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

In Kirby v. Immoos Fire Protection Inc., 2010 DJDAR 11569 (2010) the Third Appellate District of the California Court of Appeal decided an appeal challenging an award of attorneys fees to an employer who successfully defended against allegations of labor violations by two employees.

Anthony Kirby and Rich Leech (hereinafter “Plaintiffs”) filed suit against Immoos Fire Protection Inc. The complaint alleged six causes of action for violations of various labor laws as well as unfair competition (Business & Professions Code §17200).

The trial court rejected the Plaintiffs’ motion for class action certification. The Plaintiffs then dismissed with prejudice their complaint as to all causes of action. The trial court awarded the Defendant attorney fees of $49,846.05 for its defense of three of the six causes of action, including Labor Code violations and the §17200 claims. The Plaintiffs appealed the decision awarding the Defendant attorneys fees.

The Court of Appeal noted that Labor Code § 218.5 provides for fee shifting in favor of the party that prevails on a claim for unpaid wages. The court noted, however, that § 218.5 does not allow employers to recover fees in any action for minimum or overtime wages.

The Plaintiffs’ complaint included causes of action involving failure to pay minimum wages as well as other, non‑wage claims. The court rejected the Plaintiffs’ argument that a prevailing Defendant may not recover fees in a case that includes a claim for unpaid minimum or overtime wages. The court noted that attorney fees may still be awarded for unrelated claims subject to the fee‑shifting provisions of § 218.5.  

The Court of Appeal concluded that the trial court’s award of attorney fees for Immoos non‑wage related defense was proper. However, attorney fees awarded on two other causes of action was overruled as the award was miscalculated.

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By David McMahon and Heather Lee

In Donahue v. Donahue, 182 Cal.App.4th 259 (Feb. 24, 2010), a California Court of Appeal recently reversed the trial court’s award of fees where simultaneous representation by multiple firms created unnecessary and duplicative fees.

The trial court charged a trust with approximately $5 million in past and ongoing attorneys fees incurred on behalf of a former trustee in defending against the beneficiary’s allegations of self-dealing and conflict of interest. Eight attorneys from three major law firms comprised the former trustee’s legal team, with four to five of those attorneys simultaneously appearing at the 14-day trial. 

The California Court of Appeal, Fourth Appellate District, reversed the award and remanded, noting,

[u]nderstandably, these law firms brought with them their own supervising, support and administrative infrastructure, but simultaneous representation by multiple law firms posed substantial risks of task padding, over-conferencing, attorney stacking (multiple attendance by attorneys at the same functions), and excessive research.” Id.at 272.

The Donahue Court rejected the trustee’s “bet the farm” rationale for his litigation decision to simultaneously retain a legal team of seven to eight lawyers with primary activity and involvement from three major law firms, and his argument that he retained attorneys at two of those law firms to preserve “institutional memory.” Id. at 272-73.

Finding that this rationale resulted in overstaffing and duplication, the Court noted,

just as there can be too many cooks in a kitchen, there can be too many lawyers on a case.” Id. at 272 (quoting Guckenberger v. Boston Univ., 8 F.Supp.2d 91, 101 (D. Mass. 1998)). 

Similarly unavailing was the trustee’s argument that the additional attorneys served as “reserves” to cross examine witnesses at trial. Id.at 273.

In fact, the Court found that such a “spare-no-expense strategy” called for close scrutiny on questions of reasonableness, proportionality and trust benefit. Id. at 273. 

The Court pointed out that reasonableness depended not simply upon what fees were reasonably incurred in representing the defendant, but upon whether such fees were reasonably and prudently incurred for the trust. Id.at 274 (emphasis added). It aptly questioned,

Did [the respondent] demand a Rolls Royce defense when a prudent trustee could have arrived at the same destination in a Buick, Chrysler or Taurus?” Id.

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In City of Santa Monica v. Gabriel, 2010 DJDAR 11005 (2010), the Second Appellate District of the California Court of Appeal ruled that in an action brought pursuant to Business and Professions Code section 17200 (the “UCL”), the trial court improperly granted a fee award. The appellate court reversed the award of attorney fees by the lower court, holding that the UCL does not in and of itself authorize the award of attorney fees.

The City of Santa Monica (“City”) filed a lawsuit against a landlord, who owned and leased units in the City. The complaint alleged that the landlord sexually harassed a tenant, improperly entered tenants’ units without notice and rented an uninhabitable space to a tenant as living quarters. The plaintiff asserted one cause of action under § 17200. Each of the alleged violations was premised on acts not in compliance with the Santa Monica Municipal Code (“SMMC”). The trial court ruled against the landlord, imposed a $7,500 civil penalty, enjoined him from contact with tenants, and ordered him to pay the plaintiff’s attorney fees. On appeal, the landlord argued that the UCL did not support an attorney fee award.

The court of appeal agreed with the landlord and reversed the fee award. 

The court reiterated the American rule, that in the absence of an express agreement or statute, each party involved in litigation must pay its own attorney fees. The court also noted that the UCL does not, by itself, authorize a court to award attorney fees. 

Plaintiff argued that attorney fees are recoverable when a borrowed statute, upon which a UCL claim is based, allows such recovery. Because the action was based on the municipal code, which provides that persons who violate the code are liable for attorney fees, the plaintiff argued that the fee award was proper. The court disagreed, noting that although the UCL borrows violations from other laws by making them actionable, there is no authority supporting the conclusion that the UCL borrows remedies from other statutes. 

The action was solely brought under the UCL, thus the fee award could not stand.

Please visit Barger & Wolen's Insurance Litigation & Regulatory Law Blog for more UCL case updates.

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by David J. McMahon and Tino X. Do

In Nelson v. Pearson Ford Co., D054369 (July 15, 2010), the Fourth Appellate District upheld the trial court’s judgment awarding attorney fees to plaintiff class representative under the Automobile Sale Finance Act (“ASFA”), and denied costs to defendant in its claim under California Code of Civil Procedure Section 998.

Nelson involved a class action against the Pearson Ford car dealership for alleged violations of the ASFA, Consumers Legal Remedies Act (“CLRA”) and California Unfair Competition Law (“UCL”) arising from a backdated car sale contract that resulted in a car buyer paying interest for a time period when no contract existed, and for erroneously adding insurance premium to the sales price of the car which resulted in additional sales tax and financing charges. 

Two separate classes were certified by the trial court: the backdating class and the insurance class. 

Following a bench trial, the trial court found Pearson Ford liable under the ASFA to only the insurance class, liable to both classes under the UCL, and not liable to either class under the CLRA. The trial court granted certain remedies under the ASFA and the UCL, and awarded Nelson his attorney fees and costs under the ASFA. Both parties appealed. 

