s fees clauses are interpreted as reciprocal in nature.  However, that same mutuality result does not necessarily occur with respect to statutory fee-shifting statutes.  That depends on the legislative wording of the particular issue at stake.  The next case illustrates the non-reciprocal nature of the fee-shifting provision of the Consumer Legal Remedies Act (CLRA), Civil Code section 1750 et seq.

            In Olson v. Irvine Imports, Inc., Case No. G039692 (4^th Dist., Div. 3 Sept. 24, 2008) (unpublished), plaintiff sued for CLRA violations.  Defendants prevailed after a jury trial and moved to recover attorney’s fees.  Under the CLRA, the fee-shifting provision is non-reciprocal by only awarding fees to prevailing defendants unless the plaintiff brought the CLRA claim in subjective bad faith.  Otherwise, the fee-shifting provision is mandatory, albeit in plaintiff’s favor.  (Civ. Code, sec. 1780(d); Corbett v. Hayward Dodge, Inc., 119 Cal.App.4^th 915, 924, 926 (2004).)  The trial court denied the fee request, observing “there was really no bad faith with regard to bringing this action….I think it was a great case, both sides did a great job.”  Defendants appealed the fee denial.

            Justice Ikola, writing for a 3-0 panel of the Fourth District, Division Three, affirmed.  Aside from not providing an adequate record to demonstrate an abuse of discretion in the ruling, defendants did not dispute that the plaintiff’s complaint survived summary judgment and that the jury vote was 9-3 for the defense.  This demonstrated that plaintiff’s claims had “at least some merit.” 

            Defendants then argued that fee recovery should have been allowed under the Automobile Sales Finance Act (ASFA), Civil Code section 2981 et seq.  ASFA awards attorney’s fees to the prevailing party in any action on a contract subject to ASFA, if the prevailing party actually prevailed on an ASFA claim.  (Civ. Code, sec. 2983.4; Brown v. West Covina Toyota, 26 Cal.App.4^th 555, 566 (1994).)  This contention failed because (a) the complaint contained no ASFA claim; (b) ASFA does not allow for fee recoupment simply because an automobile sales contract was part of the backdrop of an action; and (b) the defense construction of ASFA “would nullify the CLRA’s non-reciprocal attorney fee provision whenever a plaintiff alleges a business misrepresented the terms of an automobile sales contract.  Consumers buying cars would receive less protection under the CLRA than consumers buying other goods.  Defendants offer no persuasive authority the Legislature countenanced this absurd result.”  (Slip Opn., at p. 5.) 

            Beyond that, Justice Ikola cited authorities indicating that non-reciprocal fee shifting statutes usually prohibit an attorney’s fees award to the defense for successfully defending the statutory claim and non-statutory claims that overlap—with any other result superimposing a judicially declared principle of reciprocity on a non-reciprocal fee-shifting statute.  (See Carver v. Chevron U.S.A., Inc., 119 Cal.App.4^th 498, 504 (2004); Wood v. Santa Monica Escrow Co., 151 Cal.App.4^th 1186, 1191 (2007).)  Furthermore, the defense never demonstrated that any of the requested fees were solely allocable to non-CLRA claims, and the nature of the case showed that all claims seemed to “overlap” the CLRA cause of action. 

In Olson, plaintiff lost the merits battle, but did not suffer fee exposure based on the non-reciprocal operation of the CLRA fee-shifting statute. 

Attorney’s Fees Are Not Recoverable Under Contract Which Has Been Held Inadmissible Under Mediation Confidentiality Statutory Provisions

Second District So Holds in Published Decision Relating to an Inadmissible Settlement Agreement: Civil Code section 1717 Does Not Trump the Mediation Privilege.

            As framed by the Second District, Division Four, the attorney’s fees portion of the case involved a question of first impression—whether attorney’s fees are recoverable under Civil Code section 1717 where the contract providing for such fees had been excluded as inadmissible under division 9, chapter 2 of the Evidence Code, section 1115 et seq.  Hope we have you hooked, because the answer will be provided shortly (although our titles unfortunately give the end result away).

            The pertinent factual scenario pans out this way.  Widow brought a breach of contract action against the executor of her deceased husband’s estate, premised on the theory that a binding written settlement agreement had been reached at a mediation to resolve a prior conservatorship matter while her husband was still alive.  The fly in the ointment was that while husband, wife (widow to be), and two of husband’s three children by a prior marriage did sign a settlement agreement at one of the mediation sessions, husband’s son (the third child) never did.  (Under the settlement agreement, wife was to get one-third of husband’s assets—over $2.1 million--rather than specific requests contained in a preexisting will and living trust.) Prior to the purported settlement agreement, husband executed updated estate planning documents, by which wife was left husband’s liquor store business, the right to operate the business rent free for two years, and up to $100,000 to pay off the mortgage on her personal residence.  However, husband left the remainder of his estate to the children, split equally on a one third basis.  No wonder wife was miffed and pursued her breach of contract action.

            The contract action went to a bench trial, with the trial court finding that no settlement agreement had been reached at the mediation in the absence of assent from the recalcitrant son.  The trial judge rejected (by this time) widow’s testimony that husband had agreed to be separately bound unless everyone consented to the settlement.  The lower court concluded there was no binding agreement, the term of the document waiving mediation confidentiality never took effect, and the document was inadmissible in evidence.  Winning executor was awarded costs, but denied attorney’s fees.  He appealed the fee denial—and lost.

            In Rael v. Davis, Case Nos. B197971 & 200217 (2d Dist., Div. 4 Sept. 24, 2008) (certified for publication), Justice Manella—writing for a 3-0 panel of the Second District, Division Four—resolved the first impression issue against executor, affirming the fee denial decision by the lower court.

            Executor’s main contention was that because widow would have been entitled to attorney’s fees under her mediation agreement had she prevailed, executor had to be afforded reciprocal rights under Civil Code section 1717’s mutuality principle. 

            Wrong, said the appellate panel, under these circumstances.  In this situation, the mediation agreement was not simply unenforceable—it was inadmissible (a liminal consideration to enforceability) because recalcitrant son never signed it or waived the confidentiality dictate so that it could become admissible.  As elegantly put by Justice Manella, “[Evidence Code] section 1123 contains no admissibility exception to permit the application of Civil Code section 1717.”  (Slip Opn., at p. 17.)  Even if the result seems unfair under mutuality principles, the Legislature is the one to shape those exceptions.  (See Foxgate Homeowners’ Assn. v. Bramalea California, Inc., 26 Cal.4^th 1, 17 n. 13 (2001).)  Executor lost his bid to obtain an award of fees against widow, and the appellate panel provided an interesting decision pitting Civil Code section 1717 against mediation confidentiality provisions.   Section 1717 lost this round of the confrontation. 

            

            

Second Sentence Of Civil Code Section 1717(a) Precludes Restricted Application Of Mutuality Principle Unless Parties Recite That Counsel Was Involved In Negotiation and Execution Of The Contract

Second District, Division Eight Reverses Lower Court Determination Denying Fee Based on Limited Scope of Fees Clause.

            In enacting Civil Code section 1717, the Legislature made it abundantly clear that mutuality principles are to govern interpretation of attorney’s fees clauses such that unilaterally worded provisions are construed as reciprocal in nature.  Civ. Code, sec. 1717(a).  The broadness of this policy was also confirmed by the second sentence of section 1717(a), which provides that an attorney’s fees clause “shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.”  This second sentence was directly at issue and resulted in a reversal of a lower court decision to deny fees to a prevailing party in Hile v. Clippinger Chevrolet, Case No. B196615 (2d Dist., Div. 8 Sept. 23, 2008) (unpublished).

            Hile involved a towing business operator who purchased a new model truck that failed to properly tow automobiles.  Repairs and modifications did not cure the problems, with plaintiff suing the truck seller for breach of contract and revocation of acceptance, praying for an award of “attorney fees pursuant to the contract or statute as appropriate.”  After determining that the plaintiff was entitled to rescind the contract, the lower court summarily denied plaintiff’s request for a fee award. Plaintiff appealed that denial, and the Second District, Division Eight, in a prior opinion, reversed and remanded to the lower court for purposes of holding a hearing on the fees issue.  On remand, the trial court yet again denied the fee motion, ruling that the contract allowed fees only in connection with limited types of breaches, none of which was involved in the case.  Plaintiff appealed the fee denial a second time.

            The Second District, Division Eight initially observed that the review was de novo because it involved a matter of contractual interpretation and application of section 1717.  (Carver v. Chevron U.S.A., Inc., 97 Cal.App.4^th 132, 142 (2002).)

            Presiding Justice Cooper, writing for a 3-0 panel, also agreed with the trial court that the fees clause in the contract between plaintiff and defendant was limited, only covering breaches such as failing to pay, moving the truck out of the country, transferring it without written permission, and misusing it.  The language of the fee clause did not extend to product nonconformity.

            However, that was hardly the end of the matter.  The second sentence of section 1717(a) prevented upholding the result reached by the lower court.

            That sentence was intended to preclude the type of restricted application of fee clauses that occurred below, unless there was compliance with its strict dictates (counsel involvement and recital of same in the contract)--something absent in the case before the appellate panel.  Justice Cooper stated that this second sentence of section 1717(a) was enacted to abrogate a case upholding a one-sided fee clause, namely, Sciarotta v. Teaford Custom Remodeling, Inc., 110 Cal.App.3d 444, 446 (1980).  Accord, Harbor View Hills Community Assn. v. Torley, 5 Cal.App.4^th 343, 348-349 (1992); Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4^th 949. 970 (1993); see also Paul v. Schoellkopf, 128 Cal.App.4^th 145 (2005) [discussing the abrogation of Sciarotta].

            The end result was that plaintiff was deemed the prevailing party and the cause was remanded to award reasonable attorney’s fees to plaintiff, with the fees to cover its wins at both the trial and appellate levels.

            

Arbitration Provision In Fee Retainer Agreement Enforced According To Its Terms

Second District, Division Two Finds Arbitrator Did Not Exceed His Power In Awarding Substantial Fee Award In Favor of Law Firm and Against Former Client.

            Former Client in 1999 signed a fee retainer agreement, both individually and on behalf of two affiliates, in which arbitration was the dispute resolution remedy.  The clause provided that "any dispute concerning [Law Firm's] representation, including disputes regarding the amount of fees or quality of [Law Firm's] services .. shall be determined by binding arbitration" and that the arbitrator had "discretion to order that the costs of arbitration, including fees, other costs and reasonable attorneys' fees, shall be borne by the losing party."

            Client got way behind, but reached a catch-up arrangement in January 2004.  However, the 1999 fee retainer agreement was never rescinded, and Law Firm continued to do more work.  By the end of 2004, Client was delinquent to the tune of $3 million.  Law Firm initiated arbitration, and Former Client never objected to the arbitrator's jurisdiction.  The arbitrator eventually awarded Law Firm $3,171,456.80, plus interest, based on the 1999 fee retainer agreement.  Later, Law Firm sought a further award of attorney's fees and costs, which was granted in mid 2007—swelling the final award to $5,044,762.80.  The award was confirmed as a judgment, and Former Client appealed. 

