CALIFORNIA ATTORNEY'S FEES

Prevailing Party, Receivers, Special Fee Shifting Statutes: City Of Norco v. Mugar Is Now A Published Decision.

Trial Court’s Determination That Plaintiff City Was The Prevailing Party Was Proper Under Catalyst Theory, City’s Arrangement With Outside Counsel Did Not Violate Defendant’s Due Process Rights, And Fee Award Of $60,798.94 To City Was Not Meant To Penalize Defendant For Defending Property Rights.

            We discussed City of Norco v. Mugar, Case No. E072858 (4^th Dist., Div. 2) – which was then unpublished – in our December 15, 2020 post.  Plaintiff City had filed a receivership action through outside counsel when defendant failed to abate what City described as 19 “life-safety hazards” on defendant’s property.  Although defendant eventually abated the 19 conditions, and the appointed receiver took no abatement action, City was declared the prevailing party and awarded $60,798.94 in fees and costs under Health and Safety Code § 17980.7(c)(11) – results that were affirmed on appeal.

            Determination that City was the prevailing party was proper under the catalyst theory.  Defendant’s due process rights had not been violated by City’s arrangement with outside counsel as City’s contract demonstrated that each of its demands and responses were determined by the City Council – not by outside counsel which had no contingency fee basis nor direct financial interest in the litigation outcome. 

            Additionally, the fees award did not constitute a penalty against defendant for exercising his First Amendment right to access and petition the courts to defend his property rights.  Rather, the purpose of the fee award is to encourage litigation by the successful party by making such litigation financially feasible.  Incidental restriction on conduct protected by the First Amendment is sufficiently justified “[1] if it is within the constitutional power of the Government; [2] if it furthers an important or substantial governmental interest; [3] if the governmental interest is unrelated to the suppression of free expression; and [4] if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest.” (United States v. O’Brien, 391 U.S. 367, 377 (1968).)

            We can now report that City of Norco v. Mugar was certified for publication on January 8, 2021.

Prevailing Party, Receivers, Special Fee Shifting Statutes: $60,798.94 Awarded To Prevailing City In Abatement Nuisance Action Affirmed On Appeal

City’s Arrangement With Outside Counsel Did Not Violate Defendant Property Owner’s Due Process Rights, Fee Award Was Not Meant To Penalize Defendant For Defending Property Rights, And Trial Court Properly Determined City The Prevailing Party Under Catalyst Theory.

            Plaintiff City and defendant property owner had a long history of conflict regarding substandard conditions on defendant’s property – going all the way back to 2007 – and resulting in criminal charges against defendant at one point in City of Norco v. Mugar, Case No. E072858 (4^th Dist., Div. 2 December 11, 2020) (unpublished).  In 2017, defendant’s property was red tagged and declared a substandard building, a public nuisance, and unsafe to occupy.  When defendant failed to abate the 19 cited conditions, even after an extension of time, City filed a receivership action through its outside counsel, to abate what it described as “life-safety hazards.”  Although a receiver was appointed and filed his oath, he took no abatement action as City and defendant had reached an agreement that allowed defendant another opportunity to abate the conditions himself, obtain any necessary permits, and schedule, undergo and pass a final inspection.  In the parties’ stipulation, City reserved its “right to file a motion to be declared the prevailing party in this matter and/or a motion for attorneys’ fees and costs.”  After some continuances and deadline extensions, defendant finally abated the 19 conditions, and City requested termination of the receivership.  City then successfully sought to be declared the prevailing party and for an award of $60,798.94 in attorney fees and costs under Health and Safety Code § 17980.7(c)(11) .

            The 4/2 DCA affirmed.  Defendant’s arguments that his due process rights were violated by the arrangement between City and its outside counsel were not supported by the record.  Rather, City’s contract with outside counsel showed that each of City’s demands and responses were determined by the City Council – not City’s outside counsel.  Additionally, outside counsel was not hired on a contingency basis and had no direct financial interest in the outcome of the litigation. 