The appellate court reversed the trial court as to the portion of the judgment finding Pearson Ford not liable to the backdating class under the ASFA and the CLRA. The court also found that the trial court erred in the remedies it awarded under the ASFA and the UCL. The court upheld the trial court’s ruling on the award of attorney fees and costs.

Attorney fees in this matter were not awarded under the UCL, which does not permit this type of remedy, but under the AFSA, a statute that specifically grants the recovery of attorney fees to the prevailing party. 

The appellate court noted that Pearson Ford did not challenge the trial court’s conclusion that Nelson was the prevailing party for both classes under the ASFA (Civ. Code section 2983.4), or dispute the awarded amount. Instead, Pearson Ford argued that the trial court should have taken into consideration the fact that it had made a Section 998 offer of $500,000 before trial, and that Nelson failed to obtain a more favorable judgment at trial. 

The appellate court, while noting that a valid settlement offer can be made under Section 998 in a certified class action, agreed with the trial court that the Section 998 offer at issue was invalid because it was a lump-sum offer to two classes. The court stated that it would be impossible to determine whether either class received a less favorable result at trial than it would have received under the offer.

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In Soria v. Soria, 2010 DJDAR 8945 (2010), the Fourth Appellate District decided a case which demonstrates the limitations of Probate Code Section 17211(b). Probate Code Section 17211(b) permits a probate court to award attorney fees to the beneficiary of a trust who contests the trustees’ accounting, if the trustee opposes the contest without reasonable cause and in bad faith.

In 1993, Richard Soria Sr. (Father) and Irene Sarinana (Mother) entered into a contract with Father’s parents, Richard and Lynda Soria (Grandparents). The contract required the Grandparents to convey a deed to a parcel of real property to Richard and Irene Soria. However, the agreement contained a provision that if Richard and Irene Soria were to ever divorce; the property would immediately revert to Father and the couple’s children (Grandchildren).

The Grandparents allegedly did not comply with the terms of the agreement. In 2005, the Grandchildren filed suit against Grandparents in an effort to compel conveyance of the deed. The lawsuit alleged that the conditional contract to convey the deed to the property, constituted a trust agreement. The suit further alleged that the Grandparents were the trustees, and Mother, Father and Grandchildren were the beneficiaries of the contract. The proceedings at the trial level were complex. After vigorous motion practices a judgment was entered against the Grandparents finding that the agreement was an express trust, with Grandparents in breach of its terms for failing to turn over the property deed.

The judgment required the Grandparents to convey the property to the Grandchildren on certain payment terms. Subsequently, the trial court granted Grandchildren’s motion for attorney fees pursuant to Probate Code Section 17211(b), and Grandparents appealed that ruling.

The court of appeal reversed the judgment below.

The court stated that Section 17211(b) provides that if a beneficiary contests an accounting performed by the trustee, and the court determines that the trustee’s opposition to the proceeding was without reasonable cause and in bad faith, the court has authority to award costs, including reasonable attorney fees.

The court ruled that Section 17211(b) deals with the situation where a beneficiary’s contests a trustee’s accounting. Where that happens, the claim is governed by the probate court. Here, the Grandchildren did not contest a trustee’s accounting in probate court. The Grandchildren filed a civil complaint requesting injunctive relief and declaration that the agreement was in fact a trust. Therefore, the court concluded, Grandchildren were not entitled to attorney fees under Section 17211(b).

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In Astrue v. Ratliff, 2010 DJDAR 8875 (2010), the United States Supreme Court held that attorney fees awards are properly payable to the litigant, not to her attorney. For this reason, a fee award is subject to an offset where the litigant owed the government a preexisting debt.

Ruby Ree (“Ree”) successfully sued the Social Security Administration (“SSA”) for benefits. Her attorney was Catherine Ratliff (“Ratliff”). Ree filed a successful motion for attorney fees which was not opposed by the government. Before the government reimbursed Plaintiff for the fee award, it discovered Ree owed the United States a debt that predated the award. The government sought an administrative offset against the award. Counsel for the prevailing party, Ms. Ratliff, intervened challenging the offset on the grounds that the fee award belonged to her, as a litigant’s attorney, and thus could not satisfy the litigant’s debts. The district court disagreed, but the appeals court agreed with Ratliff. The issue was then appealed to the United States Supreme Court.

The high court reversed and remanded the decision of the court of appeal. 

The court specifically stated its longstanding view of the term “prevailing party.”  The court noted that in attorney fees statutes that term refers to the “prevailing litigant.” Statutes that mean to distinguish the attorney from the litigant in fees cases do so explicitly. The court also stated that the word “award” in the litigation context means giving or assigning by judicial decree. Here, the Equal Access to Justice Act provides for the court to “award” the “prevailing party” attorney fees. As such, an attorney fees award is payable to the litigant rather than to the attorney. Because the award is properly payable to the litigant it is subject to an offset for the preexisting debt.

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In Orange Blossom Limited Partnership v. Southern California Sunbelt Developers Inc. 2010 DJDAR 8623, Ninth Circuit (2010), the Ninth Circuit concluded that a bankruptcy court properly awarded costs, attorney’s fees and punitive damages against thirteen creditors that initiated an improper involuntary bankruptcy petition under 11 U.S.C. § 303 (i).

The creditors filed involuntary bankruptcy petitions against IBT International Inc. (“IBT”) and Southern California Sunbelt Developers Inc. (“SCSD”) under Chapter 11 of the Bankruptcy Code. Two individuals, Donald Grammer and David Tedder, controlled the entities that filed the petitions. 

The bankruptcy court dismissed the petitions against SCSD after finding that the petitioners’ claims were the subject of a bona fide dispute. 11 U.S.C. §303(b). The court subsequently dismissed the involuntary petition against IBT on a motion by the petitioning creditors. 

SCSD and IBT filed motions for costs, attorneys’ fees and punitive damages against the petitioning creditors under § 303 (i). They also sought sanctions against the individuals who controlled the creditors under Bankruptcy Rule 9011 and the court’s inherent power.

The court awarded IBT and SCSD costs, attorney fees and punitive damages under §303(i) of the Bankruptcy Code, and issued sanctions against Grammer and Tedder who then appealed.

The Ninth Circuit affirmed in part noting that §303(i) is a fee-shifting provision.

