CALIFORNIA ATTORNEY'S FEES

Estoppel: Given That Prior Judgment Was Barred By Judicial Estoppel, Subsequent Fee Award Of $167,044 Based On Contractual Fees Clause Was Proper

“Law Of The Case” Doctrine Applied With Respect To Validity Of Prior Judgment.

            In Hume v. Hume, Case No. A161616 (1^st Dist., Div. 3 June 8, 2022) (unpublished), appellant tried to argue that a judgment was void even though, if it was valid, the judgment gave rise to fee exposure.  The trial court did not buy it, awarding the other side $167,044 in contractual attorney’s fees, with the adverse party not contesting the amount of the fees requested.  The Court of Appeal affirmed, largely on the “law of the case” doctrine which found the prior judgment proper based a judicial estoppel argument.  Once that occurred, the fee award was upheld given there was a contractual basis for fees and the other side did not contest the amount of requested fees. 

Estoppel, Fee Clause Interpretation: A Little Over $320,000 Fee Award Gets Reversed As A Matter Of Law Because The Clause Did Not Cover The Scope of the Adjudicated Dispute

Interpretation Of Fee Clause Wording Is A Fertile De Novo Review Issue For Losing Litigants Facing Fee Exposure.

            On appeal, one of the best issues is whether there is fee entitlement. In many disputes, this means does the fee clause cover the dispute which was adjudicated before a court or jury?  If the answer is no, even though a trial judge decides otherwise, an appellate court can reverse the fee award as a matter of law.

            That is what happened in BFCAP Investments, LLC v. Lifehouse Parkview Properties, LLC, Case No. B307388 (2d Dist., Div. 4 Apr. 21, 2022) (unpublished). There, defendant sellers won a summary judgment against plaintiff buyer, with the trial judge awarding a full request of a little over $320,000 in attorney’s fees under a contractual fees clause. (Even then, the trial judge was concerned that the defendants failed to quote the full fees clause so that a proper consideration of the fee award could be made, with the defense apologizing at some stage for this omission.) Nonetheless, the appellate court reversed, deciding that the fees clause only related to disputes over Acquired Assets rather than property post-default issues.  Even though plaintiff had prayed for fees, the reviewing court did not view this as an estoppel because defendants still had to show their own entitlement to fees.

Estoppel, Section 1717: After Reversal of Prior Judgment Finding No Easement, Defendant HOA Was Properly Awarded $731,682.08 In Section 1717 Fees And $111,540.01 In Costs

Judicial Estoppel Did Apply Against Plaintiffs Where They Litigated The Position That The Easement Maintenance Agreements Had Fee Clauses, And Were Awarded Fees Before Prior Reversal.

            Ranch at the Falls LLC v. Indian Springs Homeowners Assn., Inc., Case No. B311278 (2d Dist., Div. 8 Feb. 10, 2022) (unpublished) demonstrates how a change of fortune through a reversed judgment and application of judicial estoppel can certainly alter the results in a case.

            In this one, plaintiffs had won a judgment in an easement dispute and were awarded $199,459 in attorney’s fees based on fee clauses in easement maintenance agreements.  Plaintiffs clearly litigated and took the position that fee exposure was present under the fee clauses and Civil Code section 1717.  Then, a huge change in fortune occurred when the appellate court in an earlier opinion reversed the judgment after finding plaintiffs had no enforceable easement over certain private streets in Indian Springs.  That meant plaintiffs’ fee award went POOF!  The lower court then applied judicial estoppel against plaintiffs, awarding defendant $731,682.08 in attorney’s fees and $111,540.01 in costs.  Plaintiffs, clearly dismayed, appealed.

            The 2/8 DCA, in an opinion authored by Acting Presiding Justice Grimes, affirmed.  The judicial estoppel doctrine was properly applied against plaintiffs based on their prior fee position when their fortunes were much different.  Plaintiffs then argued that the fee award would result in their financial ruin, a discretionary factor which may be considered even though there is a split in appellate thinking on the issue.  (Compare Garcia v. Santana, 174 Cal.App.4^th 464, 477 (2009) [may be considered discretionarily] with Walker v. Ticor Title Co. of Cal., 204 Cal.App.4^th 363, 372 (2012) [inappropriate to consider losing party’s financial status as an equitable factor in assessing contractual attorney’s fees].)  However, under Garcia, this is still a discretionary call by the lower court, which found that the financial evidence did not present a clear enough picture that the award would be ruinous.  Finally, plaintiffs complained about excessive hours, but the trial judge had reduced defendant’s fee request by 25% in addressing this concern previously.

Choice of Law, Estoppel, Intellectual Property: Attorney’s Fees Properly Denied In Entirety To Plaintiff Winning Only 7.89% Of Total Damages, After Apportionment, In Copyright Infringement Suit

Fee Recovery Barred By Judicial Estoppel—Plaintiff Classified Claims In Tort, Not Contract, Such That No Fee Recovery Allowable Under Either California Or Texas Laws.

            This next case does demonstrate the complexity that our state appellate courts have to wade through, even in unpublished opinions, to adjudicate appeals from fee awards where conflicting state laws may be at issue.  Brighton Collectibles, Inc. v. AIF Corp., Case No. B289327 (2d Dist., Div.8 Mar. 18, 2020) (unpublished) is just such a case.

            In this one, plaintiff asserted claims for breach of the warranty of infringement in copyright matters against defendant, winning a $1.267 million verdict which was reduced substantially through an apportionment of fault to multiplier suppliers making prior settlements.  In the end, plaintiff only garnered a positive damages recovery of a little under $100,000, 7.89% of the total recovery.

            Plaintiff moved for attorney’s fees (the amount was not specified in the opinion), but the trial judge denied them in entirety.  This prompted plaintiff to appeal both the merits and fee denial.  Both were unsuccessful.

            The fee denial was affirmed on judicial estoppel principles.  Although there was a conflict of law issue (did California or Texas law govern), it did not matter in the end.  Plaintiff had taken the position that the claims were in tort, not contract, winning a denial of a summary judgment motion on that basis.  Given that tort claims did not give rise to fee recovery under either California or Texas law, that cemented the correctness of the fee denial by the lower court.

Estoppel, Prevailing Party, Section 1717: Trial Court’s Conclusion That It Lacked Jurisdiction To Entertain Motion To Enforce Settlement Means That Neither Side Could Be Prevailing Party

Motion Was Not On The Contract, Opposing Side Was Not Estopped From Denying Fee Exposure, And Prevailing Party Determination Was Premature In Nature.

            The Fourth District, Division 1, in Howeth v. Coffelt, Case No. D072543 (4^th Dist., Div. 1 June 18, 2018) (unpublished) (Howeth II), had to deal with one side’s appeal of an order denying attorney’s fees based on a settlement agreement relating to a longstanding reciprocal easement dispute. In the end, the appellate court concluded that the “prevailing party” determination was premature until someone used the settlement agreement remedy to file an independent enforcement action and actually won, rather than resort to a quicker CCP § 664.6 motion procedure found to be inapt for resolving the dispute.

            In this one, the parties settled the easement dispute through a settlement agreement requiring an independent action to enforce it, also replete with a prevailing party fees clause. One side brought a motion to enforce, which was denied because the proper remedy was to bring an independent action—with the 4/1 DCA determining in a prior appeal that the denial order was not appealable. Then, the other side brought a motion for an award of fees and costs as the prevailing party in the prior proceeding. The trial court denied the motion, finding that neither party had prevailed at the time of denial of the Howeths’ previous motion because the court lacked jurisdiction to entertain it.

            Coffelt, the other side, appealed the appeal denial in Howeth II. They, too, were not successful.

            Although finding that the denial order was sufficiently “collateral” to an underlying judgment and was equivalent to an enforcement matter, the 4/1 DCA affirmed the denial order for numerous reasons. First, the matter was not an action “on the contract” because the motion to enforce did not really implicate the proper avenue to file an independent action truly based on the contract. Second, despite Howeths’ allegation of entitlement to attorney’s fees, this did not result in equitable estoppel because a Civil Code section 1717 fee claimant must show that there was an actual exposure to liability for fees by the opposite site, not just allegations of exposure—relying on Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858, 899, 899 n. 12 (2008). Third, any prevailing party determination was premature because no one prevailed until the independent action determined who won, colorfully quoting from Estate of Drummond, 149 Cal.App.4^th 46, 53 (2007) [“By achieving that result, appellants no more ‘prevailed’ than does a fleeing army that outruns a pursing one. Living to fight another day may be a kind of success, and surely it is better than defeat. But as long as the war goes on neither side can be said to have prevailed.”].

Estoppel/Section 1717: Nonsignatories To Operating Agreement Not Entitled To Fee Recovery

 

Recovery on Fiduciary Duty Aiding/Abetting Count Not Justify Fees, Even Though Plaintiff Recovered $7.1 Million Jury Verdict.

     Plaintiff recovering a $7.1 million jury verdict on a fiduciary duty aiding/abetting count was not happy when a fees motion was denied. Plaintiff appealed from the fee denial in American Master Lease LLC v. Idanta Partners Ltd., Case No. B247478 (2d Dist., Div. 7 Sept. 22, 2014) (unpublished).

     Plaintiff’s appeal was unsuccessful. First, the defense nonsignatories to an operating agreement with a fees clause were not subrogated, third-party beneficiaries, successors or alter egos to the signatory parties. Thus, no fee entitlement. Second, the estoppel argument did not fly, simply alleging fee entitlement as the defense did, if there was no basis, did not translate into actual fee entitlement. Affirmed.

Estoppel/Prevailing Party/Section 1717: Long-Standing Dispute Over L.A. Metro Red Line Subway Performance Looks Like It Is Winding To A Conclusion

 

Fee Exposure Frenzy Did Play Out on Appeal.

     Tutor-Saliba-Perini J.V. v. L.A. County Metro. Transp. Auth., Case No. B232372 (2d Dist., Div. 7 June 16, 2014) (unpublished) ultimately came down to a situation of what party might obtain attorney’s fees in a two decades battle over compensation owed for work on the Los Angeles Metro Red Line subway project. Basically, the sureties were the victors in this one.

     Entrance to North Hollywood Metro subway station in Los Angeles.  Carol M. Highsmith, photographer.  Library of Congress. 

     TSP wanted $16 million more in compensation for work on the Metro Line, but MTA initially obtained a $60 million cross-claim award reversed on appeal earlier in 2005. Then, TSP obtained a $3 million net judgment in convoluted proceedings along the way. TSP and joint issuers of public work bonds (Sureties) jointly moved for recovery of attorney’s fees of around $21.6 million based on the performance bonds and Civil Code section 1717, requests denied by the trial court—prompting an appeal by parties all around.

     Sureties won this one.

     TSP was properly denied fees because it conceded having no entitlement to fees under the performance bonds. Its attempt to argue that judicial estoppel should work—based on MTA’s pleadings of fee entitlement—did not pass muster based on M. Perez Co., Inc. v. Base Camp Condominiums Assn. No. One, 111 Cal.App.4^th 456, 468-469 (2003).

