Litigation Management & Attorney Fee Analysis Blog : Attorney Fee Analysis & Litigation Management Lawyer : Barger & Wolen Law Firm : Litigation Management, Legal Fees, Billing Guidelines

Court finds that the government did not act frivolously in conducting a factual investigation

In U.S.. v. Capener, 2010 DJDAR 392 (2010) the U.S. Court of Appeals for the Ninth Circuit, overturned a fee award, rendered against the government under the so called “Hyde Amendment.” 

The Hyde Amendment, 18 U.S.C. § 3006A note, permits the court to award attorneys fees to a defendant in a criminal prosecution where the government has acted in a manner that was “vexatious, frivolous, or in bad faith . . .”  

After conducting an investigation initiated by a health insurance carrier, the federal government prosecuted physician Mark Capener for alleged health care fraud. The government claimed that its investigation found indications that the doctor had billed patients for unnecessary and unperformed surgeries.

As a result of the investigation, the doctor was charged with numerous counts of fraud. The government relied on statements made by its retained expert. The expert concluded that certain pathology samples did not contain bone fragments, which would be present if certain surgeries were in fact performed. Further investigation revealed that the samples actually did contain bone fragments. At trial, the government presented the bone fragment theory to support the prosecution. 

After further proceedings, the charges against Capener were dismissed by the government and Capener moved to recover his fees under the Hyde Amendment. The district court found that portions of the government’s claims were frivolous, and awarded partial fees. Both the government and the defendant appealed.

The Ninth Circuit reversed in part. 

The court noted that under the Hyde Amendment, the court may award a prevailing party reasonable attorney fees where it finds that the government’s position violated the standards set forth in the Hyde Amendment. The Ninth Circuit stated that a failure to sufficiently investigate can rise to the level of frivolousness only when the government had some reason to know further investigation was needed. The court concluded that there were no facts in the record to support a conclusion that the government knew the “bone fragment theory” was wrong. 

On this basis the court concluded that the government’s reliance on its expert’s opinion did not rise to the level of misconduct necessary to recover fees under the Hyde Amendment.

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In Priceline.com Inc. v. City of Anaheim the California Court of Appeals, Fourth District issued a decision interpreting the so called Clancy doctrine. 

In the California Supreme Court’s ruling in Clancy v. Superior Court, (1985) 39 Cal. 3d 740, 746-51 the Court provided a framework for, when, and if, a public entity has the authority to hire an attorney on a contingent fee basis to try a civil case. 

The Priceline litigation commenced when a private law firm working for the City of Anaheim informed Priceline.com Inc. that it was liable for failing to remit a local hotel tax. The tax was allegedly due for Priceline’s hotel room reservation service.

Priceline responded to outside counsel, and demanded to know whether the lawyer was working on a contingent fee basis. Anaheim answered in the affirmative, but stated that the private firm was acting as its co-counsel. 

Under the Clancy doctrine outside lawyers are allowed to assist government lawyers as co-counsel in “ordinary” civil litigation. Priceline then sought to compel Anaheim to litigate the matter without the outside counsel’s involvement, by petitioning for a writ of mandate. The trial court denied the petition and Priceline appealed.

The court of appeal affirmed, noting that a under Clancy, a government may hire an attorney on a contingent fee to try a civil case. However, some types of cases (only vaguely described in Clancy) require “a balancing of interests” and “a delicate weighing of values.” Under Clancy, it is clear that the use of outside counsel as the government’s sole litigator would have been prohibited.

In Priceline, the case was a tax assessment proceeding and for that reason the Court of Appeal concluded that it was an administrative action that did not require use of the balancing test or weighing of issues. 

As the disputed matter did not fall inside the barred class, the court concluded that Anaheim was not prohibited from hiring outside counsel on a contingent fee to try this case. The trial court was correct in denying Priceline’s petition.

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Although this sounds obvious, the Ninth Circuit recently illustrated, in Klamath v. Bureau of Land Management, No. 08-35463 (9th Cir., Dec. 15, 2009), that a plaintiff must have actually received some kind of relief on the merits of her claim before she can be said to have prevailed, and thereby be entitled to her attorneys' fees.  There must be a "material alteration" of the status quo, and the court's order must consist of relief, not merely a determination of legal merit.  There must be some kind of "judicial imprimatur," which first means, typically, a court order of some kind.  

The judicial imprimatur must also be an enforceable entitlement to relief: 

"To receive what one sought is not enough to prevail: the court must require one's opponent to give it."

Consequently, a lawsuit which brings about a voluntary change in defendant's conduct would "lack a judicial sanction or imprimatur."  In Klamath, Plaintiffs Klamath Siskiyou Wildlands Center, et al. ("Klamath") sued the Bureau of Land Mangement ("BLM") alleging that a timber sale in the Willy Slide area was illegal.  Klamath sought an injunction against the sale taking place.  During the pendency of the suit, however, the BLM vacated its earlier rulings and granted Klamath's protest of the Willy Slide timber sale.  