The court stated that the bankruptcy court may grant a debtor reasonable attorney fees when an involuntary bankruptcy petition is dismissed. The bankruptcy court awarded SCSD and IBT costs and fees incurred during the involuntary bankruptcy petition as well as those incurred while litigating claims for damages under §303(i). The Ninth Circuit concluded the award was appropriate, since a fee award can encompass all aspects of a §303 action, including claims for damages. 

The Ninth Circuit reversed on one issue noting that the bankruptcy court did not have authority to award costs against Grammer and Tedder for fees incurred by SCSD and IBT’s motions for sanctions. 

Creditors who are considering initiating an involuntary petition under Chapter 11 of the Bankruptcy Code should study this decision carefully.

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In Prison Legal News v. Schwarzenegger, 2010 DJDAR 8612 (9^th Circuit 2010) the court decided whether, and to what extent the publisher of, a monthly prison news magazine may recover attorneys’ fees from the State of California for monitoring the State’s compliance with a prior settlement agreement.

The publisher Prison Legal News (“Legal News”) settled claims against the California Department of Corrections and Rehabilitation (“CDCR”) relating to First and Fourth Amendment claims relating to dissemination of the magazine and other literature in correctional facilities. After entering into negotiations, the parties resolved the dispute and CDCR agreed to pay Legal News’ attorney fees for the period up until the agreement was executed by the parties. Legal News also reserved the right to pursue claims for attorney fees for work performed after signing the agreement. 

Subsequent to execution of the settlement agreement, Legal News filed a complaint against CDCR under 42 U.S.C. § 1983 pursuant to the procedures set out in the settlement agreement. The parties notified the district court of the settlement, sought dismissal without prejudice, and stipulated that Legal News was entitled to $320,000 in attorney fees for work done through December 11, 2006. The court granted dismissal and confirmed the attorney fee award. In October of 2007, Legal News moved for a further fee award in the sum of $137,672.79. The district court substantially granted that motion. The court awarded Legal News $137,502 in attorney fees for the period between September 1, 2007, and October 15, 2008. 

Subsequently, Legal News brought a second motion for fees in the sum of $143,322.96. The CDCR argued that Legal News was not entitled to additional fees for work performed in simply monitoring compliance with the settlement agreement.

The Ninth Circuit affirmed in part noting that § 1988 provides that in actions brought under § 1983, courts may award the prevailing party reasonable attorney fees. A plaintiff who obtains a legally enforceable settlement agreement qualifies as a prevailing party. The court stated that § 1988 authorizes attorney fees awards for monitoring compliance with the parties’ settlement agreement. This is true even where that monitoring does not lead to a judgment or order.

The Ninth Circuit concluded that Legal News was entitled to recover attorney fees for monitoring the CDCR’s compliance.

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In Lucky United Properties Investment Inc. v. Lee, 2010 DJDAR 8085 (2010), the First District Court of Appeal decided a unique issue dealing with the recovery of attorney fees incurred in enforcing a judgment.

The procedural history of the case is convoluted. In 2006, the Plaintiff sued Lucky United Properties Investments Inc. (“Lucky”) for malicious prosecution. Lucky cross‑complained for malicious prosecution against the Plaintiff and his attorney, Albert Lee (hereinafter “Lee”). The trial court granted anti‑SLAPP motions in connection with both of the lawsuits.

Thereafter, the court awarded the attorney, Lee, $26,407.50 in fees and costs as the prevailing party on his anti‑SLAPP motion. Lucky failed to pay the attorney in a timely manner, and Lee filed a cost memorandum for $424 in enforcement costs. Lucky then sent the attorney $26,820, which the attorney claimed was insufficient. Lee then sought attorney fees and costs in relation to Lucky’s appeal from the order granting Lee’s anti‑SLAPP motion. Lee claimed $587 in costs from the appeal. The trial court awarded the attorney $33,830 for attorney fees and costs. The attorney then requested attorney fees incurred to enforce the earlier order awarding attorney fees and costs. The trial court denied the request on the ground that Lucky had fully paid the amounts due before the motion was brought.

The Court of Appeal reversed and remanded the decision of the lower court, noting that a motion for attorney fees incurred in enforcing a judgment must be filed before a judgment is satisfied. Here, Lucky did not move to tax the $424 in costs claimed by the attorney. Thus, those costs were incorporated into the judgment and the $26,820 mailed to the attorney. The court noted that the amount did not satisfy the judgment. The court also noted that Lucky did not pay the original judgment in full despite the payment of $33,830. Thus, when the attorney filed the motion for attorney fees, Lucky had not fully satisfied the judgment. On that basis, the court of appeal concluded that the trial court erred in denying the attorney’s request for attorney fees.

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In Grove v. Wells Fargo Financial California Inc., 2010 DJDAR 7351 (2010), the Ninth Circuit Court of Appeals decided an interesting case involving the types of costs which are recoverable under the provisions of the Fair Credit Reporting Act (“FCRA”) 15 U.S.C. § 1681 et seq. Under FCRA § 16810(a)(2), the statute permits a prevailing plaintiff to recover the “costs of the action together with reasonable attorney’s fees as determined by the court.”

The facts of the case are summarized as follows. Wells Fargo Financial California Inc. (“Wells Fargo”) notified several credit agencies that the plaintiff was delinquent on an automobile loan. The plaintiff disputed the information and requested that Wells Fargo correct the record. Wells Fargo refused to do so. Plaintiff then sued Wells Fargo under the FCRA.

In the complaint, plaintiff alleged that Wells Fargo provided false information to the credit reporting agencies. The parties subsequently reached a settlement, and the district court approved the parties’ stipulated judgment. The agreement provided that Wells Fargo would pay plaintiff $20,000 plus costs and reasonable attorney fees. In plaintiff’s motion to recover on the judgment, plaintiff also requested $6,770.60 in non‑taxable costs, in addition to other expenses. The district court denied plaintiff’s request for costs that were not listed as “taxable” under 28 U.S.C. section 1929, concluding it did not have any authority to award non‑taxable costs. Plaintiff appealed that decision of the lower court to the Ninth Circuit.

The Ninth Circuit reversed in part, noting that 28 USC section 1920 outlines the federal court’s power to shift litigation costs. The court noted, however, that Section 1920 does not speak to the authority of the district court to award taxable costs. For that reason, the Ninth Circuit considered whether the FCRA’s expense shifting provision authorized the award of non-taxable costs. The court concluded that the statute does contemplate such an award.

The Court noted that the FCRA allows a prevailing plaintiff to recover the costs of the action together with reasonable attorney fees. The court determined that since the FCRA provides for the recovery of “reasonable attorney’s fees,” district courts have discretion to award non‑taxable costs to prevailing parties under the FCRA. The Ninth Circuit concluded that the district court erred in ruling that it had no authority to do so.

