Substantial Judgment Awarding Fees Found to be Nonpenal in Nature and Nonrepugnant to State Policy.
This post examines an appeal raising challenges to substantial fee awards against a litigant’s attorney (a nonparty) by the Gibraltar Supreme Court, akin to a California superior court, under English law. After the Los Angeles County Superior Court entered a California judgment of $3,159,758.50 based on the Gibraltar judgments, attorney appealed, arguing that each judgment was either a penalty or repugnant to California state policy so as to not be deserving of enforcement under the Uniform Foreign Money-Judgments Recognition Act (UFMJRA), a prior version of Code of Civil Procedure section 1713 et seq. existing before 2007 amendments.
The Gibraltar judgment, as converted to a California judgment, was upheld on a comity basis in Java Oil Ltd. v. Sullivan, Case No. B195862 (2d Dist., Div. 8 Dec. 2, 2008) (certified for partial publication).
Aggrieved attorney got to this point by assisting a Mr. Laycock in bringing an action against two defendants for an alleged construction injury that was ultimately dismissed after the Gibraltar court found evidence the claims were fraudulent in nature. Defendants then brought actions against attorney, with the Gibraltar court finding he was complicit with Laycock in the fraudulent litigation. Eventually, two judgments were entered against attorney by the Registrar: the first for 621,958.75 pounds, representing the costs defendant incurred in defending against Laycock’s claims, and the second for 1,154,025 pounds, consisting of the fees/costs incurred in defendants’ prosecution of their claims against attorney personally. Prior to the hearing on the claims against attorney, he tried to seek Chapter 13 bankruptcy protection, but the bankruptcy judge found it to be bad faith filing after attorney failed to list income and the substantial claims pending in Gibraltar. The Los Angeles County Superior Court entered judgment against attorney for $3,159,758.50, giving complete comity to the Gibraltar awards.
Attorney’s primary challenges on appeal—that the Gibraltar judgments were tantamount to penalties or were repugnant to California public policy—did not prevail.
Penalty Challenge
Even though a penalty judgment is excluded from UFMJRA enforceability, the Court of Appeal found that it had to be penal in purpose, with cases and the Restatement of the Law, The Foreign Relations Law of the United States consistently finding that a fee award was not penal. The fee award implicated no penal law of Gibraltar, and no payment of money was ordered to a governmental entity. The fee award was not a penalty. (Accord, Erbe Elektromedizin GMBH v. Canady, 545 F.Supp.2d 491, 496 (W.D.Pa. 2008).)
Public Policy Repugnancy
This argument pivoted around the premise that the Gibraltar awards—anchored in English law—violated the American Rule on attorney’s fees award where each side bears its own fees in the absence of a countervailing contract or statute. The appellate court did not find persuasive that the English Rule, where the loser must pay the winner’s attorney’s fees, is totally repugnant to a different policy that is not antithetical to some basic American moralist prohibition (especially given the findings by the Gibraltar court about fraudulent activity). With respect to the defense fees awarded against the attorney, this was found akin to attorney’s fees routinely awarded as damages in malicious prosecution cases. (See Bertero v. National General Corp., 13 Cal.3d 43, 59 (1974).) The fee award against attorney based on the defendants’ expenses in prosecuting their fraud action in Gibraltar were not repugnant to California policy given the determinations that attorney was complicit in the fraudulent litigation and had actually helped prepare false documents. Furthermore, there was case law establishing that a subsequent fee award after a prior judgment under English law should be given comity, even where United States law was different in the same context. (See Somportex Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 441-443 (3d Cir. 1971).)
BLOG OBSERVATION—This case has an interesting discussion of the different philosophical underpinnings for the English versus American Rule for attorney’s fees awards. The American Rule is based on the democratic ideal that all citizens should have unfettered access to the courts, idealism obviously not shared by our counterparts in Great Britain. (See Mihalik v. Pro Arts, Inc., 851 F.2d 790, 793-794 (6th 1988).)