CALIFORNIA ATTORNEY'S FEES

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Brandt Fees: Yes, They Can Be Assigned

 

Unpublished Second District Decision So Held Last Year.

      In Brandt v. Superior Court, 37 Cal.3d 813 (1985), the California Supreme Court determined that attorney’s fees were recoverable as damages to insureds for purposes of recovering the contractual benefits under insurance policies.

     Are Brandt fees assignable (likely part of a settlement)? For those of you wanting an answer—and it is “yes”—see the reasoning of the Second District from an unpublished decision of fairly recent vintage, Encarnacion v. 20^th Century Ins. Co., Case No. B179825 c/w B182737 (2d Dist., Div. 1 Sept. 21, 2007) (unpublished).

M&M's 2008 “Top Ten” Attorney’s Fees Cases

 

Part 2 of 2 – We Finish Off With The Last Five Cases And An  “Honorable Mention”

     Oh, the suspense … and the ball has not yet dropped from above Times Square. You have to go to our prior post to see the first part of this list. Here is the rest of our top ten 2008 attorney’s fees decisions.

5. Christian Research v. Alnor, 165 Cal.App.4^th 1345 (2008): Wholesale Fee Reductions In Order Where Fee Claimant Blockbills, Makes Vague Entries, And Overstaffs The Case.

     Decision contains a good discussion on awarding fees in an anti-SLAPP motion context. Decision suggests that winner should apportion out work related only to the anti-SLAPP motion, should avoid blockbilling, and should not bill for unnecessary duplication. Appellate court sustained wholesale reductions in fees on these grounds, indicating such wide-ranging reductions can be made by state trial judges.

     [Discussed in our August 13, 2008 post; Fourth District, Division 3; author: Justice Aronson]

4. Moreno v. City of Sacramento, 534 F.3d 1106 (9^th Cir. 2008): Fee “Haircuts” Above 10% Must Be Specifically Justified By District Judges.

     District judges must specifically explain “fee haircuts” of more than 10% when reducing fee requests. Contrast this rule with the broader discretion given to state trial judges in Alnor (case #5).

     [Discussed in our August 2, 2008 post; Ninth Circuit Court of Appeals; author: Chief Judge Kozinski]

3. EnPalm, LLC v. Teitler Family Trust, 162 Cal.App.4^th 770 (2008): Case Discusses Lodestar Reduction and Enhancement Factors For Fee Awards Under Civil Code Section 1717.

     Decision contains an extensive discussion of lodestar reductions factor in Civil Code section 1717 fee situations. A dissenting opinion by Presiding Justice Cooper has a useful discussion of factors used to increase or reduce the lodestar in both section 1717 and public attorney general cases.

     [Discussed in our May 12, 2008 post; Second District, Division 8; majority author: Justice Rubin; dissenting author: Presiding Justice Cooper]

2. Vasquez v. State of California, 45 Cal.4^th 243 (2008): Code of Civil Procedure Section 1021.5 Fee Award Does Not Require Reasonable Settlement Efforts As A Mandatory Prerequisite In “Noncatalyst” Cases.

     Reasonable settlement efforts are not a prerequisite for a fee award under Code of Civil Procedure section 1021.5 in “noncatalyst” cases, though it is one of the discretionary factors for trial courts to weigh in determining whether private enforcement was sufficiently necessary to justify awarding fees.

     [Discussed in our November 20, 2008 post; California Supreme Court; author: Justice Werdegar]

1. Olson v. Automobile Club of Southern California, 42 Cal.4^th 1142 (2008): Expert Witness Fees Not Recoverable As Code of Civil Procedure Section 1021.5 Costs.

     Expert witness fees are not recoverable under Code of Civil Procedure section 1021.5 (the private general statute) in addition to attorney’s fees authorized by the same statutory scheme, disapproving Beasley v. Wells Fargo Bank, 235 Cal.App.3d 1407 (1991).

     [California Supreme Court; author: Justice Moreno]

Honorable Mention: Ritter & Ritter, Inc. v. The Churchill Condominium Assn., 166 Cal.App.4^th 103 (2008): Condominium Owner Recovers Substantial Fee From HOA, With Dissent Lamenting Fees Spent On A Matter That Could Have Been Arbitrated In A Couple of Days.

     Decision involved a homeowners association (HOA)-homeowner dispute in which homeowners were awarded $531,159 in fees even though they won only $4,620 in damages from a jury and obtained a mandatory injunction from the trial court. The dissent is memorable for lamenting the amount of fees spent on a matter that should have been arbitrated in a couple of days.

     [Discussed in our July 24, 2008 post; Second District, Division8; majority author: Presiding Justice Cooper; dissenting author: Justice Rubin]

Mike and Marc's “Top Ten List” Of 2008 Attorney’s Fees Decisions

 

Who Says David Letterman Has The Only Good “Top Ten List”?

Part 1 of 2: Five of the Top Ten Decisions

     We may not have the panache of David Lettermen, but we do offer our “Top Ten List” of 2008 attorney’s fees decisions although we have no guest star to count them off! Here we go—and we thank all of you readers for following us and wish you a Happy 2009 as well. (The numbering is not intended to reflect order of importance, and we have only canvassed published decisions because they can be cited.)

     Part II with the next five, and an honorable mention, will follow soon.

10. Profit Concepts Mgt., Inc. v. Griffith, 162 Cal.App.4^th 950 (2008): Civil Code Section 1717 Fee Award Allowed For Successfully Bringing a Motion to Quash Service.

     An award of attorney’s fees was allowed under Civil Code section 1717 to a defendant who successfully moved to quash service for lack of personal jurisdiction; the resulting order to quash had finality for purposesof resolving the case brought in California.

     [Discussed in our May 11, 2008 inaugural post—Fourth District, Division 3; author: Justice Fybel]

9. Glencoe v. Neue Sentimental Film AG, 168 Cal.App.4^th 874 (2008): Litigant Fearing Loss on Potentially Dispositive Ruling Can Avoid Civil Code Section 1717 Fee Exposure By Dismissing Action With Prejudice Prior to Actual Ruling.

     A litigant facing contractual fee exposure under Civil Code section 1717 can dismiss action with prejudice, avoiding section 1717 fee exposure in the process, if the dismissal is made prior to a potentially dispositive motion ruling where the proceeding has not “ripened to the point of inevitability.”

     [Discussed in our November 26, 2008 post—Second District, Division 4; author: Presiding Justice Epstein]

8. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858 (2008): Judicial Estoppel Under Civil Code Section 1717 Not Justified Solely Because Opponent Prayed For Fee Recovery in Operative Pleadings.

     Civil Code section 1717 fees are only awardable where the opposing party actually is entitled to recover fees under a contractual fees clause; judicial estoppel cannot be based merely on the loser’s prayer for fee recovery in operative pleadings, following Leach v. Home Savings & Loan Assn.,185 Cal.App.3d 1295, 1307 (1986).

     [Discussed in our May 18, 2008 post—Sixth District; author: Presiding Justice Rushing]

7. Melbostad v. Fisher, 165 Cal.App.4^th 987 (2008): Anti-SLAPP Fee Order Entered After Entire Dismissal Is Immediately Appealable.

     Subsequent fee order in anti-SLAPP case is immediately appealable where there is an earlier judgment dismissing the entire action.

     [Discussed in our July 25, 2008 post—First District, Division 4; author: Justice Sepulveda]

6. Lange v. Schilling, 163 Cal.App.4^th 1412 (2008): Plaintiff Must Attempt to Mediate In Order to be Qualified to Recover Fees Under a CAR-Form Residential Purchase Agreement.

     Failure to attempt mediation before filing suit will disqualify a subsequent prevailing plaintiff’s fee petition based on a contractual fees/mediation clause in a California Association of Realtors’ form residential purchase agreement, tracking the reasoning of Frei v. Davey, 124 Cal.App.4^th 1506 (2004).

     [Discussed in our May 30, 2008 post—Third District; author: Justice Hull]

Part II—an upcoming post—will have the rest of our 2008 “Top Ten” and an honorable mention.

Enacted and Vetoed California Legislation Involving Attorney's Fees in 2008

Two Bills Enacted; One Vetoed

     Although a considerable segment of the state government's resources was consumed with general budgetary wrangling, two bills were enacted (effective January 1, 2009) and one bill vetoed with features involving attorney's fees/cost awards.

Civil Rights: Ninth Circuit Reverses $200,000 Section 1988 Fee Award For Failure To Explain Lodestar Calculation And Consider Plaintiff's Level of Success In the Litigation

Case Remanded for Fee Reconsideration by District Judge.

     California federal courts, at least in civil right cases, require more detailed findings in fee awards conferred to plaintiffs than our state courts do under similar circumstances. (As discussed in posts listed under our category "Cases:  Civil Rights," state courts do require specific findings in FEHA fee awards in favor of defendants as to frivolousness and as to plaintiffs' ability to pay; use our sidebar widget to do a blog search under Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, 91 Cal.App.4th 859 (2001).)  The next case demonstrates the rigor with which our Ninth Circuit requires findings in actions brought under 42 U.S.C. section 1983.

Family Law: Failure To Require Filing Of New Income/Expense Declarations Will Not Invalidate Statutory Fee Awards

 

Error In Not Requiring Updated Financial Declarations Deemed Harmless In Recent Fourth District, Division One Decision. 

     Under our category "Cases:  Family Law Awards," we have reviewed numerous attorney's fees awards under Family Code section 271 and other related provisions.  Section 271 is in the nature of a sanctions in family law cases, authorizing an award of fees and costs where a party or attorney frustrates settlement efforts or fails to reduce the costs of litigation through cooperative conduct.  Section 3557(a)(1)(A) authorizes a fees award to a custodial parent who brings an action to enforce an existing child support order.  Both statutes and court rules require that income and expense declarations be filed to assess fee award requests.  (See, e.g., Cal. Rules of Court, rule 5.128.) 

     In Marriage of Parker, Case No. D052580 (4th Dist., Div. 1 Dec. 23, 2008) (unpublished), former husband challenged fee awards under sections 271 and 3557 on the basis that the family law judge did not consider recent income/expense declarations when determining whether it should award fees against husband.

Eminent Domain: Condemnees Not Entitled To Award Of Litigation Expenses Where Pretrial Compensation Demand Included Fees And Condemnor's Final Offer Was Within 83% Of Jury's Valuation Award

Condemnees' Final Demand (With Fees Included) Was 44% Above Jury Award.

