Sanctions for Retaining Non Admitted Co Counsel Are Not Proper

In Marriage of Bianco, the California Court of Appeal for the Fourth Appellate District overturned a sanctions award of attorney fees. The award was rendered in a family law dispute.

An attorney represented a woman in a dissolution proceeding involving her husband. During the proceedings, the attorney hired outside counsel to act as co‑counsel at trial. The co‑counsel was not eligible to practice law in California at the time. The court later learned of co‑counsel’s ineligibility, declared a mistrial, and invited the husband to move for sanctions. The husband filed a sanctions motion and the trial court awarded $43,000, pursuant to California Rules of Court Rule 2.30(b).

The court of appeal reversed the fee award, noting that Rule 2.30(b) provides that a court may order a person to pay reasonable sanctions, if he or she fails to comply with any applicable rules. The court noted that Rule 2.30(b) does not authorize sanctions for violations of the California State Bar Rules of Professional Conduct. 

Based on this reasoning, Rule 2.30(b) did not apply, and the fee award was reversed on this basis alone.

 

Consumer Class Action Fee Request Slashed By Judge

A Northern California federal judge has significantly slashed attorney fees and hourly rates sought by plaintiffs’ lawyers in a consumer class action. His final order reduced fees down from the requested $2.5 million to $943,000.

In explaining his significant cuts, U.S. District Judge Jeffrey White of the Northern District of California found that three firms representing consumers in a suit against computer maker Acer America Corp. had billed too many hours, charged too much and overstated the complexity of the class action case.

The court finds that the amount Plaintiffs seek in attorneys' fees is not well supported," wrote White. "Upon review of the attorneys' declarations, the court finds that the attorneys were not efficient and that they spent excessive amounts of time on the various tasks listed. Moreover it appears as though there was significant duplication of work between the three firms."

Lawyers at those firms—Pearson, Simon & Warshaw; Hausfeld; and Gary, Naegele & Theado—had sought fees based on 4,633 hours of work in the case of  Wolph v. Acer. Noting the three firms had claimed credit for work on the same tasks, White concluded that 1,750 hours—or 38 % of the hours sought­—would have been reasonable.

Judge White noted the three firms spent an "exorbitant" 547 hours on attorney meetings and 184 hours on court appearances, "despite the fact that the court vacated all hearings" except for the hearing on final settlement approval and attorney fees.

The plaintiff consumers had accused Acer America of selling defective laptops in violation of California and federal consumer laws, including the Magnuson-Moss Warranty Act.

In their $2.5 million fee request, plaintiffs lawyers highlighted the technical complexity of the case, which alleged that Acer's notebook computers didn't contain enough memory to run a pre-installed operating system, Microsoft Vista Home Premium. As a result, Acer's notebooks ran slowly, crashed often and froze frequently, the suit alleged.

The lawyers for the law firms argued that the case was very complex and that it was difficult to prevail against Acer and its in-house team of lawyers, experts and engineers. Judge White disagreed. He stated: "The Court notes that while the facts underlying the plaintiff's claims were technically complicated, the legal analysis regarding their warranty and misrepresentation claims was not complex,"

Judge White also discounted the hourly billing rates requested by the firms. He noted that the supporting affidavits of the moving parties addressed the billing rates of lawyers in Los Angeles, Ohio, Washington D.C. and elsewhere. He stated that none of the lawyers provided a declaration from a lawyer in Northern California regarding the relevant market rates. The Judge then set rates agreeing to pay $175 per hour for paralegals, $350 for associates, $500 for partners and up to $550 for senior partners.

The law firms fared better on their request for costs. They recouped $171,769 of $172,753 in costs they had sought. Claimants had also sought $5,000 in incentive payments for two named plaintiffs, Lora and Clay Wolf. White awarded each $2,000, citing a lack of evidence they undertook "any great risk to either their finances or their reputation in bringing this action."

 

Legitimate "Newco" Is Entitled To Partial Fee Award

In Brown Bark III LP v. Haver, 2013 DJDAR 12439 (2013), the California Court of Appeal for the Fourth Appellate District decided an interesting fee case arising in the commercial litigation context.

