California Civil Code Section 1717 Provides for Mutuality of Remedy in Favor of a Third Party Beneficiary

Posted on January 31, 2012 by David J. McMahon

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.

 

Party Who Pursues Litigation to Enforce CC&Rs Needs to "Get Ducks in a Row" Prior to Suing

Posted on January 18, 2012 by David J. McMahon

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.

"Of Counsel" Title Does Not Automatically Bar Claim for Attorney Fees

Posted on January 17, 2012 by David J. McMahon

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.

Finding of Implied Waiver of Fees Contained in Marital Settlement Agreement Trumps Fee Claims

Posted on January 12, 2012 by David J. McMahon

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.

 

Legally Separate Cause of Action Supports a Fee Award Under Civil Code Section 1717

Posted on December 13, 2011 by David J. McMahon

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.

 

A Sanctions Attorney Fee Motion Requires a Finding of Frivolous Conduct for Justification

Posted on November 29, 2011 by David J. McMahon

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.

 

Sanction Award is Improper Even if Defense Counsel Admitted to Violation of the Court Order

Posted on November 28, 2011 by David J. McMahon

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.

An Employer is Eligible to Recover Costs Under Labor Code Section 1194

Posted on November 21, 2011 by David J. McMahon

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.

 

Untimely SLAPP Motion Does Not Support a Fee Award

Posted on November 4, 2011 by David J. McMahon

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.

 

Court Properly Awards Contingency Attorney Fees as Restitution

Posted on November 2, 2011 by David J. McMahon

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.

Ninth Circuit Rules That Attorney Fees are Properly Awarded Under Petroleum Marketing Practices Act

Posted on October 31, 2011 by David J. McMahon

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.

 

Attorney Properly Rejects Attorney Fee Arbitration Award by Filing a Small Claims Action

Posted on September 29, 2011 by David J. McMahon

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.

Attorney/Spouse Exception Allows Civil Rights Plaintiff to Obtain Fees

Posted on September 28, 2011 by David J. McMahon

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)

Ninth Circuit Finds Insufficient Basis for Large Attorney Fee Award

Posted on September 26, 2011 by David J. McMahon

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.

 

New ABA Formal Opinion Allows Counsel to "Change Horses Midstream"

Posted on September 21, 2011 by Gary A. Bresee

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.

Settlement Offer Referencing Costs Includes Attorney Fees

Posted on August 3, 2011 by David J. McMahon

 

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.

 

Family Law Judge Properly Grants Substantial Sanctions Against Party Whose Misconduct Increased Litigation Costs

Posted on August 2, 2011 by David J. McMahon

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.

 

Retainer Agreement Prohibiting Settlement Without Attorney Consent Violates Public Policy

Posted on July 27, 2011 by David J. McMahon

 

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.”

 

Pro Per Plaintiffs Who are Attorneys are Not Eligible for Fee Award

Posted on July 26, 2011 by David J. McMahon

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.

 

Trial Court Abuses Its Discretion in Applying Negative Multiplier To Set Attorney Fees

Posted on July 22, 2011 by David J. McMahon

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.

Minor Victories Do Not Support an Award of Fees Under California's Private Attorney General Doctrine

Posted on July 11, 2011 by David J. McMahon

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.

Pro Se Attorney Litigants are Not Eligible for an Award of Attorney Fees

Posted on June 14, 2011 by David J. McMahon

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.

Family Law Judge Has the Authority to Award "Just and Reasonable" Attorney Fees

Posted on June 9, 2011 by David J. McMahon

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.

Attorney Fee Award is Reversed Where It is Rendered Without Proper Statutory Authorization

Posted on June 2, 2011 by David J. McMahon

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.

 

Attorney Fee Award Overturned in Tobacco Litigation

Posted on May 16, 2011 by David J. McMahon

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.

Trial Court Improperly Grants an Award of Fees to Tenant Under Fair Housing Act

Posted on April 27, 2011 by David J. McMahon

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.

 

Lower Court Properly Reinstates Arbitration Award Granting Fees

Posted on April 26, 2011 by David J. McMahon

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.

2860 Fee Arbitration is Denied Where Insurer is Not Currently Defending

Posted on April 7, 2011 by David J. McMahon

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.

Private Attorney General Doctrine Authorizes Attorney Fees in a Political Dispute

Posted on March 28, 2011 by David J. McMahon

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.

Fee Award is Overturned in Alleged Housing Discrimination Matter

Posted on March 23, 2011 by David J. McMahon

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.

 

Claim Must be Frivolous to Support a Fee Award for Malicious Prosecution

Posted on March 18, 2011 by David J. McMahon

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.

 

Breach of Fiduciary Duty by Spouse Results in Fee Award

Posted on February 10, 2011 by David J. McMahon

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.

Court Has No Jurisdiction Over a Fee Claim Appeal When the Appellant Jumps the Gun

Posted on February 2, 2011 by David J. McMahon

  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.

Assignee May Pursue Claim for Indemnification for Unreimbursed Counsel Fees

Posted on February 1, 2011 by David J. McMahon

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.

U. C. Regents Have Constitutional Immunity from Plaintiff's Attorney Fee Motion

Posted on January 31, 2011 by David J. McMahon

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.

Does Negotiating a Fee Award along with Substantive Relief Create a Conflict of Interest?

Posted on January 7, 2011 by Gary A. Bresee

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.

Attorney Fee Award is Appropriate Based on Successful Forum Non Conveniens Motion

Posted on December 15, 2010 by David J. McMahon

 

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.

 

Fee Award is Overturned Where Trial Court Failed to Consider the Question of Settlement Effort

Posted on December 13, 2010 by David J. McMahon

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.

 

California Civil Code § 1717 is a Proper Basis for an Award of Attorney Fees Pursuant to a Performance Bond

Posted on December 10, 2010 by David J. McMahon

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.

