CALIFORNIA ATTORNEY'S FEES

Undertaking: Appellate Court Reversed Lower Court’s Imposition Of A $500,000 Undertaking For Costs And Damages Under CCP § 529.2

Case Involved A Challenge To A Referendum Denial Decision Under The Elections Code, Not A Direct Challenge To A Housing Project.

               Move Eden Housing v. City of Livermore, Case No. A167346 (1^st Dist., Div. 5 Mar. 15, 2024) (partially published; undertaking discussion published) involved a superior court’s denial of a writ mandate petition by plaintiffs to obtain Livermore’s processing of their proposed referendum in accordance with the Elections Code, with the proposed referendum challenging City Council’s agreement between city and a developer for development of housing in downtown Livermore.  The lower court also ordered plaintiffs to post an undertaking of $500,000 in accordance with CCP § 529.2.  Plaintiffs, on appeal, obtained a reversal of both orders.

               Section 529.2 provides that a defendant in a civil action brought by any plaintiff to challenge a low/moderate-income housing project may request an order requiring plaintiff to furnish a undertaking for costs and damages incurred by defendant at the conclusion of the action as a result of a delay in carrying out the development project, with the defendant having to show both that the action was brought in bad faith/for delay in thwarting the project and the plaintiff will not suffer under economic hardship in filing the undertaking.

               The undertaking was erroneous because plaintiffs’ action was to enforce the provisions of the Elections Code rather than a direct challenge to the housing project.  The proposed referendum did challenge the project, but the action itself was not a challenge to the project.  Although real party in interest developer analogized plaintiff’s action to a CEQA action, that analogy was flawed because CEQA actions are directly within the statute—unlike the referendum action brought by plaintiffs.

Undertaking: Trial Court Has Discretionary Authority To Waive Bond On Appeal For A Monetary Judgment With Respect To An Indigent Litigant

CCP § 917.1(a) Does Allow That.

            In Sarkany v. West, Case No. A162441 (1^st Dist., Div. 2 Aug. 30, 2022) (published), the appellate court confirmed that a trial court, under CCP § 917.1(a), does have discretionary authority to stay enforcement of a monetary judgment on appeal if the principal litigant is indigent and cannot obtain adequate sureties. 

Undertaking: Home Foreclosure Preliminary Injunction Can Include Amount Of Attorney’s Fees Lender Would Likely Incur As A Result Of The Injunction

Even If Deed Of Trust Only Allows Fees Added To The Debt, Fees Can Be Included For Provisional Relief Pending Future Actions On Whether Fees Recovered Through A Foreclosure Sale.

            In Johansen v. Bayview Loan Servicing LLC, Case No. C089085 (3d Dist. Apr. 19, 2022) (unpublished), residential borrower obtained a preliminary injunction to prevent a foreclosure of her house, but the trial judge conditioned the preliminary injunction under Code of Civil Procedure section 529 on an undertaking which included attorney’s fees the lender would likely incur as a result of the injunction.  Borrower appealed, arguing it was error to include the fees as an undertaking component.  The appellate court disagreed.  An undertaking is required by statute, separate and apart from deed of trust provisions which only allowed the fees to be added to the debt.  The Third District did agree that future events would determine what happened—lender, if it does get fee recovery through a foreclosure sale, cannot “double dip” by claiming fees against the injunction bond later on.

Judgment Enforcement, Section 1717, Undertaking: Denial Of § 1717 Attorney Fees To Third Party Entities Defeating Postjudgment Alter Ego Claims Reversed, But Denial Of Release Of Undertaking To Successful Member/Partner Affirmed

The Third District Followed The Reciprocity Principle Of § 1717 Set Forth In Reynolds Metals, MSY Trading, And 347 Group In Reversing The Fees Denial, But Affirmed Trial Court’s Denial Of Release Of Undertaking Based On Member/Partner’s Failure To Provide Notice.

            In Westwood Homes, Inc. v. AGCPII Villa Salerno Member, LLC, Case No. C089127 (3d Dist., June 21, 2021) (published), two third party entities were denied the $34,212 in prevailing party attorney fees they sought under Civ. Code § 1717 after defeating judgment creditors’ postjudgment attempt to add them as alter ego judgment debtors.  Additionally, a member/partner of the entities unsuccessfully moved, under Code Civ. Proc. § 720.160, to have a $10,000 undertaking posted by one of the judgment creditors released to her to partially cover the $43,450 in fees she incurred in establishing a third party claim of superior right of possession to real property on which that judgment creditor had obtained a writ of execution. Third party entities and member/partner appealed.

            Based on the reciprocity principle of § 1717, the Third District reversed and remanded as to the fees denial – finding that “[s]o far as the substance of the alter ego allegations is concerned, it is as though [third party entities] were parties to the original action, and prevailed.”  Had third party entities defeated the alter ego claims in the underlying action, they would have been prevailing parties under § 1717 and entitled to fees under the CC&R’s supporting judgment creditors’ entitlement to fees in the underlying action.  (Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979) [our Leading Case No. 5]; MSY Trading Inc. v. Saleen Automotive, Inc., 51 Cal.App.5^th 395 (2020) [discussed in our June 30, 2020 post]; and 347 Group, Inc. v. Philip Hawkins Architect, Inc., 58 Cal.App.5^th 209 (2020) [discussed in our December 8, 2020 post].)

            As to member/partner’s request for release of a $10,000 undertaking posted by one of the judgment creditors, the panel found no error in the trial court’s denial.  Member/partner’s noticed motion for fees, under Code Civ. Proc. § 720.160, made no mention of releasing the undertaking as a partial fee award.  Instead, member/partner orally requested release of the undertaking at the hearing on her motion – thus denying judgment creditors with a proper opportunity to address her request.  However, as the panel pointed out, member/partner’s request was denied without prejudice leaving her free to move, on a properly noticed motion, for an order releasing the undertaking.

Partition, Undertaking: No Abuse Of Discretion In Trial Court’s Denial To Plaintiff Of Fees/Costs Not Incurred In Partition Action, And No Error In Granting Disbursement Of Funds To Defendants While Appeal Was Pending

Plaintiff Was Not Entitled To Recover Code Civ. Proc. §§ 874.010 and 847.040 Fees/Costs Incurred Prior To Defendants’ Assertion Of Partition Claim, Nor To Fees/Costs Incurred Strictly For Plaintiff’s Benefit, And Undertaking Was Required To Stay The Case As Judgment Did Not Consist Of Only Fees/Costs.