A leasing and equipment finance company obtained a $1 million line of credit from a financial institution. The company (OLDCO) failed to repay more than $850,000 it owed to the lender. The assignee of the financial institution, which had obtained all of the interests in that line of credit, sued OLDCO to recover the unpaid sums. OLDCO then ceased all of its operations. An employee of OLDCO formed a new company, NEWCO, and the lender sued both OLDCO and NEWCO, claiming that NEWCO was formed specifically to avoid OLDCO’s debts.

After a jury trial, a verdict was rendered in favor of the NEWCO. The essential basis of the verdict was that the NEWCO was a legitimate entity and was not formed to end run the debt to the lender. As prevailing party, NEWCO then sought attorney fees and costs from the lender, relying on the attorney fee provisions in the original line of credit contract. The trial court declined the fee application in its entirety.

The court of appeal reversed the trial court’s decision. The court noted that under Civil Code Section 1717, a contract provision drafted to benefit only one side will be interpreted to benefit both. The court also noted that Section 1717 allows a party to recover attorney fees even if the contract was unenforceable. Fees are still recoverable if the prevailing party can prove that the other party would have been entitled to attorney fees if it was successful in the litigation. Thus, NEWCO was entitled to recover a portion of the fees sought in the petition.

 

EEOC Ordered To Pay Attorney's Fees and Costs After Bogus Discrimination Case

The Sixth Circuit has ordered the Equal Employment Opportunity Commission (“EEOC”) to pay more than $750,000 in attorney’s fees and costs for pursuing a frivolous employment discrimination case.

The case, EEOC v. Peoplemark, is the latest in a cluster of judicial reproaches to the EEOC’s policy of aggressively targeting employers for conducting criminal background checks and allegedly declining to hire felons, practices the Commission believes disproportionately impact minorities.

In 2005, Peoplemark, a temporary employment agency, refused to refer for employment an African American woman with a felony conviction. The woman filed a discrimination charge with the EEOC alleging that her application was denied because of her race and the conviction.

While investigating the charges, the EEOC interviewed a Peoplemark official who (erroneously) stated that the company had a blanket policy of rejecting felony applicants. This prompted the EEOC to file a federal action against the employer alleging that the company’s “no felon” policy violated civil rights laws because it had a disparate impact on minorities.

During discovery, however, Peoplemark produced documents proving that it never had a policy depriving placement services to felons. The parties eventually agreed voluntarily to dismiss the case.

Prevailing parties can recover their attorney’s fees and costs in many Title VII discrimination actions. In Peoplemark, a magistrate judge determined that Peoplemark was the prevailing party and awarded the company a total of $750,942.48, which included $526,172.00 in expert witness fees the company paid to refute the EEOC’s claims.

The award covered fees incurred during the six month period between the date the EEOC should have known its case was groundless and the date of dismissal, as well as the entirety of Peoplemark’s expert fees. The district court adopted the magistrate judge’s recommendation.

On appeal, the EEOC, among other things, argued that

  1. Peoplemark’s expert costs were excessive and
  2. the EEOC should only have to pay expert fees incurred within the same six-month window as the attorney’s fees deemed to be recoverable.

The Fifth Circuit rejected both arguments and affirmed the district court’s award of fees and costs.

In so holding, the court noted that upon learning Peoplemark had no blanket policy against referring felons,

the Commission should have reassessed its claim. From that point forward, it was unreasonable to continue to litigate the Commission’s pleaded claim because the claim was based on a companywide policy that did not exist."

It has become increasingly tricky for employers to determine when and whether it is appropriate to conduct criminal background checks or deny employment based on a felony conviction. Barger & Wolen attorneys are available to assess your company’s policies.

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

Employers' Ability To Collect Attorney's Fees In Wage Cases Restricted by New Bill

By Michael AS Newman

On August 26, 2013, California Governor Jerry Brown signed Senate Bill 462 into law, making it harder for employers to obtain attorney’s fees in certain employment wage claim cases.

Prior to the passage of SB 462, section 218.5 of the California Labor Code required a court in any action brought for the nonpayment of wages, fringe benefits, or health and welfare pension fund contributions, to award reasonable attorney’s fees and costs to the prevailing party who requests such fees and costs at the outset of the case, regardless of whether the prevailing party was the employer or the employee.