            Law Firm's fee judgment was affirmed in Howrey LLP v. Casden, Case No. B202839 (2d Dist., Div. 2 Sept. 22, 2008) (unpublished).  Nothing demonstrated that the arbitrator exceeded the authority granted him under a  plain construction of the fee retainer arbitration clause.  The 1999 fee agreement was still in force, and the arbitrator was well within his rights to conclude that the catch-up arrangement did not extinguish the earlier fee retainer.  Because Moncharsh v. Heily & Blase, 3 Cal.4^th 1, 11 (1992) generally immunizes the merits of an arbitral award from judicial review, the appellate court did not even need to address Former Client's redux of defenses he lost at the arbitration.

            

Mobile Homeowners Awarded $350,000 Attorney's Fees Under The San Rafael Mobilehome Rent Stabilization Ordinance

Court of Appeal Also Determines that Settlement Ambiguity Allows Homeowners An Opportunity to Seek More Fees for Sustaining Result on Appeal.

            A mobilehome park owner increased rent to homeowners in the mobilehome park to recoup the costs of capital expenditures.  Following an arbitration, settlement, and lawsuit alleging noncompliance with the arbitration award, an ultimate settlement was reached by which both sides agreed to a $3.72 monthly increase for 20 years (as opposed to a park owner assessment of $18.37 or $7.50 per month, as originally promulgated at different points in time).  As part of the settlement, each side could apply to the trial court for an award of attorney's fees (which applications could be contested), even though homeowners agreed that their counsel "shall not seek to recover more than $375,000 in attorneys' fees and costs, and any such fee application or recovery by Plaintiffs' Counsel shall be limited to those fees that Plaintiffs' Counsel incurred in connection with the Action up through the Court's December 18, 2001 Order, as well as any subsequent appeals from that December 18, 2001 Order."  Park owner was denied a fees award, while the trial court awarded $346,749 to homeowners (pursuant to the settlement cap, even though their counsel expended $1.3 million to gain the lower monthly increase). 

            Park owner appealed, mounting numerous challenges.  Park owner lost.

            In Contempo Marin Homeowners Assn. v. Manufactured Home Communities, Case No. A117394 (1^st Dist., Div. 5 Sept. 19, 2008) (unpublished), the Court of Appeal affirmed the homeowners' fee award on these grounds:

·       There was fee entitlement to homeowners under San Rafael Mobilehome Rent Stabilization Ordinance section 20.16.040, which provides that a court shall award reasonable attorney's fees and costs to the prevailing party in its discretion.  Even though "prevailing party" was not defined, the pragmatic inquiry of who achieved their objectives should be utilized (borrowing from private attorney general statute case law).  See Heather Farms Homeowners Assn. v. Robinson, 21 Cal.App.4^th 1568, 1574 (1994); Winick Corp. v. Safeco Ins. Co., 187 Cal.App.3d 1502, 1507-1508 (1986).  Although the Ordinance was not mentioned as a basis for fee entitlement until later on in the fee proceeding paperwork, it was raised and argued.  Because the enforcement of a prior settlement agreement was akin to enforcing the maximum lawful rent chargeable under the Ordinance, homeowners were successful in their quest to keep the monthly charges low in nature.  Cf.  Berti v. Santa Barbara Beach Properties, 145 Cal.App.4^th 70, 72 (2006); Gilbert v. Monsanto Co., 216 F.3d 695, 698, 702-703 (8^th Cir. 2000) [enforcement of settlements vindicated important statutory directives so as to justify a fee award].

·       Plaintiff's partial success was a factor to be considered in determining the amount of a fee award, not the party's entitlement to the fees.  See Lyons v. Chinese Hospital Assn., 136 Cal.App.4^th 1331, 1345-1346 (2006).

·       Even though a later federal decision had declared the Ordinance invalid, park owner had waived it by not raising the issue until oral argument of the appeal.  Beyond that, homeowners did prevail in the earlier state court action under the Ordinance; that park owner prevailed in the federal action later did not dilute homeowners' entitlement to fees in the state action.  (However, the Court of Appeal did cite a Washington case for the proposition that a defendant who successfully defends an action by demonstrating unconstitutionality may recover fees as the prevailing party under a fee-shifting statute.  See Mt. Hood Beverage Co. v. Constellation Brands, Inc., 149 Wash.2d 98, 120-122 (2003).)

Even better for homeowners, the appellate panel found that homeowners could recover fees for winning on appeal.  Park owner countered in the negative, arguing that the prior settlement agreement capped recovery at $375,000 and was limited fee recovery only to the initial fee application rather than fees on appeal.  Although ambiguities are usually construed against the drafter, this rule did not apply because the parties had a "joint drafting/no ambiguities charged to either side" clause that was honored by the Court.  (Slip Opn., at p. 39.)  Because parol evidence is admissible to resolve contractual ambiguities even with respect to an integrated contract, Casa Herrera, Inc. v. Beydoun, 32 Cal.4^th 336, 343 (2004), the appellate panel found that the "cap" language was susceptible of conflicting interpretations and should be interpreted in favor of the normal rule that a prevailing fee proponent also obtains appellate costs for winning upon review.  That meant the settlement agreement did not bar homeowners from requesting more fees for successfully litigating the appeal of the fee award.

Referral Agreements: Suing Attorney Cannot Sue Client For Noncontractual Recovery

Fourth District, Division Three Affirms Determination on First Impression Issue.

            In our category “Cases:  Referral Agreements,” we have surveyed past cases on requirements governing enforcement of referral agreements by which attorneys agree to fee sharing agreements in the prosecution of a case on behalf of a client.  One of the most conspicuous requirements is that the client must consent in writing to the referral agreement between attorneys; if not, an attorney cannot enforce the contractual agreement against either the client or other attorney.  (Chambers v. Kay, 29 Cal.4^th 142, 156, 159 (2002), relying on rule 2-200 of the Rules of Professional Conduct of the State Bar.) 

            However, the harshness of this requirement was ameliorated somewhat in Huskinson & Brown v. Wolf, 32 Cal.4^th 453, 458-459 (2004).  There, our state supreme court decided that rule 2-200 did not prevent an aggrieved attorney from obtaining quantum meruit recovery against the other attorney failing to honor the referral agreement. 

            This brings us to the first impression issue faced by our local Santa Ana Court of Appeal:  can the aggrieved attorney seek quantum merit recovery for rendered services against the client?  Answer:  No.

            Presiding Justice Sills, the author on behalf of a 3-0 panel, found that quantum meruit recovery should not be allowed in this context because the financial arrangement for the suing attorney was with the attorney failing to honor the referral arrangement, not the client.  Because rule 2-200 was adopted for protection of the client, “[i]t makes no sense to allow an attorney whose only connection to the client is through an unenforceable fee-sharing agreement to recovery fees directly from that client.  [Suing attorney’s] recourse is against [the attorney failing to honor the referral arrangement].” 

(As an aside, suing attorney’s case against the other attorney was still ongoing, because the appeal only focused on the trial court’s sustaining of a demurrer without leave as to the claims against client.  Suing attorney alleged that she was entitled to at least $75,000 for her work.)

            The case is Strong v. Beydoun, Case No. G039758 (4^th Dist., Div. 3 Sept. 19, 2008) (certified for publication). 

                                                                                                               

FEHA Prevailing Plaintiff, Who Prevailed On One Out of Three Claims, Awarded Substantial Attorney’s Fees

Second District, Division One Sustains Fee Award Based on Plaintiff’s Success in a Jury Trial. 

            In our August 10, 2008 post, we discussed the unpublished decision of Naidu v. Cal. Pub. Util. Comm’n.  That case relied extensively on Cummings v. Benco Building Services, 11 Cal.App.4^th 1383, 1387 (1992), which held that attorney’s fees should normally be awarded in favor of a prevailing plaintiff under California’s Fair Employment Housing Act (FEHA) fee-shifting provision (Government Code section 12965(b) “unless special circumstances would render such an award unjust.”  Cummings was followed recently by the Court of Appeal in affirming a substantial plaintiff fee award in the next case we explore.

            Plaintiff, a Los Angeles school district employee with a physical disability, sued the School District under FEHA, alleging three claims:  (1) disability discrimination; (2) failure to reasonably accommodate; and (3) failure to engage in the interactive process.  A jury deadlocked on the first two claims (which were dismissed), but found for plaintiff on the third claim, awarding $380,306 in damages.  Subsequently, the trial court awarded plaintiff $21,836 in costs and $568,108 in attorney’s fees.  After District brought a post-trial offset motion that was denied, the trial judge awarded plaintiff another $1,500 in additional attorney’s fees. 

            School District appealed both the merits and posttrial rulings, losing across the board.

            The Second District, Division One—in a 3-0 decision authored by Justice Rothschild—affirmed in Schermerhorn v. L.A. Unified Sch. Dist., Case No. B196937 (2d Dist., Div. 1 Sept. 19, 2008) (unpublished).  Relying on Cummings, the appellate panel agreed with the trial court’s assessment that plaintiff obtained total success on one claim, which means the award did not have to be reduced for having not prevailed on the two dismissed claims.  Beyond that, plaintiff was entitled to attorney’s fees for sustaining his damage and fee recovery on appeal. 

First District Vacates Attorney’s Fees and Expert Fees Awarded Against School District

Appellate Panel Finds No Basis for Fee Award Because District Did Not Violate “Prompt Payment” Penalty Statute.

            Public Contract Code section 7107 is a “prompt payment” statute specifying consequences for a public agency that withholds retention proceeds from a general contractor.  It basically provides that a public agency may withhold from final payment an amount not to exceed 150% of the disputed amount and specifies that the unpaid amounts are subject to a 2% per month penalty charge on any “improperly withheld amount” in lieu of interest otherwise due.  Also, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to an award of attorney’s fees and costs.

            Section 7107 was the subject of considerable discussion in Tricon Construction v. Liberty Union High School Dist., Case No. A1116491 & A117022 (1^st Dist., Div. 3 Sept. 18, 2008) (unpublished). 

            There, general contractor Tricon was awarded damages due to the District’s breach of a contract to build a swimming pool.  In the second phase of a trial, a jury found that while the District acted in good faith, contractually-specified liquidated damages were wrongfully withheld.  Later, the trial court assessed against District penalties, interest and attorney’s fees under the Public Contract Code (with $41,276.94 being penalties and $240,000 being attorney’s fees) and expert fees of $6,877 for District’s rejection of a Code of Civil Procedure section 998 offer. 

            District appealed.  The First District, Division Three vacated the award of penalties, interest, attorney’s fees, and expert fees, although affirming the remainder of the damages recovery by Tricon.

            Reversal was required based on the appellate panel’s determination that the District withheld disputed retention funds.  “But we do not read 7107’s public entity penalty to apply to a disputed payment. . . Simply put, section 7107 allows a public agency to withhold beyond 60 days up to 150 percent of a disputed amount from the retention proceeds due a contractor.  That is precisely what occurred in this case.”  (Slip Opn., at p. 14.)  Because section 7107 did not authorize imposition of penalties, the attorney’s fees award pursuant to the penalty statute also had to be vacated.  (See Denver D. Darling, Inc. v. Controlled Environments Construction, Inc., 89 Cal.App.4^th 1221, 1241 (2001) [“attorney fees are to be awarded only in cases in which the retention  payments are not made within the required time periods”].)