The BLM then moved to dismiss the case, and the District Court agreed, dismissing the action as unripe or moot due to BLM's voluntary actions.  Since this order did not conclude that Klamath was entitled to relief, it did not confer prevailing party status upon Klamath.  Because it did not "require one party to do something it otherwise would not be required to do," the District Court's grant of attorneys fees was reversed.

This seems to be a valid strategy.  If you find yourself a defendant in a suit where plaintiff would be entitled to her fees, consider a voluntary change to the status quo -- even if it occurs after the action has been commenced -- so long as it is prior to the plaintiff's ability to obtain a court order granting any kind of relief.  This would, if successful, avoid any claim for attorneys' fees from the plaintiff in the future.   

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The Ninth Circuit recently held an insurer liable for the insureds' attorneys fees when the insureds were forced to file litigation to establish coverage under their policies.  Moreover, the court held the insureds' contigency fee agreement could form the basis for the amount of fees owing, so long as reasonable under the circumstances.  

In Riordan v. State Farm, No. 08-35874 (9th Cir., 2009), the insured husband and wife were involved in an auto accident and tendered the claim to State Farm Mutual Auto Insurance Company under their uninsured motorists' coverage.  After filing suit against State Farm, and after State Farm paid the remaining benefits under the policies just before trial, the Riordan's sought their attorneys' fees from the carrier. 

First, the Ninth Circuit allowed the attorneys' fees claim to be raised for the first time on a motion, as opposed to being plead in the complaint, based upon Federal Rule 52(d)(2). 

Next, although Montana follows the "American Rule" that each party is obligated to pay its own attorney, Montana recognizes an exception to this rule when "the insurer forces the insured to assume the burden of legal action to obtain the full benefit of the insurance contract."  Mountain W. Farm Bureau  Mut. Ins. Co. v. Brewer, 69 P.3d 652, 660 (Mont. 2003).  (In California, these are known as "Brandt Fees," due to the Brandt v. Superior Court, 37 Cal.3d 813 (1985) California Supreme Court decision).

Finally, the Ninth Circuit also found that the District Court could award the full amount agreed upon under a contingency fee agreement so long as the ultimate amount of the fee is reasonable.  

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By Jennifer N. Lee

Financial elder abuse claims are on the rise in California.[1] Companies engaging in financial transactions with people over the age of 65, like insurance or financial services companies that sell products to elders, are increasingly targets of the plaintiff’s bar.

This is largely due to the fact that the California Elder and Dependent Adult Civil Protection Act (EADACPA) includes a mandatory provision for the recovery of attorneys’ fees and costs; if the plaintiff proves by a preponderance of the evidence (more likely than not to be true) that the defendant committed financial elder abuse, the court must award attorneys’ fees.[2] This fee-shifting provision is unilateral; a prevailing defendant may not recover attorneys’ fees. Wood v. Santa Monica Escrow Company, 151 Cal. App. 4th 1186 (2007).

While the ability to recover attorneys’ fees is clear, in some instances, the amount of fees that may reasonably be awarded is not. First, the there is no provision in the EADACPA that provides guidance on the reasonableness of attorneys fees in cases involving financial elder abuse claims. Welfare & Institutions Code sec. 15657.1 does set forth factors to provide guidance on attorneys fees awards:

• The value of the abuse-related litigation in terms of the quality of life of the elder or dependent adult, and the results obtained;
• Whether the defendant took reasonable and timely steps to determine the likelihood and the extent of liability; and
• The reasonableness and timeliness of any written offer in compromise made by a party to the action.

Unfortunately, these factors do not expressly apply to financial elder abuse claims; they expressly apply only to claims involving physical abuse and neglect. The absence of an analogous provision for financial elder abuse appears to be a legislative oversight, since the same types of awards (e.g., attorney fees, punitive damages, etc...) are recoverable for both types of elder abuse claims.

For the time being though, until the Legislature corrects its oversight, plaintiffs’ attorneys prosecuting financial elder abuse claims may continue to argue that their fee claims need not be subject to scrutiny against these factors.

Plaintiffs may even seek an enhancement of attorneys fees, by relying on Civil Code Sec. 3345. This statute allows for trebling to redress unfair or deceptive practices committed against an elder where a statute imposes a fine, penalty or remedy whose purpose or effect is to punish or deter.

Plaintiffs have argued in favor of treble attorneys fees, asserting that the attorneys’ fees provisions of the EADACPA are statutes intended to redress unfair practices committed against an elder and that the purpose of those fee-shifting provisions is to punish or deter further wrongful conduct.

