CALIFORNIA ATTORNEY'S FEES

Cases Under Review: California Supreme Court Accepts Review Of Heimlich v. Shivji

Case Concerns How An Arbitration Party Preserves Ability To Obtain Fees And Costs Under CCP § 998, Whether From Arbitrator And/Or Trial Judge

            On June 14, 2017, we posted on Heimlich v. Shivji, 12 Cal.App.5^th 152 (2017).  We can now report that the California Supreme Court granted review of this case, assigning it Case No. S243029, on August 23, 2017.  Here is the Issues Summary of this  matter:   “When a party to an arbitration proceeding makes an offer of compromise pursuant to Code of Civil Procedure section 998 and obtains a result in the arbitration more favorable to it than that offer, how, when, and from whom does that party request costs as provided under section 998?”

            Co-contributor Marc, in his California Mediation and Arbitration website, also discussed this case in a June 15, 2017 post.

Insurance: 4/1 DCA Holds That Fee Agreement During Trial Determines What Brandt Fees Can Be Awarded To Prevailing Insured Party

Posttrial Manipulation Of Fee Agreement Not Allowed, As We Understand The Opinion.

            For insurance practitioners, Pulte Home Corp. v. American Safety Indemnity Co., Case No. D070478 (4^th Dist., Div. 1 Aug. 30, 2017) (published) is a significant decision addressing what fee arrangement governs an award of attorney’s fees as damages under Brandt v. Superior Court, 37 Cal.3d 813 (1985), when the fee arrangement changes mid-course. 

            In this case, Pulte—a general contractor and developer of residential projects—was an additional insured under CGL insurance policies issued to subcontractors, potentially covering construction defect claims.  American Safety, the insurer, suffered an adverse judgment in favor of Pulte, based primarily on duty to defend and bad faith claims in relation to a CD action.  Later, in a very contested battle where there was proof that Pulte changed its original contingency fee arrangement to an hourly fee arrangement, the trial judge awarded Brandt fees to the tune of $471,313.52 in Pulte’s favor.  (As far as we can determine, American Safety had argued for no more than $371,000, but Pulte had sought $645,000, subject to allocation between compensable and non-compensable Brandt fees—always an issue under Brandt/Cassim.)

            Insurer did win a restudy of the fee award under Brandt.  The appellate court, although acknowledging that clients and attorneys usually have free reign to modify a contingency arrangement, was concerned that Pulte did transform its contingency fee arrangement to an hourly arrangement during trial so as to exacerbate potential Brandt fee recovery, a result which would be potentially unfair to the insurer which was “on the hook” for this exposure.  The appellate court sent this one back to calculate fees, under an appropriate ratio, to the rate allowed under the original pre-trial contingency arrangement.  The modification in fee arrangement did not hold up in this situation.

Probate: Probate Court’s Apportionment Of Ordinary Probate Attorney’s Fees Under Probate Code Section 10814 Was No Abuse Of Discretion

Lower Court Did Not Err In Failing To Set An Evidentiary Hearing, Because He Considered Relevant Documents In The File As Far As Fee Apportionment.

            Two Probate Code sections figures prominently in the resolution of the next case, Estate of Webb, Case No. A146787 (1^st Dist., Div. 1 Aug. 29, 2017) (unpublished), which involved two probate attorneys rendering “ordinary services” to a probate estate where an apportionment was required for work by two attorneys to a probate estate representative.

            Probate Code section 10814 allows the probate court discretion in compensating multiple attorneys for a probate estate personal representative “according to the services actually rendered by each attorney or as agreed to by the attorneys.”  Probate Code section 1022 allows a probate court to consider affidavits or verified petitions as evidence in uncontested matters, although they cannot be considered in contested matters.

            In this one, two attorneys vied on how $8,191 in ordinary services should be allocated given they both provided services to the probate estate personal representative.

The second attorney wanted an 80/20 split, while the first attorney wanted a 50/50 split.  The probate court, after deciding not to consider affidavits because the matter was contested, did consider all other documents and determined that 68% should go to second attorney and 32% to first attorney.  First attorney appealed, to no avail.

            The primary challenge rejected on appeal was that an evidentiary hearing had to be held in the context of a contested hearing on fee apportionment.  Both the lower and appellate courts did appreciate and give precedence to section 1022, with the probate court not entertaining the challenged affidavits but appropriately crediting past documents filed in uncontested hearings.  Given this sequence of events, the fee apportionment below was no abuse of the discretion.  Part of the problem was that the first objecting attorney failed to present an adequate record, but the appellate court believed there was no plain error and that no different outcome from a prejudice standpoint. 

Assignment/Fee Clause Interpretation/Section 1717: Bankruptcy Trustee’s Assignment Of Sublease Rights Invoked Fee Clauses To Prevailing Party

Landlord Did Prevail, Entitled To Fee Recovery Based On Breadth Of Fees Clause.

            Bush-Grant, LLC v. Hotel Astoria, Inc., Case No. A147456 (1^st Dist., Div. 4 Aug. 29, 2017) (unpublished) demonstrates how a tort claim can still be compensable under a broad fees clause, even if Civil Code section 1717 is inapplicable because the action is not “on the contract.”

            What occurred in this case was that an individual tenant with a long-term commercial lease subleased to tenant’s corporate affiliate and later assigned the sublease to another LLC affiliate, with individual filing for bankruptcy and with the bankruptcy court determining that the LLC’s interest in the lease was property of the bankruptcy estate needing to be relinquished to the bankruptcy trustee.  Eventually, the bankruptcy trustee entered into any agreement with landlord by which individual tenant’s sublease rights were assigned to landlord.   However, subtenant “held over” so as to prompt landlord to file a successful unlawful detainer action, obtaining contractual attorney’s fees under broad lease fees clauses.   Subtenant’s appeal of the fees award failed.

            Based on the bankruptcy trustee’s assignment of rights to landlord, landlord stepped into sublessor’s shoes so as to enforce the sublease provisions inclusive of the sublease fees clause.  Nevertheless, the appellate court had to classify the nature of the unlawful detainer, namely, was it based on contract or tort.  It concluded that the action was a tortious “hold over,” which meant fee recovery could not occur under Civil Code section 1717.

            But this nusance did not matter.   The fee clause was broad in nature, covering “any suit against Lessee … for recovery of possession of the demised premises.”  Given this broad provision, fee recovery was allowable in the unlawful detainer action under Code of Civil Procedure section 1021, which provides the parties have the right to enter into agreements for the award of fees in litigation on their own terms,  covering actions in contract, tort, or equity. 

Intellectual Property: Federal Circuit Affirms $1.6 Million Fee Award To Defense In Octane Fitness Case

Fee Award Sustained Following Oft-Quoted SCOTUS Decision.

            Likely the final chapter has been closed on the fee battle in the case which produced the U.S. Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1756, 1758 (2014), defining the flexibility given district judges to decide whether a patent case is exceptional for purposes of a fee award under 35 U.S.C. § 285.  What happened below is the district judge awarded over $1.6 million in fees to the defense after finding the case to be “weak.”  The Federal Circuit affirmed late last week in ICON Health & Fitness, Inc. v. Octane Fitness, LLC, Nos. 2016-1047 & -1101 (Fed. Cir. Aug. 25, 2017) (nonprecedential). 