            Land Value Holdings, LLC v. Miller, Case No. A153992 (1^st Dist., Div. 3 September 18, 2020) (unpublished), involved a residential property a decedent left to his niece, Clara, for the term of her natural life.  Upon Clara’s death, the property was to be divided equally among six other nieces and nephews – or their surviving issues.  A later probate order confirmed Clara’s life estate and named the nieces and nephews as remaindermen, but failed to include the phrase “or to their surviving issues by right of representation.”

            Four years after Clara passed, the property was scheduled to be auctioned for unpaid property taxes.  Plaintiff, relying on the theory of adverse possession, voluntarily paid the past due taxes and moved for quiet title and ejectment against twenty living issues of the remaindermen – some of whom entered into settlement negotiations and provided plaintiff with assignments and executed quitclaim deeds.  

            In the end, the trial court found plaintiff had achieved only a 41.66% ownership interest in the property based on the assignments it obtained, and that defendants were entitled to an interest in the property based on decedent uncle’s will - approving sale of the property and ordering division of the proceeds.  Based on a partition claim asserted by defendants some three years into the litigation, the trial court granted in part each party’s Code Civ. Proc. §§ 874.010 and 847.040 fees request, to be paid by the other parties in proportion to their respective percentage interests.  As to plaintiff, it sought $206,185.73 in fees, but was awarded only $98,301 – with the trial court determining fees incurred by plaintiff prior to the partition claim were not recoverable.  Plaintiff also suffered a significant reduction to its $36,434.73 costs request – with defendants successfully moving to tax more than half because certain costs were found not reasonable, necessary, nor for the common benefit of the parties.  Plaintiff then unsuccessfully moved for additional fees incurred for post-judgment work – with the trial court finding the fees requested in the late-filed fees request were not incurred for the common benefit of the parties, but for plaintiff alone. 

            After plaintiff appealed, two defendants moved ex-parte for disbursement of certain funds pursuant to the judgment.  Plaintiff opposed – arguing the trial court did not have jurisdiction to rule because plaintiff’s appeal created an automatic stay.  The trial court disagreed, because plaintiff had not given an undertaking, and granted defendants’ ex-parte request.

            On appeal, plaintiff tried to overcome the trial court’s finding that plaintiff was entitled to recover fees/costs only from the date that defendants asserted a partition claim, and only for fees incurred for the common benefit – arguing it had worked for the common benefit from the get-go, and that its cause of action for declaratory relief was essentially a partition action.  The 1/3 DCA found no abuse of discretion.  Plaintiff’s declaratory relief cause of action sought a declaration as to which parties were responsible for the property taxes and upkeep of the property – not the equivalent of a partition action.

            As to plaintiff’s argument that the trial court lacked jurisdiction to grant defendants’ ex-parte motion for disbursement, the appellate panel disagreed.  There was no error in the trial court’s determination that the case was not automatically stayed, and that an undertaking was required to stay the case pending the appeal as the judgment did not only consist of costs/fees.  (Code Civ. Proc. § 917.1; Dowling v. Zimmerman 85 Cal.App.4^th 1400, 1432 (2001).)

Employment, Special Fee Shifting Statutes, Undertaking: 1/4 DCA Affirms Labor Code § 98.2 Attorney Fees Award In Favor Of Employees Retaining Labor Commissioner’s Award After Employer’s Notice Of Appeal Dismissed

Appeal To Superior Court Of Labor Commissioner’s Ruling Was Dismissed For Employer’s Failure To Post The Required Undertaking Or Otherwise Obtain A Waiver Of Same.

            Labor Code section 98.2(c) provides for costs and reasonable attorney’s fees against the unsuccessful party appealing a decision of the Labor Commissioner to the superior court.  Rather than a standard prevailing party fee provision, section 98.2 is a fee-shifting statute that penalizes an unsuccessful party who appeals the Labor Commissioner’s decision.  It is meant to be a disincentive to appeal the Labor Commissioner’s decisions and discourage meritless appeals of wage claims.  Under section 98.2, an employee who is awarded any amount greater than zero from the superior court is considered successful. 

            In Cardinal Care Management, LLC v. Edgardo Afable et al., Case Nos. A154062 and A155229 (1^st Dist., Div. 4 April 20, 2020) (published), seven employees successfully brought administrative proceedings against their former employer and its sole member for unpaid wages and penalties.  The Labor Commissioner awarded them more than $2.5 million – collectively – with employer liable for full amount and sole member liable for over $2.2 million.

            When employer and sole member appealed to the superior court, they claimed financial inability to post the required undertaking in the amount of the award.  The trial court allowed them to file petitions for relief from the required bond, and also allowed them to file their appeals conditioned upon the appeals being stricken if the petitions were denied – which is exactly what happened.

            Employer and sole member were unable to prove a financial inability to post the required bond.  Rather, employees were able to show that employer/sole member had resources to post the bond, and had transferred some real properties – with a collective value exceeding the amount of the required undertaking – in an effort to avoid judgment.

            Dismissal of the appeal triggered a section 98.2(c) award of $16,700 in fees in favor of employees.  Employer and sole member appealed – arguing abuse of discretion and due process violations in challenging the superior court’s dismissal of their appeals, and arguing they were not “unsuccessful” on appeal for purposes of the subsequent section 98.2 award of attorney’s fees as their appeals were dismissed on jurisdictional and procedural grounds as opposed to being dismissed on the merits.

            The 1/4 DCA bought none of their arguments on appeal.  Employer and sole member were required to post an undertaking or show they were entitled to waiver before proceeding with the appeal in the superior court, and had failed to do either – hence the dismissal of their appeals.

            As to the award of attorney’s fees, the 1/4 DCA, relying on the reasoning in Arneson v. Royal Pacific Funding Corp. 239 Cal.App.4^th 1275 (2015), found the employees entitled to section 98.2(c) fees as the outcome of the employer's/sole member’s notices of appeal was that the employees retained not only an amount more than zero, but the full amount of the Labor Commissioner’s award to them – meaning the appeals were clearly unsuccessful.

