When automatic stay violations require fee awards

In America’s Servicing Co. v. Schwartz‑Tallard, 2014 DJDAR 12063, the United States Court of Appeal for the Ninth Circuit decided an interesting case arising from allegations that a debt servicing entity violated the Bankruptcy Code’s automatic stay provisions.

A debt servicing entity entered into a contract to service a debtor’s home mortgage. The debtor subsequently filed for bankruptcy, but continued to make mortgage payments to the entity. However, the servicing entity contended that there was a default, and moved to lift the automatic stay, allowing it to foreclose on the debtor’s home. The court granted the motion to lift the stay.

The Bankruptcy Court subsequently reinstated the stay orally at a hearing at which the debt servicer did not make an appearance. The court did not render a written order reinstating the stay until after the debtor’s home was sold at a trustee’s sale at the behest of the debt servicing entity. In response, the debtor filed a motion for violation of the automatic stay, seeking sanctions and other relief. Subsequently, the bankruptcy court found in favor of the debtor and awarded damages against the debt servicer. The court also ordered a return of the home back to the debtor.

The debt servicer appealed the lower court’s order. The district court upheld the Bankruptcy Court’s decision. The debtor then moved to recover the attorney fees incurred in the appeal by the debt servicer to the district court. The Bankruptcy Court denied the request for fees, concluding that the fees were not incurred in “enforcing” the automatic stay provisions of the Bankruptcy Code. The Bankruptcy Appellate Panel (BAP) overturned that decision.

The Ninth Circuit affirmed the ruling of the BAP, noting that under Bankruptcy Code Section 362, a party injured by any willful violation of a stay is entitled to recover actual damages, including costs and attorney fees.  The Ninth Circuit reasoned that because the debtor was not pursuing a damage award, but was defending against the debt servicer’s appeal of the Bankruptcy Court’s ruling, the fees should have been awarded.

Post award correction of attorney fees award by arbitrator is reversed

In Cooper v. Lavely Singer Professional Corp., 2014 DJDAR 13272, the California Court of Appeal for the Second Appellate District ruled that a post‑hearing substantive “correction” of a “Final Award” of attorney fees awarded by an arbitrator was inappropriate.

Jeffrey Cooper (“Cooper”) hired a law firm (“law firm”) to represent him in a fraud case. The case was submitted to arbitration and the arbitrator ruled against Cooper. Cooper then commenced an arbitration with JAMS against the law firm, alleging attorney negligence and malpractice. The law firm represented itself in the arbitration. Following a hearing, the arbitrator found that the law firm was the prevailing party and permitted the law firm to submit a motion for attorney fees. The arbitrator then issued a “Final Award” but denied the request for attorney fees in total. Thereafter, the law firm moved for “correction” of the award, arguing that the arbitrator had the discretion to “correct the award” in the “interest of justice.” Based on new paperwork and evidence that was submitted by the law firm, the arbitrator made a revised award granting an award of attorney fees.

The court of appeal reversed the decision and actions of the arbitrator. The court of appeal noted that under CCP§ 1284, an arbitrator has the power to “correct” a final arbitration award only if the correction is for “miscalculation of figures” or “nonsubstantive matters of form” that have no impact on the substantive merits of the arbitration. The court of appeal specifically concluded that an arbitrator is prohibited from substantively amending the final award to include new awards of damages or attorney fees. The court of appeal concluded that the arbitrator’s award of attorney fees in the revised final award was not a “correction” as defined by CCP§ 1284. The court of appeal concluded that the trial court erred in denying Cooper’s petition to vacate the attorney fee award on that basis.

Attorney fees claim becomes the tail that wags the litigation dog

In Ellis Law Group LLP v. Nevada City Sugar Loaf Properties LLC, 2014 DJDAR 13541, the California Court of Appeal for the Third Appellate District decided a case implicating the doctrine that self‑represented law firms may not be awarded attorney fees for work conducted to pursue an anti‑SLAPP motion.