SB 462 changed that, providing instead that an employer cannot obtain attorney’s fees under section 218.5 just by prevailing – it must also establish that the employee brought the court action “in bad faith.” By contrast, an employee can still obtain attorney’s fees and costs where he or she prevails, without having to prove “bad faith.”

The bill is a response to the California Supreme Court’s decision in Kirby v. Immoos Fire Protection, Inc. which, while denying section 218.5 attorney’s fees in the case before it, affirmed that section 218.5 “awards fees to the prevailing party whether it is the employee or the employer; it is a two-way fee-shifting provision.” Following the Court’s issuance of that opinion, plaintiffs’ attorneys have been seeking to change fee shifting provisions of section 218.5, claiming that a two-way fee-shifting provision has a chilling effect on contractual wage claims.

Opponents of the measure, as reported in the official senate records on the bill, point out that section 218.5 has been in place since 1986, that Kirby merely reaffirmed its clear language, and that the bill will “incentivize further meritless wage and hour litigation.”

What does the law mean for employers? First, it is important to note that while SB 462 raises the bar for employers to obtain attorney’s fees where they prevail in such cases, this law does not apply to minimum wage or overtime claims. Another provision of the Labor Code, section 1194, already provides for just a one-way fee-shifting provision, providing attorney’s fees to employees who are successful in proving their overtime and minimum wage claims, but not corresponding attorney’s fees to successful employers.

In other words, the Labor Code, which is already quite lopsided in favor of employees seeking attorney’s fees, has just become more lopsided.

The meaning of the law’s “bad faith” provision is also far from certain. Until subsequent litigation settles the matter, we can only be guided by cases that have sought to define “bad faith” in similar contexts.

For example, in Gemini Aluminum Corp v. Cal. Custom Shapes the Court dealt with a statute awarding attorney’s fees to successful defendants in claims under the Uniform Trade Secrets Act, which provides such fees if a claim of misappropriation is made “in bad faith” – a term which, as in the present case, was not defined by the statute. The court ruled that “bad faith” requires objective “speciousness” of the plaintiff’s claim together with subjective bad faith in bringing or maintaining the claim.

If such a standard is adopted in the context of section 218.5, it might have the unexpected consequence of increasing the prevalence of discovery aimed at the subjective intentions of the plaintiff employee, which might conceivably justify more extensive inquiries into the employee’s personal life and circumstances. This is perhaps one small silver lining employers and employment defense attorneys can take away from what is, on the whole, a win for the plaintiff’s bar.

To discuss SB 462, or other aspects of wage and hour law, please contact the author.

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

Pre-Arbitration Award of Attorney Fees Reversed

In Roberts v. Packard, Packard & Johnson, the California Court of Appeal for the Second Appellate District made an important clarification in the law and held that under Civil Code section 1717, attorney fees can only be awarded to the party that prevails in the “action” and not to the party that prevails in a petition to compel arbitration.

Plaintiffs, on behalf of the United States, retained Packard, Packard & Johnson (PPJ) as counsel in a series of cases against several technology companies under False Claims Act (FCA). In its fee agreement, PPJ placed an arbitration clause that related to disputes to enforce or interpret the provisions of the contract.

Several defendants settled their FCA claims. Afterwards, the plaintiffs negotiated with the United States to determine their statutory share and recovery of attorney fees. The statutory fees, costs and expenses amounted to approximately $2.6 million. However, PPJ allocated over 95% of the $2.6 million to its attorney fees, leaving less than 5% to costs and expenses.

After making those allocations, PPJ asked the plaintiffs to reimburse an additional $1.338 million for unpaid and uncovered costs. When the plaintiffs refused to comply with the demand, PPJ withheld $1.338 million from the settlement. The plaintiffs eventually filed suit against PPJ, alleging breach of fiduciary duty and other causes of action. PPJ moved to compel arbitration pursuant to the arbitration clause in the agreement. The trial court granted the motion and ruled that PPJ was entitled to attorney fees under the contingency fee agreement because it had prevailed on the petition to compel arbitration.