     However, a reversal was required because Sureties did prevail, even though on a procedural basis. MTA could not avoid fees under Civil Code section 1717 based on a dismissal when a judgment was inevitable against it in favor of Sureties, with the appellate court distinguishing the perceived procedural gamesmanship at issue from a different situation in Marina Glencoe, L.P. v. New Sentimental Film AG, 168 Cal.App.4^th 874 (2008). Rather, the procedural victory was found sufficient based on Profit Concepts Mgt., Inc. v. Griffith, 162 Cal.App.4^th 954, 952, 956 (2008).

     Finally, MTA argued that fees were properly denied to Sureties based on a “unified of interest” costs denial ruling. The appellate court rejected this based on an extension of reasoning from Zintel Holdings, LLC v. McLean, 209 Cal.App.4^th 431, 442-443 (2012): “We now take the final step contemplated by our analysis begun in Zintel: If a party is defined as a matter of law as the prevailing party for the purpose of costs pursuant Code of Civil Procedure section 1032, subdivision (a)(4), or attorney fees under [Civil Code] section 1717, subdivision (a), the trial court lacks discretion to refuse to award any costs or attorney fees.” (Slip Opn., p. 63.)

     BLOG UNDERVIEW—The issue of whether a procedural issue gives rise to Civil Code section 1717 fee exposure is pending for review in Kandy Kiss of California, Inc. v. Tx-Ellent, Inc., Case No. S206354 (Cal. Supreme Court). However, we do not know where this case stands, because the docket reflects a Notice of Settlement was filed by the parties on March 20, 2014 and May 20, 2014—with no further disposition indicated on the supreme court’s website.

Estoppel: Unappealed First Fee Order Determining Individuals Were Jointly/Severally Liable With Losing Company Collaterally Estopped Same Liability Determination In Second Fees Motion Order

 

Failure to Appeal the First Fees Order Was Fatal.

     If you got an adverse determination in a prior fees order, you better appeal or else potentially suffer the bite of the collateral estoppel doctrine. Losing individuals learned that painful lesson in Harris v. Save the Queen, LLC, Case No. B249533 (2d Dist., Div. 2 May 28, 2014) (unpublished)—and yes, it does involve the Queen Mary situated in Long Beach, California.

     Queen Mary.  Carol M. Highsmith, photographer.  1980 – 2010.  Library of Congress.

     The basic dispute involved Save the Queen’s successful defense of an action brought by Rarebreed Motorcycle Club, Inc., a motorcycle club comprised of African-American members, and two of its individual members/officers. Plaintiffs sued for racial discrimination and breach of the contractual implied covenant after Rarebreed’s anniversary celebration failed to materialize at the Queen Mary, but instead took place in Rarebreed’s clubhouse in Gardena. Save the Queen (STQ) then moved for attorney’s fees under a contractual fees clause (the first fees motion), with the lower court granting a total of $111,134.77 in fees/costs against all Plaintiffs (Rarebreed and the individual members/officers). No appeal was taken from this first ruling.

     Then, STQ brought a second fees motion to recover appellate attorney’s fees for successfully defending the merits of the prior favorable summary judgment on appeal. The lower court granted STQ its requested fees of $27,023.61 against all of the Plaintiffs.

     The individual Plaintiffs appealed the second fees order, but to no avail. Why? They were collaterally estopped from relitigating the issue of fee recovery exposure given that the first fees order determined they were jointly and severally liable. As put succinctly by the appellate court, “They do not get a second bite at the apple.”

Allocation/Estoppel/Fee Clause Interpretation/Section 1717/Reasonableness Of Fees: Real Estate Buyer’s Tort Claims Did Not Give Rise To Fee Exposure Under Narrowly-Worded Fees Clause

 

However, Sellers Were Liable To Third-Party For Losing Their Contractual/Indemnity Claims, Which Were Intertwined And Needed No Apportionment.

     Real estate buyer lost tort/statutorily-based nondisclosure claims to the sellers in a dispute where a purchase agreement had a fees clause mandating fees in an action brought “with respect to the subject matter of enforcement of this Agreement.” Sellers had cross-claimed for indemnity (contractual and equitable) against a billboard company, but lost on the cross-complaint. Sellers sought $514,155.72 in fees against buyer under Civil Code section 1717 (based on the fees clause), a request denied by the lower court. Billboard company moved for fees, requesting over $450,000 for its successful defense of the cross-complaint and was awarded $335,127.75 as against sellers. Sellers appealed both fee rulings in Sierra Industries West, L.P. v. Hosseinioum, Case Nos. A137517/A137874 (1^st Dist., Div. 4 Apr. 10, 2014) (unpublished), consolidated for argument/decision.

     Both fee determinations were affirmed.

     Sellers’ Appeal of Fee Denial in Buyer’s Favor. The obstacle here for Sellers was that Buyer had no contractually-based claims, such that they could not satisfy the “on the contract” requirement of section 1717. Tort and other noncontract claims are not subject to section 1717’s reciprocity principles. (Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 820 (2013).) Sellers sought to avoid this conclusion by arguing the fees clause was broad enough to encompass the noncontract actions, but the appellate court actually found it was narrow and did not reach contractual claims. (Exxess Electronixx v. Heger Realty Corp., 64 Cal.App.4^th 698, 702 (1998).) Sellers’ last volley was to argue judicial estoppel based on buyer’s prayer for fees, but the reviewing court found that this theory was properly disapproved in Bear Creek Planning Committee v. Ferwerda, 193 Cal.App.4^th 1178, 1187-1188 (2011) and cases therein.

     Sellers’ Appeal of Fee Award to Cross-defendant Billboard Company. Cross-defendant was the prevailing party, because it totally defeated sellers’ indemnity cross-complaint. Apportionment of time on contractual versus equitable indemnification claims was a discretionary call by the lower court, which determined the time was inextricably intertwined. (Erickson v. R.E.M. Concepts, Inc., 126 Cal.App.4^th 1073, 1085-1086 (2005).) Beyond that, sellers did not provide a reporter’s transcript of the fee hearing such that an inadequate record was presented for review. (Vo v. Las Virgenes Municipal Water Dist., 79 Cal.App.4^th 440, 447-448 (2000).) Finally, the trial judge did discount the fee request and had revised billings aplenty to make a reasoned award.

Estoppel/Fee Clause Interpretation: Winning Subcontractor In Contractual Litigation Not Entitled To Fee Recovery Where Contract Clause Only Applied To Arbitration

 

Contract Crystal Clear, Meaning $172,850.02 Fee Award Went POOF!

     This one had to hurt.

     In Ponce v. Philco Construction, Inc., Case No. G049097 (4^th Dist., Div. 3 Jan. 21, 2014) (unpublished), contractor Philco subcontracted work out on a Moreno Valley auto service store to subcontractor Ponce, who was not paid for all of his services. Subcontractor sued contractor and owner when he was not paid in full on the contract price, winning a $92,023.04 jury verdict. After that, the lower court awarded him interest, costs, and $172,850.02 in attorney’s fees based on a contractual fees clause in the subcontract with contractor.

     The fee award went POOF! on appeal.

     How did that happen? Simple, the subcontract fees clause specified that all parties shall reserve controversies under the subcontract to arbitration and that the arbitrator had authority to award fees. Here, there was no arbitration; hence, no fees. The contractual fees clause was “crystal clear” in leading to this result. Also, the appellate court rejected the theory that the parties’ respective pleadings of fee recovery created an estoppel as an independent basis for fee entitlement, relying on Blickman Turkus, LP v. Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858, 898 (2008) for not accepting such a theory.

    Justice Ikola penned the 3-0 panel decision.

Estoppel/Section 1717: Contract Only Allowing For Recovery Of Costs, Not Specifying Attorney’s Fees, Did Not Give Rise To Fee Recovery

 

However, Prevailing Party Did Get Routine, Non-Fee Costs Based on Waiver/Inadequate Record on Appeal.

     In Yamtob v. Alon, Case No. B247453 (2d Dist., Div. 5 Dec. 31, 2013) (unpublished), plaintiff lost a dispute to defendant/cross-complainant, who certainly obtained a net recovery judgment against plaintiff arising out of a diamond transaction. (Fitting over the Holidays, isn’t it?) The trial court also awarded defendant both routine costs and attorney’s fees in the final judgment, prompting an appeal by plaintiff.

     Plaintiff did well to appeal the fee award.

    The routine costs award to defendant was sustained, because plaintiff never objected to the award and the absence of a reporter’s transcript at the costs hearing made it impossible to show that any error was committed.

     The fee issue was different. Although many times the absence of a reporter’s transcript of a fee hearing can be fatal, not so, according to the appellate court, where the contract was unambiguous on fee entitlement. Here, the operative contract only talked about a payback of “all the costs incurred.” The appellate court concluded there is a key difference between fees and costs, such that attorney’s fees are generally not included as civil action “costs.” (Benson v. Kwikset Corp., 152 Cal.App.45h 1254, 1279 (2007).)

     That left defendant with arguing plaintiff was “judicially estopped” because plaintiff claimed fees under the same contract in his complaint, interrogatory answers, and trial opening argument, citing International Billing Services, Inc. v. Emigh, 84 Cal.App.4^th 1175 (2000) as support. The problem here is that Emigh has even been disavowed by other decisions out of the Third District from which it stemmed. (M. Perez Co., Inc. v. Base Camp Condominiums Assn. No. One, 111 Cal.App.4^th 456, 467 (2007); Bear Creek Planning Committee v. Ferwerda, 193 Cal.App.4^th 1178, 1187-1188 (2011); Brittalia Ventures v. Stuke Nursery Co., Inc., 153 Cal.App.4^th 17, 28-31 (2007).)

     So, the costs award survived but the fee award went POOF!, including the appellate directive that each side bear their respective costs on appeal.

Estoppel/RFAs/Section 1717: Denial Of Fees To Nonsignatory Defendants And $45,000 Against Defendants For “Costs Of Proof” Sanctions Based On Three RFA Denials Upheld

 

This Case Cuts Across Several Issue Categories.

Two painted bronze “golfers” compare notes.  Carol M. Highsmith Collection.  Library of Congress.

     Masters v. Burton, Case Nos. B234555/B239447 (2d Dist., Div. 6 July 25, 2013) (unpublished) is a case about errant golf balls and litigation claiming concealment of the golf ball “hazard” in connection with a sale of a residential property fronting a golf course fairway. (I know, some of you readers may be saying “assumption of the risk,” but hold your horses to see what happened.)

     Property purchasers sued the former owners and former owners’ relocation company for concealment/nondisclosure of the errant golf ball hazard, losing in a lengthy bench trial. Former owners requested $1.35 million in attorney’s fees (wow!), which was denied by the lower court. Former owners also got hit with $45,000 in “costs of proof” sanctions under CCP § 2033.420 for denying three RFAs on requests that were ultimately proven at trial.

     Former owners appealed.

     They did not get any further relief.

     The fee denial was sustained because former owners (the Burtons) were not signatories to a purchase agreement with a fees clause--the reality was that the relocation company was the contracting party. Nothing alleged that Burtons were the alter egos of the relocation company so as to invoke Reynolds Metal type of exposure.

     Then, in an argument we see often, former owners argued estoppel--plaintiffs alleged the right of recover fees, so they were estopped from claiming that nonsignatory defendants were not similarly entitled. Wrong -- “the equitable estoppel doctrine is no longer followed by our courts and contradicts Reynolds,” citing Sessions Payroll Mgt., Inc. v. Noble Constr. Co., Inc., 84 Cal.App.4th 671, 681-682 (2000); Blickman Turkus, LP v. MF Downtown Sunnyvale, Inc., 162 Cal.App.4th 858, 897 (2008).