Class Action: Seventh Circuit Reverses Fee Award In Subway Footlong Sandwich Class Action

Appellate Court Found Class Benefits Worthless, Meaning Case Should Have Been Dismissed Early On--$520,000 In Fees Go POOF!

Library of Congress.  Wm. C. Greene, photographer.  1946

        In In re Subway Footlong Sandwich Marketing and Sales Practice Litig., MDL No. 13-02439 (7^th Cir. Aug. 25, 2017), a lower court had approved a settlement over an objector’s challenge in a class action claiming that Subway did not provide customers with a footlong bun.  Along the way, the proof showed that minor variations in baking conditions sometimes produced an under footlong bun, but the customer still got all the meat and condiments in ordered sandwiches.  Given that some buns were a foot and some were under, individualized hearings would be required to show commonality as well as possibly materiality.  Class counsel then shifted from a damages class to an injunctive relief class.  The parties reached a settlement where Subway agreed to measure the sandwiches and undertake other protocols but admitted it could never guarantee that an exact foot bun would be the results.  It also agreed to class counsel fees capped at $520,000.

            The Seventh Circuit reversed and remanded with instruction to dismiss.  It found the action provided worthless benefits to the class such that it was a “racket” only providing fees to counsel. 

Interest/Postjudgment Enforcement: Interest Accrues On First Entry of Judgment, Even When Costs (Fees Included) Are Included Later

Complicated Interpleader Dispute Still Results In Interest Accrual Result Described Above.

            Wertheim, LLC v. Currency Corp., Case No. B270926 (2d Dist., Div. 5 Aug. 25, 2017) (unpublished) involved a complicated interpleader/postjudgment dispute between various parties, among which was an insurer of an appeal bond in favor of plaintiff Wertheim.  For purposes of this blog, Wertheim won a postjudgment accrual of interest issue that implicates attorney’s fees and costs.  Specifically, the Court of Appeal concluded that interest begins to accrue on an initial judgment amount, even if it is later amended to include significant costs and attorney’s fees.  However, in an interesting twist, the appellate panel concluded interest stopped once the appeal bond surety tendered a rejected check to the superior court during convoluted proceedings, although it did agree that simply obtaining an appeals bond was not the equivalent of a tender or payment of the judgment for purposes of stopping interest accrual.

Cases Under Review: SCOTUS Grants Certiorari In Prisoner Civil Rights Case To Determine Meaning Of “Not To Exceed 25 Percent” Language in Prison Litigation Reform Act Fee Provision

Highlights Split Of Opinion Between Circuit Courts On Interpretation Of The Phrase.

            On August 25, 2017, the U.S. Supreme Court (SCOTUS) granted certiorari in Murphy v. Smith, No. 16-1067 (U.S.), a prisoner’s civil rights case involving interpretation of language in the Prison Litigation Reform Act (PLRA). 

            In Murphy, an Illinois prisoner won over $300,000 in a civil rights case against corrections officers alleged to have badly beaten him, causing permanent damage to his eye.  Prisoner moved to recover attorney’s fees under the PLRA, which does have a limitation providing that “a portion of the judgment (not to exceed 25 percent) shall be applied to satisfy the amount of attorney’s fees awarded against the defendants.”  The district court awarded fees of about $108,000 to plaintiff, but ordered him to pay about $30,000 to his attorneys and ordering the remaining $78,000 to come from corrections officers.  The Seventh Circuit Court of Appeals reversed, finding that 25% of prisoner’s damages award was required to go to attorney’s fees (namely, about $77,000—one third of the slightly over $300,000 award) such that the corrections officer only owed $31,000 towards the fee award. 

            Circuit courts are divided on the interpretation of the 25% percent language, such that the issue before SCOTUS is:  Does 25 percent of the money awarded to the prisoner have to go toward his attorney’s fees, before the defendants must also contribute to the fees, or can the district court require a smaller portion of the attorney’s fees to come out of the prisoner’s award?

            For you purists out there, here is how SCOTUS has summarized the issue upon which certiorari was granted:  “Whether the parenthetical phrase ‘not to exceed 25 percent’ as used in 42 U.S.C. §1997e(d)(2), means any amount up to 25% (as four circuits hold), or whether it means exactly 25% (as the Seventh Circuit holds).”  This case may be argued as soon as December of this year, given it is on the September 25, 2017 merits calendar. 

Special Fee Shifting Statute: Ninth Circuit, In Fractured Opinion, Determines First Amendment Group Entitled To FOIA Attorney’s Fees

Majority Determines A Causative Or Catalyst Test Applies, While Another Concurring Circuit Judge Determines No Causal Nexus Required.

            The Ninth Circuit’s opinion in First Amendment Coalition v. Dept. of Justice, No. 15-15117 (9^th Cir. Aug. 25, 2017) (published) is an interesting opinion on what level of causation or nature of the catalyst theory allows fee eligibility to plaintiff in a Freedom of Information Act (FOIA) case where the plaintiff seeks fees for forcing the government to change its position on production of documents.

            In this one, the underlying scenario involved several plaintiffs’ efforts both in New York and federal courts to obtain DOJ memorandum, under FOIA, addressing the legality of the U.S. efforts to target the killing of U.S. citizens as terrorists.  Two memoranda were eventually produced as a result of the two litigations, although one can say that both were somewhat instrumental in producing the FOIA disclosure.  One of the plaintiffs (First Amendment Coalition, “FAC”) moved for attorney’s fees under FOIA, but the district court denied them based on the theory that the disclosure was based on activities in the New York litigation, not the California case. 

            The Ninth Circuit reversed and remanded, determining FAC was eligible for a fee award under FOIA, although the opinion produced three opinions, a majority and two concurrences.  Assigned District Judge Block (E.D.N.Y.) authored the overall opinion, while Circuit Judges Berzon and Murguia wrote separate concurring opinions.

            A lot of discussion centered upon whether a substantive causative effect or catalyst theory was still viable under FOIA after 2007 amendments, with the majority (Judges Block and Murguia) agreeing it was still intact to some degree (although disagreeing on what test must be satisfied)—meaning the FOIA plaintiff still needs to show a causal nexus between plaintiff’s litigation and governmental disclosure/change in position leading to disclosure.  Judge Block liked the classic catalyst test, with Judge Murguia agreeing some causal nexus was required but saying a district court can apply a causative test which is based on special facts and circumstances short of a catalyst test (including looking at government conduct as far as proving causation).  In contrast, Judge Berzon did not believe a causative test was necessary under FOIA at all as detailed in an extensive concurrence.  However, all judges seemed to agree that FAC’s effort to vacate a summary judgment in the California case did lead to governmental production of the second memorandum.

            Where does that leave us in the Ninth Circuit?  We don’t know, because the fractured opinion leaves a lot more case law to elucidate certainty in this area. 

Deadlines, Fee Clause Interpretation, Reasonableness Of Fees: $210,000 Contractual Fees Award Affirmed On Appeal In Contentious Foreclosure/Eviction Case

 

Technical Challenges Are Rejected At Appellate Level.