            The panel also was not persuaded by defendant’s argument that the fees/costs award was an unconstitutional burden on his First Amendment right to access and petition the courts as it penalized him for defending his property rights.  While the purpose of the fee award is not to penalize petitioning activity, but to encourage litigation by the successful party by making it financially feasible, the panel acknowledged that a prevailing party fee statute may cause incidental restriction on conduct protected by the First Amendment.  However, as is the case here, under United States v. O’Brien, 391 U.S. 367, 377 (1968), such incidental restriction is sufficiently justified “[1] if it is within the constitutional power of the Government; [2] if it furthers an important or substantial governmental interest; [3] if the governmental interest is unrelated to the suppression of free expression; and [4] if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest.” 

            Finally, the 4/2 DCA found no abuse of discretion in the trial court’s finding that City was the prevailing party using the catalyst theory – with City achieving its litigation objective to abate a public nuisance .  The trial court reasonably determined defendant would not have complied with City’s abatement demands without the appointment of a receiver.

BLOG UPDATE: We can now report that City of Norco v. Mugar was certified for publication on January 8, 2021.

Receivers, Special Fee Shifting Statutes: County’s Enforcement Fees And Costs In Obtaining Receivership Appointment And Remediating Hazardous Property Conditions Are Not Entitled To Super-Priority Status Along With Receivership Expenses

Claims Of Competing Lienholders Had To Be Considered With Respect To Division Of Property Sale Proceeds.

            In County of Sonoma v. U.S. Bank N.A., Case Nos. A155837/A157245 (1^st Dist., Div. 1 Oct. 8, 2020) (published), the appellate court affirmed a lower court’s order conferring super-priority status to property sale proceeds on a receiver’s financial lien and enforcement costs in a case where the County obtained appointment of the receiver to remediate hazardous/substandard conditions on real property.  The lower court also gave super-priority treatment to County’s enforcement costs under Health & Safety Code section 17980.6, which encompassed costs and attorney’s fees.  That latter determination was reversed on appeal, because the claims of competing lienholders needed to be considered along with County’s claims before divvying up property sale proceeds to these claimants. 

Appealability, Receivers: $92,952 In Receivership Fees Affirmed In Judgment In Favor Of Landlord Elks Building Association Of Santa Ana And Against Tenant JK Properties

Appealing Both Merits And Fee Judgments Was Properly Done Here; Special Benefit Doctrine Was Not Proven By Tenant.

            In Elks Building Association of Santa Ana v. J.K. Properties, Inc., Case No. G056187 (4^th Dist., Div. 3 Sept. 10, 2019) (unpublished), tenant JK Properties assumed a lease to the Saddleback Inn in Santa Ana, whose landlord was the Elks Building Association of Santa Ana.  The Saddleback Inn, although visited by Presidents Nixon and Reagan in its glory days, was likely being illegally used as an apartment complex rather than a motel—with a 2011 fire severely damaging the building on the property.  JK was able to recover almost $2.9 million in insurance proceeds, but the City of Santa Ana ordered JK to demolish all four buildings (with JK defying this order for three of the remaining buildings because the fourth building was almost gone and was demolished by JK).  Apartment squatters stayed on, with the City obtaining a receiver to attend to the property.  Believe it or not, a second fire occurred, damaging the remaining buildings such that the receiver borrowed over $1.2 million to demolish the entire property.  Elks then sued JK for unpaid rent, receivership costs, receivership attorney’s fees, unpaid property taxes, the $2.9 million in JK-received insurance proceeds (given the lease specified that the buildings be returned intact to landlord), and prejudgment interest.  The lower court awarded almost $6 million in damages to Elks, with $92,952 being receivership attorney’s fees.  JK appealed.

            The 4/3 DCA affirmed, in an opinion authored by Justice Bedsworth.