     The “costs of proof” sanctions award was affirmed. In response to three RFAs about errant golf balls causing damage to certain areas of the house, former sellers denied based on the fact they could not respond unless they actually saw the golf ball hit the house although their testimony is that they heard golf balls hit and knew house windows were broken by a golf ball. The trial court found that the former sellers were “word-smithing” to avoid liability, a perception endorsed by the reviewing court when sustaining the $45,000 adverse award.

Estoppel: Judgment Debtors Resisting Prior Amendment Of Judgment To Include Trustees In Representative Capacities Were Properly Assessed With Additional Attorney’s Fees

 

Judgment Debtors’ Additional Fees Were a “Self-Inflicted Wound,” So To Speak.

     Pacific Western Bank v. Prospect Village LP, Case Nos. G045790 et al. (4th Dist., Div. 3 June 17, 2013) (unpublished), authored on behalf of a 3-0 panel by Justice Moore, is categorized under our estoppel category, although it is also a “self-inflicted wound” case.

     188-. Library of Congress.

     In this one, lender obtained a hefty judgment against obligor on a promissory note, guarantors under guaranties, and affiliated family trusts. The problem with this judgment was that a trust cannot be a judgment debtor under CCP § 680.25. (Portico Mgt. Group, LLC v. Harrison, 202 Cal.App.4th 464, 473 (2011).) Although lender had already been awarded over $485,000 in fees and costs/disbursements under fees clauses the first time around, lender was granted an additional $19,139 in fees for successfully moving to add trustees of the trust as judgment debtors in lieu of the trusts.

     The defense appellate challenge to the additional fee award was unavailing based on the “self-inflicted wound” theory. The defense made a superficially attractive argument that lender “invited” the error by drafting the erroneous jury verdict including the trusts. However, the record demonstrated that lender had attempted to correct this error long ago, but the defense defeated the cure effort by arguing that it was transparent the trustees in representative capacities were the target and then “shifted position” by arguing the judgment was void by naming the trusts as judgment debtors. So, the appellate court would have none of it; the shifting in positions was damning and justified lender’s efforts to get this mess cleaned up--meaning more fees were proper in achieving the “clean up” result.

Estoppel/Equity/Section 998: Lawyer Collection and Client Malpractice Actions Barred By Oral “We Go Our Own Way Agreement,” Which Violated State Bar Professional Conduct Rule 3-400(B), But Could Could Be Enforced By Winning Clients

 

Clients’ Section 998 Offer Was Invalid Based on Absence of Acceptance Language, So Expert Witness Fees Recoverable.

     Law Offices of Roger E. Naghash v. Roy, Case No. G044785 (4th Dist., Div. 3 Dec. 4, 2012) (unpublished) is a wild dispute between former clients and an attorney arising from clients’ prior loss of a battle with his HOA which resulted in a large fee exposure. Buckle up on this one, for we now tell the facts described in an interesting 3-0 decision authored by Justice Fybel of our local Santa Ana appellate court.

     Clients retained former attorney for an HOA dispute, with clients dismissing the case without prejudice during trial but then getting hit with fees in excess of $167,000 in HOA’s favor. Former attorney represented the clients on appeal and obtained a reversal of the fees award. Then, former attorney sent clients a notice of right to arbitrate in connection with a claimed overdue receivable in excess of $93,000. According to clients, one of clients had a 43 minute phone conversation in which the parties reached a “walkaway” agreement--clients would absorb the $143,000 in fees already paid to former attorney, clients would not pursue any malpractice claims, and attorney would not pursue any claims for additional fees. Apparently, attorney did not see it that way and filed a collection suit, with clients asserting estoppel and waiver as defenses and also cross-complaining for malpractice. Curiously, attorney asserted a defense to the cross-complaint based on the “modification of written contract by executed oral agreement.”

     Following a bench trial, the trial judge found that a “walkaway” agreement had been reached but denied clients’ request for $15,911.25 in expert witness fees based upon a rejected CCP § 998 offer.

     Both sides appealed; both sides lost.

     The interesting issue on the “walkaway” agreement was that it violated State Bar Professional Conduct Rule 3-400(B), which provides that an attorney cannot settle a claim or potential claim for malpractice unless the client is informed in writing about seeking independent advice and given an opportunity to seek that advice. Of course, none of these safeguards occurred during the course of the verbal phone call, but the real issue is who had the power to void an offending agreement to the contrary. Answer: the agreement is voidable by the client, not void altogether, such that clients’ use of the oral agreement as a defense showed it was not being voided and could be enforced by clients. There was nothing illegal about the agreement, because it was simply an avoidance of future litigation by both sides. Similarly, the mutual waiver of claims constituted proper consideration for the agreement.

Indemnity/Judicial Estoppel: Defense Fee Denial Request Affirmed ... Defense Based Erroneous Recovery On A True Indemnity Clause, Not A True Fees Clause

 

Style and Substance of Indemnity Provision Supported the Denial Result, With Judicial Estoppel Argument Based on International Billing Services Not Prevailing.

     Ni v. Yuan, Case No. B2347744 (2d Dist., Div. 1 Aug. 31, 2012) (unpublished) is yet another decision where defendants appealed a fee denial order, only to be affirmed because the defense entitlement was based on a true indemnity provision which was to be starkly contrasted with a true attorney’s fees clause. In sustaining the trial court’s denial, the appellate court focused on these factors: (1) the title of the provision (“Indemnification”); (2) the substance of the provision giving the indemnifying party the exclusive right to retain counsel, investigate, and defend a claim (usually not the case where a party in a fees clause situation has an absolute right to retain counsel of the party’s own choice); and (3) the provision was clearly targeted at third party claims, although the provision did not have to expressly reference third parties to be interpreted as a true indemnity provision.

     However, there was more. The defense argued that fees were something they were entitled to because the other side sought fees in their pleading prayers, banking upon reasoning in International Billing Services, Inc. v. Emigh, 84 Cal.App.4th 1175, 1190 (2000). The appellate court dismissed this argument by observing that International Billing Services had been overruled on this point by M. Perez Co., Inc. v. Base Camp Condominium Assn. No. One, 111 Cal.App.4th 456, 465-467 (2003).

Indemnity/Judicial Estoppel: $450,000 Plus Attorney’s Fees Award Gets Reversed When Appellate Court Determines Only A True Indemnification Clause Involved

 

Judicial Estoppel Doctrine Also Found Inapt for Awarding Fees to Winning Appellate Parties, Noting International Billing Rationale Not Embraced by California Supreme Court.

     Plaintiffs (lenders) must have been feeling pretty good after garnering a $450,000 plus attorney’s fees award from defendants (borrowers) based upon a simple indemnification provision which was found to have incorporated a fees clause by a lower court. The glee did not last on appeal in Dodge v. Dollarstore, Inc., Case No. G045064 (4th Dist., Div. 3 Aug. 16, 2012) (unpublished), a 3-0 opinion authored by Justice Ikola where the fee award was reversed.

     The appellate court examined the contractual clauses relied on by the lower court, determining they were indemnification provisions (plaintiffs’ duty to indemnify Dollarstore against third party claims based on plaintiffs’ breach), but not containing any express attorney’s fees clause running against defendants. (If you go to our category “Indemnity,” the reviewing court discussed cases like Myers, Building Maintenance Service (BMS), Baldwin Builders, and Continental Heller in reversing the fee award in plaintiffs’ favor.)

     Now, for the chutzpah (see Blawg comment below) part of the decision. Defendants, not content to be giddy about obtaining a $450,000 reversal of fortune, then made an appellate plea to award them attorney’s fees. Go away, said the appellate court very politely. Not only was the issue not raised in the trial court (a forfeiture in and of itself), but the reciprocity/judicial estoppel theory utilized in International Billing Services, Inc. v. Emigh, 84 Cal.App.4th 1175, 1190 (2000) has never been embraced by the California Supreme Court and had been declined to be followed by the very court (the Third District) deciding International Billing. Although the forfeiture argument prevailed, our local Santa Ana appellate court did give some delicious future indications of what formulations of the judicial estoppel rule it does not agree with. Defendants obtained an award of routine costs on appeal, but not fees.

     COMMENT:  While not expressly referring to chutzpah in Dodge v. Dollarstore, Inc., supra, Justice Ikola has previously concurred in two opinions referring to “chutzpah”:  People v. Haidl, 2010 WL 1218496 (2010) (unpublished) (“Displaying the chutzpah of a thief who demands a reward for returning the wallet he stole, counsel asserted the right to further impeachment on a subject he should never have raised”);  De La Cuesta v. Benham, 193 Cal.App.4th 1287, 1297 (“Hilltop . . . is notable for the chutzpah of the party seeking fees”).

Arbitration/Estoppel: Judicial Estoppel Puts The Kabosh On Appeal Claiming Fees Clause Did Not Cover Fees Incurred In Court Proceedings To Confirm Arbitration Award

 

Court of Appeal Was Not Pleased With Appellant’s Inconsistent Positions.

      Judicial estoppel is an equitable doctrine aimed at preventing litigants from taking two totally inconsistent positions in different phases of litigation--or prevent “playing fast and loose” with the judicial system or “gaming the system” by taking such inconsistent positions. (Uhrich v. State Farm Fire & Cas. Co., 109 Cal.App.4th 598, 613 (2003); Rapture Shipping, Ltd. v. Allround Fuel Trading B.V., 350 F.Supp.2d 369, 373 (S.D.N.Y. 2004).) That doctrine did prevent appellant from doing that in a second appeal in an effort to avoid a substantial fee award levied after appellant lost in arbitration/post-award confirmation proceedings.

     In New England Elec. Wire Corp. v. Cooner Sales Co., LLC, Case No. B231081 (2d Dist., Div. 2 Apr. 30, 2012) (unpublished), appellant--emboldened by some prior trial court wins in previous arbitration rounds and post-award enforcement proceedings--filed pleadings indicating that it was the prevailing party entitled to fees in both arbitration and post-arbitration judicial proceedings, going so far to say that the intent of the contractual fees clause was clear. Unfortunately for appellant later, the opponent became the winner after subsequent rounds and post-arbitration proceedings, with the lower court awarding opponent $804,184 in attorney’s fees plus another $44,615 for a prior meritless appeal. In the fee battle, appellant claimed that the fees clause did not cover the requested fees, something the lower court rejected.

     What did appellant then do? Appealed again, iterating that there was no fee entitlement because the fees clause did not authorize any fees incurred during judicial proceedings.

     The appellate court was not impressed. Applying the doctrine of judicial estoppel, it found that there was no way to square the inconsistency in positions, especially since contractual intent “exists at the time the contract is formed: it does not change from year to year. Once appellants announced their contractual intent in the first appeal, they were not free to invent an entirely inconsistent contractual intent in a later appeal.” (Slip Opn., pp. 8-9.)

     But that was not all. Although affirming the fee award, the appellate court remanded to the lower court to determine the amount of fees and costs to be awarded to respondent for legal services rendered on the second appeal.

Year in Review - 2011

Wrapping It Up:  M & M’s Top 25 Attorney’s Fees Decisions For 2011  Part 1 of 2

     It is that time of year, at year end, for us to list our top published attorney’s fees decisions from the U.S. Supreme Court, Ninth Circuit Court of Appeals, and California Courts of Appeal. Although we normally do the “Top 20” decisions, the 2011 year was prolific for many, many decisions of interest, so we expanded it to the top 25.

