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

The State of California engaged in lengthy and protracted litigation with numerous tobacco manufacturers concerning their marketing activities and advertising in the State of California. In the Consolidated Tobacco Cases, the court of appeal rendered a decision concerning the award of attorney fees which may bring that litigation to its final conclusion.

In 1998, Reynolds Tobacco (“Reynolds”) and other tobacco manufacturers entered into a settlement agreement with the state, in an attempt to finally resolve claims related to the advertising of tobacco products.

The trial court approved the settlement and the parties entered into a stipulated consent decree. This too was entered as an order of the court. The decree permanently enjoined Reynolds from using cartoons in its marketing campaigns. Subsequently, the state moved to enforce the consent decree, alleging Reynolds violated the consent decree in a subsequent advertising campaign.

The court refused to grant the state’s request for an injunction however. The court concluded that Reynolds had discontinued the advertisement, and for that reason alone the requested injunction was not necessary. After further protracted litigation, the lower court awarded the state almost $3 million in contractual attorney fees under Civil Code Section 1717. The basis for the fee award was the court found that the state was a prevailing party in an action to enforce the consent decree. Reynolds appealed, arguing there was no basis for the award of attorney fees.

The court of appeal affirmed, referencing Civil Code Section 1717. Under that statute, the prevailing party in a contract containing a fee provision can be awarded fees. The prevailing party is the one “who received the greater relief in the action on the contract.” Reynolds argued that the state did not obtain the necessary relief because the trial court denied the state’s subsequent request for injunctive relief. The court noted, however, that the lack of injunctive relief did not automatically require the trial court to reject the fee petition.

The court of appeal concluded that, because the state’s main litigation objective was to stop the use of cartoons in advertising, and because it largely achieved that objective, it was a prevailing party. On that basis, the attorney fee award was affirmed by the court of appeal.

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Tags: 2013 DJDAR 6358, Appeals, Attorney Fees, Civil Code 1717, Consolidated Tobacco Cases, Prevailing Party Suits, prevailing litigant

In Higher Taste Inc. v. City of Tacoma the Ninth Circuit Court of Appeals awarded fees to a non‑profit religious organization arising from a civil rights dispute. The non‑profit sold T‑shirts adorned with a religious/spiritual message along the walkway to a public zoo.

The public entity who owned the zoo subsequently banned the sale of all merchandise along the walkways leading to the zoo’s entrance. The non‑profit sued the public entity. 

The organization alleged civil rights violations and also sought an injunction to maintain the status quo. The district court granted the non‑profit a preliminary injunction. The parties then reached a settlement and the non‑profit moved for attorney fees on the ground that they were the prevailing party in the litigation. The lower court rejected the fee award in its entirety.

The Ninth Circuit reversed the denial of the fee petition. The court noted that for purposes of the applicable civil rights statutes (42 U.S.C. Section 1988(b)), the plaintiff is entitled to attorney fees when actual relief on the merits of his claim “materially alters” the parties’ legal relationship in a way that benefits the plaintiff. 

The Ninth Circuit noted that the preliminary injunction was granted on a finding that the non‑profit was likely to succeed in the litigation. The Ninth Circuit reasoned that because this in turn led to a “settlement” of the controversy, that settlement paved the way for a finding that the non‑profit was a prevailing party under controlling law. The court concluded that the lower court erred in declining to award reasonable fees.

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Tags: 42 U.S.C. Section 1988(b), Appeals, Attorney Fees, Higher Taste Inc. v. City of Tacoma, Prevailing Party Suits, attorneys' fees, prevailing litigant

In Sebelius v. Cloer, the United States Supreme Court decided a closely watched attorney fee case arising under the National Childhood Vaccine Injury Act of 1986 (“the Act”). That Act established a no‑fault compensation system to speed compensation to any injured parties.

In Sebelius, the Court concluded that so long as the claimant’s petition was filed in “good faith and with a reasonable basis,” attorney fees were proper, even to a losing party. The Plaintiff received a hepatitis immunization. Shortly thereafter, the Plaintiff began to experience symptoms that ultimately led to multiple sclerosis (“MS”). Subsequently, the Plaintiff alleged a link between her MS diagnosis and the vaccine.

The Plaintiff then filed a claim for compensation under the Act. The Act requires claims to be adjudicated before a Special Master. 

After hearing the matter, the Special Master concluded that the Plaintiff’s filing was untimely as the claim was filed after the three year period set forth in the Act. The Federal Circuit agreed with the Special Master that the claim was not timely. Nonetheless, the Plaintiff sought attorney fees, and the Federal Circuit ultimately found she was entitled to recover reasonable fees.

On appeal, the Supreme Court affirmed the fee award. The Court noted that a court may award attorney fees and costs incurred by a claimant in any proceeding brought under the Act, even for an unsuccessful petition. A fee award is proper so long as the petition was brought in “good faith” and there was a “reasonable basis” for the claim. On that basis, the Court affirmed the grant of fees to the claimant.

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Tags: Appeals, Attorney Fees, Class Actions, National Childhood Vaccine Injury Act of 1986, Sebelius v. Cloer, United States Supreme Court, attorneys' fees

J.R. Marketing LLC v. The Hartford Cas. Ins. Co., A133750 (May 17, 2013)(unpublished), was just recently decided by the California Court of Appeal for the First District. This is a fascinating case from an insurance perspective, with Cumis counsel issues, attorneys' fees claims, Buss allocation of fees between matters and waivers of Civil Code Section 2860 protections. This case has it all.   

A carrier issued two CGL policies, and when the insured tendered their defense of a lawsuit under the policies the carrier initially denied a duty to defend, claiming the occurrences took place prior to the policy periods.  After the insureds filed a lawsuit against their insurer, the carrier agreed to defend under a reservation of rights, but declined to provide and pay for independent counsel, or Cumis counsel, pursuant to the California Supreme Court decision in San Diego Fed. Credit Union v. Cumis Ins. Society Inc. (1984) 162 Cal.App.3d 358.

When the court granted the insureds’ motion for summary adjudication, it held that the carrier not only had a duty to defend, but also had a duty to retain independent Cumis counsel.  The carrier then paid over $15 million in fees and costs incurred by Cumis counsel, but in an effort to seek reimbursement of certain fees, the carrier then filed a cross-complaint against the Cumis firm for reimbursement of fees incurred in unrelated, uncovered matters, fees incurred for uninsured entities, pre-tender fees and any unnecessary and unreasonable fees. 

The Court of Appeal first recognized that certain protections were normally available to the carrier under Civil Code Section 2860, including a provision limiting the hourly rates paid to independent counsel, and the right to arbitrate the fee issues.  But the carrier was deemed to have forfeited those 2860 protections due to its refusal to accept tender of the defense.

Secondly, the Court recognized that an insurer may very well have a right of reimbursement under Buss v. Superior Court, (1997)16 Cal.4 35, but the novel question before the Court was, “from whom?”  

Reasoning that due to the important policies created by 2860, the court held that the breach of 2860 meant that the carrier lost all right to control the defense, and that consequently the carrier should not be able to obtain the same result by seeking reimbursement from the firm after the fact.  The insured was left to negotiate the fee arrangement with the firm on its own, and otherwise control the defense of the action, so the carrier was not allowed to seek reimbursement in a direct action against the firm. 

But the Court also limited its holding to the facts of the case, explicitly stating that the decision did not apply to carriers seeking reimbursement from the insureds directly, and did not apply to those situations where the carrier may be claiming that independent counsel utilized fraudulent billing practices.

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Tags: Allocation Between Claims, Attorney Fees, Cumis, Cumis Doctrine, J.R. Marketing LLC v. The Hartford Cas. Ins. Co, Reasonably and Necessarily Incurred

In In re: HP Inkjet Printer Litigation, 2013 DJDAR 6149 (2013) the Ninth Circuit Court of Appeals reversed the approval of an attorney's fee award. The Ninth Circuit concluded that the fee award did not comply with the provisions of the Class Action Fairness Act (CAFA). Specifically, the Ninth Circuit found that the district court awarded fees that were “attributable” to the coupon relief offered in the settlement, but failed to first calculate the redemption value of the coupons as required by applicable law.

Plaintiffs filed three class actions alleging that HP engaged in unfair business practices relating to the use of ink cartridges. HP reached a settlement with the consumers, who purchased inkjet printers. The district court approved the settlement, which provided for coupons for the class members as well as injunctive relief. In addition, the district court approved an award of attorney fees of $1.5 million and a significant award of costs. 

The district court reviewed the fee request and awarded lodestar fees based on its conclusion that the settlement value to the class was $1.5 million. Recognizing that it would be improper to award fees that were higher than the class benefit, the court ordered HP to pay a reduced lodestar of $1.5 million down from a potential of $7 million in fees. Two class members objected, contending the reduced fee award still violated the provisions of CAFA.

The Ninth Circuit reversed the lower court’s decision on fees. The Ninth Circuit noted that under CAFA, when a settlement provides for coupon relief, the court must first calculate the redemption value of the coupon, as a prerequisite to considering the claim for attorney fees. As such, the Ninth Circuit concluded that under the provisions of CAFA, the district court was required to first calculate the redemption value of the e-credits in making its determination of attorney fees. 

Because the record did not reflect such an analysis, the Ninth Circuit remanded the case to the District Court to make a determination consistent with the required analysis under CAFA.

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Tags: Appeals, Attorney Fees, Business and Professions Code section 17200, CAFA, Class Action Fairness Act, Class Actions, In re: HP Inkjet Printer Litigation, Lodestar, Lodestar Enhancements

In Khavarian Enterprises Inc. v. Commline Inc.,2013 DJDAR 6107 (2013) the California Court of Appeal for the Second Appellate District overruled the trial courts denial of a fee claim arising out of a settlement agreement. 

The court of appeal concluded that parties to a settlement agreement can validly specify that one party is a potentially prevailing party. The court also stated that the “prevailing party” issue can be reserved by the parties for later determination by the trial court.

The Plaintiff filed an action for trade secret misappropriation against several defendants, seeking damages, restitution and injunctive relief.

After almost two years of litigation that parties engaged in mediation, and entered into a settlement agreement that specifically reserved the issue of whether the Plaintiff was entitled to recover attorney fees and to file a cost bill. The parties filed a notice of settlement and the action was dismissed. 

The Plaintiff, then filed a memorandum of costs and a motion for attorney fees. After a hearing, the trial court denied the motion for attorney fees and also struck the Plaintiffs memorandum of costs. The trial court concluded that the Plaintiff was not the prevailing party in the litigation. The trial concluded that the settlement precluded an award of fees as the “matter was resolved in a settlement.”

The Court of Appeal reversed noting that when interpreting a settlement agreement, the court’s goal is to objectively determine the mutual intention of the parties from the provisions contained in the agreement. In this case the court focused on the parties’ objective intent from the terms of the contract.  The court concluded that the Plaintiff’s potential entitlement to fees was specifically reserved for further handling. The trial court’s decision to deny the Plaintiff’s motion for attorney fees and costs was reversed on that basis.

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Tags: Appeals, Attorney Fees, Khavarian Enterprises Inc. v. Commline Inc., Prevailing Party Suits, settlement

By David J. McMahon & Jeevan Subbiah

Introduction

Many of our litigation management audits involve complex environmental cleanup cases. In these cases, it is important to first evaluate the underlying matter, including the fact patterns of the various lawsuits, in relation to the contested coverage provisions. Then we examine the manner in which the tendered fees and expenses were incurred, including the legal and consultant work performed. Many of our audits involve excess liability indemnity policies with large self insured retentions often in excess of $30 million. Subject to the terms and conditions of the policies, the insurer typically has no payment obligation until and unless the self insured retention is appropriately exhausted by the appropriate payment of covered claims. The insurers obligation arises for expenses in excess of the policy’s self insured retention.

Evaluation of the Policy

It is important to thoroughly evaluate the definition of "Defense Costs" when reviewing the applicable policy language. In addition, the policies may also contain exclusions for property damage which is owned, occupied by or rented to the insured. These claims need to be carefully evaluated.

An insurer may find it beneficial to hire an independent consultant or expert to assist in the review of the insured’s fee and cost claim. We can analyze the back-up submitted by the insured, including information contained in databases which may have been submitted in support of insured’s claim. In addition, we can review any independent investigation of the facts and circumstances concerning the underlying incident.

Burden of Proof is on the Insured

Generally, the burden is on the insured to demonstrate that a loss falls under the coverage provisions of the insurance contract. (“The burden is on the insured to prove that a loss falls within the policy’s coverage”; “An insured seeking to recover for a loss under an insurance policy has the burden of proving that a loss occurred and also that the loss was a covered event within the terms of the policy.”). 

When part of the loss is covered under a policy and part is not, the insured typically has the burden of proving the proper allocation.

Reviewing Costs

In our audits, we often find that many questionable costs require further investigation. For example:

1. Inefficient and Unreasonable Cleanups – The environmental cleanup conducted by the insured and the insured’s contractors may have been conducted in an inefficient manner, resulting in potentially unreasonable costs. We can review the total dollar amount expended in comparison to the work performed in other similar environmental cases to see if inefficiencies exist.
2. Work Conducted by Specific Contractors - Specific contractors (vendors) may need particular scrutiny. For example, environmental remediation work performed by a particular vendor may need to be validated in detail and distinguished from other work. Also, specific work may be excluded by the policy (such as work conducted on a right of way) or may be covered under the primary coverage obtained by the insured.
3. Community Information – Our review of underlying documents related to the matter may result in finding a document, such as a letter from a neighbor or community member, that highlights the inefficient nature of the environmental cleanup. In addition, the insured may cleanup property that was not impacted by the event or was not in the immediate vicinity. Such “aggressive” cleanup work may have been done for “public relations purposes” to ward off potential lawsuits. If so, this work may not be covered by the policy since it may not be a covered defense cost. In addition, contractors sometimes overcharge for inefficient work.
4. Vendor Documentation - The documentation submitted by the insured in support of the charges for environmental remediation contractors may be deficient and the insured may fail to meet its burden of establishing that these particular charges are covered by the policy. Often a review of one contractor will result in findings that are equally applicable to the other contractors.
5. Charges Previously Submitted to First Party Insurers – A review of the invoices may also show that the charges were previously submitted to the insured's first party insurers before submission to the liability carrier. This may be an attempt to “double dip” on recoverable costs or fees.

The examples set forth above are just a few illustrations of the potential unreasonable costs and activities that may be identified from a careful analysis of the bills and supporting documentation. 

Conclusion

After reviewing all the foregoing, including the applicable correspondence relating to the claim, we often are able to reach conclusions on whether the expenses are reasonable and were necessarily incurred as required by the applicable policy provisions. We can also determine whether a portion of the expenses were also incurred for activities which are excluded from coverage. We can quantify this amount in both our charts and report. These documents may provide support for negotiation, settlement or the insured to submit additional information for review. 

Please feel free to contact us if you have questions about the protocol referenced above.

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Tags: Attorney Fees, Complex Environmental Fee Claims, Litigation Management, environmental cleanup

In Duchrow v. Forrest, 2013 DJAR 5534 (2013) the California Court of Appeal for the Second Appellate District decided a unique fee claim arising in a procedural context.

An attorney, the Plaintiff, retained counsel to sue her employer for employment‑related claims. Under the retainer agreement, the Plaintiff and the lawyer agreed that the lawyer would be compensated on an alternative fee arrangement involving both hourly rates and on a contingency fee basis.

At the beginning of the trial, Plaintiff’s counsel moved to withdraw from the case. The Plaintiff did not oppose that request and the court granted the motion to withdraw. The Plaintiff apparently could not find another attorney to represent her. The case was subsequently dismissed. 

After the dismissal was entered, counsel sued the Plaintiff for breach of the retainer agreement, alleging he was entitled to approximately $40,000 in fees. Near the end of a week long trial, the lawyer then filed a motion to amend the complaint, increasing the amount of fees at issue to over $300,000. Counsel claimed the new sum was valid as it represented compensation for additional work on the file. The trial court granted the motion to amend and the jury awarded the lawyer $140,057 in fees.

The Plaintiff filed an appeal and the Court of Appeal reversed the trial court’s decision under Code of Civil Procedure Section 473(a)(1).

The court noted that a trial Judge has discretion to determine whether to grant an amended complaint. Despite the discretion, the court of appeal also noted that a trial court must still consider mitigating factors, such as untimely presentation of the amendment. The court of appeal noted that unexplained lengthy delay in seeking the amendment is a valid reason for denying a motion for leave to amend. 

The court of appeal concluded that the lawyer should have included the true amount sought in the original complaint or should have sought leave to amend at an earlier date, not during trial. The panel stated that the delay in seeking the amendment deprived the Defendant of the ability to prepare for trial and the motion should have been denied on that basis alone.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 473(a)(1), Contingency Fees, Duchrow v. Forrest

In Kleveland v. Siegel & Wolensky LLP, 2013 DAR 4961(2013) the California Courts of Appeal for the Fourth Appellate District affirmed the denial of a special motion to strike and the award of costs and attorney fees as sanctions arising out of family trust litigation.

The Plaintiff filed a malicious prosecution suit against a law firm. The case was hotly contested and resulted in years of litigation and multiple appeals.  

After the contentious litigation, one party (the “Plaintiff”) filed a malicious prosecution complaint. The “Defendant,” a law firm, filed a special motion to strike under California Code of Civil Procedure §425.16 in response to the complaint. CCP §425.16 is commonly referred to as the anti‑SLAPP statute. 

The trial court concluded that the Plaintiff’s complaint had merit and that the Plaintiff would likely prevail. Thus, it denied the law firm’s special motion to strike under CCP §425.16. The trial court also awarded the Plaintiff attorney fees and costs as sanctions concluding that the special motion to strike had been filed for improper purposes.

The court of appeal affirmed the lower court decision. The court of appeal concluded that the law firm’s anti-SLAPP petition did arise from valid first amendment activity.  However, the court of appeal also concluded that the Plaintiff was likely to prevail on the merits and that the petition was filed with the purpose of forcing a settlement, which the court of appeal found to be an improper tactic.  On that basis, the court of appeal concluded that the appeal was not meritorious and that sanctions were properly granted.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 425.16, Kleveland v. Siegel & Wolensky LLP, anti-SLAPP statute

David McMahon wrote an article published in The Recorder on March 29, 2013, about qualitative litigation management audits, which seek to determine whether the litigation bills are reasonable and necessary.

According to McMahon's article, a qualitative litigation management audit looks at the strategy, staffing and overall approach utilized in the case and is intended to ensure that attorneys hired for litigation and other legal work operate “in a goal-directed, streamlined and thus cost-effective manner.

To this end, we typically review the available work product, including the pleadings, motions, discovery requests and correspondence to identify wasteful practices, improper staffing and to identify opportunities to increase efficiency,” McMahon wrote.

In his article, McMahon notes a number of factors including the filing of unnecessary motions, needlessly aggressive letters to opposing counsel and staff management issues that tend to drive up the cost of litigation.

A PDF of the article will be available shortly.

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Tags: Attorney Fees, Litigation Management, billing audits

The Kentucky Supreme Court disbarred a Cincinatti class action lawyer for his role in the notorious $200 million class action settlement concerning the diet drug Fen-Phen.

But he was not the first.  According to this article, several lawyers and even a judge were similarly disbarred, and two of those lawyers were convicted on federal charges and remain behind bars. 

Unfortunately, the general public tends to assume that a few bad apples spoil the whole bunch.  And so it goes.  The general reputation of lawyers continues to suffer.

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Tags: Attorney Fees

A San Francisco appeals court has rejected a law firm’s attempt to recover $3 million billed on a trust matter on the grounds that the work did not benefit the estate.

As reported in the Daily Journal on February 28, 2013, the fee dispute arose in connection with ongoing litigation over the $350 million estate of Herbalife Ltd. founder Mark R. Hughes. The law firm Mitchell, Silberberg & Knupp LLP sought the contested $3 million, which was on top of more than $3 million it had already been paid, for work performed on behalf of Hughes’s former wife, Suzan Hughes.

The trial court previously denied recovery of the additional fees, holding that Suzan hired the firm out of personal animosity towards the trustees rather than for the benefit of the estate. Specifically, the firm attempted to remove the trustees and halt a tax deal that the trustees had implemented.

As reported in the Daily Journal, the 1^st District Court of Appeal in San Francisco affirmed that decision on Wednesday. Writing for the panel, Justice Martin J. Jenkins stated that the lower court’s findings were supported by substantial evidence “that petitioner’s litigation incentives were, for the most part, of no essential benefit to the guardianship.”

The decision angered Mitchell attorneys. The court “got it completely wrong,” Mitchell attorney Hillel Chodos, who performed much of the work at issue, told the Daily Journal. “The idea that what we were doing was not in [Suzan’s son’s] interest came from the trustees who think it is inappropriate to sue them,” he said.

The ruling indicates that, at a minimum, attorneys taking on a trust case must carefully consider whether their activities will benefit the trust if they want the estate to pay their bills. This is not always an easy call to make.

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Tags: Attorney Fees, Attorneys' Fees Dispute, Herbalife Estate, trust and estate cases

By David McMahon & Jeevan Subbiah

This is a follow up in our series, How to Select New Counsel and Manage Legal Fees, related to litigation management for startup companies to help ease the frustration and confusion of hiring and managing legal counsel for the first time. As you may recall, previously we have discussed typical legal needs for a startup, tips for selecting an attorney, big and small firm size, and crowdfunding and The Jobs Act.

The initial stages of litigation management become important as you close in on hiring counsel. Early litigation management can include negotiating a billing rate appropriate for your legal needs, determining whether your work can be billed at an hourly or project rate, considering deferred billing and regularly reviewing your legal billing for inconsistencies and excessive charges. As we have noted earlier in this series, legal billing is changing drastically due to the challenging economy. Many common billing practices, such as billing clients for routine overhead costs, such as utilities, copy services, library maintenance and rent, are considered excessive. You may want to discuss these types of costs in advance with your lawyer. In addition, you should consider having your legal counsel managed either by a dedicated person internally or by a third party law firm. 

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Tags: Alternative Fee Arrangements, Attorney Fees, Client Alerts, How to Select New Counsel and Manage Legal Fees, Litigation Management

My partner, Gary Bresee, recently blogged on the recent Ninth Circuit decision in Padgett v. Loventhal, 2013 DAR 1933 (2013). 

As Gary noted, in that case, the US Court of Appeals for the Ninth Circuit overruled the decision of trial judge James Ware, and remanded the case for further consideration. Judge Ware made significant reductions in the fees requested by the plaintiffs in a civil rights case without detailed explanation or computation of the reasons for reducing the attorney fee claim. The panel was critical of the reduction as the district judge slashed the fees and costs without any detailed description or supporting calculations for the reductions ordered.

The Ninth Circuit reversed the decision of the trial judge, noting that district courts must give reasons for declining to award costs and for reducing costs based on a partial victory. 

Another key take away issue from the Ninth Circuit’s decision relates to public policy considerations relating to judicial economy. Judge Ware recently retired. Now a new judge will have to be assigned to the case to clarify the award and the basis therefore. A properly documented decision would have alleviated these additional burdens and costs.

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Tags: Appeals, Attorney Fees, Padgett v. Loventhal

In Lucky United Properties Investments Inc. v. Lee, 2013 DAR 1614 (2013), the California Court of Appeal for the First Appellate District decided when interest begins to accrue on an award of prejudgment interest in the attorney fee context. The ultimate holding in the case is that interest on a prejudgment award of attorney fees accrues upon the entry of judgment. A different rule is applicable for postjudgment interest.

The case arose from complex and lengthy litigation. Initially, the plaintiff filed a malicious prosecution complaint against the defendant arising from a lawsuit over real property. The defendant responded by filing a cross‑complaint for malicious prosecution against the plaintiff.

Both parties subsequently filed special motions to strike under the anti‑SLAPP statute. The trial court granted specific relief and also awarded the plaintiff’s attorney costs and attorney fees in connection with the anti‑SLAPP motion. The plaintiff and the defendant continued to litigate the proper fees which were the subject of the award. The litigation continued on for several years. (See prior discussion of the case here.)

The trial court issued an order containing a computation of the interest the defendant owed to the plaintiff based on outstanding judgments. The plaintiff’s attorney challenged the trial court’s calculation, arguing that the trial court had miscalculated the appropriate amount of interest owed on the attorney fee award.

The court of appeal reversed the trial court’s decision. The court reiterated that if costs are established by a judgment, but the full amount of the award is later ascertained, the court clerk enters the costs on the judgment after the amount is determined.

Based on the foregoing, interest will typically accrue on the prejudgment costs and attorney fees portion of the judgment upon the entry of the judgment.

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Tags: Appeals, Attorney Fees, Lucky United Properties Investment Inc. v. Lee, Postjudgment Interest, anti-slapp motions, prejudgment costs

In Grossman v. Park Fort Washington Association, 2013 DAR 747 (2013), the California Court of Appeal for the Fifth Appellate District decided an interesting fee case arising out of a dispute between property owners and a homeowners association.

The property owners built improvements on their property without obtaining the approval from their homeowners association (“the Association”). The Association contended that the applicable bylaws prohibited the improvements that were constructed by the property owners without obtaining required permits and paying fees. The Association imposed a daily fine until the improvements were completely removed from the premises.

The trial court reviewed the bylaws and concluded that the rules allowed the constructed improvements. The judge vacated the fine that was imposed by the Association. The property owners then filed a petition for attorney fees. They sought the recovery of the significant time spent by their lawyers on a mediation and related alternative dispute resolution activities. The trial court awarded the property owners more than $100,000 in fees.

The Association appealed the fee award. The Association focused on the portion of the award rendered for the fees incurred for the mediation. The court of appeal reviewed the Association’s arguments but did not find them to be persuasive. The court noted that the applicable statute (the Davis‑Stirling Act) contains a mandatory attorney fees provision. The statute states that in an action to enforce bylaws and related documents, the prevailing party shall be awarded reasonable attorney fees and costs.

The court noted that the Association failed to provide any persuasive legal authority that the Legislature intended to exclude from any applicable fee award for work incurred in ADR‑type of activities. The court of appeal affirmed the award of fees on that basis.

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Tags: ADR, Appeals, Attorney Fees, Civil Code sections 1351-1378, Davis‑Stirling Act, Grossman v. Park Fort Washington Association, Prevailing Party Suits, alternative dispute resolution, homeowners association

In Windsor Pacific LLC v. Samwood Co. Inc., 2013 DJDAR 1292 (2013), the California Court of Appeal for the Second Appellate District decided a novel attorney fee issue arising out of hotly contested litigation, pertaining to the viability of a prescriptive easement. The court considered the existence of a prescriptive right versus a permissive written easement agreement, concerning undeveloped real property in Los Angeles County.

The plaintiff owned a large tract of undeveloped land in Los Angeles County. The property was adjacent to another large undeveloped tract, owned by one of the defendants, Shadow Pines LLC (defendant). The plaintiff and the defendant entered into a written easement agreement. The contract provided that the plaintiff would conditionally grant two easements to the defendant over the plaintiff’s property.

The permissive written easement agreement also provided for an award of attorney fees to the prevailing party in litigation or proceeding brought to “enforce or interpret the provisions” of the contract. The permissive written easements were never executed by the parties.

After negotiations broke down, the defendant terminated the contract. In response, the plaintiff claimed a prescriptive easement over the defendant’s property. The plaintiff then sued the defendant for quiet title, declaratory relief and ejectment, claiming that the defendant obstructed the plaintiff’s use of the two roads.

In its answer, the defendant raised an affirmative defense of equitable estoppel. In a non‑jury trial, the court found in favor of the defendant. However, the trial court denied the defendant’s subsequent attorney fees petition, concluding that the action was not covered by the fee clause contained in the executory contract.

On appeal, the second district partially reversed the decision of the trial court. The court noted that an attorney fee clause can provide for an attorney fee award in an action on the contract, but if supported by contractual language, may provide fees for any litigation between the parties. The court observed that the clause at issue in the case provided for fees in any action to “interpret” the agreement. The court further noted that the defendant was victorious in the case based on the equitable estoppel arguments.