     We do not see that many fee award discussions in the eminent domain area, but the next post will be of interest to eminent domain practitioners. 

Losers Pay System: Manhattan Institute Civil Justice Report Proposes Losers Pay Alternative Based On Use of Legal-Expenses Insurance

 

Marie Gryphon Suggests Tweaks To the English Rule For Possible Use in the U.S.

     On December 2, 2008, we authored a post on Java Oil, Ltd. v. Sullivan, which explored the differences between the English Rule (losers pay attorneys' fees) and American Rule (each side bears own fees in the absence of a fee-shifting contractual clause or statutory provision).  Also, in California Litigation, Vol. 21, No. 3 (2008), we wrote:  "While the English Rule serves to weed out marginal cases by increasing the economic risk to a litigant who proceeds on weak grounds, the American Rule makes it easier for litigants to enter the courthouse by mitigating the consequences of losing."  Recently, Marie Gryphon, Senior Fellow at the Manhattan Institute for Policy Research (an attorney herself), has proposed a "losers pay" option that she believes would improve the American legal system.  This option is described in a December 2008 Civil Justice Report available for review by clicking here. We now summarize the highlights of this report and accompanying proposal.

Civil Code Section 1717: Broadly Worded Clause In Attorney Fee Retainer Resulted In Substantial Fee Award In Malpractice Action To Prevailing Client

Second District, Division Two Affirms $269,492.50 Fee Award Against Former Attorney Under Retainer Fee Clause.

      A recurring theme of our website is that litigation frequently funnels (or devolves, depending on your perspective) down to which litigant wins attorney’s fees under a fee-shifting mechanism. The next case, yet again, is a classic example of how that principle translates into “real time.”

     In Cardet v. Burlison, Case No. B198625 (2d Dist., Div. 2 Dec. 17, 2008) (unpublished), Former Client sued Former Attorneys for malpractice in failing to identify the proper parties and take the proper legal action to foreclose a mechanic’s lien in a homeowners’ association context. Former Client won an apportioned negligence verdict against Former Attorneys in the amount of $556,197 as well as a contractual breach and/or fiduciary duty verdict against Former Attorneys in the amount of $194,668.

Fee Arbitration: Attorney’s Rejection Of MFAA Adverse Arbitration Award And Failure To Timely Prosecute Subsequent Litigation Within Five Year Rule Repudiated Prior Rejection So Award Could Be Confirmed To Judgment

Sixth District’s Holding Based On Furthering Client Protections Under MFAA.

     The Mandatory Fee Arbitration Act (MFAA), Business and Professions Code section 6200 et seq., is a statutory scheme by which a client can attempt to inexpensively arbitrate fee disputes with an attorney without resorting first to formal litigation. For those of you wanting more information on this scheme, a good description of it is provided in the next case we explore, Perez v. Grajales, Case No. H031726 (6^th Dist. Dec. 19, 2008) (certified for publication) (Slip Opn., at pp. 16-20), a 3-0 Sixth District opinion authored by Justice Duffy.

     Perez also dealt with an interesting factual situation not confronted by prior jurisprudence in the MFAA area. After client was awarded $173,715 in fee arbitration under the MFAA, her attorney filed superior court litigation that had the effect of rejecting the arbitration award. Client also cross-complained in the litigation brought by attorney. However, neither attorney nor client prosecuted their actions so that they were brought to trial within the mandatory five-year rule, resulting in dismissal of both actions. Client then moved to have judgment entered on the arbitration award, a request denied by the trial court. Client appealed and obtained a reversal such that the trial court was directed to enter judgment on the prior arbitration award.

Costs: Costs Memorandum Does Not Have To Be Verified Under Penalty Of Perjury

Second District, Division Four Sustains Use of Judicial Council Form As Proper.

     Moghadam v. The Regents of the Univ. of Cal., Case Nos. B194314 & B196120 (2d Dist., Div. 4 Dec. 19, 2008) (certified for partial publication) involved an interesting issue of whether UC Regents’ refusal to allow inspection of student exams violated the Information Practices Act, Civil Code section 1798 et seq. Defendants won a summary judgment, with the trial court subsequently awarding costs of $9,032 out of a requested $13,242. Losing plaintiff moved to tax, with the trial court taxing interpreter fees of $4,210.

     Plaintiff appealed both the merits and costs award, although he lost both challenges upon review. The costs award challenge was decided in an unpublished portion of the decision.

Double Header -- Baseball Angels Dominate Judicial News Yet Again: Fourth District, Division Three Publishes Cohn v. Corinthian Colleges, Inc.

Mother’s Day Giveaway Does Not Violate Unruh Act or Give Losing Plaintiffs a Right to Fees.

     In our November 28, 2008 post, we discussed Cohn v. Corinthian Colleges, Inc., a Fourth District, Division Three decision holding that the Mother’s Day totebag giveaway at Angels’ Stadium did not violate the Unruh Act and that the losing plaintiffs were not entitled to recover attorney’s fees under the Act’s fee-shifting provision. On December 19, 2008, Cohn was certified for publication, ironically on the same day that the Angels-Anaheim appeal was decided by the same appellate court. (See our post of today for a discussion on that long-awaited decision.)

     BLOG CROSS-REFERENCE: Cohn also was a subject for discussion by Cal Biz Lit in his November 21, 2008 post.

 

 

Women and Men Playing Baseball c1910

Indemnity Clauses: “Batter, Batter, Batter – Up!” Angels Wins Anaheim Appeal, But Court Of Appeal Affirms Denial Of Fee Award To Angels

Fourth District, Division Three Determines Relevant Clause Is Only For Indemnity, Not Fee Recovery.

     In our July 12, 2008 post on indemnity clauses and our August 25, 2008 post on Carr Business, we discussed whether indemnification clauses could give rise to attorney’s fees. The quick answer is that it depends on the wording and placement of the provision in question. However, generally speaking, where the clause is directed at providing protection over third party events, it is difficult to construe the clause as being an attorney’s fees provision in a first party context. These principles did come into play in a very celebrated case that got a lot of publicity and now has come down to decision on appeal—City of Anaheim v. Angels Baseball, L.P., Case No. G037202 (4^th Dist., Div. 3 Dec. 19, 2008) (unpublished).  (For the whole megillah, click here.)

     The opinion makes interesting reading, because it involves contractual interpretation over a lease and whether the language required the use of the name “Anaheim” in the Angels baseball team’s jerseys, tickets, merchandise, souvenirs. Anaheim lost the merits, a judgment affirmed on appeal in a 2-1 opinion with Justices Aronson and O’Leary in the majority and Presiding Justice Sills in dissent. However, Angels appealed the trial court’s decision denying it prevailing party attorney’s fees under the indemnity provision of the same lease. (Although the opinion did not mention the amount, newspaper articles indicated that the Angels spent around $8 million in attorney’s fees litigating the case, not to mention fees on appeal.) Angels separately appealed the adverse fee ruling, but did not prevail.

Judicial Council of California Releases Statistics Report for Fiscal Year 2006-2007

State Trends: Trial Courts Dispose of Most Cases Within 18 Months and Jury Trials Are Decreasing in Numbers.

     Cal Biz Lit, one of our recommended fellow bloggers, posted the Judicial Council of California’s 2008 Court Statistics Report for the most recent fiscal year, 2006-2007. We share the nuggets of information that we gleaned from this report. (To Cal Biz Lit, we also say happy birthday for two years of blogging.)

     Here are the statistical nuggets we found to be most interesting:

Anti-SLAPP: Appellate Defendants Successful In Sustaining SLAPP Fee Awards On Appeal Entitled To Further Fees

Second District, Division Eight Acknowledges Principle in Recent Unpublished Decision.

     By now, we all know that successful defendants in an anti-SLAPP proceeding are entitled to a mandatory attorney's fees award. (Code Civ. Proc., § 425.16(c).) So, what about fees on appeal to a defendant/respondent successfully defending the grant of an anti-SLAPP motion?

Arbitration Fee Awards: Court Of Appeal Affirms Award Where It Was Within The Scope Of An Arbitration Contractual Clause

Fourth District, Division Three Determined that Arbitrator’s Award Was Governed By Arbitration, Not Reference, Principles.

     In our July 15, 2008 post on Patel v. Sagar, we discussed a situation where the Second District affirmed an arbitrator’s fee award based on the notion that the arbitrator has considerable leeway to apply “equitable principles” in awarding fees even where there was not a clear basis for fee entitlement. In the next case from our local Santa Ana appellate court, there was a clear basis for fee entitlement and the arbitrator did award substantial fees to the winning party. Not surprisingly, after determining that arbitration rather than reference rules applied, the arbitration fee award was affirmed on appeal.

Cumis Fee Arbitration: “To Arbitration We Shall All Go”—“Mixed” Action With Bad Faith Allegations Does Not Take Cumis Dispute Out Of Arbitration Statute.

Second District, Division Seven Disagrees With Reasoning in Younesi.

     In the absence of contractual arbitration or other alternative dispute resolution process agreed upon by the interested parties, Civil Code section 2860(c) mandates final and binding arbitration of any state court dispute between the insured and insurer over fees to be reimbursed to insured's independent counsel chosen under San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d 358 (1984). Fireman's Fund Ins. Companies v. Younesi, 48 Cal.App.4^th 451, 459 (1996) held that section 2860's arbitration provision did not apply to an action that alleged claims beyond a mere Cumis attorney's fees dispute (including allegations of malpractice and fraud). The Second District, Division Seven recently departed company with this reasoning in Younesi. The case in which this occurred is Compulink Management Center, Inc. v. St. Paul Fire & Marine Ins. Co., Case No. B204797 (2d Dist., Div. 7 Dec. 17, 2008) (certified for publication), the subject of this post.

FEHA: Losing Plaintiff Suffers Adverse Costs Award, With No Need To Weigh Whether Plaintiff Has The Ability to Pay

 

Fourth District, Division One Rejects Engrafting Rosenman Requirements Into Routine Costs Proceedings.

     In our earlier posts of December 11, 2008 on Trisler and December 16, 2008 on Young, we discussed the Rosenman requirements in FEHA cases: the trial court must make specific written findings as to why the action was frivolous and about plaintiff's ability to pay before attorney's fees can be properly awarded to the winning defense. (Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, 91 Cal.App.4^th 859, 866 (2001).) The next case involves a creative argument made by a plaintiff who contended that the same requirements should govern imposition of routine costs that are claimed by the victorious defendant. This creativity did not find receptive ears with the Fourth District, Division One in Arnold v. The Senate Rules Committee, Case No. D051862 (4^th Dist., Div. 1 Dec. 16, 2008) (unpublished).