     We might note that 2012 looms as an important year for the California Supreme Court to decide the issues involved in Kirby v. Immoos Fire Protection, United Parcel Service Wage & Hour Cases (McGann), and related cases considering whether a prevailing defendant is entitled to recover Labor Code section 218.5 attorney’s fees for successfully defending against a plaintiff employee’s claims for meal/rest break violations even if those claims were joined with Labor Code section 1194 overtime compensation claims subject to a unilateral pro-plaintiff fee shifting provision. (See our posts of September 28, October 25, and November 25, 2011.)

     However, we can only report and score on the top 25, keeping in mind that appellate jurists did decide many other important cases. These are our favorites in a wide range of areas, so enjoy. This will be the first 13 cases, with 12 more to follow in a subsequent post--likely closer to year’s end.

     25. La Cuesta v. Benham, 193 Cal.App.4th 1287 (2011) [4th Dist., Div. 3]; author--Presiding Justice Sills (who, unfortunately, passed away earlier this year after a long and distinguished career):  Under Civil Code section 1717, a lopsided win by landlord in obtaining repossession and compensation from tenant made landlord the prevailing party, reversing denial of fees even under an abuse of discretion standard. [Discussed in our March 30, 2011 post.]

     24. Ferwerda v. Bordon, 193 Cal.App.4th 1178 (2011) [3d Dist.]; author--Justice Robie:  Attorney’s fees cannot be awarded to a homeowners’ association based on unrecorded CC&R enforcement documents and manuals.  [Discussed in our March 26, 2011 post.]

     23. Turner v. Assn. of American Medical Colleges, 193 Cal.App.4th 1047 (2011) [1st Dist., Div. 5]; author--Justice Simons:  Attorney’s fees are not awardable to defendant prevailing on Unruh Civil Rights Act, Civil Code sections 52 and 54.3 claims even though defendant did prevail (but did not claim entitlement to work) under a broader fee-shifting provision contained in section 55. [Discussed in our March 25, 2011 post.]

     22. In re Marriage of Fong, 193 Cal.App.4th 278 (2011) [2d Dist., Div. 3]; author-- Justice Croskey:  Wife not complying with her financial disclosure requirements in family law proceeding could not seek fee award from noncompliant husband under Family Code section 2107(c). [Discussed in our March 4, 2011 post.]

     21. Marriage of Fossum, 192 Cal.App.4th 336 (2011) [2d Dist., Div. 1]; author--Justice Johnson, writing for the majority; Justice Rothschild, dissenting:  Spouse/domestic partner’s breach of Family Code section 721(b) fiduciary duty gives rise to mandatory fee award under Family Code section 1101(g); dissenting justice spelled out anomalous results from this interpretation and suggested a legislative amendment to the statute to make it discretionary in nature. [Discussed in our January 29, 2011 post.]

     20. Harris v. Maricopa County Superior Court, 631 F.3d 963 (9th Cir. 2011); author--Circuit Judge Reinhardt for the majority; Circuit Judge Bybee, concurring and dissenting:  “But for” test, not pro-rata allocation of fees between frivolous and nonfrivolous claims, was proper standard for fee recovery under federal civil rights fee-shifting statute; dissenting judge argues that “but for” test will make it impossible for defense to argue fee apportionment in mixed-bag cases. [Discussed in our January 16, 2011 post.]

     19. Garcia v. Politis, 192 Cal.App.4th 1474 (2011) [2d Dist., Div. 4]; author--Justice Willhite: Plaintiff seeking fees in default judgment context cannot file a fee motion post-judgment, but must make a fees request in plaintiff’s default judgment packet paperwork. [Discussed in our February 26, 2011 post.]

     18. First National Mortgage Co. v. Federal Realty Investment Trust, 631 F.3d 1058 (9th Cir. 2011); author--Senior Circuit Judge Thompson: 28 U.S.C. § 1821(b) $40-per-day limitation on witness expenses “preempted” application of California Code of Civil Procedure section 998’s allowance of broader “reasonable” expert witness fees in diversity cases. [Discussed in our February 1, 2011 post.]   Justice Thompson died February 19, 2011.

     17. Simke, Chodos, Silberfeld & Anteau, Inc. v. Athans, 195 Cal.App.4th1275 (2011) [2d Dist., Div. 1]; author--Presiding Justice Mallano:  Unspecified attorney’s fees prayer in complaint did not void future default judgment based on terminating sanctions conduct. [Discussed in our May 26, 2011 post.]

      16. Puerta v. Torres, 195 Cal.App.4th 1267 (2011) [4th Dist., Div. 3]; author--Justice Moore: Failure to include some type of acceptance language in Code of Civil Procedure section 998 offer invalidates the offer. [Discussed in our May 25, 2011 post.]

      15. Martinez v. L.A. County Metropolitan Transp. Auth., 195 Cal.App.4th 1038 (2011) [2d Dist., Div. 1]; author--Justice Rothschild:  Code of Civil Procedure section 998 offer excluding “costs” from recovery also means that attorney’s fees are excluded from the ambit of the offer. [Discussed in our May 23, 2011 post.]

     14. Ilshin Investment Co., Ltd v. Buena Vista Home Entertainment, Inc., 195 Cal.App.4th 612 [2d Dist., Div. 1]; author—Justice Chaney:  Attorney’s fees are not allowable for prevailing party in post-judgment enforcement independent creditor’s suit. [Discussed in our May 15, 2011 post.]

      13. In re Marriage of Davenport, 194 Cal.App.4th 1507 (2011) [lst Dist., Div. 2]; author--Justice Richman:  Scorched earth litigation practices justified denial of family sanction fees to wife and allowed for substantial fees against her/in favor of husband; case distinguishes between zealous advocacy and “attack dog”/”scorched earth” litigation. [Discussed in our May 6, 2011 post.]

      BLOG UNDERVIEW--This last one is a good one to end on, because both co-contributors have dogs--Mike has Riffle, a Labrador, and Marc has Watson, a mixed-breed dog, but still a good dog! Watch for our ensuing post before the end of the year with the next 12 decisions rounding out our “Top 25.” Happy Holidays to all of our readers.

Earlier Year End Wrap-Ups:

     2010  Part I; Part II     2009 Part I; Part II     2008 Part I; Part II

 

Post-Memorial Day Unpublished Troika: Reduced Fee Award Reversed; Res Judicata Supports Another Fee Award; Implied Covenant’s Operation Justifies Finding Opt-In Defendants Not Liable For Fee In Proposition 65 Case

 

$23,600 Fee Award Out of Requested $223,615.50 Reversed in Civil Rights Case.

     In Williams v. Hei Long Beach, LLC, Case No. B224211 (2d Dist., Div. 2 May 31, 2011) (unpublished), the appellate court reversed a fee award of $23,600 out of attorneys’ requested $223,615.50 in an Unruh Civil Rights hotel accommodation case resulting in a permanent injunction by which hotel agreed to accommodate disabled patrons with service animals. Although agreeing that the lower court had discretion to apportion time out on other noncompensable claims, the appellate court found that the injunction was an important public win in the case justifying more fees even though plaintiff won rather small damages. Also, it could not fathom why compensation was denied to one attorney who tried the case and was lead counsel. Remanded to reconsider the fees to be awarded to plaintiff’s attorneys.

Prior Federal Court Judgment Given Res Judicata Impact, Sustaining Fees Awarded in Favor of Three Individual Defendants Having Qualified Immunity.

     The next case involved the application of res judicata to sustain a $36,501 fee award (out of a requested $45,773 in fees) based on a prior federal judgment finding that three individual defendants were protected under the qualified immunity defense in a civil rights action. Because res judicata barred plaintiff’s effort to relitigate in the later-filed action based on the qualified immunity federal ruling, the lower court correctly concluded that the result was obvious, triggering the meritless/groundless fee-shifting provision of 42 U.S.C. § 1988(b) in favor of winning defendants. The decision so applying res judicata principles is California County Superintendents Educational Services Assn. v. Marzion, Case No. A129527 (1st Dist., Div. 4 May 31, 2011) (unpublished).

Implied Covenant of Good Faith and Fair Dealing Justified Not Awarding Fees to Plaintiff in Proposition 65 Opt-In Defendant Case.

     This last one, Consumer Advocacy Group, Inc. v. Sanders Paving, Inc., Case No. A127125 (1st Dist., Div. 5 May 31, 2011) (unpublished), involved a Proposition 65 consent judgment with language allowing potential defendants who were not parties to the initial action to “opt-in” to the judgment by agreeing to its terms and making certain payments--including an “opt-in premium” of reimbursing the plaintiff for documented out-of-pocket costs and fees incurred in commencing suit following the initial opt-in period. The trial court entered a corollary order indicating it would resolve fee/costs disputes if the parties were unable to do so. The lower court did not like the opt-in premium provision, indicating that the fees had to be reasonably incurred and that potential defendants opting-in had to be given notice of the consent decree before fee exposure would be triggered. On this basis, the trial court denied awarding additional fees from three defendants not given the requisite notice. The appellate court affirmed based on the implied covenant of good faith and fair dealing, having a good discussion of how it applies in consent decree situations involving Proposition 65.

Probate: Second District, Division Three Concludes That Res Judicata Prevented Respondents from Relitigating Probate Dispute, and Also Deprived Trial Court of Grounds to Determine that Appellant Had to Pay Fees and Costs

Probate Case Has Nice Summary of Principles of Res Judicata/Collateral Estoppel

     The Court of Appeals early on telegraphed the train wreck that is this case with the understated observation, “The relationship between the siblings was not optimal.” Estate of Redfield, Case No. B216190 (2nd Dist. Div. 3 4/5/11) (certified for publication).

Homeowner Associations: Attorney’s Fees Clauses In Unrecorded CC&R Enforcement Committee Manuals Did Not Create Enforceable Fee Clauses In The Absence Of Amending The CC&Rs

Third District Issues Important Decision in the CC&R Enforcement Area.

     The Third District in Ferwerda v. Bordon, Case No. C062389 (3d Dist. Mar. 25, 2011) (certified for partial publication on the fee issue) has decided an important case with respect to enforcing attorney’s fees clauses contained in unrecorded CC&R enforcement documents and manuals. In a word, the Court of Appeal held that unless such fees clauses are approved as an amendment to the CC&Rs, such clauses may not be enforceable.

Estoppel: Prevailing Party Determination In Anti-SLAPP Fee Award Proceeding Entitled To Direct Estoppel Effect In Subsequent Action

 

Third District Gives Direct Collateral Estoppel Impact to Prior Ruling in Convoluted Real Estate Option Dispute.

     Here is an interesting decision where the fee ruling in a prior SLAPP proceeding was given direct estoppel effect in a subsequent action. This is how it panned out.

     South Sutter, LLC v. LJ Sutter Partners L.P., Case Nos. C058206/C059554 (3d Dist. Mar. 16 2011) (certified for publication) involved a complicated real estate option controversy in which plaintiff’s initial complaint was SLAPPed following an initial dismissal without prejudice, although the lower court also awarded attorney’s fees to the defense in the SLAPP fee motion proceeding. There was then an intervening settlement, but no request by anyone for a stipulated reversal of the judgment. Plaintiff then filed a second complaint for breach of contract based on the same primary right as the first case, although omitting the tort claims. The trial court either SLAPPed or sustained demurrers to the second complaint. Plaintiff appealed.