            Similarly, the expert fee award had to be vacated.  Tricon had offered to settle the case with a 998 offer of $680,000, inclusive of attorney’s fees and costs.  Even though the total judgment inclusive of damages and fees approximated $690,000, the reversal of the penalty and fee components meant that the Tricon judgment no longer exceeded the 998 offer.   So, the expert fee award fell with the reversal of the prior portions of the judgment. 

            

ERISA Gives District Court Discretion To Award Attorney’s Fees To Either Party

Ninth Circuit Reminds Us of Federal Fee-Shifting Provision in Remanding Case on Appeal.

            In Pannebecker v. Liberty Life Assur. Co. of Boston, Case No. 06-16654 (9^th Cir. Sept. 18, 2008), the Ninth Circuit remanded an ERISA case after determining that the appellant did establish rights to benefits for a period of time.  Because this demonstrated that appellant achieved some success, remand was required for the district court to consider whether attorney’s fees were awardable to appellant.

            The Employee Retirement Income Security Act of 1974 (ERISA) has a provision that allows a court in its discretion to award attorney’s fees to either party in an ERISA action.  29 U.S.C. sec. 1132(g)(1).  Appellant’s gain of benefit reinstatement for some period meant that the district judge needed to evaluate whether fees should be awarded to her on remand. 

            

Can Attorneys Intervene In Certain Cases To Recover Fees When Clients Will Not Allow Them to File A Fee Petition Request?

Answer:  Yes, in FEHA and CCP 1021.5 Situations.

            Generally, attorneys must file an independent collection action or enforce a contractual attorney’s lien in order to collect fees from an obstinate client, especially a client that will not allow an attorney to file a fee recovery motion against the non-prevailing side.  (See, e.g., In re Marriage of Read, 97 Cal.App.4^th 476, 481-482 (2002) [divorce proceeding]; Bandy v. Mt. Diablo Unified Sch. Dist., 56 Cal.App.3d 230, 234-235 (1976) [contractual lien in personal injury case].)  However, in cases grounded in California’s Fair Employment and Housing Act (Gov. Code sec. 12965) and private attorney general statute (Code Civ. Proc. sec. 1021.5), attorneys have been held to be proper intervenors for purposes of moving to recover attorney’s fees from client’s non-prevailing opponent.

            For purposes of FEHA, the California Supreme Court endorsed the right of attorneys to intervene to recoup fees in Flannery v. Prentice, 26 Cal.4^th 572 (2001).  It held that, absent an enforceable agreement to the contrary, attorney’s fees awarded in FEHA cases “belong to the attorneys who labored to earn them.” Id. at 575, 590.)  Because the term “prevailing party” under Government Code section 12965(b) was susceptible to multiple interpretations, the Flannery court embraced protecting attorneys based on prior unrepudiated precedents and the public policy to encourage legal assistance for attorneys undertaking cases that vindicate fundamental public policies.

In reaching this result, the majority in Flannery refused to follow Evans v. Jeff D., 475 U.S. 717, 730-732 (1986), a federal civil rights decision interpreting the federal fee-shifting provision (42 U.S.C. sec. 1988) as referring to litigants alone.  Justice Kennard, dissenting in Flannery, would have followed Evans.

            Flannery was extended in a way to allow attorney intervention in private attorney general cases by the First District, Division Five in Lindelli v. Town of San Anselmo (Lindelli II), 139 Cal.App.4^th 1499 (2006).  There, the Court of Appeal saw no “sound basis” to distinguish the FEHA fee-shifting provision and section 1021.5 as far constructing the term “party” for fee recovery purposes.  (Id.at 1509.)  The Lindelli II court found there were sound policy reasons for concluding as it did:  “Were we to interpret section 1021.5 as precluding intervention and an attorney’s request for fees where the client declines to move for a fee award, we would diminish the certainty that attorneys who undertake public interest cases will receive reasonable compensation and dilute section 1021.5”s effectiveness at encouraging counsel to undertake litigation enforcing important public policies.”  (Id. at 1512-1513).  The appellate court rejected a contrary conclusion reached by the Ninth Circuit in Churchill Village v. General Electric, 361 F.3d 566, 578-579 (9^th Cir. 2004), finding it incompatible with the reasoning of Flannery. 

Cross-Complainant Owners, In Home Renovation Contract Dispute, Are “Prevailing Parties” And Were Not Answerable To Ambiguous CCP Section 998 Offer

Fourth District, Division One So Rules in Interpreting Civil Code section 1717 and Code of Civil Procedure section 998.

            The next case is a nice refresher on Civil Code section 1717 “prevailing party” principles and on clarity requirements for Code of Civil Procedure section 998 offers.  (For more case discussion, see our cross-referenced categories of “Section1717” and “Section 998” which can be found at the left-hand side of the site’s first page.)

            M.R. Contreras Construction, Inc. v. Fansler, Case No D051771 (4^th Dist., Div. 1 Sept. 17, 2008) (unpublished) had its genesis in a homeowner-contractor dispute arising out of a home renovation contract with an attorney’s fees clause.

Contractor and contractor’s owner/managing agent sued to recover either $82,862.95 (under the contract for allegedly unpaid work and for unpaid extras) or $41,500 (for defense and resolution of subcontractor mechanic’s liens), while homeowners cross-complained to recoup $145,767.90 (under the contract) and $141,375 (for negligence) based on contractor’s failure to complete the project in a timely and workmanlike manner.  (Some trial evidence was bad for contractor, including a recorded phone message in which he apologized for a lack of supervision.  BLOG OBSERVATION—Save those recorded messages; they can be killer proof during trial.)  Contractor (the company, not the owner) served a 998 offer upon homeowners, offering to compromise in the amount of $90,001 “as full and final judgment in favor of the [homeowners].”  The 998 lapsed when homeowners did not respond.

After a bench trial, homeowners were awarded $54,250 for repairs and completion costs based on contractor/owner’s failure to properly complete the project, while contractor was awarded $38,9058 on its suit—both determinations arising under the home renovation contract.  The net judgment was $15,292 in favor of homeowners and against contractor/owner. 

That brings us to the phase that happens to be most pertinent for us blogs.  Both sides brought “dueling” attorney’s fees motions, with both sides claiming they were the “prevailing parties” and with contractor company claiming it was the winner based on homeowners’ failure to exceed the 998 offer. 

The trial court found homeowners were the prevailing parties and that the 998 offer was too ambiguous to have validity.  The result was an award of attorney’s fees in the amount of $27,279 and costs in the amount of $2,226.88 to homeowners and against contractor company/owner, with both litigants appealing the adverse fee award.

The Fourth District, Division One—in a 3-0 opinion authored by Justice Nares—affirmed the fee award and awarded costs on appeal to homeowners.

First, the appellate panel discussed the “prevailing party” issue.  Civil Code section 1717 was the governing statute, with the trial court tasked with determining who had litigation success based on “equitable considerations” reviewed under the deferential abuse of discretion standard of review.  (See Sears v. Baccaglio, 60 Cal.App.4^th 1136, 1151, 1158 (1998).)  Generally, the trial court compares the relief awarded on the contract claims with the parties’ demands on those claims and their litigation objectives, as disclosed by pleadings, briefs, opening statements, and similar sources.  (Hsu v. Abbara, 9 Cal.4^th 863, 876 (1995) [one of our Leading Cases].)  Nevertheless, Justice Nares cogently observed that “[t]he Hsu court, however, did not preclude the trial court from considering other equitable factors bearing on the question of which party prevailed by obtaining ‘greater relief …on the contract’ for purposes of Civil Code section 1717.”  (Slip Opn., at p. 9.)  Contractor/owner creatively argued that homeowners obtained less than 6% of the relief they sought when presenting $287,142.90 as their total damage claim during written closing argument, while contractor/owner received 47% of the $82,862.95 damage demand or 94% of the $41,500 alternate damage demand.  The Court of Appeal found that the trial court had clarified in its amended statement of decision that homeowners could not recover both in contract and tort, such that the relevant damages award was only half of what was relied on in contractor/owner’s argument.  However, more importantly, the overriding equities were what predominated—the action arose from contractor/owner’s failure to properly complete the project and supervise the renovation.  The negligence of the contractor/owner made it proper for the lower court to find homeowners were the “prevailing parties.”

Second, attention next shifted to the impact of contractor company’s 998 offer. This entailed a de novo review, because it involved the interpretation of a written offer (with contractual interpretation being a classic legal exercise).  In the end, the Court of Appeal found that the 998 offer was ambiguous and unenforceable.  Because contractor company and owner had a “unity of interest,” their 998 offer was uncertain in stating that acceptance of the $90,001 would result in a “full and final judgment in favor of [homeowners]” when owner had been omitted from the offer’s calculus.  Because owner had been omitted, there could by force of logic be no “full and final judgment” had homeowners accepted the offer.  It similarly was unclear whether homeowners’ cross-claims against owner would be compromised by the offer, because this subject was not addressed at all.  Because 998 offers are strictly construed in favor of offerees subject to their potential adverse consequences, the offer in this case was correctly found by the lower court to be ambiguous in nature.  (Burch v. Children’s Hospital of Orange County Thrift Stores, Inc., 109 Cal.App.4^th 537, 543 (2003).)

Deed of Trust Fee Clause: Successor Borrower Assuming Loan Without Lender Consent Held Subject To Fee Award Exposure

Fourth District, Division Two Holds Successor Bound By Fee Clause in Loan Documents.

            In this interesting time of economic woes, there are many persons who “assume” loans from borrowers without lender consent.  Not only can this practice likely trigger “due on sale” clauses, it also may expose the successor borrower to exposure for attorney’s fees award under the fee clauses in the trust deeds.  The next decision proves that this result does indeed happen.

            Haynes v. First Federal Bank of Cal., Case No. E044500 (4^th Dist., Div. 2 Sept. 17, 2008) (unpublished) involved a home purchaser who “took over” a borrower’s loan with First Federal, but without the lender’s consent.  Plaintiff filed a lawsuit seeking to enjoin a foreclosure of the home.  In the complaint, plaintiff claimed First Federal had allowed him to assume the loan, he was the borrower under the trust deed, he had the right to cure the default, and First Federal had breached contractual obligations to him.  First Federal won summary judgment.  After the trial court determined that First Federal was the prevailing party, First Federal moved for and obtained an award of $141,173 in attorney’s fees and $4,027.80 in costs.  Plaintiff appealed.

            On appeal, plaintiff argued that he was a nonsignatory to the trust deed containing the fees clause such that First Federal could not be a prevailing party.

            Justice McKinster—writing for a 3-0 panel of the Fourth District, Division Two—dispatched this contention on appeal.  Plaintiff’s own allegations in the complaint were damning, because he took the position that he “stood in the shoes of the rightful borrower, with all the rights attendant thereto.”  Given this stance, he would have claimed to be the prevailing party had he won, which means he faced exposure under the fee clause as a nonsignatory.  (See Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 382 (1994), also discussed in our September 14, 2008 post on Aluisi v. Kolkka.) 

            Plaintiff tried to shift course on appeal, arguing that his claim was really based on First Federal’s breach of an “oral agreement” to assume the loan—with no fee exposure based on the absence of a fees clause.  Unavailing, said the appellate panel.  It observed that this new theory would not stop the foreclosure.  Justice McKinster concluded: “Such a suit would have been useless and impractical.  We decline to attribute such a futile and frivolous intention to plaintiff’s underlying suit.  Substantively, he sought to enforce the original loan agreement and deed of trust terms, which did contain the attorney fees clause.” 