Civil Code Section 1717: Fees Incurred In Previously Dismissed Action Properly Allowed In Refiled Action Where First Action Work Necessarily Used in Second Action.

Fourth District, Division Three Also Faces Grant/P R Burke Appeal Untimeliness Issue.

     Two interesting issues were raised in Presiding Justice Sills’ opinion on behalf of the Fourth District, Division Three in Kenney v. Tanforan Park Shopping Center, Case Nos. G038323 & G039372 (4^th Dist., Div. 3 Dec. 15, 2008) (unpublished). The first concerns timeliness of an appeal, involving debate around an issue that needs clarification. The second concerns whether the Santisas bar—precluding a fee award under Civil Code section 1717—applies where the work in the previously dismissed action is used in a subsequent refiled action. Keep reading and you will determine how these issues were resolved.

Routine Costs: Trial Judge Found To Have Inferentially Granted 30-Day Extension to File Costs Memorandum When Granting Costs Where Memorandum Untimely Filed Under CRC 3.1700(a)

Fourth District, Division One Also Finds Untimeliness Argument Waived, But Also Decides Merits in Favor of Costs Claimant.

     California Rules of Court, rule 3.1700(a)(1) does contain a time deadline for filing and service of a costs memorandum after mailing of notice of entry of judgment or dismissal—15 days. The lower court has also discretion to extend the time for filing and servicing a cost memorandum for up to another 30 days if the parties do not agree to a specified extension. (See Cal.Rules of Court, rule 3.1700(b)(3).) However, a recent published decision holds that the lower court will be presumed to have granted the extension by granting costs under an untimely costs memorandum—without even a request by the cost claimant or an express statement by the lower court that the time is being extended.

HOA Fee Award: No Error Where No Evidence Submitted To Backup Argument That Claimed Fees Were Unreasonable

Fourth District, Division Three Finds the Lack of Evidence to be Dispositive.

     If you are going to challenge a fee claim as being unreasonable or excessive in nature, you need to be prepared to present evidence to back up these arguments. The failure to do so will likely lead to affirmance of a fee award under the deferential abuse of discretion standard, as the next case illustrates. It also teaches that, when on appeal, practitioners need to accurately summarize trial court comments in order to avoid rebukes (or possibly sanctions) against the offending attorney representing a party on appeal.

     In Pacific Ranch Homeowners Assn. v. Murry, Case No. G040215 (4^th Dist., Div. 3 Dec. 12, 2008) (unpublished), HOA prevailed in an action compelling Mr. Murry to remove a hot tub from his condominium unit after a trial lasting less than 8 hours. HOA sought $92,708.95 in fees, but was awarded $47,367 (probably under either Civil Code section 1354 or Civil Code section 1717; see our category “Cases: Homeowner Associations”). Mr. Murry appealed, challenging the fee award as unreasonable in nature.

Some Holiday Fun: Some Attorney’s Fees Awards Or Settlements In The News

One Involves DJ Samantha Ronson, and the Other Involves City College of San Francisco.

Everyone knows that we are in the Holidays, with client meetings and office parties abounding (even if the economy is not like it was in years past). So, we will have some Holiday fun by reporting on two recent media stories involving our favorite topic—attorney’s fees awards or settlements.

DJ Samantha Ronson, Attorney Martin Garbus, and Blogger Perez Hilton

DJ Samantha Ronson was not amused by blogosphere gossip about DJ Samantha Ronson by blogger Perez Hilton, involving a blog that linked to another Celebrity Babylon blog story                       [See real Babylon below]suggesting that the cocaine found in the well-publicized Lindsay Lohan Mercedes crash in Beverly Hills in May 2007

Brandt Fees: Don’t Be Stubborn—Apportion!

Third District Affirms Refusal to Award Any Fees to Insured Who Balked at Apportionment.

     Co-contributors Marc and Mike have written an article, “When The American Rule Doesn’t Apply: Attorney’s Fees As Damages In California Litigation,” published in 21 California Litigation, No. 3, at pages 19, 22-24 (2008), which has a discussion on attorney’s fees awardable to insureds for gaining the contract benefits of their insurance policies as damages under the venerable decision in Brandt v. Superior Court, 37 Cal.3d 813 (1985). In that article, we discussed not only Brandt, but the California Supreme Court’s follow-up decision requiring apportionment in Cassim v. Allstate Ins. Co., 33 Cal.4^th 780 (2004). This article can be accessed in our November 13, 2008 post, and we again give thanks to the State Bar of California for allowing it to be posted to our blog.

     The next case deals with Brandt/Cassim apportionment issues, reinforcing the lesson that a prevailing plaintiff insured needs to apportion rather than taking the draconian position that the entire contingency fee percentage had to be applied to the whole trial verdict. Such a draconian position can yield a draconian result: in this case, zero attorney’s fees even though the trial court seemed amenable to award something if apportionment had been attempted.

     Ivers v. Allstate Ins. Co., Case No. C054148 (3d Dist. Dec. 12, 2008) (unpublished) involved a plaintiff insured who ultimately prevailed in a jury trial against Allstate on the breach of contract claim, with the jury awarding him $676,532.80 for a fire loss incident. The first jury deadlocked on a tortious breach claim, but a second jury found in plaintiff’s favor but awarded no additional compensatory damages. No punitive damages were imposed by the second jury. Plaintiff moved to recover an attorney’s fees award as damages on his tortious breach claim, a request which was denied in entirety.

     The Third District affirmed, in a 3-0 decision authored by Justice Hull.

     Our state supreme court in Cassim considered the proper method of allocating Brandt fees under a contingency fee arrangement where a plaintiff pursues and recovers under both breach of contract and other claims (even though Brandt fees are only recoverable on the contract claim). Cassim set out an apportionment formula that was a midway approach between the draconian positions advocated by the insurer and the insured. The supreme court set forth this formulation: “To determine the percentage of the legal fees attributable to the contract recovery, the trial court should determine the total number of hours an attorney spent on the case and then determine how many hours were spent working exclusively on the contract recovery. Hours spent working on issues jointly related to both the tort and contract should be apportioned, with some hours assigned to the contract and some to the tort. This latter figure, added to the hours spent on the contract alone, when divided by the total number of hours worked, should provide the appropriate percentage.” (Cassim, supra, 33 Cal.4^th at 812.)

     That brings us to what happened in Ivers.

     Because the jury awarded no tort damages, plaintiff contended that no apportionment was appropriate at all, even though the trial court had afforded him an opportunity to make a Cassim-like allocation. The Third District found that this argument was inconsistent with Cassim. “Plaintiff’s argument to the contrary is essentially one of heads the insured wins, tails the insurer loses. If the contract portion of damages is small in comparison to the overall compensatory damages award, plaintiff would have the court compute Brandt fees by apportioning the overall recovery in accordance with the percentage of time spent by his attorneys on the contract claim, as in Cassim. However, if only contract damages are awarded, or the contract portion of damages is large in comparison to the overall award, plaintiff would have the court award Brandt fees based on the contract award alone, without apportionment. We conclude Cassim mandates apportionment in either case.” (Slip Opn., at pp. 8-9.)

     In denying attorney’s fees, the trial court indicated that plaintiff submitted $22,000 in billing statements, with $21,000 being for work preceding the denial of his insurance claim. Plaintiff then submitted an additional $72,000 in billing statements, but a substantial amount of the time involved work on non-contract claims. Thus, plaintiff failed to satisfy his burden of properly apportioning under Cassim—despite having been given an opportunity to submit further evidence for allocation purposes. The lower court was correct to reject the entire fee request based on plaintiff’s failure to satisfy his burden to properly apportion.

     The lesson from this one extends beyond the Brandt context: if a lower court gives you leave to submit further evidence because it wants apportionment, don't be stubborn -- you are prudent to take advantage of the opportunity and present further proof in line with its directives.

Civil Code Section 1717 and Code of Civil Procedure Section 998: Poof! Substantial Fee/Cost Award Reversed Where Underlying Judgment Was Reversed

    Fourth District, Division Three Finds That Abandonment of Action Must Be Clear Before Dismissal Is Entered; With Dismissal Gone, Fee/Cost Award Is Also Reversed.

     California litigators frequently have heard the mantra that "cases are to be tried or heard on the merits." In line with that, there are corollary principles, such as pretrial dismissals are disfavored unless specified rules are followed. The next case illustrates that dismissals based on abandonment must strictly follow the rules. If not, subsequent orders—such as a $205,492 fee award and a $41,382.99 cost award—are also jeopardized (meaning the fee/cost awards go poof!), the situation faced in the case we review below.

     In Kruse v. McLaughlin, Case No. G039240 (4^th Dist., Div. 3 Dec. 12, 2008) (unpublished), plaintiffs sued defendant for nondisclosure in the sale of a single-family residence. The parties' real estate purchase agreement had an attorney's fees clause, requiring mediation as a condition precedent to a fee award. The parties unsuccessfully attempted mediation. They then engaged in nonbinding judicial arbitration where plaintiffs failed to prove damages, and defendants were awarded $197,809.60 in fees and $24,754.27 in costs. Plaintiffs filed for trial de novo. Plaintiffs moved to file a first amended complaint and sent a letter to the defense clarifying the claims upon which they were proceeding (namely, only certain defects in the home were being pursued). Defendant filed a motion to dismiss on the basis that the letter was tantamount to an "abandonment" of all the claims in the original complaint. The trial court found an abandonment and dismissed plaintiffs' action. Later, defendant moved for fees of $305,578.77 and costs of $41,382.99. The trial judge awarded defendant fees of $205,492 plus full requested costs of $41,382.99, under both Civil Code section 1717 (the contractual fee clause) and Code of Civil Procedure section 998 (plaintiffs' rejection of a 998 offer greater than the amount of their recovery). Plaintiffs appealed both the dismissal and fee/cost orders.

     The Fourth District, Division Three, in a 3-0 opinion authored by Justice Fybel, reversed across the board.