Section 1717: Nonsignatory Cross-Complainant Not Liable For Fees Under Contractual Fee Clause

Second District, Division 2 Applies Classic Reciprocity Principles Under 1717.

     Baker v. Oleander Corp., Case No. B221193 (2d Dist., Div. 2 Nov. 8, 2010) (unpublished) is another reminder of how reciprocity principles under Civil Code section 1717 operate in cases involving contractual nonsignatory and signatory litigants. It also shows how trial courts will apportion out fees to be awarded to a prevailing party with respect to work expended in connection with litigating against the nonsignatory.

 

   

      In this one, a prevailing party at the trial court was found not to prevail on appeal because the defendant was an unlicensed contractor,

meaning that the opposite side (Baker) actually prevailed. Defendant’s shareholder/officer brought a cross-complaint against the ultimately winning plaintiff, but the trial judge did not adjudge the matter or award any fees to shareholder/officer. On remand after winning at the previous appellate level, Baker sought to recover $274,615 in attorney’s fees from both unlicensed contractor and its shareholder/officer. The lower court awarded Baker fees of $186,040 against unlicensed contractor under a contractual fees clause but awarded no fees against shareholder/officer, apportioning out fees incurred by Baker in litigating claims against shareholder/officer when fashioning the award against unlicensed contractor. Baker appealed because she wanted more fees and wanted them also assessed against shareholder/officer.

     The appellate court affirmed the lower’s court fee award.

     Even under Civil Code section 1717, shareholder/officer (the nonsignatory cross-complainant) could not claim attorney’s fees if he prevailed against Baker (signatory defendant) because the nonsignatory was not a party to the contract with the fees clause. Under 1717 reciprocity principles, if nonsignatory cross-complainant was not entitled to fees, then Baker was not entitled to fees either. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4th 858, 897 (2008); Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4th 375, 382 (1994); Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4th 671, 679 (2000).) Merely because shareholder/officer prayed for fees in his complaint did not mean the estoppel theory applied, with the appellate panel lining up with the majority viewpoint on this issue. (Blickman, supra, 162 Cal.App.4th at 897-901.)

     Also, the appellate panel affirmed the trial court’s exclusion of $88,575 in fees, finding that this was equitable because work relating to shareholder/officer was not a factor in trial given that the lower court determined it was belatedly filed and not adjudged on the merits.

Estoppel: Law Of The Case Doctrine Justified $4,000 Attorney’s Fees Award

Prior Appellate Court Conclusion Was Binding On Fee Entitlement.

     Steele v. Spina, Case No. A127959 (1st Dist., Div. 3 Oct. 21, 2010) (unpublished) is a good illustration of where the “law of the case” doctrine will prevent a second bite challenge to a fee award. A prior appellate court opinion held that the trial court lacked jurisdiction to enforce a settlement but that it properly awarded attorney’s fees to the defendant as the prevailing party based on a fees clause in the settlement agreement. (Wilson v. Wilson, 54 Cal.2d 264, 272 (1960) [contractual fees clause generally allows for an award of attorney’s fees rendered on appeal as well as during trial ].) Because the attorney’s fees issue was squarely decided against appellants in the previous appeal, they were not entitled to a “second bite of the apple.” (Slip Opn, p. 3.)

Judicial Estoppel: Appealing Party Estopped To Challenge Referee Fee Split Based On Prior Pleadings

Second District, Division 5 Applies “Inconsistent Position” Doctrine in Challenge to Allocation of Referee Fees.

     What follows is an interesting application of the judicial estoppel doctrine in the referee fee allocation area. This doctrine is a good one to have in any litigator’s arsenal, especially in this age of modern litigation where litigants and their counsel frequently will take whatever position favors the moment. Beware, because judicial estoppel may rear up to bite you!

Judicial estoppel is a doctrine that precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position. (Aguilar v. Lerner, 32 Cal.4^th 974, 986-987 (2004).) [BLOG EXTRA—Although not cited in the case we next review, one needs to review two Second District decisions on the subject, starting with (now Retired/JAMS neutral) Justice Masterson’s seminal opinion in Jackson v. County of Los Angeles, 60 Cal.App.4^th 171 (1997) and (Second District, Division 1’s Presiding) Justice Mallano’s scholarly decision in Jogani v. Jogani, 141 Cal.App.4^th 158 (2006).]

     In C3 Entertainment, Inc. v. Columbia Pictures Television, Inc., Case No. B208179 (2d Dist., Div. 5 Mar. 8, 2010) (unpublished), one party moved for a judicial reference, with the adverse party contending that the costs of the referee should be moving party’s responsibility and moving party arguing that the referee fees should be divided equally between the parties. The court ruled in moving party’s favor, appointing a judicial referee. Later, after the judicial reference was fought and won by the previous moving party, that party had a change of heart after each side paid about $80,000 in referee fees. Care to take a stab at moving party’s newfound position? You guessed it—moving party argued that the earlier adverse (and eventual non-prevailing) party should reimburse moving party for its $80,000 in referee fees.

     Result? The appellate court applied judicial estoppel, finding that winning litigant took a diametrically opposite position in the prior judicial reference motion—one that was won after moving party stated that the referee fees should be divided. On review, successful party was held to its earlier position, with the result that it bore the $80,000 fee allocation which was advocated as proper in the beginning.

Indemnity Clauses: Escrow Company Not Entitled To Fee Award Because Indemnity Clause Did Not Allow For First Party Recoupment Of Fees

Second District, Division 8 Follows Myers-Campbell-Carr Line of Cases In a Scholarly Unpublished Decision.

     In our category “Indemnity,” we have surveyed cases where attorney’s fees have and have not been awarded where contracts contain indemnity clauses. The result frequently depends on the wording of the clauses. If the clauses only really cover exposure relating to third party disputes, no fees will be recoverable. However, if the clause also has a direct attorney’s fees entitlement among the indemnity provisions, then recovery will be allowed. (See Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4^th 1339, 1344-1346 (2005).) An indemnity clause came up for review in the next unpublished decision that we examine.

     The lower court in Amini v. Cimarron Escrow, Inc., Case No. B205927 (2d Dist., Div. 8 June 16, 2009) (unpublished) awarded an escrow company $263,250 in attorney’s fees and $11,446.08 in costs (out of a requested $297,180 in fees and $19,902.04 in costs) after it prevailed in an owner-buyers dispute occurring on the eve of a tax-lien sale. The basis for the award was an indemnity provision in the escrow agreement, which provided: “If conflicting demands or notices are made or served upon you or any controversy arises between the parties or with any third person arising out of or relating to this escrow, you shall have the absolute right to withhold and stop all further proceedings in, and in performance of, this escrow until you receive written notification satisfactory to you of the settlement of the controversy by written agreement of the parties, or by the final order or judgment of a court of competent jurisdiction. All of the parties to this escrow, jointly and severally, promise to pay promptly on demand, as well as to indemnify you and to hold you harmless from and against all administrative, governmental investigations, audit and legal fees, litigation and interpleader costs, damages, judgments, attorneys’ fees, arbitration costs and fees, expenses, obligations and liability of every kind (collectively ‘costs’) which in good faith you may incur or suffer in connection with or arising out of this escrow, whether said costs arise during the performance of or subsequent to this escrow, directly or indirectly, and whether at trial, or on appeal, in administrative action or in arbitration … If the parties do not pay any fees, costs or expenses due you under the escrow instructions or do not pay for costs and attorneys’ fees incurred in any litigation, administrative action and/or arbitration, on demand, they each agree to pay a reasonable fee for any attorney services which may be required to collect such fees or expenses, whether attorneys’ fees are incurred before trial, at trial, on appeal or in arbitration.” (Emphasis supplied by appellate panel.)

     Both parties appealed the fee award, buyers challenging the entirety of it and escrow company challenging the failure to award nonstatutory costs and the reduction of fees for 45 hours in travel time.

Homeowner Associations: Losing Condo Homeowners Associations Not Subject To Fee Exposure When Losing Action Against Past Board Member Defendants

Purchase Agreement Fees Clause Did Not Apply Because Plaintiff Was Not A Condo Buyer.

     One of the first rules of fee entitlement is that you need a contractual or statutory basis to trump the American Rule that each sides bears its own attorney’s fees in a case. That principle sunk the winning defendants’ request for an award of Civil Code section 1717 contractual fees.

     L.E.C.H., Inc. v. Klein, Case No. B207872 (2d Dist., Div. 8 June 15, 2009) (unpublished) involved a condominium homeowners association that sued defendants, two former HOA board members, on multiple theories. After a bench trial, the lower court found defendants had breached their fiduciary duty of not disclosing certain defects to either the HOA or individual homeowners. That ruling was taken up in an earlier appeal, with the Court of Appeal reversing—determining that the defendants had no fiduciary duty of disclosure to the individual buyers. Defendants then moved for contractual attorney’s fees based on a fees clause in purchase agreements between defendants (former sellers) and individual homeowners (former buyers). The lower court denied the request, and defendants appealed.

Civil Code Section 1717: Absence Of Contractual Fees Clause Means Fee Award Must Be Reversed

Second District, Division 3 Finds No Incorporation of Other Fees Clauses to Sustain Award.

     One side to a joint venture agreement was vindicated completely with a defense jury verdict and was then awarded attorney’s fees of $75,000 (300 hours at a $250 hourly rate, out of a fee request in the $210-240,000 range). The problem for the prevailing party was that the joint venture agreement had no fees clause. This infirmity resulted in a reversal of the award in Markoff v. Aaronoff, Case No. B204532 (2d Dist., Div. 3 May 12, 2009) (unpublished).

     Although there were fees clauses in unsigned documents exchanged in joint venture negotiations, there was nothing to show an intent by the parties to be bound by the unsigned documents. (Contrast Pilcher v. Wheeler, 2 Cal.App.4^th 352, 353-355 (1992) [attorney’s fees request denied where parties did not intend unsigned construction contract with fees clause to be part of the bargain] with Boyd v. Oscar Fisher Co., 210 Cal.App.3d 368, 378-380 (1989) [although commercial purchasing contract between merchants had no fees clause, subsequent invoices with fee clauses were binding based on UCC battle of the form principles].) Nothing demonstrated that the parties intended to incorporate the unsigned contract fees clause into the signed joint venture agreement, meaning there was no predicate for fee entitlement.

     The Second District, Division 3 joined the majority view on the “estoppel” issue, determining that the losing parties’ prayer for fees did not create an estoppel when there was no fee entitlement basis to the contrary. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858, 898-899 (2008) [discussed in our May 18, 2008 post]; Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4^th 671, 674-675 (2000); see also our category “Estoppel” for discussion of the majority and minority viewpoints on this issue.)

     Winning parties tried to use third party beneficiary and assignee theories, but nothing demonstrated that the purchase agreement between the losing parties and the property seller (which had a fees clause, but to which the winners were not signatories) was made for the benefit of the winners. With respect to the assignee argument, losers were not suing as the assignees of the purchase contract but under the joint venture agreement without a fees clause. These crucial factual distinctions made unavailing use of these other theories for fee recovery.