Appeal Sanctions, Employment, Judgment Enforcement, Undertaking: Employer Fails In Multiple Attempts To Reduce Fee Award, CEO Is Properly Denied Fees Following Successful Alter Ego Challenge, And Attorney Sanctioned $7,765 For Meritless Challenge

The Fees Award Against Employer Had Been Affirmed By The Sixth District Three Years Prior, The CEO Could Not Prove Employee’s Alter Ego Claims Were Frivolous, But Employer’s Motion To Release Surety Bond So Frivolous It Warranted 6^th District’s Issuance Of Sanctions On Its Own Motion.

            We originally posted on Khanna v. Sonasoft Corp. on July 13, 2016.  Now, more than three years later, we post again on the same case.

            Our previous post pertained to the attorneys’ fees issue resolved on appeal – whether silence in the settlement agreement as to fees precluded postjudgment entitlement.  It did not where, as here, postjudgment fee recovery was allowable under a fee-shifting statute.  We now revisit that 2016 appeal as it impacts the current appeal in Khanna v. Sonafoft Corp., Case No. H044374 (6^th Dist., Sept. 27, 2019) (unpublished)

            An employee had sued his employer and its CEO for failure to promptly and fully pay his wages.  His complaint included alter ego allegations with respect to the employer and CEO.  Judgment was entered against employer pursuant to the parties’ judicially supervised confidential agreement providing a money judgment of $173,000 (adjusted from $227,000 after credit of some payments)., and later amended to include trial court awarded costs of $12,554.65, attorney fees of $153,840, and postjudgment interest of $26,794.54.  A second amended judgment was also entered to add CEO as additional judgment debtor based on the alter ego theory.

            In the 2016 appeal, employer challenged the postjudgment awards of attorney fees, costs and interest to no avail.  However, CEO successfully challenged the amendment adding him as judgment debtor. 

            Upon return to the trial court, CEO unsuccessfully moved for an award of attorney fees incurred on appeal, employer failed in its motion to have the judgment amended to reduce the fees/costs/interest awards by one-half because “equal efforts were directed to each defendant,” and employee’s motion to add surety bond issuer as judgment debtor was granted with the trial court’s finding that the requirements had been satisfied for adding the surety bond under Code Civ. Proc. section 996.440. 

            The 6^th District affirmed.

            CEO was not entitled to his fees as he failed to demonstrate that employee had brought the action against him in bad faith as required by Labor Code section 218.5(a). 

            Employer’s motion to reduce the fees/costs/interest effectively sought to relitigate issues that could no longer be raised.  It ignored the effect of the 6^th District’s affirmance of the awards in the 2016 appeal, and provided no authority empowering the trial court to amend the judgment after the 6^th District affirmed it without qualification.  

            Finally, employer’s motion to release the surety bond was filed with no supporting evidence as required by Rules of Court for motions based on matters outside the record on appeal.  Employer also failed to inform the 6^th District that it had unsuccessfully brought a similar motion in the trial court – to which it had also filed an unsuccessful motion for reconsideration.  Additionally – while acknowledging it still owed employee the awarded postjudgment interest – employer argued that it was “entitled to an automatic stay of proceedings without an undertaking” because Code Civ. Proc. section 917.1(d) provides that an undertaking is not required solely for awarded costs.  The 6^th District concluded the motion to be frivolous and completely without merit – imposing sanctions against employer’s appellate attorney on its own motion.

Undertaking: Prevailing Defendant On Appeal Entitled To Recovery Surety Bond/Letter Of Credit Premium Costs, With Trial Judge Determining That This Was A Reasonable Option

Defendant Does Not Have To Choose Best Option For Appealing Plaintiff, With Lost Opportunity Costs To Defendant Being A Factor To Consider.

            In Rostack Investments, Inc. v. Sabella, Case No. B286069 (2d Dist., Div. 8 Feb. 5, 2019) (published), plaintiff obtained a substantial summary judgment which was reversed on appeal, with the appellate court awarding defendant appellate costs as the prevailing party. She sought to recover $1.4 million in costs for obtaining a surety bond, secured by a letter of credit (LOC), pending appeal. (The total amount secured was around $77 million.) Plaintiff moved to tax the claimed costs as neither reasonable or necessary based on the premise that defendant could have obtained a cash-collateralized bond without the need for the LOC. Defendant presented counter-evidence that the surety bond was the best financial alternative for her, and she did not have that much cash. The trial court denied the motion to tax costs, and plaintiff appealed.

            The 2/8 DCA affirmed.

            Plaintiff first argued that the judgment awarding appellate costs was not a final, enforceable judgment, but this was swept away because it was—even though the trial court had to liquidate the amount which was awarded as costs by the appellate court. (Cal. Rules of Court, rule 8.278(c)(3); Lucky United Properties Investments, Inc. v. Lee, 185 Cal.App.4^th 125, 138 (2010).)

            On the merits, the trial court’s determination was no abuse of discretion. The option chosen by defendant, in these circumstances, does not have to be the option which would most benefit the plaintiff. Defendant did not have the cash and chose the less painful alternative. With respect to guiding precedent going forward, the appellate court recognized that the lost opportunity costs—that defendant could invest the $77 million rather than tie it up as cash collateral for the undertaking—was a factor which could be considered in this context. Here is what the panel said: “We believe that lost opportunity costs are an appropriate factor in determining the method used to bond the judgment. If lost opportunity costs are not considered at all, an appellant must choose the bonding alternative which will result in the lowest cost being passed on to the respondent (should the appellant be successful on appeal) even if that alternative results in a greater net financial loss to the appellant if the appeal is unsuccessful and the appellant must bear the costs itself. If ‘reasonable’ is to mean anything, it

must mean reasonable to the appellant under all of the circumstances. It is reasonable for the appellant to choose the method that is cost-effective based on its own financial situation; not to be forced to choose what might be best for the respondent.” (Slip Op. at pp. 16-17.)

Undertaking: Trial Judge Has Discretion To Order Discretionary Undertaking For Fees/Costs-Only Segment Of Judgment Under CCP § 917.9

Trial Judge Does Have Jurisdiction Under Section 917.9, Such That $1.5 Million Undertaking Ruling Was Not Beyond His Power.