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In Rossa v. D.L. Falk Construction Inc., 2010 DJDAR 6674 (May 6, 2010), a panel from the First Appellate District decided a novel case interpreting what constitutes a recoverable cost of appeal under the California Rules of Court (hereinafter “CRC”). 

The plaintiffs were awarded $100,000 on a breach of contract claim against D.L. Falk Construction Inc. (Falk). The trial court added to the jury verdict approximately $680,000 in expenses, expert fees, and attorney fees. The Defendant appealed only from the award and the appellate court reversed. The court held that the court’s fee award of fees constituted an abuse of discretion because it was not supported by an appropriate explanation from the trial judge. Falk was awarded its costs on appeal.

On remand, Falk sought to recover the costs and expenses necessary to secure the appeal bond, including $99,289.81 for interest expenses incurred for the posting of an undertaking. The plaintiffs moved to strike the interest component. Plaintiffs argued that the interest was not reimbursable under 8.278 of the CRC. The trial court granted the plaintiffs’ motion to strike the expenses. The court ruled that interest incurred on sums borrowed to obtain a letter of credit was not subject to reimbursement under the CRCs. Falk then appealed.

The court of appeal affirmed the decision of the lower court. The court stated that CRC section 8.278(d)(1)(F) specifies the recoverable costs of appeal include the cost to purchase a bond. The court noted that these costs include the premium and cost to obtain a letter of credit as collateral.

However, the court concluded that interest paid on sums borrowed to fund a letter of credit used to obtain the undertaking are not within the ambit of the CRC’s. The interest expense Falk attempted to recover was in connection with a letter of credit, which may be recovered under different provisions of the CRC. The court however, refused to extend interest reimbursement allowable to deposits to apply to bond interest. The appellate court concluded that Falk’s attempts to recover these interest expenses were properly denied.

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In a much anticipated legal fee decision, the U.S. Supreme Court ruled on April 21, 2010, that trial courts may award fee enhancements above the “lodestar” amount to lawyers for superior performance, but only in rare and well-documented circumstances. 

The case of Perdue v. Kenny A. was one which had been carefully watched by civil rights and public interest groups, many of which rely on fee-shifting statutes when they prevail in litigation. 

The Supreme Court’s 5-4 majority rejected the fee enhancement request of $6 million by plaintiffs’ lawyers in a successful class-action suit on behalf of 3,000 children in Georgia, which the court recognized had helped reform the Georgia foster care system.

The trial judge awarded the lawyers $6 million using the lodestar method of calculating legal fees — hours worked multiplied by the local hourly market rate for lawyers of comparable experience and skill. The judge then added an “enhancement” of $4.5 million for what he said was work of exceptionally high quality.

Justice Alito, writing for the majority, said fee enhancements for superior attorney performance are permissible, but only in exceptional cases. In this case, however, he believed that the trial judge did not provide “proper justification” for the enhancement under a series of factors listed in the opinion. 

Justice Alito made it clear that the purpose of fee enhancements was not to enrich the lawyers.  He said that federal fee-shifting law,

... serves an important public purpose by making it possible for persons without means to bring suit to vindicate their rights.  But unjustified enhancements that serve only to enrich attorneys are not consistent with the statute’s aim. 

In a footnote, Alito added that if the $4.5 million fee enhancement that was awarded by the trial judge had remained in place, the attorneys representing the foster care plaintiffs “…would earn as much as the attorneys at some of the richest law firms in the country.” 

In conclusion, the 5-4 majority opinion overturned the trial court’s award of a $4.5 million lodestar enhancement to plaintiffs’ attorneys and remanded the case back to the district court.

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By: David J. McMahon and Brendan V. Mullan

In McGuigan v. City of San Diego, 2010 DJDAR 5078 (2010), the California Court of Appeal for the Fourth District rendered a decision in a unique private attorney general case under the provisions of C.C.P. § 1021.5.

A retired employee of the City of San Diego (San Diego) brought an action as a representative plaintiff for a class of similarly situated employees. The lawsuit was brought against San Diego alleging that the City seriously underfunded its retirement plans. The parties settled the lawsuit. The settlement agreement required the class representative to act in a similar capacity in further proceedings. After the settlement agreement was signed, there were extensive court hearings and several challenges raised to the settlement. 

The trial court concluded that the objections submitted had been adequately addressed, and approved the settlement and issued judgment. The settlement agreement included an award of attorney fees to class counsel pursuant to C.C.P. § 1021.5 which the court approved. San Diego subsequently was ordered to pay $1.6 million in attorney fees.

The settlement objectors appealed the court’s ruling approving the settlement. Following successful defense of the settlement on this appeal, the class representative motioned for additional attorney fees from San Diego. The trial court denied the motion. The court stated that C.C.P. § 1021.5 allows a fee award only against an “opposing” party. The court found that on appeal, McGuigan and San Diego were not opposing parties. The class representative appealed that ruling.

The Court of Appeal affirmed, noting that C.C.P. § 1021.5 permits a trial court, in its discretion, to award private attorney fees to a successful party in any appropriate action against only an opposing party. The settlement agreement entered into by San Diego and McGuigan, and the subsequent judgment, altered the parties’ relationship in the litigation. As a settling party and fellow respondent to the third party’s appeal, San Diego was not an “opposing party” to McGuigan, as they were all allied in interest in defending the settlement. 

Therefore, McGuigan was not entitled to attorney fees from the City under C.C.P. § 1021.5.

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In Jankey v. Song Koo Lee, 2010 DJDAR 2024 (2010), the California First Appellate District decided an unsettled question relating to the scope of preemption of the Americans with Disabilities Act of 1990, 42 U.S.C. §12101 (ADA). The court reviewed the preemption question vis-à-vis California Civil Code §54, known as the California Disabled Persons Act (CDPA).

The plaintiff was a disabled person who used a wheelchair. The plaintiff sued the owner of a food market, seeking injunctive relief under the ADA and the CDPA. The plaintiff claimed that a step at the entry of the market was a barrier, that effectively prevented him from entering the store. The trial court granted the defendant summary judgment.

As a prevailing party, the defendant moved for attorney fees under Civil Code Section 55 contained in the CDPA. Based on the case authority of Hubbard v. SoBreck LLC, 531 F3d. 983 (9th Cir. 2008), the plaintiff argued that the ADA preempted fee awards to prevailing defendants under Section 55 unless there is affirmative proof that the plaintiff’s action was “groundless.” The court disagreed and granted the defendant fees amounting to $118,458.