     End result: $75,000 in fee recovery went POOF! based on the absence of a fee entitlement anchor in the contract that bound the litigants.

Civil Code Section 1717: Litigants’ Failure To Be Adjudged General Partners, Although Winning A Small Quantum Meruit Award, Justified Non-prevailing Party Conclusion

Result Was An Adverse Fee/Cost Award of Over $275,000

     In Gupta v. Shue, Case No. B198449 (Apr. 30, 2009) (unpublished), both sides engaged in bitter, protracted litigation over whether each received, by assignment, a general partnership interest in a real estate limited partnership—with the limited partnership caught in the middle of the litigation. After a jury verdict and court judgment so found, the lower court ruled that the general partnership was the prevailing party and it was entitled to an award of fees and costs. Earlier, the Second District, Division 1 reversed one aspect of the judgment and remanded for a prevailing party determination and a fee award analysis, instructing the lower court to also specify the contractual bases for the fee award, to determine if any apportionment was necessary between contract and noncontract claim, and to ensure that any fee award was not excessive. On remand, the trial court determined the general partnership was again the prevailing party and assessed fees of $265,490 and costs of $9,616.60 jointly and severally against the individual litigants unsuccessfully claiming to be the general partners. The fee award on remand was appealed, with the next case being the decision on that award.

     The unsuccessful individual litigants did not win on appeal the second time around. In doing so, the appellate panel engaged in a systematic discussion of issues that crop up frequently in cases involving awards of fees under Civil Code section 1717. Here are the most salient issues discussed:

Civil Code Section 1717: Prevailing Nonparty to Settlement Agreement With Fees Clause Could Not Be Awarded Fees Where Enforcement Action Did Not Focus On Settlement Agreement

Fourth District, Division 3 Finds Section 1717 Cannot Be “Bootstrapped” Into Fee Entitlement For Breach of Contract With No Fees Provision.

     Civil Code section 1717 focuses on mutuality of remedy for enforcement of contractual attorney’s fees clauses. However, it is not a statutory dragnet to enforce an oral settlement with no fees clause or to seek recovery under a written settlement agreement with a fees clause where that is not the object of an enforcement action.

     Splain v. Hogard, Case No. G040895 (4^th Dist., Div. 3 Apr. 28, 2009) (unpublished) dealt with this very issue, finding that a prevailing nonparty’s ultimate win did not allow for fee entitlement under a settlement arrangement.

Estoppel And Fee Clause Interpretation: Losing Broker Using MLS Was Not Liable To Winning Seller For Fees Just Because Broker Pled Fee Recovery And When Fees Clause Did Not Encompass Losing Broker

First District, Division Five Follows Blickman Turkus and Sessions Decisions.

     This next case is a virtual paradigm for students of fees clauses in exclusive listing agreements involving MLS brokers who sue sellers and then lose. It deals with judicial estoppel and fee clause interpretation issues frequently seen in these types of disputes.

     Menasco v. Nagel, Case No. A121570 (1^st Dist., Div. 5 Mar. 9, 2009) (unpublished) involved a plaintiff real estate broker who found buyers for an interested defendant seller, even though the seller's exclusive listing agreement was with a separate broker posting on the multiple listing service (MLS). Plaintiff sued defendant when he failed to consummate a sale of defendant's residence to several ready, willing, and able buyers, alleging breach of contract and third party beneficiary contractual theories. Plaintiff's complaint referenced the MLS broker-defendant listing agreement (which had a fees clause) and sought entitlement to fees under that clause. Plaintiff lost to seller, with the trial court awarding $17,387.50 in attorney's fees based upon the fact that plaintiff had asked for fees in his complaint.

     The First District, Division 5, in a 3-0 decision authored by Presiding Justice Jones, reversed the fee award.

Arbitration: AAA Arbitrator Can Award Fees to Prevailing Party, Even Without Contractual Basis, If Both Parties Request Fees in Their AAA Pleadings

Fourth District, Division 1 Affirms Fee Award Granted By Arbitrator Under AAA Rule R-44(d).

     In our category “Cases: Estoppel,” we have reviewed cases holding that Civil Code section 1717 fee recovery is not authorized in regular court actions unless the litigant has actual entitlement to fees, with no award being justified when an opponent simply prays for fees without a corresponding entitlement anchor. However, in our category “Cases: Arbitration,” we have noted a different theme in contractual arbitration cases when it comes to awarding fees—arbitrators can award fees based on equitable concepts, even when there is no clear contractual basis for a fee award. The next case, which does involve court review of a contractual arbitration award, again demonstrates the breadth of power possessed by an arbitrator, who can rely on arbitration provider rules as a basis for a fee award rather than any authorizing agreement between the parties.

Mandatory Fee Arbitration Settlement: Winning Party Reserved Right To Recover Fees and Did Obtain $120,000 In Fees And $7,097.99 In Costs From Losing Attorney

First District, Division Four Affirms Fee/Costs Award on Appeal.

     In our category “Cases: Settlement,” we have reviewed past decisions where parties have won substantial fee/costs awards after reserving the issue for future determination as part of a settlement in an underlying case. The next opinion is one arising from the settlement of a lawsuit after an attorney had lost a mandatory fee arbitration. The subsequent fee award was substantial in amount, an award sustained on appeal.

     Montgomery v. Brazzi Butterworth & Corell International, Case No. A118710 (1^st Dist., Div. 4 Jan. 6, 2009) (unpublished) involved a discharged attorney who sued his former “clients” for precondemnation legal advice, even though his contingency fee retention was only with a relocation consultant business promising to pay attorney if another business collected in the condemnation action (condemnee).

Mike and Marc's “Top Ten List” Of 2008 Attorney’s Fees Decisions

 

Who Says David Letterman Has The Only Good “Top Ten List”?

Part 1 of 2: Five of the Top Ten Decisions

     We may not have the panache of David Lettermen, but we do offer our “Top Ten List” of 2008 attorney’s fees decisions although we have no guest star to count them off! Here we go—and we thank all of you readers for following us and wish you a Happy 2009 as well. (The numbering is not intended to reflect order of importance, and we have only canvassed published decisions because they can be cited.)

     Part II with the next five, and an honorable mention, will follow soon.

10. Profit Concepts Mgt., Inc. v. Griffith, 162 Cal.App.4^th 950 (2008): Civil Code Section 1717 Fee Award Allowed For Successfully Bringing a Motion to Quash Service.

     An award of attorney’s fees was allowed under Civil Code section 1717 to a defendant who successfully moved to quash service for lack of personal jurisdiction; the resulting order to quash had finality for purposesof resolving the case brought in California.

     [Discussed in our May 11, 2008 inaugural post—Fourth District, Division 3; author: Justice Fybel]

9. Glencoe v. Neue Sentimental Film AG, 168 Cal.App.4^th 874 (2008): Litigant Fearing Loss on Potentially Dispositive Ruling Can Avoid Civil Code Section 1717 Fee Exposure By Dismissing Action With Prejudice Prior to Actual Ruling.

     A litigant facing contractual fee exposure under Civil Code section 1717 can dismiss action with prejudice, avoiding section 1717 fee exposure in the process, if the dismissal is made prior to a potentially dispositive motion ruling where the proceeding has not “ripened to the point of inevitability.”

     [Discussed in our November 26, 2008 post—Second District, Division 4; author: Presiding Justice Epstein]

8. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858 (2008): Judicial Estoppel Under Civil Code Section 1717 Not Justified Solely Because Opponent Prayed For Fee Recovery in Operative Pleadings.

     Civil Code section 1717 fees are only awardable where the opposing party actually is entitled to recover fees under a contractual fees clause; judicial estoppel cannot be based merely on the loser’s prayer for fee recovery in operative pleadings, following Leach v. Home Savings & Loan Assn.,185 Cal.App.3d 1295, 1307 (1986).

     [Discussed in our May 18, 2008 post—Sixth District; author: Presiding Justice Rushing]

7. Melbostad v. Fisher, 165 Cal.App.4^th 987 (2008): Anti-SLAPP Fee Order Entered After Entire Dismissal Is Immediately Appealable.

     Subsequent fee order in anti-SLAPP case is immediately appealable where there is an earlier judgment dismissing the entire action.

     [Discussed in our July 25, 2008 post—First District, Division 4; author: Justice Sepulveda]

6. Lange v. Schilling, 163 Cal.App.4^th 1412 (2008): Plaintiff Must Attempt to Mediate In Order to be Qualified to Recover Fees Under a CAR-Form Residential Purchase Agreement.

     Failure to attempt mediation before filing suit will disqualify a subsequent prevailing plaintiff’s fee petition based on a contractual fees/mediation clause in a California Association of Realtors’ form residential purchase agreement, tracking the reasoning of Frei v. Davey, 124 Cal.App.4^th 1506 (2004).

     [Discussed in our May 30, 2008 post—Third District; author: Justice Hull]

Part II—an upcoming post—will have the rest of our 2008 “Top Ten” and an honorable mention.

Independent Claims Adjustor Obtains Affirmance of Fee Award Under Contract With Insurance Carrier

Fourth District, Division One Rejects Judicial Estoppel Argument and Awards Fees on Appeal (to be Determined by the Trial Court).

     Who says that everyone in the insurance industry is cozy-cozy with each other? Not a foregone conclusion at all, especially when assertions of claims mishandling may cast aspersions on the reputation of the claims adjustor. A dispute erupts, one side wins (the claim adjustor), and the winning side seeks an award of fees against the carrier (likely, a former client) under a contractual fees clause. This is exactly the type of dispute we love to report on. Here are the facts and you can play judge on whether the adjustor or carrier should have prevailed.

     AIG lost a summary judgment battle brought by defendant Professional Claims Services, Inc. (PCS) under a contract containing both an indemnity provision (to PCS, in favor of AIG) and a contractual fees clause. AIG had sought damages of $607,000 and $150,000 in defense costs in case it lost. PCS was awarded $62,324 in postjudgment attorney’s fees under a fees clause in the contract with AIG.

     AIG appealed the adverse fee award and did not win on appeal, as the Fourth District, Division One determined in New Hampshire Indemnity Co. v. Professional Claim Services, Inc., Case No D052106 (4^th Dist., Div. 1 Dec. 8, 2008) (unpublished).

     AIG’s primary argument was that PCS was barred from a fee award based on the doctrine of judicial estoppel. The Court of Appeal rejected this argument, finding it did not square well with the mutuality principles governing enforcement of contractual fees clauses under Civil Code section 1717.

     Had AIG won on the issue of whether the indemnity clause was applicable (even though the issue was won by PCS), AIG would have been entitled to fees. This meant that there was no inconsistency in result at the first tier of analysis on the judicial estoppel issue.

     On the second analytical tier of the issue, PCS’ summary judgment motion was not inconsistent with a request for attorney’s fees. The separate battle over applicability of who owed what under the indemnity clause was not inconsistent with a claim by the ultimate victor for fees at the tail end of the litigation.

     The fee award in favor of PCS was affirmed on appeal and, in line with the prevailing intermediate appellate thinking on the subject, fixing of fees for the prevailing party on appeal (also PCS) was returned to the lower court for determination. (See, e.g., Security Pacific Nat’l Bank v. Adamo, 142 Cal.App.3d 492, 498 (1983).)