            In Coastline RE Holdings Corp. v. Brillouet, Case No. B282382 (2d Dist., Div. 6 Aug. 24, 2017) (unpublished), owners/residential borrowers had their house foreclosed (after quitclaiming the property to various entities and filing bankruptcies which were dismissed) and then lost an eviction action by the buyer who obtained the property at the nonjudicial foreclosure sale.  The buyer designated the unlawful detainer action as an unlimited civil action, but the superior court clerk mistakenly designated the case as a limited case—an error eventually corrected along the way.  Buyer eventually gained possession of the property, was awarded damages for 10 months of lost rent, and was awarded $210,000 in contractual attorney’s fees based on a fees provision in the deed of trust.  Losing owners/borrowers appealed, with no success.

            Based on the argument that this was a limited case (which was rejected by the appellate court), appellants argued that the fee motion was untimely based on the 30-day deadline to file fee motions in limited cases.  The 2/6 DCA disagreed, finding this was an unlimited case and, beyond that, no notice of entry of judgment was served such that the fees motion was timely served 90 days after entry of judgment even under limited case rules.

            There was a contractual basis for the fee award, based on the deed of trust fees provision, which was violated when appellants remained in possession after foreclosure. 

            The amount of the fee award was sustained on appeal, given that (1) appellants did not make specific objections to fee items before the trial court, and (2) appellants did not disprove that the fees were not reasonably related to the unlawful detainer action vigorously contested by them below.

Allocation/Fee Clause Interpretation: One Prevailing Defendant Entitled To Some Fee Recovery Under Promissory Note Fees Clause

However, That Defendant’s Assertion Of A Contract As An Affirmative Defense Required Some Paring Back of Fees Under Recent Mountain Air Decisio

            On August 1, 2017, we posted on Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 2017 WL 3222520 (Cal. Supreme Court 2017).  A panel of the 2/4 DCA delayed submission of a matter based on the pendency of Mountain Air and has now applied it in Morrison v. Morrison, Case No. B269435 (2d Dist., Div. 4 Aug. 23, 2017) (unpublished).

            The case involved a fairly nasty dispute between two children, a grandson, and companies associated with them relating to adult bookstore companies left behind by the father of the children and grandfather of grandson, complete with one of the children apparently entering into transactions to avoid tax evasion repercussions.  After a fairly complex bench trial, plaintiff Michael and a one of the companies basically lost all claims, but the appellate court reversed on certain claims and remanded to see that they be decided on the merits.  They were, with plaintiff Michael and the company still losing except for one claim relating to a defendant entity.  Defendant Mindey, who prevailed on all claims, moved to recover $96,273.83 in attorney’s fees under Civil Code section 1717 based on fees clauses in a promissory note and a stock repurchase agreement (SRA), although the SRA was raised as an affirmative defense to Michael’s claims.  The trial judge awarded Mindey $54,402 for promissory note work (not apportioning any due to the overlapping nature of the issues with other claims) and $14,897 for work relating to the SRA defense work (for a total award of $69,299). 

            The appellate court affirmed the first component, but reversed the $14,897 component. 

            The first component was justified based on the promissory note fees clause, with no apportionment necessary because the issues in all causes of action overlapped.  However, the fee recovery based upon enforcement of contract in defense was foreclosed by Mountain Air given that the SRA fees clause only encompassed fee recovery “in any legal action or other proceeding brought by either party to enforce or interpret the terms of the Agreement”—which did not cover affirmative defense work.  That being said, the partial affirmance and reversal did put to rest the fee battle between some of the parties.

Deadlines/Special Fee Shifting Statute: Appellate Court Determines That Prevailing Plaintiffs In County Code Compliance Dispute Were Wrongfully Denied Fee Recovery Under Government Code Section 800

Lower Court Also Erred In Ruling Fees Motion Was Untimely Filed.

            In Fratus v. Contra Costa County Dept. of Conservation and Development, Case No. A147841 (1^st Dist., Div. 1 Aug. 23, 2017) (unpublished), plaintiff residential owners successfully obtained an administrative mandate writ against County agency based on allegations of code noncompliance.  However, the trial judge denied fees to plaintiffs under Government Code section 800, which provides for recovery of attorney’s fees incurred while contesting an administrative proceeding determination when “it is shown that the … determination of the proceeding was the result of arbitrary or capricious action or conduct.”  This fee denial was reversed on appeal. 

            Although the lower court found the fee motion was untimely in nature, the 1/1 DCA balked at this suggestion given that the pertinent CRC time deadlines ran from the final judgment rather than the earlier vacated judgment.  On the merits, the record showed that County knew about evidence proving plaintiffs’ properties were compliant such that it was an abuse of discretion in deny fees under the circumstances. 

Homeowner Associations: 4/3 DCA Determines Civil Code Section 5235(c) Only Allows Costs Award To Prevailing HOA If Homeowner Action Is Frivolous

Fee Recovery Not Allowed Under Section 5235(c), With DCA Also Providing Guidance On Definition Of “Frivolous” Under Same Provision.

            The Fourth District, Division 3 faced a first impression statutory interpretation of Civil Code section 5235(c), which provides that “[a] prevailing association may recover any costs if the court finds the action to be frivolous, unreasonable, or without foundation,” in Retzloff v. Moulton Parkway Residents’ Association, No. One, Case No. G053164 (4^th Dist., Div. 3 Aug. 23, 2017) (published). 

            What happened in this one was that homeowners, former HOA directors, basically lost attempts to force HOA to make available corporate records,  because homeowners did not engage in mandatory ADR efforts.  Eventually, the trial judge awarded HOA $13,750 in attorney’s fees and $1,688.60 in costs based on the theory the homeowners’ claims were frivolous in nature.  The appellate court partially reversed, in a 3-0 opinion authored by Justice Moore.  In extensive reasoning, the 4/3 DCA panel concluded that section 5235(c) only allows for routine costs to be awarded, reversing the fee recovery.  As far as the challenge by losing plaintiffs that their case was not frivolous, our local appellate court concluded that this should be guided by whether “any reasonable attorney would agree it is completely without merit in the sense that it lacks legal grounds, lacks an evidentiary showing, or involves an unreasonable delay,” a standard not met by homeowners below.  Cost award affirmed; fees award reversed. 

Unlicensed Contractors: Defendant Victim Of No Contest Pleading Unlicensed Contractor Properly Awarded Civil Action Attorney’s Fees As Part Of Criminal Probationary Restitution Order

Penal Code Section 1202.4(f)(3)(H) Was Basis For Fees As Restitutio

            Walker v. Appellate Division of the Los Angeles County Superior Court (People), Case No. B208100 (2d Dist., Div. 5 Aug. 22, 2017) (published) is a case where a criminal defendant pled no contest to a misdemeanor cost of contracting without a contractor’s license, ordered by the lower court to pay restitution of some losses but not ordered to pay other losses or attorney’s fees by the person who was the recipient of the unlicensed contractor services.  The Appellate Division of the superior court disagreed, ordering restitution of all “economic losses” as well as attorney’s fees incurred by the “victim” in having to defend against criminal defendant’s earlier civil lawsuit and in having to bring a cross-claim to obtain disgorgement of prior payments to unlicensed contractor.  The 2/5 DCA then refused to grant a mandate petition, but the California Supreme Court transferred back to the 2/5 DCA with an OSC to show why at least one component of the full restitution order should not be changed.  Upon the state supreme court’s transfer back, the 2/5 DCA panel found that the trial court was correct to not grant one component of the restitution order, with that aspect drawing a 2-1 split in thinking.  However, all justices agreed that the attorney’s fees component in the criminal restitution order was justified under Penal Code section 1202.4(f)(3)(H), which provides “[t]o the extent possible, the restitution order shall be prepared by the sentencing court, shall identify each victim and each loss to which it pertains, and shall be of a dollar amount that is sufficient to fully reimburse the victim or victims for every determined economic loss incurred as the result of the defendant’s criminal conduct, including, but not limited to, all of the following:  (H) Actual and reasonable attorney’s fees and other costs of collection accrued by a private entity on behalf of the victim.”