The second appellate district reversed, relying, in part, on Civil Code section 1717. The statute provides that in contract litigation involving a prevailing party fee clause, the party who is determined to be the prevailing party shall be entitled to reasonable attorney fees.

The Appellate Court determined that a petition to compel arbitration is not an “action,” and attorney fees can only be awarded to the prevailing party when all the causes of actions are finally resolved.

Here, the ultimate outcome of the case cannot be determined until the arbitration has been completed. Hence, the Appellate Court reversed the award of attorney fees.

Civil Rights Act Violations Entitles Non Profit Group to Fee Award

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

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

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

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

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

 

Unsuccessful Litigant Still Wins Fees Under Vaccine Injury Act

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

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

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

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

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

Prevailing Party Attorney Fee Award Is Granted Based On Successful Affirmative Defense Raised In Answer

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

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

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

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

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

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

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

Fee Awards in Class Actions Vary Widely

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

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

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

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

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

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

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

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/Spouse Exception Allows Civil Rights Plaintiff to Obtain Fees

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

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.

 

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

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

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.

Lower Court Properly Reinstates Arbitration Award Granting Fees

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.

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

  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

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

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.

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

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.

 

US Supreme Court Limits Fee Enhancements to "Exceptional Cases"

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

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

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.

The superior court denied the motion for attorney fees stating it was exercising its discretion under section 1033(a) due to the lack of damages recovered by the plaintiff. The court of appeals reversed. It stated the section 1033(a) did not apply to actions brought under the FEHA because section 1033(a) is designed

to encourage pursuit of minor grievances in courts of limited jurisdiction where simple disputes may be expeditiously and less expensively resolved…. However, that factor alone cannot convert a bona fide civil rights claim into an insignificant grievance. Even a modest financial recovery can serve to vindicate a substantial legal right.

Further, denying attorney fees under section 1033(a) “would discourage attorneys from taking meritorious cases.” 

The California Supreme Court issued a unanimous decision reversing the appellate court. It noted that section 1033(a) applies when a plaintiff has obtained a monetary judgment in an amount that could have been recovered in a limited civil case, but the plaintiff did not bring the action as a limited civil case and thus did not take advantage of the cost and time saving advantages of limited civil case procedures. In this situation, section 1033(a) gives the trial court discretion to deny, in whole or in part, the plaintiff’s recovery of litigation costs. 

The general rule in California was, and is, that a prevailing party should ordinarily recover attorney fees for claims brought under the FEHA unless special circumstances render the award unjust. Now, however, section 1033(a) applies to FEHA cases where the judgment is less than the jurisdictional amount of limited civil cases. In determining whether a FEHA action should have been brought as a limited civil case, the trial court should consider FEHA’s underlying policy of encouraging the assertion of meritorious claims, and it should evaluate the entire case in light of the information that was known, or should have been known, by the plaintiff’s attorney when the action was initially filed and as it developed thereafter. 

The court cautioned trial courts to avoid “hindsight bias” when making this determination. It stated that a trial court should not deny an award of attorney fees simply because the trier of fact did not award the plaintiff a large judgment if the plaintiff’s attorney could have reasonably expected to be able to present substantial evidence supporting a FEHA claim with damages in excess of the limited jurisdictional limit or if the plaintiff’s attorney could have reasonably concluded that the action could not be fairly and effectively litigated as a limited civil case. Conversely, if the trial court is “firmly persuaded” that the opposite is true, it may deny, in whole or in part, the plaintiff’s claim for attorney fees and other litigation costs.  

The court rejected the appellate court’s characterization of major or minor, significant or insignificant grievances. It stated that Section 1033(a) does not require a characterization of the underlying claim as major or minor, significant or insignificant; rather, it requires a realistic appraisal of the amount of damages at issue and whether the action might fairly be litigated using the streamlined procedures of limited civil actions.    

The court added that the results obtained are a crucial factor in awarding attorney fees. Under California law, a reduced fee is appropriate when a claimant achieves only limited success. Thus, if a plaintiff has prevailed on some claims but not others, fees are not awarded for time spent litigating claims not closely related or factually intertwined with the successful claims. Finally, a fee request that appears unreasonably inflated is a special circumstance permitting a trial court to reduce the award or deny one altogether. 