 

Anti-SLAPP Statute Does Not Authorize an Award of Attorney Fees Against Plaintiff's Counsel

Posted on November 4, 2010 by David J. McMahon

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.

Party Must Be an Intended Beneficiary of the Contract to Invoke the Reciprocity Provision of Civil Code Section 1717

Posted on November 3, 2010 by David J. McMahon

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.

Finding That an Anti-SLAPP Motion is Frivolous Justifies Fee Award

Posted on October 26, 2010 by David J. McMahon

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.

Award of Attorney Fees is Improper Where Litigation Sought Renewal of Grazing Permits Rather than the Grant or Renewal of a License

Posted on October 21, 2010 by David J. McMahon

In Western Watersheds v. Interior Board of Land Appeals, 2010 DJDAR 15784 (9th 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.

Disclosure of the Nature of Legal Practice and Representation is Required by Arbitrator in Fee Dispute Matter

Posted on October 20, 2010 by David J. McMahon

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.

Fee Award Is Reversed Where Lower Court Failed To Consider Complexities Of Appellate Work

Posted on September 30, 2010 by David J. McMahon

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.

 

Arbitrators Fee Award Based on Percentage of Property Value Conveyed in Settlement is Upheld

Posted on September 23, 2010 by David J. McMahon

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.

Courts are Required to Award Attorney Fees to a Substantially Prevailing Party in Peer Review Lawsuits

Posted on September 10, 2010 by David J. McMahon

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.

 

Injunctive Relief Related Fee Awards are Subject to Automatic Stay Pending Appeal

Posted on September 3, 2010 by David J. McMahon

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.

 

Prevailing Defendant Entitled to Fee Award Unrelated To Claims Seeking Unpaid Wages

Posted on September 1, 2010 by David J. McMahon

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.

In "Bet the Farm" Cases, Court Calls for Close Scrutiny of Reasonableness

Posted on July 23, 2010 by David J. McMahon

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.

Action Against Landlord Under The Unfair Competition Statute Cannot Support Attorney Fee Award

Posted on July 22, 2010 by David J. McMahon

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.

Award of Attorney Fees Under the Automobile Sale Finance Act Upheld by Court of Appeal

Posted on July 20, 2010 by David J. McMahon

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.

Limitations on Attorney Fees Under Probate Code Section 17211

Posted on June 24, 2010 by David J. McMahon

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).

Attorney Fees Awards Subject to Offset Litigants' Preexisting Debts to the U.S. Government

Posted on June 21, 2010 by David J. McMahon

 

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.

 

Improper Involuntary Bankruptcy Petition Gives Rise to Award of Counsel Fees

Posted on June 16, 2010 by David J. McMahon

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.

 

Fees Incurred for Monitoring Settlement Agreement Compliance are Recoverable Under 42 U.S.C. § 1988

Posted on June 16, 2010 by David J. McMahon

In Prison Legal News v. Schwarzenegger, 2010 DJDAR 8612 (9th 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.

Unsatisfied Judgment Allows Prevailing Party to Recover Attorney Fees

Posted on June 16, 2010 by David J. McMahon

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.

"Prevailing Party" Status Not Necessary for an ERISA Attorneys' Fees Award

Posted on May 27, 2010 by Barger & Wolen LLP

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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Non-Taxable Costs May Be Awarded Under the Fair Credit Reporting Act

Posted on May 26, 2010 by David J. McMahon

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.

Interest Incurred on Borrowed Funds to Secure an Undertaking is Not Recoverable

Posted on May 25, 2010 by David J. McMahon

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.

US Supreme Court Limits Fee Enhancements to "Exceptional Cases"

Posted on April 30, 2010 by Gary A. Bresee

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.

Private Attorney General Fees are Only Available in an Action Against the Opposing Party

Posted on April 9, 2010 by David J. McMahon

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.

Discretion to Deny Costs and Attorney Fees to FEHA Plaintiffs Rests with the Trial Courts

Posted on April 9, 2010 by David J. McMahon

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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Court Decides Novel Issue Concerning Priority of a Contractual Lien for Legal Services

Posted on April 1, 2010 by David J. McMahon

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.

Attorneys Fee Provision in California Disabled Persons Act Is Not Preempted by the ADA

Posted on February 19, 2010 by David J. McMahon

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.

Plaintiffs Fail To Satisfy the "Prevailing Party" Standard

Posted on February 16, 2010 by David J. McMahon

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.

Municipal Ordinance Permits Attorney Fee Award Only In Limited Proceedings

Posted on February 5, 2010 by David J. McMahon

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.

Ninth Circuit Overturns Attorney Fee Award Against the Government

Posted on January 29, 2010 by David J. McMahon

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.

Financial Abuse of Elders and the Recovery of Attorneys' Fees

Posted on December 23, 2009 by Barger & Wolen LLP

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.

[1] "Financial abuse" of elders is defined as the assisting with or taking, secreting, appropriating or retaining of real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud. Cal. Welf. & Inst. Code sec. 15657.5. By statute, “wrongful use” is imputed if the person or entity knew or should have known that the conduct was likely to be harmful to the elder. With such low and vague pleading standards and because little case law defines “for wrongful use,” an institutional client that engaged in a legitimate business transaction with an elder could be sued for financial elder abuse by a disgruntled beneficiary or a conservator of the estate who disagrees with the suitability of the transaction.

[2] It should be noted that the burden of proof to recover attorneys’ fees is lower than the clear and convincing evidence required to recover punitive damages.

 

Improper Claim Brought by Trust Beneficiaries Can be Remedied Through an Attorney Fee Award Rendered Under the Equitable Power of the Probate Court

Posted on December 14, 2009 by David J. McMahon

 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.