Attorney Lien: Former Clients Estopped To Challenge Judgment Resulting From Motion Proceeding Where They Stipulated To The Motion Procedure

Fourth District, Division Three So Holds in Unpublished Decision.

            The general rule is that an attorney claiming an attorney lien over settlement proceeds or a judgment must file an independent action to establish the existence and amount of the lien, with any order granting attorney’s fees in the main action being in excess of the trial court’s jurisdiction.  (Bandy v. Mt. Diablo Unified Sch. Dist., 56 Cal.App.3d 230, 234 (1976).)  However, a litigant may be estopped to challenge an irregular decision upon jurisdictional grounds if the circumstances are right.  Facts demonstrating estoppel did arise in the next case that we examine.

            In Joelson v. Koberstein (Law Offices of Federico C. Sayre), Case No. G038727 (4^th Dist., Div. 3 Oct. 1, 2008) (unpublished), a dispute arose over an attorney lien covering settlement proceeds for services rendered in a residential mold infestation contingency case.  Claimant attorney and clients stipulated that the trial court in the underlying contingency case could conduct a hearing to resolve the attorney lien dispute.  A contested hearing was held, after which the trial court determined the lien was correct because clients had failed to prove that attorney acted below the standard of care and had failed to prove attorney malfeasance.  Clients appealed.

            Acting Presiding Justice Rylaarsdam, on behalf of a 3-0 panel of the Fourth District, Division 3, affirmed. 

            The appellate panel acknowledged the normal rule that attorney liens must be decided in independent actions.  However, as are most general rules, exceptions do come into play.  One of them, in this context, is estoppel--a litigant stipulating to a procedure in excess of jurisdiction may be estopped to question it when “to hold otherwise would permit the parties to trifle with the courts.”  (E.g., People v. National Auto. & Cas. Ins. Co., 82 Cal.App.4^th 120, 125-126 (2000); Law Offices of Stanley J. Bell v. Shine, Browne & Diamond, 36 Cal.App.4^th 1011, 1023 (1995).)  Justice Rylaarsdam reasoned that “[t]his appeal presents an even clearer example of estoppel” than the cited cases.  The parties stipulated to the motion procedure, plaintiffs filed motions in limine, plaintiffs heavily contested the lien at the hearing, and plaintiffs never once contested the authority of the trial court to decide the matter.  Result:  estoppel/waiver of the jurisdictional argument.

            The appellate panel also found the lower court did not err by awarding claimant attorney the entire amount of claimed unpaid fees.  Because attorney’s discharge occurred “on the courthouse steps,” the entire claimed fee was properly deemed a reasonable fee under an unjust enrichment analysis.  (See Fracasse v. Brent, 6 Cal.3d 784, 791 (1972).) 

Nonsignatory Defendants Denied Attorney’s Fees Award Where They Would Not Have Been Entitled to Recovery Had They Won

Fifth District, in an Unpublished Opinion, Rejects Reasoning From Both Abdallah and International Billing Services in Affirming Lower Court Fee Denial. 

            In our four months of blogging, we have covered both published and unpublished California appellate decisions.  We have found that the unpublished decisions are still valuable for their analysis, although not citable except in narrow circumstances that are generally not at play.  (See Cal. Rules of Court, rule 8.1115, as reiterated in our Blog Disclaimer.)  The reason that unpublished decisions are valuable is that they analyze prior appellate decisions, either following, disagreeing, or criticizing those previous opinions penned by their appellate colleagues in different Districts.  We now discuss an older unpublished decision, Aluisi v. Kolkka, Case No. F034243 (5^th Dist. Oct. 5, 2001) (unpublished), where the Fifth District disagreed with portions of the analysis made in the prior opinions of Abdallah v. United Savings Bank, 43 Cal.App.4^th 1101 (1996) and International Billing Services, Inc. v. Emigh, 84 Cal.App.4^th 1175 (2000).

            Aluisi involved a nonsignatory wife who, along with her husband and father-in-law, sued sellers under a busted real estate purchase transaction where wife was not a signatory to a purchase contract with a fees clause benefiting a prevailing party.  Defendant sellers successfully demurred out wife on the grounds she was neither a party nor a third-party beneficiary of the contract.  Defendants than moved for $31,465.35 in attorney’s fees as the prevailing party under the fees clause, a request denied by the trial judge.  Defendants appealed and did not win on appeal.

            Justice Wiseman, affirming on behalf of a 3-0 panel, initially confronted a familiar issue—whether wife would have been entitled to attorney’s fees as a third-party beneficiary under the contract had she prevailed.  Sessions Payroll Mgt. Inc. v. Noble Constr. Co., 84 Cal.App.4^th 671, 674-675 (2000) was found to be on point is disposing of the issue, because nothing in the contract demonstrated that the signatories (husband and father-in-law) intended to include wife within the attorney’s fees provision of the real estate purchase agreement.  Beyond that, there was extraneous corroboration for this conclusion:  the escrow instructions showed that the property was to be vested as husband’s sole property along with his father-in-law as co-owner.  Justice Wiseman found that the defense citation to Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 383-384 (1994) to be inapt, because a plaintiff sublessee did have a sufficient nexus based upon a third-party beneficiary granting provision in the master lease.  No similar provision was found in the purchase agreement between the parties involved in Aluisi.

            The appellate court then turned its attention to Abdallah, supra, 43 Cal.App.4^th 1101, 1111, where a signatory defendant prevailed and was held entitled to attorney’s fees from the nonsignatory plaintiff.  Justice Wiseman, on behalf of the Fifth District panel deciding Aluisi, expressly disagreed with two conclusions reached by Abdallah:

·       Abdallah, generalizing from the specifics of Real Property Services, stated:  “A defendant that has signed a contract providing for attorney fees is generally entitled to fees if it prevails against a nonsignatory plaintiff in an action on the contract.”  (43 Cal.App.4^th at 1111.)  The Fifth District, after observing “[w]hether this statement is statistically accurate and thus may constitute a valid observation cannot be determined here,” went on to state “[i]n any event, it is not a valid rule, and Real Property Services does not suggest it is valid.”  (Slip Opn., at p. 8.)  Justice Wiseman reasoned that the result in cases involving nonsignatory plaintiffs “must still be compelled by the facts of each case” and quoted a passage from Real Property Services indicating that a signatory defendant cannot recover fees from a nonsignatory plaintiff unless the nonsignatory plaintiff was entitled to fees had plaintiff prevailed (25 Cal.App.4^th at 382).

·       Abdallah concluded that “Fred Abdallah’s status as a nonsignatory is irrelevant; the only question is whether he would have been entitled to his fees if he had prevailed.  ([Real Property Services, supra, 2 Cal.App.4^th] at p. 382.)  Since it is undisputed that Fred Abdallah would have entitled to fees if he had been a prevailing party, there is no question that he is liable for fees as a losing party.”  (43 Cal.App.4^th at 1111.)  Justice Wiseman believed that Abdallah’s status as a nonsignatory was very relevant on the fee issues, because Real Property Services so recognized and Abdallah does not explain why it was “undisputed” that Abdallah would have been entitled to fees had he prevailed.  For those reasons, the Fifth District “choose to not follow Abdallah.”  (Slip Opn., at p. 9.)

The Fifth District, in an extensive footnote, also discussed defendants’ contention

that wife was estopped from denying fee entitlement based on claiming a request for attorney’s fees in her complaint against defendants.  Defendants primarily relied on International Billing Services, Inc. v. Emigh, supra, 84 Cal.App.4^th 1175, 1186.  Justice Wiseman then implicitly rejected this aspect of Emigh, reasoning “we agree with Sessions’ well reasoned and supported conclusion that an estoppel theory contradicts the “Reynolds Metals [Co. v. Alperson, 25 Cal.3d 124, 129 (1979)] test,” which requires a party claiming attorney fees to establish that the opposing party actually would have been entitled to receive them if the opposing party had prevailed.  (Sessions, supra, 84 Cal.App.4^th at pp. 681-682; see Reynolds Metal Co. v. Alperson, supra, 25 Cal.3d at p. 129.)”  (Slip Opn., at p. 9 n. 1.) 

            On the Emigh estoppel theory, the Fifth District seems in accord with many divisions of the Second District, the Sixth District, and other Districts in not following the estoppel theory espoused in Emigh.  See our May 18, 2008 post on Blickman Turkus, LP v. MF Downtown Sunnyvale, 162 Cal.App.4^th 858 (2008) [6^th Dist.], which discusses other Districts disagreeing with Emigh; our August 7, 2008 post on Zislis v. Nam (2d Dist., Div. 5 unpublished); and our August 10, 2008 post on Hill v. Pro Value Properties, Inc. (2d Dist., Div. 8 unpublished), which surveys other Second District division perspectives on Emigh. 

            

            

Second District, Division Eight Follows Leach Rule On Judicial Estoppel In Section 1717 Situations

Division Eight Refuses to Follow Manier’s “Allegations Alone Suffice” Estoppel Theory.

            In a wild case involving contentions of contract formation, untimely acceptance, and a critically forged document, the Second District, Division Eight affirmed a trial court’s equitable rulings but modified a judgment to delete an attorney’s fees award against a nonsignatory plaintiff to the alleged real property purchase agreement.  In doing so, yet another division of the Second District aligned itself with Leach v. Home Sav. & Loan Assn., 185 Cal.App.3d 1295, 1306-1307 (1986) and parted company with Manier v. Anaheim Business Center Co., 161 Cal.App.3d 503, 507-508 (1984) in the debate about whether merely alleging fee recovery in pleadings is enough to give rise to application of the judicial estoppel doctrine.  The case is Hills v. Pro Value Properties, Inc., Case No. B193025 (2d Dist., Div. 8 Aug. 8, 2008) (unpublished).

            Hills concerned several appellants’ (including Hills’) claim to be the legal and equitable owner of a Los Angeles residence under an aborted purchase transaction.  Appellants brought several equitable and legal claims all aimed toward an adjudication that they were the owners of the residence.  Another appellant, not Hills, was a signatory to the alleged purchase documents, although Hills and others did allege and pray entitlement to attorney’s fees in their pleadings.  The trial court found against appellants, determining no contract had been formed because appellants relied principally on a forged document.  The trial court also found that appellants’ principal witness Moore was not credible based upon prior falsification of signatures on deeds and lis pendens instruments as well as having gone through several bankruptcies and owing unsatisfied judgments to several creditors.  The trial court also awarded prevailing defendants $320,868.25 in attorney’s fees as against appellants (including Hills), even though the defense requested an award of $580,594.25 in fees.   

            Appellants appealed and lost, although the judgment was modified to eliminate the fees award against Hills.

