CALIFORNIA ATTORNEY'S FEES

Equity And POOF!: Appellate Court Reverses CCP § 473 Relief For Late Filing Of Attorney’s Fees Motion

Reversal Meant $94,072.50 Fee Award Evaporated.

    Here is one showing that appellate courts will try to do equity depending on the facts of a particular dispute. (And, by making this comment, we in no way mean they ignore the law—quite to the contrary, as we have seen in numerous posts.) Unfortunately, for plaintiff and her attorneys, the result meant that a $94,072.50 fee award went POOF! on appeal.

     Williams v. Ablakhad, Case No. B214364 (2d Dist., Div. 1 Aug. 27, 2010) (unpublished) involved a donnybrook of a dispute between defendant used car dealer and one of his customers (plaintiff Williams). By the time the opinion we discuss came down, the parties were already on their third appeal.

Equity: Bona Fide Purchaser Rule Did Not Prevent Constructive Trust Being Granted To FTC When Attorney Did Not Properly Make Inquiry As To Source of Funds

However, Equitable Receipt of Fee Principle Used to Allow Reasonable Fee Before Freezing of Client’s Assets.

     This next case is an important, sobering one for any civil practitioners defending clients charged with Federal Trade Commission (FTC) Act violations, counseling that there is a duty of inquiry with respect to attorneys’ acceptance of retainers so as to avoid forfeiture/disgorgement under FTC freeze or other equitable orders. Pay attention closely to this one.

             Freezing.  Library of Congress. 1924.

     In FTC v. Network Services Depot, Case No. 09-15684 (9^th Cir. Aug. 16, 2010) (for publication), a district judge determined that attorney’s fees were paid from his client’s unlawful FTC activities and imposed a constructive trust over a portion of those fees. Specifically, the attorney representing the FTC-targeted client was paid $375,000 in a flat fee agreement, with the district judge requiring return of all but $136,700—a sum that the court, in equity, permitted the attorney to retain as fees rightfully earned up to the date of the freezing of client’s assets.

     Among other things, the Ninth Circuit affirmed the fee rulings.

     Constructive trust is an equitable remedy, with the federal court of appeals finding use of the remedy was justified where commingled funds (some from unlawful activities) had been used to pay attorney. Appellants mainly relied on the bona fide purchaser rule, arguing that client’s attorney accepted the ill-gotten money in good faith and after a diligent review of the circumstances. Not so much, in essence, was the Ninth Circuit’s response.

     Attorney had a duty of inquiry into the source of the funds under the circumstances, a duty he did not fulfill by primarily relying on the contrary representations of his client. (FTC v. Assail, Inc., 410 F.3d 256, 266 (5^th Cir. 2005).)

     However, this was not the end of the matter. The district judge did not err in allowing attorney to retain $136,700 (although the request was more) for fees incurred by attorney before client’s assets were frozen. Equity, equity, equity.

     An important case to read by attorney representing litigants involved in alleged FTC violations. The case was authored by U.S. District Judge Rebecca R. Pallmeyer (N.D. Ill.), sitting by designation, on behalf of a 3-0 panel.

Equity: Common Fund Debate . . . . Lodestar Or Percentage Of Recovery . . . . U.S. District Court Opts For Lodestar

USDJ Chooses Lodestar in Wage/Hour Class Action Fee Recovery Settlement.

     Our friend and fellow blogger H. Scott Leviant has reported on Anderson v. Nextel Retail Stores in his June 30, 2010 post at The Complex Litigator website.

     There, U.S. District Judge Stephen Wilson, in a common fund wage/hour class action settlement, chose the lodestar fee recovery methodology over the percentage-of-recovery method (presumptive in the Ninth Circuit). District Judge Wilson found that the case was “run of the mill”—a proposition vigorously disputed by Mr. Leviant in his  June 30 post—and rejected awarding plaintiffs’ attorneys a 1.64 lodestar multiplier, the result if the percentage-of-recovery method has been adopted.

Probate: Common Fund Recovery Comes To The Rescue!

 

Adversarial Beneficiary Losing the Fight May Be Held Responsible for Winner’s Attorney’s Fees.

