“No Wine Before Its Time”: Attorney’s Fees Awarded At San Francisco Counsel Rates For Napa Case Work; Photocopying Of Exhibits Not Used At Trial Can Still Be Awarded As Discretionary Costs

First District, Division Two Finds Relevant Geographic Market for Hourly Rate Determination Not Limited to Case Venue and Resolves Split in Decisional Authority on Costs in Favor of Trial Court Discretion.

     As the Thanksgiving Holidays have drawn close, our state appellate courts have issued a plethora of interesting opinions in the attorney’s fees/costs arena. Here is one that focuses upon the geographical market for hourly rates and upon whether unused trial exhibit photocopying can be awarded as a cost in the discretion of the trial court.

     Beckstoffer Vineyards II v. Deem, Case No. A119337 & A120210 (1^st Dist., Div. 2 Nov. 25, 2008) (unpublished) concerned sellers (certain vineyards) that won a $267,576 contractual breach damage award against certain purchasers of cabernet sauvignon wines, with the purchasers also being defensed on their counterclaim that the grapes were subpar for premium wines. (In case you have not already guessed it, the case was venued in Napa County, California.) Because there was a contractual fees clause in the purchase agreements, vineyards moved for an award of $718,402 in fees under Civil Code section 1717, based upon hourly rates for vineyards’ San Francisco attorneys/paralegals, and costs of $16,200 for “models, blowups, and photocopies of exhibits” (even though the total cost request was $41,437). The trial court awarded vineyards all of the requested fees of $718,402 and costs of $29,975.76, although denying purchasers’ requests to tax the costs for models, blowups, and exhibit photocopies. Both the fee and costs orders were appealed from and then consolidated for decision.

     Vineyards prevailed, with both awards being affirmed on appeal in a 3-0 decision authored by Justice Lambden for a First District, Division Two panel.

Attorney’s Fees Award

     No one disputed that vineyards prevailed for section 1717 purposes or that the lodestar methodology was the proper one for application by the appellate court. Because the “reasonable hourly rate is that prevailing in the community for similar work,” PLCM Group, Inc. v. Drexler, 22 Cal.4^th 1084, 1095 (2000) [one of our Leading Cases], purchasers argued that San Francisco attorney hourly rates should not be used for purposes of gauging reasonable rates for Napa (we affectionately call this the “invader argument”). The invader argument did not win out, because the trial court quite pragmatically felt that the entire Bay Area was the relevant community given that one-half of the attorneys litigating cases in Napa came from outside of Napa (with many “invading” from San Francisco). “Contrary to the purchasers’ contention, the relevant ‘community’ for purposes of a fee award is not necessarily limited to the place where the courthouse is located …. The purchasers point to no authority that holds the community for purposes of calculating a reasonable fee must be the one in which the court is located.” (Slip Opn., at p. 6.) In fact, PLCM did award fees to attorneys at the prevailing San Francisco market rate even though the case was venued in Los Angeles County.

     Purchasers also challenged vineyards’ presentation of attorney declarations attesting that their rates were market rates for the San Francisco area, even though the declarations cited a supporting study published by Citibank (which we assume was not government funded, before the recent financial crisis). The Court of Appeal decided that attorney declarations alone can carry the day, with attached paid invoices establishing prima facie evidence on the reasonableness of the requested hourly rate. (MBNA America Bank, N.A. v. Gorman, 147 Cal.App.4^th Supp. 1, 13 (2006).)

     Purchasers next argued that the fee award for 2,300 hours was excessive, because it does not take that much time to prosecute a breach of contract case. Recognizing the pragmatics of modern day, contentious litigation, the appellate panel in Beckstoffer Vineyards II found no error in full compensation, relying on these factors: (1) the case was originally set for a jury trial (where fees often exceed $1 million) before the parties agreed to a bench trial; (2) trial courts should not be required to meticulously dissect the litigation into micro-components for purposes of awarding fees; (3) there was substantial related work to be done on the fees motion so as to justify the $60,000 tab for this motion alone; (4) the prevailing party appropriately used associates, rather than partners, to do much of the early pretrial work; and (5) the case did involve counterclaims for defective grapes, which were fact intensive and presented expensive issues of proof to be rebutted by the vineyards in their role as the defense.