Civil Rights/Settlement: Plaintiff Accepting $1,000 In Rule 68 Offer Entitled To Some Amount Of Fees Under Contract Principles

District Judge Erred In Denying Any Fees Based On Incorrect Civil Rights Fee-Shifting Analysis.

            In Miller v. City of Portland, No. 14-35783 (9^th Cir. Aug. 22, 2017) (published), a civil rights plaintiff accepted a defense Rule 68 offer for $1,000 with reasonable attorney’s fees to be determined by the district court.  After plaintiff moved for fees, the district judge denied any at all based on the ground that the $1,000 award was a de minimis judgment under 42 U.S.C. § 1988, a provision with case law indicating that a nominal judgment does allow for a denial of fees by a district court.  The Ninth Circuit reversed, determining that the analysis below misfired by relying on civil rights principles rather than contractual principles in interpreting the Rule 68 offer.  By acceptance of the Rule 68 offer, plaintiff was entitled to some amount of fees, given that the offer did not reference section 1988.  Remanded to the district judge to fix some amount of fees to be awarded to plaintiff. 

CLASS ACTION: $2.125 Million Fee Award To Class Counsel In Cy Pres-Only Settlement Was Proper

Award Was 25% Of Settlement Fund, Cross-Checked By Lodestar Totaling Ultimate Award.

            In re Google Referrer Header Privacy Litig., No. 15-15858 (9^th Cir. Aug. 22, 2017) (published) is a case involving approval of a class action settlement involving a cy-press only settlement with respect to Internet privacy claims.  There was a $8.5 million settlement fund, with $3.2 million set aside for attorney’s fees, administration costs, and incentive payments and with the remaining $5.3 million or so allocated to six cy pres recipients (certain organizations, law school divisions, and forums) given that each class member would only receive 4 cents (which made distributions unrealistic).  This case has a good discussion of cy pres-only settlements and whether the recipients’ connections with class counsel were disqualifying in nature (producing a 2-1 panel split).  However, over challenges by objectors, all three circuit judges agreed that the $2.125 million in awarded fees to class counsel was reasonable based on two factors:  (1) the fees were 25% of the settlement fund, closely hewed to amounts awarded in similar Internet privacy actions; and (2) the fees were close to class counsel’s $2.126 million lodestar calculation. 

Special Fee Shifting Statute: Where Government Only Won 1% Of Its Demand Under False Claims Act, Defendant Entitled To Fee Recovery Under Equal Access To Justice Act

Fee Shifting Statute Was Plain, With Circumstances Requiring Reversal Of Fee Denial As To Contractor

            The Equal Access to Justice Act (EAJA) has a mandatory fee-shifting provision that allows a court to award fees to a non-prevailing defendant where the government’s demand for damages in a case is “substantially in excess of the judgment finally obtained” and “unreasonable when compared with such judgment.”  28 U.S.C. §2412(d)(1)(D).  A district judge denied fees to a non-prevailing defendant contractor, but a 2-1 majority panel of the federal Sixth District Court of Appeals reversed and remanded to the district judge to fix an award of fees in USA ex rel. Wall v. Circle C Construction, LLC, No. 16-6169 (6^th Cir. Aug. 18, 2017) (published).

            What happened is that the government sued a contractor for $9,900 in wage underpayments under the False Claims Act, although its demand ballooned to $1.6 million under a “taint” of the entire construction of a government building theory.  Government obtained a judgment of $763,000, but the Sixth Circuit in an earlier opinion reversed that down to $14,748—less than 1% of the government demand, rejecting the government’s “taint” theory.  The district judge then denied contractor’s motion to recoup $468,704 in fees under the EAJA fee-shifting provision.

            By a 2-1 vote, the Sixth Circuit reversed based on the fairly stark circumstances of record.  Although finding no circuit interpretation of the “unreasonable” wording of the EAJA fee-shifting provision, it borrowed case law interpretation of “substantially justified” in an earlier EAJA statutory provision.  The majority found that the contractor should have been awarded fees, finding no bad faith in contractor’s defense and no injustice that would militate in favor of a contrary conclusion.  The dissenting judge would have affirmed under the deferential abuse of discretion standard, finding the fee award substantially justified in nature. 

Class Action: Seventh Circuit Court Of Appeals, In A Posner-Authored Decision, Reverses Class Counsel Fee Award To Lodestar Found Reasonable

Nixes A 1.75 Positive Multiplier Based On Complexity And Class “Return.

            Just to show you that class action fee awards are coming under increased appellate scrutiny, Circuit Judge Posner’s decision in In re Sears, Roebuck and Co. Front-Loading Washer Products Liability Litig., No. 16-3554 (7^th Cir. Aug. 14, 2017) (published) on behalf of a Seventh Circuit panel demonstrates this quite emphatically.

            The case involved allegations of control unit defects and mold problems associated with certain washers sold by Sears.  A class action settlement was reached, with the parties agreeing to a provision whereby class counsel would not seek fees in excess of $6 million.  Well, that is what they sought based upon a lodestar augmented by a 1.85 multiplier.  The magistrate judge assigned to determine fees awarded a $2.7 million lodestar augmented by a 1.75 positive multiplier, for a total award of around $4.8 million.  The judge credited that only about $900,000 would be received by the class and then gave puzzling indications of whether the case was really that complex so as to justify a multiplier.

            The Seventh Circuit found the fee award was too much.  After observing the equivocation on the complexity issue and the fact that a .88 multiplier is awarded nationwide for class recoveries less than $1.1 million, the federal appeals court determined that the $2.7 million lodestar awarded by the magistrate judge was the reasonable fee award—especially given that class counsel had to battle a large company.

Class Action: Seventh Circuit Court Of Appeals, In A Posner-Authored Decision, Reverses Class Counsel Fee Award To Lodestar Found Reasonable

Nixes A 1.75 Positive Multiplier Based On Complexity And Class “Return.

            Just to show you that class action fee awards are coming under increased appellate scrutiny, Circuit Judge Posner’s decision in In re Sears, Roebuck and Co. Front-Loading Washer Products Liability Litig., No. 16-3554 (7^th Cir. Aug. 14, 2017) (published) on behalf of a Seventh Circuit panel demonstrates this quite emphatically.