     Family feuds can be bitter, as the next case demonstrates. They also can result in being saddled with attorney’s fees depending how the trial court rules, given that some equitable doctrines like the common fund doctrine are very broad and pliable in nature.

     Gay v. Dunbar, Case No. A125421 (1^st Dist., Div. 1 June 29, 2010) (unpublished) involved a bitter struggle with sharply conflicting trial testimony over what a mother intended when she transferred the bulk of her assets into joint ownership with one child shortly before she died, but had a will and had seemed to indicate to others that she wanted assets divided between all three children.

In The News . . . . Goodman, Chavez, and Petaluma Fee Expenditures

 

Goodman Forecast to Curtain Attorney’s Fees

     In a March 15, 2010 article “Curtailing Attorneys’ Fees” by Harry I. Price (a Los Altos real estate attorney) published in The Recorder, Mr. Price predicts that Goodman v. Lozano—a recent California Supreme Court decision examined in our February 5, 2010 post—“will change how litigants sift and weigh risks before going to trial, cropping certain cases from trial calendars.” He believes that the result may encourage settlements. (BLOG UNDERVIEW—Mr. Price recognizes that many litigation cases are ones where “the tail is wagging the dog,” a reference to where attorney’s fees can many times eclipse the amount of actual damages such that fee recovery determines the winner or loser. In doing so, he observes that “tail docking is a medical procedure: the amputation of part of the tail of the dog.” Co-contributor Mike’s dog Riffle says “ouch.”)

Chavez Hailed As One of the Most Significant Employment Cases of 2010

     Lonny Zilberman (a San Diego employment lawyer), in a March 12, 2010 article “The Days of ‘Big Scores’ for Fees Are Over” published in The Los Angeles Daily Journal, fetes Chavez v. City of Los Angeles—another state supreme court decision surveyed in our January 14, 2010 post—as possibly being “the most significant employment decision of 2010.” Mr. Zilberman notes that after Chavez, fewer plaintiffs’ attorneys and mediators can use the argument “if plaintiff recovers one dollar, you have to pay all of the attorney’s fees,” giving employers some leverage in negotiating a settlement where the particular case has little or no merit. (BLOG FAVORITE QUOTE—The author says that Chavez reminded him of this passage from Dickens’ Bleak House: “This scarecrow of a suit has, in course of time, become so complicated that no man alive knows what it means. The parties to it understand it least, but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it.”)

Petaluma’s 2009 Fee Expenditures Went Up In the Last 13 Months

     As reported by Philip Riley in a March 12, 2010 post on the Petaluma Argus-Courier website, the City of Petaluma was billed $600,794 in attorney’s fees, experts’ fees, and related expenses from the start of 2009 through the end of January 2010. In the prior 13-month period, $549,540 was billed to the City. Apparently, the most expensive recent issue was the proposed November ballot measure to reduce wastewater rates, an issue costing the City $69,000 to respond to in the recent 13-month period.

Partition: Trial Court Did Not Err In Awarding $95,267.41 In Attorney’s Fees To Plaintiff In Partition Action, Where Incurred For A “Common Benefit”

Plaintiff Sought $415,458.75 In Fees, But Trial Court Reductions and Apportionments Lowered Actual Award to $95,267.41.

     In partition actions, Code of Civil Procedure section 874.010(a) authorizes an award of costs to include reasonable attorney’s fees that have been “incurred or paid by a party for the common benefit.” When you get into this area of fee recovery, you will find that much older precedents come into play, which was the situation when the court reviewed defendant’s challenge to a partition fee award in Charco Ventures v. Sandoval, Case No. C060305 (3d Dist. Jan. 22, 2010) (unpublished).

 

    Above:  Partition action.  Judgment of Solomon.  Nicolas Poussin.  1649.  Louvre. 

 

     There, plaintiff was awarded damages of $190,500 for defendant’s breach of fiduciary duty, ordered paid from the partition sale proceeds of certain property in which plaintiff and defendants were 50/50 cotenants. Plaintiff then sought $415,458.75 for the services of both current and prior counsel. The trial court awarded plaintiff $95,227.61 in fees and $40 in other costs, for a total award of $95,267.41. Because plaintiff (along with another affiliated party) made numerous claims in addition to the partition claim, the primary reductions were for apportioned-out work relating to claims that were “not for the common benefit” of the cotenants. (The trial court actually applied a 54.6% allocation formula, further reduced by a 60/40 split of fees between the two cotenants.)

