Trial Court's Calculation of Lodestar Is Affirmed

By David McMahon and Mark Chuang

In Syers Properties III, Inc. v. Rankin the California Court of Appeal for the First Appellate District affirmed the trial court’s grant of an award of attorney fees. The appellant contended that the trial court should not have awarded attorney fees for two reasons: (1) the court relied upon inadequate documentation in determining the reasonableness of the number of hours billed, and (2) the court’s calculation of the reasonable rate was incorrect.

Two attorneys represented a company in a complex construction defect case. The company subsequently sued counsel alleging legal malpractice. The attorneys moved for nonsuit on the first day of trial, and after the trial court granted the motion, the attorneys sought to recover attorney fees as the prevailing parties under California Civil Code Section 1717. In support of the recovery, the attorneys submitted declarations from attorneys who performed work on the case. The trial court granted the motion finding that the rates and hours requested were reasonable.

The court of appeal affirmed the trial court’s ruling holding that “the lodestar is the basic fee for comparable legal services in the community and that it may be adjusted by the court . . . to fix a fee at the fair market value.” It also stated that the trial judge is best able to evaluate whether the hours billed were reasonable given the complexity of the case.

The court of appeal rejected the appellant’s argument that the reasonable market rate is required to mirror the actual rate billed. It stated that the trial court was not required to adopt the market rate as the actual rate, but has discretion in determining what a reasonable attorney fee would be based on the evidence presented.

Mark Chuang is a summer associate in Barger & Wolen’s San Francisco office.

Effective Litigation Management of FCPA Claims

David J. McMahon and Robert G. Levy wrote an article for Inside Counsel about the strategies for effectively managing litigation during Foreign Corrupt Practices Act (FCPA) investigations. The legal fees incurred in such investigations can be enormous. Often the settlement in FCPA litigation can pale in comparison to the costs incurred to comply with the investigation. 

The FCPA prohibits U.S. companies from bribing foreign government officials. The improper acts can include non‑monetary “favors” or items that traditionally may have been considered “gifts.” The United States Government is attempting to draw a line between appropriate practices and illegal activities.

A key aspect of the General Counsel’s litigation management arsenal is the company insurance program. Companies facing FCPA claims often tender those matters to their directors and officers liability (D&O) carriers.

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Reasonable attorney fees did not include underlying administrative hearing process against Social Services, court determines

In K.I. v. Wagner, 2014 DJDAR 5546 (2014), the California Court of Appeal for the Fourth Appellate District granted partial attorney fees in a social security proceeding. An attorney represented a minor who was disabled by autism and seizures. The representation was done on a pro bono basis. The goal was to obtain approval for an increase in the hours the minor could receive for in‑house medical and mental health support.

After an administrative hearing, the Director of Social Services declined the request for increased support. The minor challenged the declination of benefits through a petition for writ of mandate to the superior court.

After the appeal to the superior court, the parties entered into a stipulated judgment in favor of the minor. Counsel then moved for fees under Welfare and Institutions Code Section 10962. The fee request was partially for work on the writ and also for work related to the underlying administrative hearing. The trial court concluded that Section 10962 precluded an award of fees for the underlying administrative proceeding.

The minor appealed the declination of fees to the court of appeal. The court of appeal noted that an individual who is denied state or local social services may challenge the denial through an administrative hearing process administered by the state Director of Social Services. If the party receives an unfavorable administrative decision, the exclusive remedy thereafter is to challenge the ruling through a petition for writ of mandate.

Section 10962 governs the judicial review process and provides for reasonable attorney fees to a prevailing party involving litigation in the superior court. Although Section 10962 allows a party to recover reasonable attorney fees for the writ proceedings, it does not provide for an award of fees in the underlying administrative hearing process. The court of appeal affirmed the trial court’s rulings on that basis.

Settlement Agreement Silent On "Costs" Leads To Prevailing Party Award

In deSaulles v. Community Hospital of the Monterey Peninsula, 2014 DJDAR 5571 (2014), the California Court of Appeal for the Sixth Appellate District decided that a prevailing party was entitled to costs, despite the fact that the controlling settlement agreement was silent on that point.

The plaintiff sued her employer, asserting numerous causes of action. The first cause of action included a claim that the employer did not accommodate the employee’s disability. The employer moved for summary adjudication of that claim and prevailed. The victory effectively precluded the employee from presenting evidence related to additional causes of action for retaliation, wrongful termination and emotional distress.