            The case involved allegations of control unit defects and mold problems associated with certain washers sold by Sears.  A class action settlement was reached, with the parties agreeing to a provision whereby class counsel would not seek fees in excess of $6 million.  Well, that is what they sought based upon a lodestar augmented by a 1.85 multiplier.  The magistrate judge assigned to determine fees awarded a $2.7 million lodestar augmented by a 1.75 positive multiplier, for a total award of around $4.8 million.  The judge credited that only about $900,000 would be received by the class and then gave puzzling indications of whether the case was really that complex so as to justify a multiplier.

            The Seventh Circuit found the fee award was too much.  After observing the equivocation on the complexity issue and the fact that a .88 multiplier is awarded nationwide for class recoveries less than $1.1 million, the federal appeals court determined that the $2.7 million lodestar awarded by the magistrate judge was the reasonable fee award—especially given that class counsel had to battle a large company.

Intellectual Property: Federal Circuit Determines That No Jury Trial Right Attaches To Awarding Attorney’s Fees Under Patent Act

Fees Are An Equitable Remedy, Left For Court Determination.

            In AIA America, Inc. v. Avid Radiopharmaceuticals, No. 2016-2647 (Fed. Cir. Aug. 10, 2017) (published) (Hughes, J.), a district judge awarded a prevailing defendant over $3.9 million in attorney’s fees under Section 285 of the Patent Act (35 U.S.C. § 285).  Plaintiff appealed, claiming this was a jury issue.  Not so, said the Federal Circuit.  The Seventh Amendment right to a jury trial does not apply to attorney’s fees being considered under Section 285; rather, it is an equitable remedy for the district court to decide. 

Special Fee Shifting Statutes: $65,000 CCP § 1038 Fee Sanctions Award Against Plaintiff Losing To Calaveras County Affirmed On Appeal

Both Lack Of Objective And Subjective Good Faith Shown Below.

            In Ponte v. County of Calaveras, Case No. C079180 (3d Dist. July 17, 2017 unpublished; published on Aug. 15, 2017), plaintiff asked Calaveras County to pay him over $150,000 to reimburse for work pursuant to an oral contract.  The lower court eventually granted summary judgment on plaintiff’s third amended complaint in favor of County, with County then garnering $65,000 in attorney’s fees under CCP § 1038, a sanctions fee statute allowing County to obtain the equivalent of malicious prosecution fees where it obtains a summary judgment and can demonstrate the action was not brought/was not prosecuted with reasonable cause and in good faith (both an objective and a subjective element).

            The appellate court affirmed.  Simply because plaintiff subjectively wanted to be paid did not demonstrate his lawsuit was objectively reasonable in nature given the problems with enforcing an oral contract in most cases against the government.  (Put another way, get it in writing.)  The lack of merit also “bleed through” to show the case was not brought with subjective good faith.

Allocation, Fee Clause Interpretation, Prevailing Party, Section 1717: Lease Rescission Claim Did Give Rise To Successful Fee Recovery To The Tune Of $418,730.75 In Fees And $16,260.79 In Costs In Tenant’s Favor

“Any Remedy Hereunder” Lease Language Salted Away The Result.

            In The Redbean House Corp. v. Colonnade Wilshire Corp., Case No. B276837 (2d Dist., Div. 2 Aug. 16, 2017) (unpublished), tenant successfully obtained rescission of a commercial lease based on a substantial seismic retrofit issue, although landlord obtained $49,647 in damages for waste after a lot of claims were dismissed by both sides, including landlord’s dismissal of a breach of lease claim.  Then, in post-judgment activities, the trial judge awarding tenant $418,730.75 in attorney’s fees based on a lease fees clause and $16,260.79 in routine costs.

            Landlord appealed the fees/costs orders; landlord lost.

            The first issue was whether rescission of the lease was compensable under Civil Code section 1717.  It was; the lease clause had broad language including “any remedy hereunder” which happened to encompass a rescission remedy.  Given that lease rescission was tenant’s primary litigation objective, the lower court did not abuse its discretion in finding tenant was the prevailing party despite dismissing and not winning every claim.  Landlord’s voluntary dismissal of its breach of contract claim did not alter the result, given that tenant still prevailed on an actually adjudicated claim of import.  (CDF Firefighters v. Maldonado, 200 Cal.App.4^th 158, 161, 167 (2011).)  Finally, no apportionment of fees was required because the trial judge determined that enforceability of the lease was a common issue across the board.  Fees/costs orders affirmed. 

Special Fee Shifting Statute: City’s Production Of Photographs And Emails After Court-Ordered Depositions In California Public Records Act Case Merited Fee Recovery

Denial Of Fee Recovery Was Erroneous Because Plaintiff Was Entitled To Fee Under “Catalyst Theory."

 

            “Litigation under the Public Records Act (PRA) (Gov. Code,1 § 6250 et seq.) is one of the rare instances where a losing party may still be deemed a prevailing party entitled to an attorney fee award. This is because the plaintiff has prevailed within the meaning of the PRA when he or she files an action that ‘results in defendant releasing a

copy of a previously withheld document.’ (Belth v. Garamendi (1991) 232 Cal.App.3d 896, 898 (Belth).)  [¶] Thus, a plaintiff need not achieve a favorable final judgment to be a prevailing party in PRA litigation. A defendant's voluntary action in providing public records that is induced by plaintiff's lawsuit will still support an attorney fee award on the rationale that the lawsuit ‘spurred defendant to act or was a catalyst speeding defendant's response.’ (Belth, supra, 232 Cal.App.3d at p. 901.)” 

            This quote from Sukumar v. City of San Diego, Case No. D071527 (4^th Dist., Div. 1 Aug. 15, 2017) (published) captures the “catalyst theory” allowing a losing party to still be deemed a prevailing one under the PRA’s fee shifting statute, Government Code section 6259(d), even though no final judgment is achieved.  That led to the reversal of a trial judge’s denial of fees to a plaintiff requesting about $99,000 in fees under PRA. 

            What happened was that City, in a PRA action by plaintiff seeking documents in connection with alleged code violations relating to his house, represented that it had produced every responsive nonexempt document in response to a PRA request.  However, after court-ordered depositions taken by plaintiff in the PRA action, City “sung” a different tune by subsequently producing five photographs and 146 pages of e-mails.  Given this chain of events, the appellate court concluded it was an abuse of discretion not to grant reasonable fees to plaintiff—after all, the City would not have produced the information except for the court-ordered depositions.  Plaintiff was a prevailing “catalyst” such that the matter was remanded to fix the amount of fees to be awarded to plaintiff.

Arbitration: Post-Arbitration Attorney’s Fees Denial Affirmed In Complicated Arbitration Context

Reversal By Appellate Court AND Opposition’s Own Positions Sealed The Propriety Of Post-Arbitration Fee Request Denial.

 

            Harshad & Nasir Corp. v. Global Sign Systems, Case Nos. B269427 et al. (2d Dist., Div. 1 Aug. 15, 2017) (published) is an interesting case involving arbitral review, scope of issues under an arbitration agreement, statute of frauds, and arbitral addition of parties nuances.  However, for purposes of our fee blog, the rulings which count were the trial court’s denial of requests by (1) the previous winning arbitration party, Global, for fees incurred in post-arbitration proceedings before the trial court resulting in confirmation of the award against FCC, and (2) Affiliates for fees incurred in post-arbitration proceedings before the trial court resulting in vacation of the award in favor of Global.  The trial judge basically ruled that the arbitrator was the one to make these fee awards.