The court of appeal concluded that even though the plaintiff did not seek an interpretation of the contract, the case still raised contract issues by virtue of the affirmative defense raised in the answer. Because the dispute involved the defendant’s authority to grant the plaintiff an easement, the litigation required the court to “interpret” the contract. The court of appeal concluded that the litigation was “an action to interpret” the contract within the meaning of the fee clause.

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Tags: Appeals, Attorney Fees, Prevailing Party Suits, Windsor Pacific LLC v. Samwood Co. Inc, attorneys' fees, prevailing litigant

The Bratz litigation between Mattel and MGA Entertainment has provided fertile grounds for attorney fee disputes. In the latest installment, the Ninth Circuit upheld a $137 million attorney fee award in favor of MGA as a prevailing defendant in a claim under the Copyright Act. See Mattel Inc. v. MGA Entertainment Inc., 2013 DJAR 1040, 2013 U.S. App. LEXIS 1586 (9th Cir. Jan. 24, 2013). 

Mattel’s original complaint alleged that MGA had infringed upon Mattel’s copyrights by producing Bratz dolls. In late 2006, Mattel sought to amend its complaint to include a trade secret claim. The trial court permitted the amendment but only as a counterclaim. After an appeal, MGA filed a counterclaim-in-reply against Mattel alleging that Mattel misappropriated MGA’s trade secrets. 

The case went to trial. The jury rejected Mattel’s copyright and trade secret claims, but found for MGA on its counterclaim for misappropriation of trade secrets. The jury awarded MGA $85 million in damages. The district court awarded MGA an equal amount in exemplary damages and $2.5 million in attorneys’ fees and costs on the trade secret claim. See Mattel Inc. v. MGA Entertainment Inc., 801 F. Supp. 2d 950 (C.D. Cal. 2011).

Separately, the district court awarded MGA $137 million in attorneys’ fees and costs as the prevailing defendant on the copyright claim. See Mattel Inc. v. MGA Entertainment Inc., 2011 U.S. Dist. LEXIS 85998 (C.D. Cal. Aug. 4, 2011). The trial court reasoned that MGA:

secured the public interest in a robust market for trendy fashion dolls populated by multiple companies” and that it was entitled to fees in defending a claim that was “stunning in scope and unreasonable in the relief it requested.” 

The Ninth Circuit overturned the judgment in favor of MGA on the trade secret claims, along with the award for trade secret fees and costs. The court reversed this portion of the judgment on procedural grounds. Because the MGA’s trade secret claim did not rest on the same “aggregate core of facts” as Mattel’s trade secret claim, the appellate court concluded that MGA should not have been permitted to assert the counterclaim in the first place.

The panel, however, affirmed MGA’s $137 million award in fees and costs in successfully defending the copyright claim. Mattel had argued below and on appeal that, because its copyright claim was “objectively reasonable,” MGA was not entitled to fees. 

The Ninth Circuit characterized this argument as an attempt to “resurrect the long-rejected requirements of frivolousness and bad faith.” There no longer is any requirement for a copyright defendant to show frivolousness or bad faith to be entitled to fees. The most important factor to be considered is whether an award of fees would further the purposes of the Copyright Act. The Ninth Circuit held that, regardless of whether Mattel had an objectively reasonable basis for its copyright claims, the trial court did not abuse its discretion in awarding fees.

Mattel sought to exclude attorney time spent on non-copyright claims. The trial court rejected this argument, awarding fees incurred litigating any claims involving facts that overlapped with the reproduction of the Bratz concept. The Ninth Circuit did not disturb this ruling on appeal.

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Tags: Appeals, Attorney Fees, Copyright Act, Mattel Inc. v. MGA Entertainment Inc., Prevailing Party Suits

In Heritage Pacific Financial LLC v. Machuca, 2012 DJDAR 16803 (2012), the US Bankruptcy Appellate Panel for the Ninth Circuit decided an interesting attorney fee case arising in the commercial litigation context. The fee award was given to the debtor arising from adversary proceedings initiated by a creditor, a commercial bank.

The debtor sought and was granted a loan from a bank. The debtor’s loan application allegedly contained inaccurate information relating to the debtor’s income. The bank approved the loan without verifying the debtor’s income and before the debtor signed the loan application.

The debtor later defaulted on the loan and initiated bankruptcy proceedings. Heritage Pacific Financial LLC (HPF), which was the successor in interest to the original lender, filed an adversary proceeding against the debtor. The complaint alleged that the loan was nondischargeable under Bankruptcy Code Section 523(a) due to the bank’s reliance on the alleged inaccurate information provided by the debtor in the loan application. Section 523 of the Bankruptcy Code governs the grounds under which a debt is not dischargeable. That statute provides for the award of attorney fees under special circumstances.

The debtor filed a motion for summary judgment, asserting a lack of reasonable reliance on the income information contained in the loan application. The motion was granted and the debtor recovered his attorney fees under Section 523(d). 

In response, HPF argued that its filing of the adversary proceeding was “substantially justified.” The court had difficulty with this argument, noting that the record demonstrated income discrepancies in the paperwork, the implausible amount of stated employment income by the debtor, the lack of follow‑up investigation by the bank and the rushed nature of the loan approval and subsequent funding without income verification. Relying in part of this evidence in the record, the court ruled that there was an absence of evidence to support the claim of “reasonable reliance.”

The Ninth Circuit noted that once a debtor establishes an entitlement to attorney fees under Section 523(d), the burden shifts to the creditor to prove that its actions were “substantially justified.” This requires the creditor to demonstrate that it had a colorable legal basis to pursue the claim. The court concluded that based on the record presented, HPF could not establish “reasonable reliance.” The order granting fees was affirmed on that basis.

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Tags: Appeals, Attorney Fees, Heritage Pacific Financial LLC v. Machuca

In Jankey v. Lee, 2012 DJDAR 16809 (2012), the California Supreme Court decided an interesting attorney fee case involving a claim for attorney fees by a defendant who was successful in defending against a claim of disability access under the California Disabled Persons Act.

The defendant owned a grocery store in San Francisco. The plaintiff was a wheelchair user. The plaintiff sued the defendant alleging that the grocery store was not accessible for individuals with disabilities. The plaintiff alleged claims arising under the federal Americans with Disabilities Act (ADA), the Unruh Civil Rights Act, and the California Disabled Persons Act.

The defendant moved for summary judgment on the ground that the removal of the “architectural barrier” was “not feasible.” The court granted the defendant’s summary judgment motion. After prevailing on the summary judgment, the defendant moved for attorney fees under Civil Code Section 55 which is a provision contained in the Disabled Persons Act. Section 55 of the code provides fees for prevailing parties in actions relating to alleged disability access violations. The trial court awarded the defendant $118,458 in attorney fees based on the fee application.

The plaintiff appealed the fee award and the court of appeal affirmed the lower court’s decision. The court of appeal noted that under Section 55, the prevailing party, not just a prevailing plaintiff, in the action is entitled to recover reasonable attorney fees. Once a trial court finds that a defendant qualifies for attorney fees under Section 55, such a fee award is mandatory. Although the plaintiff argued that the ADA preempted the California Disabled Persons Act, the court rejected that argument as well. A finding of preemption would have trumped the legal basis for an award of fees.

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Tags: Americans with Disabilities Act of 1990, Appeals, Attorney Fees, California Civil Code 55, California Disabled Persons Act, Jankey v. Lee, Prevailing Party Suits, Unruh Civil Rights Act

In Douglas E. Barnhart Inc. v. CMC Fabricators Inc., 2012 DJDAR 15717 (2012), the California Court of Appeal for the Fourth Appellate District decided a unique and interesting claim for attorney fees arising from the alleged breach of a construction contract.

A general contractor solicited bids from subcontractors for metalwork at a public building. CMC Fabricators Inc. (“CMC”) submitted a proposal to do the work. The general contractor used CMC’s price in preparing its own comprehensive bid for the public works project.

Subsequently, the general contractor and CMC failed to agree on the essential terms of the subcontract. The general contractor then retained a different subcontractor for the library work. The general contractor sued CMC based on the legal theories of breach of contract and promissory estoppel. The trial court rejected the general contractor’s breach of contract claim, but found liability against CMC on the promissory estoppel theories.

CMC then moved for attorney fees at the trial court level. The fee claim was based on language in its bid that stated the “prevailing party” would recover attorney fees in any litigation related to the bid. CMC asserted that it was the “prevailing party” because it had defeated the general contractor’s breach of contract claim. The trial court disagreed.

The Fourth District reversed the lower court’s decision denying the fee claims. The court noted that in California, absent a contract or statute to the contrary, each party to a lawsuit must pay its own attorney fees. The court noted that under the facts presented, if the general contractor had proven its breach of contract claim, it would have been entitled to an award of attorney fees. Although the general contractor did not prevail, the court nonetheless engaged in an extensive analysis whether an action for promissory estoppel is an action “on a contract.” The court concluded that a claim on such a theory is not “on the contract” and denied the general contractor’s fee claim on that basis too.

The court continued its analysis and concluded that CMC had a legal right to recover the attorney fees incurred because it proved that the contract was nonexistent. As the prevailing party in that dispute, CMC was entitled to recovery of attorney fees as it defeated the general contractor’s breach of contract claim.

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Tags: Appeals, Attorney Fees, Douglas E. Barnhart Inc. v. CMC Fabricators Inc., Prevailing Party Suits, prevailing litigant

In Parrish v. Commissioner of Social Security Administration, 2012 DJDAR 15223 (2012), the U.S. Court of Appeal for the Ninth Circuit decided a unique attorney fee case arising out of a dispute relating to the claimant’s eligibility for Social Security benefits.

The Social Security Act (SSA) and the Equal Access to Justice Act (EAJA), 42 U.S.C. Section 406(b) and 28 U.S.C. Section 2412, allow for an award of reasonable attorney fees for cases where a claimant successfully challenges the denial of Social Security benefits. However, Congress enacted a savings clause to prevent attorneys from receiving fees twice “for the same work.” The Parrish case required the court to analyze whether the fee claim at issue therein sought double recovery “for the same work.”

An attorney represented a client in an action for past due Social Security benefits. The administrative law judge (ALJ) denied the claimant’s application for benefits. The attorney then pursued an appeal of the benefits denial before the district court. After completion of briefing, the parties agreed to remand the case to the Social Security Administration for reevaluation of the claimant’s contention concerning disability. Also by agreement, the claimant’s attorney was given a stipulated fee award of $5,000 in fees pursuant to the EAJA.

A different attorney represented the claimant before the ALJ on remand. The ALJ again concluded that the claimant was not disabled. The first attorney again represented the claimant on her second appeal to the district court, which ultimately resulted in the claimant’s favor. The attorney received another $6,575 in EAJA fees, for a total of $11,575 in EAJA fees.

After the second remand and award of past due benefits, the attorney then sought $9,060 in fees under the Social Security statute, Section 406(b). Counsel stipulated to a reduction in fees under the savings provision which precludes double compensation “for the same work.” After the offset, the claim for fees was for $2,484.87. The district court awarded the attorney Section 406(b) fees, but also went further in reducing the fees and deducted both the EAJA awards in their entirety.

Counsel then filed an appeal to the Ninth Circuit focusing on the elimination of EAJA fees. The Ninth Circuit affirmed the decision of the lower court. The Ninth Circuit noted that under the savings provision, a lawyer is required to offset the attorney fees award where the attorney receives fees “for the same work” under both Section 406(b) and Section 2412. Moreover, an award under Section 406(b) compensates an attorney for all the work before a federal court on behalf of a claimant in an SSA‑related claim. For these reasons, the Ninth Circuit concluded that the district court properly deducted the EAJA fee award as an offset.

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Tags: Appeals, Attorney Fees, Equal Access to Justice Act, Parrish v. Commissioner of Social Security Administration, Social Security Act

In People v. United States Fire Insurance Co., 2012 DJDAR 15367 (2012), the California Court of Appeal for the Fifth Appellate District declined to award fees to county counsel in proceedings arising out of bail bond forfeiture proceedings.

County Counsel prevailed in bail bond forfeiture proceedings. The outcome resulted in the bail bonds being forfeited. County Counsel then moved the trial court for an award of attorney fees. The trial court denied the motion for attorney fees in its entirety.

County Counsel appealed the denial of fees, arguing that recoverable “costs” in bond forfeiture proceedings should include “attorney fees” too. The court of appeal declined to award any fees and affirmed the decision of the lower court.

The court noted that under Penal Code Section 1305.3, County Counsel may recover “costs” incurred in successfully opposing an adversary’s efforts to overturn the forfeiture of bail bond proceeds. The court cited to the general American rule in civil litigation that “costs” do not include “attorney fees.” The court reasoned this rule applied to bail bond litigation as it is predominantly a civil action.

The court concluded that pursuant to controlling case law and public policy, “costs” should be given its typical meaning, which excludes “attorney fees.” The court felt this was also appropriate as there was no contract, statute, or other legal basis to allow attorney fee awards in this context.

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Tags: Attorney Fees, Penal Code Section 1305.3, People v. United States Fire Insurance Co.

In Aleman v. AirTouch Cellular, 2012 DJDAR 13269 (2012), the California Court of Appeal for the Second Appellate District reexamined the denial of an attorney fee award based on the recently decided California Supreme Court decision in Kirby v. Immoos Fire Protection Inc., 53 Cal. 4th 1244 (2012) (discussed here).

Former employees of AirTouch Cellular sued the company, alleging that it failed to pay them compensation for attending mandatory meetings. The thrust of the plaintiffs’ claim was that AirTouch violated two separate provisions of the Industrial Welfare Commission’s Wage Orders. The trial court granted the defendant’s motion for summary judgment, finding that the plaintiffs were not entitled to additional compensation as they were paid significantly more than the minimum wage, which would trigger the requirement to pay more money.

After AirTouch sued for summary judgment but prior to its ruling, the plaintiffs moved for class certification. The court denied the plaintiffs’ class certification motion and the plaintiffs appealed. The second district rendered a decision in December of 2011, but in June 2012, the California Supreme Court directed reconsideration of the ruling in light of the Kirby decision.

After winning summary judgment, the defendant sought attorney fees under California Labor Code Section 218.5. Labor Code Section 218.5 allows a prevailing defendant to recover reasonable fees specified in wage litigation. The plaintiffs contended their causes of action were governed by Labor Code Section 1194. That Code section states that only plaintiffs in litigation involving unpaid wage allegations have standing to recover fees. Over the plaintiffs’ objection, the trial court awarded AirTouch $146,000 in fees against one plaintiff and $140,000 for the second.

The court of appeal reversed the award of fees in part. The court noted that in Kirby, the California Supreme Court noted that Section 1194 applies to claims for unpaid minimum wages or overtime compensation. Thus, to fall under Labor Code Section 1194, a claim must seek unpaid minimum wages or overtime compensation, as those terms are generally understood.

The second district held that only one of the claims was subject to Labor Code Section 1194. In doing so, it explained that the “split shift claim” is subject to Section 1194, given that the claim seeks to recover unpaid minimum wage compensation. However, a “reporting time claim” is not subject to Labor Code Section 1194. That claim seeks to recover unpaid wages. For these reasons, the court remanded the case, directing the trial court to allocate the fees incurred by AirTouch in defending the reporting time claim.

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Tags: Aleman v. AirTouch Cellular, Appeals, Attorney Fees, California Labor Code Section 218.5, Class Actions, Industrial Welfare Commission's Wage Orders, Kirby v. Immoos Fire Protection Inc

In Western Watersheds Project v. Ellis, 2012 DJDAR 13948 (2012), the U.S. Court of Appeal for the Ninth Circuit decided a claim for attorney fees made by an environmental organization arising from grazing permit litigation.

In summary, Western Watersheds (Western), an environmental organization, sued the Bureau of Land Management’s (BLM) renewal of grazing permits in an area managed by BLM called the Jarbridge Resource Area. The district court concluded that the BLM failed to protect the environmental habitat in the area and issued an injunction against the grazing permits.

Based on the district court’s ruling, the BLM and Western settled the litigation, including all issues relating to attorney fees to that point in time. Subsequent to the 2007 settlement, a severe wildfire erupted in the Jarbridge Resource Area which greatly changed the landscape of the Resource Area.

As a result, the BLM once again allowed grazing on unburned areas of the Resource Area. Western successfully challenged the post‑fire grazing conditions and authorizations. Western then asked for attorney fees as the prevailing party pursuant to the Equal Access to Justice Act (EAJA). The district court denied Western’s motion. The Ninth Circuit affirmed the lower court’s decision declining to grant fees.

The Ninth Circuit noted that under the EAJA, a prevailing party is generally entitled to fees against the government, unless the position of the government was “substantially justified.” In making a call whether or not the government’s position was “substantially justified,” a court must look to both the government’s position during litigation and to the agency action that the plaintiff’s lawsuit was based on.

The Ninth Circuit concluded that the district court properly considered the reasonableness of the BLM’s underlying decision to issue grazing authorizations after the fire. For that reason, this court was convinced that the district court correctly determined that the BLM was substantially justified in its position. The motion for fees under the EAJA was denied.

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Tags: Appeals, Attorney Fees, EAJA, Equal Access to Justice Act, Western Watersheds Project v. Ellis

In Zintel Holdings LLC v. McLean, 2012 DJDAR 13133 (2012), the California Court of Appeal for the Second Appellate District decided an interesting landlord/tenant case involving an attorney fee award.

A landlord sued two of its tenants, seeking to rescind a lease. One of the tenants filed a cross‑complaint, alleging breach of the right to quiet enjoyment of the premises. The lease included an attorney fee provision. It provided for the award of fees to the prevailing party for litigation made pursuant to the lease.

The trial court rejected the claims made by the plaintiff as to the cross‑complaint. The tenant sought costs from the trial court pursuant to California Code of Civil Procedure Section 1032. That code section awards costs to the prevailing party in litigation. However, the trial court concluded that there was no prevailing party under the reciprocal attorney fee provision of California Civil Code Section 1717, a different statute. The court declined to award the tenant attorney fees on that basis. The tenant appealed the decision with respect to the denial of attorney fees.

The court of appeal reversed the trial court’s decision denying fees to the plaintiff. The court’s reasoning was somewhat convoluted. The court reasoned that when a trial court declines to award damages on both a plaintiff’s complaint and a defendant’s cross‑complaint, the defendant is deemed the prevailing party under the cost provisions of Section 1032. However, that is not the case under Section 1717 where neither party obtains the relief requested.

The court of appeal concluded that where the dispute involves a contract and involves Civil Code Section 1717, the trial court has latitude to decide that there is no prevailing party in the litigation. The court concluded that there was no real winner in the case between the landlord and the tenant. For this reason, the trial court concluded that the court did not have authority to determine that the tenant who was not a party to the cross‑complaint, was not a “prevailing party” for purposes of awarding attorney fees. The impact of the court’s rather circular reasoning here remains to be seen.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 1032, Code of Civil Procedure Section 1717, Zintel Holdings LLC v. McLean

In Costa v. Commissioner of Social Security Administration, 2012 DJDAR 11807 (2012), the U.S. Court of Appeals for the Ninth Circuit decided that “individual attention must be given to each case” involving attorney fee awards under the Equal Access to Justice Act (EAJA). The court concluded that the magistrate judge abused his discretion by applying a “de facto” cap on the award.

The plaintiff made an application for disability benefits. The state disability agency denied the application, as well as the request for reconsideration. Subsequently, an administrative law judge (ALJ) heard the appeal and found that the plaintiff was not disabled, and denied the claim.

The plaintiff appealed the denial of his disability claim to the district court. On appeal, the magistrate judge reversed the administrative law judge’s decision. The magistrate found that the plaintiff was in fact disabled. The plaintiff then sought attorney fees under the EAJA.

The magistrate judge significantly reduced the claim for fees for the plaintiff’s lawyer. The reduction was based on the magistrate’s determination of what he deemed would be “reasonable” for the completion of certain legal tasks. In issuing his decision, the magistrate relied on a published order from an Oregon District Judge stating that 20 to 40 hours is a reasonable amount of time to spend on basic disability cases. On this basis, the magistrate deducted approximately one‑third of the fees requested by the plaintiff.

The plaintiff filed an appeal, and the Ninth Circuit reversed and remanded the decision of the magistrate, reducing the fee award. The court noted that the EAJA provides for the award of attorney fees to a party that prevails against the United States in a proceeding for a review of an action taken by a federal agency. The Ninth Circuit concluded that the magistrate abused his discretion by applying a de facto subjective policy limiting social security claimants to 20 to 40 hours of attorney time.

The court explained that in deciding a fee claim, the magistrate is required to make findings why the amount of time requested for a particular task is unreasonable. Because the magistrate judge did not provide specific reasons for making significant reductions to the number of hours of work the plaintiff requested, the magistrate judge’s approach was improper.

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Tags: Appeals, Attorney Fees, Costa v. Commissioner of Social Security Administration, EAJA, Equal Access to Justice Act

By Michael Newman

Alamo v Practice Management Information Corporation (California Court of Appeals, Second Appellate District, Division Seven, decided on October 18, 2012), clarifies the standard of causation for employment discrimination claims in California, as well as the circumstances under which attorney fees can be awarded.

Following the termination of her employment, plaintiff Alamo filed a civil action against her former employer, PMIC, alleging, in relevant part, (1) pregnancy discrimination in violation of the California Fair Employment and Housing Act (“FEHA”) and (2) wrongful termination in violation of public policy.

The case was tried before a jury, which rendered a general verdict in Alamo’s favor and awarded attorney fees.  PMIC appealed, claiming that the trial court had committed errors in its instructions to the jury.  First, PMIC argued, the court had erroneously instructed the jury that Alamo merely had to prove her pregnancy was a “motivating reason” for her discharge, rather than the “but for” cause of her discharge.  PMIC also contended that the court erred in failing to instruct the jury that PMIC could avoid liability under a mixed motive defense by proving it would have made the same decision even in the absence of a discriminatory motive.

The Court of Appeal found that the trial court had made no instructional error.  Under California cases interpreting FEHA, the discriminatory motive needed only be a motivating reason for the adverse employment action, and need not be a “but for cause.”  The Court contrasted the FEHA rule with that of the federal Age Discrimination and Employment Act (ADEA), which does require the discriminatory motive be a but for cause.

Furthermore, as neither party had presented the case as a “mixed motive” case (i.e., a case where both legitimate and illegitimate motives were allegedly behind the termination), the trial court did not err in failing to inform the jury that PMIC could avoid liability by proving it would have made the same decision even in the absence of discriminatory motive.

However, as the Court of Appeal noted, the question of the proper standard of causation in a FEHA claim, including the availability of the mixed motive defense, is currently pending before the California Supreme Court in Harris v. City of Santa Monica, review granted April 22, 2010.  Thus, the Court made its ruling “[p]ending further guidance on this issue by the Supreme Court.”

Finally, the Court held that the award of attorney fees was not in error.  With respect to this, PMIC had argued that attorney fee awards were available under FEHA but not for common law wrongful termination claims.  PMIC maintained that, because the jury had issued a general verdict, there was no indication that Alamo had prevailed on the FEHA claim, rather than the wrongful termination claim.  The Court held that this argument was barred under the doctrine of “invited error,” which provides that where a party by his conduct induces the commission of error, he is estopped from asserting it as a ground for reversal on appeal.  The record indicated that PMIC had deliberately agreed to the general verdict form in order to be able to challenge an attorney fee award. It had thus deliberately “invited” the error it complained of.  Furthermore, because Alamo’s wrongful termination claim was derivative of her FEHA claim, Alamo necessarily prevailed on the FEHA claim.  Thus, the award of attorney fees was appropriate for this reason as well.

COMMENT:

Causation in FEHA cases will continue to be in flux until the Supreme Court rules on Harris v. City of Santa Monica.  We will follow the progress of that case and provide updates on this blog when they occur.

If you have any questions about FEHA, or other employment law issues, please contact Michael Newman.

Originally posted to Barger & Wolen's Employment Law Observer blog.

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Tags: Alamo v Practice Management Information Corporation, Attorney Fees, California Fair Employment and Housing Act, Harris v. Santa Monica, pregnancy discrimination

In Arias v. Kardoulias, 2012 DJDAR 10297 (2012), the California Court of Appeal for the Second Appellate District decided a case of first impression. 

The court was asked to determine whether the dismissal on “jurisdictional grounds” of an untimely appeal from a Commissioner’s decision on a wage claim, was equivalent to an “award of zero” for purposes of awarding fees to an employer and against an unsuccessful employee. The case was prosecuted under Labor Code Section 98.2(c). That section of the Labor Code is a “one way” fee shifting provision applicable in cases following a Commissioner’s decision on an unpaid wage claim.

In cases involving unpaid wage claims, the initial hearing is before a Commissioner. When a party timely appeals a Commissioner’s decision on wages under the Labor Code, there is a trial de novo. The purpose of the trial de novo is to discourage frivolous appeals. The right to attorney fees depends on the outcome of the trial de novo, not the underlying decision by the Commissioner.

The Arias case began when the employee filed a claim under the California Labor Code against the employer for unpaid wages. The Commissioner awarded the employee $6,319.69. The employee appealed the decision. The superior court dismissed the appeal as being untimely.

The employee then filed an appeal of the trial court’s decision with the second district court of appeal. The court of appeal also concluded that the employee’s appeal was untimely under Labor Code Section 98.2(a). While that appeal was pending, the employer filed a motion in the trial court, requesting attorney fees under the one‑way fee shifting provision in Section 98.2(c), seeking a fee award in excess of $8,000. The employee opposed the motion and argued that fees under Section 98.2(c) were only recoverable if the superior court had conducted a trial de novo.

Following a hearing, the trial court granted the employer’s fee petition, awarding approximately $6,000 in fees. The employee appealed. The court of appeal reversed the trial court’s decision, noting that a party who files a claim for unpaid wages with a Commissioner may seek review of the decision by filing an appeal to the superior court. That appeal is reviewed de novo. Where the party is unsuccessful, the court assesses fees and costs incurred by the other party and against the appellant under Section 98.2(c). An employee is successful on appeal if the court awards an amount greater than zero.

The second district determined that the term “appeal,” as used in the statute, was not used in the conventional sense. Instead it meant a “new trial” where the superior court hears the matter de novo. Further, Section 98.2(c) was only triggered on an unsuccessful appeal, which, in the statutory context, depended on the superior court making an award. Reasoning that the employee’s appeal was dismissed on jurisdictional grounds, there was no basis to award fees to the employer.

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Tags: Appeals, Arias v. Kardoulias, Attorney Fees, Labor Code Section 98.2(c)

In Bickel v. Sunrise Assisted Living, 206 Cal.App.4th 1 (2012), the California Court of Appeal for the Fifth Appellate District decided a fee case under the Elder Abuse Statute contained in Welfare and Institutions Code Section 15600 et seq. 

The case dealt with the propriety of an arbitration clause, contained in an elderly plaintiff’s residency agreement that stated each party would bear its own costs and attorney fees concerning any dispute under the residency agreement. That clause conflicted with the attorney fee provision contained in Welfare and Institutions Code Section 15600 et seq.

The trial court affirmed the arbitrator’s award of compensatory and punitive damages. The award also contained sums for attorney fees and costs to the plaintiff.

The facility’s residency agreement contained an arbitration clause that was potentially at odds with the Welfare and Institutions Code. It stated that “each party” would “bear its own costs and fees” in connection with any arbitration. The trial court granted the facility’s petition to compel arbitration of the elder abuse claims but severed, as against public policy, the provision regarding attorney fees and costs. The assisted living facility filed an appeal of the trial court’s decision.

The court of appeal affirmed the decision of the trial court. The court of appeal held that the clause requiring a waiver of fees and costs was contrary to public policy and was thus unenforceable, citing California Code of Civil Procedure Sections 1281, 1281.2. 

The court of appeal noted that the right to fees and costs reflects legislative intent to protect vulnerable elders and dependent adults by creating an incentive for attorneys to represent victims of alleged neglect. The court of appeal noted that the trial court therefore correctly severed the waiver provision from the residency agreement.