The court of appeal affirmed the trial court’s decision. The court noted that the federal law preempts state law when state law is an actual conflict with federal law. The court concluded that Section 55 of the CDPA mandated that a prevailing party in an action to enjoin a violation of disability access requirements is entitled to recover attorney fees.

The court noted that the ADA’s preemption provision’s purpose is to maximize the plaintiff’s options in pursuing state law remedies. Further, it found that a conflict does not exist between the discretionary fee provision of the ADA and mandatory nature of fees under Section 55. Accordingly, the ADA did not preempt Section 55 and the trial court properly awarded the defendant reasonable attorney fees.

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Where a Settlement Offset Exceeds the Amount Awarded at Trial

In Goodman v. Lozano, 2010 DJMAR 1925, (2010), the California Supreme Court decided an important case under CCP § 1032, the prevailing party statute. 

Background

The plaintiffs entered into a contract to purchase a house from the Lozano defendants. AMPM Construction built the house. Shortly thereafter the plaintiffs sued the Lozanos, Albert Mobrici, a principal with AMPM, AMPM, the architect, and the real estate brokers for construction defects. After protracted litigation, the builder and its principal settled with the plaintiffs for $200,000. Other defendants, except for the Lozanos, settled with the plaintiffs for approximately $30,000. The plaintiffs rejected the Lozanos’ $35,000 settlement offer under Code of Civil Procedure Section 998. The case went to trial and the court awarded the plaintiffs $146,000 against the Lozanos. However, the prior settlements totaled $230,000. 

The trial court concluded that the Lozanos should receive credit for the prior settlement and that the plaintiffs should receive nothing. Because the Lozanos paid nothing towards any judgment, the court found that they were prevailing parties. The court awarded the Lozanos $132,000 in attorney fees and $12,000 in costs. The appeals court affirmed that result.

The California Supreme Court affirmed the appellate court’s decision. The Court noted that where a plaintiff settles with defendants for an amount that is greater than a subsequent damage award against a nonsettling defendant, the damage award is essentially nullified and results in a zero judgment.  

The Court stated that prevailing party is entitled to recover costs in any action and is defined as “the party with a net monetary recovery.” The Court held that a plaintiff who obtains a verdict against a defendant, which is offset to zero due to prior settlements, has not gained a “net monetary recovery.” Accordingly, the Court held that the plaintiffs were not the prevailing parties. The Lozanos prevailed because they avoided payment to the plaintiffs by proving damages in an amount less than the settlement proceeds.

For these reasons the Court concluded that the Lozanos were entitled to their reasonable attorney fees and costs awarded at trial.

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In Woodland Part Management LLC v. City of East Palo Alto Rent Stabilization Board, 2010 DJDAR 1801 (2010) the Court of Appeal for the First Appellate district decided a unique fee case arising under the City of Palo Alto’s Rent Stabilization and Control Ordinance (hereinafter “the Ordinance”).

Woodland Part Management LLC (Woodland) was a real property management company. Woodland managed rental properties in the City of East Palo Alto. Rental properties in that city are regulated by a rent stabilization Ordinance. 

In 2008, Woodland petitioned for a writ of mandate against the City. Pursuant to the writ, Woodland alleged that the City had improperly increased a landlord registration fee assessed under the Ordinance. Woodland claimed that the City improperly raised the fee to $240 from $135 per unit. Woodland tendered payment at the old rate but the City refused to accept the funds. The superior court granted Woodland’s petition and ordered the City to process Woodland’s payments at the reduced rates. Woodland then moved for attorney fees based on § 15.A.5 of the Ordinance. The City argued that § 15.A.5 only authorized attorney fee awards in actions between landlords and tenants. The lower court disagreed and awarded Woodland $20,037.00 in attorney fees. 

The court reversed the fee award. The court noted that under § 15.A.5 of the Ordinance, a prevailing party is entitled to attorney fees “in any civil proceeding that a landlord or tenant initiates to enforce his/her rights under this Ordinance.” Woodland argued that it was acting in the capacity of a landlord when it initiated the action under the Ordinance. In response, the City argued that § 15.A.5 applies only to proceedings between a landlord and a tenant to enforce rights under the Ordinance. The court agreed with the City holding that § 15.A.5 authorized the recovery of attorney fees only in proceedings between landlords and tenants. 

Because the litigation did not involve an action between a landlord and a tenant, the court concluded that the trial court erred in awarding Woodland attorney fees.

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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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 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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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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The United States Supreme Court recently heard arguments in a significant fee case. In Perdue v. Kenny A., the court was asked to decide whether a reasonable attorneys’ fee award under a federal fee shifting statute is subject to enhancement based on the quality of performance and results obtained by counsel. These factors are arguably already included in the lodestar calculation.

The Perdue matter arose out of a dispute in Georgia’s foster care system. Children’s Rights, Inc. and an Atlanta law firm, Bondurant, Mixson & Elmore, won a fee award for their work on behalf of abused and neglected children in Georgia’s foster care system. The firms alleged that deficiencies in Georgia’s foster care system violated various federal and state laws, including 42 U.S.C. § 1983. The case was initially filed in state court and was removed by the state to a federal court. After hotly contested litigation and a series of many mediations, the parties agreed to a proposed Consent Decree that was intended to address many of the problems that existed in the foster care system. The district court described the changes as “sweeping reforms.”

In addition to the Consent Decree, the parties also agreed that the children’s lawyers should recover attorneys’ fees pursuant to 42 U.S.C. § 1988. The parties, however, could not agree on the amount of the fee award and the district judge was asked to make the determination. The judge found a lodestar fee of $6 million, and then adjusted it upward by an additional $4.5 million, based on the performance of counsel. The Eleventh Circuit Court of Appeals upheld the fee award in 2008. The author of the Eleventh Circuit opinion said that he disagreed with the lower court’s decision, but felt bound to follow circuit court precedent which allows the court to enhance a fee award under section 1988.

The state filed a petition for certiorari, and the Supreme Court granted review with regard to one narrow question: “Can a reasonable attorneys’ fee award under a federal fee shifting statute ever be enhanced based solely on quality of performance and results obtained when these factors are arguably already included in the lodestar calculation?” We will continue to track this decision and will report further when the Supreme Court issues its decision.

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In Crawford v. Astrue 2009 DJDAR 15681 (Ninth Circuit 2009), the Ninth Circuit Court of Appeals reversed a fee award made by the district court. The Ninth Circuit concluded that the lower court failed to follow the mandate of Gisbrecht v. Barnhart, 535 U.S. 789 (2002). In Gisbrecht, the United States Supreme Court rejected the exclusive use of the lodestar approach in calculating fee awards in Social Security Disability Insurance (SSDI) cases. Instead, the court stated that the lower court must respect “the primacy of lawful attorney-client fee agreements” allowing for the use of contingency fee arrangements in SSDI cases.

