Last Minute Amendment By Counsel To Augment Fee Claim Rejected By Court

Posted on May 15, 2013 by David J. McMahon

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

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

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

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

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

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

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

 

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.

Public Entity is Entitled to Hire Private Law Firm in Tax Assessment Proceedings

Posted on January 19, 2010 by David J. McMahon

In Priceline.com Inc. v. City of Anaheim the California Court of Appeals, Fourth District issued a decision interpreting the so called Clancy doctrine. 

In the California Supreme Court’s ruling in Clancy v. Superior Court, (1985) 39 Cal. 3d 740, 746-51 the Court provided a framework for, when, and if, a public entity has the authority to hire an attorney on a contingent fee basis to try a civil case. 

The Priceline litigation commenced when a private law firm working for the City of Anaheim informed Priceline.com Inc. that it was liable for failing to remit a local hotel tax. The tax was allegedly due for Priceline’s hotel room reservation service.

Priceline responded to outside counsel, and demanded to know whether the lawyer was working on a contingent fee basis. Anaheim answered in the affirmative, but stated that the private firm was acting as its co-counsel. 

Under the Clancy doctrine outside lawyers are allowed to assist government lawyers as co-counsel in “ordinary” civil litigation. Priceline then sought to compel Anaheim to litigate the matter without the outside counsel’s involvement, by petitioning for a writ of mandate. The trial court denied the petition and Priceline appealed.

The court of appeal affirmed, noting that a under Clancy, a government may hire an attorney on a contingent fee to try a civil case. However, some types of cases (only vaguely described in Clancy) require “a balancing of interests” and “a delicate weighing of values.” Under Clancy, it is clear that the use of outside counsel as the government’s sole litigator would have been prohibited.

In Priceline, the case was a tax assessment proceeding and for that reason the Court of Appeal concluded that it was an administrative action that did not require use of the balancing test or weighing of issues. 

As the disputed matter did not fall inside the barred class, the court concluded that Anaheim was not prohibited from hiring outside counsel on a contingent fee to try this case. The trial court was correct in denying Priceline’s petition.

Is a Court Allowed to Enhance a Fee Award Based on the Quality of Performance of Counsel?

Posted on November 11, 2009 by David J. McMahon

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

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

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

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

Ninth Circuit Rejects Exclusive Use of Lodestar Approach in Calculating Fees in Denial of Disability Insurance Benefits Matters

Posted on November 9, 2009 by David J. McMahon

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

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

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

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

Federal Judge Reduces Fees Requested by 75%

Posted on August 24, 2009 by Gary A. Bresee

In Mendez v. The County of San Bernardino, US District Court, Central District of California, (a case in which I submitted a declaration in opposition to the fees requested), The Honorable Judge Wilson found the initial lodestar of $696,923 should be reduced by 75%.  As such, the Court granted Plaintiffs' motion for attorneys fees, but awarded fees in the amount of $174,230.

In an action against the San Bernardino County Sherriff's Department for false arrest and an illegal seach and seizure, many of the claims were dismissed at the summary adjudication stage.  Plaintiff eventually obtained a jury verdict for a nominal $2 in compensatory damages and $5,000 in punitives for the claims which survived.  

The first federal judge denied the fees altogether finding them to be so excessive that they failed to pass muster under the "shocks the conscience" test.  The Court denied the fees altogether.  The Ninth Circuit then reversed and remanded back to the District Court for another determination of the Plaintiff's reasonable fees.  Mendez v. The County of San Bernardino, 540 F.3d 1109 (9th Cir. 2008).

On remand, Plaintiff sought approximately $837,000 in fees and $49,000 in costs.  Judge Wilson performed an excellent analysis of the fees requested, finding:

1. A 10% reduction is appropriate for the block billed entries, which made it difficult to determine the amounts billed for some activities, and citing other Ninth Circuit authority for the percentage reduction;

2. The firm's use of 2005 hourly rates was reasonable due to the delay in payment, and since they may be overcompensated for the 2003 and 2004 time, but undercompensated for the time incurred 2006 - 2009;

3. However, the Court reduced the hourly rates (e.g., from $550 to $400 per hour for some partners) due to the lack of evidence -- other than counsel's own affidavits -- regarding the prevailing rates for similar work in the community.

Thus, the initial requested lodestar of $837,000 was reduced to $696,923.  The Court then considered additional Kerr factors (Kerr v. Screen Extras Guild, Inc., 526 F.2d 67 (9th Cir. 1975) to find, inter alia:

A.  Six individuals, including two partners and two associates, billing a total of 2,064 hours, was deemed excessive for a straightforward civil rights case; and

B.  The award of $2 in nominal damages and $5,000 in punitive damages demonstrated plaintiffs' limited success on the merits.

The Court therefore concluded the $696,923 lodestar should be reduced by 75%.  Plaintiffs were awarded fees in the amount of $174,230.

Attorney's Fees Recoverable Under Victim's Bill of Rights, but Only If Reasonably Incurred

Posted on June 26, 2009 by Gary A. Bresee

Attorneys fees incurred by the victim of a crime in California can be claimed under the Victims' Bill of Rights, which established the right of crime victims to receive restitution directly from the criminal.  In People v. Millard, 09 CC.D.O.S. 7856 (June 23, 2009), the trial court ordered Millard to pay the victim's attorney's fees, based on a contingency fee agreement, of $366,666 incurred in pursuing a civil judgment against Millard.  Initially, the trial court found the contingency fees to be "unconscionable," but nevertheless believed it was obligated to enforce the contingency fee agreement and award the entire amount in restitution.

The appellate court reversed, citing Penal Code section 1202.4's requirement that restitution may include "actual and reasonable attorneys' fees and other costs of collection."  Accordingly, the victim was certainly entitled to restitution of his attorneys' fees, but only to the extent those fees were reasonable.  The appellate court felt this was an abuse of discretion and remanded the issue back to the trial court for further proceedings regarding the amount of reasonable attorney fees incurred.     

The interesting question, of course, is this:  "Who should pay that portion of the fees which are deemed unreasonable?"  If the trial court is unable to transfer the entire contingency fee to Millard, the victim, presumably, would bear the burden of paying the unreasonable portion of the fees.