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Tags: Welfare and Institutions Code Section 15600, Attorney Fees, Bickel v. Sunrise Assisted Living, Code of Civil Procedure 1281, Code of Civil Procedure Section 1281.2, Elder Abuse Statute

In Nemecek & Cole v. Horn, 2012 DJDAR 11353 (2012), the California Court of Appeal for the Second Appellate District decided an interesting fee case. The court approved the trial court’s ruling granting fees at approximately $400 per hour despite the fact that the firm was paid fees at the rate of between $100 to $215 per hour. The ruling was based on prior California cases which allowed fee awards above what was “actually incurred.”

The procedural record of the case was lengthy and complex. The plaintiff (lawyer #1) retained a law firm to represent him in a fee dispute against a former client. The matter resulted in a favorable verdict for lawyer #1. However, the award was offset by a significant judgment on a counter‑claim. The lawyer was ordered to pay $380,000 in attorney fees to the former client.

Lawyer #1 alleged that his attorney improperly handled the lawsuit (i.e. lawyer #2). Lawyer #1 tendered a demand to arbitrate the controversy. In response, lawyer #2 filed a counter‑claim for unpaid fees and costs. The arbitrator concluded that lawyer #2 was entitled to nearly $300,000 in attorney fees, and denied any right of offset to lawyer #1.

Lawyer #1 then attempted to collaterally attack the judgment. He alleged improper undisclosed relationships between lawyer #2 and the arbitrator who decided the case. Lawyer #2 and the arbitrator were members of the same local county bar association’s executive committee. On that basis, lawyer #1 filed papers seeking to overturn the arbitration award. The trial court entered judgment in favor of lawyer #2.

The court of appeal affirmed the decision of the trial court. The court of appeal held: 

the reasonable market value of the attorney’s services is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorneys claiming fees charge nothing for their services, charge at below‑market or discounted rates, represent the client on a straight contingent fee basis, or are in‑house counsel.”

This is not the first time a court has awarded above‑market rates to a fee applicant. A case in point is PLCM Group, Inc. v. Drexler, 22 Cal. 4th 1084 (2000). In that case, the California Supreme Court utilized augmented rates on behalf of a company represented by in‑house counsel. That court ruled that a fee award may be based on market value, not the actual cost to the company. Based on these rulings, there is likely to be many more fee cases filed with requests for awards for more than what was actually incurred.

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Tags: Appeals, Attorney Fees, Nemecek & Cole v. Horn, PLCM Group, Inc. v. Drexler

In Estate of Wong, 2012 DJDAR 8873 (2012), the California Court of Appeal for the First Appellate District decided an interesting attorney fee case dealing with the interplay of the Probate Code and Business and Professions (“B&P”) Code Section 6148. B&P Code Section 6148 requires a written fee agreement between the lawyer and the client where the services will likely exceed $1,000.

The client retained counsel to assist with a trust assignment and some probate work. The attorney did not provide the client with a written retainer agreement. Subsequently, the client terminated the lawyer’s employment and retained other counsel. After significant efforts by the prior and successor counsel, the client submitted a petition for settlement of the estate. The lawyers claimed entitlement to statutory compensation in the sum of $96,478. However, due to the lack of a written retainer agreement under the B&P Code, the client claimed the lawyers had waived their right to fees and should receive nothing.

The first lawyer (who had been discharged) petitioned for fees, dividing his work between the statutory probate work and for additional services. The probate court found that the lawyer was entitled to $72,358 in statutory fees. The client objected and filed an appeal.

The court of appeal affirmed the award of fees, noting that under Probate Code Section 10810, an attorney’s compensation for ordinary services is based on the value of the estate. The client argued that the lawyer was not entitled to statutory compensation under Section 10810 because no written agreement for services existed as required by B&P Code Section 6148. The court concluded, however, that because the fees for services rendered to a personal representative is paid out of the estate, rather than by the client, it is impossible that the “total expenses” charged to the client will exceed $1,000. For that reason, the court of appeal concluded that Business and Professions Code Section 6148 was not applicable.

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Tags: 10810, Appeals, Attorney Fees, Business and Professions Code Section 6148, Code, Probate, Section, Wong v. Bresler

In City of Maywood v. Los Angeles Unified School District, 2012 DJDAR 9925 (2012), the California Court of Appeal for the Second Appellate District decided a novel attorney fee case. The case arose out of a petition for a writ of mandate filed by the City of Maywood (“Maywood”) seeking to overturn the certification of an environmental impact report (“EIR”) by a public entity.

The Los Angeles Unified School District (“LAUSD”) certified an EIR pertaining to the construction of a high school. Maywood sought to overturn the certification decision because the report allegedly failed to assess numerous significant environmental impacts.

The trial court granted the writ and ordered LAUSD to investigate and remediate deficiencies in the EIR. When Maywood moved for attorney fees, the court granted the request and awarded Maywood $670,000. LAUSD argued that fees were improperly awarded under Code of Civil Procedure Section 1021.5 as the City had a “non‑pecuniary” motive in pursuing the case. Despite this argument, the trial court granted the fee petition.

The court of appeal reversed significant aspects of the trial court’s decision relating to the EIR. For that reason, the court of appeal also reversed the trial court’s grant of fees to Maywood despite the fact that it found that LAUSD relied on outdated legal authorities for its position on fees, particularly on the “non‑pecuniary” motive issue.

The panel noted that to obtain attorney fees under Section 1021.5, the party seeking fees must show that the litigation vindicated an important public right or conferred a significant benefit on the general public. The panel noted that a party’s non‑pecuniary motives do not automatically preclude a party from receiving fees.

The court of appeal also noted that the statutory language and the Legislative history failed to show any intent to treat private litigants differently from public entities. To disqualify parties from a fee award for pursuing non‑financial considerations would create difficult management issues for the courts and would require subjective decisions. The court rejected the use of such an analysis.

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Tags: Appeals, Attorney Fees, CEQA, California Code of Civil Procedure § 1021.5, California Environmental Quality Act, City of Maywood v. Los Angeles Unified School District, EIR, environmental impact report

In Rodriguez v. Disner, 2012 DJDAR 11142 (2012), the United States Court of Appeals for the Ninth Circuit decided a novel attorney fee case implicating the rules of ethics in a class action context. The case implicated the propriety of “incentive agreements” between the plaintiffs’ class action lawyers and the five named plaintiffs in a massive antitrust class action.

The class action plaintiffs’ firm brought an action against a bar preparation course company. After the case settled, the class counsel sought attorney fees under the provisions of Federal Rule of Civil Procedure 23(a). The district court denied the fees petition in its entirety, on the grounds that the incentive agreements entered into between the class lawyers and five of the named plaintiffs breached the California Rules of Professional Conduct by creating conflicts of interests that were not disclosed and discharged by waiver or consent. Class counsel contended that the court could not deny fees unless counsel knowingly or willfully violated an ethical rule. The lawyers also suggested that because there was no “harm,” it was not proper to deny the fee claim.

The Ninth Circuit affirmed the trial court’s decision. The Ninth Circuit noted that in determining what fees are reasonable, a court may consider whether the attorney violated the California Rules of Professional Conduct during the handling of the litigation. The Ninth Circuit also referenced the court’s equitable power to deny attorney fees when an attorney represents clients with conflicting interests.

The Ninth Circuit seemed convinced that it was appropriate to deny fees where the class lawyers knowingly created a conflict of interest. The court noted that the agreements at issue created a conflict between clients because it treated certain clients better than others. The Ninth Circuit also referenced the fact that class counsel failed to disclose the agreements to the court and to the class in violation of both its fiduciary duties to the class and the duty of candor. On this basis, the court affirmed the denial of fees.

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Tags: Appeals, Attorney Fees, Class Actions, Ethics Violations, Federal Rule of Civil Procedure 23(a), Rodriguez v. Disner, incentive agreements

In Azure Limited v. I‑Flow Corp., 2012 DJDAR 8521 (2012), the California Court of Appeal for the Fourth Appellate District decided an attorney fee claim arising under California’s Unclaimed Property Law (UPL Section 1500 et seq.) along with the interplay of Code of Civil Procedure Section 1021.5, the private attorney general doctrine. The court ruled that simply advancing the state of the law in what was otherwise a private dispute was not sufficient to justify an award of attorney fees under C.C.P. § 1021.5.

The plaintiff sued the defendant for breach of fiduciary duty arising from the alleged bad faith transfer of shares of stock to the State without adequate notice to the plaintiff. Resolution of the dispute turned into part on the interpretation of California’s Unclaimed Property Law. The procedural record in the case was lengthy and complex. The plaintiff’s pursuit of its rights eventually resulted in a California Supreme Court decision (see Azure Limited v. I‑Flow Corp., 46 Cal. 4th 1323 (2009)) that impacted the rights of property owners, whose property had been wrongfully transferred to the State.

During the litigation, the plaintiff filed several motions for attorney fees pursuant to California’s private attorney general doctrine, C.C.P. § 1021.5. The trial court denied the plaintiff’s application for fees on the ground that the plaintiff failed to show that it obtained a ruling that was of “significance to the public.” The court held that the plaintiff was motivated primarily by its own financial interests in proving the litigation.

The court of appeal affirmed the lower court decision, noting that eligibility for attorney fees under Section 1021.5 is established when the plaintiffs’ action has resulted in the enforcement of an important right “affecting the public interest.” The court noted that to justify fees, a significant benefit has been conferred on the general public.

The court of appeal noted that although the dispute between the plaintiff and the defendant raised an issue regarding a right important to the public, Section 1021.5 did not authorize an attorney fee award against the defendant because the plaintiff was primarily concerned with pursuing its own financial interests and there was no evidence that the defendant took action to impact the general public.

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Tags: Appeals, Attorney Fees, Azure Limited v. I‑Flow Corp, California's Unclaimed Property Law, Code of Civil Procedure Section 1021.5, UPL Section 1500

In Schwartz‑Tallard v. America’s Servicing Co., 2012 DJDAR 9091 (2012), the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals decided a fee case under the so‑called Sternberg bankruptcy doctrine. The doctrine was established under the Ninth Circuit’s decision in Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010). Under this doctrine, attorney fees incurred in pursuit of damages for the violation of the automatic bankruptcy stay are recoverable as an exception to the American Rule. That rule states that the parties to litigation are required to pay their own attorney fees.

The debtor filed a Chapter 13 bankruptcy petition. Despite filing for bankruptcy, the debtor continued to make monthly mortgage payments on her home. Despite that fact, a creditor “determined” that the mortgage payments had stopped and obtained an order to foreclose on the mortgage. The monthly mortgage payments had in fact been made. To foreclose, the creditor had to seek a lifting of the automatic stay. The creditor moved for an order to lift the stay and the bankruptcy court granted the relief.

The debtor subsequently proved that the creditor’s position was not meritorious. The bankruptcy court ordered the reinstatement of the automatic stay. Prior to the court’s entry of the order, the creditor sold the home at a foreclosure sale. The debtor moved for sanctions on the grounds that the creditor had violated the court’s stay order.

The bankruptcy court granted the sanctions motion. In addition, the court awarded the debtor damages and attorney fees. When the creditor appealed, the district court concluded that there had been a violation of the automatic stay. The debtor then moved for additional attorney fees incurred during the defense of the appeal. The creditor contended such fees were prohibited under the decision in Sternberg v. Johnson, cited above. The district court denied the request for the recovery of fees incurred on the appeal. The case was then appealed to the Ninth Circuit’s Bankruptcy Appellate Panel.

The Ninth Circuit reversed the denial of the fee award. The Ninth Circuit noted that under the Sternberg doctrine, a debtor’s attorney fees incurred in “pursuit of damages” for a stay violation cannot be awarded as compensation for actual damages. However, a debtor’s appellate attorney fees may be awarded as actual damages for a stay violation. The Ninth Circuit reasoned that the debtor was defending a damages award for the creditor’s stay violation, and fees were appropriate under those circumstances.

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Tags: Appeals, Attorney Fees, Bankruptcy Appellate Panel, Schwartz‑Tallard v. America's Servicing Co., Sternberg bankruptcy doctrine

By David McMahon & Jeevan Subbiah

In this post, we will deviate from our startup blog series, How to Select New Counsel and Manage Legal Fees, to discuss the recently passed Jumpstart Our Business Startups Act (the “JOBS Act”) and “crowdfunding” that we briefly mentioned in our last blog post. We will outline some key information and issues about the JOBS Act to see if crowdfunding may work for your company.

The JOBS Act Background

The JOBS Act allows “emerging growth companies” (generally companies within five years of their IPO with gross revenue under $1 billion) easier access to raising money, new potential investors and less regulatory paperwork while potentially creating more jobs. Through the crowdfunding provision of the act, startups will be able to raise money by selling equity shares through an online portal (website) registered with the government. This gives everyday “non-accredited” investors the opportunity to invest in startups and receive equity. A major reason for the passing of the JOBS Act was the decline in small company initial public offerings over the last decade. 

Key Aspects for Startups – Crowdfunding

Startups will now be able to raise money through crowdfunding in public markets. CNN Money noted:

The new law allows a company to use crowdfunding for seeking actual investors. It can raise up to $1 million this way. To protect investors, those with a net worth of less than $100,000 may now invest 5% of their yearly income or $2,000, whichever is higher. Wealthier types can invest up to 10% of their income.”  

Another key aspect is that a privately owned startup can stay private longer. CNN Money states:

Having 500 investors or raising $5 million previously forced a company to register with the SEC -- a costly endeavor… A company with $10 million in assets will now have to register with the SEC when its number of investors reaches 2,000, including 500 who don't meet the "accredited" wealth requirement. And companies with less than $1 billion in annual revenue can enter a five-year phase-in plan with the SEC.” 

Issues to Consider

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Tags: Attorney Fees, Client Alerts, Crowdfunding, How to Select New Counsel and Manage Legal Fees, JOBS Act, Jumpstart Our Business Startups Act, Litigation Management

In Healdsburg Citizens for Sustainable Solutions v. City of Healdsburg, 2012 DJDAR 7386 (2012), the California Court of Appeal for the First Appellate District decided a novel fee recovery case brought under the California Code of Civil Procedure Section 1021.5 (the private attorney general doctrine) and the California Environmental Quality Act (“CEQA”).

In the litigation, the Petitioners (“Healdsburg Citizens”) successfully challenged the City of Healdsburg’s (“City”) certification of an environmental impact report (“EIR”) and project approvals for a resort development in the City under CEQA.

One of the members of Healdsburg Citizens was an attorney who had experience in CEQA litigation. The member agreed to work on the case on a contingent fee basis, along with other lawyers. The litigation was fact intensive and legally complex. The trial court granted the Healdsburg Citizens’ petition for a writ of mandate in several respects. The trial court also granted the Petitioners’ motion for attorney fees under Code of Civil Procedure Section 1021.5.

On appeal, the City contended that the member/attorney was a named party to the case. For this reason, using the reasoning of cases decided under Civil Code Section 1717, the City argued that an attorney who litigates in propria persona is not eligible for the recovery of fees. The City argued that the trial court erred in awarding fees on this basis.

The court of appeal affirmed the fee award. The court acknowledged the doctrine established under Civil Code Section 1717, that an attorney who chooses to litigate in propria persona cannot recover attorney fees. The appellate court noted, however, that a member of an organization may recover attorney fees under Section 1021.5 so long as the attorney meets the requirements of the private attorney general doctrine.

In this regard, the court specifically found that the member/attorney vindicated an important public interest affecting the general public.

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Tags: Appeals, Attorney Fees, CEQA, California Environmental Quality Act, Code of Civil Procedure Section 1021.5, Code of Civil Procedure Section 1717, Healdsburg Citizens for Sustainable Solutions v. City of Healdsburg

David McMahon & Jeevan Subbiah

As we continue our startup blog series, How to Select New Counsel and Manage Legal Fees, we focus on law firm size in the process of hiring an attorney. 

There is no “one size fits” for whether a startup company should select a big or small law firm. Strong arguments can be made for both. It is very important to prioritize your company’s needs, budget and comfort level. Common myths, such as big law firms have more expertise and therefore charge higher rates, or small law firms are more responsive and cost effective, are not always true. You should take advantage of free initial consultations with counsel to get to know potential attorneys, address key issues and find counsel that meets your specific needs.

Go Big or Go Home? All Services Under One Roof

Large firms may have the capability to handle multiple diverse projects for you at a quicker pace. They also may have the expertise to work on different types of projects such as real estate, employment law, contracts and litigation. This may be convenient for you and also assist you in managing your legal billing and accounting. However, the legal field has become extremely specialized and even large law firms do not always have all the legal services you may need under one roof. In contrast, lawyers at smaller firm may have a strong enough network of legal contacts to reference you to other capable lawyers. They may also be more objective in finding you appropriate help at other firms since they have no incentive to steer potential work towards their firm. 

Hourly Rate

The hourly rates can vary significantly at different firms, and will dramatically affect the cost of your legal work such as entity formation. Large firms generally have greater overhead, including higher rent and salaries and more general expenses, resulting in higher billing rates (we will address the issues concerning hourly rates in detail in a future post). 

Who Is Working on Your Case?

You should be concerned with the experience level of the attorney assigned to work on your case and transaction. It is important that you address this issue at the onset, especially with larger firms. At many firms, lawyers will jointly work on a case and bring in other partners, associates and paralegals to assist. Sometimes, you can save money by having talented novice lawyers working under the supervision of experienced attorneys. You can discuss these issues and even limit who works on your case, whether based on billing rate or simply due to experience. Senior lawyers at smaller firms may also have more time to work on your case due to smaller hourly billing requirements and less pressure to work on larger, high profile cases. In either case, it is helpful to get to know the attorneys who are representing your startup company. 

National Reputation and Offices in Multiple States

If your company requires legal counsel with a national brand and name recognition or the ability to work in multiple states, it may be to your advantage to work with larger firms.

Raising Money - Name Recognition in VC and Investment Banking

With the newly passed Jumpstart Our Business Startups Act (the “JOBS Act”),startups may find it easier to raise money through public markets. Large law firms or specialized firms can help a startup raise money through introductions to key contacts in the venture capital, investment banking and finance communities. Some smaller firms may also have these contacts. Some firms may waive your legal fees until you raise money, especially if they work with you on closing a round of funding. 

Reputation for Financing, Going Public or Partnerships

Large or specialized law firms may also have the contacts and reputation to help take your company public or to work towards selling your company to a larger company. The recently enacted JOBS Act may also allow a privately owned startup to stay private longer by boosting the number of investors allowed by the Securities and Exchange Commission (“SEC”) from 500 to 2,000 (excluding employees as shareholders) before the costly process of registering its shares with the SEC. Large or specialized law firms also may also be able to assist you in securing financing or developing partnerships. Once again, some smaller boutique firms may also have these contacts.

Litigation Management

As you legal needs grow, it is prudent to seek advice from outside litigation management/transactional counsel (a different lawyer from your primary legal counsel) on how to select attorneys to handle your various legal tasks. While it may seem counter intuitive to hire another lawyer, even a few hours with an independent litigation management lawyer can greatly assist you. Their expertise can help you envision various legal scenarios, ensure that correct legal billing guidelines, budgeting expectations and technology are implemented, and manage your legal costs to save money in the long run.

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Tags: Attorney Fees, Client Alerts, How to Select New Counsel and Manage Legal Fees, JOBS Act, Jumpstart Our Business Startups Act, Litigation Management, News

By David McMahon & Jeevan Subbiah

This post in our startup blog series, How to Select New Counsel and Manage Legal Fees, focuses on how to select an attorney. Your attorney search should move beyond cost, prominent firm name or whom an industry leader hired. By evaluating your company’s needs prior to your free initial consultations with prospective attorneys, you can hone in on counsel that can be the best asset for your company.

“Know Thyself” - Every Startup is Unique

Every startup is unique depending on its personality, goals, phase of funding, budget, needs, timeline and structure. Ask yourself questions such as these:

• Is this a small project? Do we want the same attorney for future projects?
• Do we prefer an attorney with strong startup experience?
• Do we require technical intellectual property expertise?
• Would we prefer using a small boutique law firm?
• Do we need counsel with governmental agency or international corporate experience?
• Do we need a national law firm if we relocate or face issues in different states?
• What type of billing model do we prefer?
• Would a law firm with strong venture capital contacts be a blessing or a burden?
• Do we want to develop business contacts through our lawyer? 

Communication

A good legal relationship requires honest communication from both sides. Do you feel talked down to or intimidated by your lawyer or does your lawyer seem ‘too smooth or slick’ to you? Are you comfortable discussing alternative project approaches (time, costs, preference) instead of agreeing with your lawyer? You should not be embarrassed to ask questions about budgets, cost estimates or ways to save money.  

Startups also operate on a radically different pace than most 9-5 companies. You may require an attorney to review a document and provide feedback at a moments notice. Is your lawyer easily accessible? 

Find a Problem Solver

Prior to hiring in house general counsel, you may need an attorney to supplement your business perspective. Yet your lawyer should not be just another business advisor. Your lawyer is trained to give you legal opinions and advice while identifying issues and potential risks in a conservative manner. To many entrepreneurs, lawyers may seem to be cautious ‘wet blankets’ that only slow business from moving forward while charging high rates. But a good lawyer will have the vision to identify risks and find solutions when legally possible.

References and Research

Good references (personal, corporate, LinkedIn) are one of the best ways to find a lawyer. Your city may also have a legal newspaper with links to local reference websites. Here are a few other sites to review:

• Chambers and Partners USA
• Martindale-Hubbell Peer Review Ratings
• US News & World Report Best Law Firms and Best Lawyers
• Law.Com Top Rated Lawyers
• Vault Law Firm Ranking

Fees and Billing - Are You Paying For Expertise or a Bay View?

It is surprising that many startups select counsel with little consideration of fees, especially when most startups are very cost conscious. Take a hard look at billing rates, especially since legal projects can take longer than expected. High billing rates sometimes reflect high legal acumen. Other times, high billing rates reflect the firm’s prominent location, catered lunches and firm parking lot. (Future posts will detail sources to compare billing rates and discuss negotiating a rate, project rates, retainer fees and deferred billing).

When is Your Counsel Billing You? Meetings, Phone Calls, Travel, Lunch?

It was common for an attorney to bill a client for every instance of communication or any action slightly related to the client. However, the legal field is changing drastically due to the challenging economy. Some lawyers may be willing to work with your budget and present informal, non billable advice in order to limit your fees. 

Next Post - Big Firms and Small Firms

Once you identify your startups’ needs, budget and preferences, you can make a better decision on selecting legal counsel. Our next post will focus in greater detail on some of the differences between big and small law firms.

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Tags: Attorney Fees, Client Alerts, How to Select New Counsel and Manage Legal Fees, Litigation Management

In Cullen v. Corwin, 2012 DJDAR 7533 (2012), the Third District Court of Appeal decided a unique attorney fee case arising under a standard form real estate purchase contract. The court concluded that there was a procedural bar to the prevailing party’s fee claim and rejected the claim for attorney fees. The party refused to engage in the required mediation prior to litigating the case. The court of appeal concluded that the failure to comply with the mandatory condition barred the recovery of fees.

The plaintiffs purchased a vacation home from the defendants. The plaintiffs alleged that the defendants failed to disclose structural defects in the home. The language of the standard form purchase agreement stated that a party who “commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after the making of a request shall not be entitled to recover attorney fees.”

The plaintiffs made two requests for mediation after they filed their lawsuit. Despite the overtures, the defendants refused to mediate the dispute. The defendants then moved for summary judgment. The court granted the summary judgment motion and awarded the defendants $16,500 in fees. The plaintiffs appealed, contending that the defendants’ refusal to participate in the required mediation constituted a procedural bar to any fee recovery.

The court of appeal reversed the fee award. The court noted that the contractual requirement for post‑lawsuit mediation was a bar to the fee claim. The court referenced the strong public policy toward mediation and that the clause in the standard form agreement was placed into the standard form contract to minimize the number of disputes requiring institution of formal litigation.

The court concluded that the defendants were not entitled to attorney fees because they refused to participate in alternative dispute resolution.

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Tags: Appeals, Attorney Fees, Cullen v. Corwin, Mandatory Mediation, Prevailing Party Suits

David McMahon & Jeevan Subbiah

INTRODUCTION

I was recently speaking at a litigation management seminar and I was asked some questions regarding our method and protocol utilized in a qualitative legal audit or legal fee analysis. 

The following is a basic outline of tips on how we conduct our analysis:

1. A Fee Analysis Can Result in Substantial Savings – A typical analysis where we recommend the client undertake a full blown review saves our clients an average of 25% to 30% although results can vary.
2. Were the Attorney’s Fees Reasonable and Necessary? - Our firm can provide an independent analysis, review, and evaluation of the reasonableness and necessity of attorneys’ fees billed by various law firms retained by the insured to represent the company in litigation or on complex transactional matters.
3. Were the Non Attorney Vendor Invoices Reasonable and Necessary? - In addition to the attorney fees invoices, we also review invoices submitted by non attorney vendors and other professionals and render an opinion on the reasonableness and necessity of those charges. We also frequently review the work product of the firm and its consultants/experts so that we have the appropriate context to review the fees. 
4. Did the Insured Manage the Legal Fees? - We also analyze the reasonableness of steps taken or not taken by the insured to institute cost effective measures to manage legal fees and related costs generated by their counsel and consultants.
5. A Fee Analysis Can Aid In Negotiation – We recommend that a fee analysis be undertaken prior to mediation in a contested fee case. It can be a powerful settlement tool.

OUR METHOD OF REVIEW

During a fee analysis, we review the individualized legal and factual billing situation in detail and prepare supporting reports and charts (varying from one page summaries to detailed reports) to document our findings. We generally focus on the following key areas:

1. Billing Guidelines - Did Billing Guidelines exist and were they followed?
2. Redacted and Non Original Invoices/Multiple Submissions of Invoices - The bills may have been redacted or otherwise do not appear to be the original invoices. There may be multiple submissions of individual invoices. For these reasons, the reliability of many of the entries may be subject to question.
3. Erroneous Recast Bills - Bills recast by counsel may contain inconsistencies, errors and mistakes.
4. Incorrect Sums of Fees Submitted - The total sum of fees the applicant seeks to recover may not add up to the totals of the invoices which we independently calculate and verify. 
5. Improper Billing Entries - Billing entries may not comply with generally accepted billing practices and applicable case law for the following reasons:
   1. Block Billing - Entries couched in the highly disfavored block billed format contain two or more tasks in one billing entry. We typically recommend a 25% deduction for block billed entries.
   2. Vague Billing - Billing entries are unreliable when they are extremely vague in nature and fail to describe the work being performed with any specificity whatsoever. We often recommend a 25% deduction for vague entries.
   3. Clerical and Administrative Work - Time billed at professional rates for clerical and administrative work which is arguably in violation of ABA Formal Opinion 93-379. We usually recommend a 100% deduction for administrative entries.
   4. Combination Block Bills - Time included in a combination block entry (along with another improper format such as Block/Administrative) should be deducted. We recommend a 35% deduction for these entries.
   5. Unusual Hourly and Billing Rate Increments - Billing entries should be recorded accurately by one tenth of an hour increments and not rounded up to quarter hour or full hour increments. In addition, billing rates should be in full hour increments. Calculating an hourly or rate adjustment may be necessary where this is the case.
6. Non Covered or Non Defense Related Work – We also focus on billing entries for work that is not recoverable under the insurance policy, billing guidelines or generally accepted billing practices, such as the following:
   1. Non Covered Lobbying Work
   2. Non Covered Internal Work/ Billing for the Business of the Insured
   3. Non Covered Insurance Coverage Work
   4. White Paper Work
   5. Excessive IT Work and Computer-Related Charges
   6. Erroneous Matters on the Bills
7. Burden of Proof on Fee Applicant - When numerous anomalies exist, the fee applicant may not have met its burden of proof in establishing the right to recover fees requested, either in whole or in part.
8. Cost/Expense Backup - The applicant may have failed to provide any cost backup for significant expenditures or copies of receipts and backup over $100 in amount (to determine whether the firm has complied with ABA Ethical Opinion 93‑379 as to the billing of costs and disbursements). For this reason the applicant may not have met its burden of proof establishing the right to recover those significant costs and disbursements. 
9. Haphazard Fee Allocations by Applicant – In cases where the applicant allocated the fees in order to seek reimbursement for selected claims, the fee allocations may be haphazard and the protocol and/or methodology for making the allocations may be subject to question.
10. Transient Billers - The bills may include time billed at professional rates for a large number of transient billers who billed small amounts of time that did little to move the case forward. Due to the apparent lack of utility of the work performed by the transient billers, their fees could be deducted entirely. 
11. Work on Motions Lost by Fee Applicant - There may be significant time incurred on motions that were lost by the fee applicant. These fees may be subject to scrutiny. 
12. Research Projects - The work done on selected research projects may be excessive, unreasonable and unnecessary.
13. Conclusion: Deduction Due to Unreasonable Fees - For the various reasons outlined above, the fees you have incurred may not reasonable or necessary. Therefore, taking a deduction may be warranted.

