Litigation Management & Attorney Fee Analysis Blog

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

David J. McMahon — Fri, 19 Feb 2010 11:18:49 -0800

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

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

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

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

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

Plaintiffs Fail To Satisfy the "Prevailing Party" Standard

David J. McMahon — Tue, 16 Feb 2010 15:17:04 -0800

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

David J. McMahon — Fri, 05 Feb 2010 14:35:37 -0800

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

David J. McMahon — Fri, 29 Jan 2010 10:26:43 -0800

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.

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

David J. McMahon — Tue, 19 Jan 2010 12:22:54 -0800

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.

Before You Request Your Fees from Your Opponent, Be Sure You Have Prevailed

Gary A. Bresee — Mon, 11 Jan 2010 11:41:23 -0800

Although this sounds obvious, the Ninth Circuit recently illustrated, in Klamath v. Bureau of Land Management, No. 08-35463 (9th Cir., Dec. 15, 2009), that a plaintiff must have actually received some kind of relief on the merits of her claim before she can be said to have prevailed, and thereby be entitled to her attorneys' fees. There must be a "material alteration" of the status quo, and the court's order must consist of relief, not merely a determination of legal merit. There must be some kind of "judicial imprimatur," which first means, typically, a court order of some kind.

The judicial imprimatur must also be an enforceable entitlement to relief:

"To receive what one sought is not enough to prevail: the court must require one's opponent to give it."

Consequently, a lawsuit which brings about a voluntary change in defendant's conduct would "lack a judicial sanction or imprimatur." In Klamath, Plaintiffs Klamath Siskiyou Wildlands Center, et al. ("Klamath") sued the Bureau of Land Mangement ("BLM") alleging that a timber sale in the Willy Slide area was illegal. Klamath sought an injunction against the sale taking place. During the pendency of the suit, however, the BLM vacated its earlier rulings and granted Klamath's protest of the Willy Slide timber sale.

The BLM then moved to dismiss the case, and the District Court agreed, dismissing the action as unripe or moot due to BLM's voluntary actions. Since this order did not conclude that Klamath was entitled to relief, it did not confer prevailing party status upon Klamath. Because it did not "require one party to do something it otherwise would not be required to do," the District Court's grant of attorneys fees was reversed.

This seems to be a valid strategy. If you find yourself a defendant in a suit where plaintiff would be entitled to her fees, consider a voluntary change to the status quo -- even if it occurs after the action has been commenced -- so long as it is prior to the plaintiff's ability to obtain a court order granting any kind of relief. This would, if successful, avoid any claim for attorneys' fees from the plaintiff in the future.

Carrier Responsible for the Insured's Fees Based Upon Attorney Contingency Fee Agreement

Gary A. Bresee — Tue, 05 Jan 2010 17:31:10 -0800

The Ninth Circuit recently held an insurer liable for the insureds' attorneys fees when the insureds were forced to file litigation to establish coverage under their policies. Moreover, the court held the insureds' contigency fee agreement could form the basis for the amount of fees owing, so long as reasonable under the circumstances.

In Riordan v. State Farm, No. 08-35874 (9th Cir., 2009), the insured husband and wife were involved in an auto accident and tendered the claim to State Farm Mutual Auto Insurance Company under their uninsured motorists' coverage. After filing suit against State Farm, and after State Farm paid the remaining benefits under the policies just before trial, the Riordan's sought their attorneys' fees from the carrier.

First, the Ninth Circuit allowed the attorneys' fees claim to be raised for the first time on a motion, as opposed to being plead in the complaint, based upon Federal Rule 52(d)(2).

Next, although Montana follows the "American Rule" that each party is obligated to pay its own attorney, Montana recognizes an exception to this rule when "the insurer forces the insured to assume the burden of legal action to obtain the full benefit of the insurance contract." Mountain W. Farm Bureau Mut. Ins. Co. v. Brewer, 69 P.3d 652, 660 (Mont. 2003). (In California, these are known as "Brandt Fees," due to the Brandt v. Superior Court, 37 Cal.3d 813 (1985) California Supreme Court decision).

Finally, the Ninth Circuit also found that the District Court could award the full amount agreed upon under a contingency fee agreement so long as the ultimate amount of the fee is reasonable.