In Crawford, the Ninth Circuit heard three consolidated appeals involving one major issue. The Plaintiffs retained counsel to challenge denials of disability insurance benefits by the Social Security Administration (SSA). Prior to initiating the litigation in each case, the Plaintiffs entered into written contingent-fee agreements. Under the agreements, the Plaintiffs agreed to pay the attorney 25 percent of any past-due benefits awarded by the court. This fee arrangement is the maximum allowed under 42 U.S.C. Section 406(b). In each case, the SSA awarded past-due benefits to the Plaintiffs. Without objection from their clients, the attorneys filed motions requesting fees of less than 25 percent. The application was supported with evidence of the work they had done. Nonetheless, the trial court in each case awarded significantly lower fees than the amounts agreed to under the contingency agreements.

The Ninth Circuit specifically noted that exclusive reliance on a lodestar calculation is invalid. The law requires that the attorneys in SSDI cases to establish the reasonableness of their fee. The factors to consider are the proportion of time the attorney spent on the case, lodestar calculation (as one factor), the quality of the work, and the risk assumed in accepting the case. Where a court largely relies on lodestar calculations this is not in compliance with the law. Moreover, the attorneys established that their performance seemed to be excellent, no wrongdoing existed in charging the fees, and they were at great risk in taking cases that would possibly yield no payment.

The Ninth Circuit concluded that the trial court incorrectly denied the attorneys’ requested fee.

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In Gorman v. Tassajara Development Corp., 2009 DJDAR 14522 (October 6, 2009) the Sixth Appellate District overturned an award of attorneys’ fees rendered by the trial court. The court concluded that based on an analysis of the entire record, the lower court did not articulate a reasonable explanation for the fees awarded and reversed on that basis.

The court affirmed the decision of the trial court, however on the issue of an attorney’s right to recover attorneys’ fees while litigating in propria persona. The appellate court affirmed the holding of Trope v. Katz, 11 Cal. 4th 274 (1995). In Trope the California Supreme Court held that a lawyer who chooses to represent himself in a contract dispute can not recover attorneys’ fees.

Tassajara Development Corp. (Defendant) entered into a written contract to serve as general contractor for the construction of a home for John Gorman and Jennifer Cheng, (Plaintiffs). The contract contained provisions stating that the prevailing party in any litigation would be entitled to attorney fees.

In 2003, Plaintiffs sued Tassajara for alleged defective construction. At the time of the litigation, Plaintiff Gorman was an attorney with the Law Firm of Gorman & Miller PC. Plaintiff Gorman initiated the lawsuit by filing a complaint on behalf of Plaintiffs against numerous Defendants including Tassajara due to construction defects. Three years later, the parties entered into a settlement agreement whereby the Plaintiffs were deemed to be the prevailing parties. The Plaintiffs sought $1,350,538 in attorney fees and over $266,561 in costs. In a terse order, the trial court awarded the Plaintiffs $416,581.37 in attorney fees and costs of $142,432.46 after a contested hearing on the motion. The trial court denied the Plaintiffs’ request for a statement of decision and reconsideration of the order and the Plaintiffs appealed.

The Court of Appeal reversed the decision and remanded it for further findings by the lower court. The court stated that a trial court is not required to issue a statement of decision in relation to an award of attorney fees. Nonetheless, to be affirmed on appeal, an attorney fee award must be supported by a rational explanation. If there is no rational basis contained in the record, then the award itself may constitute evidence that it resulted from an arbitrary determination. 

The Court of Appeal stated that it was unable to deduce any logical explanation for the trial court’s award of $416,581.37. The award could not be justified by the Plaintiffs’ request, supporting bills, or Tassajara’s opposition. Because the court could not ascertain a reasonable basis for the trial court’s reduction of the award from that which the Plaintiffs requested, the Court of Appeal reversed the trial court’s ruling.

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In the litigation captioned In Re the Marriage of Natalija and Nikolai Solomon Lyustiger, 2009 DJDAR 14245 (2009) the Third District Court of Appeal decided an action based on the Uniform Foreign Money-Judgments Recognition Act (Act). 

Natalija Lyustiger (Wife) sought to enforce two orders of a British domestic relations court requiring Nikolai Solomon Lyustiger (Husband) to pay a total of 50,000 pounds for Wife’s attorney fees arising from dissolution proceedings. After trial, the California trial court (Yolo County) determined that enforcement of the British orders was proper under the Act and entered judgment accordingly.

On appeal the Third District reversed the lower court’s ruling noting that the Act specifically excludes from its scope the enforcement of “support in matrimonial or family matters.” Moreover the Act contains a broad definition of “support.” The court stated that the award of fees was for purposes of the Act, in the nature of “support;” therefore, the trial court erred by enforcing the award of attorney fees.

Natalija and Nikolai Lyustiger met in London in April 2001 and were married in the U.S. in 2002. They lived in Russia, until Natalija moved back to London alone. The Lyustigers apparently divorced in 2004 and entered into a settlement agreement whereby Nikolai agreed to pay spousal support to Natalija. In 2005, the parties sought and received a Russian decree of divorce. 

Later, Natalija filed for divorce in the High Court of Justice in London. Husband argued that the court did not have jurisdiction because the marriage had already been dissolved. The British court ordered Nikolai to pay 50,000 pounds for Natalija’s attorney fees and Husband ignored that order. In 2006, after moving to California, Wife sued Husband to enforce the British fee award. The trial court held that the British order was enforceable and required Nikolai to pay the attorney fees.

On appeal the court specifically noted that the Act allows a judgment of a foreign state to be enforceable in the same manner as the judgment of a sister state. The court of appeal stated however, that the Act excludes the enforcement of foreign-county judgments for “support in matrimonial or family matters” and that term “support” is defined broadly.

Because the British order awarded attorney fees as part of Natalija’s maintenance, which is basically the same as “support” for purposes of California law, the Act did not apply and the court of appeal reversal.

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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.

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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.

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In Consolidated Consumer Privacy Cases, California Court of Appeal – 1st District, 2009 DJDAR 9765 (June 30, 2009), the First Appellate District approved what is sometimes referred to as the “clear sailing” doctrine concerning an attorney fee award. The award was sought under the common fund doctrine and under the “private attorney general” provisions of CCP § 1021.5.