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Tags: Alternative Fee Arrangements, Attorney Fees, How to Select New Counsel and Manage Legal Fees, Litigation Management, fee anaysis, fee management

David McMahon & Jeevan Subbiah

Second in our series How to Select New Counsel and Manage Legal Fees

At some point when an idea grows into a business opportunity you will need a lawyer. Here are some typical legal needs you may have in a startup company:

Entity Formation

A lawyer can guide you through the risks and benefits of entity formation, including a corporation or limited liability company (LLC). You may need to discuss liability, tax treatment, business organization, government filings and disclosures, methods to raise capital, investor risk, government regulation and drafting the necessary paperwork for filing.

Contracts, Licenses and Non Disclosure Agreements

A company founder may want to hire employees such as a Chief Operating Officer (COO) to help grow the company. A lawyer can help draft employee contracts and determine issues such as company ownership, stock shares and salary. A business may also need to draft contracts between suppliers, distributors, other businesses, and clients. 

Your business will also need to apply for relevant licenses and permits. While you may be able to complete the applications yourself, a lawyer can help you navigate various licensing requirements.

You may also want to draft a non disclosure agreement (NDA) regarding confidential information about your products and your company. Many venture capitalists (VC’s) and other parties may have policies against signing a NDA during early stages of discussions. You may need advice on these issues in particular.

Intellectual Property and Licensing

You may want to register your products and services for federal patent, trademark and copyright protection as well as secure your rights from contacted entities or agree to joint rights with a developer. This type of work will need an intellectual property specialist. You will need to determine the type of intellectual property protection you need (such as a trademark or provisional patent) against the cost of securing each type of protection. A company may also be involved with licensing of intellectual property rights for equity (for example, technology created at a university) or need to develop licensing agreements with other companies.   

Taxes, Records & Insurance

Your business may need to register for a federal and state tax identification number and you should become aware of the tax implications of your business transactions

In addition, it is important to maintain records on your workers (employment status, name, social security, time worked, overtime, etc.) and insure your company and workers. An attorney may be able to provide you guidance on these matters.

Employment Manuals, Holidays, Benefits

Perhaps the founder and the COO did not prepare any written formal employment practices, rules or guidelines. Before hiring future employees, you should have an employee manual prepared that includes key information such as company holidays, work procedures and criteria for successful employment and potential termination that complies with state and federal employment laws.

In addition, it is important to determine what benefits (such as 401k plan, health plan, dental, vision, and bonuses) will be offered and their relevant requirements.

Leasing an Office

Your company may move into a formal office. It is a good idea to discuss leasing your office with an attorney, especially before signing a long term contract (with an option to renew). You may also be able to find city, state and national incentives to rent in redevelopment or historic districts, such as the “Twitter tax break” as part of the Mid Market Redevelopment Plan in San Francisco. Your lawyer can help you negotiate your lease and also make sure that standard tenant rights are included or strengthened.

Dealing with Your Attorney – Litigation Management

The issues referenced above can grow into significant legal bills and related expenses. Before going down that path it may also be helpful to consult additional legal counsel to assist you in getting procedures in place to make sure that your lawyers are working efficiently and that the bills are reasonable.

Next Post – Selecting Your Attorney

Selecting your attorney can seem like a daunting process. In the next post we will discuss some key areas to inform you about the process and guide you towards making a good decision.

Dave McMahon can be reached at (415) 743-3706 or by email.

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Tags: Attorney Fees, How to Select New Counsel and Manage Legal Fees, Litigation Management

In Khazan v. Braynin, 2012 DJDAR 7124 (2012), the California Court of Appeal for the First Appellate District clarified the rule on when interest begins to run on a fee award which is the subject of an appeal. The court of appeal clarified the applicable rule in the situation involving an appeal and a remand for further proceedings. In those situations, the court held that interest begins to run not from the date of the original judgment, but from the date the fee award is rendered after the case is remanded for further proceedings and decided.

The plaintiff sued the defendant on a promissory note, claiming there was a default. The plaintiff prevailed on most claims in the litigation.

The trial court issued an order awarding the plaintiff contractual attorney fees of over $1.3 million. In an earlier appeal, the court affirmed the judgment on the merits and reversed and remanded the case for further proceedings relating to the amount of attorney fees which were the subject of the award.

On remand, the trial court reduced the fee award. The trial court also ordered that the interest would accrue on the award from the date of the modified judgment reflecting that order. The plaintiff challenged the trial court’s ruling on when interest on the award should begin to accrue. The plaintiff contended that interest should run from the date of the original judgment on the merits.

The court of appeal affirmed the lower court’s decision. The court stated that in these situations, interest on the fees runs from the date of the modified order awarding the amount of fees, not from the date of the original judgment. When a judgment is reversed on appeal, the new award bears interest only from the date of the new judgment.

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Tags: Attorney Fees, Khazan v. Braynin, interest

by David McMahon and Jeevan Subbiah

Confusion and Frustration Hiring Counsel for the First Time

The San Francisco Bay area is internationally known for startups in many industries including biotechnology, clean tech and social media. Being in San Francisco, we often hear horror stories about charges for attorney fees or we are asked hypothetical questions on how to start and structure a cost effective relationship with counsel. 

Experienced professionals with diverse backgrounds are stepping into dynamic leadership roles with startups such as Chief Executive Officer, Chief Operating Officer and General Counsel. From these executives and others, we hear expressions of confusion, surprise and frustration as they have their first experience selecting counsel for transactional matters or litigation and the billing protocol relating to the initial interaction.

Successful Startups Often Grow Instantaneously and Legal Needs Can Change Quickly

Startups may initially need limited legal advice, such as entity formation including articles of incorporation, and drafting an employee manual. Your startup many just have a few employees. In 2008, Twitter only had 8 employees. By 2012, Twitter employed over 800 individuals. Though Twitter’s case is an extreme example, positive growth at startups may also be accompanied by more complex legal issues and larger legal bills for ongoing services and litigation. In our experience, the earlier this process is managed, the more cost effective it will be in the future.

Don’t Wing It - Use Guidelines to Determine Billing Rates and Fee Structure

Many startups may be reluctant to question their attorney on fees as they begin a professional relationship. Others are hesitant to shop for price when they perceive their business as becoming a future industry leader (“Google hired them, so should we…”). Some individuals see the “10% discount” at the end of their legal invoice and believe they must be getting a bargain. Choosing counsel is certainly a very personal decision. Consulting and utilizing established common legal fee guidelines and generally accepted billing customs and practices can make the process easier and simpler from start to finish. 

Our New Blog Series Outlining How to Select New Counsel and Manage Legal Fees

Many of our prior blog entries detail compliance with billing guidelines and highlight key cases that show various aspects of attorney fee claims in larger corporate law cases (see a selection of our prior blog posts here). We thought it may be helpful to take a few steps back and detail the attorney client relationship and the billing process for those less accustomed to hiring lawyers and reviewing legal bills. Therefore, we will post the series of blog entries noted below outlining various aspects of legal fees with new counsel. 

Conclusion – We Look Forward to Hearing from You

We look forward to hearing from startups and other growing companies with any questions they may have about starting a relationship with legal counsel and billing for ongoing services.

Future Topics of This Blog Series Includes the Following:

• Selecting Your Attorney
• Agreeing on an Hourly Rate or Project Rate – Fees Depend on Complexity of Work
• Deferred Billing – Is This Common? Is it for You?
• Should You Pay a Retainer Fee?
• Establishing Legal Fee Billing Guidelines
  • Who Bills You? What Rate of Service Do You Really Need (Partners, Associates and Transient Timekeepers)
  • The Billing Entries on Your Invoices
    • Block Billing – “Meeting; Conference; Task; Research.”
    • Vague Billing – “Research issue”, “Prepared report”
    • Administrative Entries – “Copied files and fixed coffee machine.”
    • Excessive Conferencing – “Meeting with Bob; Conference with Bob and Sarah; Discussion with Chad and Bob on project.”
    • Travel, Etc. – “Travel to startup office and back for meeting.”
• Establishing Cost/Expense Billing Guidelines – Don’t Bill Me for Lunch!
• Reviewing Your Legal Invoice Regularly – When Did My Monthly Legal Bill Become This?
• Questioning Specific Charges – What is This Charge?
• As Your Company Grows
  • Maintaining Billing Records
  • Reviewing and Monitoring Your Legal Bills
  • Potentially Submitting Legal Bills to Your Insurance Company on Appropriately Covered Matters

Dave McMahon can be reached at (415) 743-3706 or by email.

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Tags: Attorney Fees, How to Select New Counsel and Manage Legal Fees, Litigation Management

In Toro Enterprises Inc. v. Pavement Recycling Systems Inc., 2012 Cal. App. LEXIS 519 (Cal. App. 2d Dist. Apr. 9, 2012) the California Court of Appeal for the Second Appellate District reversed the trial court and granted fees under a clause in a construction contract. Toro Enterprises Inc. (“Toro”) entered into a construction contract to conduct road work. Toro hired a subcontractor (the “subcontractor”) to complete a portion of the project.

A third party was involved in an automobile accident near the construction project and the party sued Toro for negligence. Toro cross‑complained against the subcontractor for defense and indemnity. There was a general defense and indemnity provision in the subcontract. The defense/indemnity clause provided in relevant part:

To the fullest extent permitted by law, Subcontractor shall defend, indemnify and hold harmless Owner and Contractor and their agents and employees from claims, demands, causes of actions and liabilities of every kind and nature whatsoever arising out of or in connection with Subcontractor’s operations performed under this Agreement and caused or alleged to be caused, in whole or in part, by any act or omission of Subcontractor. . . .”

The subcontract also contained a separate attorneys fee clause for prevailing parties which was applicable to “any dispute resolution” the subcontractor subsequently cross‑complained against Toro for implied contractual indemnity and for equitable indemnity.

The Subcontractor successfully moved for summary judgment against the plaintiff’s complaint and Toro’s cross‑complaint. The Subcontractor then pursued a claim for its reasonable attorneys’ fees against Toro. The trial court denied the fee request on the ground that the attorney fees clause in the subcontract related only to disputes “between the parties” regarding the performance of work and payment. The Subcontractor argued that it was entitled to attorney fees because the dispute was an action on the subcontract and that it had won on the motion for summary judgment.

The court of appeal reversed the decision of the trial court. The court of appeal noted that the subcontract authorized fees to the prevailing party “in any dispute resolution between the parties.” The appellate court found that the phrase “dispute resolution” was broad and included the dispute at issue. On these grounds, the court of appeal concluded that the Subcontractor was entitled to recover its attorney fees.

The case is an interesting one as it points out the dangers of seeking contractual indemnity from third parties. In this case the attempt to obtain indemnity and/or contribution backfired.

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Tags: Appeals, Attorney Fees, Prevailing Party Suits, Toro Enterprises Inc. v. Pavement Recycling Systems Inc.

As reported in the San Francisco Daily Journal, (subscription required), there is a wide disparity in attorney fees awarded in class actions. Though many jurisdictions provide fee award guidelines, judges are largely left to their discretion to decide what is fair.

The Journal reports that several recent awards have raised eyebrows. For example, an Arizona federal court last month approved $50 million in fees for securities firm Barrack, Rodos & Bacine after it achieved a $145 million settlement against the Apollo Group, Inc. for misleading investors. That fee far exceeded the amount awarded to lawyers who recovered four times as much for Countrywide Financial investors last year.

The Ninth Circuit Court of Appeals has established a guideline that fee awards should be set at approximately 25 percent of the final award, the Journal reports. Judges, however, have discretion to assess factors such as the amount of time attorneys actually worked, and reasonable rates and expenses.

The firm Robbins Geller recently drew the ire of U.S. District Judge Justin Quackenbush for unreasonable expenses. The Journal reports that the judge threatened sanctions upon discovering that the firm sought $125,000 for an in-house investigator that was paid only $30,000. The lawyers also sought reimbursement for a $400 meal that included an expensive wine.

According to the Journal, cost markups are a common practice, especially among plaintiffs firms that attempt to cover overhead from costly litigation. Defense firms are not immune from the practice either, though their clients are more likely to monitor the invoices for unjustified expenses.

The Journal reports that class members sometimes must file objections to fee awards in order to learn the details of a request. That happened in the New York federal case of Cassese v. Washington Mutual, Inc., where the relationship between plaintiffs and their attorneys deteriorated to the point that the firm sought to depose its former clients. The judge eventually ordered the firm to pay plaintiffs’ new lawyer nearly $19,000 for his costs in opposing the deposition.

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Tags: Attorney Fees, Cassese v. Washington Mutual, Inc., Class Actions, Plumbers v. Ambassadors' Group, Policemen's Annuity and Benefit Fund of Chicago v. Apollo Group, attorneys' fees

In Balla v. State of Idaho, 2012 DJDAR 4848 (2012), the Ninth Circuit Court of Appeals granted attorney fees in a class action brought under the provisions of the Prison Litigation Reform Act. The case began in the 1980s. The appeal arises out of a crisis which began at the end of 2008 relating to the retransfer of inmates back to the State of Idaho (the “State”). The State brought the prisoners back to the State even though it lacked the facilities to house or care for them. The class action was initiated on behalf of the prisoners and the complaint alleged a myriad of constitutional violations.

After nine years of litigation, the district court found the State had violated the prisoners’ constitutional rights and granted the plaintiffs an injunction to remedy the constitutional violations.

The law firm of Stoel Rives LLP had been appointed by the court as counsel for the class. After learning of the State’s plan to house prisoners, allegedly in violation of the prior injunction, Stoel Rives filed a contempt motion against the State. In response, the State took measures to comply with the injunction. Due to the State’s remedial actions, the court denied the contempt motion. Despite losing the motion, the district court thereafter awarded Stoel Rives its attorney fees and costs. The State appealed the fee award.

The Ninth Circuit affirmed the trial court’s ruling. The court noted that under the Prisoner Litigation Reform Act, attorney fees shall not be awarded, except to the extent that the fee was incurred in enforcing the plaintiff’s constitutional rights.

The court noted that a previously granted injunction was sufficient to meet the statutory threshold. The Ninth Circuit affirmed the award on that basis.

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Tags: Appeals, Attorney Fees, Balla v. State of Idaho, Class Actions, Prison Litigation Reform Act

In Thornton v. California Unemployment Insurance Appeals Board, 2012 DJDAR 4796 (2012), the California Court of Appeal for the Fourth Appellate District decided a legal question pertaining to the reimbursement of attorney fees incurred during a law enforcement investigation. The public employee incurred the fees relating to allegations of conflict of interest.

Cynthia Thornton was appointed to the California Unemployment Insurance Appeals Board (“the Board”). Subsequently, she was elevated to chairperson of the organization.

While she was chairperson of the Board, the director of the organization offered her an Administrative Law Judge (“ALJ”) position. She had previously taken an examination and passed it, which made her eligible to serve as an ALJ. The director and a lawyer for the Board told her that it was appropriate for her to take the ALJ job. She accepted the job on that basis.

Subsequently, a state auditor began to investigate the Board’s hiring practices. The auditor referred Thornton’s ALJ hiring to the Attorney General and the district attorney. Thornton hired an attorney to advise her about the investigation.

Thornton was subsequently informed that no charges would be filed against her. She then filed a claim for reimbursement of the attorney fees incurred by her in the investigation. The claim was rejected. She then sued the Board for reimbursement of the attorney fees. The trial court sustained the Board’s demurrer to the complaint without leave to amend. Thornton appealed the grant of the demurrer.

The court of appeal affirmed the decision of the trial court. The court of appeal noted that a public employer must “defend” its employees in any “civil action or proceeding” brought against the employee in her official or individual capacity. If the entity fails to do so and the employee hires her own counsel to defend the action or proceeding, the employee is entitled to recover attorney fees incurred in defending the action or proceeding.

On appeal, however, Thornton argued that the phrase “civil action or proceeding” includes an “investigation” that does not ultimately lead to a lawsuit. The court of appeal determined that a public employer is only required to defend employees in civil court proceedings, not prelitigation investigations. The fee claim was denied on that basis.

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Tags: Attorney Fees, Thornton v. California Unemployment Insurance Appeals Board, reimbursing public entity

In Henry M. Lee Law Corp. v. Superior Court, 2012 DJDAR 4763 (2012), the California Court of Appeal for the Second Appellate District decided a novel case arising out of wage and overtime litigation brought under Labor Code Sections 1194(a) and 226(e). The potential for recovery of fees in employment cases can be a significant factor in evaluating liability and can drive settlement. The unique question presented by this case was whether the client or the attorney was entitled to the fee award.

The plaintiff filed suit against a tour company. The plaintiff was represented by counsel. The complaint alleged causes of action for wage and hour violations as well as for alleged wrongful termination. The jury awarded the plaintiff $62,246.74 in compensatory damages as well as $300,000 in attorney fees under Labor Code Sections 1194(a) and 226(e).

The trial court stayed enforcement of the fee award in part to determine whether the undertaking (bond) posted by the tour company to pursue an appeal was sufficient. Soon thereafter, the plaintiff filed a substitution of attorney form in the trial court. She substituted herself in as counsel of record for her prior retained counsel. Later, the same lawyer, purportedly to act on behalf of her client, filed an ex parte application to vacate the stay of enforcement of the attorney fee award. Clearly, what was shaping up was a battle over entitlement to the significant sum of attorney fees awarded by the trial court.

The trial court denied the application to vacate the stay. The court based the decision on the fact that the lawyer was no longer “counsel of record” for the plaintiff. Counsel then filed an ex parte application seeking leave to intervene in the action. The trial court denied the motion to intervene.

The former counsel of record then filed a writ seeking to overturn the trial court’s denial of the petition to intervene. The court of appeal reversed the trial court’s decision, noting that under Labor Code Section 1194, any employee who receives less than the legal minimum wage or overtime compensation to which the employee may be entitled can pursue the unpaid sums in a lawsuit.

The court of appeal also cited Labor Code Section 226(e). That statute states that an employee who is injured by an employer’s failure to timely provide accurate wage statements is entitled to recover a penalty and attorney fees.

The court of appeal relied on Flannery v. Prentice, 26 Cal. 4th 572 (2001), which held that in California Fair Employment and Housing Act (FEHA) cases, the fee award “to the party” goes to counsel absent a specific contract to the contrary. Thus, absent a contract determining a different disposition of an attorney fee award, attorney fees awarded under the statutes is payable to the attorney, not the client.

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Tags: Appeals, Attorney Fees, Fair Employment and Housing Act, Flannery v. Prentice, Henry M. Lee Law Corp. v. Superior Court, Labor Code Section 1194(a), Labor Code Section 226(e)

by Michael A.S. Newman

In Kirby v. Immoos Fire Protection, Inc., the California Supreme Court held that neither California Labor Code section 1194 nor section 218.5 authorize the payment of attorney fees in an action seeking recovery for denial of required rest breaks under section 226.7.

Section 1194 authorizes recovery of attorney fees by a prevailing employee on a claim for unpaid minimum or overtime wages. It provides for one-way fee-shifting to plaintiffs.

Section 218.5, by contrast, provides for attorney fees to be paid to the prevailing party in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. It is thus a two-way fee-shifting statute. However, it is also limited, since it does not apply to any action for which attorney’s fees are recoverable under section 1194.

Section 226.7 imposes an obligation upon employers to provide mandated meal and rest breaks.

Plaintiffs, employees of Defendant (“IFP”), sued the employer for nonpayment of mandated rest breaks, but subsequently dismissed this claim. IFP sought roughly $50,000 of attorney fees for successfully defending this claim.

The first question the Supreme Court had to address was whether attorney fees would have been recoverable under 1194. The Supreme Court found that fees would not have been recoverable under 1194, since rest breaks do not constitute a type of “minimum wage,” as Plaintiffs had argued.

The second question was whether, in that case, attorney fees were recoverable under the two-way fee-shifting of section 218.5. Here, it was IFP that argued that non-payment of rest breaks constituted a “wage,” and therefore qualified under section 218.5. Again, the Supreme Court disagreed. Rest breaks do not constitute wages of any kind.

Thus, the Court held, attorney fees were not recoverable in actions seeking mandated rest breaks under section 226.7.

What makes this case interesting (and a little ironic) from a procedural standpoint is that it was the defendant employer seeking the attorney fees, and the employee plaintiffs who resisted. Thus, in losing their claim for attorney fees, the employer ended by establishing law generally advantageous to employers. And in winning this battle over the payment of roughly $50,000 in fees, the employees essentially nullified the ability of future plaintiffs to seek attorney fees in actions based on the denial of required rest breaks.

Originally posted on Barger & Wolen's Employment Law Observer blog.

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Tags: 1194", 218.5", Appeals, Attorney Fees, California , California Labor Code Section 226.7, Code, Kirby v. Immoos Fire Protection, Inc., Labor, Prevailing Party Suits, Section

By David J. McMahon and Tino X. Do

In Cohen v. Facebook, Inc., (April 10, 2012), the U.S. District Court for the Northern District of California denied defendant’s request for attorneys fees under a statutory fee-shifting provision. The court concluded that defendant was not entitled to recover fees because it could not be deemed a “prevailing party” given that it had obtained dismissal of the action due to lack of jurisdiction.

In a putative class action, plaintiffs alleged that defendant violated California Civil Code § 3344 by using the names and likenesses of members of the Facebook social network, without authorization or compensation, to promote a separate service. Section 3344(a) states that the:

prevailing party in any action under this section shall also be entitled to attorney’s fees and costs.” 

The defendant filed a Federal Rule of Civil Procedure Rule 12(b)(6) motion to dismiss the complaint that challenged the plaintiffs’ allegations that they had suffered “injury in fact” as unduly conclusory. This motion was granted but with leave to amend, and therefore did not render defendant a “prevailing party” for fee-shifting purposes.

Plaintiffs filed a First Amended Complaint that claimed a right to recover based on the alleged violation of §3344, and defendant submitted a second motion to dismiss that invoked both Rule 12(b)(1) (lack of standing) and 12(b)(6) (failure to state a claim). Defendant argued that “mere allegation of statutory violation” does not confer jurisdiction under Article III for a federal court to hear a plaintiff’s claim. 

Defendant’s second motion to dismiss was granted without leave to amend, based on the determination that plaintiffs lacked the requisite “injury in fact” necessary under federal Constitutional standards to support jurisdiction. 

The court then rejected defendant’s contention that even if it obtained a dismissal based on lack of jurisdiction, it could still be a prevailing party because it achieved its litigation objections on a practical level. 

While the court found that no California court had addressed the specific question at issue, it cited a California appellate decision that recognized that the interpretation of “prevailing party” should not be so broad as to include every defendant who obtains a dismissal or judgment that may appear favorable. The court also questioned whether a federal court even has the jurisdiction to award attorney fees once it has determined that it lacks jurisdiction to hear the merits of the controversy. 

Finally, the court held that the nature of the dismissal defendant obtained did not warrant characterizing it as having prevailed under §3344 for fee-shifting purposes because the decision in effect was only that plaintiffs had sued in the wrong forum, not that the claims failed for any substantive reason.

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Tags: Attorney Fees, Cohen v. Facebook, Federal Rule of Civil Procedure Rule 12(b)(1), Federal Rule of Civil Procedure Rule 12(b)(6), Hon v. Marshall, Prevailing Party Suits, prevailing litigant

In Walker v. Ticor Title Co. of California, 2012 DJDAR 3467 (2012), the California Court of Appeal for the First Appellate District reversed an award of attorney fees. In granting the fee award, the trial court considered the plaintiff’s financial circumstances when determining the reasonable value of contractual fees awarded to one of the defendants who substantially prevailed at trial. The court of appeal concluded that the trial court erred in reducing the attorney fee award on the basis of the plaintiff’s limited financial resources.

Several individuals (“Plaintiffs”) sued Ticor Title Co. of California (“Ticor”) and Zak Khan (“Khan”), alleging that the defendants were involved in a fraudulent refinance scheme.  The plaintiffs alleged that Khan acted as an agent for a mortgage brokerage firm and misrepresented or concealed facts to lure the plaintiffs into mortgage transactions.

Plaintiffs alleged that Defendant Ticor, which acted as the escrow holder for the loan closings, failed in its duty to supervise by not overseeing the signature process for the transactions. The jury found in favor of Ticor. The jury did render a verdict in the Plaintiffs’ favor versus Khan.

The plaintiffs then filed a motion for judgment notwithstanding the verdict or a new trial, which the trial court denied. Ticor then filed a motion for attorney fees under a fee provision in the contracts. The trial court awarded Ticor $884,043 in fees. Both sides filed an appeal of the fee award.

The court of appeal vacated and remanded the trial court’s decision on fees. The court of appeal noted that the availability of a contractual fees award is based on the language of the applicable contract. The court of appeal noted, however, that equitable considerations are also an integral part of the analysis. The court stated, however, that although equitable considerations are a factor in considering a fee award, a losing party’s financial condition may not be considered in setting the fees awarded pursuant to contract. On that basis, the court of appeal concluded that the trial court erred in awarding fees to Ticor. The court remanded the case to the trial court for further proceedings.

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Tags: Appeals, Attorney Fees, Walker v. Ticor Title Co. of California

In SCI California Funeral Services Inc. v. Five Bridges Foundation, 2012 DJDAR 2018 (2012), the California Court of Appeal, First Appellate District decided an important decision under California Code of Civil Procedure Section 998(d).

The underlying record and the appellate decision are extremely lengthy and detailed. This blog post focuses solely on the issues implicated by the court’s decision concerning Code of Civil Procedure Section 998(d), the California offer of judgment statute.

SCI California Funeral Services Inc. (“SCI”) entered into a contract with an entity subsequently acquired by Five Bridges Foundation.The contract related to an agreement to purchase all of the assets of a cemetery. 

The asset purchase agreement stated that SCI would acquire real estate.The deal also included an option to buy extra acreage and an easement to post business signs. SCI did not receive the option or easement in a timely manner. As a result, SCI filed suit against Five Bridges, alleging causes of action for breach of contract. Five Bridges countersued SCI for numerous business torts.

Prior to trial, SCI made an offer to resolve the case via a CCP § 998 offer. Five Bridges rejected the offer tendered by the plaintiff. Later, the trial court ruled in favor of SCI, awarding the plaintiff substantially more than the 998 offer it had tendered to the defendant.

The judge ruled that Five Bridges was liable for failure to meet the contractual obligation concerning the easement. SCI moved for an award of post‑offer attorney fees under Code of Civil Procedure Section 998(d).The trial court denied the motion. 

SCI also moved for its reasonable attorney fees under California Civil Code § 1717, a different statutory basis for the award of fees. The trial court also denied the fee request under that statute. SCI filed an appeal of the trial court’s decision.

The court of appeal partially reversed the decision of the trial court.

The court noted that under California Civil Procedure Section 1032, the prevailing party in litigation is entitled to recover statutory costs in any action or proceeding. SCI argued on appeal that because it was entitled to a cost award under CCP Section 1032, it was also entitled to its reasonable attorney fees.  

Section 998(d) provides that if an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment, the defendant may be required to pay post‑offer costs of services of expert witnesses in addition to the plaintiff’s costs. In addition, under CCP § 1033.5, that statute sets forth the categories of recoverable costs under CCP § 1032. Section 1033.5 includes “attorney fees when authorized by contract.”