     Plaintiffs never clearly abandoned their case, with the letter relied on by the trial court failing to show an unequivocal abandonment. (Kaufman & Broad Bldg. Co. v. City & Suburban Mortg. Co., 10 Cal.App.3d 206, 213-214 (1970).)

     Upon reversal of the judgment on which fees and costs were awarded, the appellate court had no choice but to overturn the postjudgment order awarding attorney's fees and costs. (Metropolitan Water Dist. v. Imperial Irrigation Dist., 80 Cal.App.4^th 1403, 1436 (2000).) Just like that—poof!—the fee/cost award disappeared once the underlying judgment was reversed.

Civil Rights: Ninth Circuit Reverses And Remands District Court's Refusal To Award Fees To Plaintiffs Obtaining Both A Preliminary And A Permanent Injunction

District Court Did Not Identify Special Circumstances Rendering a Fee Award Unjust Under Civil Rights Fee-Shifting Statute.

     Six media corporation plaintiffs obtained both a preliminary injunction and permanent injunction against the Nevada Secretary of State pursuant to the federal civil rights statute, which also has a fee-shifting statute in 42 U.S.C. § 1988(b). Plaintiffs then sought fees pursuant to section 1988, but the district court denied the request based on finding unarticulated "special circumstances" that would make a fee award unjust.

     On appeal, the Ninth Circuit—in a per curiam opinion—reversed and remanded. American Broadcasting Companies, Inc. v. Miller, Case No. 07-15227 (9^th Cir. Dec. 12, 2008) (published).

     The Court of Appeals observed that a prevailing party should normally be awarded fees under section 1988, with a district court needing to issue findings of fact and conclusions of law identifying the "special circumstances" for departure and explaining why a fee award was determined to be unjust. Sethy v. Alameda County Water Dist., 602 F.2d 894, 897 (9^th Cir. 1979) (per curiam). The district judge's single-sentence did not identify the special circumstances, requiring reversal and a remand.

     The district judge did cite Thorsted v. Munro, 75 F.3d 454 (9^th Cir. 1996) as a basis for finding "special circumstances," but the Ninth Circuit was unimpressed. Thorsted had previously been found to be based on factors "largely unique to that case." Democratic Party v. Reed, 388 F.3d 1281, 1285 (9^th Cir. 2004).

     Instead of Thorsted, the district court should have focused on the bipartite test in Mendez v. County of San Bernardino, 540 F.3d 1109, 1126 (9^th Cir. 2008) to determine if "special circumstances" existed to depart from the presumptive fee recovery rule: (1) whether awarding fees would further the purposes of section 1988; and (2) whether the balance of equities favored/disfavored the denial of fees. Again, the Ninth Circuit stressed that an award of fees was the general rule, unless there was a strong likelihood of success on the merits and strong likelihood of a substantial judgment at the litigation's outset.

     The fee denial judgment was vacated and remanded for the district court to conduct an analysis under Mendez as well as enter the findings required by Sethy.

FEHA Winning Supervisor Awarded Only $1 In Attorney’s Fees Because Non-Fee Garnering Employer Funded Winner’s Defense

 

Second District, Division Eight Affirms Lower Court’s Discretion to Not Award Fees to Winning FEHA Defendant Where the Actual Beneficiary of the Award is Another Defendant Not Entitled to Fee Recoupment.

     In our December 11, 2008 post on Trisler, we discussed the FEHA fee-shifting statute, Government Code section 12965(b), and the leading case of Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, 91 Cal.App.4^th 859, 864 (2001), which in tandem establish that a prevailing FEHA defendant should be awarded fees only “in the rare case in which the plaintiff’s action was frivolous, unreasonable, or without foundation.” Rosenman also established the requirement that specific written findings be made in cases where lower courts determine the FEHA plaintiff’s action was frivolous as well as specify whether plaintiff has the ability to pay an adverse fees award. The next case presented an unusual twist: winning supervisor defendant was determined to be appropriately awarded fees, but supervisor’s defense was funded by a winning employer defendant which was not entitled to a fee award. Keep reading and see how the lower and appellate courts resolved this twist.

     Young v. Exxon Mobil Corp., Case No. B189263 (2d Dist., Div. 8 Dec. 11, 2008) (certified for partial publication) involved a plaintiff employee (Ms. Young) who was terminated after closing down a 24-hour service station for several hours, in violation of company policy. Young sued her employer (Exxon) and her supervisor (Ms. Lopez) under FEHA, principally claiming harassment on the basis of mental disability, retaliation, and wrongful termination. Young lost a summary judgment motion to both defendants, with the trial judge finding that she did not negate Exxon’s legitimate, nondiscriminatory reasons for terminating her and that she could not prove the reasons were pretextual in nature. Supervisor (not Exxon) filed a motion for attorney’s fees under the FEHA fee-shifting statute, seeking $18,750 in fees (about one quarter of the fees spent in the total defense of the action). The trial court did find that Young’s claims, as against the supervisor, were “unreasonable, frivolous, meritless, vexatious, without foundation, and brought in subjective bad faith.” However, Lopez’s defense fees were paid by Exxon, such that the lower court concluded it “does not seem right” to award fees back to a party which did not claim Young’s claims were frivolous. The trial court awarded Lopez nominal attorney’s fees of $1.00. Both employer and supervisor cross-appealed this ruling.

     The Second District, Division Eight, in a 3-0 published decision penned by Presiding Justice Cooper, affirmed the fees award on appeal.

     The appellate court framed the question as being whether the trial court abused its discretion in refusing to award fees to a defendant who did not incur or pay them, when the fee award would redound to the benefit of another defendant which was not entitled to a fees award. “To this question, our answer, in this case, is “no.” In other words, while a trial court should ordinarily award attorney fees to a prevailing defendant in an FEHA action when the court finds the plaintiff’s action was frivolous, the court has the discretion not to do so if the actual beneficiary of the attorney fee award is a defendant to which an award could not otherwise be made.” (Slip Opn., at p. 20.)

     Exxon and Ms. Lopez argued that there are many other cases in which courts have awarded fees to prevailing parties even though those parties were not actually liable for or did not incur or pay fees. (Among others, see, e.g., International Billing Services, Inc. v. Emigh, 84 Cal.App.4^th 1175, 1192 (2000) [Civil Code section 1717]; Beverly Hills Properties v. Marcolino, 221 Cal.App.3d Supp. 7, 9, 11 (1990) [same].) Justice Cooper, however, found these situations distinguishable because “in all those cases, the attorney fee award actually benefits the prevailing party or an entity which has provided the services and would otherwise not be compensated for them.” (Slip Opn., at p. 21.) Put another way, the parties or entities in the cases relied on by Exxon/Lopez were not disqualified from obtaining fees in the first instance.

     Furthermore, the evidence of record did not show that Ms. Lopez incurred any fees over and above that necessary to also defend Exxon in the case—another reason justifying the nominal award by the lower court.

     With respect to Rosenman’s requirement of making findings on plaintiff’s ability to pay, this was unnecessary in this case because the $1.00 award would certainly not “break the bank” or lead to financial ruin. However, there was also evidence of record showing that Ms. Young would be bankrupted or seriously hurt if she had to pay the requested $18,750 fee award. The lower court’s “equitable” decision in Young was affirmed upon review.

Nonvictorious FEHA Plaintiff Suffers Adverse $150,000 Fees Award

Second District, Division Two Affirms Award and Acknowledges that Findings of

Frivolousness Must Be Written/Specific in Nature.

     As we have noted in past posts on actions brought under the Fair Employment and Housing Act (FEHA, Gov. Code, § 12940 et seq.), a court has discretion to award fees and costs to the prevailing party. (Gov. Code, § 12965(b).) In many instances, the fee-shifting statute favors plaintiffs, who are routinely awarded fees as prevailing parties, whereas defendants only obtain fees based on specific, written findings that their opponents' actions were "frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith." (Cummings v. Benco Bldg. Services, 11 Cal.App.4^th 1383, 1392, as reviewed in many of our posts under the category "Cases: Civil Rights.") Simply because a plaintiff did not ultimately prevail at trial is not reason alone to award fees against an unsuccessful FEHA plaintiff. (Christianburg Garment Co. v. EEOC, 434 U.S. 412, 421 (1978).) However, in the next case, plaintiff was assessed with a substantial fee award, with the appellate court directly addressing the specificity of written findings necessary to sustain an award based on prosecution of a frivolous FEHA action.

     In Trisler v. Los Angeles County Metro. Transp. Auth., Case No. B200770 (2d Dist., Div. 2 Dec. 10, 2008) (unpublished), plaintiff—who worked only 65 days for MTA before his employment was terminated—sued under FEHA for disability discrimination, failure to accommodate, and retaliatory discrimination. His retaliation claim was dismissed through a grant of an in limine motion, and the jury returned a verdict against plaintiff on the remaining counts. The trial court subsequently found that plaintiff's prosecution of the case past the discovery stage was frivolous, awarding MTA $150,000 of its requested $179,921.81 in attorney's fees (reducing the amount "to be conservative"). Plaintiff appealed.

     The Second District, Division Two affirmed the $150,000 fee award against plaintiff.

     There was plenty of evidence in the record below to support the lower court's finding of frivolity. Plaintiff was not honest with the MTA about having physical restrictions (not telling interviewees about any disability) or a criminal history (also not telling them about a prior misdemeanor battery) when applying for employment. Plaintiff lied on his employment application with a subsequent employer, indicating he had never been terminated or convicted of a crime. Plaintiff never complained to any MTA supervisors about unfair treatment, but was fired because he has unhelpful or "missing in action" for prolonged periods on the job. Even though plaintiff survived summary judgment motion on his claims, this did not create a "bright-line rule" indicating a litigant can never be liable for attorney's fees in the FEHA area. (Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, 91 Cal.App.4^th 859, 866 (2001).) After discovery, plaintiff should have known—factual issues aside—that his FEHA claims were without merit, exposing him to fee recovery for continued prosecution of his action. The appellate court found that his situation was different than just having a weak case, but was acutely distinguishable because plaintiff continually distorted facts and could not produce any credible testimony to support his need for accommodations for any physical disability.