The Utility Consumers’ Action Network (“Utility Consumers’”) sued Bank of America N.A. (hereinafter the “Bank”) and related entities for unfair competition, false advertising, invasion of privacy and related claims. Thereafter, the case was coordinated with similar actions filed against the Bank. In April of 2003, a consolidated class action complaint was filed against the Bank pursuant to court order. That complaint alleged that the Bank disclosed confidential information to unauthorized third parties for a fee. The parties reached a comprehensive settlement agreement in 2007, which provided that class counsel would seek court approval for payment of not more than $4 million in attorney fees from the Bank.

The Bank agreed not to oppose such an application by class counsel, so long as the fee award was capped at $4 million or below. The Bank did reserve the right to seek to withdraw from the agreement if the court awarded a higher amount. The arrangement not to oppose a set sum amount of attorney fees is often referred to as a “clear sailing” agreement. After approving the settlement, the trial court awarded almost $3 million to class counsel plus expenses. Numerous parties then filed an appeal, arguing that the trial court erred in approving the amount of fees to class counsel and specifically the procedural vehicle referred to as the “clear sailing” agreement.

The court of appeal affirmed. The court noted, that under the record before it, there were no terms contained in the agreement that were inappropriate. The court specifically noted that it could find no federal or California authority which condemned an agreement by the defendant to pay reasonable attorney fees as awarded by the court, up to a certain amount. The court noted that the objectors’ claims that such a payment scheme constituted a breach of fiduciary responsibility by affording class counsel on incentive to prioritize their fee claim, over the class’s recovery was not meritorious. The court even recognized that the Federal Manual for Complex Litigation acknowledged and implicitly approved of such an arrangement. 

Clear sailing agreements are a useful tool in resolving complex cases and take some of the uncertainty out of the amount and ultimate resolution of fee awards.

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In Choi v. Orange County Great Park Corp., California Courts of Appeal 2009 DJDAR 9790, (June 30, 2009) the Fourth Appellate District reversed the decision of the trial court, denying a fee application submitted pursuant to Code of Civil Procedure § 1021.5, California’s “Private Attorney General” statute.

The defendant in the case was a public benefit nonprofit corporation called Orange County Great Park Corp. (OCGPC). The entity was created to develop a former U.S. Marine Air Station property in Orange County, California. Over $400 million in public money was committed to the project. OCGPC had a nine‑member board that consisted of the Irvine City Council (ICC) and four outside directors. Steven Choi and Christina Shea (collectively, Choi) were two of the outside directors. After the CEO of OCGPC resigned, a search committee consisting of four directors was formed to find a replacement.

The plaintiff, one of the outside directors, was not included on the search committee and her request to see the resumes of the applicants was refused. Choi petitioned for a writ of mandate to compel defendant to produce the requested documents. Prior to the hearing, the parties entered into a stipulation whereby OCGPC agreed to let Choi view the documents. Choi filed a motion to recover attorney fees as the “prevailing party” under Code of Civil Procedure § 1021.5. The petition was summarily denied by the trial court.

The trial court’s decision was reversed by the Court of Appeal. The court noted that Section 1021.5 permits recovery of attorney fees for a “prevailing party…when its action has resulted in the enforcement of an important right affecting the public interest [and] a significant benefit has been conferred on the general public.” It is not necessary for a party to have received a “final favorable judgment” but rather, the “critical fact is the impact of the action, not the manner of its resolution.” 

The court concluded that Choi was the prevailing party as she received the desired end result. Her lawsuit resulted in the enforcement of an important public right to review candidates who would ultimately control a significant amount of public money.

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In Cadkin v. Loose, 2009 DJDAR 9552, US Court of Appeals - Ninth Circuit, No. 08-55311 (June 26, 2009), the Ninth Circuit reviewed and reversed a decision rendered by the district court holding that the defendant was the “prevailing party” entitled to an award of fees where the plaintiff voluntarily dismissed the action without prejudice.

In Cadkin, the plaintiff initiated a lawsuit alleging copyright infringement, as well as other claims. Ultimately, plaintiff voluntarily dismissed the action without prejudice and the defendant sought to recover its reasonable attorney’s fees expended in defense of the litigation. The district court granted the fee application based on “controlling circuit precedent” holding that a defendant is entitled to an award even where the plaintiff has voluntarily dismissed the action without prejudice. See Corcoran v. Columbia Broadcasting System, Inc., 121 F.2d 575, 576 (9^th Cir. 1941).

The Ninth Circuit reviewed the lower court’s decision in light of the Supreme Court’s holding in Buckhannon Bd. & Care Home, Inc., v. W. Va. Dep’t of Health and Human Res., 532 U.S. 598, 604 (2001). In that case, in the context of the Fair Housing Amendments Act (FHAA) the United States Supreme Court stated that the determination of prevailing party status should be determined on whether “a material alteration of the legal relationship of the parties” has occurred. In applying Buckhannon to the Cadkin case the court also explicitly cited to recent Ninth Circuit case law holding that dismissals without prejudice do not “alter the legal relationship of parties” for attorney’s fee award purposes. See Oscar v. Alaska Dep’t Of Educ. & Early Dev. 541 F.3d 978, 981 (9th Cir. 2008)

The court noted that Copyright Act Section 505 authorizes a court to award “reasonable attorney’s fees to the prevailing party.” However, the panel concluded that the Corcoran opinion holding that a defendant is the prevailing party upon voluntary dismissal without prejudice was “clearly irreconcilable” with the controlling Supreme Court authority set forth in Buckhannon. Thus, this court reversed the attorney’s fee award, finding that plaintiff’s voluntary dismissal without prejudice still afforded the plaintiff the ability to refile its copyright claims against defendant. Accordingly, defendant was not a prevailing party and was not entitled to an award of attorney’s fees.

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The Ninth Circuit decided a “prevailing party” issue in the environmental context in Citizens for Better Forestry, et al. v. U.S. Department of Agriculture, 2009 DJDAR 8323 (2009). Citizens for Better Forestry and other environmental groups sued the USDA alleging violations of the National Environmental Policy Act (NEPA) and other environmental statutes. The Plaintiffs alleged that the USDA committed procedural violations of NEPA and other statutes when promulgating a new national forest management rule and sought declaratory and injunctive relief.

The district court dismissed the suit on standing and ripeness grounds. On appeal the Ninth Circuit court reversed and remanded, holding that the USDA had violated NEPA and directed the district court to determine whether injunctive relief was proper. That matter was decided at Citizens for Better Forestry v. U.S. Department of Agriculture 341 F.3d 961, 965 (9th Cir. 2003).

