CALIFORNIA ATTORNEY'S FEES

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  The decision is Gumrikyan v. Kesheshyan, Case No. B196783 (2d Dist., Div. 3 July 17, 2008) (unpublished).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.