End result:  the fee award was affirmed and First Federal was awarded costs on appeal (which likely means an additional fee award for the bank’s win at the appellate level).

Minors/Disabled Adult’s Compromise: Settlement During Appeal Has Its Own Settlement Procedures

Recent Fourth District, Division Two Decision Shows How California Rule of Court 8.244(d) Works In Practice.

            California Rules of Court, rule 8.244(d) provides:  “If a guardian or conservator seeks approval of a proposed compromise of a pending appeal, the Court of Appeal may, before ruling on the compromise, direct the trial court to determine whether the compromise is in the minor’s or the conservatee’s best interests and to report its findings.”  The next case we discuss illustrates the operation of this provision in “real time” and also demonstrates that cases can be settled even though the cause has been submitted to the appellate court for a ruling.

            In Sulzmann v. Colton Joint Unified Sch. Dist., Case No. E040853 (4^th Dist., Div. 2 Sept. 16, 2008) (unpublished), a disabled high school student, through her guardian ad litem, sued School District defendants for negligence in failing to perform certain life-saving measures after she collapsed on campus.  As a result, disabled adult suffered brain damage and lived in a vegetative state.  The trial court granted summary judgment to all defendants, and plaintiff appealed.  The Fourth District, Division Two issued a tentative appellate decision, prior to argument, affirming as to some defendants and reversing as to others—with the tentative reversal encompassing the School District.  (The Fourth District, Division Two is the only appellate division in the state to actually issue tentative decisions to the parties before argument.)  After issuance of the tentative opinion, the parties reached a settlement and asked that the appeal be dismissed. 

            The Court of Appeal, on its own motion, directed the superior court to conduct a hearing and make findings that the settlement was in the best interests of the plaintiff under rule 8.244(d).  The superior court found the settlement to be fair, and the appellate panel agreed.  The School District agreed to pay $1.3 million.  From that amount, there were deductions of $184,825 in unpaid medical charges/liens and $411,220 in unpaid attorney’s fees/expenses, leaving a remainder of $703,955—which would be used to purchase a $500,000 annuity, pay for future additional expenditures, and set up a $141,203 special needs trust. 

            Based on the fairness of the settlement, the Court of Appeal reversed the judgment under Code of Civil Procedure section 128(a)(8) as to School District and dismissed the appeal as to the remaining defendants.

            In our August 8, 2008 post, we discussed minor’s compromises and certain fee award guidelines.  This case illustrates that fees exceeding 25% of the gross settlement proceeds will be approved in certain situations.   The fee awarded in Sulzmann was about 31.6%, reflecting the hard fought nature of the overall litigation and plaintiff’s pending appellate win against a governmental entity.   

Mobile Home Purchasers Prevail On Contract Breach And Negligence Claims, But Have No Basis For Fee Recovery

Second District, Division Six Case Illustrates the Need to Have a Fee Entitlement Predicate for Recovery of an Attorney’s Fees Award.

            Mobile home purchasers sued mobile home dealer and installer, with the jury awarding plaintiffs $36,275 each against the dealer (based on breach of contract) and the installer (for negligence).  The trial court denied purchasers’ motion to recover $166,147.50 in attorney’s fees against dealer and installer.  All parties appealed, including plaintiff’s separate appeal of the fee denial order. 

            In Castillo v. Flohr, Case Nos. B189123 & B193625 (2d Dist., Div. 6 Sept. 16, 2008) (unpublished), the Second District, Division Six affirmed across the board, in an opinion authored by Presiding Justice Gilbert (who has a blog we have cross-referenced).

            All bases advanced by plaintiffs failed to show a basis for fee recovery:

• Breach of contract with a fees clause (Civil Code section 1717)—The purchase agreement between plaintiffs and dealer had no fees clause.  Although plaintiffs argued that the purchase agreement, escrow instructions, and security agreement were an integrated transaction, this did not aid them.  The escrow instructions’ fee clause only applied to actions by or against the escrow agent.  The security agreement’s fee provision was inapt, because plaintiffs did not prevail on causes of action to collect money owed under the security agreement or for possession.
• Health and Safety Code section 18035(f).  Although this provision does allow the prevailing party to recover attorney’s fees, it did not work because neither dealer nor installer violated the statute.  The statutory provision places a duty on the escrow agent not to close escrow upon being notified of a dispute; no such duty was placed upon dealer or installer.
• Code of Civil Procedure section 1021.5.  Plaintiffs claimed a “public benefit” under the private attorney general statute based on being a victor in a prior published decision.  The flaw with this theory is that the prior decision was against the escrow agent, rather than dealer or installer.
• Civil Code section 1794(d).  A new mobile home buyer who prevails in an action for breach of warranty against a dealer is entitled to an award of attorney’s fees.  However, plaintiff never pled a breach of warranty, and jurors never made findings on such a claim.  Thus, there was no predicate for a fee award.

The message from this case is clear:  make sure you have a fee entitlement basis for fee recovery.  Otherwise, it is likely that trial and appellate courts will parse through the advanced theories to see if a basis truly exists to sustain fee recovery. 

            

            

Plaintiff's Attempted Vindication Of His Own Rights After Employment Termination Did Not Entitle Him To Recoup Fees Under Either The Civil Rights Fee-Shifting Provision Or The Private Attorney General Statute

Second District, Division Two So Rules in Case Where Ex-Police Officer Did Not Prove a Civil Rights Violation and Never Obtained Reinstatement of His Former Position in the Police Department.

            Plaintiff, an ex-police officer in the City of Torrance, was terminated based on a domestic violence incident resulting in his conviction on several criminal counts.  Plaintiff appealed the convictions and, several years later, a California federal court granted a habeas petition and ordered his retrial under penalty of discharging any adverse consequences of his conviction.  The State decided not to retry plaintiff. 

            Plaintiff then sought mandate against the City and City's Civil Service Commission to set aside prior administrative determinations, to reinstate him, and to provide backpay and other monetary relief.  The trial court denied the reinstatement and termination decisions, but granted his right to have an administrative hearing over the status of plaintiff's revived interest in employment with the City in light of the reversal of the convictions. 

            Plaintiff then moved for an award of $47,677.50 in attorney's fees under both 42 U.S.C. section 1988 and Code of Civil Procedure section 1021.5.  The trial court denied the requests, and its determinations were affirmed on appeal.

            In Brumbaugh v. City of Torrance, Case No. B202117 (2d Dist., Div. 2 Sept. 16, 2008) (unpublished), the Second District, Division Two initially made it clear that the abuse of discretion standard was the proper standard of review.  (See Board of Administration v. Wilson, 57 Cal.App.4^th 967, 973 (1997) [section 1988]; Hewlett v. Squaw Valley Ski Corp., 54 Cal.App.4^th 499, 544 (1997) [CCP section 1021.5].) 

            As far as the section 1988 predicate for fees was concerned, plaintiff did not prevail on any due process violation.  Even though a hearing on plaintiff's revived interest in employment was ordered, this was not tantamount to demonstrating that plaintiff had a legitimate claim to employment after the conviction (even after it was reversed).  See Adams v. County of Sacramento, 235 Cal.App.3d 872, 881 (1991).

            Section 1021.5 did not provide a basis for fee entitlement to plaintiff.  In order to obtain entitlement under this provision, a plaintiff must show that the litigation (1) served to vindicate an important public right; (2) conferred a significant benefit on the general public or a large class of persons; and (3) was necessary and imposed a financial burden on plaintiff which was out of proportion to his/her individual stake in the matter.  (See Families Unafraid to Uphold Rural El Dorado County v. Bd. of Supervisors, 79 Cal.App.4^th 505, 511 (2000).)  None of these three elements were satisfied by plaintiff.  Rather, the gist of the action was to enforce plaintiff's individual right to a narrow hearing and possible reemployment, both of which were targeted at vindicating his personal rights.  Relying on Flannery v. California Highway Patrol, 61 Cal.App.4^th 629, 636-637 (1998), the appellate panel rejected the notion that a public interest is furthered every time a plaintiff successfully sues a public agency for some wrongful conduct.  Plaintiff's action also involved only peace officers who were seeking reemployment under a narrow set of circumstances—where a felony conviction was reversed years later on appeal.  The financial burden criterion was not met, because the enforcement of the public interest was only coincidental to the attainment of plaintiff's personal goals.  (Roybal v. Governing Bd. of Salinas City Elem. Sch. Dist., 159 Cal.App.4^th 1143, 1151 (2008).) 

First District, Division Two Affirms Attorney's Fees Award To Wife On The Basis of "Need"

Husband's Acquiescence to Family Court's Determinations During Fee Proceeding Constituted Acquiescence to the Award.

            If there is a cardinal rule that bears repeating, it is this:  in order to preserve one's challenges for a future appeal, make your objections on the record.   If not, brace yourself for a subsequent retort by appellate justices that you waived the argument or acquiesced to what the trial court did below.

            The failure to object haunted the appellant in Marriage of Morcoso, Case No. A118594 (1^st Dist., Div. 2 Sept. 16, 2008) (unpublished).

            A family law judge ordered that husband was to advance $5,000 to cover wife's attorney's fees, subject to later apportionment at the end of the case.  On appeal, husband argued that the judge failed to consider the parties' relative ability to pay as required by Family Code section 2030, a requirement we have explored in past posts.  (See, e.g., August 28, 2008 post on Marriage of Peterson and Weiss, which also reference prior posts on section 2030.)  However, husband did not come close to creating a record that would preserve this challenge. 

When the award was being discussed, the judge indicated husband's counsel had represented that husband had much greater ability to pay, to which counsel responded "all right."  This failure to object to this remark was deemed an acquiescence to the trial court's conclusion.

Beyond that, the fee award was based on an agreement between the parties by which husband's mother's house was going to be liened so the fee advance could be obtained by husband.  Wife's counsel indicated that the mother had offered to do it but needed time to arrange the financing.  When the family law judge inquired of husband's counsel whether that was an acceptable arrangement, counsel similarly responded, "Yes."  As the Court of Appeal tersely observed:  "Again, acquiescence." 

The failures to object resulted in an all-too-familiar disposition on appeal – affirmance of the $5,000 fee award in wife's favor.

            

Probate Compensation To Administrator's Attorney Upheld By First District

Division One Notes the Difference Between "Ordinary" and "Extraordinary" Compensation From An Estate.

            In a case that apparently has generated roundelays of appeals, the First District, Division One did a nice job of distinguishing "ordinary" and "extraordinary" compensation from the probate estate.  The Court of Appeal, in Estate of Daley, Case No. A120213 (1^st Dist., Div. 1 Sept. 16, 2008) (unpublished), affirmed attorney's fees of counsel for the administrator in preparing both a court-ordered statement of decision and counsel's second fee petition (totaling around $5,000).

            A personal representative and its attorney may obtain "ordinary" (statutory) compensation for typical services to collect, care for, maintain, and preserve estate property.  Ordinary statutory compensation is usually approved in accordance with a compensation schedule set forth in the Probate Code.  (See, e.g., Prob. Code, §§ 10800, 10810.)  Compensation for ordinary services is mandatory.