            Quiles v. Parent, Jr., Case No. G054907 (4^th Dist., Div. 3 Nov. 2, 2018) (unpublished), also authored by Justice Fybel, is somewhat of a companion to our November 4, 2018 post on the related published decision. What happened here is that the trial judge ordered that the defendant post a $1.5 million discretionary undertaking under CCP § 917.9 to support the appeal of a $383,500 compensatory award and a little over $1.1 million fees/costs award. The appellate court affirmed that the lower court had jurisdiction do so under section 917.9, determining that a costs-only judgment (which may include substantial fee recovery) is within the ambit of the discretionary undertaking provision while a case is being pursued on appeal.

Eminent Domain/Undertaking: Trial Judge Has Discretion To Impose Undertaking On Defendant Making A Postjudgment Withdrawal Of An Increased Deposit By Condemning Agency

Undertaking Was Prudent Given Condemnor Was Appealing Abandonment Denial Decision, Such That Attorney’s Fees Might Be In Order Down The Line.

            Eminent domain and inverse condemnation are boutique practice areas, but we attempt to report on all substantive areas.  Here is a very technical decision relating to postjudgment withdrawal of an increased deposit made by a condemning agency.

            In Medical Acquisition Co., Inc. v. Superior Court (Tri-City Healthcare District), Case No. D072509 (4^th Dist., Div. 1 Jan. 11, 2018) (published), condemning agency (condemnor) made a pretrial deposit of $4.7 million and sought immediate possession of the subject property.  Condemnee withdrew the deposit under the “quick-take” provision of the California Constitution.  Later, a jury determined that just compensation for the taking was nearly $17 million, with condemnor ordered to increase its deposit by about $12.2 million.  Condemnor filed a notice of abandonment of the eminent domain proceeding, but the trial court granted condemnee’s motion to set aside the abandonment—which generated an appeal by condemnor, which ultimately deposited the additional funds.  Condemnee wanted a withdrawal of the additional funds without bond or undertaking, a request opposed by condemnor.  The trial judge allowed an additional $4.4 million withdrawal without any undertaking but required a bond before condemnee could withdraw the remaining amount.  This resulted in an appellate writ petition brought by condemnee.

            The appellate court denied writ relief, determining that the trial judge did have discretion to allow condemnee to withdraw a portion without a bond but also mandate an undertaking with respect to the additional amounts under Code of Civil Procedure section 1268.140.  One of the reasons justifying the undertaking on the amount over $4.4 million was because condemnor had a claim to those fees if its appeal on the abandonment issue ultimately was successful in the future.

Undertaking: Attorney’s Fees/Costs Award Pending For Determination On Appeal Does Not Need To Be Bonded After Satisfaction of Prior Compensatory Parts

 

4/3 DCA Weighs In—Going With Ziello On The Issue, But Inviting Legislative Reform.

 

    Quiles v. Parent, Case No. G054353 (4^th Dist., Div. 3 Mar. 27, 2017) (published), a by-the-court decision through a panel consisting of Presiding Justice O'Leary, Justice Fybel, and Justice Ikola, considered this question: Does a litigant need to bond an unsatisfied amount of attorney's fees and costs during appeal even though the litigant satisfied the damages award leaving only the fees/costs award at issue? Answer: No, such that judgment enforcement efforts on the fees/costs award were stayed on appeal.

 

    In reaching this answer, the 4/3 panel relied heavily on the reasoning in Ziello v. Superior Court, 75 Cal.App.4^th 651 even though finding that its reasoning was "brief and unsatisfying."

 

    After steering through lots of statutory provisions and prior case law, the appellate court relied on the 1993 amendments to Code of Civil Procedure section 917(d). However, in footnote 8, it did invite the Legislature to add a new section requiring fee awards to be bonded or requiring an undertaking for costs in excess of a fixed amount.

Civil Rights, Costs, Prevailing Party, Undertaking: Plaintiff’s Win Under Patient’s Rights Health And Safety Code Scheme Resulted In Substantial Fee Award, But Other Expert Fee Awards And Need For Appellate Undertaking Rulings Reversed As To Defense

 

Panoply Of Issues Faced In This Decision.

 

    In Lemaire v. Covenant Care California, LLC, Case No. B266493 (2d Dist., Div. 6 Feb. 27, 2017) (unpublished), plaintiff filed a complaint based on wrongful death, elder abuse, and "patients' rights" violations under Health and Safety Code section 1430(b) for treatment of her mother in a skilled nursing facility run by defendant. The jury found against plaintiff on certain claims, but found for her on the patient's rights claims, determining the defendant committed 540 violations under different categories of the H&S Code scheme. In a prior appeal, the appellate court reversed a statutory damages award. The trial judge eventually decided plaintiff, as the prevailing party under Health and Safety Code section 1430(b), was entitled to attorney's fees of $589,290, a 30% reduction, at the trial level; $112,500 in attorney's fees expended in the prior appellate proceeding; and $85,581.08 in trial costs for prevailing at the trial level. The trial court also ruled that defendant had to post a bond to stay enforcement of the fee and costs award.

 

    Defendant appealed, winning a little relief but not most.

 

    Because plaintiff did vindicate rights applicable to all patients at defendant's nursing home, fees were properly awarded under the H&S Code fee entitlement statute. The amount awarded in fees was reasonable, given the large number of H&S Code violations and the trial judge's 30% reduction in the trial fees requested. Fees on appeal were properly awarded to plaintiff given than the case involved important issues of first impression.

 

    However, with respect to the costs award, a reversal was warranted. Expert fees are not specifically mentioned as costs under H&S Code section 1430(b) such that they are not expressly authorized. That brought the 2/6 DCA to deciding whether the defendant had to post an undertaking for a fees and costs award. Answer: "no," given that this was not an exceptional SLAPP fee/costs award (where an undertaking is required) such that generally no undertaking was required in this non-SLAPP case. (Ziello v. Superior Court, 75 Cal.App.4^th 651, 655 (1999).)

Undertaking: Foreign Plaintiffs Not Suing On A Promissory Note With A Fees Clause Did Not Have To Post An Undertaking For Future Fees If The Defense Eventually Prevails

 

Code of Civil Procedure Section 1030 Was Involved.

    Tieni v. Biasiolo, Case No. B267697 (2d Dist., Div. 8 Feb. 22, 2017) (unpublished) concerned Code of Civil Procedure section 1030, which requires non-resident plaintiffs to post an undertaking for reasonable attorney’s fees to ensure collectability of those fees in the event defendant prevails at trial. The lower court concluded that the fees clause in a note applied to the plaintiffs, requiring an undertaking based on the perception the defense had a reasonable possibility of prevailing in the lawsuit.