After Ninth Circuit reversed the decision of the district court, the USDA withdrew the challenged rule and issued a new one in its place. The Plaintiff then dismissed its case and moved for attorney fees under the Equal Access to Justice Act (EAJA). The district court awarded attorney fees, holding that the environmental groups were the “prevailing party” on the NEPA claims. The USDA appealed the district court’s ruling and the Ninth Circuit reversed once again.

The Ninth Circuit court held that the EAJA permits an award of attorney fees to a “prevailing party” in civil actions against the United States. To be considered “prevailing,” a party must have been awarded a judgment or similar relief in its favor. Further, an award “must be preceded by a material alteration” of the parties’ legal relationship. The Plaintiffs argued that they should be considered a prevailing party due to the ruling that the USDA violated NEPA. The Ninth Circuit noted however, that Plaintiffs did not receive a formal declaratory judgment or other relief from any court. This court found that a favorable determination on an issue did not suffice to consider them to be a prevailing party. Further, the legal relationship of the parties did not materially alter. The Ninth Circuit concluded that the district court erred in awarding attorney fees.

Citizens for Better Forestry should be studied by potential fee claimants’ prior to moving for a fee award under the EAJA. The court here seemed inclined to deny the award for fees where the plaintiff simply dismissed the case after the USDA issued a new set of rules. In retrospect the plaintiff should have obtained a finding that it was their litigation which caused the USDA to amend the rule. The court would likely have granted the award under that scenario.

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In Hyde v. Del Nero, 2009 DJDAR 8329 (2009), the Ninth Circuit clarified whether a lawyer for a party may be liable for fees under 15 U.S.C. Section 1692k(a)(3) of the Federal Debt Collection Practices Act (“FDCPA”) (pdf). In 2004, the plaintiffs filed suit against Midland Credit Management, Inc. (“MCM”) alleging violations of the FDCPA. Three months before trial, the law firm of Hyde & Swigart was retained to represent one of the plaintiffs after MCM settled with the other plaintiff.

The case was heard as a bench trial. The judge dismissed a number of the remaining plaintiff’s claims during trial and eventually rendered an award in favor of MCM. Plaintiff presented only one supporting witness at trial. The district court awarded MCM attorney’s fees and costs against the plaintiff and his lawyers, Hyde & Swigart, jointly and severally.

In support of the award, the district court wrote that plaintiff’s sole witness was “wholly without credibility” and the case was brought “in bad faith for the purpose of harassment” as defined in Section 1692k(a)(3) of the FDCPA. The law firm appealed the award of fees rendered against it. 

On appeal, the lawyers argued that attorney’s fees may not be awarded against a plaintiff’s attorney under Section 1692k(a)(3). The Ninth Circuit agreed and reversed. The court stated that under Section 1692k(a)(3), a court may award reasonable attorney’s fees for an action “brought in bad faith and for the purpose of harassment.” The court noted however, there is a general presumption that an attorney is not liable for fees unless a statute explicitly provides for such a liability. The court noted that Section 1692k(a)(3) is silent as to who is responsible for the actual payment of the award. On this basis, the court determined that an award under Section 1692k(a)(3) cannot be against the plaintiff’s attorneys as there was no authorization within the statute for such a result. The Ninth Circuit emphasized that although the trial court has discretion to determine reasonable attorney’s fees, it had no authority to shift the burden of payment on parties other than the plaintiff, without specific statutory authorization.

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In Smith v. Workers’ Compensation Appeals Board, 2009 DJDAR 6715, May 11, 2009, the California Supreme Court decided a case concerning the contours of Labor Code §4607. That statute provides:

“Where a party to a proceeding institutes proceedings to terminate an award made by the appeals board to an applicant for continuing medical treatment and is unsuccessful in such proceedings, the appeals board may determine the amount of attorney’s fees reasonably incurred by the applicant in resisting the proceeding to terminate the medical treatment, and may assess such reasonable attorney’s fees as a cost upon the party instituting the proceedings to terminate the award of the appeals board.”

The Plaintiffs in the case sustained injuries while working for their respective employers. The Plaintiffs were awarded partial permanent disability and future medical treatment. After some passage of time, the Plaintiffs requested additional treatment. The State Compensation Insurance Fund (SCIF), the Plaintiffs’ employers’ insurance carrier, declined the demand for further treatment. The Plaintiffs instituted proceedings to obtain the treatment. The workers’ compensation judge found that treatment remained medically necessary and authorized the requested medical procedures. The Plaintiffs then moved for attorney fees under Labor Code Section 4607. The workers’ compensation judge denied the requests, asserting that SCIF did not institute proceedings to terminate the Plaintiffs’ awards for medical treatment. The Court of Appeal reversed the determination below.

The California Supreme Court reversed the appellate court. The Court stated that Section 4607 authorizes an award of attorney fees to an employee who has successfully defended against his employer’s attempt to terminate an award for medical treatment. The employee is entitled to attorney fees only if the employer challenged the continuing necessity for the original award. Attorney fee awards are not proper where the employer or insurer has denied a request for specific treatment. Here, each plaintiff made specific requests for treatment. SCIF disputed the specific requests and did not attack the plaintiffs’ initial awards of future treatment. The Court concluded that Section 4607 did not authorize an award of attorney fees to the Plaintiffs.

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Very often the final judgment is issued by the trial court, which triggers the deadline for appealing the decision.  In the interim, the trial court has yet to decide the fee application filed by the prevailing party.  The fee award can then be issued after expiration of the deadline to appeal the final judgment.  As a practitioner, if you wish to claim error in the fee award, what do you do?  The answer is either appeal, separately, the fees decision, or appeal both rulings in the same Notice of Appeal.  Failing to do so may result in your inability to claim error in the fee application ruling.  

In Colachis v. Salazar, a recent unpublished opinion by the California Court of Appeal, Second District, a pro per plaintiff received an unfavorable judgment in September 2007.  His subsequent motion to vacate the judgment was also denied.  Plaintiff then received a $58,104 attorney fee award issued against him in November 2007.  However, Plaintiff's Notice of Appeal only mentioned the "judgment and order denying motion to vacate judgment.”  When Plaintiff attempted to challenge the fee order, the court concluded Plaintiff’s failure to expressly appeal the postjudgment fees order was fatal.  Although the Colachis decision is unpublished, the court relied upon Colony Hill v. Chamaty, 143 Cal.App.4^th 1156 (2006) -- which is a published opinion -- to conclude that appellant’s failure to appeal from the postjudgment attorney fees award had deprived the court of jurisdiction to consider the issue. 

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