            On the merits, the appellate court reversed the trial court’s order granting Global’s petition to confirm the arbitration award against FCC and affirmed the trial court’s order granting the Affiliates’ petition to vacate the arbitration award as to them.  Although agreeing technically that the appeals from the fees denial orders were premature given that the parties would return to the arbitrator for further rulings, the 2/1 DCA decided that the appeal from unappealable orders should be treated as a petitions for writs of mandate in order to circumvent needless future actions.  Specifically, given the merits rulings, Global was not a prevailing party in post-arbitration proceedings entitled to recover any fees, whether before the trial court or the arbitrator.  However, here is the clincher:  FFC and Affiliates took the position that no one was entitled to post-arbitration fees regardless of the merits outcome such that they conceded no fee entitlement.  With that, the post-arbitration fee issues were resolved conclusively!  Whew, one issue down!

Civil Rights/Costs/Section 998: Sviridov Decision Out Of 4/1 DCA Now Published

Decision Held Section 998 Cost-Shifting Prevailed Over FEHA/POBRA Limitations.

        On July 28, 2017, we posted on Sviridov v. City of San Diego, Case No. D069785 (4th Dist., Div. 1 July 28, 2017 unpublished). We now can report that this opinion was certified for publication on August 15, 2017. It decided that CCP § 998 cost shifting policies allowed for an assessment of costs against a losing plaintiff despite the existence of FEHA and POBRA cost limitations.

Tort Of Another: Plaintiff Art Gallery Owner Properly Awarded Attorney’s Fees Against Negligent Insurance Broker Under Tort Of Another Doctrine

Fees Awarded For Plaintiff’s Lawsuit Against Insurer To Protect Interest In Insurance Coverage Due To Broker’s Negligenc

            A jury found defendant insurance broker liable to plaintiff art gallery owner for damages resulting from an insurance carrier’s denial of a dealer fine art policy claim after plaintiff sued insurer and incurred fees in pursuing insurance coverage.  After the jury verdict, the trial judge awarded attorney’s fees incurred in pursuing claims against the insurance carrier (which settled), prompting an appeal by insurance broker in Koeppel v. John O. Bronson Co., Inc., Case No. H041697 (6^th Dist. Aug. 11, 2017) (unpublished).

            The Sixth District affirmed, after a discussion of the tort of another doctrine.  Although acknowledging that joint tortfeasors cannot utilize the tort of another doctrine, the appellate court did not find that this applied to the innocent plaintiff in these circumstances, finding persuasive the reasoning in Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC, 127 Cal.App.4^th 1311, 1316, 1325 (2005) when insurance coverage was involved and plaintiff sought to vindicate rights against the carrier—after all, the broker’s negligence forced plaintiff to sue the carrier.  With respect to the causation element of the tort of another doctrine, the Sixth District found that the substantial factor test approved in Mitchell v. Gonzales, 54 Cal.3d 1041, 1049-1054 (1991) was applicable. 

Employment: Trial Judge’s Fee Award Based On Percentage Of Plaintiff’s Recovery Attributable To Wages Under Labor Code Section 218.5 Was Erroneous

Lodestar Method Should Have Been Used And Will Be On Remand.       

            In Chen v. M&C Hotel Interest, Inc., Case Nos. B266461/B267622 (2d Dist., Div. 5 Aug. 11, 2017) (unpublished), a trial judge was faced with a prevailing plaintiff bringing an attorney’s fees motion under Labor Code section 218.5, which allows fees to an employee on a wage/hour dispute.  However, the lower court, in awarding fees, decided to use a demarcation approach based on what it perceived as being the stages of the litigation which involves wage compensation even though plaintiff’s overall complaint for contractual damages did involve wages overall.  The trial judge awarded $41,687.50 after applying a 23% percentage applicable to unpaid wages augmented by a 1.25 multiplier.

            The 2/5 DCA reversed the fee award and remanded for a calculation under the lodestar methodology for awarding attorney’s fees.  First of all, the lower court erred in failing to recognize that all contractual compensation was wages for purposes of fee recovery calculation.  Second, the appellate court found that the lodestar method was the one to use rather than the percentage of recovery based on time demarcations.  (Citing Serrano v. Priest, 20 Cal.3d 25, 48 (1977) [one of our Leading Cases].)  So, a remand was in order to use the lodestar method to fix attorney’s fees. 

            Also, we note that the appellate court rejected the notion that section 218.5 fees were improper because plaintiff did not initially plead a Labor Code wage claim, but rather proceeded with a contract claim, which would not have provided a basis for fee recovery, in her original complaint.  The appellate court noted that the Labor Code claim was pled in amended pleadings where fees were requested.

            BLOG COMMENDATION—Co-contributor Mike and Marc have appeared in front of Justice Paul Turner who served in the Los Angeles County Superior Court and 2/5 DCA.  Justice Turner died in May of  this year.  He was a distinguished jurist and Presiding Justice of the 2/5 DCA for a long time.  We commend his services to the public, as well as express our condolences to his family/relatives.

Off Topic (But Fun): August 2017 Lists Movie/T.V. Favorite Judges

Some Sitting Jurists And Law Professor Reveal Their Favorites

 

            The August 2017 edition of the ABA Journal has an article, “Honoring Our Favorite Your Honors,” where several sitting jurists and one law professor list their favorite judges from the movies or television.  Here they are:

• Circuit Judge Alex Kozinski (Ninth Circuit Court of Appeals):

            Judge Chamberlain Haller – portrayed by Fred Gwynne – My Cousin Vinny

 

• Circuit Judge Bernice B. Donald (Sixth Circuit Court of Appeals):

            Judge Philip Banks (“Uncle Phil”) – portrayed by James Avery – The Fresh

            Prince of Bel-Air and

            Judge Elizabeth Donnelly – portrayed by Judith Light – Law & Order:  Special

            Victims Unit

 

• Judge Arthur L. Hunter, Jr., Orleans Parish Criminal District Court (New Orleans):

            Judge H. Lee Sarokin – portrayed by Rod Steiger – The Hurricane (movie based

            on the story of Rubin “Hurricane” Carter)

• Chief Judge Laurie A. White, Orleans Parish Criminal District Court (New Orleans):

            Judge Francis Rayford – portrayed by Jack Warden – And Justice For All and

            Judge Henry T. Fleming – portrayed by John Forsythe – And Justice For All

 

• Christine A. Corcos, Associate Professor of Law, Louisiana State University:

            Judge Dan Haywood – portrayed by Spencer Tracy – Judgment at Nuremberg

            and Judge Ernst Janning – portrayed by Burt Lancaster – Judgment at Nuremberg

            as well as Judge Henry X. Harper – portrayed by Gene Lockhart – Miracle on

            34^th Street.

 

COMMENT:  To this list, we would add:

•        Judge Weaver, portrayed by attorney Joseph N. Welch in Anatomy of a Murder, famous for his role in the Army-McCarthy hearings ("At long last, have you left no sense of decency?").     