            First of all, it did observe that JK properly separately appealed both the merits and fee judgments such that it preserved challenges to both—something we bloggers have advocated all along the way.  (Torres v. City of San Diego, 154 Cal.App.4^th 214, 222 (2007).)

            JK’s principal argument on appeal was that it conferred on the Elks the special benefit of free demolition, given that landlord was able to sell the property for about $4 million more because the expense of demolition had been spared.  There were two problems with the argument: (1) the underlying facts were not proven at trial (given that the sale involved both an inn and adjoining lodge parcel, with no apportionment on a valuation basis); and (2) the receiver did the yeoman’s work of demolition such that the special benefit doctrine was not causally demonstrated.  With respect to fees, that award stood given the failure to reverse the damages award to any extent.

            BLOG OBSERVATION—Kevin A. Day and Jacob M. Clark of AlvaradoSmith were the winning attorneys on appeal, and we believe they were both involved in the trial on this matter.  Congratulations!

Appealability, Receivers, Special Fee Shifting Statutes: Grant Of Attorney’s Fees And Expenses To City Of Indio And Against Property Lender/Receivership Estate In Public Abatement Action Reversed As A Matter Of Law

Two Health And Safety Code Fee Shifting Statutes And Indio Municipal Fee Shifting Provision Did Not Provide Bases For Fees/Expenses Against Lender/Receiver.

            In Kaura v. Stabilis Fund III, LLC/City of Indio (as intervenor), Case No. E065751 (4^th Dist., Div. 2 June 13, 2018) (partially published; appealability discussion not published), lender with a deed of trust on a 75-unit apartment complex sued the property owners/borrowers because the loan was in default and sought a receiver to make sure the property was properly maintained. A receiver was appointed based on lender’s motion for such an appointment. City of Indio (City) intervened, alleging that the property was a public nuisance, successfully moving to modify the receivership by instructing the receiver to remedy certain illegal hazardous and substandard conditions. City then moved for an award of attorney’s fees and expenses in the total amount of $98,190.47, with the trial court granting the full request against the receivership estate and, if the estate did not have sufficient funds, then by lender.

            Lender appealed, arguing that the three fee entitlement predicates did not allow for a fee award against it. The appellate court agreed and reversed.

            The first basis for the fee award, Health and Safety Code section 17980.7(c)(11), did not apply because (1) City did not obtain appointment of a receiver (a qualifying trigger), but only the modification of a receivership (with Health and Safety Code section 568.3 later enacted to cover this deficiency); and (2) it does not allow for an award of litigation expenses in any event.

            The second basis for the fee award, Health and Safety Code section 17980.7(d)(1), did not apply because lender was not the property owner and was not a “successor in interest” as used in the statutory scheme; lenders and receivers are not successors in interest, given that lender had an existing deed of trust after discovery of the substandard conditions and had no effective control over the property at the time.

            The third basis for the fee award, Indio Municipal Code section 10.20(C), did not apply because lender and the receivership estate were not “non-prevailing parties in the action to abate a public nuisance” because that count by City still remained pending and relief was not granted on that count. Beyond that, neither of these entities maintained or created the nuisance, the owner did, such that the municipal code provision could not be read to expand nuisance liability any more broadly.

            Finally, in the unpublished portion of the opinion, the 4/2 DCA decided that the fee order was appealable under the collateral order doctrine.

Receivers: Receiver Did Not Have To File Costs Memorandum In Order To Recoup His Retained, Approved Attorney’s Fees For Successfully Defending Against Prior Appeal By Other Side

 

Fees Governed Instead By CRC 3.1185, Not Rule 8.278(c)(1).

