Section 1717 Fees Are Affirmed As to Husband, Reversed and Remanded As to Wife; Home Improvement Statutory Fees Are Affirmed As to Both Husband and Wife.
Talk about a wild one. If any of you readers believe that legal cases do not mimic real life, you need to read and stay tuned for our synopsis of the next case. Although we only give you the highlights, it certainly has a flavor for all of what goes on in life and also reinforces some principles in the attorney’s fees area of practice as well.
The case is Kachlon v. Markowitz, Case No. B182816 (2d Dist., Div. 4 Nov. 17, 2008) (certified for partial publication, although we summarize published and unpublished parts of the opinion). It is 72 pages long, but we will try to cut to the chase.
The "thickets of appeal" arose from two lawsuits involving the Markowitzes (Donald and Debra, husband and wife) and Kachlons (Mordechai and Monica, also husband and wife). Markowitzes purchased a residence from the Kachlons, with the Markowitzes executing a $53,000 note to the Kachlons secured as a second trust deed against the residence, with Mordechai Kachlon providing contractor services to the Markowitzes for various home improvement projects, and with attorney Debra Markowitz agreeing to provide legal services to Mordechai Kachlon before Debra became romantically involved with Mordechai. If you haven't guessed it already, the parties' dealings soured (except for possibly Debra and Mordechai, until litigation began). Mordechai sued the Markowitzes for breaching the home improvement contract and failing to repay personal loans, while the Markowitzes sued the Kachlons and foreclosure trustee for wrongfully-initiated nonjudicial foreclosure proceedings on the residence. Mordechai cross-complained against Debra for legal malpractice and breach of fiduciary duty.
After both a jury trial on legal issues and court trial on equitable issues, the following happened: (1) the jury assessed damages of $100,000 for Donald Markowitz and $40,000 for Debra on the wrongful foreclosure claims against the Kachlons, plus $150,000 in punitive damages; (2) the jury awarded damages of $30,000 each to Donald and Debra against trustee Best Alliance; and (3) the court cancelled the note, ordered reconveyance of the second trust deed, ordered rescission of the Kachlons’ pending foreclosure efforts, and set aside the punitive damage award in favor of the Markowitzes.
With respect to attorney’s fees, the court did this: (1) as against the Kachlons and Best Alliance (jointly and severally) under Civil Code section 1717, awarded Donald Markowitz $166,207.50 (1,108.05 hours at $150 per hour; even though Donald requested $201,622.50), plus an additional $14,572.20 for later litigation efforts, totaling $180,779.70; (2) as against the Kachlons and Best Alliance (jointly and severally) under section 1717, awarded Debra Markowitz $16,000 based on a contingency agreement (which was 40% of the $40,000 monetary award), even though she initially requested fees of $206,160 based on 687.2 hours at a requested rate of $300/hour and later scaled down the request to $93,372 based on 40% of 778 hours at $300/hour; (3) as against Mordechai under the Business and Professions Code section 7168 (the home improvement contract fee-shifting statute), awarded Donald Markowitz $116,452; and (4) as against Mordechai under section 7168, awarded Debra Markowitz $37,200.
Appeals ensued, with the Second District, Division Four affirming most of the rulings but for one: it reversed the $16,000 fee award to Debra Markowitz under Civil Code section 1717 and remanded to recalculate the fees using the lodestar method described in PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1095-1096 (2000).
Here are the highlights of the appellate decision of this litigation “soap opera” in the context of the fees proceedings:
· The trust deed provisions, when construed under cases and principles involving Civil Code section 1717, easily allowed fee recovery against the Kachlons with respect to the declaratory relief and injunctive claims for note cancellation and wrongful foreclosure. See, e.g., Texas Commerce Bank v. Garamendi, 28 Cal.App.4th 1234, 1246 (1994); Star Pacific Investments, Inc. v. Oro Hills Ranch, Inc., 121 Cal.App.3d 447, 463 (1981); Valley Bible Center v. Western Title Ins. Co., 138 Cal.App.3d 931, 932-933 (1983); Wilhite v. Callihan, 135 Cal.App.3d 295 (1982); Saucedo v. Mercury Sav. & Loan Assn., 111 Cal.App.3d 309 (1980); Huckell v. Matranga, 99 Cal.App.3d 471, 482 (1979).
· Trustee Best Alliance faced fee exposure to the Markowitzes because it consistently allied itself with the Kachlons on essential issues relevant to the note and trust deed, opting to not file (only belatedly) a declaration of nonmonetary status pursuant to Civil Code section 2924l until after the lower court’s determination of equitable issues. [HINT TO FORECLOSURE TRUSTEES—A more timely filing of this declaration might have made a difference here—“But by filing a declaration, at least prior to the trial court’s bifurcated determination of the equitable claims based on the note and deed of trust, Best Alliance would have timely articulated the position that it considered itself merely a nominal defendant on those claims with no interest in the outcome.”]
· Best Alliance was not immune from a fee award based on the operation of the litigation privilege under Civil Code section 47, because “[a] motion for attorney fees is not analogous to a tort claim [protected under section 47].”
· The lower court’s award of 40% of fees to Debra under section 1717—based on her contingency fee arrangement with her attorney—was erroneous. Rather, PLCM mandated use of the lodestar method in calculating fees under section 1717. This was the one issue requiring reversal and remand for a fee recalculation.
· Business and Professions Code section 7168 contains a mandatory fee-shifting provision requiring a trial court to award reasonable attorney’s fees to the prevailing party in an action between parties to a swimming pool construction contract. The fee award to Donald was justified and did not require allocation, because Donald’s attorney showed why the issues regarding the swimming pool were “inextricably intertwined” with other issues involving home improvements. In such instances, allocation is a matter for the trial court’s discretion—with the lower court finding no allocation justified in the Markowitz-Kalchon dispute as far as Donald was concerned. See, e.g., Thompson Pacific Construction, Inc. v. City of Sunnyvale, 155 Cal.App.4th 525, 555 (2007); Akins v. Enterprise Rent-A-Car Co., 79 Cal.App.4th 1127, 1133 (2005). However, Debra did not make a sufficient showing to justify an unapportioned award. The trial court’s discretion in allocating fees is very broad in nature and was sustained in this case.
BLOG BONUS COVERAGE—The Second District in Kachlon disagreed with the Fourth District, Division Two’s conclusion in Garretson v. Post, 156 Cal.App.4th 1508 (2007) that nonjudicial foreclosure proceedings are protected by the absolute Civil Code section 47 litigation privilege. Instead, Kachlon held that the protection granted nonjudicial foreclosures is the qualified, common interest privilege of Civil Code section 47(c)(1), one requiring malice before immunity is compromised.