     In Rosenman, the deciding appellate court imposed a "nonwaivable" requirement that a trial court make written findings that a plaintiff's action was frivolous, unreasonable or groundless in all FEHA cases where attorney's fee are awarded to a defendant. (91 Cal.App.4^th at 868). In a footnote, the Rosenman court further suggested that lower courts should also make findings on plaintiff's ability to pay a fee award. (Id. at 868-869 n. 42.) Because the lower court in Trisler did not make written findings on plaintiff's ability to pay, plaintiff argued the matter had to be reversed and remanded. The Second District, Division Two found this omission was not prejudicial at all. At the hearing on the fees motion, the trial judge referred to plaintiff's admissions at trial that he was independently wealthy, did not need another dime during his lifetime, and had extensive asset holdings. This testimony sufficed to demonstrate ability to pay, with both the trial and appellate courts dismissing a contradictory fee declaration from plaintiff indicating he only made $280 per month and was struggling to pay bills. The Court of Appeal did have this observation for future cases: "We agree with the Rosenman court that the better course of practice is for trial courts to make written findings on all factors that support an award of attorney fees to a defendant in a FEHA case, including the ability to pay attorney fees. But where, as here, the record makes clear that the trial court considered appellant's failure to pay, we are satisfied that the public policy of not discouraging meritorious FEHA claims has been respected." (Slip Opn., at p. 19.)

     BLOG UNDERVIEW—In an interesting footnote on the Rosenman "written findings" requirement, the Trisler panel did note that the Ninth Circuit in Miller v. Los Angeles County, 827 F.2d 617, 621 n. 5 (9^th Cir. 1978) had previously stated "a district court should not refuse to award attorney's fees to a prevailing defendant …solely on the ground of the plaintiff's financial situation."

Buyer Of Used Car Awarded Attorney's Fees Of $28,591.50 Under The Automobile Sales Finance Act

Court of Appeal Finds No Prejudice In the Sequence of Entry of the Fee Award.

     The Automobile Sales Finance Act (ASFA), in Civil Code section 2983.4, has a mandatory fee-shifting provision by which the prevailing party in any action on a contract or purchase subject to the ASFA must be awarded fees, "regardless of whether the action is instituted by the seller, holder or buyer." The next case deals with the ASFA fee-shifting section and a challenge to the way in which the interim fee award was entered by the lower court.

     Williams v. Ablakhad, Case No. B204042 (2d Dist., Div. 1 Dec. 10, 2008) (unpublished) dealt with a thorny procedural morass of a case. A jury found in favor of buyer on her ASFA claims, against buyer on some other claims, and "hung" on reaching a decision on the remainder of buyer's claims. The trial court declared a mistrial on the latter claims. The jury also found for seller on his contract and conversion cross-claims. Buyer filed a judgment notwithstanding the verdict (JNOV) motion against the cross-claim verdicts, but the trial court sua sponte ordered a retrial—a determination reversed in a prior appeal by which the appellate court ordered consideration of buyer's JNOV motion and setting the case for retrial on buyer's unresolved claims. On remand, the trial court initially awarded buyer ASFA attorney's fees of $28,591.50. The lower court subsequently granted buyer's JNOV motion (getting rid of seller's verdict wins), with buyer dismissing the remainder of her claims that had been ordered to retrial. Final judgment was entered, and seller appealed.

     Buyer prevailed on appeal. Seller's main challenge to the fee award was that the lower court prematurely awarded fees to buyer after the prior successful appeal but before a final judgment had been entered and a prevailing party determined.

     The Court of Appeal determined that any sequencing error was nonprejudicial in nature. "Nothing had changed between the court's interim order and its entry of final judgment, other than [buyer] having secured even greater relief in her favor. Accordingly, [seller] has not shown any abuse of the court's discretion in awarding the attorney fees in this case. (PLCM Group, Inc. v. Drexler (2002) 22 Cal.4^th 1084, 1095.)" (Slip Opn., at p. 11.)

Anti-SLAPP: Court of Appeal Affirms Attorney's Fees Award To Defendant SLAPP Winner

$9,321 Award Sustained Where No Error Shown By Losing Plaintiff.

     In Nejadpour v. Fink, Case No. B204937 (2d Dist., Div. 5 Dec. 10, 2008) (unpublished), plaintiff lost an anti-SLAPP motion and defendant was awarded $9,321 in mandatory fees out of a requested $10,296. The trial court actually accepted plaintiff's argument that some discovery fees needed to be excluded from the award. Plaintiff appealed, but did not show any abuse of discretion with respect to the fees award.

     Defendant's fee motion was accompanied by a counsel declaration attesting to time spent on the case and his billing rate as well as accompanying detailed billings. Plaintiff mainly argued that defendant's counsel was charging him under a "gentlemen's agreement at a discounted rate." Because this showing was only speculative in nature, the Court of Appeal affirmed the fee award, finding no abuse of discretion in rejecting the speculative argument and giving credence to the detailed billing information presented by the defense.

Sanctions: Evidence and Adverse Jury Instruction Sanctions Not Allowed For Document Production Transgression Absent Failure To Obey An Order Compelling A Further Response

Second District, Division Three Decides Sanctions Unwarranted Because The Underlying Conduct Was Not Egregious in Nature.

     In New Albertsons, Inc. v. Superior Court (Shanahan), Case No. B207661 (2d Dist., Div. 3 Dec. 10, 2008) (certified for publication), the Court of Appeal—in a 3-0 opinion authored by Presiding Justice Croskey—issued mandate to allow withdrawal and amendment of a request for admission response and overturning nonmonetary sanctions (e.g., an evidence sanctions and adverse jury instruction on spoliation) because no prior order had been entered compelling a further response to a relevant document demand.

     Many of the discovery statutes state that the court can impose issue, evidence, or terminating sanctions only if a party fails to obey a court order compelling discovery. The New Albertsons court strengthens this general principle in the context of many discovery/spoliation disputes. It also distinguishes decisions such as Do It Urself Moving Storage, Inc. v. Brown, Leifer, Slatkin & Berns, 7 Cal.App.4^th 27 (1992), Vallbona v. Springer, 43 Cal.App.4^th 1525 (1996), Pate v. Channel Lumber Co., 51 Cal.App.4^th 1447 (1997); Williams v. Russ, 167 Cal.App.4^th 1215 (2008); Karlsson v. Ford Motor Co., 140 Cal.App.4^th 1202 (2006); and Mileikowsky v. Tenet Healthsystem, 128 Cal.App.4^th 262 (2005) as involving egregious misconduct, violations of agreements to preserve evidence, a willful pattern of discovery abuses, or misrepresentations about the existence or availability of certain proof.

     Based on the policy favoring adjudications on the merits, the Second District, Division Three also overturned the trial court’s decision to not allow amendment of a request for admission, determining that the admission withdrawal was not substantially prejudicial or that the mistake was inexcusable in nature.

     BLOG BONUS COVERAGE—A similar result was reached in an unpublished Fourth District, Division Three opinion authored by Justice Fybel. In Miley v. Lopez, Case No. G032106 (4^th Dist., Div. 3 July 20, 2004) (unpublished), a trial court precluded a defendant from testifying in a car accident case, through plaintiff's in limine motion, based on defendant's failure to appear at a deposition four months earlier. The Court of Appeal reversed this evidentiary sanction because the specific deposition discovery statute required that defendant first disobey an order compelling his deposition attendance/testimony before more draconian sanctions could be imposed. (See Slip Opn., at 10-11, relying on Code Civ. Proc., § 2025(j)(3).) Because no prior order was obtained compelling a deposition which was disobeyed, the pretrial preclusion order was erroneous. Justice Fybel also distinguished Do It Urself Moving and Pate, finding that there was no showing that a motion to compel the deposition would have been futile or would have failed to produce the desired result. Horvitz & Levy, by the way, was winning appellate counsel in both New Albertsons and Miley (with the appellate work headed by David Axelrad).

Television Provider Winning $1,591.38 From A Jury And A Court Injunction Is Awarded About $8.3 Million in Attorney’s Fees and Costs

 

 

District Judge Carter Awards Both Sides Fees Under the California Penal Code, the Communications Act, and the Digital Millennium Copyright Act.

     This next one is an interesting illustration of how each side can prevail and be awarded fees/costs under state and federal statutes, yet how one side can still be the “net” victor—if one discounts the multi-millions in fees paid to each side’s attorneys which were not recouped from the opponent. Strap on your sleigh bells for the ride—and here we go!

     Plaintiffs Echostar Satellite and DirecTV, the largest U.S. television providers, sued defendant NDS Group, which provided DirecTV’s security through the use of encryption technology and related “SmartCards.” It sued under various legal theories for allegations that NDS commissioned a hacking of plaintiffs’ anti-piracy cards such that the hacking ended up on the Internet, resulting in a wave of piracy forcing Echostar to replace 9 million compromised “SmartCards” at a cost of over $94.6 million. Plaintiffs submitted these claims to the jury: violations of the Digital Millennium Copyright Act (DMCA), the Communications Act (“Comm. Act”), California Penal Code sections 593(d) and 593e(b) (“Penal Code”), and the Racketeer Influenced and Corrupt Organizations Act (RICO), as well as an equitable claim under California Business & Professions Code section 17200 (“UCL”). NDS countered with a trade secret claim under California’s Uniform Trade Secrets Act (“UTSA”).

     Two titans like this ran up a lot of fees and costs, as we shall see. Following a four-week jury trial, the jury found: (1) NDS was not responsible for the Internet posting; (2) NDS had not acted with oppression, fraud, or malice, or engaged in a conspiracy; (3) NDS did violate three of the six counts involving the Comm. Act and Penal Code due to NDS’s unauthorized interception of Echostar’s signal, awarding Echostar total damages of $1,591.38 (yes, a little shy of sixteen hundred dollars), breaking down as a $45.69 award under the Comm. Act, $45.69 under one of the Penal Code sections, $500 minimum statutory damages under the Penal Code, and $1,000 minimum statutory damages under the Comm. Act; and (4) Echostar did not violate the UTSA under NDS’s counterclaim. Based on the jury’s finding on the three claims, Judge Carter did rule that NDS’s conduct constituted unlawful conduct under the UCL, entitling Echostar to some restitution and an injunction against any further “piracy.”

     So, what did the ultimate battle devolve to? You guessed it (we bet)—attorney’s fees!

     Echostar sought attorney’s fees of $15,945,095.81, plus costs and other expenses. Conversely, NDS requested an award of attorney’s fees totaling $23,914,983.74. Between the two sides (excluding hard costs and expenses), there was a total of almost $40 million spent and at issue in the fee proceedings.