Allowing the recovery of treble attorneys’ fees is problematic. For one, it would violate standards of professionalism prohibiting attorneys from being compensated for work not done or receiving unearned fees. Unfortunately, neither the EADACPA nor sec. 3345 provides any guidance on this issue.

Compounding the lack of statutory guidance, little case law exists to better define the parameters for attorney fee recoveries by plaintiffs. 

Only one case to date discusses the reasonableness of attorneys’ fees for a prevailing plaintiff who successfully asserted a financial elder abuse claim. In In re Levitt, 93 Cal. App. 4th 544 (2002), the Second Appellate District opined that the size of the estate at issue may be a factor in determining the reasonableness of attorneys’ fees sought. 

In Levitt, a prominent attorney, who was the drafter of the EADACPA, represented a somewhat modest estate to prosecute a financial elder abuse claim and prevailed. He, along with co-counsel, sought attorneys fees and costs in the amount of $127,000 on an estate valued at $370,000. The court reduced the sought-for amount to $110,000, not because of the quality of work done, the amount of time spent or the result obtained, but rather because of the sheer size of the estate in relation to the fees incurred.

The bottom line is that while the EADACPA makes the recovery of attorney fees and costs mandatory, it provides little guidance as what fees may be reasonably recovered. Until further legislative guidance is provided, counsel defending financial elder abuse claims should apply all measures of reasonableness provided for under the rules of professional conduct, the reasonableness factors set forth in the EADACPA for attorneys fees in physical abuse and neglect claims, case law and accepted practices for attorney fee billing to reduce any mandatory attorneys’ fees claims.

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 In Rudnick v. Rudnick, 2009 DJDAR 16944 (2009) the Fifth Appellate District decided a novel case involving an attorney fee award in the probate context. The court of appeal affirmed the lower court’s decision granting fees and deducting them from future distributions to certain minority beneficiaries who maintained litigation against a trust in bad faith.

Philip Rudnick, Robert Rudnick, and Milton Rudnick (“Beneficiaries”) were beneficiaries of a Trust. Oscar Rudnick (“Trustee”) was the trustee. The majority of the trust beneficiaries approved the sale of the trust’s principal asset, a large acreage piece of real property. The Trustee petitioned the probate court requesting approval of both the sale and the proposed distribution. The Beneficiaries, who held a minority interest, opposed the petition.

After hearings, the probate court came to the conclusion that the opposition submitted by the Beneficiaries was submitted in bad faith and was solely designed to delay distribution of the sale proceeds. The court awarded approximately $226,000 in attorney fees and costs to the trustee and ordered that the fees were to be deducted against the Beneficiaries future trust distributions. The Beneficiaries then appealed.

The court of appeal affirmed the ruling of the trial court noting that the probate court had the equitable power to make the disputed award. The court distinguished between an award of fees rendered pursuant to the supervisory powers of the court versus the broad equitable powers that a probate court maintains over trusts within its jurisdiction. The court noted that attorneys hired by a trustee to aid the trust are entitled to reasonable fees paid from the trust assets. The issue was whether the burden was improperly shifted to the appellants’ share of the estate. The court found that it was not.

The probate court charged the attorney fees to the appellants’ future trust distributions.  The court of appeal agreed with the result noting that it would be unfair to burden the majority beneficiaries with the payment of the fees that were incurred in responding to the appellants’ bad faith tactics in filing a meritless opposition.

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In One Star Inc. v. Staar Surgical Co. the Second District Court of Appeal reversed the decision of the trial court concerning the interpretation of the “offer of the judgment” statute, California Code of Civil Procedure § 998. 

One Star Inc. (“Star”) was a business representative for Staar Surgical Co. (“Surgical”). Star sued Surgical for breach of contract. In September of 2007, Surgical made an offer of compromise pursuant to CCP § 998. Pursuant to the terms of the statute the offer lapsed 30 days after it was made and not accepted. Two months later Surgical made a second offer. However, Surgical withdrew the offer before the date that it lapsed. Star was successful at trial but recovered less than what Surgical had offered in the first offer of judgment. Surgical then moved to recover the costs pursuant to CCP § 998.

Pursuant to CCP § 998 a party may make an offer in writing to allow judgment to be taken against that party. If the offer is not accepted prior to trial, or within 30 days after it is made, it is deemed withdrawn. If the plaintiff fails to accept the offer and fails to obtain a higher judgment, the plaintiff is required to pay the defendant’s costs, including proper expert costs. For this reason the statute can be a powerful settlement tool in litigation.

The trial court denied Surgical’s motion to recover costs on the ground that the second withdrawn offer extinguished the first offer. Surgical appealed, arguing that its first offer still controlled because it expired before the second offer was made and withdrawn. The court of appeal agreed and reversed.