                    Joseph N. Welch

•     Judge Roger ("the Mad Bull") Bullingham, portrayed by Bill Fraser in Rumpole of the Old Bailey.

Section 1717: Nonsignatory Defendants Entitled To Fee Recovery Under Civil Code Section 1717

$61,565 Fee Award Sustained On Appeal

            Nonsignatories defendants were awarded attorney’s fees of $61,565, drawing an appeal from the plaintiff in Westco Petroleum Distributors, Inc. v. Huntington Beach Industrial, Case No. B269393 (2d Dist., Div. 2 Aug. 10, 2017) (unpublished).  After surveying section 1717 jurisprudence which does allow fee recovery to nonsignatories like the defendants here, the appellate court sustained the fee award given the breadth of the fees clause which did cover the contract and tort claims at issue. 

Probate Two-Fer/Sanctions: $440,000 Fee Award Based On A Common Fund Properly Awarded Against Entire Trust Res And $16,060 In CCP § 128.7 Sanctions Sustained For Failure To Remove Lis Pendens

Frye v. Collins, Case No. A143623 (1^st Dist., Div. 2 Aug. 9, 2017) (unpublished)

            In this one, a trustee lost certain trust challenges by other relatives, also saddled with a costs/fees award of $440,000.  This award was affirmed because the lower court decided that it should be paid out of the entire trust res, so that the successful parties had to bear some of the fees because of a common fund wrinkle in the case making it fair to spread the fee award over the res rather than simply paid out of losing trustee’s res share.

Leino v. Balkcom, Case No. C080950 (3d Dist. Aug. 9, 2017) (unpublished).

            The second decision was a situation where a trial judge granted CCP § 128.7 sanctions against a trustee and attorney, who challenged on many, many grounds.  None held up on appeal.  The interesting aspect of this opinion is the appellate court’s conclusion that trustee’s failure to remove a lis pendens after the probate action was dismissed for over a year justified imposition of sanctions.  The sanctioned parties argued that the recording of a lis pendens did not justify imposition of sanctions, but the appellate court disagreed based on the fact that a lis pendens needs to be procedurally filed with the court so to trigger section 128.7. 

Private Attorney General: Surfrider Foundation Entitled To CCP § 1021 Fee Recovery In Dispute Involving Closure Of Public Access To Beaches Under The California Coastal Act

 

Result Was To Affirm A $470,461.55 Fee And $15,511 Costs Awards.

            Who says that fee and costs awards under California’s private attorney general statute cannot be substantial in nature?  Surfrider Foundation v. Martins Beach 1, LLC, Case Nos. A1442681/A145176 (1^st Dist., Div. 5 Aug. 9, 2017) (published) demonstrates they can, and frequently, are.

            Nonprofit Surfrider Foundation, well known in this area, won a challenge to activities involving closure of public access before the owners obtained a coastal development permit, vindicating policies under the California Coastal Act.  The trial judge awarded Surfrider $470,461.55 (out of a requested $609,176.93) in fees and $15,511 (full request) in costs.  The opposition challenge to the fee award did not “score” on appeal.

            Although this case is must reading for land use practitioners in the “takings” public trusts area, the 1/5 DCA found that (1) the Coastal Act policies being vindicated did constitute a public benefit; (2) a significant benefit of precedential value was obtained involving the interpretation of a “development” under the Coastal Act; (3) government was not concerned with the coastal development permit issue; and (4) Surfrider’s general nonpecuniary interest in protecting beach access did not disqualify it from section 1021.5 fee entitlement. 

Damages/Trade Secrets: Cal Sup. Ct. Holds Interim Adverse Judgment Rule Means Attorneys Not Exposed To Costs And Fee In Malicious Prosecution Action Even If Client Eventually Found Liable But Beat Underlying SJM Though Trial Ct Found Bad Faith

In Dicta, State Supreme Court Does Not Pass On Trade Secret Fee-Shifting Principle

            We believe that all attorneys might breathe a little easier after the recent decision of our California Supreme Court in Parrish v. Latham & Watkins, Case No. S228277 (Cal. Supreme Court Aug. 10, 2017) (published).

            In this one, plaintiff lost a trade secret misappropriation case, although they initially successfully fought back a defense summary judgment motion, but eventually lost after a trial with the trial judge granting the defense $1.6 million in costs and fees under the uniform trade secret fee-shifting statute based on the perception the case was brought/prosecuted in bad faith.  The defense was not done, suing plaintiff’s attorneys for malicious prosecution.  The California Supreme Court in Parrish ruled that the “interim adverse judgment rule” precluded the malicious prosecution suit with respect to the probable cause element.  After all, plaintiff did defeat a summary judgment motion and it was inconsequential that a later trial came to a different result.

            For our fee blog, the Parrish court expressly refused to pass on the propriety on the Gemini test applied to the California’s trade secret fee-shifting statute (see our category “Trade Secrets”), so this issue is still ripe to further litigation.

            BLOG COMMENTARY—We noticed that attorneys we know, Ben Shatz at Manatt Phelps and Jeff Scott of Greenberg Traurig, seemed to be involved on the winning side, amicus briefing considered.  Congratulations, gentlemen!

Homeowners Association: HOA Winning $1,881 In Damages Against Homeowner Also Was Entitled To Attorney’s Fees Of $201,750

HOA-Homeowner Battles Can Result In Large Fee Exposure

            We do not really need to get into the specifics of Mustafa v. Mountain View Park Homeownerss Assn., Inc., Case No. E063529 (4^th Dist., Div. 2 Aug. 8, 2017) (unpublished), but the end result in sobering for purposes of our blog.   Basically, homeowner lost a gnarly dispute against a HOA, with HOA obtaining a whopping award of $1,881 in damages.  But, just saying, HOA also obtained a fee award of $201,750 as prevailing party, which was affirmed in entirety when the appellate court agreed with the trial court conclusion’s across the board.  Ouch!

Appealability/Sanctions: Client’s Appeal Of Sanctions Only Against Her Attorneys Did Not Confer Appellate Jurisdiction To Review Sanctions Award

Different Result Had Sanctions Been Imposed On Both Client And Attorney

 

            The probate court in In re Patrice Libaw Trust, Case No. B271815 (2d Dist., Div. 1 Aug. 3, 2017) (unpublished) awarded CCP § 128.7 sanctions against only a probate litigant’s attorneys, not the probate litigant (although sanctions were requested against both).  Litigant appealed the sanctions award against attorneys, but the appellate court determined it lacked jurisdiction because client alone did not have standing to appeal an adverse award against her attorneys.  The result would have been different had both client and attorneys been assessed with sanctions; however, this did not happen, so no appellate jurisdiction. 

Family Law: Wife’s “Self Help” Withdrawal Of $7.1 Million From Joint Bank Accounts Justified Family Code Section 271 Sanctions Of $50,000

Wife Was Provided Adequate Notice Of Sanctions Request, Even Though Section 271 Provides No Specificity On Type/Timing Of Notice

                This post on Youssefyeh v. Melamed, Case No. B269371 (2d Dist., Div. 3 July 27, 2017) (unpublished) falls in the category that “you cannot make this stuff up.”