     District Judge David O. Carter, in Echostar Satellite Corp., et al. v. NDS Group PLC, et al., Case No. SACV 03-950 DOC (JTLx) (C.D.Cal.), issued a December 4, 2008 opinion (Doc. No. 1191) in which plaintiffs ended up the “net” winner on the dueling fee petitions, but hardly the result that either side desired by far.

     Judge Carter did start out by setting the outer boundaries—the “American Rule” on attorney’s fees and its exceptions: absent a contract, an applicable statute, a finding that the losing party acted in bad faith, or other exceptional circumstances, each side bears its own attorney’s fees in federal court litigation. (Chang v. Chen, 95 F.3d 27, 28 (9^th Cir. 1996).) (BLOG OBSERVATION—For an explanation of the differences between the American and British Rules on attorney’s fees, see our recent December 2, 2008 post on Java Oil, Ltd. v. Sullivan.) Because the litigation spanned a decade in length and involved deposing 81 witnesses (many abroad), exceptional circumstances were present—and statutes did allow an award of fees—so as to lead to the conclusion that both parties achieved substantial successes warranting the imposition of attorney’s fees. This type of reasoning may be a bane to litigants wanting an unqualified win, but this type of “grand slam” result was not to be the result in this case.

     Attorney’s fees in favor of the prevailing party are mandatory under both the Penal Code (Pen. Code, sec. 593e(d)) and the Comm. Act (47 U.S.C. sec. 605(e)(3)(B)(iii)), the claims won by Echostar. Because no “prevailing party” definition exists under the Penal Code section, that determination is based on who won “on a practical level.” (Donner Mgt. Co. v. Schaffer, 142 Cal.App.4^th 1296, 1310 (2006).) Even though only winning on half of the claims and obtaining small damages, Echostar still prevailed on a practical level—after all, NDS was adjudged liable after a protracted jury trial and did with a court injunction under the UCL.

     Similarly, the district court was granted discretion under the DMCA to award reasonable attorney’s fees to the prevailing party (17 U.S.C. sec. 1203(b)(5)), which says plaintiffs and defendants are to be treated equally in such a determination. The factors to be weighed in determining the DMCA prevailing party are set forth in Fogerty v. Fantasy, Inc., 510 U.S. 517, 54-535; The Traditional Cat Ass’n, Inc. v. Gilbreath, 340 F.2d 829, 833 (9^th Cir. 2003), which are degree of success obtained, frivolousness, motivation, objective unreasonableness, and the need to advance compensatory and deterrence policies. Echostar’s RICO claim was intertwined with the DMCA claim, such that the fees on this separate claim had to be considered along with the DMCA fees. (No fees were found allowable under the UCL or Lanham Act based on a lack of fee authorization or the simple fact that the Lanham Act claim was not pursued in bad faith.)

     You may be seeing where Judge Carter is going. If not, the district court essentially found that both sides partially prevailed under the foregoing statutes—Penal Code, Comm. Act, DMCA, and RICO—such that each should be awarded fees under the lodestar methodology, subject to adjustments under the factors set forth in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 69-70 (9^th Cir. 1975). [The Kerr factors are: (1) time and labor required; (2) novelty and difficulty of issues; (3) skill required to perform the legal services properly; (4) preclusion of other attorney employment; (5) customary fee; (6) whether the fee is fixed or contingency; (7) time limitations imposed by client or the circumstances; (8) amount involved and results obtained; (9) experience, reputation, and ability of attorneys; (10) “undesirability” of the case; (11) nature and length of the professional relationship with the client; and (12) awards in similar cases.]

     That brings us to the “drum roll” in the case—the fee awards made by Judge Carter.

     Because both sides partially prevailed, Judge Carter “cut the cake” this way: (1) Echostar did not prevail on its Internet posting claims such that any unsuccessful claims should be excluded (he used a “crude” mathematical formula finding that ½ the amount of fees should be awarded based on Echostar winning 3 out of 6 claims); (2) NDS’s requested fees had to be reduced initially by ½ because it only prevailed on the DMCA and RICO claims; (3) NDS’s fees should be decreased ¼ because its billings seemed excessive given that the quality of work was equipoised with that of Echostar (where the fees were $8 million less); and (4) Echostar was entitled to a large award—an increased $5 million—for ultimately convincing a jury that some claims deserved compensation.

     The “bottom line” was that Echostar was to receive fees of $12,972,547.91 plus full costs of suit, whereas NDS recovered fees of $8,968,118.90 and no costs. As reported in an article on the DSS website entitled “Dish Network Awarded $8.3 Million in Attorney Fees,” there must have been substantial costs of almost $4.3 million because the “offsetting” difference in the fee awards was a little over $4 million in favor of the Echostar plaintiffs (apparently now affiliated with Dish Network).

     This decision illustrates the width breadth of discretion vested in judges to apply equitable factors when fashioning fee awards where “prevailing party” statutes allow such an exercise of discretion by the trial courts.

     Incidentally, some individual former NDS employees and another individual outside defendant sued by plaintiffs sought to recoup fees after they were successful in winning motions to dismiss. The former employees sought fees of $261,475.38 under the DMCA, the Lanham Act, and the California Penal Code, while the outside individual sought to recover fees of over $74,000. Both requests were denied, with Judge Carter principally finding that (1) there was no evidence these defendants actually paid any fees (with the award of fees to NDS being sufficient), (2) the complaints were dismissed for technical reasons such that these would not be considered victories on a “practical level,” and (3) the DMCA claims were neither unreasonable nor frivolous. (See Echostar Satellite Corp., supra, Doc. Nos. 1192 & 1193.) Again, the equities predominated in these companion fee rulings.

Anti-SLAPP: Losing Plaintiff Has To Pay Fees When Challenge On The Merits Is Affirmed On Appeal

Plaintiff’s Failure to Challenge Specifics of Fees Award Ends the Matter.

     The next case we discuss confronts somewhat conflicting themes in our whole blog. The amount of attorney’s fees award is usually a discretionary call reviewed under a deferential abuse of discretion standard. However, if one appeals and only challenges the correctness of the merits determination, an attorney’s fees award—whether inadequate or excessive in amount—will not be reviewed either way. The propriety of the fees award will be dependent solely on how the merits determination comes out.

     In Selznick v. Zacks, Case No. A120135 (1^st Dist., Div. 2 Dec. 9, 2008) (unpublished), plaintiff instigated a series of lawsuits against her former attorneys, with the thrust being that client was the victim of “sewer service” such that default judgments for collection of delinquent fees were either void or the product of tortious conduct. Eventually, both the trial and appellate courts determined that the core actions were protected by the Civil Code section 47 litigation privilege. (See Rusheen v. Cohen, 37 Cal.4^th 1048 (2006).) Pivotal to this determination was the fact plaintiff never submitted any evidence to counter the rebuttable presumption that she was served when her attorneys filed a proof of service. (Floveyor Internat., Ltd. v. Superior Court, 59 Cal.App.4^th 789, 795 (1997).) Also, the appellate court affirmed an anti-SLAPP motion win by attorneys against plaintiff based on the litigation privilege.

     Plaintiff also challenged the award of attorney’s fees and costs to former attorneys for winning the anti-SLAPP motion, because a fee award is mandatory in favor of an anti-SLAPP prevailing defendant. (See Code Civ. Proc., sec. 425.16(c); Sylmar Air Conditioning v. Pueblo Contracting Services, Inc., 122 Cal.App.4^th 1049, 1059 (2004); see also our category “Cases: SLAPP”.) However, the fees challenge was based solely on the contention that the lower court erred in granting the anti-SLAPP motion on the merits. Because the merits determination was correct, the fee award was affirmed automatically by the Court of Appeal.

     BLOG PRACTICE POINT—Recently, co-contributor Mike had a court hearing with a practitioner who won an anti-SLAPP motion. He asked how his fees should be proven. We refer everyone to our category “Cases: Substantiation of Reasonableness of Fees” on this inquiry. Even though a declaration of work by one of the involved attorneys can suffice for state court cases, we would suggest that fee claimants nonetheless attach detailed time billings to their declarations, redacting out any sensitive or privileged information. (If the redactions are significant, the practitioner should signal to the law-and-motion judge a willingness to produce unredacted billings on an in camera basis at the hearing.) This type of particularity, in our opinion, enhances credibility and makes it more difficult to sustain wholesale reductions in light of such detailed proof about fee work.

Independent Claims Adjustor Obtains Affirmance of Fee Award Under Contract With Insurance Carrier

Fourth District, Division One Rejects Judicial Estoppel Argument and Awards Fees on Appeal (to be Determined by the Trial Court).

     Who says that everyone in the insurance industry is cozy-cozy with each other? Not a foregone conclusion at all, especially when assertions of claims mishandling may cast aspersions on the reputation of the claims adjustor. A dispute erupts, one side wins (the claim adjustor), and the winning side seeks an award of fees against the carrier (likely, a former client) under a contractual fees clause. This is exactly the type of dispute we love to report on. Here are the facts and you can play judge on whether the adjustor or carrier should have prevailed.

     AIG lost a summary judgment battle brought by defendant Professional Claims Services, Inc. (PCS) under a contract containing both an indemnity provision (to PCS, in favor of AIG) and a contractual fees clause. AIG had sought damages of $607,000 and $150,000 in defense costs in case it lost. PCS was awarded $62,324 in postjudgment attorney’s fees under a fees clause in the contract with AIG.

     AIG appealed the adverse fee award and did not win on appeal, as the Fourth District, Division One determined in New Hampshire Indemnity Co. v. Professional Claim Services, Inc., Case No D052106 (4^th Dist., Div. 1 Dec. 8, 2008) (unpublished).

     AIG’s primary argument was that PCS was barred from a fee award based on the doctrine of judicial estoppel. The Court of Appeal rejected this argument, finding it did not square well with the mutuality principles governing enforcement of contractual fees clauses under Civil Code section 1717.

     Had AIG won on the issue of whether the indemnity clause was applicable (even though the issue was won by PCS), AIG would have been entitled to fees. This meant that there was no inconsistency in result at the first tier of analysis on the judicial estoppel issue.

     On the second analytical tier of the issue, PCS’ summary judgment motion was not inconsistent with a request for attorney’s fees. The separate battle over applicability of who owed what under the indemnity clause was not inconsistent with a claim by the ultimate victor for fees at the tail end of the litigation.