    The 2/8 DCA reversed, determining that plaintiffs—who were not signatories to the note with the fees clause and who did not sue on the note—did not have to post an undertaking. Nothing showed that the plaintiffs were trying to step in the shoes of the actual note signatory (a California corporation plaintiff, which did not have to post an undertaking because it was a California resident).

Undertaking: Siry Investments Decision Certified For Publication

 

Opinion Deals With “Retroactivity” Of Amended CRC With Respect To Appeal Undertaking Lending Expenses.

    On June 19, 2015, we posted on Siry Investments, L.P. v. Farkhondehpour, a Second District, Division 2 unpublished opinion considering the retroactivity of an amended CRC relating to appeal undertaking lending expenses.  We can now report that it was certified for publication on July 9, 2015.

Undertaking: Amended CRC On Recoverability Of Appeal Undertaking Lending Expenses Had No “Retroactivity” Problem In Case Where Remittitur Had Not Yet Issued

 

Appellate Court Rejected That Lending Had To Be Specifically Tied In Initial Purpose To Obtaining Undertaking Expense Moneys.

    Effective January 1, 2013, CRC rule 8.278 allows a prevailing party on appeal to recover the costs to obtain a letter of credit or fees/net interest expenses incurred to borrow funds to provide security for an appellate surety bond/letter of credit issuance, overruling the prior prohibition against recoverability of such expenses in Rossa v. D.L. Falk Construction, Inc., 53 Cal.4th 387, 390 (2012). 

    Siry Investments, L.P. v. Farkhondehpour, Case No. B251250 (2d Dist., Div. 2 June 17, 2015) (unpublished) dealt with a situation where the amended CRC rule was not at play when an appellate court issued a prior appeal decision but was in play before the remittitur issued with respect to the prior opinion.  The trial court allowed $377,157.22 in net interest to the prevailing appellate party for borrowing over $2.621 million in collateral for appeal bonds. 

    The party hit with this substantial cost award first cried unfair to the appellate court based on a “retroactivity” concern.  But the appellate court found that application of a procedural law in effect at the time of a pending proceeding is not a retroactive application of that law (even if the law changed) given that the remittitur had not issued in connection with the prior appellate decision.  Secondarily, the losing party said that there was no evidence that the winning defendants had borrowed these funds specifically for the initial purpose of funding the surety bond in the case; however, the appellate court found there was no specific purpose requirement in amended CRC rule 8.278 such that the costs were recoverable. 

Intellectual Property/Undertaking: District Courts Diverge On Whether To Order Bondings For Costs/Fees Under CCP § 1030 In Patent And Copyright Cases

 

Undertakings Ordered in Copyright Cases, But Denied in Patent Cases.

     Charlene M. Morrow and Brian E. Lahti of Fenwick & West LLP have written an interesting article in the October 31, 2014 issue of BNA’s Patent, Trademark & Copyright Journal, 88 PTCJ 1705.

     In this article, they explore how district courts in patent and copyright case have reacted to resolving defense motions pursuant to California Code of Civil Procedure section 1030, which allows a defendant to force the plaintiff to file a bond to secure an award of costs and attorney’s fees when (1) the plaintiff resides out of state or is a foreign corporation, and (2) there is a reasonable possibility that the defendant will prevail. (Obviously, in patent litigation, the plaintiff targets of many of these motions would be Patent Assertion Entities [PAEs, or also known as patent trolls].) Section 1030 may be applied in federal court according to Ms. Morrow and Mr. Lahti.

     The two patent cases surveyed resulted in denial of section 1030 defense motions, with the district judges seeming to say that 35 U.S.C. § 285 (the “exceptional” patent fee-shifting provision) was a sufficient remedy down the line—also observing the defense did not meet the “reasonable probability” element of section 1030. (See, e.g., IPVZX Patent Holdings, Inc. v. Voxernet, LLC, No. 5:13-cv-01708-HRL (N.D. Cal. Doc. No. 120); GeoTag, Inc. v. Zoosk, Inc., No. 13-cv-00217-EMC (N.D. Cal. Doc. No. 204.)

     However, a different result occurred in the copyright cases. Northern California district judges granted section 1030 motions in a trio of cases. (See AF Holdings LLC v. Trinh, No. C-12-02393 (N.D. Cal. Nov. 9, 2012); AF Holdings LLC v. Navasca, No. C-12-2396-EMC (N.D. Cal. Feb. 5, 2013, Doc. No. 22); AF Holdings LLC v. Magsumbol, 106 U.S.P.Q.2d 1586 (N.D. Cal. Mar. 18, 2013).)

     Of particular interest will be whether the U.S. Supreme Court’s rejection of a more rigid test for 35 U.S.C. § 285 fee-shifting in Octane Fitness/Hallmark will mean 1030 motions have a greater chance of success in the future.

Legislation/Undertaking: California Amendments To Deposits In Lieu Of Cash Bonding/Undertaking Requirements Are Chaptered September 9, 2014

 

More Flexibility as to Instruments as Qualifying “In Lieu Of” Cash for Undertaking Purposes.

     AB 1856 has been chaptered, amending Code of Civil Procedure sections 995.710, 995.720, 995.740, and 995.760—portions of California’s Bond and Undertaking Law. In essence, it allows casher’s checks and all bonds and notes of the United States or California to be used as deposits in lieu of cash, alternatives to bonding under California’s undertaking requirements. It was chaptered on September 4, 2014, so that we believe it becomes effective January 1, 2015—we saw nothing to indicate it was urgency legislation.

Appealability/Undertaking: Appellate Court Grants Supersedeas For Fees Only Award, But Dismisses Subsequent Appeal When Supersedeas Grant Did Not Rule On Costs to Petitioner

 

     This next case, Soni v. CH&I Technologies, Inc., Case No. B240173 (2d Dist., Div. 8 Jan. 30, 2013) (unpublished), enters into the arcane fray of fees only awards and supersedeas grants. So, here we go.