            In contrast, "extraordinary" compensation is authorized for exceptional or nonroutine services, if they are "just and reasonable" in nature.  (Prob. Code, §§ 10801(a), 10811(a); Cal. Rules of Court, rule 7.703.)  Generally, executor's attorney's fees are considered "extraordinary," and are paid from the estate as an expense of administration.  "Extraordinary" compensation is allowed in the discretion of the probate court.  (Estate of Stokley, 108 Cal.App.3d 461, 473 (1980).)

            Because the court ordered preparation of the statement of decision, the time spent was well justified.  With respect to "fees on fees" for preparing the attorney's second fee petition, the appellate court scoffed at the objector/appellant's suggestion that fees incurred in defending fee petitions will inevitably result in "the Kafkaesque judicial nightmare of an infinite regression of fee litigation."  Quoting from Estate of Trynin, 49 Cal.3d 868, 879 (1989), the appellate panel reiterated:  "Experience in statutory fee-shifting contexts suggests that this perceived problem is largely theoretical and seldom arises in practice.  In any event, we are confident that trial courts, in the exercise of the broad discretion granted them in ruling on fee applications, have the means to resolve this problem should it arise."  It was less of a problem in the case at hand, because the amount at issue was only $1,254 in "fees on fees." 

Ninth Circuit Vacates And Remands Attorney's Fees Award Under EAJA For Successfully Obtaining Navy's Mitigation Measures For Sonar Disrupting Marine Mammal Activities

Federal Court of Appeals Find That Some Junior Attorney Work Was Not Distinctive and That Plaintiffs Needed to Show Attorneys Were Not Available to Work at Lower Hourly Rates.

            Under the Equal Access to Justice Act (28 U.S.C. § 2412), prevailing parties in cases brought by or against the United States are allowed to recovery attorney's fees unless the Government's position was substantially justified or special circumstances make such an award unjust.  See 28 U.S.C. § 2412(d)(1)(A).  EAJA allows for the award of attorney's fees "based upon the prevailing market rates for the kind and quality of the services furnished," capped at $125 per hour, "unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved, justifies a higher fee."   28 U.S.C. § 2412(d)(1)(D)(2)(A).  The Ninth Circuit, in Love v. Reilly, 924 F.2d 1492, 1496 (9^th Cir. 1991), set out a three-pronged test for awarding enhanced attorney's fees:  (1) the attorney must possess distinctive knowledge and skills developed through a specialty practice; (2) the distinctive skills were needed in the litigation at issue; and (3) the distinctive skills must not be available elsewhere at the lower $125 per hour statutory rate.  All of these principles were at play in the next case, where a district court award of attorney's fees against the Navy was affirmed in part as well as vacated and remanded in part.

            In Natural Resources Defense Council, Inc.(NRDC) v. Winter, Case No. 07-55294 (9^th Cir. Sept. 16, 2008), several environmental groups obtained a temporary restraining order against the Navy enjoining the use of mid-frequency active sonar during it Rim of the Pacific 2006 training exercise given the disruption to some marine mammals in the area.  After the TRO, the parties reached a settlement by which the Navy implemented or modified several mitigation measures that it had previously rejected.  Environmental group—represented by two senior and two junior in-house attorneys from NRDC as well as one senior litigation partner and three junior associates at Irell & Manella LLP (an alma mater for contributors Marc Alexander and Mike Hensley)—sought an award of attorney's fees under EAJA.  The district court granted the motion, awarding frees totaling $437,584.24 after applying enhanced rates above the statutory $125 cap based on finding counsel brought distinctive skills unavailable at the statutory rate.  Navy appealed the amount of the fee award on various grounds.

            The Ninth Circuit affirmed enhanced fees for the NRDC in-house counsel and Irell senior litigation partner.  However, they reversed the enhanced fee award with respect to the Irell junior associates working on the case.  Because these junior associates had no environmental expertise, the Court of Appeals refused to find that "distinctive knowledge and skill" extended to encompass the expertise that the junior associates learned from the pending or companion cases.  (Slip Opn., at pp. 12958-12959.)  In a footnote, the appellate panel observed that other circuits read the "special factor" test even more narrowly (meaning the attorney must have a specialty outside the field of American law), such that recognizing a case specific acquisition of expertise "would further widen this split."  (Id. at n. 2.)  The Ninth Circuit also rejected exigency or expedited needs as bases to find a "special factor" for enhancement purposes.  (Accord, Role Models Am., Inc. v. Brownlee, 353 F.3d 962, 969 (D.C. Cir. 2004).) 

            Independently, the Court of Appeals remanded because no evidence was presented by plaintiffs to demonstrate that other attorneys were not available to prosecute the case at the statutory capped hourly rates.  Plaintiffs were allowed an added opportunity to demonstrate they satisfied the third prong of the Love test discussed in the first paragraph of our post. 

            However, the Ninth Circuit did not buy Navy's argument that the claimed hours needed to be reduced due to plaintiffs' limited success.  Even limited success like that presented in this case—an "excellent" TRO resulting in changed conduct by the Navy—sufficed to justify an award of fees under EAJA.  (See Hensley v. Eckerhart, 461 U.S. 424, 440 (1983) [42 U.S.C. § 1988]; Sorenson v. Mink, 239 F.3d 1140, 1145 n. 2 (9^th Cir. 2001) [Hensley applied to EAJA fee awards].)

            Last, Navy challenged the award of attorney's fees for work done on appeal of the TRO, arguing that the request should have been filed with the Ninth Circuit rather than the district court.  Absent a statutory provision to the contrary, Circuit Rule 39-1.6 would have sustained the correctness of the Navy's argument, because case law has held that analogous section 1988 appellate fees must be sought from the Ninth Circuit.  (See Cummings v. Connell, 402 F.3d 936, 947-948 (9^th Cir. 2005).)  However, EAJA had a contrary statutory provision—28 U.S.C. § 2412(d)(1)(A)—which allows the district court to determine fee awards at all levels of litigation, distinguishing it from section 1988. 

            

            

Nonsignatory Defendants Denied Attorney’s Fees Award Where They Would Not Have Been Entitled to Recovery Had They Won

Fifth District, in an Unpublished Opinion, Rejects Reasoning From Both Abdallah and International Billing Services in Affirming Lower Court Fee Denial. 

            In our four months of blogging, we have covered both published and unpublished California appellate decisions.  We have found that the unpublished decisions are still valuable for their analysis, although not citable except in narrow circumstances that are generally not at play.  (See Cal. Rules of Court, rule 8.1115, as reiterated in our Blog Disclaimer.)  The reason that unpublished decisions are valuable is that they analyze prior appellate decisions, either following, disagreeing, or criticizing those previous opinions penned by their appellate colleagues in different Districts.  We now discuss an older unpublished decision, Aluisi v. Kolkka, Case No. F034243 (5^th Dist. Oct. 5, 2001) (unpublished), where the Fifth District disagreed with portions of the analysis made in the prior opinions of Abdallah v. United Savings Bank, 43 Cal.App.4^th 1101 (1996) and International Billing Services, Inc. v. Emigh, 84 Cal.App.4^th 1175 (2000).

            Aluisi involved a nonsignatory wife who, along with her husband and father-in-law, sued sellers under a busted real estate purchase transaction where wife was not a signatory to a purchase contract with a fees clause benefiting a prevailing party.  Defendant sellers successfully demurred out wife on the grounds she was neither a party nor a third-party beneficiary of the contract.  Defendants than moved for $31,465.35 in attorney’s fees as the prevailing party under the fees clause, a request denied by the trial judge.  Defendants appealed and did not win on appeal.

            Justice Wiseman, affirming on behalf of a 3-0 panel, initially confronted a familiar issue—whether wife would have been entitled to attorney’s fees as a third-party beneficiary under the contract had she prevailed.  Sessions Payroll Mgt. Inc. v. Noble Constr. Co., 84 Cal.App.4^th 671, 674-675 (2000) was found to be on point is disposing of the issue, because nothing in the contract demonstrated that the signatories (husband and father-in-law) intended to include wife within the attorney’s fees provision of the real estate purchase agreement.  Beyond that, there was extraneous corroboration for this conclusion:  the escrow instructions showed that the property was to be vested as husband’s sole property along with his father-in-law as co-owner.  Justice Wiseman found that the defense citation to Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 383-384 (1994) to be inapt, because a plaintiff sublessee did have a sufficient nexus based upon a third-party beneficiary granting provision in the master lease.  No similar provision was found in the purchase agreement between the parties involved in Aluisi.

            The appellate court then turned its attention to Abdallah, supra, 43 Cal.App.4^th 1101, 1111, where a signatory defendant prevailed and was held entitled to attorney’s fees from the nonsignatory plaintiff.  Justice Wiseman, on behalf of the Fifth District panel deciding Aluisi, expressly disagreed with two conclusions reached by Abdallah:

·       Abdallah, generalizing from the specifics of Real Property Services, stated:  “A defendant that has signed a contract providing for attorney fees is generally entitled to fees if it prevails against a nonsignatory plaintiff in an action on the contract.”  (43 Cal.App.4^th at 1111.)  The Fifth District, after observing “[w]hether this statement is statistically accurate and thus may constitute a valid observation cannot be determined here,” went on to state “[i]n any event, it is not a valid rule, and Real Property Services does not suggest it is valid.”  (Slip Opn., at p. 8.)  Justice Wiseman reasoned that the result in cases involving nonsignatory plaintiffs “must still be compelled by the facts of each case” and quoted a passage from Real Property Services indicating that a signatory defendant cannot recover fees from a nonsignatory plaintiff unless the nonsignatory plaintiff was entitled to fees had plaintiff prevailed (25 Cal.App.4^th at 382).

·       Abdallah concluded that “Fred Abdallah’s status as a nonsignatory is irrelevant; the only question is whether he would have been entitled to his fees if he had prevailed.  ([Real Property Services, supra, 2 Cal.App.4^th] at p. 382.)  Since it is undisputed that Fred Abdallah would have entitled to fees if he had been a prevailing party, there is no question that he is liable for fees as a losing party.”  (43 Cal.App.4^th at 1111.)  Justice Wiseman believed that Abdallah’s status as a nonsignatory was very relevant on the fee issues, because Real Property Services so recognized and Abdallah does not explain why it was “undisputed” that Abdallah would have been entitled to fees had he prevailed.  For those reasons, the Fifth District “choose to not follow Abdallah.”  (Slip Opn., at p. 9.)

The Fifth District, in an extensive footnote, also discussed defendants’ contention

that wife was estopped from denying fee entitlement based on claiming a request for attorney’s fees in her complaint against defendants.  Defendants primarily relied on International Billing Services, Inc. v. Emigh, supra, 84 Cal.App.4^th 1175, 1186.  Justice Wiseman then implicitly rejected this aspect of Emigh, reasoning “we agree with Sessions’ well reasoned and supported conclusion that an estoppel theory contradicts the “Reynolds Metals [Co. v. Alperson, 25 Cal.3d 124, 129 (1979)] test,” which requires a party claiming attorney fees to establish that the opposing party actually would have been entitled to receive them if the opposing party had prevailed.  (Sessions, supra, 84 Cal.App.4^th at pp. 681-682; see Reynolds Metal Co. v. Alperson, supra, 25 Cal.3d at p. 129.)”  (Slip Opn., at p. 9 n. 1.) 