The appellate court held that under Section 998, when a plaintiff refuses a settlement offer and then obtains a less favorable judgment at trial, the defendant is entitled to those costs incurred after the settlement offer. The later offer operates to extinguish the earlier offer, regardless of its validity. However, there is an exception where the offer of judgment is revoked before expiration of the statutory period. It is no longer treated as a valid 998 offer.

Thus, where a defendant withdraws a second settlement offer, the plaintiff’s recovery is measured against the first settlement offer. In this case, the second offer was revoked and no longer considered a valid offer of judgment. Thus, the court of appeal concluded that the lower court made an error when it ruled that the prior offer was extinguished by the second offer.

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An insurer's duties become complicated when litigation is pending against more than one of its insureds. In general, an insurer may have a duty to accept a settlement offer made within policy limits, but in the case where more than one of the insureds is sued, how is that duty affected when a CCP Section 998 settlement offer is made to only one of the insureds? 

The question was answered by the First Appellate District in Kauffman v. California State Automobile Association (2009) No. A123494 (unpublished). The son and his parents were all insured under an automobile policy, so when he caused an accident, the plaintiffs sued not only the son, but the parents for "negligent entrustment of the car" to their son.

Plaintiffs then made a policy limits demand to the son alone, using an offer of compromise under CCP Section 998. The offer was rejected. Plaintiffs eventually entered into a complex settlement agreement where the son assigned any rights he may have had against the carrier to the Plaintiffs. In Plaintiffs' subsequent suit against the insurer, the appellate court decided, first, that the 998 Offer did not create the requisite conflict of interest triggering the carrier's duty to appoint separate counsel, or Cumis counsel, under Civil Code section 2860. 

More importantly, the court rejected the argument that the carrier acted in bad faith by refusing to accept the 998 Offer. In fact, the carriers' acceptance of the 998 Offer for the full policy limits would have been bad faith to the remaining insureds; i.e., the parents. The insurer's duties extend to all of its insureds, and the carrier cannot favor one insured over another. Because the 998 Offer was for the full policy limits, agreeing to settle on the son's behalf would have left the parents completely exposed. Consequently, the court found no bad faith under these facts. 

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In Jackson v. Yarbray 2009 DJDAR 16000 (2009) the Second Appellate District affirmed in part, reversed in part and remanded the case for further proceedings. The opinion was ordered published only in part. 

In the published portion of the opinion, the court held that an award of attorney’s fees for the successful prosecution of an anti-SLAPP motion did not preclude the moving party from being awarded additional litigation fees, unrelated to the SLAPP suit fee award, in a subsequent malicious prosecution action. More importantly, the court ruled that the Defendant in the malicious prosecution action had the burden of proving that the fees requested, were covered by those awarded in the SLAPP suit motion.

ComputerXPress.com, Inc. (“Computer”) sued Lee and Barbara Jackson (“Jackson”) and others for fraud, and for numerous business torts. The complaint arose out of a merger that was not successful.

Jackson filed a partially successful special motion to strike pursuant to Code Civ. Proc. § 425.16. After protracted proceedings the causes of action for trade libel, interference with contractual relations, interference with prospective economic advantage, abuse of process, conspiracy and injunctive relief were dismissed. Jackson requested more than $300,000 in attorney’s fees but was awarded only $77,000 on the successful SLAPP motion. Computer then dismissed the remaining causes of action. Thereafter, Jackson sued Computer and its attorneys for malicious prosecution.

In the malicious prosecution action, Jackson prevailed against Computer and some, but not all, of the attorneys. Jackson was awarded $700,000 in emotional distress and $2.41 million dollars in punitive damages. Upon motion, the trial court declined to award reasonable attorney’s fees incurred in pursuing the successful malicious prosecution action. The Jackson’s appealed and the court of appeal affirmed in part and reversed in part. The court noted that the trial court erred in refusing to award the attorney’s fees incurred by the Jackson parties in the malicious prosecution action.

The court found that the Jackson parties, having established the liability of Computer and others, were entitled to recover the costs of defending the underlying action, including their reasonable attorney fees. The court stated that the lower court erroneously denied such an award based the erroneous conclusion that the fees previously awarded to Jackson in connection with their special motion to strike were the same as the fees previously awarded. The court held that the Defendant in the malicious prosecution had the burden of proof in showing that the fees were duplicative and not recoverable.

The court agreed with the trial court that, under the doctrine of collateral estoppel, a fee award following a successful special motion to strike may preclude further litigation concerning the reasonableness of the fees. However, this does not preclude an award of fees for services unrelated to that motion. For these reasons, and because the trial court improperly put the burden of proof on the Jackson’s, the court ruled that a retrial was required on special damages.

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