     After observing that this was the third appeal between the parties (hint! hint!), the background for all this was attorney being awarded a prior judgment for unpaid fees of $77,691.43 but also obtaining a Civil Code section 1717 prevailing party fee recovery of $204,465.07 against CHI. CHI satisfied the base judgment, but then filed a supersedeas writ to stay post-judgment collection efforts on the fees only award under Code of Civil Procedure section 917.1(d). Some decisions hold that execution is automatically stayed pending appeal due to the operation of this statute. (See Chapala Management Corp. v. Stanton, 186 Cal.App.4th 1532, 1546 (2010) [discussed in our Aug. 1, 2010 post].) Supersedeas was granted, but no costs were awarded to CHI. Subsequently, the appellate court affirmed the trial court’s fee/costs award to attorney and against CHI, awarding costs to Soni on that appeal.

     CHI then appealed, rearguing the supersedeas points (which it had won) but also claiming it should have been awarded costs.

     The appellate court found the appeal to be moot given what had occurred in the prior supersedeas proceeding, with nothing requiring an apportionment of costs or even an award of costs to the prevailing petitioner in a summary disposition context. (Cal. Rules of Court, rules 8.112, 8.116.) Because costs were not awarded to CHI in the supersedeas proceeding and were awarded to attorney in the subsequent appeal, there was nothing else to resolve.

     BLOG UNDERVIEW--The fees only undertaking issue is not as clean as one might think. See the reasoning of the Fourth District, Division 3 in Behniwal v. Mix, also discussed in our August 1, 2010 post on Chapala Management, which seems to go the other way on this issue.

Undertaking: Party Successfully Defending Judgment On Appeal Dissolving An Injunction Entitled To Statutorily-Mandated Fees Against Nonpaying Surety

 

CCP § 996.480(a)(2) So Mandates.

     In Jovanovic v. Abel, Case No. A131578 (1st Dist., Div. 4 June 27, 2012) (unpublished), plaintiffs successfully obtained a preliminary injunction to stop a foreclosure of a multi-unit condominium project by some hard money lenders/investors, but had to post a $90,000 injunction bond as a condition of the injunction. They eventually lost, with the injunction dissolved and the defense being granted a motion to enforce plaintiffs’ liability on the bond against the surety.

     Plaintiffs and nonpaying surety appealed, but lost. Based on CCP § 996.480(a)(2), successful hard money lenders were entitled to a mandatory award of attorney’s fees for their appellate fees as against nonpaying surety. However, even though the request for fees was made in the respondents’ brief, the appellate court remanded to have the trial court determine the amount of fees, although directing that the lenders were entitled to fees under the statute. (Cal. Rules of Court, rule 3.1702(c).)

Undertaking: California Supreme Court Rules That Borrowing Interest Expense For Appellate Bonding Letter Of Credit Is Not Recoverable As Costs Under CRC 8.278(d)(1)(F)

 

Disapproves Contrary Reasoning in Cooper v. Westbrook Torrey Hills.

     In our August 28, 2011 post, we mentioned that the California Supreme Court was considering a case on recoverability of consequential interest expense by an appellate litigant who prevailed after posting a letter of credit but sought to recover the interest expense incurred by borrowing money to obtain the LOC securing an appellate bond. In a closely analogous case, an appellate court in Cooper v. Westbrook Torrey Hills, 81 Cal.App.4th 1294 (2000) held that interest expenses were recoverable costs on appeal where the appellant borrowed funds to deposit as an undertaking in order to stay foreclosure pending appeal.

     Above:  Undertaking.  Chicago.  Edwin Rosskam, photographer.  1941.  Library of Congress.

     The California Supreme Court disapproved Cooper and ruled against the recovery of interest expenses as costs in Rossa v. D.L. Falk Construction, Inc., Case No. S183523 (Cal. Supreme Court Jan. 23, 2012). The main basis for determining interest expenses were not recoverable costs was grounded upon the historical premise that California routine costs statutes/rules of court are strictly construed with respect to costs recoverability. Secondarily, the smaller premium for a bond or LOC generally was much, much smaller than the fluctuating exponentially larger expense associated with obtaining a loan to post an LOC for the undertaking, with the Judicial Council needing to express in much clearer fashion that CRC 8.278(d)(1)(F) encompassed these more expensive items.

      In doing so, our state high court did not opine on whether rules relating to bonds were applicable to cash deposits in lieu of bonds in the routine costs context.

Undertaking And Cases Pending: California Supreme Court To Decide If Appellate Costs Include Recovery Of Interest On Sums Borrowed to Fund A Letter Of Credit Securing A Surety Bond On Appeal

Rossa v. D.L. Falk Construction Accepted for Review on August 11, 2010.

     In Cooper v. Westbrook Torrey Hills, 81 Cal.App.4^th 1294, 1300 (2000), the Court of Appeal confirmed that interest paid on sums borrowed to obtain a cash deposit undertaking on appeal were recoverable costs of appeal under California Rule of Court 8.278(d)(1)(F).  However, more recently, the First District in Rossa v. D.L. Falk Construction, 181 Cal.App.4^th 438 (2010) decided that recoverable costs of appeal did not encompass interest expended by an appellant to obtain a letter of credit to secure a surety bond undertaking for an appeal (even though the LOC premium payment was recoverable).

     This anomaly in treatment between appeal bonds and cash deposits in lieu undertakings likely inspired the California Supreme Court to grant review of Rossa by a 7-0 vote on August 11, 2010. The issue presented for review is: “Does California Rules of Court, rule 8.278(d)(1)(F), which permits a successful appellant to recover ‘the costs to obtain a letter of credit as collateral,’ allow the recovery of interest paid on sums borrowed to fund a letter of credit used to secure a surety bond?” We will let you know how our state supreme court rules when its opinion is issued in the future.

Undertaking: Court Of Appeal Holds That A Judgment Solely for Costs and Attorney’s Fees In HOA Dispute Is Automatically Stayed By Appeal, Without The Need For A Bond

Fourth District, Div. 1 Concludes That Not All Attorney’s Fee Awards Are Equal For Purposes Of Automatic Stay On Appeal.