                Here, wife used “self help” by withdrawing $7.1 million from joint bank accounts based on her fear that she would be left without financial resources, even though this withdrawal was in violation of the automatic temporary restraining order contained in the family law summons and a domestic violence restraining order obtained by husband.  Husband gave notice of seeking Family Code section 271 sanctions in ex parte papers submitted in late September 2015, which request was set for a hearing later in November 2015—a hearing at which wife appeared and argued against sanctions.  The trial judge ordered 271 sanctions of $50,000 against wife, payable in 45 days.

                Wife’s appeal was unsuccessful.  Although section 271 does not specify the form of notice nor the amount of notice that must be provided, wife certainly had adequate notice of the sanctions request and appeared to challenge it—due process was satisfied.  With respect to the merits of the award, the “self help” by wife did not impress the appellate court either, with wife conceding her actions caused husband to incur not insignificant litigation costs.  Section 271 sanctions were justified under these circumstances.

Arbitration: Defendant Client Could Not Raise Right To Arbitrate Through A Motion For Judgment On The Pleadings

$58,000 Summary Adjudication For Unpaid Legal Fees Sustained On Appeal.

            An in pro per former client, as a defendant, represented himself in former law firm’s action to recover from him $58,000 in unpaid legal fees.  Although there was an arbitration clause in the fee retainer agreement, defendant answered (never listing arbitration as a defense) and never requested mandatory fee arbitration.  Plaintiff law firm obtained a summary adjudication on its contract claim.  Defendant then filed a motion for judgment on the pleadings raising the arbitration provision as barring adjudication of the matter in court.  The common counts were moot based on the contract adjudication, and a final judgment was entered in favor of law firm.

            Defendant’s appeal was unsuccessful in O’Neil, LLP v. Dorado, Case No. G053571 (4^th Dist., Div. 3 Aug. 2, 2017) (unpublished).  Justice Bedsworth, author of the 3-0 opinion, agreed with the trial court’s conclusion that a motion for judgment on the pleadings was an improper vehicle to raise the arbitration issue—a petition to compel arbitration was the correct way to go about it, compounded by the fact defendant waived arbitration by litigating for a while.  Defendant also suggested that the action was time barred, but he presented no evidence of when law firm’s representation was finished such that defendant failed to bear his burden of proof on the statute of limitations defense. 

           NOTE:  "Although we recognize that, as a non-lawyer, he faces a daunting task in trying to negotiate a path through the byways of legal procedure," the Court admonishes, "the same rules and standards that apply to attorneys apply to him, and those rules were not followed here."

Appealabiity: Plaintiff Improperly Appealed Minute Order Taking Matter Under Submission On Motion To Tax Costs

Failure To Resolve Cost Issue Completely Meant No Appellate Jurisdiction.

            Plaintiff in Ybay v. RSUI Group, Inc., Case No. B265265 (2d Dist., Div. 3 Aug. 2, 2017) (unpublished) filed an appeal from a minute order taking under submission plaintiff’s motion to tax costs.  The appellate court found it lacked jurisdiction to consider plaintiff’s arguments because the order did not affect the judgment because it did not resolve the cost issue in its entirety. 

Tort Of Another: Does It Apply To Third-Party Litigation Involving Contracts Rather Than Torts?

Fifth District Concludes It Does, Sustaining A Supporting Superior Court Appellate Division Decision In The Cause Before It. 

            Although the facts were very convoluted, the Fifth District did confront the legal issue of whether the “tort of another” doctrine applies to contractual cases in State Center Community College Dist. v. American Property Holdings, LLC, Case No. F072306 (5^th Dist. Aug. 1, 2017) (unpublished).

            The appellate court decided that the doctrine did apply to appropriate contractual cases, validating the same result reached by the Los Angeles County Superior Court’s Appellate Division in De La Hoya v. Slim’s Gun Shop, 80 Cal.App.3d Supp. 6, 7-8, 10 (1978).  The Fifth District did endorse this extension to contract cases, observing that a “handful of federal and sister-state cases” have referred to De La Hoya “as exemplifying California law”—rejecting the proposition that it was inapt to contract cases.  The bottom line was that the litigant in State Center Community College (a community college district) properly relied on this doctrine in a contract case at the trial court level to garner a fee recovery of $581,335.91, plus the opportunity to reap some more fees for winning on appeal.

        COMMENT:  The key here is that, under the circumstances, the Court believed that damages in the form of attorneys fees incurred in third-party litigation were foreseeable.  Therefore, the case might be viewed as an application of the rule of Hadley v. Baxendale we learned in law school, namely, that consequential damages are those losses that the breaching party should have foreseen. 

Fee Clause Interpretation: California Supreme Court Decides That Parties’ Assertion Of An Affirmative Defense Is Not An “Action” Or “Proceeding”

However, Majority Still Allows Fee Recovery Based On Interrelatedness Of Two Agreements In Overall Action, Although Dissent Finds This Result Unwarranted.

            Today, the California Supreme Court came out with an important fee decision in the form of Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, Case No. S223536 (Cal. Supreme Court July 31, 2017) (published).  Although unanimous on the first issue, there was a 4-3 split decision on the second issue.

            The matter arose out of a complicated real estate transaction by which a plaintiff brought both a specific performance and breach of repurchase agreement action against the defense.  Two agreements were involved in the case, an option agreement and a repurchase agreement.  The defense raised an affirmative defense of novation based on the option agreement, a defense that was successful.  It did prevail eventually, but the trial judge concluded no fee recovery was allowable because the assertion of an affirmative defense did not fall within the definition of the option agreement fees clause allowing recovery when “an action” or “a proceeding” was brought.  The appellate court disagreed on the affirmative action issue, although there was a split in authority between Exxess/Gil (no recovery) and Windor (recovery).  We posted about the appellate decision way back on November 21, 2014.  The state supreme court granted review to resolve this split.

            On the affirmative defense issue, all seven justices agreed that fees should not be recovered because an affirmative defense was not the equivalent of an action or a proceeding for purposes of the option agreement fees clause.

            However, the majority (four justices) found the defense still was entitled to recovery based on the fact that the case involved inextricably intertwined connections between the two agreements, although the fees clause was in the option agreement and plaintiff had sued to compel a purchase of a building by the defense based on specific performance action and breach of a repurchase agreement counts (with the repurchase agreement not having a fees clause).  The majority expressly declined to articulate the exact nature of the causal link necessary, but found the issues arising under the two agreements were “inextricably intertwined” under the “because of” language in the option agreement fees clause.  The minority (3 justices) did not agree that there was a sufficient connection such that they dissented from the majority’s interpretation of the fees clause language.

            BLOG OBSERVATION—The majority was comprised of Justices Chin (author), Cantil-Sakauye (Chief Justice), Werdegar (who is retiring in August of this year), and Cuellar, while the minority justices were Kruger (author of dissent), Corrigan, and Liu.  I do believe that the failure to articulate the contours of a “causal link” test, relying only on the Civil Code section 1717 “inextricably intertwined” rubric, will engender further jurisprudence on this point where there are separate contracts or independent legal bundles of rights involved in a particular case.