            On the Emigh estoppel theory, the Fifth District seems in accord with many divisions of the Second District, the Sixth District, and other Districts in not following the estoppel theory espoused in Emigh.  See our May 18, 2008 post on Blickman Turkus, LP v. MF Downtown Sunnyvale, 162 Cal.App.4^th 858 (2008) [6^th Dist.], which discusses other Districts disagreeing with Emigh; our August 7, 2008 post on Zislis v. Nam (2d Dist., Div. 5 unpublished); and our August 10, 2008 post on Hill v. Pro Value Properties, Inc. (2d Dist., Div. 8 unpublished), which surveys other Second District division perspectives on Emigh. 

            

            

Recent High-Profile Civil Rights Case Illustrates Necessity to Bond Anti-SLAPP Motion Awards During Appeal

Fourth District, Division Three Affirms Case Involving Steve Rocco, But Extraneous Circumstances Confirm the Necessity for an Undertaking on Appeal.

            In our June 23, 2008 post, we reviewed Dowling v. Zimmerman, 85 Cal.App.4^th 1400, 1426-1434 (2001), a decision that held an adverse anti-SLAPP fee award must be bonded to prevent execution efforts pending appeal.  The next Orange County case—a high profile one that spawned lots of attention by the media—illustrates the application of this rule in real life.

            Mr. Rocco, a member of the Board of Education of the Orange Unified School District (District), brought a lawsuit, along with Californians Aware (an organization that advocates open government) and Richard P. McKee (CalAware’s president of its board of directors), alleging First Amendment free speech and associated state right violations when Mr. Rocco was censured for commenting on a principal’s relocation in the District and when his comments were edited from cable television videotape.  The trial court granted an anti-SLAPP motion against the mandate/injunction petition brought by CalAware, Mr. McKee, and Mr. Rocco.  Subsequently, the lower court awarded attorney’s fees of $37,000 in favor District/one individual defendant and against CalAware/Mr. Rocco. 

            CalAware/Mr. Rocco appealed, but lost in a recent 3-0 affirmance by the Fourth District, Division Three in Californians Aware v. Orange Unified Sch. Dist., Case No. G038499 (4^th Dist., Div. 3 Sept. 4, 2008) (unpublished), authored by Presiding Justice Bedsworth.  Justice Bedsworth also has his own Wikipedia entry.

            So what about the fee award during appeal?  Dowling held that it had to be bonded or else the winning defendants should pursue the assets of CalAware or Mr. Rocco.  An article by Eugene W. Fields, in the September 12, 2008 edition of The Orange County Register, gives us insight into what happened. During appeal, Mr. McKee, on behalf of CalAware, posted a bond to cover the fees.  Mr. Rocco explained in a quote from the September 12, 2008 article:  “Win or lose, I won’t be paying a cent.  That’s why you get big organizations to back these things for you and fight them for you.” 

            Dennis A. Winston, the main attorney for the Rocco group, confirmed that Mr. McKee and CalAware posted a bond to cover the legal fees, which means that the surety for the bond will pay the fees for the losing parties (after someone put up some assets to obtain the bond). 

Mike Hensley, who was a 1974-1976 member of the University of Southern California Trojan Debate Squad, sends his greetings to Mr. Winston.  He was a first-class debater amassing many awards during his collegiate years at USC. 

            

            

Anti-SLAPP Prevailing Party Properly Appeals Post-Dismissal Fee Award

However, Prevailing Party's Anti-SLAPP Win Is Overturned, With a Resulting Reversal of the Fee Award.

            A notary was named in a conspiracy-charging civil lawsuit brought by a disgruntled plaintiff arising out of a loan he made to others on a series of real estate transactions.  Plaintiff charged that the notary failed to record a trust deed, knew that one of the signatures notarized was a forgery, and benefited from the purported fraudulent transactions.  Notary was not amused in the least, bringing an anti-SLAPP motion that was successful and resulted in a complete judgment of dismissal as to the notary, a ruling appealed by the plaintiff.  Notary subsequently was awarded $10,500 in sought-after $83,250 attorney's fees pursuant to a postjudgment fee award.  Notary, again, was not amused by the fee order, and cross-appealed from that order in an attempt to challenge what notary obviously viewed as a miserly fee award. 

            In an interesting decision on both the merits and fee awards, the Second District, Division Eight reversed both determinations in Altman v. Azrilyan, Case No. B195061 (2d Dist., Div. 8 Sept. 12, 2008) (unpublished).

            On the merits, the appellate panel determined that notary's conduct in notarizing certain documents was not an official proceeding authorized by law” so as to give her absolutely immunity under Civil Code section 47 and to provide a basis for the anti-SLAPP motion.  Relying heavily on Garretson v. Post, 156 Cal.App.4^th 1508, 1520-1521 (2007) (a case in which contributors Marc Alexander and Mike Hensley provided research to the winning in pro per plaintiff), the Court of Appeal determined that notarial activity “is more akin to a nonjudicial foreclosure sale [found to not give rise to an anti-SLAPP motion in Garretson]” and “does not require the exercise of discretion or the adjudication of a fact.”  (Slip Opn., at p. 13.) 

            That brought the appellate panel to notary's cross-appeal of what she believed was an unduly low fee award.  Was the fee award appealable?  You bet, said the Court of Appeal.  In this particular case, the anti-SLAPP motion win had resulted in a judgment of dismissal, such that the fee award was a postjudgment order that was expressly appealable under Code of Civil Procedure section 904.1(a)(2).  Although not mentioned by the appellate panel, its result is supported by the First District, Division Four's recent decision in Melbostad v. Fisher, Case No. A119514 (lst Dist., Div. 4) (published on court's own motion on August 4, 2008).  Melbostad reasoned that a judgment of dismissal as to some parties is a judgment so that a subsequent postjudgment fee order can be separately appealed under section 904.1(a)(2).   (See our July 25, 2008 post for a further discussion of Melbostad.)  However, because notary was no longer the prevailing party after reversal of her anti-SLAPP motion win on appeal, the fee order had to be reversed also.  (See Gallimore v. State Farm Fire & Cas. Ins. Co., 102 Cal.App.4^th 1388, 1401 (2002).) 

            

Appealability Of Interlocutory Fee Awards Before Entry Of Underlying Judgment: No Need To Appeal The Interlocutory Order.

We Clarify a Good Question on Past Posts on Appellate Decisions in the Area.

            Mark Hooshmand of The Hooshmand Law Group in San Francisco sent us a good question on our August 25, 2008 post discussion of Carr Business Enterprises, Inc. v. City of Chowchilla, Case No. F051999 (Aug. 20, 2008) (certified for partial publication; unpublished on pertinent fee award issue).  He was curious about why fee grant and fee denial awards would be treated differently in some contexts unless there was no prior underlying judgment on the merits.  Actually, Mr. Hooshmand has hit upon an important distinction that is worthy of repetition. 

            Before entry of judgment, orders either granting or denying fees are not appealable but can only be reviewed on appeal from the judgment.  (See Code Civ. Proc., sec. 904.1(a)(2) [postjudgment order is appealable]; Doe v. Luster, 145 Cal.App.4^th 139, 146-147 (2006) [interlocutory order granting or denying fees following a successful anti-SLAPP motion generally not appealable unless the motion resulted in a judgment or dismissal disposing of plaintiff’s action]; Lacey v. Bertone, 33 Cal.2d 649, 654 (1949) [separate appeal from order denying tax costs motion appealable only when order made after final judgment; if order made before final judgment, review is made upon appeal of the judgment]; Carr Business Enterprises, Inc., supra, Slip Opn. at 8-9 [order denying fees made before entry of judgment may only be reviewed on appeal from the judgment]; Renteria v. Cruz, Case No. B196359 (2d Dist., Div. 8 Aug. 18, 2008) (unpublished and reviewed on our August 18, 2008 post) [appeal dismissed where appeal taken from order denying fees motion where no judgment entered on matters impacting the appellant].)

            Nonetheless, we would remind readers of two important caveats: 

• PR Burke, a decision reviewed in our June 7, 2008 post, does hold that where an initial judgment does determine a litigant’s prevailing party status and a subsequent order fixes the amount of fees, the appeal from the initial judgment subsumes the later order fixing the fee award amount.  (See also Grant v. List & Lathrop, 2 Cal.App.4^th 993, 998 (1992).) 
• Where an initial judgment is silent about costs and attorney’s fees, the failure to appeal a subsequent postjudgment order awarding costs and fees jurisdictionally bars review of the costs/fee award.  (See, e.g., Norman I. Krug Real Estate Investments, Inc. v. Praszker, 220 Cal.App.3d 35, 46 (1990); Robinson v. City of Yucaipa, 28 Cal.App.4^th 1506, 1517 (1994); Johnson v. Greenberg, Case No. B197894 (2d Dist., Div. 5 June 5, 2008) [unpublished].) 

See also our June 6, 2008 post for Johnson v. Greenberg.

FEHA Prevailing Party Can Be Awarded Expert Witness Fees By Noticed Motion Even Though Cost Memorandum Deadlines Are Exceeded

Second District, Division Eight So Rules in Case Involving Non-Court Ordered Expert Witness Fees.

            Government Code section 12965(b) specifies that, in retaliation claims under California’s Fair Employment and Housing Act (FEHA), “the court, in its discretion, may award to the prevailing party reasonable attorney’s fees and costs, including expert witness fees ….”  So, the issue arises—are these expert fees more akin to routine costs (subject to 15 day cost memo deadlines) or discretionary nonroutine costs (subject to the longer appeal deadlines)?  Not even close, the Second District, Division Eight rules—they are not governed by the more rigid routine costs deadlines.

            In Anthony v. City of Los Angeles, Case No. B202457 (2d Dist., Div. 8 Sept. 11, 2008) (certified for publication), Plaintiff prevailed in a lawsuit against her Employer (City of Los Angeles) under FEHA.  Plaintiff did not claim expert witness fees in her costs memorandum that was timely filed within 15 days of entry of judgment.  Instead, 25 days later, Plaintiff filed a noticed motion for recovery of expert witness fees, much like a litigant would do for recoupment of attorney’s fees.  Even though City Employer opposed the motion, the trial court awarded Plaintiff $23,770.91 in expert fees, an order challenged by City on appeal.

            City lost its appellate challenges.

            Presiding Justice Cooper—writing on behalf of a 3-0 panel of 2/8—affirmed.

            Based on its view that FEHA expert witness costs are not “routine,” the appellate panel determined that they do not have to be claimed as costs within the shorter deadlines dictated by California Rules of Court, rule 3.1700(a)(1).  Rather, expert witness fees not ordered by the court—just like attorney’s fees—are costs items that cannot be entered by the clerk and await a subsequent award in the discretion of the court upon a more protracted noticed motion.  “We agree with the trial court that, in the absence of a specific rule applicable to the discretionary award of expert witness fees, a motion for the expert witness fees permitted under FEHA is timely if filed within the same time constraints as those applicable to a noticed motion for attorney fees.”  (Slip Opn.,  at p. 5.) 