The parties then agreed to settle the remaining claims in exchange for a payment of approximately $23,000. The settlement agreement was silent on the issue of recoverable costs. Both sides then requested mandatory costs as the “prevailing party” under Code of Civil Procedure Section 1032. The trial court granted the employer’s request, awarding over $11,000 in costs.

The employee appealed and the Sixth District reversed the trial court. The court of appeal noted that Section 1032 entitles a “prevailing party,” as a matter of right, to recover costs. For purposes of the statute, a “prevailing party” includes the party with a net monetary recovery. 

The court of appeal reasoned that although the employer obtained a judgment denying the employee relief, the judgment was reached following a settlement payment to the employee. The court considered that payment a “net monetary recovery” and concluded that the trial court should have awarded the employee her costs.

 

Is the Claimant entitled to attorney fees when the government asserts an unreasonable position?

In Tobeler v. Colvin, 2014 DJDAR 4845 (2014), the United States Court of Appeal for the Ninth Circuit overturned the trial court’s decision rejecting a claim for attorney fees.

The claimant was disabled and asserted a claim for social security benefits. He testified about his condition to a social security administrative law judge (ALJ). 

At the hearing, the claimant’s former employer also submitted a letter describing the claimant’s inability to work. In addition, the claimant’s wife, Kimberli Tobeler, submitted statements supporting the claimant’s problems with depression and anxiety. 

The ALJ disregarded the evidence submitted, without comment. Due to the ALJ’s failure to consider the relevant evidence, the case was then remanded by the district court. The claimant then sought attorney fees under the Equal Access to Justice Act (EAJA). The district court denied the motion for fees. The district court reasoned that the government’s position was “substantially justified” because the claimant failed to prevail on any other issues of law or fact.

The Ninth Circuit reversed the decision of the trial court. 

Under the EAJA, a court must award a prevailing party fees in a suit against the United States. The major exception to a fee award is if the court concluded the government’s position was “substantially justified.” Substantial justification is defined as a reasonable basis in fact and law. 

Here, the underlying agency action was not reasonable because the ALJ disregarded the evidence documenting the claimant’s symptoms without comment. This was improper as the evidence was relevant to a finding of disability. Because the government’s position was not substantially justified, the claimant was entitled to an award of fees under the EAJA.

U.S. Supreme Court Rules on Attorneys Fees in Two Patent Cases

Attorney’s fees were the subjects of two U.S. Supreme Court decisions today in high profile patent cases. In Octane Fitness v. Icon Health and Highmark v. Allcare Health, the Court decided in "exceptional cases" reasonable attorneys fees may be awarded to a prevailing party.

Interestingly, the Court leaves it to the trial court to define which cases are exceptional. This is to be done in the court's exercise of its discretion on a case-by-case basis. This is a dramatic change. The prior standard used in these types of matters required a finding of "subjective bad faith" and/or "objectively baseless" conduct. 

Those standards were very high; making the circumstances where a fee award was granted to be rare.  The policy surrounding this decision appears to deter parties who have abused the patent system for their own financial gain.

Attorney Litigants May Not Recover Attorney Fees When They Represent Themselves

In Soni v. Wellmike Enterprise Co. Ltd., 2014 DJDAR 3828 (2014), the California Court of Appeal for the Second Appellate District affirmed a well established principle under California law. Law firms and attorney litigants may not recover attorney fees when they represent themselves in litigation.

A law firm performed legal services for a business. The firm brought an action for breach of contract due to the non‑payment of attorney fees. The firm prevailed and then sought over $100,000 in legal fees incurred in the breach of contract action.

The firm acknowledged that an attorney who is self‑represented is generally not entitled to recover attorney fees, but argued that it did not represent itself in the litigation. The firm argued that it hired “outside counsel” or “independent contractors” to represent them in the suit to recover attorney fees. The defendant countered that the attorneys who worked on the unpaid fees case were employees of the firm and that attorney fees were not recoverable under well established case law.

The court of appeal affirmed, noting that law firms and attorney litigants may not recover attorney fees when they represent themselves. Thus, when members of a firm represent the firm in a case, no recovery of attorney fees is permitted.

 

Technical Rejection of Fee Claim Is Overruled By Court of Appeal

In Marriage of Sharples, 2014 DJDAR 823 (2014), the California Court of Appeal for the Fourth Appellate District overturned the outright rejection of a request for fees by the trial court. The judge rejected the fee claim on technical grounds: the failure to file proper Judicial Council forms in support of the application for fees.

A husband and wife were engaged in marriage dissolution proceedings. The wife filed a request for the husband to pay her $20,000 in attorney fees pursuant to Family Code Section 2030. That statute is intended to provide financial parity between the parties at the outset of dissolution proceedings. In support of the request, she submitted a declaration stating that the husband was the chief executive officer of a company with significant annual income. The wife was also employed at the company but earned only $700 per month.