Costs for Photocopying of Unused Trial Exhibits

     Purchasers contended that the $16,200 award for the cost of photocopying trial exhibits was unjustified, because only 61 out of 202 copied exhibits were actually used at trial (with multiple sets being prepared—one for the court, one set for each witness, a set for counsel, and a backup set). They specifically argued that the trial court did not have the authority under Code of Civil Procedure section 1033.5 to award costs for photocopying exhibits not used at trial.

     What is interesting is that the Court of Appeal affirmed the award of these costs, but did acknowledge that there was a split in appellate thinking on the subject. See, e.g., Applegate v. St. Francis Lutheran Church, 23 Cal.App.4^th 361, 364 (1^st Dist., Div. 3 1994) [trial courts have discretion under section 1033.5(c)(2) to allow costs for trial photographs and blueprints if they were reasonably necessary for the conduct of the litigation, even if the matter had been dismissed]; Seever v. Copley Press, Inc., 141 Cal.App.4^th 1550, 1559-1560 (2d Dist., Div. 7 2006) [disagreeing with Applegate; statutory language of section 1033.5(a)(12) excludes ability to award costs for exhibits not used at trial]; Benach v. County of Los Angeles, 149 Cal.App.4^th 836, 855-857 (2d Dist., Div. 8 2007) [trial courts have discretion to award costs for unused trial exhibits under section 1033.5(c)(4)]. The Beckstoffer Vineyards II panel agreed with the reasoning of Applegate and Benach, finding that section 1033.5(a)(12) permits costs for exhibit photocopying “reasonably helpful to aid the trier of fact” and section 1033.5(c)(4) permits the court to consider items not mentioned in the statute at the court’s discretion. As further support, Justice Lambden observed that section 1033.5(b)(3) bars the costs of photocopying, “except for exhibits.” From this, he concluded: “Thus, the statute does not expressly disallow photocopying exhibits that are not used for trial; such costs, when reasonably necessary to the conduct of the litigation, may be awarded by the trial court under subdivision (c)(4) of section 1033.5 of the Code of Civil Procedure.” (Slip Opn., at pp. 14-15.)

     Under the circumstances, the lower court did not abuse its discretion in awarding costs for the photocopying of the unused trial exhibits. The parties exchanged all exhibits, and the lower court believed that prudent litigators fully preparing for trial would have all exhibits available for use. (BLOG OBSERVATION—Because Marc and Mike are litigators, we find this to be a pragmatic conclusion. It is always better to be overinclusive on exhibit lists; otherwise, a litigator faces preclusion of documents by failing to include them in the mutual exchange of exhibits. In Orange County Superior Court, the local rules for unlimited jurisdiction trials mandate that the parties meet and exchange, among other items, exhibits no less than 10 days before the scheduled trial date in a session known as an “issues conference.” See Local Rule 450. The parties must execute a statement of compliance indicating that all the mandated tasks were done at the issues conference.)

     Purchasers ended by challenging that the vineyards presented no substantiation for the $16,200 in claimed costs for the unused exhibit photocopying. Justice Lambden countered by stating that purchasers miscomprehended the nature of burdens in cost proceedings. The verified costs memorandum is prima facie evidence of the propriety of the claimed costs, with the burden on the taxing party to show the costs were not reasonable or necessary. (Jones v. Dumrichob, 63 Cal.App.4^th 128, 1266 (1998); see also the excellent discussion of these burdens in Erickson v. Fry’s Electronics, Inc., recently reviewed in our November 26, 2008 post.)

     BLOG UNDERVIEW—Seever was discussed in our June 27, 2008 post review of Roberts v. Ross (an unpublished Fourth District, Division One decision) in which the appellate court upheld allowing an unlisted plat map expense to be awarded as a cost. Seever apparently did not allow reimbursement of unused trial exhibit photocopying expenses based on its interpretation that section 1033.5(a)(12) did not allow for it—“Because the Legislature has expressly stated in subdivision (a)(12) what is allowable (exhibits used at trial that are reasonably helpful) and implicitly what is not, the discretion granted in section 1033.5, subdivision (c)(4), to award costs for items not mentioned in section 1033.5 is simply inapplicable.” Seever, supra, 141 Cal.App.4^th at 1559-1560. This conflict in thinking on the unused trial exhibit photocopying issue should be resolved so that litigators know what will and what will not be subject to recapture in subsequent cost proceedings.