            City made a bizarre argument that expert fees were not awardable to the prevailing plaintiff.  This contention went nowhere.  Amendments to Government Code section 12965(b) plainly authorized the award of expert witness fees made by the lower court in this case.  (See Olson v. Automobile Club of So. Cal., 42 Cal.4^th 1142, 1149 n. 4 (2008).) 

            BLOG OBSERVATION—The reasoning in Anthony can be used to argue that attorney’s fees are “nonroutine costs” that must be bonded on appeal.  (See our discussion of the topic in our July 11, 2008 post regarding bonding of attorney’s fees awards obtained by defendants.)

            

Civil Code Section 1717 Mandates Fee Award To Unqualified Winner On Contract Claim And Requires Reversal of Award Against Contract Nonsignatories

Second District, Division One Affirms and Reverses Portions of Fee Award Under Contractual Provision and Discretionary Fee-Shifting Statutes.

            By now, it should be apparent that there are stark differences in how some fee-shifting statutes operate.  Civil Code section 1717 mandates an award to a "prevailing party" under a contractual fees clause, although there is some discretion in determining who "prevails."  California's Fair Employment and Housing Act (FEHA), Gov. Code, § 12989.2, and the federal Fair Housing Act (FHA), 42 U.S.C. § 3613(c)(2), allow courts at their discretion to award reasonable attorney's fees and costs to the prevailing party (other than California and the United States, under each respective scheme), although a prevailing party should normally recover fees unless special circumstances make an award unjust.  (Hensley v. Eckerhart, 461 U.S. 424, 429 (1983).)  Under all these statutes, the "prevailing party" determination is a predicate concern.  Beyond that, however, a prevailing party under section 1717 is usually a signatory to a contract with a fees clause, unless special exceptions are in play.  All of these principles led the Second District, Division One to affirm some parts and reverse other parts of fee awards in the case we next discuss.

            In Cardenas v. Seven Palms Apts., Case No. B193241 (2d Dist., Div. 1 Sept. 10, 2008) (unpublished), three plaintiffs—husband (the only signatory under a residential apartment rental agreement), wife, and the Fair Housing Council of San Fernando Valley (FHC)—sued an apartment complex (the other signatory to the rental agreement) and its managers for violation of state and federal fair housing laws (FEHA and FHA), violations of California's Unruh Act, assault/battery, breach of the covenant of quiet enjoyment under the rental agreement, unfair business practices (a claim later withdrawn), negligent hiring and supervision, and intentional infliction of emotional distress.  The main focus of the action was plaintiffs' claims that certain apartment rules relating to children and occupancy limits were discriminatory in nature.  After a bench trial, a predominantly defense verdict was entered against all plaintiffs, except plaintiff wife was awarded $8,250.00 for violation of her quiet enjoyment and for emotional distress as well as $10,000 in punitive damages, all against two defendants (the apartment complex and a resident property manager). 

            Defendants filed a motion seeking $109,700 in fees under section 1717, FEHA, and FHA.  Wife filed her own fee motion under the same statutes, seeking to recover $213,170.96 in fees and $6,125 in costs. 

            The trial court denied wife's motion, but granted defendants' motion for fees/costs under section 1717 and the rental agreement as against all three plaintiffs in the sums of $39,725 (fees) and $6,820.55 (costs).  Plaintiffs also recovered $5,975 as their costs of suit.

            Both sides appealed, with some modifications to the lower court's fee orders.

            Retired Judge Neidorf, sitting by assignment on the Court of Appeal and assigned authorship of the cause, first addressed the propriety of the fee rulings under section 1717.  Because wife was a clear winner on the quiet enjoyment claim arising under the rental fee agreement (the only contract-based claim), she "prevailed."  It did not matter that she did not prevail on noncontract-based claims.  (See Hsu v. Abbara, 9 Cal.4^th 863, 876 (1995) [focus is on an evaluation of the parties' comparative litigation success on the contract-based claims].)  Similarly, defendants were entitled to a fee recovery against husband, who was a signatory to the rental agreement with the fees clause.  However, because the other nonsignatories could never have recovered fees from defendants had they prevailed on the contract claims, there was no legal basis for defendants to recoup fees from the two nonsignatories, the wife and FHC.  (See Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 380, 382 (1994).)  No special circumstances such as alter ego, guarantor, assignee, or third party beneficiary principles were present to invoke exceptions to the nonsignatory "no recovery" rule.  (See Wilson's Heating & Air Conditioning v. Wells Fargo Bank, 202 Cal.App.3d 1326, 1332-1334 nn. 6-7 (1988).)

            Next, appellate attention turned to the wife's claim that she was improperly denied fee recovery under FHA and FEHA.  No abuse of discretion occurred in denying fees.  Because the trial record backed up the trial court's conclusion that plaintiffs were not evicted for engaging in any protected activity, none of the plaintiffs prevailed under the federal or state fair housing fee-shifting provisions.

            Finally, the appellate panel considered defendants' contention that they should have been awarded more than $39,725 in fees of the $109,700 sought-after amount.  Only the husband was subject to fee exposure, because wife won the quiet enjoyment claim and FHC was not a party to the rental agreement.  Although articulating no reason other than that the requested amount was "absolutely out of bounds," the trial court's discretion was sustained on reducing the defense fee request against husband. 

            The end result is that husband was liable for defense fees in having lost the quiet enjoyment claim, but no similar exposure was extended to wife or FHC.  Wife was found to have prevailed on the quiet enjoyment claim, so that she could not be liable for fees under section 1717.  (However, because she was not a signatory to the lease, she had no ability to recoup fees as the winner.) 

Variation on a Theme

Tail that Wags the Hog

            Bratz dolls, it would appear, are material girls.

 

           The September 10, 2008 Los Angeles Daily Journal leads with this story:  "Doll Case Legal Services Costing a Pretty Penny."  Jason W. Armstrong, the Daily Journal Staff Writer, reports, "[t]he combined legal fees of MGA Entertainment and rival Mattel Inc. in the ongoing Bratz doll case have risen to at least $93 million so far, making the litigation among the costliest in the state."

 

            Lest one leap to an unsupported conclusion, Mr. Armstrong points out that this is far from the most expensive litigation ever.  Earlier this week, Coughlin Stoia Geller Rudman & Robbins in San Diego received court approval for $688 million in attorney's fees for its work on the $7.2 billion settlement in the Enron litigation.

 

            In a perfect world, $93,000,000 might go some way towards curing malaria in Africa, or providing school lunches in California.  But Bratz dolls have needs that must not be overlooked, and evidently a hefty litigation budget must be included among those needs.

 

            Interestingly, the fee amounts were not disclosed in the ordinary course of discovery in the Bratz doll case.  Instead, the Daily Journal reports that MGA revealed the fee information when it filed suit against several of its insurance carriers for – you guessed it – failing to pay the company's attorney's fees.   And Mattel's fee costs were disclosed by a stock analyst taking part in a conference call with company executives.  You can't make this stuff up.

 

            Mr. Armstrong quotes Frederick "Rick" L. McKnight of Jones Day's LA office as saying the fees incurred thus far are "breathtaking."

 

          "Breathsucking" might be more like it.

            

                        

 

Inadequate Fee Substantiation: Winner In Attorney Fee Award Fails to Rebut Substantial Opposition Showing Glitches in the Substantiation Process

First District, Division Two Reverses Fee Award For Further Remand Proceedings to Scrutinize Substantial Fee Award.

            In our “Cases:  Fee Substantiation” category, we have reviewed past decisions showing that California has a fairly “loosey goosey” standard for substantiating the amounts claimed in attorney’s fee petition requests.  However, the next case illustrates that an unrebutted detailed opposition on the substantiation issue can help even an appellate court to conclude that the trial court abused its discretion in awarding substantial fees to the prevailing party.

            Rossa v. D.L. Falk Construction, Inc., Case No. A116151 (1^st Dist., Div. 2 Sept. 9, 2008) (unpublished) involved a contest over the reasonableness of requested attorney’s fees, not entitlement—there was a clear contractual fee clause resolving the entitlement issue in plaintiffs/respondents’ favor. 

            The germane facts go this way.  Disgruntled homeowners sued their prime contractor on numerous theories, after contractor abandoned the project and owner completed the project on their own.  Owners sought to recover about $688,272 in damages.  Owners settled an encroachment claim based on a missurvey by another defendant, prior to trial, for $185,000 (way less than their expert’s calculations), with the settlement being confirmed as a good faith settlement that would be “credited” against any ultimate judgment in owners’ favor.  At the conclusion of evidence in a jury trial, homeowners dismissed three warranty claims.  A jury found for owners and against contractor, on a breach of contract claim, in the sum of $100,000.  However, the jury also returned a defense verdict in favor of contractor and against owners on a negligence (construction defect and delay) count.

            Owners were awarded $45,344 in routine costs (unopposed by contractor).  Owners then sought $681,390.15 in attorney’s fees and other expenses, broken down as the $45,344 in routine costs, $133,250.66 in costs “not on cost bill,” $500,170.49 in trial attorney fees, and $2,625 in fees by expert witness Richard Pearl (who authored the CEB treatise on “California Attorney Fee Awards” and provided a declaration to owners on the propriety of hourly rates charged by owners’ successful attorneys).  Significantly, no attorney time sheets or other detailed records were submitted with the moving papers. 

            Contractor decided to devote a lot of resources to its opposition to owners’ fee request.  They opposed on these grounds:  (1) owners had failed to meet their burden of proof necessary to support a fee award; (2) the amount must be reduced because owners had limited success; (3) the amount must be reduced because owners did not prevail on the encroachment claim against contractor; (4) the amount must be reduced because owners lost the warranty and negligence claims; and (5) the amount must be reduced because there were litigation inefficiencies, over-complication of the trial, and duplicative efforts. Contractor submitted a lengthy opposition memorandum (citing Mr. Pearl as support on some occasions) and a 2000-page declaration from one of contractor’s counsel, which the appellate court dubbed as possibly being “the longest declaration in the history of California jurisprudence” (Slip Opn., at p. 10)—showing why substantial amounts of time had to be apportioned out to “losing” encroachment or negligence claims. 

            In reply, owners countered with a 6 ½ page memorandum and three page attorney declaration.  Not much attention was devoted toward controverting the analysis in contractor’s opposition brief.  However, owners did file a supplemental declaration with some billings, but billings that were so completely redacted that one could not even discern the nature of the services provided. 

            The lower court hearing was an interesting affair, although it certainly would not have been a good predictor of the ultimate result in the court below.  The trial judge agreed that the supplemental billing information was uninformative, because it was redacted so severely.  The lower court was also confused about why owners’ attorneys did not submit more meaningful information in light of defense challenges to the fee request.

            Care to guess what happened next?  (I will bet some litigators will get it right.)  The trial judge awarded “full monty” fees and costs to owners in the sum of $681,390.15.  He found that apportionment should “not be utilized where the action deals only with a pecuniary claim, and not a matter dealing with the public interest” and that it was inappropriate “to penalize plaintiffs because their attorney utilized multiple theories of defendant’s liability to recover damages but did not recover on each cause of action.”

            The First District, Division Two’s opinion—a 3-0 decision authored by Justice Richman—is must reading for practitioners about the type of fee substantiation and opposition to the amount of a fee request that will persuade justices at the appellate level to overturn a suspect fee award.