            Justice Flier, writing for a 3-0 panel of the Second District, Division Eight, confronted the judicial estoppel debate that has been the subject of prior posts on May 18, 2008 (discussing the Sixth District’s recent Blickman decision) and August 7, 2008 (discussing the Second District, Division Five’s unpublished Zislis opinion).  Because Hills was a nonsignatory and only alleged entitlement to fees in the causes of action involving him, the appellate panel had to choose between the Leach perspective (no estoppel unless Hills was actually entitled to recover fees) or the lines of cases typlified by Manier (nonsignatory Hills’ mere claim for fees gives rise to equitable estoppel).  Justice Flier, on behalf of Division 8, expressly found that Leach “is the better approach.  Enforcing an attorney fees clause against a nonsignatory who would not actually have been able to collect attorney fees gives [Civil Code] section 1717 an unfairly broad scope.”  (Slip Opn., at p. 14.)  Hills was not even a named party in the specific performance count, but to five causes of action that were dismissed prior to trial.  However, in an interesting twist, the trial court—over appellants’ objection—actually entered judgment against Hills as a party defendant on the specific performance count.  This gave Justice Flier an opportunity to show why the panel believed Leach was the preferable approach:  “Since we do not follow Manier v. Anaheim Business Center Co., we do not discuss what effect this would have on the fact that Hills was not a named plaintiff in this cause of action, i.e., is the effect of the judgment that Hills should be estopped from claiming that the fee provision cannot be enforced against him?  The unrealistic nature of this exercise is another reason why in this case we think that Leach v. Home Savings & Loan Assn. is preferable to Manier.”  (Slip Opn., at p. 13 n. 9.)

            The Second District, in at least three divisions, has followed Leach over the Manier estoppel-oriented cases.  See, e.g., Hills (Division 8--unpublished); Zislis (Division 5—unpublished); Myers Bldg. Indus., Ltd. v. Interface Technology, Inc., 13 Cal.App.4^th 949, 962 n. 12 (1993) (Division 5—published); Tran v. Nguyen, Case No. B141907 (Dec. 26, 2001) (Division 4—unpublished). 

            BLOG BONUS COVERAGE—The trial court credited testimony on forgeries that was offered by Howard C. Rile, a Long Beach-based questioned documents examiner who Marc Alexander and Mike Hensley have had the pleasure of working with.  Mr. Rile is well respected in his field.  Hills also has a nice discussion of California’s “equity first” rule under which equitable issues are tried first (and, if they dispose of legal issues, means that nothing further remains to be tried before the jury).  See Slip Opn., at pp. 8-9; Nwosu v. Uba, 122 Cal.App.4^th 1229, 1238 (2004).

Even Though Letter Of Intent Required Good Faith Consummation Of A Subsequent Definitive Agreement, Lack Of Attorney's Fees Clause In LOI Gave Winning Plaintiffs No Fee Entitlement Basis

Second District Reversed $119,947 Fee Award Under Definitive Agreement Fee Clause.

            One of the first concerns that a winning litigant must face in post-trial proceedings is whether the litigant has a fee entitlement basis to seek an award of attorney's fees.  This usually focuses on a contractual fee clause or a fee-shifting statute.  The next case illustrates how the lack of a basis for fee entitlement can lead to a determination that no fee award is proper.

            Zislis v. Nam, Case No. B143706 (2d Dist., Div. 5 Nov. 21, 2001) (unpublished) involved a letter of intent (LOI) entered into between plaintiff tenants and defendant landlords, containing an agreement on many material terms, a representation to carry out the transaction described in the LOI, and some concluding language that stated "this constitutes a binding legal agreement between the parties to negotiate and execute a Definitive Agreement, including the terms and conditions of this letter of intent and other provisions customarily and ordinarily included in the type of transaction contemplated herein …"  Importantly, the LOI did not include a provision for attorney's fees except for the situation where landlords incurred attorney expenses to review a sublease presented by tenants.

            Drafts of the Definitive Agreement were exchanged, but landlords decided to terminate negotiations even though tenants sent a signed Definitive Agreement to landlords for signature.  The draft of the Definitive Agreement did contain an attorney's fees clause.  Landlords did not sign the draft, which prompted a declaratory relief action by tenants to force landlords to execute the draft final lease or alternatively for a monetary damages award.  Landlords cross-claimed for a judicial declaration that the LOI was only "an agreement to agree" rather than a binding contract. 

            In pretrial submissions, both sides agreed the litigation focused upon the legal effect of the LOI.  The principal dispute was whether two Definitive Agreement provisions, one concerning lease assignment and the other concerning rent payment in the event of discovery of hazardous waste contamination, were "ordinary and customary" in such a transaction. 

            Following a bench trial, the trial court found the LOI created a leasehold interest and that the two disputed terms were "ordinary and customary" terms, ordering landlords to execute the Definitive Agreement (which they did).  Later, the trial court awarded $119,947 in attorney's fees to tenants, reasoning that a fee clause would have been "ordinarily and customarily included in the [final] Lease" and that this clause entitled tenants to a fee award.

            Tenants appealed only the fee award, and won a reversal.

            Justice Armstrong, the author for a 3-0 panel of the Second District, Division Five, determined that the fees clause in the Definitive Agreement did not apply to the particular lawsuit litigated below.  He found that the focus of attention was on the LOI, and the parties did not litigate in the main action the question of whether the fees clause was an "ordinary and customary" provision.  "Instead, the parties, both experienced in business, negotiated a contract, the Letter of Intent, which did not provide for the award of fees in the event of its breach, even though they later agreed that any Definitive Agreement would include such a clause.  Therefore, no such fees may be awarded on an action for breach of the Letter of Intent, even though fees could be awarded on an action for breach of the Definitive Agreement.  There is no inherent inequity in enforcing the agreements, as written." 

            Tenants then argued that the LOI incorporated the Definitive Agreement by reference, including the Definitive Agreement's fees clause.  Not so, Justice Armstrong wrote.  This was not an integrated transaction involving distinct documents forming the overall bargain; rather, the Definitive Agreement was independent and actually superseded/canceled the prior LOI. 

            Tenants next contended that the fees clause was a missing element of the LOI which the trial court could supply.  In reasoning that indicated landlords may have been wise to have also appealed the merits judgment, the Court of Appeal rejected such a contention as follows:  "No legal authority allows a trial or appellate court to add a term to a contract, no matter how usual and customary it is, in the absence of evidence that the parties so intended.  The only reference to usual and customary contract provisions in the Letter of Intent states that such terms will be included in the lease.  That reference does not open the door to the addition of terms to the Letter of Intent." 

            That left Tenants with a judicial estoppel argument—reliance on landlords' mention of or request for attorney's fees in their answer and cross-complaint.  Tenants principally relied on International Billing Services, Inc. v. Emigh, 84 Cal.App.4^th 1175, 1178-1179 (2000), where judicial estoppel was found where a party drafting an ambiguous contract provision depended on it to request fees but then backtracked by arguing it was not an enforceable fees provision.  The Second District panel found Emigh unpersuasive, but most of all distinguishable.  Initially, Justice Armstrong suggested that the panel had some doubts about Emigh's use of the judicial estoppel theory, labeling it "a departure from the usual rules on judicial estoppel" and suggesting it ran afoul of earlier Second District authority that held a "mere allegation of a contractual right to attorney fees is not sufficient to create an estoppel" (citing Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4^th 949, 962 n. 12 (1993) [written by Justice Grignon when she was on the bench, a participant with Justice Armstrong on many prior causes including this unpublished decision]).  Nonetheless, the appellate panel found "no need to be drawn into any controversy about International Billing Services," finding it distinguishable on these grounds:  (1) "the simple, boilerplate fee requests in the answer and cross-complaint are too slight to uphold a finding of judicial estoppel, especially since the answer also included the affirmative defense that there was no basis for an award of fees, since there was no contract between the parties"; (2) Emigh affirmed a trial court determination that there was an actual fees clause in the contract (unlike no fees clause in the LOI); and (3) the party estopped in Emigh was the plaintiff who was using the fees clause as a club (unlike the landlords who were not using it as a threat).  Based on these distinctions, the appellate panel concluded "[t]he doctrine of judicial estoppels does not apply." 

            BLOG OBSERVATION—In our May 18, 2008 post, we discussed Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858 (2008), which rejected Emigh's judicial estoppel approach and followed the reasoning of Leach v. Home Sav. & Loan Assn., 185 Cal.App.3d 1295, 1387 (1986).  Myers, cited by Justice Armstrong in Zislis, endorsed the same test enunciated in Leach—the mere allegation of a right to recover fees does not give rise to an estoppel where the alleging litigant had no actual entitlement to fee recovery. 

            

            

Rejecting Judicial Estoppel Argument, Former Attorneys Win Over $101,000 Fee/Costs Award from in Pro Per Plaintiff Client

Second District, Division Three Panel Rejects Judicial Estoppel, Self-Representation, and Third-Party Beneficiary Arguments Raised By Losing Client.

            An attorney’s fees clause in a retainer agreement is a great equalizer in any litigation over the proper fee charged for services by former counsel.  An in pro per Client sued his Former Attorneys, raising judicial estoppel, self-representation, and third-party beneficiary obstacles to fee recovery.  These arguments did not prevail.

            In Fink v. Moreno, Becerra & Guerrero, Inc., Case No. B201957 (2d Dist., Div. 3 June 26, 2008) (unpublished), Client’s third amended complaint was demurred out by Former Attorneys, which then sought costs and fees based on an attorney’s fees clause in the retainer agreement.  Former Attorneys were represented in the litigation by retained outside counsel.  The trial judge ultimately awarded $101,024.72 as costs and fees (with $95,165 being the fee component).  Client appealed, raising some interesting arguments for review.  They were not successful, the Second District, Division Three panel decided in an unpublished opinion authored by Acting Presiding Justice Croskey.

            Client first argued that Former Attorneys should be judicially estopped from fee recovery because they filed three motions to strike Client’s prayer for attorney’s fees in earlier proceedings attacking the complaints.  Unfortunately for Client, the trial court never ruled on the motions, suggesting to Client that he should leave some things out.  Judicial estoppel was found inapplicable because there was a missing crucial element—the trial judge never adopted the “inconsistent position” such that Former Attorneys were not successful in obtaining an adjudication based on the position.  The appellate court has a good discussion on how our state supreme court’s decision in Aguilar v. Lerner, 32 Cal.4^th 974, 986-987 (2004) required the “successful” element as part of the judicial estoppel test, scaling back on broader language contained in an earlier Second District opinion (Jackson v. County of Los Angeles, 60 Cal.App.4^th 171, 183-184 n. 8 (1997).

            Client next contended that Civil Code section 1717 did not apply because he represented himself in the litigation.  “Wrong,” said Justice Croskey on behalf of the Second District panel.  The anchor of Client’s argument was Trope v. Katz, 11 Cal.4^th 274 (1995), which denied section 1717 fee recovery to attorneys representing themselves in controversies with a fees clause as a fee-shifting mechanism.  Trope was found distinguishable because (1) Former Attorneys retained different counsel to defend them in the case; and (2) Client, if he had been represented by outside counsel and had he prevailed, would have been entitled to fees under section 1717, meaning under the mutuality principle that Former Attorneys are similarly entitled to recoup fees.

            Client last argued that he was only a third-party beneficiary not entitled to seek fees, based on a slanted reading of Sessions Payroll Mgt., Inc. v. Noble Construction Co., 84 Cal.App.4^th 671 (2000).  The Court of Appeal found that Sessions was inapt because one of the parties was a nonsignatory third-party beneficiary not entitled to fees (which meant section 1717 reciprocity never kicked in).  It also chided Client for falsely describing the holding in Sessions, dropping out the critical word “nonsignatory”—an appellate “no no” and big credibility deflater. 

            Although raising some novel arguments, in pro per Client—after losing the judicial estoppel contention and trying to unsuccessfully surmount the venerable section 1717 mutuality policy—ended up owing over $101,000, plus more (because the appellate court awarded Former Attorneys costs on appeal as the winning parties).