The court of appeal stated that because SCI was the party with a “net monetary recovery,” it was deemed the prevailing party. In response, Five Bridges argued that under Section 998(d), SCI was only entitled to expert witness fees, and not post‑offer attorney fees. The court of appeal rejected the argument and held that under that statute, expert witness fees are an additional item of costs awardable to a plaintiff, and thus, are not the sole item of costs available to a plaintiff that recovers in excess of a pretrial offer. The court ruled that SCI was entitled to its reasonable attorney fees too.

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Tags: Appeals, Attorney Fees, California offer of judgment statute, Code of Civil Procedure Section 1032, Code of Civil Procedure Section 1033.5, Code of Civil Procedure Section 1717, Code of Civil Procedure Section 998(d), Prevailing Party Suits, SCI California Funeral Services Inc. v. Five Bridges Foundation

In Martinez v. Brownco Construction Co., 2012 DJDAR 1950 (2012), the California Court of Appeal for the Second Appellate District clarified an important issue under the offer of judgment statute, California Code of Civil Procedure (“CCP”) Section 998.

The plaintiff suffered personal injuries in a work‑related accident. He and his wife sued Brownco Construction Co. (“Brownco”), an entity that did work at the construction site. The plaintiffs asserted claims for negligence and loss of consortium.

Subsequently, the plaintiffs served a statutory offer under CCP § 998 on the defendant to compromise for $4,750,000 for the negligence claim and $250,000 for the claim for loss of consortium. Brownco did not respond to the offers. Pursuant to the statute, the offers essentially lapsed and were deemed withdrawn by the terms of CCP § 998.

Subsequently, the plaintiffs prepared and served new Section 998 offers with one plaintiff (husband) offering to settle for $1,500,000, and the other for $100,000 (the wife) for the loss of consortium claim. Brownco did not respond to the second round of offers and they lapsed as well.

A jury trial then took place. The jury found Brownco 50 percent liable for the plaintiffs’ damages, and awarded the husband $1,646,674 and the wife $250,000 for loss of consortium. 

After the favorable verdicts, the plaintiffs pursued costs for expert fees incurred after their first Section 998 offers but before their second offers. The trial judge granted the defendant’s motion to tax costs, ruling that the wife was not entitled to costs incurred between the first and second offers. The plaintiffs appealed the ruling of the trial court.

The court of appeal partially reversed the ruling by the lower court. 

On appeal, Brownco argued that the second offer essentially superseded the first one. The court of appeal disagreed, explaining that when a party makes two Section 998 offers over 30 days apart, Section 998 entitles the offeror to cost shifting from the date of the earliest reasonable 998 offer. 

The case offers important strategic lessons for those who litigate in California state courts.

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Tags: Appeals, Attorney Fees, California Code of Civil Procedure Section 998, Martinez v. Brownco Construction Co., expert fees

In Cinel v. Christopher, 2012 DJDAR 2171 (2012), the Second District California Court of Appeal reviewed an order rendered by the trial court denying a petition to confirm an arbitration award.

A Brazilian citizen (the “investor”) purchased a large number of shares of stock from a closely held limited liability company (“LLC”). Richard Christopher (“Christopher”) was one of the founding members of the LLC which sold the stock to the investor.

After making three installment payments, the investor allegedly became concerned that the LLC’s financial condition was not favorable and that it was contrary to what had been represented to him. The investor filed a suit for securities fraud against Christopher and the other members of the LLC.

Because there was an arbitration clause in the applicable agreements, Christopher sought to compel arbitration of the dispute. However, after the defendants refused to pay the arbitration fees, the proceedings were suspended and eventually terminated.

The matter returned to trial court. Christopher moved for confirmation of the arbitration award. Christopher also moved to dismiss the complaint. The trial court found that there was no “arbitration award,” only a “termination order” and denied the motion. Christopher argued that the trial court could not review the merits of an arbitrator’s award in determining that it did not constitute an “award.” Christopher appealed the unfavorable ruling.

The court of appeal affirmed the lower court’s ruling. The court noted that under Code of Civil Procedure Section 1238.4, an arbitration award shall determine all the questions which must be decided in order to adequately decide the dispute. The court of appeal noted, however, that the arbitrator’s order at issue here did not address any substantive issues related to the dispute. The order merely refused to commence the proceedings for failure to pay fees. The court of appeal ruled that the trial court was correct in denying the petition to confirm.

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Tags: Appeals, Arbitration, Attorney Fees, Cinel v. Christopher

In Lin v. Jeng, 2012 DJDAR 2498 (2012), the California Court of Appeal for the Second Appellate District rendered a fee award based on equitable principles in a partition action involving a real estate dispute between family members.

The plaintiffs filed a partition action against other family members, alleging that they owned an undivided 85 percent interest in a residence. The plaintiffs alleged that the defendants owned an undivided 15 percent interest in the house. The plaintiffs failed to name other family members as defendants who likely also had a property interest in the home.

The plaintiffs prayed for a sale of the home and a division of the proceeds. The other family members, who were not named as parties, filed a complaint in intervention, alleging that they also owned a property interest in the home. The trial court ruled that the plaintiffs were trustees of the property and that the intervenor parties owned the property as the beneficiaries of the trust.

After receiving the favorable ruling from the trial court on a bench trial, the defendants and the intervenors moved for attorney fees. The plaintiffs also filed their own fee petition. The trial court only granted the motion for fees filed by the defendants and the intervenors, apportioning the award of fees between them. The plaintiffs argued that the court erred in its application of Code of Civil Procedure Section 874.040, which governs the award of costs and fees in a partition action. An appeal was pursued by the plaintiffs.

The court of appeal affirmed the ruling of the lower court. The court of appeal focused on the provisions of C.C.P. § 874.040. 

Pursuant to that statute, the trial court must apportion the costs of partition among the parties based on their ownership interests or as required by equity. On appeal, the plaintiffs argued a “common benefit” theory, arguing the fee award should be apportioned amongst all of the parties.

The court of appeal disagreed and concluded that the trial court did not exceed its authority by awarding fees only to the defendants and the intervenors. 

The court pointed to the fact that the plaintiffs had actual knowledge that they were not entitled to an 85 percent share of the home. The court of appeal also specifically noted that the plaintiffs failed to name the siblings in the complaint, forcing them to intervene. Thus, the sole award of attorney fees to the defendants and the intervenor siblings was justified based on equitable considerations.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 874.040, Lin v. Jeng

In Lewow v. Surfside III Condominium Owners’ Assn. Inc., 2012 DJDAR 1445 (2012), the California Court of Appeal for the Second Appellate District decided a novel case dealing with the interplay between a fee award entered under California’s “common interest development” statute and the Federal Bankruptcy Code.

On February 3, 2010, judgment was entered in favor of a condominium owners’ association (“Association”) on a complaint filed by one of the condominium owners. He alleged that the Association failed to perform critical duties.

On February 10, notice of entry of judgment was mailed to the defendant, and the defendant filed for relief under Chapter 13 of the U.S. Bankruptcy Code. On July 23, the bankruptcy proceedings were dismissed. Thereafter, notice of the dismissal was served two days later on the Association.

Later, approximately 32 days after the mailing of the notice of dismissal, the Association filed a motion for attorney fees pursuant to Civil Code Section 1354(c). This statute is commonly referred to as the “common interest development” statute. The defendant objected to the fee petition, arguing that it was untimely. The Association argued that the motion for attorney fees must be filed no later than 60 days after notice of entry of judgment.

Implicit in the Association’s argument was that the time to file the motion was suspended during the bankruptcy proceedings. The trial court agreed with the Association’s argument. The court awarded the Association its reasonable attorney fees. The defendant pursued an appeal and the court of appeal affirmed the judgment of the lower court.

The court of appeal ruled that 11 U.S.C. Section 108(c)(2) did extend the time frame for filing the attorney fee motion and that the time frame to bring a claim for attorney fees was extended until 30 days after notice of the dismissal of bankruptcy proceedings.

Although the deadline was extended, the lawyer for the defendant missed the deadline by two days. The court ruled that good cause existed to relieve the missed deadline.

Under California Rules of Court Rule 3.1702(b), the court may extend the time for filing a motion for attorney fees for good cause. Good cause includes a mistaken but objectively reasoned decision by the lawyer.

Because Association’s counsel made a mistaken but reasonable determination that the 60‑day period was tolled by the bankruptcy stay, the court allowed the late filing of the motion for attorney fees.

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Tags: ""common, 11 U.S.C. Section 108(c)(2), Appeals, Attorney Fees, California Rules of Court, Civil Code Section 1354, Federal Bankruptcy Code, Lewow v. Surfside III Condominium Owners' Assn. Inc., development"", interest

In Searcy v. ADA County, 2012 DJDAR 1099 (BAP 2012), the Bankruptcy Appellate Panel (the “BAP”) for the Ninth Circuit decided whether a fee award rendered against a prisoner under Idaho State law was a dischargeable debt under the Federal Bankruptcy Code.

The court concluded it was not and affirmed the decision to exempt the award from a bankruptcy discharge.

A prisoner sued a county government (the “County”) alleging civil rights claims. The district court concluded that the litigation had no merit and granted summary judgment in the County’s favor. In addition, the judge awarded $7,944 in attorney fees to the County pursuant to Idaho Code Section 31‑3220A(16).

Pursuant to that Idaho statute, the court has the power to award attorney fees in a case brought by a prisoner where the action is found to be frivolous or where a claim cannot be stated as a matter of law.

The prisoner appealed the grant of summary judgment rendered by the trial court. The court of appeal concluded that the motion for summary judgment was granted appropriately. The court went further and also concluded that the appeal was frivolous. The court awarded attorney fees under Idaho statute Section 31‑3220A(16) in the sum of an additional $5,288.

Later, the prisoner petitioned for Chapter 7 relief under the Federal Bankruptcy Code. The bankruptcy court ruled that the prisoner’s debt on the fee claims were properly discharged under the Chapter 7 filing. The County then filed papers asking the court to exempt the awards from the Chapter 7 discharge.

Upon reexamination of the matter, the bankruptcy court concluded that the awards were exempted from discharge under Bankruptcy Code Section 523. It entered an order accordingly.

The BAP affirmed the decision by the bankruptcy court.  

The panel noted that the prisoner did not dispute the court’s determinations that the initial litigation was frivolous. The panel noted that the award of attorney fees and costs under Section 31‑3220A(16) were penalties because they acted as deterrents to frivolous lawsuits and that the awards were exempted from the Chapter 7 discharge order.

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Tags: Appeals, Attorney Fees, BAP, Bankruptcy Appellate Panel, Chapter 7, Federal Bankruptcy Code, Idaho Code Section 31‑3220A(16), Searcy v. ADA County

In Cargill Inc. v. Souza, 2011 DJDAR 17680 (2011), the California Court of Appeal for the Fifth Appellate District decided a novel case relating to the attempt by a litigant’s attempt to enforce a fee clause in a contract against a purported third party beneficiary of the agreement.

The Teixeiras borrowed $1 million from the Souzas to buy cattle and farm equipment. The Teixeiras executed a promissory note (the “Note”) and a security agreement (the “Agreement”) in favor of the Souzas. The Note and the Agreement created a security interest on behalf of the Souzas in the cattle and farm equipment. In addition, the Teixeiras bought feed from Cargill Inc. The feed purchase resulted in a further unsecured indebtedness in favor of Cargill in the sum of $262,000.

The Teixeiras soon defaulted on the promissory notes.

They executed a Transfer Agreement (“Transfer Agreement”) with the Souzas. Under the Transfer Agreement, the Souzas agreed to pay the Teixeiras’ outstanding obligations listed on an exhibit to the Agreement. By omission, the exhibit was not completely filled out. The Transfer Agreement had a prevailing party fee clause indicating that the winner of any dispute arising under the Transfer Agreement would be entitled to reasonable attorney fees.

The bill for feed was never paid. Eventually, Cargill brought suit to collect the unpaid invoice. Cargill alleged that the Souzas failed to pay the Teixeiras’ obligation owed to Cargill for the unpaid feed bills. Cargill alleged that it was a third party beneficiary of the Transfer Agreement. The Souzas moved for summary judgment and the trial court granted the Souzas’ motion. The Souzas moved for attorney fees, but the trial court denied the motion.

The court of appeal reversed the decision of the trial court. The court of appeal noted that under Civil Code Section 1717 in an action on a contract, if a non‑party to the Agreement sues a signatory party and the signatory defendant prevails, the signatory defendant is entitled to attorney fees if the nonsignatory plaintiff would have been entitled to fees in the case had they won the litigation. 

Because Cargill was a third party beneficiary of the Transfer Agreement, and would have been entitled to fees if it had won, the court of appeal concluded that the Souzas were entitled to reasonable attorney fees as the prevailing party under the reciprocal provisions of Civil Code Section 1717.

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Tags: Appeals, Attorney Fees, Cargill Inc. v. Souza, Civil Code 1717, Prevailing Party Suits, prevailing litigant

In Salehi v. Surfside III Condominium Owners’ Association, 2011 DJDAR 16552 (2011), the California Court of Appeal for the Second Appellate District decided a case illustrating the pitfalls of a plaintiff pursuing litigation without a strategic game plan. The end result was a fee award against the plaintiff for more than $252,767 in attorney fees.

The plaintiff purchased a condominium. The condominium community was governed by a set of covenants, conditions, and restrictions (“CC&Rs”). The CC&Rs were enforced by a condominium owners association (“the Association”).

In May 2008, the plaintiff filed suit against the Association, alleging numerous causes of actions for violation of the CC&Rs. Approximately one week before trial, the plaintiff informed the Association’s counsel that she was dismissing all but two of the causes of action.

The Association subsequently moved to recover $252,767 in attorney fees incurred in defending against the voluntarily dismissed causes of action pursuant to Civil Code Section 1354. The plaintiff responded to the motion for fees by contending that she only requested dismissal of the causes of action that required testimony from an expert. The expert allegedly was unavailable to testify at trial due to illness. The trial court denied the motion for attorney fees. The court found that under Civil Code Section 1354, the defendants were not a “prevailing party” within the meaning of the statute.

The court of appeal reversed the decision of the lower court. 

The court noted that pursuant to Civil Code Section 1354, in an action to enforce the governing documents of a common interest development, the “prevailing party” shall be awarded reasonable attorney fees and costs. The court of appeal specifically noted that the underlying record demonstrated that plaintiff’s case against the Association was tenuous. The court also stated that the record failed to establish that the plaintiff was prepared to prove the case substantively. The court of appeal concluded the trial court incorrectly denied the Association attorney fees and remanded the case for further proceedings.

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Tags: Appeals, Attorney Fees, California Code of Civil Procedure Section 1354, Prevailing Party Suits, Salehi v. Surfside III Condominium Owners' Association

In Dzwonkowski v. Spinella, 2011 DJDAR 16427 (2011), the California Court of Appeal for the Fourth Appellate District decided an appeal relating to an award of attorney fees arising out of fee arbitration.

A client retained a law firm for representation in a probate matter. Another attorney who had the designation as “of counsel” at the law firm took over the matter when it proceeded into litigation.

The lawyer with the “of counsel” designation occasionally handled litigation matters on behalf of the firm. However, the “of counel” did not maintain a regular presence at the office. A dispute over the payment of attorney fees arose between the client and the law firm. An arbitration panel found in favor of the law firm. The fee award amounted to more than $33,000. The trial court confirmed the arbitration award. The law firm then filed a motion for $16,344 in attorney fees incurred in the arbitration proceeding and in related proceeding at the trial court level.

In the client’s opposition to the fee motion, he argued that the firm had not “incurred” attorney fees in connection with the representation, in part because the fees were incurred by the attorney with the “of counsel” title. The trial court rejected that argument and granted the motion for fees in its entirety.

The court of appeal affirmed that decision. The court of appeal noted that Civil Code Section 1717(a) states that in an action on a contract, if a contract provides for attorney fees incurred in enforcing the contract, the prevailing party is entitled to reasonable attorney fees. The court stated that:

Whether fees are incurred is evidenced by an obligation to pay attorney fees, the existence of an attorney‑client relationship, and distinct interests between the attorney and client.

The court of appeal noted that the record established that the firm was contractually obligated to pay the “of counsel” attorney fees incurred for his work on the case. The court of appeal also noted that the record established that the law firm actually retained the “of counsel” to provide services related to the fee dispute. Based in part on those conclusions, the court concluded the trial court’s award was proper.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 1717(a), Dzwonkowski v. Spinella

In Marriage of Guilardi, 2011 DJDAR 16245 (2011), the California Court of Appeal for the Sixth Appellate District decided a fee petition related to so‑called pendente lite attorney fees. The fees were generated from the efforts of a party to set aside a marital settlement agreement (hereinafter the “MSA”).

A couple made the decision to separate and executed a MSA. The MSA addressed the division of money, property and custody of the husband and wife’s daughter.

After the MSA was negotiated, it was incorporated into a final judgment which was approved by the court. Subsequently, the wife moved to set aside the judgment and the MSA on numerous grounds, including the alleged non‑disclosure of key facts by the husband. The family court denied the motion, even though it concluded that the MSA was inequitable as applied to the wife’s financial situation. However, the court concluded that the mere fact that the MSA was not equitable was insufficient to invalidate the agreement in its entirety. The court was influenced by the fact that the wife had allegedly willingly entered into the MSA.

In subsequent proceedings, the wife sought attorney fees for the prosecution of her claims under the Family Code and for the fees attributable to the work concerning attacking the judgment of dissolution and the MSA. The trial court granted the husband’s motion to dismiss the claim for fees. The court found that there was an “implicit waiver” of the fee claim for statutory fees in the MSA.

The wife appealed the decision of the trial court and the court of appeal affirmed the decision of the trial court. The court of appeal noted that Family Code Section 2030 authorizes an award of pendente lite attorney fees to one party in a dissolution proceeding to the extent the award is “reasonably necessary” to compensate the party for maintaining the proceeding.

However, the court of appeal agreed with the trial court’s conclusion that the MSA contained an implicit waiver of any claims that either party might bring against the other arising out of the agreement. Accordingly, the court of appeal concluded that the family court properly granted the husband’s motion to dismiss the petition for attorney fees.

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Tags: Appeals, Attorney Fees, Family Code Section 2030, Marriage of Guilardi, pendente lite attorney fees

In CDF Firefighters v. Maldonado, 2011 DJDAR 15709 (2011), the California Court of Appeal for the Fifth District decided a complex case involving a claim for fee recovery arising under California Civil Code Section 1717. That statute is designed to ensure mutuality of a remedy for attorney fee claims under contractual attorney fee provisions. The case arose out of a labor union dispute.

CDF Firefighters is a labor union for California wild‑land firefighters. One of the members of the CDF labor union filed charges against two other members. He alleged that the two members conspired to violate his right to attend a conference and to vote during the proceedings.

The aggrieved member filed formal charges and a CDF Committee sustained the charges against one of the members. The CDF Committee levied a $743 fine against that member. At that point, the case and the related proceedings get complex, factually and procedurally.

Subsequently, another former CDF labor union member filed charges against the same two CDF members involved in the first case. The member alleged that the two other members refused to comply with their trustee obligations. As a result, both members were expelled from CDF membership and fined more than $22,000 each. Those members refused to pay the fines. CDF then sued them for breach of contract. Ultimately, the fines were found to be invalid by the court. In an effort to avoid a fee award, CDF then dismissed its remaining claims.

The defendant then moved for an award of attorney fees under Civil Code Section 1717 contending he was the prevailing party. The trial court denied the motion, concluding that CDF’s dismissal of the remaining claims essentially ended the action. The defendant appealed and the appellate court reversed.

The court of appeal stated that in contractual litigation, the party prevailing on the claim is entitled to attorney fees under Section 1717. However, there is no prevailing party for purposes of Section 1717 if an action has been voluntarily dismissed. The court then drew a highly technical distinction and concluded that CDF’s dismissal of the remaining claims was not sufficient to bar the claim for reasonable attorney fees.

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Tags: Appeals, Attorney Fees, CDF Firefighters v. Maldonado, Civil Code 1717, Prevailing Party Suits, prevailing litigant

In August of 2011 in Musaelian v. Adams, 197 Cal. App. 4th 1251 (2011), the California Court of Appeal for the First Appellate District decided a case which further established the necessary prerequisites required for a sanctions attorney fee award under Code of Civil Procedure Section 128.7. 

That statute allows the court to award sanctions to a party for the “frivolous” conduct of counsel for an adversary in litigation. The statute also authorizes the award of sanctions where the conduct was designed to harass the opponent or to cause unnecessary delay in the proceedings. The action arose from a business dispute.

The Plaintiff sued the Defendant and his business (the “first lawsuit”). After the Defendant failed to respond to the complaint, the Plaintiff obtained default judgments against both Defendants and then attempted to obtain partial satisfaction of the judgments through a foreclosure sale on a home that the individual Defendant owned jointly with a third party (the “Homeowners”). The Homeowners sought to protect the house by filing a protective petition for Chapter 13 bankruptcy. The Plaintiff pursued the claim in bankruptcy court, but it was dismissed.

The Homeowners/Defendants in the first lawsuit then brought a new action (the “second lawsuit”) based on the Plaintiff’s allegedly improper attempts to force the sale of the home through foreclosure. The trial court sustained demurrers to the complaint and awarded sanctions, finding the complaint in the second lawsuit was improperly filed. Thereafter, significant procedural maneuvering took place in the matters and the issue of the propriety of the fee award eventually ended up before the First Appellate District.

The Appellate Court stated that under CCP § 128.7, if an attorney presents a pleading or other similar paper to the court for an improper purpose, the court may impose sanctions, including attorney fees. However, where the underlying conduct is not for an “improper purpose” or is otherwise “frivolous,” there is an insufficient basis for an award of attorney fees as sanctions. The Court of Appeal concluded that under the record presented on appeal, the attorney fee award was improper.

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Tags: Appeals, Attorney Fees, California Code of Civil Procedure Section 128.7, Musaelian v. Adams, sanctions attorney fee award

In Miller v. City of Los Angeles, 2011 DJDAR 15764 (9th Cir. 2011), a divided panel of the United States Court of Appeals for the Ninth Circuit decided an unusual case involving the imposition of sanctions, including attorneys’ fees, for a lawyer’s alleged violation of an in limine order at trial. The trial judge imposed sanctions in the sum of $63,678.50 as compensation to the opponent for the alleged violation of the in limine order.

A man was killed when he was shot by a police officer. His survivors sued the police officer and the police department for wrongful death.

During pre‑trial proceedings, the district court issued an in limine order precluding the defendants from arguing or mentioning that the decedent was carrying a gun when he was shot by the policeman. Defense counsel, in closing argument, stated that the police officer thought that the decedent refused to surrender because he may have shot another individual. The lawyer for the plaintiffs objected, arguing that the comment violated the Court’s pre‑trial in limine order. As a result, the court instructed the jury to ignore the statement.

The jury was unable to reach a verdict and the district court declared a mistrial. Later, the family of the decedent moved for sanctions. Counsel for the defense apparently conceded violating the order and apologized. However, defense counsel did not concede that his conduct was tantamount to bad faith, the prerequisite for sanctions. He argued that the transgression was “inadvertent, fleeting and harmless.” The district court granted the sanctions motion and imposed a fee award totaling more than $60,000.

The Ninth Circuit reversed the sanctions award. The Ninth Circuit stated that it was required to review the trial court’s determination that sanctions were proper on the basis of substantial evidence. 

The Ninth Circuit concluded that the in limine order did not provide adequate notice that defense counsel was prohibited from arguing how the police officer perceived the situation. Thus, defense counsel was entitled to argue that the officer was acting reasonably in believing that the decedent posed a threat as having just shot another person. 

The Ninth Circuit therefore concluded that because the defense lawyer did not violate the order, there was no basis for a sanctions award. The Ninth Circuit reversed on that basis.

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Tags: Appeals, Attorney Fees, Miller v. City of Los Angeles, Sanctions, in limine

In Plancich v. United Parcel Service Inc., 198 Cal. App. 4th 308 (2011), the California Court of Appeal for the Fourth Appellate District decided a unique issue relating to the recovery of costs under the California Labor Code. The case arose out of the plaintiff’s claim that United Parcel Service (“UPS”) failed to pay the plaintiff proper overtime wages and related compensation.

Larry Plancich (“Plancich” or “Plaintiff”) was a supervisor for UPS. He sued UPS, alleging failure to pay proper wages for overtime compensation as well as unfair competition. He alleged that he worked more than 40 hours per week, and UPS had misclassified him as an exempt employee. The judge ruled in favor of UPS on the unfair competition cause of action. Subsequently, a jury found in favor of UPS on the remaining claims.

The trial court awarded costs to UPS. The amount of the cost award was not decided. 

UPS filed a memorandum of costs amounting to $38,387.20. The Plaintiff moved to strike costs, arguing that an employer may not recover costs, even where it arises from an employee’s claim for overtime compensation under Labor Code Section 1194 which is not successful. In response, UPS argued that Code of Civil Procedure Section 1032(b) required that costs be awarded to the prevailing party, whether it be the employee or employer. The trial court struck the costs request.

The Court of Appeal reversed under Section 1032(b). 

The Court noted that a prevailing party is entitled as a matter of right to recover costs in any action, unless the applicable statute provides an express exemption from cost recovery. Section 1194 gives a prevailing employee in an action for overtime compensation an avenue to recover attorneys’ fees and costs. Because the Court concluded that the statute does not contain express language excluding a prevailing employer from recovering costs, a cost award was appropriate.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 1032(b), Labor Code Section 1194, Plancich v. United Parcel Service Inc, Prevailing Party Suits, prevailing litigant, wage & hour

In Chitsazzadeh v. Kramer & Kaslow, 2011 DJDAR 14689 (2011), the California Court of Appeal for the Second Appellate District decided an interesting case under Code of Civil Procedure Section 425.16, a special motion to strike under the California anti‑SLAPP statute.

The defendant in the case was a law firm, Kramer & Kaslow (“the Kramer firm”), who represented Brake Land Inc. and Abolfalz Sharjari as plaintiffs in a prior action. That case resulted in summary judgment being granted to the defendants, Mohammed Chitsazzadeh and Mansoureh Shajari, in the original action.

In July 2009, the defendants in the original action sued the Kramer firm, alleging malicious prosecution. After submitting a demurrer to the complaint, Kramer also filed a special motion to strike the complaint under Code of Civil Procedure Section 425.16. The firm alleged that the complaint arose from Kramer’s constitutionally protected activity. The Kramer firm also argued that the Plaintiffs could not show a likelihood of prevailing on the merits.

In opposition, the Plaintiffs argued that Kramer failed to file the special motion to strike within 60 days after service, as required by Code of Civil Procedure Section 425.16. The Plaintiffs further asserted that the motion was frivolous. The trial court denied Kramer’s special motion to strike as untimely. The Court also awarded the Plaintiffs attorney fees.

The Court of Appeal reversed in part. The Court of Appeal noted that under Section 425.16, a special motion to strike must be filed within 60 days after service of the complaint on the defendant.  A plaintiff prevailing on the motion is entitled to an award of attorney fees and costs only if the trial court finds that the special motion to strike was “frivolous” or “solely intended” to cause unnecessary delay.

Here, the Court of Appeal concluded that the Kramer firm failed to file the special motion to strike within the 60 days following service of complaint and that it was not timely. However, the court ruled that the fact that a special motion to strike was untimely, alone, did not support a finding that the motion was frivolous or solely intended to cause unnecessary delay.

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Tags: Appeals, Attorney Fees, Chitsazzadeh v. Kramer & Kaslow, anti-SLAPP statute

In People v. Taylor, the California Court of Appeal for the Third Appellate District decided a unique case involving a claim for victim restitution under Penal Code Section 1202.4(f)(3)(H). The case was unique in that the restitution claim also included a contingent attorney fee component. The trial court approved the restitution claim, including the fee component.

On July 29, 2007, the defendant improperly crossed a double yellow line while driving his vehicle. He caused a head‑on collision with another vehicle and immediately fled the scene.  The victim suffered serious personal injuries and property damage. After he was apprehended, the defendant pled nolo contendere to hit and run driving causing injury. The trial court sentenced him to six years in prison.

The court then ordered $44,554.83 in victim restitution, including $8,333.33 in attorney fees under the Penal Code section noted above. In response, the defendant argued that the award of victim restitution for attorney fees was improper because it was for a contingency fee paid by the victim without a prior determination as to whether the fee was “reasonable.”