     The fee award in favor of PCS was affirmed on appeal and, in line with the prevailing intermediate appellate thinking on the subject, fixing of fees for the prevailing party on appeal (also PCS) was returned to the lower court for determination. (See, e.g., Security Pacific Nat’l Bank v. Adamo, 142 Cal.App.3d 492, 498 (1983).)

Plaintiff Prosecuting Unreasonable FEHA and Torts Against Governmental Defendants Suffers Adverse Fee and Costs Award of $221,452

Third District, in Unpublished Decision, Affirms Fee Award Against Losing Plaintiff.

     Many of our past posts under the category “Cases: Civil Rights” tend to demonstrate that it is an unusual showing that results in fee exposure for a losing plaintiff in civil rights or Fair Employment and Housing Act (FEHA, Gov. Code sec. 12940 et seq.) cases. However, with the right showing that the claims were objectively unreasonable from the start, defendants can recoup their fees. The next case, Olfati v. State Bd. of Equalization, Case No. C053897 (3d Dist. Dec. 5, 2008) (unpublished), shows how subsequent admissions in summary judgment proceedings can create the right record for imposition of fee awards normally not resulting in cases where plaintiffs are usually given the benefit of the doubt in vindicating civil rights/employment discrimination charges.

     In Olfati, plaintiff employee of the Board of Equalization (BOE) sued BOE and three individual BOE employees for fraud, defamation, retaliation in violation of FEHA, retaliation in violation of the False Claims Act (Gov. Code sec. 12650 et seq.), and discrimination/harassment in violation of FEHA. All defendants obtained summary judgment/adjudication of the claims, except the trial court gave plaintiff leave to amend to add a cause of action against BOE for retaliation under Labor Code section 1102.5. The lower court sustained a demurrer without leave on the added claim based on naming the individual defendants, adding new facts, failure to exhaust administrative remedies, and statutory governmental immunities.

     That brings us around to the topic that peaks our interest: attorney’s fees. Defendants moved for fees and costs pursuant to two sections: (1) Code of Civil Procedure section 1038 (allowing defense fees and costs for government tort actions not brought or maintained in good faith and with reasonable cause); and (2) Government Code section 12965(b) (allowing the prevailing party in a FEHA action reasonable attorney’s fees and costs in the trial court’s discretion). The trial court granted fees/costs under both statutes, ordering plaintiff alone to pay BOE fees/costs in the amount of $221,452. Plaintiff appealed, losing challenges to the merits determinations and the fees/costs award.

FEHA Fee-Shifting Provision

     Government Code section 12965(b) does allow fee-shifting when a FEHA action is found to be “unreasonable, frivolous, meritless or vexatious.” (Bond v. Pulsar Video Productions, 50 Cal.App.4^th 918, 921(1996); Cummings v. Benco Building Services, 11 Cal.App.4^th 1383, 1387 (1992).) The “meritless” and “vexatious” prongs are objectively based, although a finding of bad faith will provide even a stronger basis for imposition of fees. (Bond, supra, 50 Cal.App.4^th at 925.)

     Because the lower court’s findings were reviewed for abuse of discretion (Bond, supra, 50 Cal.App.4^th at 921), plaintiff failed to show that she had any basis to allege retaliation based on race, religious creed, national origin, sex, age, etc. as well as actually admitting in the summary adjudication proceedings that she was not discriminated against based on sex, religion, disability, or national origin. These circumstances and ultimate rulings in the law-and-motion proceedings showed plaintiff had no factual basis for the FEHA action “from the beginning.” (Slip Opn., at p. 45.) Nevertheless, fees were justified because BOE had to pursue discovery and bring subsequent summary judgment/adjudication motions to dispose of the FEHA claims.

     Plaintiff argued that the fees/costs award was flawed based on Hon v. Marshall, 53 Cal.App.4^th 470, 474, 478 (1997), which found section 12965(b) fees inappropriate where an adverse disposition was based on a litigant’s failure to exhaust administrative remedies. In contrast, plaintiff suffered an adverse determination on the merits, with the trial court determining she lacked facts to support the basic elements of her claims.

Tort Claims Act Fee-Shifting Provision

     Code of Civil Procedure section 1038 allows recovery of defense fees/costs in a Tort Claims Act case upon a finding that the plaintiff lacked either reasonable cause or good faith in filing or maintaining the lawsuit. (Kobzoff v. Los Angeles County Harbor/UCLA Medical Center, 19 Cal.4^th 851, 853 (1998).) The question of “reasonable cause” under section 1038 focuses on whether the claim was objectively tenable and is reviewable de novo, whereas the question of “good faith” centers into an inquiry on the plaintiff’s subjective intent and is scrutinized under the substantial evidence review standard. (Hall v. Regents of University of California, 43 Cal.App.4^th 1580, 1586 (1996).) The reasonableness test is much like that for a malicious prosecution action, depending on the tenability of the action actually brought, reasoned the Third District. (Leonardini v. Shell Oil Co., 216 Cal.App.3d 547, 571 (1989).)

     Plaintiff never even responded to the defense summary judgment arguments on the fraud count. The defamation count was precluded because two of the statements were not actionable and the other communications were covered by at least two privileges and multiple governmental statutory immunities. They were not tenable as a matter of law, concluded the appellate panel.

     Plaintiff again sought refuge under Hon, but it did not provide sufficient shelter. The Court of Appeal observed that other cases did award section 1038 fees even where the actions were found barred by statutory immunities. (See, e.g., Kobzoff, supra, 19 Cal.4^th at 854, 863-864; Salazar v. Upland Police Dept., 116 Cal.App.4^th 934 (2004).) Beyond that, the lower court also based its adjudications on the failure to satisfy the elements of each tort claim, which was an independent reason for affirmance.

     The substantial fees/costs award against plaintiff was affirmed.

     BLOG UNDERVIEW—Kobzoff reminds us that the UCLA-USC rivalry heats up again this weekend. Marc is a graduate from UCLA’s law school, while Mike is an undergraduate alumnus from USC. Mike is playing the odds and saying USC will win. Marc makes no predictions, though of course he would like to see UCLA win.

No matter what, may the best team win! Go Bruins; go Trojans. Whatever the outcome, we will continue publishing this blawg.

Costs: No Net Recovery Means Lower Court Has Discretion In Determining The Prevailing Party And Allocating Costs As It Sees Fit

Second District, Division Four So Rules in Case Where Plaintiff Only Recovered Restitutionary Judgment Equaling Deposit Check Returned by Defendants Prior to Lawsuit Commencement.

     In our category “Cases: Costs,” we have surveyed decisions interpreting assessment of routine costs to a “prevailing party” under Code of Civil Procedure section 1032. This provision is fairly mechanistic when determining a prevailing party entitled to costs as a matter of right—one of four situations must exist, namely, a litigant obtaining a net monetary recovery; a defendant obtaining a favorable dismissal; a defendant where no relief is awarded to either side; or a defendant where plaintiff obtains no relief against that defendant. Aside from these situations, the court has discretion to determine the prevailing party for costs purposes and “may allow costs or not and, if allowed may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Section 1034 [procedural rules for claiming prejudgment costs].” Section 1032’s discretionary prong was in play in the next case we discuss.

     Hagopian v. Barron, Case No. B204524 (2d Dist., Div. 5 Dec. 4, 2008) (unpublished) involved an aborted sale of property and possibly business assets between putative sellers and buyers. Sellers returned a $25,000 deposit check to purchasers, before purchasers sued for damages and specific performance. Eventually, purchasers lost most of their claims except on the restitutionary/promissory estoppel counts. However, the lower court basically ordered return of the $25,000 check, something which had already been tendered back by sellers but refused by purchasers prior to suit. (The appellate court did modify the judgment to reflect that sellers’ tender of the check was not conditional, meaning that the restitutionary judgment was effectively moot in nature.) The lower court found no one obtained a net monetary recovery, awarding 10% of purchasers’ incurred routine costs to purchasers and 90% of sellers’ incurred routine costs to sellers—with the result that sellers obtained a “net” costs award of $10,278.31 against purchasers.

     Purchasers appealed, claiming they were the prevailing parties. No way, ruled the Court of Appeal in affirming the lower court’s determination. Where no litigant obtains a “net monetary recovery” (one of the costs-as-a-matter-of-right triggers), the trial court has discretion to determine the prevailing party and allocate costs based on the relief obtained in line with the parties’ respective litigation objectives. (See Chinn v. KMR Property Management, 166 Cal.App.4^th 175, 187-188 (2008), reviewed in our post of August 24, 2008.) In this situation, the judgment (as modified by the appellate court’s determination that sellers made an unconditional tender of the deposit check) meant that purchasers only received a $25,000 restitution decree—no net monetary recovery given that the $25,000 deposit check returned prior to suit essentially “washed out” any pragmatic gain from the judgment. The lower court’s “prevailing party” and allocation decisions were sustained based on what occurred after trial and the modification on appeal.

Missed Meal and Rest Breaks Are Wages For Purposes Of Attorney's Fees Awards Under Labor Code Section 218.5

Fourth District, Division One Remands Cause For Recalculation of Fee Award After Eliminating Punitive Damage Recovery on Appeal.

     We now have an interesting case for labor law practitioners. It centers upon Labor Code section 218.5, which provides that "[i]n any action brought for the nonpayment of wages, ….the court shall award reasonable attorney's fees and costs to the prevailing party if any party to the action requests attorney's fees and costs upon initiation of the action." Brewer v. Premier Golf Properties, Case No. D050686 (4^th Dist., Div. 1 Dec. 3, 2008) (certified for partial publication) confronted some pleading, statutory construction, and 998 offer issues surely faced by labor litigators in this age where wage and hour violations are frequently raised by plaintiffs in their complaints.

     After a jury trial, plaintiff was awarded judgment for (1) $2,646 for meal period wages and $3,314.25 for rest period wages; (2) $4,000 as penalties under Labor Code section 226; (3) $15,300 in penalties under section 1197.1; (4) $956.10 for unpaid wages; (5) $195,000 for punitive damages; and (6) entitlement to subsequently recover attorney's fees and costs pursuant to section 218.5 and routine costs pursuant to Code of Civil Procedure section 1032.

     JNOV/new trial motions were filed, with the trial court granting the new trial motion unless plaintiff agreed to remit to $75,000 in punitive damages—something plaintiff did without waiving her appellate rights.

