Trial Court Errs In Refusing to Award Litigation Costs but Not Fees to Adverse Party

Posted on September 29, 2009 by David J. McMahon

In Vons Companies Inc. v. Lyle Parks Jr. Inc., 2009 DJDAR 13828, the California Court of Appeal, 2nd District, decided a complex case involving both the “prevailing party” doctrine (CCP§ 1032) and CC § 1717, the reciprocal remedy statute.

Vons Companies Inc. (Vons) hired Lyle Parks Jr. Inc. (Parks) to construct a shopping center in 2002. The construction contract contained a prevailing party attorney fee clause. When the work was completed, Parks issued a warranty for the work for a one year time period. There was no attorney fee clause in the warranty agreement.

In 2004, Vons sold the shopping center to a third party, Mock Ranch Inc. (Mock). In 2006, Mock sued Parks for breach of warranty and negligence, claiming that Parks engaged in poor workmanship. Mock also sued Vons for failing to disclose material information about the suitability of the purchase.

Prior to trial, Mock and Vons settled their case. As part of the settlement, Mock assigned its claims for negligence and breach of warranty against Parks to Vons. Thus, Vons sought damages from Parks and the jury found in favor of Vons on the claims for breach of express warranty and negligence. Vons sought costs, asserting that it was entitled to recover Mock’s costs as its assignee. Parks moved to strike or tax costs, pointing out that Vons was the prevailing party only as to Mock’s two claims against Parks.

The trial court granted Parks’ motion to strike and tax costs, finding no factual support for the claim that Vons was Mock’s assignee and that due to the cursory cost memorandum submitted, that Vons had not met its burden of proof on the issue. In addition to the cost memorandum, Vons also submitted a request for more than $1 million in attorneys’ fees based on the provisions in the construction contract. The trial court denied that motion for fees, observing that Vons did not assign the construction contract to Mock, only the warranty agreement.

The Court of Appeal disagreed with the trial court, in part. 

The court noted that a prevailing party is entitled to recover costs. Courts do not have the discretion to deny costs to a prevailing party absent contrary statutory authority. The court noted that Vons was the prevailing party on the negligence and breach of warranty claims that Mock assigned to it. The Court noted, however, that in the cost memorandum, Vons sought all of its own pretrial litigation costs without regard to whether those costs were necessary to the claims on which it prevailed. Thus, the court stated that the trial court should have determined a proper cost award based on arguments presented in relation to Lyle’s motion to tax costs. Further, the entire trial was based on the assignment of Mock’s claims to Vons. Thus, Vons was entitled to costs as the prevailing party on the claims that Mock assigned to it.

As to the fee claim, the Court of Appeal affirmed the trial court’s decision, noting that there was no fee clause in the warranty agreement.

Liability Insurance Carrier Only Required to Pay A Pro Rata Share of Fees Incurred In The Subrogated Recovery Context, Not The Entire Amount Under The "Made Whole" Doctrine

Posted on September 15, 2009 by David J. McMahon

In 21st Century Insurance Co. v. Superior Court, 2009 DJDAR 12587 (August 24, 2009), the California Supreme Court ruled on an undecided question pertaining to the proper application of the “Made-Whole” rule versus application of the “Common Fund” doctrine in the context of an automobile liability insurance policy.

Silvia Quintana (Quintana) was insured by 21st Century Insurance Co. (21st Century). She was injured in an automobile accident with a third party. 21st Century paid $1,000 under the no‑fault medical payment (med‑pay) insurance provision contained in the policy. Quintana then sought damages against the third party. She eventually settled the third party claim for $6,000. 

In the course of the suit, she incurred more than $2,000 in attorney fees and costs. Quintana’s insurance policy required her to reimburse 21st Century for the med‑pay amount, so to avoid double recovery by her. She paid $600 representing full reimbursement of $1,000 less the pro rata attorneys' fees of $400 but argued that 21st Century was required to reimburse all the litigation expenses incurred in order to satisfy the "made-whole" rule. 21st Century contended that California law did not require an insurer to pay such expense to meet this rule. Rather, litigation expenses should be determined separately per “the common fund doctrine” on a pro rata basis.

Quintana subsequently filed a class action lawsuit against 21st Century. The insurer demurred to the complaint, asserting that Quintana did not state a cause of action because California law does not include attorneys’ fees in the made-whole doctrine. The trial court overruled the demurrer and 21st Century filed a petition for writ of mandate. The Fourth Division of the California Court of Appeal agreed with 21st Century’s view of the law and Quintana petitioned for review before the Supreme Court.

The Court of Appeal ruling was affirmed by the Supreme Court.  The court stated that the made‑whole rule “limits the insurer’s reimbursement right . . . where the insured has not recovered [her entire debt.].” Thus, an insurer may not accept any money from a third party until the insured “has been fully compensated for [her] injuries.” 

The common fund doctrine holds that where “a number of parties are entitled in common to a specific fund, such action brought . . .in [their] benefit . . . results in the creation or preservation of the fund such that . . . attorney’s fee [may be awarded] out of the fund.” 

Here, Quintana argued that reimbursement of her litigation costs would better reflect compensation of her entire debt. However, the court found no law requiring or supporting her contention. Rather the policies underlying these two legal theories supported the conclusion that 21st Century should be responsible only for the pro rata share of the litigation expenses incurred.

Plaintiff Denied Attorney Fees Even Where He Prevailed on Appeal

Posted on September 8, 2009 by David J. McMahon

In Wood v. Santa Monica Escrow Co., 2009 DJDAR 12082 (Aug. 13, 2009), the Second Appellate District decided a novel prevailing party attorney fee case. The plaintiff, Craig Wood, was the personal representative of the Estate of Merle A. Peterson. Plaintiff brought an action against Patrick McComb and Santa Monica Escrow Co. alleging causes of action for alleged elder abuse. The complaint asserted that the defendants improperly induced an elderly individual to obtain a loan secured by her residence, and to distribute the proceeds to Patrick McComb. Merle Peterson obtained the loan with Santa Monica Escrow acting as escrow agent.

Two years after filing the complaint, the Plaintiff voluntarily dismissed the action. After dismissal, Santa Monica Escrow moved for attorney fees based on the contractual provisions in the escrow agreement which stated that a prevailing party would receive attorney fees in an action between the escrow holder and parties to the escrow. Santa Monica asserted that it was not required to allocate the fees between the contractual and non-contractual causes of action because all claims arose from the same transaction. The trial court denied the motion in its entirety which was affirmed on appeal. The appellate court ruled that a prevailing defendant is not entitled to receive attorney fees in elder abuse cases.

Thereafter, Wood moved for attorney fees against Santa Monica Escrow. The motion for fees was based on the attorney fee provisions in the escrow instructions. The trial court denied the motion, finding that the escrow agent was the prevailing party in the action. The ruling was appealed by the Plaintiff.

The appellate court affirmed the decision of the lower court noting that a party who prevails on appeal is not entitled to attorney fees, despite the existence of a contractual fee provision, where the appellate court does not decide who prevailed in the lawsuit. Instead, the prevailing party is defined as the party who has prevailed overall in the case. Plaintiff argued that he was the prevailing party because he won on Santa Monica Escrow’s appeal of the denial of its motion for attorney fees. However, the court found that the purported success on the appeal did not decide who won the lawsuit. Instead, Santa Monica Escrow won overall because Plaintiff voluntarily dismissed the case. For this reason he was not the prevailing party entitled to attorney fees.