     Defendant appealed.

     The fee award was affirmed by a 3-0 panel in a decision authored by Justice Cantil-Sakauye.

     Defendant primarily argued that no fees should have been awarded because plaintiff’s fees related to claims not incurred for the “common benefit” of the cotenants. The appellate court rejected this notion, observing that common benefit fees could still be awarded even in contested partition suits. (Capuccio v. Caire, 215 Cal. 518, 528-529 (1932); Riley v. Turpin, 53 Cal.2d 598, 602 (1960).) Because plaintiff’s claims were not spurious, cases refusing to award fees were found distinguishable because they had a very different sets of facts. (E.g., Forrest v. Elam, 88 Cal.App.3d 164, 167, 172-174 [involving spurious claims].) With respect to claims that do involve personal interests alone, the appellate court stated that section 874.040 takes this in account by allowing the court to make an equitable apportionment of fees—something actually done in the Sandoval matter.

     Defendant also challenged the 60/40 apportionment in fees made by the lower court, arguing this was askew from the 50/50 presumptive apportionment. However, the appellate panel found the lower court apportioned as a matter of equity—not based on property interests—because defendant undertook pre-litigation efforts to obstruct sale of the property and took meritless positions in the partition suit. The equitable apportionment, under the circumstances, was no abuse of discretion.

Class Action And Equity: Shareholder Obtaining Minor Changes To Proxy Statement Not Entitled To Substantial Benefit Fee Recovery In The Absence of Presuit Notification To Defending Public Company

 

Fourth District, Division 3 Uses Equitable Maxims in Reaching Result.

     Our favorite line in the decision we next review is this: "Since delay defeats equity, we will hold our applause."

       Above:  Cartoon showing blinded "Justice" trying to drag the "Letter of the Law" through obstacles of "delay, postponement, re-trial, and technicality".   1912.  Library of Congress.

 

      Justice Aronson, the author of that sentence on behalf of a 3-0 panel in Pipefitters Local No. 636 Defined Benefit Plan v. Oakley, Inc., Case No. G040727 (4^th Dist., Div. 3 Jan. 13, 2010) (certified for publication), eventually ruled that a shareholder in a publicly traded company—who sought to recoup attorney's fees in the range of $325,000-$375,000—was properly denied a fee recovery under the "substantial benefit" equitable theory where the shareholder provided no presuit notification to the company and achieved fairly immaterial changes in a challenged proxy statement.

     The appellate panel found that the equities did not favor shareholder, who did not provide any presuit notification in an effort to work out the proxy statement issues. The Court of Appeal refused to limit application of Abouab v. City and County of San Francisco, 141 Cal.App.4^th 643 (2006)—which did impose a presuit notification requirement where fees were sought under a substantial benefit theory—just to public entities. Rather, its reasoning did extend to this shareholder private dispute. The panel also endorsed Abouab, refusing the invitation to part company from the decision.

     Because plaintiff shareholder's victory was largely pyrrhic, See our earlier post today for an image of King Pyrrhus.  Justice Aronson found it unreasonable to award exorbitant fees, especially in a situation where "a lion produced a mouse."

     We are considering opening a new category in our sidebar, "Pyrrhic Victories."

     BLOG UNDERVIEW—Also, the opinion reminds us that we all need to proofread carefully our pleadings before filing them. Justice Aronson dropped a footnote indicating that shareholder's complaint was identically copied from prior complaints filed against other corporations, even containing a typo that named one of the other corporations rather than Oakley. That typo did not help plaintiff when it sought fees before the trial court and then tried to obtain reversal of the fee denial on appeal.

Shareholders Denied Award Of Attorney’s Fees In Derivative Action Because Results Only Personally Benefited the Shareholders

Third District Find That Common Fund/Substantial Benefit Doctrines Were Inapplicable.

            Under the equitable “common fund” or “substantial benefit” doctrines, a shareholder who successfully pursues a derivative action that establishes a common fund or a substantial benefit to the corporation may look to the corporation to reimburse the shareholder for the costs of the litigation benefiting the corporation.  (See, e.g., Cziraki v. Thunder Cats, Inc., 111 Cal.App.4^th 552, 557-558 (2003).)  These principles were explored in the unpublished decision we next examine.