The Court of Appeal affirmed the decision, noting that under Penal Code Section 1202.4(f)(3)(H), restitution is authorized for “actual and reasonable attorney’s fees” which the victim incurred due to the defendant’s criminal conduct. 

The Court of Appeal noted that the traditional lodestar method is a fee shifting mechanism applied in many civil litigation contexts. The court noted that the policy reasons underlying victim restitution presents different interests. This court determined that when uncontradicted evidence exists that a victim incurred attorney fees due to the defendant’s actions, it did not constitute an abuse of discretion to award restitution for the fee without application of the traditional lodestar approach.

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Tags: Appeals, Attorney Fees, Lodestar, Penal Code Section 1202.4(f)(3)(H), People v. Taylor

In Chevron U.S.A. Inc. v. M&M Petroleum Services Inc., 2011 DJDAR 13854 (2011), the U.S. Court of Appeals for the Ninth Circuit decided a novel case involving the recovery of attorney fees under the Petroleum Marketing Practices Act, 15 U.S.C. Section 2805, et seq.

Chevron U.S.A. Inc. (“Chevron”) sold gasoline to consumers at Chevron “name brand” gas stations. M&M Petroleum Services Inc. (“M&M”) operated a Chevron gas station under a franchising agreement with Chevron.

As is typical with most franchise relationships, Chevron subsequently audited M&M’s financial records to determine whether it had paid all of the rent and other compensation which was due to Chevron under the franchise arrangement. 

Chevron apparently discovered alleged discrepancies between M&M’s actual sales and the amounts reported to Chevron through the audit. Chevron viewed this as grounds for termination.

Chevron filed a declaratory judgment claim against M&M seeking termination of the franchise. Chevron alleged the termination was in accordance with the governing contracts and the Petroleum Marketing Practices Act “(PMPA”).

M&M responded with a counterclaim, alleging that Chevron’s attempt to terminate the franchise did not comply with the PMPA. The district court found in Chevron’s favor. The Court also awarded Chevron its reasonable attorney fees, finding that M&M’s counterclaim was frivolous and not in good faith.

The Ninth Circuit affirmed the trial court’s decision. 

The court noted that only a franchisee may recover attorney fees under PMPA. The Ninth Circuit noted, however, that under 15 U.S.C. Section 2805(d)(3), the statute permits a district court to award attorney fees to a franchisor if a franchisee has brought a frivolous PMPA action.

The Ninth Circuit concluded that by filing a counterclaim, M&M instituted a civil action against Chevron and exposed itself to liability for attorney fees as the counterclaim was ruled to be frivolous.

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Tags: 15 U.S.C. Section 2805, 15 U.S.C. Section 2805(d)(3), Appeals, Attorney Fees, Chevron U.S.A. Inc. v. M&M Petroleum Services Inc., Petroleum Marketing Practices Act, attorneys' fees

In Giorgianni v. Crowley, the California Court of Appeal for the Sixth District decided a novel question arising under the California Mandatory Fee Arbitration Act for attorney fees disputes. 

An attorney, John Crowley (“Crowley”), represented Carrie Giorgianni (“Giorgianni”) in family law proceedings. Crowley was retained to enforce a judgment against her former husband. He billed Giorgianni over $77,000 for those efforts. Giorgianni paid over $69,000, and then requested fee arbitration, claiming that she had been overcharged. Crowley claimed that she owed him $11,000. After a hearing, the arbitrators awarded Giorgianni $29,714 in fees previously paid.

Thereafter, Crowley filed a small claims court action against Giorgianni, seeking an amount “not to exceed $5,000” in unpaid fees and costs. Giorgianni filed a petition in the superior court to confirm the award, asserting that more than 30 days had passed since the mailing of the award and no party had filed a proper rejection. In response, Crowley argued that the award had rejected by the filing of the small claims court action. The trial court disagreed with Crowley and approved the arbitration award.

The court of appeal reversed the trial court’s decision. Pursuant to the provisions of the Mandatory Fee Arbitration Act, arbitration of fee disputes is mandatory for an attorney if commenced by a client. If mutually agreed, the arbitration is binding. A party dissatisfied with the arbitration award must make a timely rejection by filing a de novo request. If no action is pending, the losing party must initiate a new action.

The court of appeal noted that the amount claimed by Crowley in small claims court was an amount “not to exceed $5,000.” Thus, the small claims court had jurisdiction. For these reasons, the court of appeal concluded that Crowley made a timely rejection of the arbitration award by requesting a small claims trial.

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Tags: Appeals, Attorney Fees, Business and Professions Code Section 6200, California Court of Appeal for the Sixth District, California Mandatory Fee Arbitration Act, Giorgianni v. Crowley

In Rickley v. County of Los Angeles, 2011 DJDAR 12634 (2011), the U.S. Court of Appeal for the Ninth Circuit held that a successful civil rights plaintiff may recover a reasonable attorney fee, even when represented by a spouse.

The plaintiff, Rebecca Rickley, and her attorney, Natasha Roit, were legally married and owned property where they both resided. Commencing in 2001, the couple jointly initiated complaints to the County of Los Angeles regarding their neighbors’ improper land use. A permanent injunction was eventually issued against the neighbors. However, the couple continued to complain to the County, which allegedly did not take further action.

Later, Ms. Rickley, as the sole plaintiff, filed a federal civil rights action under 42 U.S.C. Section 1983 against the County. She was represented by her spouse, Ms. Roit, and another lawyer. The suit alleged that the County had harassed Ms. Rickley because of the complaints she made about the County’s failure to enforce building codes and ordinances. The parties eventually settled. As the prevailing party, Ms. Rickley moved to recover attorney fees under the Civil Rights Attorney’s Fees Awards Act.

Although the district court granted the request for attorney fees with respect to co‑counsel, it denied the request with respect to the attorney spouse. The trial court concluded that an attorney fee award under Section 1988 of the Act was proper only if an “independent, emotionally detached counsel performed services.”

The Ninth Circuit partially reversed the trial court’s decision. 

The Ninth Circuit noted that Section 1988 clearly does not allow an award of attorney fees to pro per plaintiffs, who are attorneys and represent themselves in civil rights cases. This is consistent with the general rule throughout the United States. However, the Ninth Circuit clarified that case law does not “automatically” bar a successful civil rights plaintiff from recovering attorney fees, even if represented by a spouse.

Although married couples may have emotional bonds, there is no reason to presume that attorney‑spouses are “unable to provide independent, dispassionate legal advice.” The Ninth Circuit vacated the order of the district court. It remanded the case for further proceedings.

(Edited and corrected on October 7, 2011)

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Tags: 42 U.S.C. Section 1983, Appeals, Attorney Fees, Civil Rights Attorney's Fees Awards Act, Rickley v. County of Los Angeles, attorneys' fees

In Jones v. GN Netcom Inc., 2011 DJDAR 12668 (2011), the U.S. Court of Appeal for the Ninth Circuit decided an issue that frequently arises in class action litigation. That issue relates to the often minimal benefits paid to class members while plaintiffs’ class counsel fees are often very high.

The case arose when numerous products liability class actions were fled against defendant Motorola Inc. The lawsuits alleged that Motorola purposefully failed to disclose the risk of hearing impairments caused by the use of Bluetooth headsets. The parties participated in mediation which resulted in a settlement. Motorola agreed to pay $100,000 in cy pres awards. The agreement also carved out up to $800,000 for fees to class counsel, and $12,000 for the class representative.

Certain class members objected to the fee award. Despite the objections, the district court approved the settlement and awarded $850,000 to class counsel for fees and costs based on the lodestar method. The trial court made the award despite the fact that the fees awarded were eight times more than the class recovery. The class objectors argued that the settlement was not fair and reasonable. They claimed the fee award advanced the interests of class counsel over the class itself.

The Ninth Circuit reversed the attorney fee award, noting that the trial court had an independent obligation to ensure that an award is reasonable. Because the record in the trial court did not contain an explicit calculation of the method utilized to calculate the lodestar amount, the Ninth Circuit found the award deficient. The Ninth Circuit found the record was not sufficient to support the award. Specifically, the Appellate Court found no comparison between the settlement’s attorney fee award and the benefit to the class, or degree of success in litigation. As such, there was an insufficient basis for determining the reasonableness of the award.

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Tags: Appeals, Attorney Fees, Class Actions, Jones v. GN Netcom Inc., Lodestar, Lodestar Enhancements, attorneys' fees

What if a client requests that the lawyer switch from being compensated by the hour to accepting a contingency fee instead?  How would the lawyer avoid any conflicts, fulfill her duties of disclosure and avoid any other ethical violations to make that change, and how would this be done in a way to maximize its enforceability?

The American Bar Association (ABA) issued a new formal opinion (11-458, Changing Fee Arrangements During Representation, Aug. 4, 2011) which may help answer that question.  11-458 clarifies the circumstances wherein a lawyer may modify an existing fee agreement during the representation, or "change horses midstream."  

Generally, modifications of fee arrangements are permissible under the Model Rules, but the lawyer must show any modification was (1) reasonable under the circumstances [ABA Model Rule 1.5(a), hereinafter "Rule"], (2) communicated and explained to the client [Rule 1.4 and 1.5(b)], and (3) accepted by the client. 

Being a contract between two parties, fee arrangements are generally governed by simple rules of contract law.  However, counsel has special burdens due to the lawyer's fiduciary duty to the client.  Thus, any changes in the arrangement will be initially regarded as suspect, and lawyers are not free to change the existing relationship by only giving notice to the client.  First and foremost, the new arrangement must be fair and reasonable for the client in light of the circumstances, under Rule 1.5(a).      

• For example, many firms increase their hourly billing rates annually without negotiating every rate increase with the client.  If clearly communicated to the client this may be permissible, so long as (1) the client is informed, (2) the client consents, and (3) the increase is reasonable under the circumstances;   
   
• A lawyer and client also may agree to change an hourly fee agreement to a contingent fee agreement, or vice-versa, provided that the lawyer complies with Rule 1.5(c) (requirements for a contingent fee agreement include a writing signed by the client);
   
• However, a lawyer may not unilaterally impose a "success fee" on a client, in essence altering the arrangement from an hourly rate to a contingency fee, without the client's informed consent; and
   
• An attorney may request new security for a fee, provided that Rule 1.8(a) is complied with (disclosure and consent requirements of doing business with a current client).

Consequently, it is possible to change horses midstream, but the jump from one horse to the other should be done carefully, and with both eyes wide open.

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Tags: Alternative Fee Arrangements, Attorney Fees

In Martinez v. Los Angeles County Metropolitan Transportation Authority, 2011 DJDAR 7417 (2011), the California Court of Appeal for the Second District held that when a plaintiff accepts a defendant’s settlement offer under Code of Civil Procedure Section 998, and that offer states that each side will bear its own costs, attorney fees are precluded as a matter of law.

The plaintiff filed suit against the Metropolitan Transportation Authority (MTA). The plaintiff alleged damages as one of the MTA drivers refused to allow the plaintiff to ride the bus with her service animal.

The MTA initiated settlement pursuant to Code of Civil Procedure Section 998. 

The “998 offer” stated that each side would bear their own “costs.” The plaintiff accepted the offer. 

Several weeks later she filed a motion for attorney fees, contending that the settlement offer did not preclude her from recovering statutory attorney fees. The plaintiff argued that the MTA’s offer only referred to “costs” and did not mention “attorney fees.” The MTA argued that the term “costs” implicitly included attorney fees under the statute. The trial court denied the plaintiff’s motion. The judge ruled that statutory attorney fees were an item of cost under CCP Section 1033.5, therefore implicitly included in the 998 offer.

The Court of Appeal affirmed the trial court’s decision. 

The appellate court noted that a party who accepts a Section 998 offer is entitled to costs and attorney fees unless they are excluded. The court also observed that pursuant to CCP Section 1033.5(a)(10) provides that attorney fees are allowable “costs” when authorized by contract or statute. 

The court of appeal noted that the offer in this case specifically excluded “costs” but did not mention attorney fees. Therefore, unless it expressly stated otherwise, an offer under Section 998 that excludes “costs” also excludes attorney fees. Therefore, the trial court’s denial of attorney fees was proper.

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Tags: Appeals, Attorney Fees, California Code of Civil Procedure Section 1033.5(a)(10), California Code of Civil Procedure Section 998, Martinez v. Los Angeles County Metropolitan Transportation Authority

In Marriage of Davenport, 2011 DJDAR 6386 (2011), the California Court of Appeal for the First District rendered an important decision reiterating the policies established by the California Family Code relating to the alleged misconduct of one of the family law litigants.

The parties were married for more than 40 years. During that timeframe, they accumulated significant marital assets and had three daughters. The parties separated in 1990, and in 2006, the wife filed a petition for dissolution of the marriage.

In 2008, after substantial litigation activities took place, the wife filed a motion under Family Code Section 271 seeking $933,794 in sanctions and attorney fees. The accompanying papers included a 52‑page declaration from her attorney, which attached 1,250 pages of exhibits. The judge who heard the motion later concluded that the declaration inappropriately asserted hearsay, improper arguments, opinion, and conclusions.

The husband responded with a sanctions request of his own. 

After the hearing, the judge denied the wife’s request and granted the husband’s, awarding him $100,000 in sanctions and $304,387 in attorney fees. In granting the husband’s request, the judge explained that counsel for the wife engaged in inappropriate conduct which significantly increased the cost of the litigation. The wife appealed the trial court’s rulings.

The Court of Appeal affirmed, noting that Family Code Section 271 provides that the court may award attorney fees where a litigant’s conduct frustrates the policies of the Family Court. Such sanctions are within the trial court’s discretion.

The court of appeal concluded that the trial judge correctly determined that the wife’s attorney increased the cost of litigation, violated the mediation privilege, and mistreated opposing counsel. The court of appeal stated that there was substantial evidence to support the trial court’s decision.

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Tags: Appeals, Attorney Fees, Family Code Section 271, Marriage of Davenport

In Lemmer v. Charney, 2011 DJDAR 6494 (2011), the California Court of Appeal for the Second District invalidated a retainer agreement entered into between a client and his attorney on the ground that the contract violated fundamental notions of public policy. 

The dispute between the attorney and the client was based on the lawyer’s assertion that the attorney was fraudulently induced to change the terms of his compensation from the payment of an hourly fee to a contingency fee arrangement based on the client’s false promise that he intended to take the case to trial or through settlement.

The lawyer (“Lawyer”) represented the client (“Client”) in an employment lawsuit. Before filing suit, Client signed a retainer agreement, stating he would pay Lawyer an hourly rate for services. 

Several months after filing suit, the parties entered into a new arrangement, with Lawyer being compensated on a contingency fee basis. The new agreement was allegedly based on Client’s promise to take the case to trial or settlement. Less than a month before trial, Client called Lawyer, stating he did not wish to pursue the case further. He instructed Lawyer to settle the matter immediately. Lawyer objected, and told Client he had a strong case, but initiated settlement discussions at Client’s insistence.

After some negotiations, the employer offered a walk away settlement where both sides received nothing.  Client instructed Lawyer to accept the settlement and Lawyer followed those instructions. After Client failed to pay Lawyer any attorney fees, Lawyer filed suit against Client, alleging conspiracy to defraud. The trial court dismissed the complaint for failure to state a cause of action.

The Lawyer appealed and the Court of Appeal affirmed. The Court of Appeal stated that a provision in a lawyer’s retainer agreement prohibiting the client from settling his lawsuit, without counsel’s consent, is void as against public policy. This court found that there was no difference between a promise not to settle without an attorney’s consent and a promise “to proceed with the case to either settlement or trial.”

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Tags: Appeals, Attorney Fees, Lemmer v. Charney, retainer agreement

In Richards v. Sequoia Insurance Co., 2011 DJDAR 6729 (2011), the California First District Court of Appeal reaffirmed the well established rule that a plaintiff who cannot show payment of legal expenses in defense of a claim cannot recover contractual damages for attorney fees against an insurance carrier. 

The court did specifically note that the plaintiffs did not make a claim for Brandt attorney fees to compel the payment of  insurance benefits in the case. Under the California Brandt fees doctrine, a litigant who sues an insurance carrier to compel payment of policy benefits is entitled to recover fees which can be fairly allocated to that portion of the case.

The attorney plaintiffs owned a lodge insured by Sequoia Insurance Company (“Sequoia”). An action was brought against the plaintiffs and they tendered defense to Sequoia. Sequoia responded to the tender and authorized the plaintiffs to retain counsel at their expense, subject to Sequoia’s possible reimbursement of reasonable fees and costs incurred.

Thereafter, the plaintiffs, who were licensed attorneys, demanded full defense and indemnity from the insurer. Sequoia accepted the tender of defense. 

Sequoia paid fees and costs relating to the lawsuit and ultimate settlement. The plaintiffs offered to compromise their claims against Sequoia for $30,000 for time spent in working on the lawsuit. Sequoia ignored the plaintiffs’ offer. The plaintiffs then sued for breach of contract. Sequoia moved for summary judgment, which was granted by the trial court. The court found that the plaintiffs were not entitled to recover for time they expended for their own defense.

The Court of Appeal affirmed the trial court’s decision. 

The court noted that attorneys who represent themselves in disputes involving contracts, which provide for attorney fees, cannot recover reasonable attorney fees for time spent on defending their own case. 

This is consistent with the established rule that a plaintiff who cannot show payment of legal expenses in defense of a claim, cannot show contract damages due to an insurer’s delay in assuming responsibility. The plaintiffs, as attorneys litigating in propria persona, cannot be said to “incur” compensation for their time and lost business opportunities in defending their own case.

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Tags: Appeals, Attorney Fees, Brandt Fees, Richards v. Sequoia Insurance Co.

In Rogel v. Lynwood Redevelopment Agency, 2011 DJDAR 6173 (2011), the Second District California Court of Appeal concluded that the trial court abused its discretion in utilizing a negative attorney fee multiplier on behalf of a losing government entity.

The litigation arose from a plan by a city redevelopment agency to modify an existing mobile home park into townhouses. The residents of the park sued the redevelopment agency, alleging that the plan was improper as it would result in the loss of low‑income housing. After lengthy and contentious litigation, the parties entered into a settlement. The agreement provided that the plaintiffs would not be precluded from seeking attorney fees and that the redevelopment agency could raise its financial condition in response to plaintiff’s petition for attorney fees.

The plaintiffs moved for attorney fees, asking the trial court to apply a multiplier of 1.2 to the lodestar. The fee request totaled approximately $2.7 million. The judge ruled that he would quantify the attorney fees award by applying a negative multiplier of 0.2 to the lodestar requested by the plaintiffs. The court concluded that the settlement agreement authorized it to consider the redevelopment agency’s financial condition. Thus, the award was reduced from $2.7 million to $540,000. On appeal, the plaintiffs argued that the court improperly used a negative multiplier.

The Court of Appeal reversed the trial court’s decision on the amount of the fee award. 

The court noted that the lodestar approach is utilized to set a fee for comparable legal work, and may be adjusted to “fix a fee at the fair market value for the particular action.” 

The court also noted that under some circumstances, the court may decide to diverge from the lodestar. However, the court noted that a trial court is not permitted to use a litigant’s status to negate an appropriate lodestar. The trial court applied a negative multiplier based on the defendant’s status as a government entity. This was not an appropriate factor upon which to reduce otherwise documented attorney fees.

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Tags: Appeals, Attorney Fees, Rogel v. Lynwood Redevelopment Agency, negative attorney fee multiplier

In Center for Biological Diversity v. California Fish and Game Commission, 2011 DJDAR 6499 (2011), the California Court of Appeal for the First District rendered a decision clarifying an issue that comes up frequently under California’s so‑called “private attorney general doctrine.”

An environmental organization, the Center for Biological Diversity (the “Center”), filed suit challenging the California Fish and Game Commission's refusal to designate the American pika as eligible for endangered species protection under California’s version of the Endangered Species Act. 

The Center filed a petition for writ of administrative mandate. 

The trial court, after a contested hearing, granted the writ petition and ordered the Commission to reconsider the matter due to the potential that the trial court utilized an incorrect standard to review the Commission’s decision. 

Pursuant to the order, the Commission did reconsider its earlier ruling and reached the same decision. Upon application, the court awarded the Center significant fees and costs under Code of Civil Procedure Section 1021.5. The trial court awarded fees to the Center in the sum of $257,675 and $886.43 in costs.

The Court of Appeal reversed the decision of the lower court to award fees and costs. 

The appellate court noted that Section 1021.5 provides that a court may award attorney fees to a successful party in any action which has resulted in the enforcement of an “important right affecting the public interest.” 

The Court of Appeal noted, however, that the action must also result in significant benefits to the general public or a large class of persons. Minor revisions or rewordings are not sufficiently significant to support an award under Section 1021.5. The appellate court specifically noted that at best, the Center only achieved a minor victory which did not support the award of almost $258,000 in fees and costs.

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Tags: Appeals, Attorney Fees, Center for Biological Diversity v. California Fish and Game Commission, Code of Civil Procedure Section 1021.5, Private Attorney General, writ of administrative mandate

In Carpenter & Zuckerman v. Cohen, 2011 DJDAR 6665 (2011), the Second District California Court of Appeal decided an interesting attorney fee case. The fee dispute arose out of litigation between two law firms. 

After being sued, one firm, Personal Injury Solutions Inc. (Personal Injury), filed a cross‑complaint against another law firm named Carpenter & Zuckerman LLC (Carpenter). The cross‑complaint alleged causes of action for interference with economic advantage and defamation. The trial court granted Carpenter’s special motion to strike and awarded the firm its reasonable attorney fees. Personal Injury appealed from the order and the trial court’s award of attorney fees as costs.

The appeal filed by Personal Injury was ruled to be untimely, and the award of fees, but not the amount, was affirmed, and the matter was remanded for further proceedings at the trial court level. 

Carpenter submitted a memorandum of costs in the trial court, listing a single cost item in the sum of $33,168.75 for the reasonable attorney fees incurred in the litigation. Personal Injury moved to tax costs, contending that Carpenter was not entitled to attorney fees under California law, because the firm represented itself on appeal.

Carpenter opposed the motion. The firm argued that they had retained an associate of the firm, attorney Candice Klein, to represent them. The court observed that although she was not a partner at the firm, she was an associate. The trial court concluded that since Klein was an associate who was closely affiliated with the firm, Carpenter was not entitled to recover attorney fees.

The Court of Appeal affirmed the trial court’s decision. 

The appellate court stated that because pro se attorney litigants do not incur an obligation to pay attorney fees when representing themselves, such attorney litigants are not entitled to recover attorney fees under Civil Code Section 1717.

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Tags: Appeals, Attorney Fees, Carpenter & Zuckerman v. Cohen, Civil Code 1717, attorneys' fees, pro se attorney

In Kevin Q. v. Lauren W., 2011 DJDAR 6909 (2011), the California Fourth District Court of Appeal affirmed the grant of an attorney fee award to a husband in a paternity case.

A husband was involved in a paternity suit with his ex wife. The case was initially decided in the husband’s favor, but was later reversed. Both sides incurred substantial attorney fees in litigating the dispute. The wife incurred a total of $311,242 in fees, compared to the husband’ fees of $141,384. The wife’s attorney charged $575 per hour compared to the husband’s counsel, who worked at rate of $400 an hour. The wife filed a motion seeking an order requiring the husband to pay her fees.

The husband filed objections to the motion and pointed out that the attorney had billed the wife a total of $4,200 in driving time for court appearances. In response, and in an effort to bolster the equitable case in support of a fee award, the wife claimed she was currently unemployed and had no income. She did disclose $8,700 in monthly support from “other sources.” The court considered the support income in determining whether she had the current ability to pay the fees. The court concluded that she had the necessary resources and denied her motion.

The appellate court affirmed the lower court’s decision. 

The Court of Appeal held that the trial court has the discretion to order an award of reasonable attorney fees in a situation such as the one posed. However, in making the decision, the trial court is required to ask whether the award is “just and reasonable under the relative circumstances of the respective parties.”

The Court of Appeal concluded that the trial judge performed the appropriate evaluation of the parties’ respective abilities to pay. The court also concluded that the support disclosed in the wife’s application was relevant to the issue of her need and ability to pay fees. The Court of Appeal affirmed the decision on this basis.

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Tags: Appeals, Attorney Fees, Kevin Q. v. Lauren W, attorneys' fees, paternity suit

In Ilshin Investment Co. Ltd. v. Buena Vista Home Entertainment Inc., 2011 DJDAR 6917 (2011), the California Second District Court of Appeal reversed an award of attorney fees. The court ruled that the award was not proper where it lacked the requisite statutory support.

In 1993 an investment company (“Ilshin”) loaned money to a movie producer (“Patriot, Inc.”) to create a film. After completion of the project, Patriot was not able to repay the loan. Subsequently, Patriot entered into an exclusive agreement for the film’s home video distribution with Buena Vista Home Entertainment, Inc. (“Buena Vista”).

The agreement required Buena Vista to obtain Patriot’s consent before incurring distribution expenses over $900,000. The film’s sales exceeded the parties’ expectations. Distribution income reached almost $13.5 million. Buena Vista, however, failed to obtain Patriot’s consent to incur expenses over the $900,000 threshold.

Subsequently, Ilshin filed suit against Buena Vista as a judgment creditor for breach of contract. Ilshin alleged that Buena Vista incurred unauthorized distribution costs. The case went to trial and the trial court awarded Ilshin $1,439,203.08 in attorney fees pursuant to Code of Civil Procedure Section 701.020(c), as well as other damages which were proved at trial. Buena Vista appealed the judgment, including the fee award.

The Court of Appeal reversed the award of attorney fees. The court noted that attorney fees are not recoverable unless the award is expressly authorized by either statute or a valid contract.  The court noted that Ilshin brought suit under Section 701.280(b), which does not provide a basis for an attorney fee award. For these reasons, the court held that the trial court’s attorney fee award was erroneous.

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Tags: "California, 701.280(b)", Appeals, Attorney Fees, Civil, Code, Code of Civil Procedure Section 701.020(c), Ilshin Investment Co. Ltd. v. Buena Vista Home Entertainment Inc., Procedure, Section, of

In a significant case captioned In re Tobacco Cases I, 2011 DJDAR 4896 (2011), the California Fourth District Court of Appeal overturned an award of attorney fees.

The case arose from a consent decree which was entered into between most states, including California and several tobacco manufacturers. The consent decree was finalized in 1998.

A key section of the consent decree permanently enjoined R.J. Reynolds Tobacco Company (“Reynolds”) from using cartoons in tobacco advertising. The plaintiffs alleged that the use of the cartoons was inappropriate as it made the product appealing to children.

In 2007, Reynolds placed tobacco ads in Rolling Stone Magazine. The ads were placed by the editor of Rolling Stone, next to editorial content which contained cartoon images.

A plaintiff in the case, the State of California, brought proceedings to enforce the decree prohibiting the use of cartoons in advertising. After a hearing, the court concluded that only a part of the advertisement violated the cartoon prohibition, and that Reynolds was not responsible for the placement of its ad in the magazine. On those grounds, the court refused to issue further relief.

Despite the court’s ruling, the State of California submitted a petition for attorney fees under the provisions contained in the consent decree. Part of those provisions allowed for attorney fees in any proceedings resulting in a finding that the defendant was in violation of the injunction.

The court awarded attorney fees to the State pursuant to Civil Code Section 1717. Reynolds asserted that Section 1717 was inapplicable, that the State was not a successful litigant and filed an appeal.

The court of appeal reversed and remanded the award of fees. The court noted that Section 1717 set forth the grounds for a fee award in a contract action. It provides for attorney fees to the prevailing party. A prevailing party is one who recovers “greater relief” in the litigation. The trial court has discretion to find that no prevailing party exists when the results of the litigation are mixed.

The court of appeal concluded that Section 1717 applied as the injunction was in the nature of a contract. It was entered into with mutual agreement between the State and Reynolds. Thus, Section 1717 applied.

However, the fee award was improper as the State did not recover the “greater relief” it had sought. The People were not a “prevailing party” and the fee award was reversed.