Accordingly, the trial court properly denied plaintiff’s motion for attorney fees.    

Plaintiffs Fail To Satisfy the "Prevailing Party" Standard

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

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

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

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

 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.

Award of Attorney's Fees is Proper for Successful Anti-Slapp Motion in Addition to Fee Claims Related to Malicious Prosecution Action

 

In Jackson v. Yarbray 2009 DJDAR 16000 (2009) the Second Appellate District affirmed in part, reversed in part and remanded the case for further proceedings. The opinion was ordered published only in part. 

In the published portion of the opinion, the court held that an award of attorney’s fees for the successful prosecution of an anti-SLAPP motion did not preclude the moving party from being awarded additional litigation fees, unrelated to the SLAPP suit fee award, in a subsequent malicious prosecution action. More importantly, the court ruled that the Defendant in the malicious prosecution action had the burden of proving that the fees requested, were covered by those awarded in the SLAPP suit motion.

ComputerXPress.com, Inc. (“Computer”) sued Lee and Barbara Jackson (“Jackson”) and others for fraud, and for numerous business torts. The complaint arose out of a merger that was not successful.

Jackson filed a partially successful special motion to strike pursuant to Code Civ. Proc. § 425.16. After protracted proceedings the causes of action for trade libel, interference with contractual relations, interference with prospective economic advantage, abuse of process, conspiracy and injunctive relief were dismissed. Jackson requested more than $300,000 in attorney’s fees but was awarded only $77,000 on the successful SLAPP motion. Computer then dismissed the remaining causes of action. Thereafter, Jackson sued Computer and its attorneys for malicious prosecution.

In the malicious prosecution action, Jackson prevailed against Computer and some, but not all, of the attorneys. Jackson was awarded $700,000 in emotional distress and $2.41 million dollars in punitive damages. Upon motion, the trial court declined to award reasonable attorney’s fees incurred in pursuing the successful malicious prosecution action. The Jackson’s appealed and the court of appeal affirmed in part and reversed in part. The court noted that the trial court erred in refusing to award the attorney’s fees incurred by the Jackson parties in the malicious prosecution action.

The court found that the Jackson parties, having established the liability of Computer and others, were entitled to recover the costs of defending the underlying action, including their reasonable attorney fees. The court stated that the lower court erroneously denied such an award based the erroneous conclusion that the fees previously awarded to Jackson in connection with their special motion to strike were the same as the fees previously awarded. The court held that the Defendant in the malicious prosecution had the burden of proof in showing that the fees were duplicative and not recoverable.

The court agreed with the trial court that, under the doctrine of collateral estoppel, a fee award following a successful special motion to strike may preclude further litigation concerning the reasonableness of the fees. However, this does not preclude an award of fees for services unrelated to that motion. For these reasons, and because the trial court improperly put the burden of proof on the Jackson’s, the court ruled that a retrial was required on special damages.

 

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

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.

Trial Court Must Make Findings Establishing A Reasonable Basis For Fee Award

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

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

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

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

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

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

 

Foreign Court Order Ruled Unenforceable: Court Nullifies Award of Attorneys Fees

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

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

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

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

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

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

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

 

Plaintiff Denied Attorney Fees Even Where He Prevailed on Appeal

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

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

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

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

"Clear Sailing" Agreement Is Approved By Court In Consolidated Consumer Class Action Case

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

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

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

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

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

Ninth Circuit Overrules "Prevailing Party" Decision

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

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

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

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

Welcome to Our Blog

Welcome and thanks for visiting Barger & Wolen's new Litigation Management and Attorneys' Fees Blog.  Our firm assists our clients -- which include lawyers, insurers, governmental entities and fee auditors -- in analyzing the reasonableness and necessity of costs and fees incurred in complex litigation.  We have testified as legal fee experts in the independent evaluation of hundreds of millions of dollars incurred in national mass tort cases, prevailing party situations, complex construction disputes and environmental cleanup and coverage cases.  We also help implement billing guidelines for insurers and implement cost controls in ongoing complex litigation.

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