            In Wood v. Hock, Case No. C055122 (3d Dist. Sept. 24, 2008) (unpublished), the trial court denied attorney’s fees to two minority shareholders who successfully established that the president of a closely held development company breached his fiduciary duties to the plaintiffs by usurping for himself a land acquisition/development opportunity and certain construction management work.  The lower court reasoned that the lawsuit resulted entirely in personal benefit to the minority shareholders rather than in derivative benefit to the closely held corporation.

            That determination was affirmed on appeal, in a 3-0 Third District decision authored by Justice Davis.

            In affirming, the Court of Appeal examined the facts of Baker v. Pratt, 176 Cal.App.3d 370, 376-379 (1986), where one shareholder’s successful result against the co-shareholder only furthered the suing shareholder’s interests, and contrasted it against Cziraki, supra, 111 Cal.App.4^th at 554-555, 560-561, 565, where a patent manufacturer-shareholder successfully sued two exploitative shareholders so as to garner acquisition of the patents and royalties that would be split between all three shareholders.  Justice Davis found that “[t]he facts before us fall on the Baker side of the ledger,” given that the outcome benefited the personal adverse interests of the winning minority shareholders.  (Slip Opn., at p. 10.)  Thus, the common fund and substantial benefit equitable doctrines were not triggered, and the fee denial was correct.  (Accord, Avikian v. WTC Financial Corp., 98 Cal.App.4^th 1108, 1118 (2002) [“Baker makes clear that if corporate shareholders are seeking to advance their individual interests, rather than the interests of the corporation generally, no [attorney’s] fees should be awarded on a common fund or substantial benefit theory”].) 

Partnership Did Not Have To Pay For Attorney's Fees In Unrelated Prior Litigation Where Only One Partner Recovered Fee Award Against A Defunct Losing Party

Second District Reverses Awarding Almost $100,000 To One Partner’s Attorney Where Action At Issue Did Not Involve a Fee Award Against Other Partners.

            In a rather complicated set of facts, certain partners sued other partners in an oral partnership involving a property and business.  Plaintiffs won their oral partnership claims, with the trial court appointing a receiver and ordering the sale of the receivership business and real property.  Defendants (the other partners) bought the business and real property from plaintiffs, with $993,973 remaining after distribution of proceeds and other partnership assets.  The trial court then ordered distribution of $637,389 to one partner and his attorney Mr. Drexler, with $173,543.50 being accountable for most of the fees and costs incurred by the one partner (and owed to Mr. Drexler) for winning a prior specific performance action against an unrelated party (the Akopyan action).  The trial court ordered this amount paid out of the receivership estate, with the defendants contributing 4/7ths of the $173,543.50 sum (or a little shy of $100,000).    The aggrieved partners appealed this ruling, as well as others, and obtained a reversal on the 4/7ths fee distribution order.

            The Second District, Division Three, in a 3-0 decision authored by Presiding Justice Klein, overturned the fee distribution order.  The decision is Gumrikyan v. Kesheshyan, Case No. B196783 (2d Dist., Div. 3 July 17, 2008) (unpublished).

            The Akopyan action involved a specific performance action brought by an outside buyer who agreed to purchase the business and real property from one of the plaintiff partners who was record owner.  Buyer lost and was ordered to pay $187.146.50 in fees and costs to plaintiff partner.  Buyer was defunct, so plaintiff partner (and Mr. Drexler, his attorney) sought to be paid out of the receivership estate under the theory that there would have been no property to sell if buyer had been successful.  Other partners objected on the basis they did not retain Mr. Drexler in Akopyan, an objection that the trial court overruled in ordering the receivership distribution of $173,543.50 ($100,000 being the 4/7ths contribution of the nonsuing partners in Akopyan).

            Based on the structural realities of the Akopyan litigation, a reversal was warranted.  Justice Klein found that the partnership was not a party in the prior litigation, the attorney’s fees award was only against Akopyan (not the partnership), and nothing showed the partnership retained Mr. Drexler as their counsel in the prior case.  Accordingly, the appellate panel reversed the order charging the other partners with 4/7ths of the $173,543.50 in fees awarded to Mr. Drexler for the Akopyan litigation.