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Tags: Appeals, Attorney Fees, Civil Code 1717, In re Tobacco Cases I, Prevailing Party Suits, R.J. Reynolds Tobacco Company, greater relief, prevailing litigant

In Morrison v. Vineyard Creek, 2011 DJDAR 4611 (2011), the California Court of Appeal for the First Appellate District overturned an award of attorney fees granted to a tenant under California’s Fair Employment and Housing Act ( FEHA).

The plaintiff signed a lease for an apartment. The lease stated that the apartment would only be used as a private residence and specifically prohibited all uses for commercial or non‑residential purposes.

After taking possession of the premises, the plaintiff notified the landlord that she intended to operate a family child day care facility on the premises pursuant to the California Child Day Care Facilities Act (Act). The landlord responded to the notice, stating that operation of a day care business in the apartment would constitute a breach of the lease.

Plaintiff then sued the landlord. The plaintiff alleged violations of the Act, California’s anti‑retaliation statute, and FEHA. Thereafter, the parties signed a settlement agreement. The landlord agreed to recognize the plaintiff’s right to operate a family child care home and to pay $6,501.

In 2009, the plaintiff moved for attorney fees under the retaliatory eviction statute and FEHA. The trial court denied the motion for fees and the plaintiff pursued an appeal of the decision.

The court of appeal cited Civil Code Section 1942.5, the anti‑retaliation statute. The court noted that the statute provides for an award of attorney fees for the prevailing party in an action brought for damages for retaliatory eviction. 

The court of appeal noted that in this case, the landlord did not threaten to take any retaliatory action against the tenant and only wanted to enjoin the plaintiff from operating a day care facility. In addition, FEHA provides prevailing parties with attorney fees, and prohibits an owner of housing from discriminating against a person because of her source of income.

Because the landlord only sought to enforce the lease provision against the plaintiff, the landlord did not discriminate against the plaintiff. Thus, the plaintiff was not entitled to attorney fees.

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Tags: Appeals, Attorney Fees, California Child Day Care Facilities Act, California's anti‑retaliation statute, Civil Code Section 1942.5, Fair Employment and Housing Act, Morrison v. Vineyard Creek, Prevailing Party Suits

In Lee v. Kwong, 2011 DJDAR 4599 (2011), a panel from the California Fifth District Court of Appeal affirmed the lower court’s decision to reinstate an arbitrator’s decision, granting a fee award.

Audrie Lee (“Lee”) entered into an agreement for the purchase of a restaurant business with David and Alice Kwong (“Kwong”). The agreement included an arbitration clause as well as an attorney fee provision. That provision provided for an award of fees in favor of a prevailing party in any dispute arising from the agreement.

The parties agreed to judicial arbitration when the dispute arose. The sale of the business failed to close in a timely manner. The arbitrator denied Lee’s claims and awarded attorney fees to the Kwongs. Lee requested a trial de novo, but later filed a request for dismissal, which the clerk promptly entered as requested.

The trial court granted the Kwongs’ motion to vacate the dismissal filed by Lee. The court entered judgment to the Kwongs and awarded attorney fees pursuant to the parties’ agreement. Lee argued that the action of the lower court went too far, and exceeded its jurisdiction by vacating the dismissal and reinstating the award.

The court of appeal affirmed, noting that a plaintiff is allowed to voluntarily dismiss an action before the commencement of trial. After entry of a voluntary dismissal, the trial court would not have any power to issue further orders in the case.

However, the court of appeal noted that the phrase “commencement of trial” is not restricted to only jury or court trials on the merits. The court noted that the term also includes pretrial process and procedures that dispose of litigation. The court of appeal noted that Lee’s reliance on the statute was misplaced. The arbitration was effectively a trial on the merits. 

For these reasons, the court of appeal ruled that the trial court did not err in vacating the dismissal and affirming the fee award.

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Tags: Appeals, Attorney Fees, Lee v. Kwong, Prevailing Party Suits, attorneys' fees, judicial arbitration, prevailing litigant

In The Housing Group v. PMA Capital Insurance Co., 2011 DJDAR 4441 (2011), the California First District, Court of Appeal decided a case arising under California Civil Code § 2860. 

This section of the civil code provides for arbitration of disputes under California’s so called Cumis doctrine. That statute sets forth the rules for selection of “independent counsel” when the carrier reserves its rights creating a potential conflict between the carrier, its selected counsel and the insured.

The Housing Group (Plaintiffs) filed suit against their insurer, PMA Capital Insurance Co. (the “insurer”). The Plaintiffs sued the insurer for breach of contract and alleged “bad faith” arising out of liability in third‑party actions relating to construction projects.

The insurer petitioned to compel arbitration of an alleged fee dispute pursuant to Civil Code Section 2860(c), contending the action involved disputes regarding the applicable fee to be paid to the Plaintiffs’ independent counsel by the insurer incurred in the underlying litigation.

The Plaintiffs opposed the petition. Plaintiffs argued that the insurer had no standing to invoke the provisions of Section 2860(c) because it failed to prove that it had agreed to defend the case or make any payments to the defense costs incurred. The trial court denied the petition to compel arbitration.

The insurer appealed and the court of appeal affirmed the decision of the trial court. The court noted that where an insurer defends a case under a reservation of rights and has agreed to utilize independent counsel, an insurer may compel arbitration to resolve a dispute regarding the payment of defense fees pursuant to Section  2860(c).

The court noted that there was no evidence in the record that the insurer defended the case. The insurer did send two reservation of rights letters.  However, the letters only expressed a future intent to defend, rather than an actual agreement to provide a defense or to pay defense costs.

The court of appeal concluded that an agreement to the payment of defense fees at the end of the litigation was not sufficient to trigger the provisions of Section 2860.

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Tags: Appeals, Attorney Fees, California Civil Code 2860, Cumis, Cumis Doctrine, The Housing Group v. PMA Capital Insurance Co., bad faith

In Wilson v. San Luis Obispo County Democratic Central Committee, 2011 DJDAR 2416 (2011), the California Court of Appeal for the Second District decided an interesting fee case arising from a political dispute.

The plaintiff in the Wilson case was an active member in the San Luis Obispo Democratic Committee. She was removed from her position after a negative vote of the other Committee members.

After being removed from office, she petitioned the Superior Court, seeking a writ of mandate ordering her reinstatement. The writ also sought to remove Committee members who allegedly were not properly elected to office. The trial court denied the petition, and the Committee moved for their attorney fees incurred pursuant to Code of Civil Procedure Section 1021.5. The fee request totaled $102,215. The trial court denied the fee petition in its entirety.

The Court of Appeal partially reversed the ruling of the lower court. The Court of Appeal cited to the provisions of Section 1021.5, noting that a litigant who acts as a “private attorney general” and who is successful in litigation, may recover the reasonable attorney fees incurred in enforcement of an important right affecting the public interest, or where the litigation has conferred a significant benefit on the general public. The court also noted that the award must be appropriate based on the necessity of private enforcement and other factors.

Here, the Court of Appeal concluded that the Committee vindicated an important constitutional right of political parties and the members of such parties to elect leaders. The court concluded that the Committee’s efforts incurred here did confer a significant benefit on persons belonging to political parties. The court remanded the matter back to the trial court, to determine the reasonable attorney fees incurred by the Committee.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 1021.5, Wilson v. San Luis Obispo County Democratic Central Committee

In Department of Fair Employment and Housing v. Mayr, 2011 DJDAR 2265 (2011), the California Court of Appeal for the Sixth Appellate District decided a unique attorney fee case in an alleged housing discrimination context. 

The case involved the interplay between California Code of Civil Procedure Section 1028.5 (a statute which authorizes an attorney fee award in cases arising between small businesses and state regulatory agencies) and Government Code Section 12989.2(a) which allows attorney fees in housing discrimination cases but not for or against a government agency.

In June 2006, the Mendoza plaintiffs filed a complaint against the owner of their apartment and the property manager for alleged housing discrimination. The Department of Fair Employment and Housing (DFEH) joined the litigation as a plaintiff. The plaintiffs alleged that the defendants had discriminated against them based on their national origin.

At the conclusion of testimony before the jury, the Judge granted a directed verdict in favor of the defendants. The court then ruled that attorney fees and costs were permissible under Code of Civil Procedure Section 1028.5. The court ordered DFEH to pay $19,200 in fees to the defendants and the plaintiffs appealed.

The Court of Appeal reversed the attorney fee award. The court ruled that under Government Code Section 12989.2, an award of attorney fees and litigation costs to or against the state is prohibited in a housing discrimination action.

The court did note that pursuant to Section 1028.5, that statute provides for a fee award, in an action between a small business and a state regulatory agency, which involves the agency’s regulatory functions. A fee award is appropriate if the agency brings an action without substantial justification. Here, the defendants argued that Section 12989.2 applies only if the case is for housing discrimination, the state is a party and fees are not available under a separate statute.

The Court of Appeal disagreed with the defendants’ arguments. The court held that Section 12989.2 applied, and costs and attorney fees were unavailable to the defendants against the state. The fee award was reversed.

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Tags: Appeals, Attorney Fees, California Code of Civil Procedure Section 1028.5, Department of Fair Employment and Housing v. Mayr, Government Code Section 12989.2(a)

In Fabbrini v. The City of Dunsmuir, 2011 DJDAR 2372 (9th Circuit 2011), the Ninth Circuit Court of Appeals decided an interesting fee issue arising in the context of a malicious prosecution claim and California’s anti‑SLAPP Statute, C.C.P. § 425.16.

The City of Dunsmuir (Dunsmuir) initiated legal proceedings against David Fabbrini (Fabbrini) for his failure to provide the proper promised collateral for a municipal loan. The lawsuit also contained a cause of action for declaratory relief, seeking a ruling on the respective parties’ rights and obligations as well as a claim for fraud. The City voluntarily dismissed the lawsuit.

After receiving notice of the dismissal, Fabbrini filed suit against the City in federal court, alleging malicious prosecution under 28 U.S.C. Section 1983. Fabbrini also included a claim for defamation. The district court granted the City’s motion to strike the defamation claim under California’s anti‑SLAPP statute. The court, however, rejected the motion as to the malicious prosecution count.

The district court awarded attorney fees to the City on the successful anti‑SLAPP motion, including fees for hours incurred on the malicious prosecution claim. The court ruled that the hours expended on the malicious prosecution count were “inextricably intertwined” with the anti‑SLAPP motion. The court thereafter granted summary judgment on the remaining claims, terminating the litigation in favor of the City.

The Ninth Circuit vacated the District Court’s ruling in part. The Ninth Circuit noted that a district court may award attorney fees to a prevailing Section 1983 defendant only where the action brought is found to be “unreasonable, frivolous, meritless or vexatious.” Here, the district court made no finding that the Section 1983 claim was frivolous or within the other required statutory criteria.

For these reasons, the court concluded that it was improper to award fees for hours incurred to dismiss the malicious prosecution claim. The City was only entitled to fees for work incurred on the anti‑SLAPP motion.

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Tags: 28 U.S.C. Section 1983, Appeals, Attorney Fees, CCP § 425.16, Fabbrini v. The City of Dunsmuir, anti-SLAPP statute, malicious prosecution

The Second District California Court of Appeal reversed the ruling of the trial court concerning a fee award in a case captioned, In re Marriage of Fossum, 2011 DJDAR 1692 (2011).

In 1994, Edward and Sandra Fossum were married, but agreed to a separation in 2002.  Divorce proceedings commenced in early 2003. Prior to their separation, Sandra misappropriated $24,000 in community property assets and deposited it in her personal bank account. She did not disclose that fact to her former husband.

Based on the surreptitious cash advance taken by Sandra, the trial court found that she violated her statutory fiduciary duties set forth in Family Code Section 721. However, the court ruled her violation did not rise to the level of an award of attorney fees as sanctions. She was ordered to reimburse half the sums which had been misappropriated. The court denied the separate request for attorney fees.

The Court of Appeal reversed. The court noted that spouses owe fiduciary duties to one other, particularly as to community property. Pursuant to Section 721, the statute sets forth mandatory remedies where a spouse breaches their fiduciary duty to the other spouse. The statute requires reimbursement of 50 percent of any undisclosed assets plus attorney fees and costs.

The court specifically concluded that Sandra breached her fiduciary duty to Edward by taking the money. The Court of Appeal concluded that the trial court lacked discretion to deny Edward attorney fees because the statute mandated that the aggrieved spouse be reimbursed the funds plus attorney fees and costs. This was evidenced by the statute’s use of the word “shall,” connoting mandatory action. For these reasons, the court ruled that the trial judge lacked discretion to deny Edward’s fee request.

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Tags: Appeals, Attorney Fees, Family Code Section 721, In re Marriage of Fossum, fiduciary duty

  Appellant Files a Notice of Appeal Prior to the Relevant Court Order

In Silver v. Pacific American Fish Co. Inc., 2010 DJDAR 17978 (2010), the Second District California Court of Appeal decided a unique procedural issue in the context of a fee petition. 

Michael Silver (“Silver”) filed a cross‑complaint against Pacific American Fish Co. Inc. after being sued by Pacific American (“Pacific”). The trial court rejected the validity of Silver’s cross‑complaint and ruled in Pacific’s favor. Pacific then filed a motion for its reasonable attorney fees.

Prior to the hearing on the motion to recover fees, Silver filed a notice of appeal, which specified that he was appealing the trial court’s order granting Pacific’s motion for attorney fees. However, the trial court had not yet ruled on the motion. Despite Silver’s filing, the trial court heard and granted Pacific’s motion for attorney fees. Silver appealed the order.

The Court of Appeal affirmed the lower court’s decision in part. The Court of Appeal stated that a notice of appeal which is filed after rendition of a judgment or statement of intended ruling but before entry of the judgment may be timely. The court also noted that a postjudgment order granting a fee request is separately appealable.

The court noted, however, that at the time Silver purported to appeal the order granting fees, there had been no ruling by the trial court on the matter. The court’s ruling was not made until over a month after Silver filed the notice of appeal. The court also noted that the trial court’s ruling in favor of Pacific did not expressly award attorney fees, but rather left the issues open for further determination.

For all of these reasons, the Court of Appeal held that it had no jurisdiction over the purported appeal because the post-judgment order awarding attorney fees was separately appealable and required Silver to file a separate, timely notice of appeal.

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Tags: Appeals, Attorney Fees, Silver v. Pacific American Fish Co. Inc., attorneys' fees, fee dispute

In Searles Valley Minerals Operations Inc. v. Ralph M. Parson Service Co., 2011 DJDAR 1193 (2011), the Fourth District Court of Appeal decided an interesting contract indemnity case dealing with a fee award.

After concluding that there was no case law directly on point, that Court of Appeal concluded that an assignee of contract indemnification rights stands in the shoes of the indemnitee. So, if the indemnitor refuses to pay an indemnitee’s defense costs, the indemnitee can pay the costs and seek reimbursement from the indemnitor.

Kerr‑McGee Chemical Corp. (“KM”) contracted with Ralph M. Parsons Service Co. (“Parsons”) for the construction of a conveyor system. The contract had an indemnity provision in which Parsons agreed to defend and indemnify KM for claims arising from Parson’s negligence relating to the equipment.

Later, another company (“Searles”) bought the equipment and KM assigned its indemnity rights to Searles under the purchase agreement it had with Parsons. In 2001, a Searles employee was killed while operating the conveyor and a wrongful death claim was pursued by his heirs.

KM then tendered its defense to Searles and Parsons under the indemnity agreement. Searles accepted, but Parsons refused the tender. Searles incurred over $800,000 in attorney fees, costs, and expenses in defending KM. Searles then sued Parsons for express indemnity, alleging that as an assignee of KM’s indemnity rights, it was entitled to reimbursement from Parsons. The trial court disagreed and sustained Parson’s demurrer without leave to amend.

The Court of Appeal reversed, noting that an assignee of contract indemnification rights stands in the shoes of the indemnitee. Thus, if the indemnitor declined to pay for the defense of an indemnitee, the assignee can pay the cost of defense and then seek reimbursement from the indemnitor because Searles was KM’s assignee, and stood in KM’s shoes. For these reasons, Searles was entitled under the indemnity agreement to recover the defense costs it paid for KM.

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Tags: Appeals, Attorney Fees, Searles Valley Minerals Operations Inc. v. Ralph M. Parson Service Co, attorneys' fees, contract indemnification rights, indemnity agreement

In Goldbaum v. The Regents of the University of California, 2011 DJDAR 339 (2011), the Fourth District California Court of Appeal decided a novel issue arising under the California Constitution and Labor Code § 218.5. Labor Code § 218.5 provides that a prevailing plaintiff is eligible to recover reasonable and necessary attorney fees on unpaid wage claims.

Michael Goldbaum (Goldbaum) was a professor at the University of California, San Diego (UCSD). He was granted tenure by the University in 1979. In 2008, Goldbaum filed a complaint against the Regents of the University of California (Regents) for breach of contract. The complaint alleged that UCSD failed to report to the U. C. Retirement Plan (UCRP) that he had been an employee between 1977 and 1992. Goldbaum sought a determination that he was eligible for pension benefits for the complete period of his employment.

In response, U.C. Regents disputed Goldbaum’s eligibility and filed a Motion for Summary Judgment. While that motion was pending, the litigation was settled. Goldbaum then moved for his reasonable attorney fees under Labor Code § 218.5 characterizing the claim as one for unpaid wages and other benefits. The trial court denied the motion on the ground that the Regents had constitutional immunity to a claim for attorney fees.

The court of appeal affirmed the decision. The court noted that the California Constitution establishes the Regents as a public trust. As a public trust, they have powers of organization and government and are immune from legislative regulation subject to exceptions. The immunity includes areas involving general police power regulations governing private persons and corporations.

In response, Goldbaum argued that Labor Code § 218.5 was applicable to the Regents as a general police power regulation. The court of appeal rejected this argument. The court held that issues relating to wages and benefits were internal university affairs not subject to any exceptions relating to the Regents’s constitutional immunity.

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Tags: Appeals, Attorney Fees, California Labor Code § 218.5, Goldbaum v. The Regents of the University of California, Prevailing Party Suits, attorneys' fees, constitutional immunity

An interesting article was published in California Lawyer, January 2011 issue, regarding attorneys' fees, and in particular, negotiating the amount of those fees during settlement discussions.  Negotiating Attorneys Fees, Id. at 12, "Expert Advice," by Adam W. Hofmann, from the San Francisco office of Hanson Bridgett.  The author recognizes that attorneys representing plaintiffs in civil rights and public interest cases usually bifurcate the settlement negotiations, with an attempt to reach agreement on the substantive issues first.  The right to attorneys' fees, and the amounts thereof, are typically delayed until after the substantive issues have been resolved.  Plaintiffs lawyers usually claim that bifurcation is necessary to avoid an ethical conflict between the client's claim and the lawyer's interest in getting paid.

The author argues, however, that such strategy may, in some cases, be a tactical mistake.  The tactic of negotiating the fees simultaneously with the substantive claims may arguably avoid the inherent conflict that usually arises. 

The answer is, of course, that it all depends on your case.  Negotiating the issues simultaneously, and demanding an excessive amount of fees (at least in the eyes of the defendant) could cause a stumbling block in the negotiations over the substantive claims.  Creating such an obstacle to the settlement talks at that point would mean plaintiff gets nothing, so the conflict could be real at that point.  Because many actions are driven by the fee claim -- the recovery of fees being the primary motivation for bringing suit in the first place -- the conflict of interest should always be considered.  The avoidance of that conflict is no doubt heavily dependent upon the case and the particular circumstances in each negoatiation.   

An intersting article, and worth your time to read; especially if you find yourself confronting this conflict question.

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Tags: Attorney Fees, Prevailing Party Suits, Private Attorney General, Settlement Offers, conflicts, during, settlement

The California Court of Appeal for the Fourth District recently decided a novel fee question. In PNEC Corp. v. Meyer, 2010 DJDAR 17387 (2010), the trial court awarded attorney fees to the Defendant after a successful motion to dismiss on the grounds of inconvenient forum (CCP § 418.10(a)(2).

The plaintiff, PNEC Corp., sued the Defendant for breach of guaranty. Plaintiff alleged that it provided Defendant with products and that she failed to pay for them. Plaintiff based its fee claim on a written guaranty of payment signed by Defendant, stating that the customer will be required to pay attorney fees if the account is referred to an attorney for collection.

Plaintiff filed suit and Defendant’s counsel moved alternatively to quash service of process due to lack of personal jurisdiction, or to dismiss the action due to inconvenient forum. Defendant proved that she lived in Washington. She submitted additional proof that she had never worked or initiated a lawsuit in California.

The trial court granted the motion to dismiss. The court also awarded Defendant $21,667.25 in attorney fees as the prevailing party. Plaintiff claimed that the attorney fee award was improper as a litigant is never entitled to a fee award based on dismissal of an action on forum non conveniens grounds.

The court of appeal affirmed, noting that under Civil Code Section 1717(a), in any action on a contract that provides for attorney fees, the party determined to be the prevailing party on the contract is entitled to attorney fees. 

The court held that if the action on a contract is dismissed based on forum non conveniens, the trial court may award attorney fees to the moving party where the contract has a fee clause. Because the lawsuit was based on the collection efforts, it triggered the attorney fee provision. For these reasons, the trial court award of fees to the Defendant was proper.

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Tags: ""inconvenient, Appeals, Attorney Fees, CCP § 418.10(a)(2), Civil Code 1717, PNEC Corp. v. Meyer, Prevailing Party Suits, forum non conveniens, forum", prevailing litigant

In Environmental Protection Information Center v. California Dept. of Forestry and Fire Protection, 2010 DJDAR 17530 (2010), the First District Court of Appeal decided a novel question pertaining to the proper interpretation of California Code of Civil Procedure § 1021.5, the private attorney general doctrine.

The case arises from a long‑running legal dispute surrounding the administrative approval of logging plans issued to Pacific Lumber by California’s Department of Forestry and Fire Protection (“CDF”).

The Environmental Protection Information Center (“EPIC”) prevailed at trial in litigation filed against the CDF and the Department of Fish and Game (“DFG”) (collectively, the Agencies). The suit pertained to the approval of Timber Harvesting Plans (“THPs”). 

The trial court awarded EPIC attorney fees pursuant to CCP § 1021.5. The court ruled that EPIC was the prevailing party and that the actions of the group conferred a significant benefit on the general public.

The decision was reviewed by the intermediate appellate court and California Supreme Court. The appellate court reversed the trial court’s judgment, and the Supreme Court affirmed most of the rulings of the court of appeal. This included the dismissal of nearly all of EPIC’s environmental positions. The court did reverse on procedural issues relating to the approval of timber harvest plans. The Agencies then argued that in light of the outcome of the appeals, EPIC was no longer entitled to attorney fees.

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

The court noted that the “significant benefit” that justifies an attorney fee award need not always represent a “concrete gain.” The Agencies argued that the litigation did not result in any significant benefit because nearly all of the environmental protection aspects of EPIC’s lawsuits were reversed by the court of appeal.

The appellate court disagreed with the Agencies. 

The appellate court took a strained view of the record and concluded EPIC’s work may have enhanced effective public review of future logging, resulting in a “significant benefit.” The court did conclude, however, that the trial court failed to consider the question of settlement efforts in determining whether attorney fees were justified. For that reason, the case was remanded back to the trial court for further consideration.

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Tags: 1021.5", Appeals, Attorney Fees, CCP, California Code of Civil Procedure § 1021.5, Environmental Protection Information Center v. California Dept. of Forestry and Fire Protection, Prevailing Party Suits

In Mepco Services Inc. v. Saddleback Valley ("Mepco" and "Saddleback"), 2010 DJDAR 16749 (2010), the California Court of Appeal for the Fourth Appellate District decided a novel attorney fee case arising from a school modernization project. 

Mepco bid on the project based on architectural plans that Saddleback had prepared by an architect. During the course of construction, Mepco encountered problems and was forced to do additional work at significantly more cost than was originally contemplated.

Mepco performed the additional work according to directions by Saddleback representatives, but the parties disagreed as to whether Mepco was entitled to be paid for the additional work. Mepco then sued for breach of contract.

Mepco was required to furnish a surety bond to cover 100 percent of the contract price. The agreement to perform the work did not contain an attorney fee provision and was silent on whether the performance bond was required to have a fee clause. Mepco arranged to purchase a performance bond that did include an attorney fee provision. It provided for a fee award for enforcement of the bond.

Saddleback filed a counterclaim for liquidated damages alleging Mepco delayed completing the project, and sought attorney fees under the performance bond. The jury found in favor of Mepco, finding Saddleback materially breached the contract. Mepco then moved for attorney fees under the performance bond, and the lower court granted a fee award.

The appellate court affirmed, noting that California Civil Code Section 1717 provides for a fee award to the prevailing party on a contract that contains a fee clause. 

Here, Saddleback sought enforcement of the bond by way of its counterclaim against Mepco and lost on that claim. Saddleback alleged a cause of action for breach of the performance bond. The performance bond that Mepco obtained provided for attorney fees. 

Because Mepco prevailed, the court concluded it was entitled to a fee award.

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Tags: Appeals, Attorney Fees, Civil Code 1717, Mepco Services Inc. v. Saddleback Valley, Prevailing Party Suits, attorneys' fees

In Moore v. Kaufman, 2010 DJDAR 16212 (2010), the California Court of Appeal for the second district decided an important issue concerning the interpretation of Code of Civil Procedure Section 425.16, the anti‑SLAPP statute. The case had a complex procedural history.

Frances Diaz (Diaz) represented Sheila Moore (Moore) in an action against Barry Kaufman. Kaufman filed an anti‑SLAPP motion to strike the complaint under Code of Civil Procedure Section 425.16, and sought an award of attorney fees against Moore and Diaz.

The trial court granted the motion, and awarded attorney fees against both Moore and her attorney Diaz, jointly and severally. 

After a series of complex procedural maneuvers, the trial court issued an order awarding fees and costs in the sum of $41,223.75. Moore appealed, but Diaz did not. The court’s order did not specify whether the award was against Moore, Diaz, or both and to complicate the record, thereafter numerous procedural errors were committed both by the litigants and the court.

Thereafter Diaz brought an ex parte application for an order correcting the judgment to reflect that fees were awarded only against Moore. The court denied the application and awarded Kaufman attorney fees against Diaz. Kaufman then moved to enforce the judgment and noticed an order of examination. Diaz refused to answer questions at the judgment debtor examination, resulting in an order to show cause (“OSC”) by the court directing her to explain why she should not be held in contempt of court. Diaz filed an anti‑SLAPP motion to strike the OSC. The court denied the motion and found her in contempt. Diaz then filed a writ petition, arguing that the underlying judgment and the order of contempt were void and not enforceable.

The court of appeal granted the petition. 

The court of appeal stated that pursuant to Section 425.16, an award of attorney fees to a prevailing party is not discretionary. However, Section 425.16 has no provisions allowing for award of fees against the losing attorney, such as Diaz. The court stated that because Diaz was a nonparty, no fees should have been awarded against her, and the judgment against her was void. The court concluded that a void order cannot be the basis for a valid contempt judgment. Thus the order requiring her to answer questions at her judgment debtor examination was void too.

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Tags: Appeals, Attorney Fees, Code of Civil Procedure Section 425.16, Moore v. Kaufman, Prevailing Party Suits, anti-SLAPP statute

In Hyduke’s Valley Motors v. Lobel Financial Corp., 2010 DJDAR 16183 (2010), the court of appeal for the fourth district reiterated a fundamental prerequisite for a party seeking attorney fees under the reciprocity provision of Civil Code 1717. 

Under CC § 1717 in any action or a contract which provides for a fee award to one party, Section 1717 makes the clause reciprocal as a matter of law. However, in order to be eligible, the litigant must be a party to the contract or an intended beneficiary of the agreement.

Hyduke’s Valley Motors (Hyduke’s) appealed from a post‑judgment order denying its motion for attorney fees against Lobel Financial Corp. (Lobel).

Hyduke’s was the prevailing party in an action to recover against Lobel and Country Finance Services for the purchase price of vehicles it sold to a used car dealer. The dealer filed an insolvency petition prior to paying for the purchase price of the vehicles. Hyduke’s filed a motion seeking attorney fees against Lobel and CFS, relying on an attorney fees clause contained in a conditional sales contract between the auto dealer and the finance companies. Hyduke argued that it was entitled to attorney fees as an intended beneficiary of the conditional sales contract. The trial court denied the motion.