    In Marriage of Hogan, Case No. B265141 (2d Dist., Div. 1 Oct. 24, 2016) (unpublished), a couple in a marital dissolution action appealed a trial court’s award of appellate attorney’s fees to an appointed receiver for successfully defending a prior appeal involving the receivership.  They argued that the receiver was precluded from obtaining the award because he failed to submit a costs memorandum as required under California Rules of Court, rule 8.278(c)(1).  The appellate court disagreed, determining that the award of fees for the work of the receiver’s attorney on appeal was governed instead by rule 3.1184—a Rule of Court not requiring a costs memo as a condition of confirming a receiver’s request for an award of appellate fees. 

Private Attorney General/Receivers: $250,000 In Fee Recovery To CEQA Petitioners Under City of San Diego Settlement Agreement And Receivers Fees Sustained With No Need To Submit Costs Memorandum

 

Coastal Environmental Rights Foundation, Inc. v. City of San Diego, Case Nos. D060230 (4^th Dist., Div. 1 Oct. 16, 2014) (unpublished)

     Here, a CEQA petitioner finally forged a settlement with the City of San Diego over issuing a permit for the 2010 La Jolla Cove Fireworks Show without performing an environmental review. Under the settlement, City did agree to do a review for special events and discretionary park use permits on a project-by-project basis. For our purposes, the stipulated settlement—approved by the appellate court—included a fee award of $250,000 to the petitioner.

"Say the French, 'See Paris and die!'
Make your home at La Jolla and Live, say I."

The San Diego Union
May 5, 1887

La Jolla visitor.  Source:  The Journal of San Diego History.

Marriage of Hogan, Case No. B248740 (2d Dist., Div. 1 Oct. 16, 2014) (unpublished)

     This was a receiver case in which a receiver was appointed to manage/list three apartment buildings of family law dissolution litigants locked in acrimonious proceedings. The litigants challenged the receiver's/his personnel's hourly rates, but did not present proof to show they objected to the general receivership order allowing compensation at usual hourly billable rates or that the work expended was unreasonable. They also argued that the receiver could not obtain costs after his resignation because no costs memorandum was filed. The problem with this argument is that the receiver's final report and account and right to compensation is governed by CRC, rule 3.1184, which allows for compensation upon a review of the final report—with no costs memo requirement being applicable (the general rule for obtaining costs in normal civil litigation under CCP section 1032).

Receivers: Attorneys Properly Assessed With 15% Surcharge For Failing To Ensure That Receiver Made Monthly Reports

15% Reduction Justified Because Monthly Receiver Reports Might Have Resulted in Possible Fee Savings, Says Second District, Division 7

     Here is an interesting one for all of you attorneys representing receivers. The lesson to be learned is direct and simple: make sure they discharge basic fiduciary responsibilities of filing monthly reports, or face possible reductions in your fees.

     Jeffers, Mangel, Butler & Marmaro v. Southland Land Corp., Case No. B214255 (2d Dist., Div. 7 Mar. 15, 2010) (unpublished) involved a receiver appointed to liquidate Southland Land Corporation, which had 53 lawsuits pending against it and was enmeshed in political corruption scandals surrounding the City of South Gate. Quite a mess. However, the main part of this unpublished decision that should be of interest is that the trial court trimmed (or, to use the proper vernacular, “surcharged”) receiver’s counsel’s fees 15% because receiver failed to submit monthly reports to the court as required by the California Rules of Court. In fact, receiver did not make court applications to pay his counsel’s fees, although most of them were paid out of the receivership estate. Although other reductions of a more minor nature were in controversy, the 15% surcharge of $219,916 (on fees of $1,466,106) obviously inspired an appeal by receiver’s counsel.

     The appellate court affirmed. Although finding no reported decision using the term “surcharge” to describe a discretionary reduction in attorney’s fees, it believed that some courts used the term to describe excessively high fees awarded in relation to the amount recovered in the litigation. By analogy, counsel’s failure to ensure that receiver made his monthly reports (in this case, missing about 24 reports) could have cost the receivership estate a lot of potential savings of fee and other categories, justifying affirmance under the abuse of discretion standard.