            Call it common sense, but this decision illustrates that litigants and their winning attorneys need to focus fee recovery against the losing party, not peripheral players not involved in the case producing the fee award in the first place.

            (BLOG BONUS COVERAGE—This unpublished decision also has a nice discussion about the binding impact of judicial admissions made in pleadings.  Justice Klein quotes no less an authority than Justice Corrigan (when she was an intermediate appellate jurist), who summed it up well in Valerio v. Andrew Youngquist Construction, 103 Cal.App.4^th 1264, 1271 (2002):  “Because an admission in the pleadings forbids the consideration of contrary evidence, any discussion of such evidence is irrelevant and immaterial.  When a trial is had by the Court without a jury, a fact admitted by the pleadings should be treated as ‘found” ….”.)

JUSTICE, JUSTICE, SHALL YOU PURSUE: COURT FINDS AMOUNT OF ATTORNEY'S FEES UNFAIR

SECOND DISTRICT COURT OF APPEAL DISCUSSES TRIAL COURT’S DISCRETION TO REDUCE CIVIL CODE SECTION 1717 CONTRACTUAL FEE AWARD WHERE WINNING LITIGANT INCREASED UNNECESSARY FEES BY ITS LITIGATION CONDUCT.

            The Second District Court of Appeal, in a 2-1 opinion with an extensive dissent by Presiding Justice Cooper, has penned a very interesting decision that confirms the trial court has considerable equitable discretion to reduce contractual attorney fees awarded under Civil Code section 1717, especially where a winning litigant caused substantial unnecessary fees to be incurred for lying under oath and for creating the litigation to continue based upon selective recollection of events.  The dissent believed that the trial court was punishing the winning litigant, an improper consideration in deciding the amount of fees to be awarded.  The case is EnPalm, LLC v. The Teitler Family Trust, Case No. B194372 (2d Dist., Div. 8 April 30, 2008).

            A defendant trust, seller of an apartment builder, defensed fraud/contractual claims brought by plaintiff buyer, based on failure to disclose the existence of a long-term tenant, when the trial court excluded a crucial document as being inadmissible.

           Defendant trust clearly prevailed, with the trial court determining that $50,000 was a reasonable lodestar in light of the fact defendant did not present a calculation of its hourly fees or include any attorney timesheets in its fee petition.  However, the trial court went further, reducing the fees down to $5,000 based on “equitable” considerations—trust’s main witness lied under oath such that a vast majority of the time incurred by trust’s counsel was unnecessary because of his client’s litigation conduct.

            The Second District, in a majority decision authored by Justice Rubin, agreed with the lower court’s fee determination.  As the majority saw things, a trial judge properly considers many factors—the nature/difficulty of the litigation; amount of fees involved; the skill required/employed to handle the case; the attention given by the winning attorneys; the success or failure; and other circumstances in the case—in awarding a fee to a prevailing party.  That includes whether a reduction of fees is in order for litigation conduct of the prevailing party that made fees unnecessary in the first place.

            The majority had no difficulty concluding that a trial court cannot reduce fees for subjective reasons, such as its views of the merits of a case, or antipathy toward a party/its counsel, or its antipathy about a counsel’s litigation strategy, or its intent to punish a party solely for such reasons.  (See Slip Opn., p. 6, fn. 5.)  However, the majority believed that a winner’s litigation conduct, viewed objectively so as to lead to the conclusion that it made fees unnecessarily, can be weighted in determining whether to reduce fees.

            Justice Cooper, in dissent, believed that the lower court did punish the winner and was influenced by factors that have been rejected as appropriate for determining whether a party prevails for purposes of being awarded fees.  She opined that a parties’ behavior during the case is equally irrelevant when deciding the proper amount of fees to award to the prevailing party.

The dissent also has a very useful discussion of the factors used to increase or decrease the lodestar both in section 1717 and public attorney general cases.  (See Slip Opn., dissent at pp. 6-14.)

This decision is must reading on equitable factors to be used in reducing lodestars in private- or public-oriented cases.