The court of appeal affirmed the decision of the lower court noting that each party to litigation must bear its own attorney fees, unless otherwise provided by statute or contract. The court concluded that Hyduke’s suit against the finance companies, was for the recovery of the purchase price of the automobiles and was not an action arising out of the conditional sales contract. The court specifically found that Hyduke was not an intended beneficiary of the conditional sales contract. There was no evidence in the record to support that conclusion.

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Tags: Appeals, Attorney Fees, Civil Code 1717, Hyduke's Valley Motors v. Lobel Financial Corp, Prevailing Party Suits

In Baharian-Mehr v. Glenn Smith, et. al. 2010 DJDAR 15946 (2010) the Fourth District of the California Court of Appeal, held that the special motion to strike procedure set forth in CCP § 425.16 was not applicable to a business dispute. The court also affirmed the grant of an attorney fee award rendered against the Defendant. The court granted fees after finding the Defendants’ motion was frivolous.

Baharian-Mehr (Mehr) formed a business entity with the Glenn Defendants. Mehr thereafter discovered alleged accounting irregularities in the business and he sued his partners for an accounting, fraud and related business torts. In response to the complaint, the Defendants filed a special motion to strike pursuant to Code of Civil Procedure Section 425.16, the anti-SLAPP statute. The court denied the motion, finding that the subject matter of the litigation of the case was a business dispute, which was not a proper subject for an anti-SLAPP motion. 

In addition to denying the motion to strike, the lower court ordered the Defendants to pay Plaintiff $1,500 in attorney fees because the motion was frivolous. The Defendants filed an appeal of the decision. In addition, on appeal, Mehr also argued that the court of appeal should not review the fee award except on review from a final judgment.

The Fourth District affirmed the court rulings below. The court of appeal stated that under Section 425.16, if a court finds that an anti-SLAPP motion is frivolous, it shall award reasonable attorney fees to a party who prevails on such a motion. The court also ruled that an order denying a special motion to strike is appealable and that the appeal of the attorney fees issue was the proper subject of an appeal. 

The court also confirmed that Glenn’s motion was frivolous, stating that any reasonable attorney would be aware that a business dispute of this kind is not subject to the anti-SLAPP statute. 

On this basis, the court held that the award of attorney fees to Plaintiff was appropriate.

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Tags: Appeals, Attorney Fees, Baharian-Mehr v. Glenn Smith, CCP § 425.16, anti-SLAPP statute

In Western Watersheds v. Interior Board of Land Appeals, 2010 DJDAR 15784 (9^th Cir. 2010), the Ninth Circuit decided a case involving the interplay between the renewal of Bureau of Land Management (BLM) grazing permits and the fee shifting provisions of the Equal Access to Justice Act (“EAJA”).

After the BLM issued decisions renewing grazing permits in Idaho, the Western Watersheds Project, (“Western”) a conservation group, filed administrative appeals of those decisions. In essence, Western alleged that the permits were improperly granted in violation of federal regulations and the National Environmental Policy Act (“NEPA”). 

An administrative law judge consolidated the appeals and issued a partial stay. This was a substantial victory for Western and, subsequently, the parties entered into a settlement agreement. Western moved for fees and costs under the Equal Access to Justice Act (EAJA). The EAJA partially waives the sovereign immunity of the United States allowing an award of attorneys’ fees in limited circumstances

The administrative law judge denied the motion for fees in its entirety, and Western appealed to the Interior Board of Land Appeals (Board). The Board affirmed, as did the district court, finding that the “adjudication was for the purpose of granting or renewing a license,” and was not within the purview of the EAJA. Western appealed the decision to the Ninth Circuit.

The Ninth Circuit affirmed the decision of the district court noting that Western’s administrative appeal was to challenge BLM’s renewal of grazing permits. For this reason the EAJA was inapplicable to the proceedings.

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Tags: Appeals, Attorney Fees, Bureau of Land Management, Equal Access to Justice Act, Interior Board of Land Appeals, National Environmental Policy Act, Prevailing Party Suits, Western Watersheds v. Interior Board of Land Appeals, grazing permits

In Benjamin, Weill and Mazer v. Kors, 2010 DJDAR 15842 (2010) the First Appellate District decided a novel case involving the disclosure requirements under the California Arbitration Act.

Plaintiffs, the Temples, sued Nancy Kors for her activities as a professional adoption facilitator. Kors retained the law firm of Benjamin, Weill & Mazer (BWM) to represent her in the litigation. The Temples voluntarily dismissed their complaint without prejudice, after expensive litigation ensued. Kors moved for attorney fees and her motion was denied. Thereafter, BWM requested that Kors pay the fees which had been billed to her. Kors failed to pay the bills, and BWM sued Kors seeking the balance owed to the firm of $68,986.38.

The trial court granted Kors’ motion to compel fee arbitration and Sean SeLegue was designated chief arbitrator. The arbitration panel concluded that Kors was required to pay BWM $102,287.39 in unpaid fees, costs and interest. BWM then moved to confirm the award in the Superior Court. Kors responded by alleging that SeLegue failed to disclose the nature of his law practice, which could cause a person to doubt his impartiality. 

Kors claimed that at the time of arbitration, SeLegue was representing a prominent law firm in an attorney-client fee dispute. Kors also contended that SeLegue’s practice involved the representation of law firms in client disputes. The court granted BWM’s petition to confirm the award and denied Kors’ disqualification request.

The Court of Appeal reversed the trial court’s decision, noting that the California Arbitration Act requires arbitrators to disclose:

all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” (CCP § 1281.9(a)).

The Court of Appeal stated that the arbitrator’s failure to disclose the facts relating to the nature of his law practice justified vacation of the arbitration award.

The court specifically noted that SeLegue’s extensive practice involving attorneys and their professional responsibilities to clients, was an important factor that, if not disclosed, could create an impression of bias. 

On these grounds, the court ruled that SeLegue had a duty to disclose the nature of his practice and his representation of clients in fee disputes. Because there was a failure to disclosure important facts, the court of appeal remanded the case, with directions to grant Kors’ motion to vacate the arbitration award.

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Tags: Appeals, Attorney Fees, Benjamin, Weill and Mazer v. Kors, California Arbitration Act

In Center for Biological Diversity v. County of San Bernardino, 2010 DJDAR 14646 (2010), the Fourth District Court of Appeal reversed a fee award in a case brought under the California Environmental Quality Act (CEQA).

Haywarden Development Co. (“Haywarden”) sought to develop approximately 40 acres of land near Lake Arrowhead, California. The County of San Bernardino subsequently certified an Environmental Impact Report (“EIR”) for the project. A lawsuit challenging the sufficiency of the EIR was filed by the Center for Biological Diversity (“Center”), and the Center prevailed at the trial court level.

The Center moved for costs and attorney fees under Code of Civil Procedure Section 1021.5 and was awarded limited fees. Hawarden appealed the fee award and requested drastic reductions.

On appeal, the decision was reversed in part and the case was remanded and reassigned to a new trial judge. The Center moved for an additional fee award for attorney fees for the appeal and supplemental award for work performed at trial. The lower court determined it lacked jurisdiction for Center’s request for supplemental fees. The court also disallowed the requested hourly rates of out‑of‑town counsel, and refused to apply a multiplier to the lodestar amount. The court awarded Center a reduced award and the case was again appealed.

The Court of Appeal reversed the fee award and remanded the case to the trial court a second time.

The Appellate Court noted that fee awards under Section 1021.5, including work performed on regarding CEQA issues, should be “fully compensatory” and include “compensation for all the hours reasonably spent.”

The Court of Appeal specifically noted that the remand was necessary because the trial court did not take into account the fundamental differences between trial and appellate work. The court noted that the trial judge denied Center its CEQA‑related fees even though they ultimately succeeded on the issues. The Appellate Court also disagreed with the significant reduction made by the lower court for the appellate work, on the grounds the trial court did not take into consideration the complexity of an appeal compared to trial work. 

The Court of Appeal remanded the issues to the lower court to review the award, with directions to fully compensate Center’s attorneys.

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Tags: Appeals, Attorney Fees, Center for Biological Diversity v. County of San Bernardino, Code of Civil Procedure Section 1021.5

In Cotchett, Pitre & MCarthy v. Universal Paragon Corp., 2010 DJDAR 13771 (2010) the California Court Of Appeal for the First Appellate District decided a unique fee case concerning a contingency fee award. The fee claim was based on the value of property received in settlement, as opposed to a cash resolution.

Universal Paragon Corp. (UPC) hired the law firm of Cotchett, Pitre & McCarthy (CP&M) to represent the company in an environmental case. The parties entered into a unique contingency fee retainer agreement. The Agreement stipulated that if UPC received property rather than cash in settlement, CP&M would receive a 16 percent contingency payment, based on the value of the property. The payment was to be based on a combination of the last settlement offer and the value of the property received.

Settlement was ultimately reached in the litigation. The Agreement provided for an award of real property to UPC.  CP&M then sent a letter to UPC claiming legal fees of over $19 million. The demand reflected 16 percent of the damages range set forth in the prior settlement statement, which was $86.5 to $155.7 million. 

UPC contested the amount of the fee award and the parties agreed to arbitrate the controversy. The arbitrator awarded CP&M $7.5 million in attorney fees and expenses. The trial court confirmed the award, and UPC appealed, contending the fee award was unconscionable.

The court of appeal affirmed the grant of fees and that amount of the award. The court of appeal noted that Rule 4‑200 of the Rules of Professional Conduct prohibits attorneys from entering into an agreement to charge an illegal or unconscionable fee. The court stated that a contractual term is unconscionable if, due to unequal bargaining power between the parties, the result of the contract is unfair.

The court concluded that the contingency fee arrangement was fair. It specifically found that UPC was a sophisticated party who employed outside counsel to negotiate the fee agreement with CP&M. The court found that UPC’s counsel was able to influence and negotiate the terms of the Agreement at arms length. 

The Court also found the contingency fee awarded was not substantively unconscionable. The parties negotiated and agreed to base the contingency fee on the fair market value of the property received, which the arbitrator took into consideration in making the award. 

The court concluded that the fee did not violate public policy.

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Tags: Alternative Fee Arrangements, Appeals, Attorney Fees, California Rules of Professional Conduct, Contingency Fees, Rule 4‑200, contingency fee award, unconscionable fee

In Smith v. Selma Community Hospital, 2010 DJDAR 13933 (2010), the California Court of Appeal, Fifth District, held that under Business and Professions Code Section 809.9, a substantially prevailing party in a peer review lawsuit is entitled to an attorney fee award if the other party’s conduct in bringing, defending or litigating the case was frivolous, unreasonable, without foundation or in bad faith.

The litigation commenced after the governing board of Selma Community Hospital (“SCH”) terminated the hospital privileges of Brenton Smith, M.D. Smith pursued a petition for writ of mandate seeking an order to have his privileges reinstated. Smith prevailed in the writ proceeding and was also successful in defeating the appeal brought by SCH.

Smith then filed a motion for attorney fees under Business and Professional Code Section 809.9. He sought a fee award in the sum of $117,837.50. The trial court denied the motion for fees in its entirety. The court reached that conclusion, reasoning that SCH’s position was not frivolous, unreasonable, without foundation, or in bad faith. 

In 2009, Smith filed a timely notice of appeal from the order denying his motion for attorney fees. The appeal centered on the proper interpretation of Business and Professions Code Section 809.9, the interpretation of Mir v. Charter Suburban Hospital, 27 Cal. App. 4th 1471 (1994), and the evidence relevant to the determination of the “bad faith” standard.

The appellate court reversed and remanded.

The court noted that under Section 809.9, a court must award attorney fees to a substantially prevailing party in a peer review lawsuit where the other party’s conduct in bringing, defending or litigating the lawsuit was frivolous, unreasonable, without foundation, or in bad faith.

The court noted that the terms “frivolous,” “unreasonable,” and “without foundation” are objective standards. The court stated, however, that the determination of whether a party has acted in “bad faith” is a subjective standard. It involved findings regarding the defendant’s motive for defending or litigating an action.

After an extensive analysis of the evidence in the record, the court of appeal concluded that the trial court did not anticipate, or utilize the correct legal standard for determining whether SCH acted in bad faith. Thus, this court remanded the case such that the trial court could apply that standard to the evidence in the record.

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Tags: Appeals, Attorney Fees, Business and Professions Code Section 809.9, Mir v. Charter Suburban Hospital, Prevailing Party Suits, Smith v. Selma Community Hospital, peer review lawsuit, substantially prevailing party

In Chapala Management Corp. v. Stanton, 2010 DJDAR 11821 (2010) the court of appeal reviewed the trial court’s grant of an injunction and an attorneys’ fees award. Subsequent to granting the fee award, the court ordered that a bond was required from Appellants to stay the collection of the fee award, pending appeal of the decision. Appellants then filed a petition for a writ of supersedeas. Appellants argued that a bond was not required to stay the fee award as it was tantamount to an award of costs relating to a claim for injunctive relief.

The dispute commenced when Appellants’ replaced two windows in their condominium in violation of the Covenants, Conditions and Restrictions (“CCRs”) of their Condominium Association (“Association”). Appellants used colored windows in their replacement project, despite the Association’s denial of their application to use that type of an improvement. The Association filed suit against Appellants for violation of the CCRs. 

After a hearing the trial court ordered the Appellants to modify or replace their windows and that they were required to obtain the Association’s approval prior to doing so. The appeal followed and the Appellants refuse to post an undertaking as ordered by the trial court. The Appellants petitioned for writ of supersedeas, arguing an undertaking was not required to stay an award of costs made in connection with a judgment for injunctive relief.

The appellate court noted that under Code of Civil Procedure Section 916, routine or incidental items of costs of injunctive relief are automatically stayed pending an appeal. The court of appeal noted that the trial court made the fee award pursuant to Civil Code Section 1354. That Code Section provides that in an action to enforce “governing documents,” the prevailing party shall be awarded reasonable attorney fees and costs. 

The court of appeal concluded that because attorney fees were expressly provided for under Section 1354, such an award was a matter of right, and therefore routine. Thus, the attorney fee award did not require the posting of a bond.

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Tags: Appeals, Attorney Fees, Chapala Management Corp. v. Stanton, Civil Code Section 1354, Code of Civil Procedure Section 916, Prevailing Party Suits, prevailing litigant, writ of supersedeas

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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Tags: 17200, Appeals, Attorney Fees, Business & Professions Code §17200, Class Actions, Kirby v. Immoos Fire Protection Inc, Labor Code § 218.5, fee shifting

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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Tags: Appeals, Attorney Fees, Donahue v. Donahue, Guckenberger v. Boston University

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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Tags: Appeals, Attorney Fees, Business and Professions Code section 17200, City of Santa Monica v. Gabriel, UCL

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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Tags: 17200, ASFA, Appeals, Attorney Fees, Automobile Sale Finance Act, CLRA, California Code of Civil Procedure Section 998, California Unfair Competition Law, Class Actions, Consumers Legal Remedies Act, Nelson v. Pearson Ford Co., Prevailing Party Suits, UCL

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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Tags: Appeals, Attorney Fees, Probate Code Section 17211(b), Soria v. Soria

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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Tags: Appeals, Astrue v. Ratliff, Attorney Fees, Equal Access to Justice Act, Prevailing Party Suits, prevailing litigant

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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Tags: 11 U.S.C. § 303 (b), 11 U.S.C. § 303 (i), Appeals, Attorney Fees, Chapter 11, Orange Blossom Limited Partnership v. Southern California Sunbelt Developers Inc, Prevailing Party Suits, involuntary bankruptcy

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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Tags: 42 U.S.C. § 1983, 42 U.S.C. § 1988, Appeals, Attorney Fees, Prevailing Party Suits, Prison Legal News v. Schwarzenegger

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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Tags: Appeals, Attorney Fees, Lucky United Properties Investment Inc. v. Lee, Prevailing Party Suits, anti-slapp motions

by Scott E. Calvert

Hardt v. Reliance Standard Life Insurance Co., __ U.S.__ (2010)

In a decision authored by Justice Clarence Thomas, the United States Supreme Court has declared that an ERISA claimant need not be a “prevailing party” to be eligible for an attorneys’ fees award. In Hardt v. Reliance Standard Life Insurance Co., __ U.S.__ (2010), the Court ruled that under 29 U.S.C. §1132(g)(1), a party may be awarded attorneys’ fees if “some degree of success on the merits” is achieved, as opposed to the more stringent requirement imposed by some circuit courts that they be a “prevailing party.”

Bridget Hardt initiated the litigation seeking long-term disability benefits under an ERISA plan. Faced with cross motions for summary judgment, the United States District Court for the Eastern District of Virginia denied Reliance’s motion finding that “Reliance’s decision to deny benefits was based on incomplete information.” The District Court also denied Hardt’s motion for summary judgment, but in doing so, found “compelling evidence” that Hardt was totally disabled. The District Court accordingly remanded the claim to Reliance with instructions that all of the evidence in the file be adequately considered within 30 days, otherwise “judgment will be issued in favor of Ms. Hardt.” 

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Tags: Attorney Fees, ERISA, Hardt v. Reliance Standard Life Insurance Co., Prevailing Party Suits

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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Tags: 28 U.S.C. section 1929, 28 USC section 1920, Appeals, Attorney Fees, FCRA, Fair Credit Reporting Act, Grove v. Wells Fargo Financial California Inc, Prevailing Party Suits, non-taxable costs

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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Tags: Appeals, Attorney Fees, CRC section 8.278(d)(1)(F), California Rules of Court, Rossa v. D.L. Falk Construction Inc

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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Tags: Appeals, Attorney Fees, Lodestar, Lodestar Enhancements, Perdue v. Kenny A, Prevailing Party Suits, US Supreme Court, attorneys' fees

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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Tags: Appeals, Attorney Fees, McGuigan v. City of San Diego, attorneys' fees, private attorney general

In a recent California Supreme Court decision, the court determined that trial courts have the discretion to deny costs and attorney fees to a plaintiff alleging violations of the FEHA who recovers damages that could have been recovered in a limited civil case

By: David J. McMahon and Brendan V. Mullan

 In Chavez v. City of Los Angeles, 47 Cal. 4th 970 (2010), the California Supreme Court was presented with yet another claim brought under the Fair Employment and Housing Act (FEHA) in which the plaintiff’s attorney requested fees far in excess of the minimal damages recovered by the plaintiff. The issue before the court was whether C.C.P. section 1033(a) gives courts the discretion to award attorney fees to a prevailing party under the FEHA when the judgment is less than the jurisdictional amount of limited civil cases ($25,000 or less).

In Chavez, the plaintiff was a police officer who sued the city of Los Angeles alleging claims of employment discrimination, harassment and unlawful retaliation in violation of the FEHA; defamation; intentional infliction of emotional distress; invasion of privacy; civil rights violations; trespass, inverse condemnation; nuisance and intentional infliction of emotional distress. 

After seven years of convoluted litigation in state and federal court, the plaintiff prevailed on one claim, retaliation, and received a judgment in the amount of $11,500. Plaintiff’s other causes of action were all dismissed or found without merit. 

After the jury returned its verdict, the plaintiff’s attorney filed a motion for attorney fees under Government Code section 12965(b) for $436,602.75. Two months later, the attorney filed an amended motion for attorney fees, adding a “2x” multiplier to the lodestar calculation, increasing the amount of fees requested to a total of $870,935.50. 

Defendants opposed the motion asserting that the plaintiff’s attorney had overreached and outrageously inflated the fee request.

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Tags: Attorney Fees, C.C.P. section 1033(a), Chavez v. City of Los Angeles, FEHA, Fair Employment and Housing Act, Government Code section 12965(b), Prevailing Party Suits, attorneys' fees

In Pou Chen Corp. v. MTS Products, 2010 DJDAR 4577 (March 26, 2010), the California Court of Appeal, 2nd District, decided a novel issue concerning the priority of a contractual lien for legal services.

Background

GBMI entered into a contract with MTS whereby GBMI would buy products that MTS intended to sell to Wal‑Mart. Subsequently, the parties negotiated and entered into as a joint venture and formed a new entity named BHE. A third entity, Pou Chen Corp., contributed $10 million for purchase of a 70 percent interest in the new entity, BHE. MTS began withholding payments from BHE due to a business dispute. BHE and GBMI sued MTS to recover the withheld funds. At trial, the jury awarded BHE and GBMI $46,485,578 and awarded MTS $11,476,877 against Pou Chen on its cross‑complaint.

Subsequently, two law firms entered into a joint retainer agreement with MTS to collect MTS’s judgment against Pou Chen. 

The law firms negotiated a contractual lien on any recovery obtained against Pou Chen. Later, BHE and GBMI obtained a writ of execution and levied on MTS’s bank accounts, resulting in payment to BHE and GBMI of $24,813,458. Thus, approximately $23,643,689 was unpaid on the BHE judgment. BHE and GBMI then assigned the unpaid judgment to Pou Chen for $100,000 and Pou Chen moved to offset the judgments.

MTS briefed the issue, arguing that the lawyers had contractual liens that were senior to Pou Chen’s right to offset the judgment. Nonetheless, the trial court granted Pou Chen’s offset motion. The result was that Pou Chen had a remaining judgment against MTS of $11,249,864.

MTS pursued an appeal of the trial court’s ruling and the Court of Appeal affirmed, stating: 

The offset of a judgment against judgment is a matter of right absent the existence of facts establishing competing equities.

The Court of Appeal stated that an attorney’s lien is superior to any right to offset judgments obtained in independent actions. 

The court noted, however, that the lien is subordinate to an adverse party’s right to offset judgments in the same action or in an action based on the same transaction. In this case, the BHE and GBMI judgment obtained by Pou Chen related to the same transaction as the MTS judgment. The court entered the judgment at the same time and in the same action as the MTS judgment. 

The law firms’ contractual liens were thus subordinate to Pou Chen’s right to offset the judgment.

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Tags: Attorney Fees, Pou Chen Corp. v. MTS Products, contractual lien for legal services, offset judgments

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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Tags: Americans with Disabilities Act of 1990, Appeals, Attorney Fees, California Civil Code §54, California Civil Code §55, California Disabled Persons Act, Hubbard v. SoBreck LLC, Jankey v. Song Koo Lee, Prevailing Party Suits

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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Tags: Appeals, Attorney Fees, CCP § 1032, Goodman v. Lozano, Prevailing Party Suits, attorneys' fees

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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Tags: Appeals, Attorney Fees, attorneys' fees

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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Tags: Appeals, Attorney Fees, Hyde Amendment, Prevailing Party Suits, U.S.A. v. Mark Capener, attorneys' fees

By Jennifer N. Lee

Financial elder abuse claims are on the rise in California.[1] Companies engaging in financial transactions with people over the age of 65, like insurance or financial services companies that sell products to elders, are increasingly targets of the plaintiff’s bar.

This is largely due to the fact that the California Elder and Dependent Adult Civil Protection Act (EADACPA) includes a mandatory provision for the recovery of attorneys’ fees and costs; if the plaintiff proves by a preponderance of the evidence (more likely than not to be true) that the defendant committed financial elder abuse, the court must award attorneys’ fees.[2] This fee-shifting provision is unilateral; a prevailing defendant may not recover attorneys’ fees. Wood v. Santa Monica Escrow Company, 151 Cal. App. 4th 1186 (2007).

While the ability to recover attorneys’ fees is clear, in some instances, the amount of fees that may reasonably be awarded is not. First, the there is no provision in the EADACPA that provides guidance on the reasonableness of attorneys fees in cases involving financial elder abuse claims. Welfare & Institutions Code sec. 15657.1 does set forth factors to provide guidance on attorneys fees awards:

• The value of the abuse-related litigation in terms of the quality of life of the elder or dependent adult, and the results obtained;
• Whether the defendant took reasonable and timely steps to determine the likelihood and the extent of liability; and
• The reasonableness and timeliness of any written offer in compromise made by a party to the action.

Unfortunately, these factors do not expressly apply to financial elder abuse claims; they expressly apply only to claims involving physical abuse and neglect. The absence of an analogous provision for financial elder abuse appears to be a legislative oversight, since the same types of awards (e.g., attorney fees, punitive damages, etc...) are recoverable for both types of elder abuse claims.

For the time being though, until the Legislature corrects its oversight, plaintiffs’ attorneys prosecuting financial elder abuse claims may continue to argue that their fee claims need not be subject to scrutiny against these factors.

Plaintiffs may even seek an enhancement of attorneys fees, by relying on Civil Code Sec. 3345. This statute allows for trebling to redress unfair or deceptive practices committed against an elder where a statute imposes a fine, penalty or remedy whose purpose or effect is to punish or deter.

Plaintiffs have argued in favor of treble attorneys fees, asserting that the attorneys’ fees provisions of the EADACPA are statutes intended to redress unfair practices committed against an elder and that the purpose of those fee-shifting provisions is to punish or deter further wrongful conduct.

Allowing the recovery of treble attorneys’ fees is problematic. For one, it would violate standards of professionalism prohibiting attorneys from being compensated for work not done or receiving unearned fees. Unfortunately, neither the EADACPA nor sec. 3345 provides any guidance on this issue.

Compounding the lack of statutory guidance, little case law exists to better define the parameters for attorney fee recoveries by plaintiffs. 

Only one case to date discusses the reasonableness of attorneys’ fees for a prevailing plaintiff who successfully asserted a financial elder abuse claim. In In re Levitt, 93 Cal. App. 4th 544 (2002), the Second Appellate District opined that the size of the estate at issue may be a factor in determining the reasonableness of attorneys’ fees sought. 

In Levitt, a prominent attorney, who was the drafter of the EADACPA, represented a somewhat modest estate to prosecute a financial elder abuse claim and prevailed. He, along with co-counsel, sought attorneys fees and costs in the amount of $127,000 on an estate valued at $370,000. The court reduced the sought-for amount to $110,000, not because of the quality of work done, the amount of time spent or the result obtained, but rather because of the sheer size of the estate in relation to the fees incurred.

The bottom line is that while the EADACPA makes the recovery of attorney fees and costs mandatory, it provides little guidance as what fees may be reasonably recovered. Until further legislative guidance is provided, counsel defending financial elder abuse claims should apply all measures of reasonableness provided for under the rules of professional conduct, the reasonableness factors set forth in the EADACPA for attorneys fees in physical abuse and neglect claims, case law and accepted practices for attorney fee billing to reduce any mandatory attorneys’ fees claims.

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Tags: Attorney Fees, Cal. Welf. & Inst. Code sec. 15657.5, California Elder and Dependent Adult Civil Protection Act, Civil Code Sec. 3345, Client Alerts, EADACPA, In re Levitt, Welfare & Institutions Code sec. 15657.1, Wood v. Santa Monica Escrow Company, attorneys' fees

 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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Tags: Appeals, Attorney Fees, Rudnick v. Rudnick, attorneys' fees, bad faith

Welcome and thanks for visiting Barger & Wolen's new Litigation Management and Attorneys' Fees Blog.  Our firm assists our clients -- which include lawyers, insurers, governmental entities and fee auditors -- in analyzing the reasonableness and necessity of costs and fees incurred in complex litigation.  We have testified as legal fee experts in the independent evaluation of hundreds of millions of dollars incurred in national mass tort cases, prevailing party situations, complex construction disputes and environmental cleanup and coverage cases.  We also help implement billing guidelines for insurers and implement cost controls in ongoing complex litigation.

As such, we recognize the importance of staying up-to-date on the latest decisions and news in this area.  We therefore naturally thought the creation of a blog would not only assist our clients, but help others stay in touch with the cutting edge of this rapidly growing area of the law.  We'll discuss the newest court decisions -- both published and unpublished -- as well as the latest editorial articles and books on the subject of attorneys' fees.  We also hope to create a forum, for you the readers, to express your opinions on these issues.

So join us.  We encourage comments, and please feel free to send us messages if you'd rather not have your question published.

Let us know what's on your mind (as long as it deals with litigation management, of course).

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Tags: Attorney Fees, Litigation Management, attorneys' fees