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.  



Court decides when statute of limitations for "wrongful act or omission" against counsel begins

In Lee v. Hanley the California Court of Appeal for the Fourth District decided an issue concerning the interpretation of the one‑year statute of limitations relating to allegations of wrongdoing in the performance of attorney services.

The plaintiff hired an attorney to represent her in a civil lawsuit. The case settled shortly after the case was filed. The attorney sent the plaintiff invoices for legal services. The plaintiff demanded a refund, claiming that she had advanced unearned attorney fees to counsel. The plaintiff did not receive a refund. The plaintiff hired new counsel and terminated the first lawyer.

More than a year after she fired her first lawyer, the plaintiff sued attorney number one for the return of the alleged unearned attorney fees.

The attorney responded to the complaint by filing a demurrer based on the one‑year statute of limitations encompassed by Code of Civil Procedure Section 340.6. The statute sets forth a statute of limitations against attorneys based on a “wrongful act or omission, other than for actual fraud, arising in the performance of professional services.” The trial court granted the demurrer without leave to amend and dismissed the plaintiff’s case with prejudice.

The court of appeal reversed the decision of the lower court. The court of appeal noted that under Section 340.6, a lawsuit against an attorney for a wrongful act or omission based on his or her professional services must be filed within one year after the client “discovers the facts” alleging the misconduct. Here, the plaintiff argued that the attorney finished his legal work when the litigation he handled was resolved. The plaintiff argued that counsel’s act of keeping the unearned fees was not part of the professional services rendered and extended the time for bringing a lawsuit.

The court of appeal agreed with the plaintiff’s argument. The court of appeal concluded that Section 340.6 was not applicable as the allegations of the complaint could be construed as a claim unrelated to the performance of legal services, i.e. the retention of unearned attorney fees. The court reversed the lower court’s decision on this basis.

Timing of judgment creditor's entitled fee petition key to enforcement

In Conservatorship of McQueen the California Supreme Court decided a unique issue concerning the interpretation of Code of Civil Procedure Section 685.040. Under that statute, a judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment, including statutory attorney fees. A petition to claim enforcement costs must, however, be made before a judgment is “fully satisfied.”

The plaintiff had physical and mental disabilities. A testamentary trust was established for her, giving her the right to live in a home and to receive the net income from a trust for her lifetime. Subsequently, the trustee of the trust sold the residence, without the plaintiff’s consent, arguably in violation of the terms of the trust. The family attorney then distributed the proceeds of the sale, but failed to distribute any money to the plaintiff. A conservator was then appointed for the estate, who filed suit against the lawyer who made the distribution. A jury found the lawyer liable for financial elder abuse, breach of fiduciary duty and conversion. A judgment was entered on that basis against the lawyer.

The trial court also ordered the lawyer to pay $300,000 in attorney fees and costs. The conservator then filed a second suit against the lawyer, alleging a cause of action for fraudulent transfer, to avoid paying the judgment. The conservator later agreed to dismiss the fraudulent transfer action in consideration of payment of amounts sufficient to fund the underlying judgment.

The conservator filed a petition for fees and costs incurred in the second fraudulent transfer action. The trial court granted the conservator’s motion and awarded fees, and the lawyer then appealed that decision.

The Court of Appeal reversed the judgment of the lower court granting attorney fees. The court of appeal noted that under Code of Civil Procedure Section 685.040, a judgment creditor is entitled to the costs incurred in enforcing a judgment. These costs may include reasonable attorney fees. However, the court of appeal noted that a motion for enforcement costs must be made before the judgment is satisfied. Here, because the lawyer had satisfied the original judgment by payment, the court of appeal ruled that the conservator’s fee petition should have been denied.


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.