     In the next case, the Court of Appeal has gifted us with a 47 page opinion arising from the fact that homeowners in a condominium association installed two sandstone-colored windows, rather than two dark-brown windows, without receiving architectural approval.  Chapala Management Corporation v. Stanton, D055532 (4th Dist., Div. 1 July 29, 2010) (certified for partial publication) (Chapala).  The trial judge in San Diego, Steven R. Denton, granted a judgment for injunctive and declaratory relief declaring the homeowners in violation of the CC&Rs, requiring them to modify or replace their windows, and awarding attorney’s fees and costs.  The judge ordered the homeowners to post a bond to stay collection of the attorney’s fees.  The judge awarded the HOA $59,122.50 in attorney’s fees and $4,298.72 in costs. 

     The homeowners appealed from the judgment, without filing an undertaking, instead seeking a writ of supersedeas to stay the order requiring that they post an undertaking.  (Note:  “’Supersedeas’ is the appropriate remedy for a refusal to acknowledge the applicability of statutory provisions automatically staying the judgment while an appeal is pursued.”  Chapala, n.8.)

      In Chapala, the Court concluded that the trial judge acted within his discretion by awarding the HOA injunctive relief under the circumstances.  The Court noted, however, “that were we to consider the matter de novo, we would question the Board’s business judgment in resorting to expensive and time-consuming litigation generating many thousands of dollars in legal fees, rather than electing to notify the Stantons of their violation and issue a directive that they paint or replace their windows with windows of an approved color . . . . If the Stantons did not comply, Association would have been reasonably within its authority to remedy the Stantons’ noncompliance by painting the two windows, charging the Stantons its expenses incurred in doing so, and recovering the minimal cost in an action at law.”  But reasonable minds may differ under an abuse of discretion standard. 

     The Court decided to address on the merits whether attorney’s fees are nonroutine costs requiring an undertaking “for the guidance of trial courts”.  The Court decided to address the issue, even though the HOA elected to concede the issue at oral argument (demonstrating that Courts of Appeal have rules that allow them to address issues when they want to, and other rules that allow them to not address issues when they don’t want to).              

     The general rule is that routine costs are stayed by appeal, without the need for an undertaking, whereas attorney’s fees, which are not routine, require an undertaking to stay enforcement.  See our July 11, 2008 post, “Are Defense Fee Awards Encompassed Within the Appellate Automatic Stay or Must They Be Bonded?”  If litigants had to file an undertaking to stay a routine cost award, then the filing of undertakings would become routine.  But are some attorney’s fees awards routine, and some non-routine?  Yes, according to the logic of Chapala.

     Under Code of Civ. Proc. section 1033.5(10)(B), attorney’s fees are authorized as a cost item under section 1032 under any California statute that refers to the award of “costs and attorney’s fees”.  Under Civil Code section 1354(c), pertaining to enforcement of CC&Rs, “the prevailing party shall be awarded reasonable attorney’s fee’s and costs.”  Section 1354 is interpreted in Chapala to mean that attorney’s fees awarded under it “are awarded as a matter of right, and there is no discretion afforded to the trial court in granting or denying such fees, other than as to their reasonableness and amount.”  Put another way, section 1354 fee awards look routine, and thus are encompassed by the stay.  So all attorney’s fees awards are not equal when it comes to the undertaking requirement, at least according to Chapala.

     Chapala declines to read Bank of San Pedro v. Superior Court, 3 Cal.4th 797 (1992) and Behniwal v. Mix, 147 Cal.App.4th 621 (2007) as equating all attorney’s fees awards with expert witness fees, which fees are non-routine, not encompassed by the automatic appeal stay, and therefore require an undertaking to stay enforcement.  “We do not follow Behniwal to the extent its holding can be read to encompass a judgment solely for costs and attorney fees awarded to the prevailing party under Civil Code section 1354.”

     The 3-0 opinion is authored by Justice O’Rourke.

    

      

    

      

Undertaking For Costs: Trial Courts Must Use CRC 3.53(b) Factors In Exercising Discretion With Respect To Out-of-State Indigent Plaintiffs

 

Second District, Division 7 Provides Guidance On Discretionary Decision Making Under CCP Section 1030.

     Code of Civil Procedure section 1030 vests trial courts with discretion to require out-of-state plaintiffs to post an undertaking to pay costs to prevailing defendants where there is a reasonable possibility of a decision favorable to the defense. The Second District, Division 7 gave some guidance on the discretionary factors that must be weighted when lower courts are dealing with a financially indigent plaintiff residing out of state.

     In Alshafie v. Lallande, Case No. B198798 (2d Dist., Div. 7 Feb. 23, 2009) (certified for publication), a trial court granted a section 1030 motion by several defendants in legal malpractice actions to require an out-of-state plaintiff to post an undertaking of $159,312.50 in total. The cases were dismissed when plaintiff failed to file the undertaking. The lower court’s decision was reversed on appeal and remanded for further supplemental motion proceedings.

Are Defense Fee Awards Encompassed Within the Appellate Automatic Stay or Must They Be Bonded?

California Law Is Unsettled: Fertile Area for Litigation, We Believe.

            The law is settled in two areas.  First, mere routine costs awards to the defense under Code of Civil Procedure section 1032 (for items such as filing fees, exhibits, etc.) are stayed and do not require an undertaking.  See Code Civ. Proc. sec. 917.1(d).  Second, routine costs (and, likely, attorney's fees awards) must be added to a money judgment for purposes of bonding.  Ibid.; see also Gallardo v. Specialty Restaurants Corp., 84 Cal.App.4^th 463, 466-467 (2000) [where judgment consists of expert witness fees awarded under CCP 998 and routine costs under section 1032, the undertaking need only be based on the amount of the section 998 costs].  However, what about a purely defense award of attorney's fees (defendant beat plaintiff for a zero judgment, but obtains a fee award against plaintiff)? California law is unsettled on this question, providing plenty of opportunity for trial and appellate arguments on both sides of the issue.

            Code of Civil Procedure section 917.1(a)(1) states the general rule that an appeal does not stay the enforcement of a money judgment unless appellant posts an undertaking, subject to an exception codified in section 917.1(d)¦no undertaking shall be required pursuant to this section solely for costs awarded under Chapter 6 (commencing with Section 1021) of [the CCP]. 