The Ellis Law Group LLP (Ellis) sued Nevada City Sugar Loaf Properties LLC (Nevada) to collect unpaid legal fees and costs. Sugar Loaf filed a cross‑complaint, which listed three attorneys in the caption, including Joseph Major, as counsel of record for Ellis. Major’s name was also included as an Ellis attorney in the caption of numerous other documents relating to the anti‑SLAPP motion. The trial court subsequently granted the anti‑SLAPP motion.

Ellis then filed a motion for attorney fees as the prevailing party. In support of the fee motion, Major contended that attorney fees should be awarded because he was an “independent contractor” for the Ellis law firm and was not an attorney employed by the firm. The trial court granted the fee motion and awarded Ellis $14,553.50 in attorney fees.

The court of appeal reversed the fee award rendered by the trial court. The court noted that while normally a prevailing defendant on a special motion to strike should be awarded attorney fees, a successful “self‑represented attorney” on such a motion is not entitled to a fee award. The court held that “of counsel” should be considered a member of the law firm, if the relationship between the two is “close, personal and regular.” The court noted that the analysis for “of counsel” attorneys applies to attorneys who are “independent contractors.”  The court reasoned that during his work on the anti‑SLAPP motion, Major was a member of the law firm because he was included on the caption of numerous anti‑SLAPP pleadings.

A Cautionary Tale: Members of a Defunct LLC May Have Liability For Attorney Fees

In CB Richard Ellis Inc. v. Terra Nostra Consultants the California Court of Appeal for the Fourth Appellate District decided an interesting issue concerning the liability of an LLC member for a fee award imposed against the defunct entity, a Limited Liability Company (“LLC”).

CB Richard Ellis Inc. (CBRE) entered into a real property listing agreement with Jefferson 38 LLC (“Jefferson”).  Jefferson agreed to pay CBRE a 6 percent sales commission upon successful closing on a piece of land.

Jefferson began negotiating with a potential buyer, who eventually purchased the property for a multi‑million dollar sum. Jefferson failed to pay CBRE any commission on the sale. Subsequently, CBRE initiated arbitration against Jefferson to seek payment of its contractual commission. After successfully obtaining an award against Jefferson, CBRE filed a complaint against the individual members of Jefferson to enforce the award as the LLC had been dissolved. CBRE asserted claims for breach of contract and sought other forms of relief as well.

The jury found that Jefferson breached the contract with CBRE by failing to pay the promised commission. The jury also found that the LLC had been purposely dissolved and that a financial distribution had been made to the LLC members upon the dissolution. The jury awarded CBRE $354,000 and the court subsequently concluded that each LLC member was liable up to the amount distributed upon dissolution of the LLC. However, the trial court denied CBRE’s motion for attorney fees.

CBRE appealed the decision denying attorney fees and the court of appeal reversed. The court noted that pursuant to former Corporations Code § 17355(a)(1)(B), causes of action against a dissolved limited liability company may be enforced against its members, if any of the assets of the dissolved company have been distributed to members upon dissolution. 

Based on the jury’s finding that Jefferson was dissolved and that the assets were distributed to its members, the court of appeal reasoned that the LLC members became parties to the contract with CBRE as a matter of law. On this basis, the court of appeal concluded that attorney fees were recoverable pursuant to former Corporations Code § 17355.

 

Creditor's Willful Violation of Automatic Stay Results in Fee Award

In Snowden v. Check Into Cash of Washington Inc. (In re Snowden), 2014 DJDAR 12677, the United States Court of Appeals for the Ninth Circuit decided a bankruptcy case involving the award of attorney fees.

The debtor obtained a loan from Check Into Cash (“CIC”). The debtor filed for Chapter 7 bankruptcy and listed CIC as an unsecured creditor. After the bankruptcy petition was filed, CIC cashed a check the debtor had written to secure the loan. CIC’s actions resulted in the bank account to be overdrawn.

The debtor filed a motion for sanctions, alleging that CIC willfully violated the automatic stay provisions of the U.S. Bankruptcy Code. CIC denied it violated the automatic stay. In response to the debtor’s request to settle, CIC sent an email offering to resolve the entire matter for approximately $1,000. The debtor did not agree to those terms.