            Even under the deferential abuse of discretion standard, the appellate panel found that the trial judge actually ignored governing law in awarding everything that owners requested in fees despite a credible opposition from contractor.  A reasonable attorney’s fee is what must be awarded, not the amount claimed or theoretically owing by the client to the attorney under the retainer or contingency fee agreements.  (See Vella v. Hudgins, 151 Cal.App.3d 515, 521 (1984) [“it does not follow that the fees awarded must necessarily equal the full amount of the client’s obligation when the contract is enforceable.”].)

            The first flaw with the trial court’s perspective, wrote Judge Richman, is the assumption that a lodestar approach only applies in “public interest” settings.  Wrong, citing to PLCM Group, Inc. v. Drexler, 22 Cal.4^th 1084, 1095 (2000) as well as Mr. Pearl’s own CEB treatise.  In the situation before it, the appellate court could not discern whether the trial judge eliminated duplicative, wasteful or other noncompensable work—the specter of which was raised by the opposition—because of its erroneous “public interest” mindset.

            It was also mistaken to not apportion under the circumstances.  Owners’ counsel acknowledged that the contract case and the negligence case were different in nature. However, the germane contractual fee clause was narrow in nature, only extending to contractual “interpretation/enforcement” disputes rather than broader tort disputes arising between the parties.  So, apportionment was a necessary task for owners in requesting fees.

            Owners tried to beat apportionment by a very familiar retort—issues were so “interrelated” such that apportionment was impracticable.  The main defect in this contention was that owners did not just lose on variant theories, but actually lost disparate claims.  Where separate claims are won and lost, apportionment must be undertaken, Justice Richman reasoned on behalf of the 1/2 panel.  (See Sokolow v. County of San Mateo, 213 Cal.App.3d 231, 248, 250 (1989); Bell v. Chula Vista Unified Sch. Dist., 82 Cal.App.4^th 672, 689 (2000).) 

            The Court of Appeal next addressed the claim for $133,250.66 in “expert witness fees and costs.”  Although the contractual fee clause would allow for recoverability of these costs, owners failed to plead and prove them as damages at trial, deficiently claiming them as costs after judgment.  (See First Nationwide Bank v. Mountain Cascade, Inc., 77 Cal.App.4^th 871, 878-879 (2000); Jones v. Union Bank of California, 127 Cal.App.4^th 542, 551 (2005); Hsu v. Semiconductor Systems, Inc., 126 Cal.App.4^th 1330, 1341 (2005); Carwash of America-PO LLC v. Windswept Ventures No. 1, LLC, 97 Cal.App.4^th 540, 544 (2002).)  Beyond that, many of the claimed non-expert costs had no support under the Code of Civil Procedure routine costs provisions, except for “some support services and paralegal time … includable within an award of attorneys’ fees ….”

(See City of Oakland v. McCullough, 46 Cal.App.4th 1, 7 (1996); see also our June 4, 2008 post about recovering paralegal fees as attorney’s fees in certain contexts.)

            End result in Rossa?  Reversed and remanded for further proceedings.  Owners lost their $681,000 fees/costs award, and are likely to recover substantially less on remand (especially since the original trial judge is retired and the matter likely will be assigned to a new trial court having mainly the appellate decision to guide it on remand).

            BLOG FAVORITE QUOTE IN DECISION—Owners criticized one of contractor’s attorney declarations for drawing “questionable statistical conclusions.”  Justice Richman colorfully retorted:  “It reminds one of Mark Twain’s recitation that there are ‘lies, damn lies and statistics.’”  (Slip Opn., at p. 10 n. 6.) 

            

            

            

            

Borrower Prevailing On Contract Claim Entitled To Fee Award Even Though He Did Not Prevail On Noncontractual Claims

Fourth District, Division One Reverses Fee Denial Based on Hsu v. Abbara.

            We survey unpublished decisions because they frequently reinforce distinctions that get lost in translation because of the diffuse opinions on the “prevailing party” concept in California attorney’s fees award jurisprudence.  The next case reminds us that the “prevailing party” determination means that the proper focus must remain on results reached under the contract-based claims, not the contract winner’s success or failure on noncontract claims.

            FDIC v. Dintino, Case No. D051447 (4^th Dist., Div. 1 Sept. 9, 2008) (unpublished) involved a borrower who had prevailed against the lender on a breach of contract cause of action.  However, borrower did not do so well on lender’s unjust enrichment claim, with lender recovering over $415,000 on its unjust enrichment claim.  Borrower moved for attorney’s fees of $41,285.98 and $7,000 in costs based on a fee clause in the promissory note, contending he was the prevailing party under Civil Code section 1717 for having been the victor on bank’s contract claim.  The trial court denied the fee request, explaining that bank was the prevailing party by having “achieved its main litigation objectives.”

            Borrower appealed both the merits and the fee denial.  He lost the merits appeal, but the Fourth District, Division One reversed the order refusing to grant borrower an award of attorney’s fees.

            Justice McDonald—writing for a 3-0 panel—found that borrower was entitled to an award of reasonable attorney’s fees for prevailing on the contract claim.  Hsu v. Abbara, 9 Cal.4^th 863, 873-874 (1995) [one of our Leading Cases] noted that in 1987 the Legislature amended Civil Code section 1717 to replace the term “prevailing party” with “prevailing party on the contract,” “evidently to emphasize that the determination of prevailing party for purposes of contractual attorney fees was to be made without reference to the success or failure of noncontract claims.”  Because a trial court has no discretion to deny fees to a clear winner (such as borrower on bank’s contract claim), borrower was entitled to a fee recovery.

            However, the appellate panel would not simply award the requested $48,285.98 in fees and costs on a carte blanche basis.  Justice McDonald, on behalf of the 4/1 panel, remanded to the trial court with directions to (1) award reasonable fees; and (2) apportion fees and costs between those expended against the contract claim and those incurred in defending the noncontract causes of action.  Also, borrower was awarded reasonable fees for prevailing on appeal.

            BLOG OBSERVATION #1—The Court of Appeal did cite to the leading apportionment cases, which we repeat here:  PM Group, Inc. v. Stewart, 154 Cal.App.4^th 55, 68-69 (2007); Erickson v. R.E.M. Concepts, Inc., 126 Cal.App.4^th 1073, 1083-1086 (2005); Akins v. Enterprise Rent-A-Car Co., 79 Cal.App.4^th 1127, 1133 (2000); Abdallah v. United Savings Bank, 43 Cal.App.4^th 1101, 1111 (1996); Reynolds Metals Co. v. Alperson, 25 Cal.3d 124, 129 (1979) [another one of our Leading Cases].

            BLOG OBSERVATION #2—Dintino also had two merits rulings of interest:  (1) it expressly disagreed with the conclusion reached in Sierra Craft, Inc. v. Magnum Enterprises, Inc., 64 Cal.App.4^th 122 (1998) that a summary judgment denial can only be reviewed by extraordinary writ petition, determining that the denial can be challenged upon review of the ultimate judgment; and (2) it decided that the “discovery accrual” rule applied to borrower as far as determining when the applicable three-year statute of limitations (Code Civ. Proc., sec. 338, subd. (d)) began running on lender’s unjust enrichment claim. 

            

Fifth Time Is Not The Charm For Losing Homeowner: HOA Homeowners Awarded $47,335.72 In Costs And $264,549.60 In Attorney’s Fees

Fourth District, Division Three Sustains Fee Award Against Nonvictorious Homeowner Under Civil Code section 1354(c).

            Civil Code section 1354(c) provides:  “In an action to enforce the governing documents [such as homeowner association CC&Rs], the prevailing party shall be awarded reasonable attorney’s fees and costs.”  Because statutory provisions present issues of law for de novo appellate review, homeowner—who had lost five prior appeals—went 6-0, when our local Santa Ana-based appellate court affirmed an award of $47,335.72 in costs and $264,549.60 in attorney’s fees after the trial court granted a summary adjudication against homeowner (finding that a CC&R amendment was valid) and after homeowner lost a bench trial for claimed incidental “damages” of $400,000 that he suffered before the effective date of the amendments.  (Appellant had named 120 fellow members in the HOA as defendants.) 

            In Tezak v. Blanco, Case No. G038314 (4^th Dist., Div. 3 Sept. 9, 2008) (unpublished), Justice Ikola—writing for a 3-0 panel—found that appellant’s “damages” claim was tantamount to a claim requesting enforcement of the CC&Rs.  The panel found that the reasoning in Chee v. Amanda Goldt Property Mgt., 143 Cal.App.4^th 1360, 1380-81 (2006) was apt, which also found that an action for breach of contract was equivalent to an action to enforce the CC&Rs. 

            Justice Ikola also found no abuse of discretion in sustaining the fee award at a practical level.  Because defendant homeowners clearly prevailed in the action, no error occurred in affirming the entire award.  (See Heather Farms Homeowners Assn. v. Robinson, 21 Cal.App.4^th 1568, 1574 (1994).) Beyond that, losing appellant had failed to comply with the alternative dispute resolution procedure required for homeowner-HOA disputes—which involve solely declaratory, injunctive, or relief writ below small claims limits of $5,000-$7,500—a factor that can be weighed by a trial judge in awarding attorney’s fees.  (Code Civ. Proc., sec. 1369.580.) 

California Courts Of Appeal Statistics On Affirmances, Reversals, And Publication For Civil Appeals

Plus, Blog Observation on Anecdotal Application to Appeals Involving Fee Awards.

            We give a hat tip both to Benjamin Shatz of En Banc and Greg May of The California Blog of Appeal for highlighting the Judicial Council of California’s recent issuance of the “2008 Court Statistic Report” for California courts during fiscal year 2006-2007 (as well as prior intervals, for you statisticians out there).  We now hone in on the results for civil appeals and then provide our thumbnail analysis of what these statistics tell us about results on civil appeals involving fee awards.

            First, we give you the cold, hard statistical results for California Courts of Appeal, because that is where most of the law emanates from:

·        The category:  disposition of civil appeals—Courts of Appeal. 

The results:  66% -- full affirmance;

                     10% -- affirmance with modifications;

                      20% -- reversal; and

                        3% -- appeal dismissed.

(Can’t tell you where the missing 1% went!)

·        The category:  publication rate for civil appeals—Courts of Appeal.

The results:  18% on a statewide basis. 

(Lowest civil publication rate – Fourth District, Division Two – 4%;

Highest civil publication rate – Third District – 29%.)

            Second, we give you a blog anecdotal observation as far as what these statistics might mean in relation to attorney’s fees award.  Based upon our review of 135 published and unpublished state opinions for the last four months (May 13-September 5, 2008 as discussed on our posts), the statistics break down like this for the four-month period: the full affirmance rate on fee awards is about 63%, while the affirmance with modifications rate is only 3%. Reversals are 29% of the total, and dismissals accounted for 5%. The affirmance rate seems consistent with the abuse of discretion standard governing many of the appeals. The reversal rate—about a third more than the 20% reversal rate for all civil appeals—may be accounted for by two trends we see in many fee/costs opinions: (1) the trial judge used the wrong legal standard in determining fee entitlement or in exercising his/her discretion, or (2) the appellate court simply believed that there was an abuse of discretion, opining that no trial court could come to a different decision that the conclusion reached by the reviewing panel.