Her attorney also submitted a declaration in support of the application, including his billing rates, and the request for an accountant to assist on the case. The husband opposed the fee application. The family court judge then denied the request for fees on the grounds that the wife failed to fill out and submit Judicial Council form FL‑319 in support of the application.

The wife appealed the trial court’s decision and the Court of Appeal reversed. 

The Court of Appeal noted that Family Code Section 2030 authorizes the family court to award reasonable attorney fees and costs based on financial need. The court is required to balance the parties’ financial resources in making a decision. 

Rule 5.93(a) of the California Rules of Court provides that the party making the request must file and serve a set of documents, including Judicial Council form FL‑319, entitled “Request for Attorney’s Fees and Costs Attachment.” The court noted, however, that in lieu of this form, the party may file a declaration that addresses the factors set forth in Judicial Council form FL‑319.

Because Rule 5.93(a) gave the fee applicant an option to file either a form FL‑319 or a comparable declaration, the Court of Appeal concluded that the wife properly complied with the applicable rules. The court overturned the decision on that basis.

 

Attorney fees properly discharged under bankruptcy law in family law matter

In Bendetti v. Gunness, 2014 DJDAR 623 (2014), the US Bankruptcy Appellate Panel (“BAP”) for the Ninth Circuit Court of Appeals affirmed the bankruptcy court’s decision. The bankruptcy court ruled that an attorney fee award was properly discharged under federal bankruptcy law.

Patricia Gunness filed for bankruptcy. The bankruptcy petition was filed as she and her husband owed more than $280,000 in attorney fees to the husband’s ex‑wife from a judgment rendered in a fraud case.

The wife filed an adversary proceeding against the ex‑wife, seeking to discharge the debt. In response, the ex‑wife argued that the debt was not dischargeable because it constituted a “support award” under controlling Bankruptcy Code provisions.

he wife filed a motion for summary judgment, arguing that the attorney fee award was not a “support award” as a matter of law under Bankruptcy Code Section 523(a)(5). In granting the summary judgment motion, the bankruptcy court determined that a family relationship was required to protect a debt from discharge.  The bankruptcy court reasoned that because there was no familial relationship between the current wife and the former spouse, the provisions of Section 523(a)(5) did not apply.

The BAP affirmed the decision of the lower court. The BAP noted that under Section 523(a)(5), certain debts are not dischargeable, such as those claims for alimony, maintenance, or support. However, that provision requires that the “spouse, former spouse, or child of the debtor” must be owed the money as a prerequisite to protect the debt from dischargeability.

The BAP concluded that because neither the ex‑wife nor her lawyer was a “spouse, former spouse, or child” of the current wife, the provisions of Section 523(a)(5) did not apply. The BAP affirmed the decision of the bankruptcy court.

Trial Court Fails To Adequately Explain Basis for Cuts. Reduction in Fee Award Reversed.

In Carter v. Caleb Brett LLC, 2014 DJDAR 1412 (2014), the US Court of Appeal for the Ninth Circuit reversed a decision of the district court, making a significant reduction in a fee award. The Ninth Circuit ruled that the district judge’s decision was not supported by a sufficient explanation for the downward modifications taken.

After the adverse decision on the fee petition, the plaintiff appealed to the Ninth Circuit. The Ninth Circuit reviewed the district court’s award of $14,268.50 in attorney fees and costs. The full amount requested by the plaintiff was $22,585.00. The record on appeal revealed that the district court determined that the reasonable hourly rate for the type of work at issue in the relevant geographic area was $400.00. The district court, however, reduced the number of compensable hours from 60.9 to 35 hours. On appeal, the plaintiff argued that the reduction was inappropriate as the court failed to provide an appropriate explanation for the cuts.

The Ninth Circuit noted that the district court has latitude on determining fee awards. However, the award and any reduction must be supported by specific explanations of the reasons for both the award and any reductions. Courts must reach an attorney fee decision by considering the factors enumerated in Kerr v. Screen Extras Guild Inc., 526 F.2d 67 (9th Cir. 1975).

The main factors set forth in Kerr include the time and labor required, the novelty and difficulty of the questions presented, the skill required to perform the legal services properly, the preclusion of other employment due to the acceptance of the case, and the attorney’s customary fees. 

The Ninth Circuit noted that the district court referred to some of the Kerr factors in its analysis, but did not explain which factors justified a significant reduction in the fee request. The district court’s decision was vacated on that basis.