Subsequently, the bankruptcy court concluded that CIC violated the automatic stay and awarded damages totaling $27,484, including attorney fees. The debtor was not satisfied with the fee award and pursued an appeal. On appeal, the debtor argued she was entitled to additional attorney fees for the entire time period before the court determined that CIC had violated the automatic stay.

The Ninth Circuit partially reversed the decision of the lower court. The Ninth Circuit noted that attorney fees are recoverable when the automatic stay is willfully violated. The Ninth Circuit concluded that the lower court improperly calculated the fee award and should have awarded fees incurred to end a violation of the automatic stay.

 

A Judgment Cannot Not Lie Against Attorney Who is a Non Party

In Suarez v. City of Corona, 2014 DJDAR 12101, the California Court of Appeal for the Fourth Appellate District decided an interesting case concerning the interpretation of California Code of Civil Procedure Section 1038. That statute provides a statutory ground for a public entity to recover attorney fees for “frivolous” litigation brought against a municipality.

The plaintiff was a passenger in a motor vehicle. The vehicle exploded while filling up at a fueling station operated by the City of Corona (the City). The plaintiff sued the City, contending that the filling station and its equipment was defective. However, discovery revealed that the vehicle being “filled up” at the station had defective tanks which caused the explosion. The evidence supported the conclusion that there were no gas leaks at the filling station. The City repeatedly demanded to be dismissed but the plaintiff refused.

Significant defense costs were incurred after the dismissal demands were made by the City. The City moved for summary judgment, arguing that the lawsuit was “frivolous” within the meaning of Code of Civil Procedure Section 1038. That statute provides a remedy for a city to obtain a fee award for unmeritorious (i.e. frivolous) litigation.

The trial court awarded the City $135,905.00 in fees which were assessed jointly against the plaintiff and his attorneys. The plaintiff appealed, arguing that Section 1038 did not authorize an award of fees against a “non‑party attorney.”

The court of appeal agreed and reversed the award. The court noted that in proceedings that are not brought in good faith and with reasonable cause, it “shall render judgment” in favor of the prevailing party. Although Section 1038 was silent as to whom the award of defense costs may run against, the court concluded that a “judgment” cannot lie against an attorney who is not a “party” to the action.

 

Is a Memorandum of Costs required in addition to a Fee Petition?

In Kaufman v. Diskeeper Corp., 2014 DJDAR 11468, the California Court of Appeal for the Second Appellate District decided an interesting case involving the interplay of a filed Memorandum of Costs and a related Petition to Recover Attorney Fees.

An employee sued his employer for wrongful termination. After the lawsuit settled, a comprehensive settlement agreement was drafted, which contained an attorney fee provision. The agreement also contained an arbitration provision for resolving disputes that might arise concerning the agreement.

The employer subsequently filed for arbitration against the former employee and his attorney. The Petition to Compel Arbitration alleged that the employee failed to comply with important provisions of the resolution agreement. The arbitrator found in favor of the employer. Both parties then filed motions with the trial court. The employee sought to vacate the arbitrator’s decision. The employer sought a ruling confirming the award. The trial court ultimately confirmed the arbitration award and entered judgment for the employer.

The employer then filed a motion for an award of attorney fees, claiming that it was the prevailing party in the arbitration. However, the trial court denied the motion on the ground that a timely Memorandum of Costs was not submitted in conjunction with the fee petition.

The employer appealed and the trial court’s decision was reversed. The court noted that a contractual request for attorney fees must be based on Civil Code Section 1717. That statute states that reasonable attorney fees are “an element of the costs of suit.” The California Rules of Court (Rule 3.1700) requires a party claiming costs to file a Memorandum of Costs.

The court of appeal noted, however, that there is built in ambiguity in the process. Although Rule 3.1702(b) governs attorney fees which are incurred prior to a trial court judgment, it fails to even mention a Memorandum of Costs. The court of appeal also pointed out that Rule 3.1702(e) requires attorney fees to be claimed in a Memorandum of Costs only when an attorney fees motion is not required. On this basis, the court of appeal concluded that Rule 3.1700 did not apply as Section 1717 fee claims are solely governed by Rule 3.1702.