            Two earlier decisions, Pecsok v. Black, 7 Cal.App.4^th 456, 459-462 (1992) and Nielsen v. Stumbos, 226 Cal.App.3d 301, 304-305 (1990), held that defense attorney's fees awards were an element of costs, not  money judgments, entitled to protection under the appellate automatic stay.  However, Chamberlin v. Dale's R.V. Rentals, Inc., 188 Cal.App.3d 356, 361-362 (1986) entered the fray and came to a contrary conclusion:  attorney's fees awards, unlike incidental routine cost items, are in the nature of a directly litigated issue rather than merely incidental to the judgment.  Chamberlin, unlike Pecsok and Nielsen, found that attorney's fees awards which are not awarded in virtually every case to the prevailing party must be supported by an undertaking on appeal.

            This conflict, for a time, was resolved by the California Supreme Court in Bank of San Pedro v. Superior Court, 3 Cal.4^th 797 (1992), albeit in a section 998 context.  San Pedro held that collection of expert witness fees awarded under section 998 are non-routine costs not automatically stayed from enforcement efforts during appeal.  In important dictum, the state supreme court agreed that expert witness fees, like attorney's fees,are non-routine because (1) they are not ordinarily a part of costs awarded at trial; (2) they are not the type of costs included in virtually every case; and (3) they are a directly litigated issue as opposed to being an incidental matter.  Id.at 803.  In essence, San Pedro sided with Chamberlin in the debate over treatment of defense fee awards.

            Enter the Legislature with amendments of section 917.1 in 1993.  Code of Civil Procedure section 917.1(d) was amended to delete the undertaking requirement for costs awarded under Chapter 6 [of the CCP].  However, the Legislature codified San Pedro's holding by amending section 917.1(a)(2) to require undertakings for judgments involving costs awarded pursuant to [CCP] Section 998, excepting judgments solely for costs from the undertaking requirement.  No mention was made of San Pedro at all in the text of the statutory amendments.  Obviously, the amendment to section 917.1(d) raises the issue of whether the Legislature sub silencio abrogated San Pedro (and its routine/non-routine distinction).  We know of no decision directly addressing this issue, although there are some subsequent case law developments and commentary on the topic fodder supporting each side of the coin.

            In More Direct Response v. Callahan, published at 12 Cal.Rptr.2d 573 (4^th Dist., Div. 1 1992) but depublished later, an appellate panel held that a contractual attorney's fees judgment was stayed on appeal without a bond, reasoning that Chamberlin was supplanted by the 1993 legislative amendments discussed above.  Callahan squarely sided with the reasoning in Pecsok and Nielsen.  On April 15, 1993, however, the California Supreme Court depublished Callahan notwithstanding that the 1993 legislative amendments were in force.  Although one can read many things into depublication, it usually suggests the state supreme court disagrees with some part of the reasoning of the depublished case.

            Shortly after the 1993 amendments, one treatise observed:  Because CCP section 917.1(d) does not unequivocally exclude from the undertaking requirement a judgment solely for contractual or statutory fees, there is still room for respondent to argue against an automatic stay by citing the Supreme Court's reasoning in Bank of San Pedro.  (Eisenberg, Horvitz, Wiener) Cal.Prac. Guide:  Civil Appeals and Writs (The Rutter Group 1995 rev. #1) section 7.133.2, pages 7-34 to -35.)  Some years later, this same treatise accorded some more weight to the legislative amendments, suggesting that a fee award might well be a costs only judgment needing no undertaking.  (See Dowling v. Zimmerman, 85 Cal.App.4^th 1400 (2001), citing a later edition of the The Rutter Group appellate guide; see our June 23, 2008 post.) 

            More recently, another commentator synopsizes section 917.1(d), but then has a but see reference to San Pedro and Gallardo, supra, 84 Cal.App.4^th 463 for the proposition that an undertaking is required for some, but not other, costs.  (See Axelrad, Staying Enforcement During Appeal, Cal. Civil Appellate Practice (Cont.Ed.Bar 3d ed. May 2008) section 6.28, p. 340.)

            Even more intriguing is Presiding Justice Sills's scholarly discussion of San Pedro in Behniwal v. Mix, 147 Cal.App.4^th 621 (2007).  Although dealing with whether a contractual fee award is incidental to a specific performance judgment, the Fourth District, Division Three nevertheless traced the case law conflict leading up to San Pedro.  The appellate court then re-embraced the notion that expert witness fees (and surely, we can add, attorney fees) are always a matter of trial court discretion, even if awarded as a matter of right.  (Id.

 at 633.)  Justice Sills then offered this summary of the distinction between contractual fee awards and routine section 1033.5 costs:

                        Further, the three points concerning the nature of fees awarded

                         pursuant to right and otherwise described as costs under

                         section 1717 and 1033.5 cannot be ignored:  The attorney fee

                         award here was a directly litigated issue; it was the subject of

                         a full hearing on remand.  Also, attorney fee awards are always

                         matters of discretion, even when a litigant has a right to them.

                         (Courts never award unreasonable attorney fees.) 

Id.at 634.  He summed up the appellate panel's reasoning this way:  We need only add that, in distinguishing directly litigated issues (like expert witness fees and attorney fees) from routine costs, the Bank of San Pedro decision validated a distinction impliedly drawn by the Kamper v. Mark Hopkins, Inc., supra, 78 Cal.App.2d 885[, 887-888], 178 P.2d 7867 [1947] decision 45 years previously:  The real judgment is matter directly involved in the litigation, as distinct from, say, a true incidental like the per-page cost of duplicating a reply brief.  (Behniwal, supra, 147 Cal.App.4^th at 634.)  This language in Behniwal can certainly be used to advocate that the routine/non-routine cost distinction is alive and well.

            As you can see, the undertaking issue is unsettled.  We have not looked at the legislative history of the 1993 amendments to section 917.1(d) to see if there is any mention of San Pedro, but that would be a productive exercise for practitioners who confront this issue in the right circumstances.

            BLOG BONUS COVERAGEAssuming that a contractual/statutory fee only award is covered by the automatic stay, what happens if a zealous attorney still engages in post-judgment enforcement proceedings such as recording a judgment abstract because of fears the opponent will lien up assets subject to execution during an appeal?  Can the attorney face tort exposure under abuse of process or slander of title theories?  The answer is no reason:  the absolute litigation privilege under Civil Code section 47 protects this type of activity.  Our Fourth District, Division Three so held in Keefe v. Kompa, 84 Cal.App.4^th 130 (2000), and the California Supreme Court subsequently resolved an appellate split in thinking and determined that Keefe was good law.  (See Rusheen v. Cohen, 37 Cal.4^th 1048 (2006).)