     In her Complaint, plaintiff pled recovery of amounts mandated under Labor Code section 226.7 (meal and real break violations) and included a request for attorney's fees. Her First Amended Complaint was even more specific in pleading entitlement to costs and fees under sections 210, 218.5, and 226. In the posttrial fee proceeding in which plaintiff sought nearly $150,000 in fees, the trial court disallowed all the fees for the "second chair" attorney (which reduced the fee request to $129,420) and then reduced that amount by one half to allocate out efforts on plaintiff's unsuccessful age discrimination claim—with the final fee award tallying $64,710. Both parties sought review.

     On appeal, Justice McDonald—on behalf of a 3-0 panel of the Fourth District, Division 1—threw out the punitive damage award completely, finding that the penalty schemes preempted any leeway for a further exemplary damage award. The rest of the merits determinations were sustained.

     That winnowed review down to the fee award.

     Employer first argued that Brewer failed to specifically plead fee entitlement in her pleadings. Employer wanted some magic, specific language citing section 218.5. The Court of Appeal found that the general prayer for fees sufficed, but also observed that plaintiff did specifically reference section 218.5 in the First Amended Complaint. No more was required.

     Employer next contended that compensation for denied rest and meal breaks does not qualify as "wages" for purposes of section 218.5 attorney's fees awards. Wrong, said the appellate panel. Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4^th 1094, 1108, 1114 (2007) established otherwise and nothing indicated the decision should not be given retroactive effect.

     Employer then claimed that its section 998 offer for $30,000 barred the fees award because the total of all damages, penalties and interest was short of that. Justice McDonald was skeptical, because that total was $27,599.62—and pre-offer costs (which include fees) had to be added before any shortfall could be confirmed. Because the pre-offer costs only had to exceed about $2,400, it was doubtful this argument would win. However, the appellate court did remand so the lower court could gauge the merits of this argument one way or the other.

     Because the matter was going to be remanded due to the striking of the punitive damage award, the fee award had to be reconsidered. However, the Brewer court did acknowledge that the trial court did use appropriate reductions from the lodestar figure—such as the limited success factor (e.g., winning the wage-hour claims but losing the age discrimination claim). See, e.g., Lyons v. Chinese Hospital Assn., 136 Cal.App.4^th 1331, 1345 (2006); Harman v. City and County of San Francisco, 136 Cal.App.4^th 1279, 1308-1316 (2006). Nevertheless, because the trial court's thinking might have been influenced by the punitive damage award, it was appropriate to remand to the trial judge for purposes of fixing fees in light of the reversal (because the punitive award elimination possibly might alter the lower court's thinking on the "degree of success" factor even more).

Enforcement Of Foreign Judgment Awarding Attorney’s Fees Against Plaintiff’s Attorney Upheld By Second District, Division Eight

Substantial Judgment Awarding Fees Found to be Nonpenal in Nature and Nonrepugnant to State Policy.

     This post examines an appeal raising challenges to substantial fee awards against a litigant’s attorney (a nonparty) by the Gibraltar Supreme Court, akin to a California superior court, under English law. After the Los Angeles County Superior Court entered a California judgment of $3,159,758.50 based on the Gibraltar judgments, attorney appealed, arguing that each judgment was either a penalty or repugnant to California state policy so as to not be deserving of enforcement under the Uniform Foreign Money-Judgments Recognition Act (UFMJRA), a prior version of Code of Civil Procedure section 1713 et seq. existing before 2007 amendments.

     The Gibraltar judgment, as converted to a California judgment, was upheld on a comity basis in Java Oil Ltd. v. Sullivan, Case No. B195862 (2d Dist., Div. 8 Dec. 2, 2008) (certified for partial publication).

     Aggrieved attorney got to this point by assisting a Mr. Laycock in bringing an action against two defendants for an alleged construction injury that was ultimately dismissed after the Gibraltar court found evidence the claims were fraudulent in nature. Defendants then brought actions against attorney, with the Gibraltar court finding he was complicit with Laycock in the fraudulent litigation. Eventually, two judgments were entered against attorney by the Registrar: the first for 621,958.75 pounds, representing the costs defendant incurred in defending against Laycock’s claims, and the second for 1,154,025 pounds, consisting of the fees/costs incurred in defendants’ prosecution of their claims against attorney personally. Prior to the hearing on the claims against attorney, he tried to seek Chapter 13 bankruptcy protection, but the bankruptcy judge found it to be bad faith filing after attorney failed to list income and the substantial claims pending in Gibraltar. The Los Angeles County Superior Court entered judgment against attorney for $3,159,758.50, giving complete comity to the Gibraltar awards.

     Attorney’s primary challenges on appeal—that the Gibraltar judgments were tantamount to penalties or were repugnant to California public policy—did not prevail.

Penalty Challenge

     Even though a penalty judgment is excluded from UFMJRA enforceability, the Court of Appeal found that it had to be penal in purpose, with cases and the Restatement of the Law, The Foreign Relations Law of the United States consistently finding that a fee award was not penal. The fee award implicated no penal law of Gibraltar, and no payment of money was ordered to a governmental entity. The fee award was not a penalty. (Accord, Erbe Elektromedizin GMBH v. Canady, 545 F.Supp.2d 491, 496 (W.D.Pa. 2008).)

Public Policy Repugnancy

     This argument pivoted around the premise that the Gibraltar awards—anchored in English law—violated the American Rule on attorney’s fees award where each side bears its own fees in the absence of a countervailing contract or statute. The appellate court did not find persuasive that the English Rule, where the loser must pay the winner’s attorney’s fees, is totally repugnant to a different policy that is not antithetical to some basic American moralist prohibition (especially given the findings by the Gibraltar court about fraudulent activity). With respect to the defense fees awarded against the attorney, this was found akin to attorney’s fees routinely awarded as damages in malicious prosecution cases. (See Bertero v. National General Corp., 13 Cal.3d 43, 59 (1974).) The fee award against attorney based on the defendants’ expenses in prosecuting their fraud action in Gibraltar were not repugnant to California policy given the determinations that attorney was complicit in the fraudulent litigation and had actually helped prepare false documents. Furthermore, there was case law establishing that a subsequent fee award after a prior judgment under English law should be given comity, even where United States law was different in the same context. (See Somportex Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 441-443 (3d Cir. 1971).)

     BLOG OBSERVATION—This case has an interesting discussion of the different philosophical underpinnings for the English versus American Rule for attorney’s fees awards. The American Rule is based on the democratic ideal that all citizens should have unfettered access to the courts, idealism obviously not shared by our counterparts in Great Britain. (See Mihalik v. Pro Arts, Inc., 851 F.2d 790, 793-794 (6^th 1988).)

Appealability: Another Reminder To Separately Appeal Subsequent Fee Award

Appellate Jurisdiction to Hear Fee Award Challenge Is Likely Not Cognizable

     In our category “Cases: Appealability,” we have reviewed numerous decisions from state appellate courts indicating that subsequent orders awarding attorney’s fees must be separately appealed where there is no mention of fees in a prior merits judgment. Averbuch v. Strekovsky, Case No. B201764 (2d Dist., Div. 8 Dec. 2, 2008) (unpublished) reinforces the teaching of those decisions. There, Father failed to appeal a subsequent fee order, never even mentioning it in the notice of appeal from a prior judgment that did not deal with fees at all. Result: the challenge of the fees award was not cognizable and was not entertained by the appellate court.

Appellate Sanctions: Timely Notify The Court Of Appeal About A Settlement Or Risk Sanctions Being Awarded Against You Under CRC 8.276(a)

First District, Division Two Orders Appellant’s Attorney to Pay Clerk Administrator $6,000 for Failing to Notify Court of Settlement Until One Day Before Oral Argument of Appeal.

     California Rules of Court, rule 8.244(a)(1),(3) requires that appellants file a notice of settlement with the appellate court, with the expectation that an abandonment or request for dismissal of the appeal will follow in 45 days. The First District, Division Two gave recent teeth to this rule, sanctioning appellant’s counsel $6,000 for waiting until one day before the scheduled oral argument—about 10 months after the settlement in principle had been reached—to notify the appellate court about the settlement. The case is Huschke v. Slater, Case No. A117114 (1^st Dist., Div. 2 Dec. 2, 2008) (certified for publication).

          The basic time chronology went like this:

• July 27, 2007 -- appellant files her opening brief;
• October 1, 2007 – appellate court send oral argument waiver letter, expressly

            asking the parties to notify it if settlement discussions

            are underway;

• October 10, 2007- appellant requests oral argument;
• December 2007 – case is settled in principle;
• August 25, 2008 – court sets cause for oral argument on September 16, 2008;
• September 15, 2008 – one of appellant’s counsel’s associates notifies the

            Presiding Justice that the case settled in December 2007

           and requests that the appeal be taken off calendar.

     The Court of Appeal was not impressed with the failure to comply with rule 8.244 and asked both sides’ counsel to submit a joint declaration of explanation, mainly on why the notice of settlement was so dilatory. Appellant’s counsel contended that a November 2007 letter was sent to both the appellate court and respondent’s counsel about the settlement, but neither had a file copy of the letter nor otherwise had evidence of receipt.

     Using both Code of Civil Procedure section 907 [the frivolous/dilatory appeal provision] and California Rules of Court, rule 8.276(a)(1)-(4) [a catchall allowing imposition of sanctions for “committing any other unreasonable violation of the rules”], the appellate panel found that there was at least injury to the court such that sanctions were justified as against appellant’s counsel personally.

     What about the amount of the sanctions? The Court of Appeal borrowed heavily from a methodology used in the Second District’s decision in Marriage of Gong & Kwong, 163 Cal.App.4^th 510, 520 (2008) [reviewed in our post of May 30, 2008], which determined that it cost about $8,500 for appellate courts to work up a case through full opinion. Because most of the work to a tentative opinion had been done, $6,000 was found to be the appropriate sanction—the same amount ordered by the Gong & Kwong sister court.

     Message from this case: don’t dally in notifying the Court of Appeal of a settlement and don’t wait until the eve of oral argument—after resources have been expended—to notify the court of a major development (unless the settlement happened on the eve of argument).

     Law professor  Shaun Martin, in his December 2, 2008 blawg post about Huschke v. Slater, on California Appellate Report, links the reader to the website of San Francisco attorney Andrew Dimitriou, the unfortunate subject of the appellate sanctions, thereby drawing attention to Mr. Dimitriou's self-description:  "He has lectured extensively on legal ethics . . . ."