 

Fee award against non-party attorney is thrown out by appellate court

In Suarez v. City of Corona, 2014 DJDAR 12101, the California Court of Appeal for the Fourth Appellate District decided an interesting case concerning the interpretation of California Code of Civil Procedure Section 1038. That statute provides a statutory ground for a public entity to recover attorney fees for “frivolous” litigation brought against a municipality.

The plaintiff was a passenger in a motor vehicle. The vehicle exploded while filling up at a fueling station operated by the City of Corona (the City). The plaintiff sued the City, contending that the filling station and its equipment was defective. However, discovery revealed that the vehicle being “filled up” at the station had defective tanks which caused the explosion. The evidence supported the conclusion that there were no gas leaks at the filling station. The City repeatedly demanded to be dismissed but the plaintiff refused.

Significant defense costs were incurred after the dismissal demands were made by the City. The City moved for summary judgment, arguing that the lawsuit was “frivolous” within the meaning of Code of Civil Procedure Section 1038. That statute provides a remedy for a city to obtain a fee award for unmeritorious (i.e. frivolous) litigation.

The trial court awarded the City $135,905.00 in fees which were assessed jointly against the plaintiff and his attorneys. The plaintiff appealed, arguing that Section 1038 did not authorize an award of fees against a “non‑party attorney.”

The court of appeal agreed and reversed the award. The court noted that in proceedings that are not brought in good faith and with reasonable cause, it “shall render judgment” in favor of the prevailing party. Although Section 1038 was silent as to whom the award of defense costs may run against, the court concluded that a “judgment” cannot lie against an attorney who is not a “party” to the action.

Is an independent lawsuit required to fix amount of attorney's fee lien?

In Mojtahedi v. Vargas the California Court of Appeal for the Second Appellate District decided a unique issue pertaining to the procedure for enforcing an attorney fees lien against the attorney who is hired to replace the original counsel.

A lawyer represented two plaintiffs in a personal injury matter. After many months of representation, the plaintiffs hired new counsel and discharged the first lawyer. The new attorney settled the case and deposited the settlement checks into his client trust account. Each check was made out to the plaintiffs and to the current and former lawyers’ respective law offices.

The former lawyer then brought a lawsuit against the current lawyer and the two banks that issued the settlement checks. The lawsuit sought payment of the fees the first attorney claimed were the subject of his attorney fees lien.

The trial court sustained the current lawyer’s demurrer to the first lawyer’s complaint without leave to amend. The court held that the former lawyer failed to establish the amount of the attorney fees lien in an independent action against his former client. The court concluded that the new lawsuit fixing the sum of the lien was a prerequisite to seeking to enforce the fee claim. Without the necessary adjudication there was no way of knowing what portion of the fees was legitimately owed to the first lawyer.

The court of appeal affirmed the decision of the lower court. The court noted that an attorney’s lien is only created by a retainer agreement which includes an express provision creating the lien for unpaid fees. However, to enforce the lien, the attorney must bring an independent action against the former client to establish the existence of the lien and its amount.

Here, the court held that records of the time expended were not sufficient to establish that the first lawyer was entitled to a specific amount of the settlement money. Based on this reasoning, the court concluded that the demurrer was properly sustained without leave to amend.

 

Barger & Wolen and Hinshaw & Culbertson Announce Merger

Combined Firms Create Powerhouse Insurance Practice with 120 Attorneys Dedicated to Serving the Insurance Industry

Chicago and Los Angeles — September 2, 2014 — Barger & Wolen and Hinshaw & Culberston, a national law firm with 460 lawyers in 22 offices around the country, announced today they will combine forces. The merger creates one of the largest insurance law practices in the United States with 120 full-time attorneys dedicated to providing legal counsel to insurance companies and financial services firms that shape the insurance industry.

The partner votes took place on August 28, 2014, and the merger will become effective on October 1, 2014. The combined firm will keep the name Hinshaw & Culbertson and have over 500 attorneys in 11 states as well as London.

Click here for the full press release. For more information, contact Heather Morse.