Financial Abuse of Elders and the Recovery of Attorneys' Fees

Barger & Wolen LLP — Wed, 23 Dec 2009 11:49:46 -0800

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

David J. McMahon — Mon, 14 Dec 2009 10:38:18 -0800

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.

Appellate Court Concludes that Cost Shifting is Calculated from the Date of the Last Urevoked Offer of Judgment

David J. McMahon — Thu, 10 Dec 2009 09:50:02 -0800

In One Star Inc. v. Staar Surgical Co. the Second District Court of Appeal reversed the decision of the trial court concerning the interpretation of the “offer of the judgment” statute, California Code of Civil Procedure § 998.

One Star Inc. (“Star”) was a business representative for Staar Surgical Co. (“Surgical”). Star sued Surgical for breach of contract. In September of 2007, Surgical made an offer of compromise pursuant to CCP § 998. Pursuant to the terms of the statute the offer lapsed 30 days after it was made and not accepted. Two months later Surgical made a second offer. However, Surgical withdrew the offer before the date that it lapsed. Star was successful at trial but recovered less than what Surgical had offered in the first offer of judgment. Surgical then moved to recover the costs pursuant to CCP § 998.

Pursuant to CCP § 998 a party may make an offer in writing to allow judgment to be taken against that party. If the offer is not accepted prior to trial, or within 30 days after it is made, it is deemed withdrawn. If the plaintiff fails to accept the offer and fails to obtain a higher judgment, the plaintiff is required to pay the defendant’s costs, including proper expert costs. For this reason the statute can be a powerful settlement tool in litigation.

The trial court denied Surgical’s motion to recover costs on the ground that the second withdrawn offer extinguished the first offer. Surgical appealed, arguing that its first offer still controlled because it expired before the second offer was made and withdrawn. The court of appeal agreed and reversed.

The appellate court held that under Section 998, when a plaintiff refuses a settlement offer and then obtains a less favorable judgment at trial, the defendant is entitled to those costs incurred after the settlement offer. The later offer operates to extinguish the earlier offer, regardless of its validity. However, there is an exception where the offer of judgment is revoked before expiration of the statutory period. It is no longer treated as a valid 998 offer.

Thus, where a defendant withdraws a second settlement offer, the plaintiff’s recovery is measured against the first settlement offer. In this case, the second offer was revoked and no longer considered a valid offer of judgment. Thus, the court of appeal concluded that the lower court made an error when it ruled that the prior offer was extinguished by the second offer.

Insurer's Duty of Good Faith Extends to All Insureds in Multiparty Litigation

Gary A. Bresee — Tue, 01 Dec 2009 10:02:16 -0800

An insurer's duties become complicated when litigation is pending against more than one of its insureds. In general, an insurer may have a duty to accept a settlement offer made within policy limits, but in the case where more than one of the insureds is sued, how is that duty affected when a CCP Section 998 settlement offer is made to only one of the insureds?

The question was answered by the First Appellate District in Kauffman v. California State Automobile Association (2009) No. A123494 (unpublished). The son and his parents were all insured under an automobile policy, so when he caused an accident, the plaintiffs sued not only the son, but the parents for "negligent entrustment of the car" to their son.

Plaintiffs then made a policy limits demand to the son alone, using an offer of compromise under CCP Section 998. The offer was rejected. Plaintiffs eventually entered into a complex settlement agreement where the son assigned any rights he may have had against the carrier to the Plaintiffs. In Plaintiffs' subsequent suit against the insurer, the appellate court decided, first, that the 998 Offer did not create the requisite conflict of interest triggering the carrier's duty to appoint separate counsel, or Cumis counsel, under Civil Code section 2860.

More importantly, the court rejected the argument that the carrier acted in bad faith by refusing to accept the 998 Offer. In fact, the carriers' acceptance of the 998 Offer for the full policy limits would have been bad faith to the remaining insureds; i.e., the parents. The insurer's duties extend to all of its insureds, and the carrier cannot favor one insured over another. Because the 998 Offer was for the full policy limits, agreeing to settle on the son's behalf would have left the parents completely exposed. Consequently, the court found no bad faith under these facts.

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

David J. McMahon — Mon, 16 Nov 2009 14:52:48 -0800

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?

David J. McMahon — Wed, 11 Nov 2009 11:15:33 -0800

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

David J. McMahon — Mon, 09 Nov 2009 16:12:18 -0800

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.

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

David J. McMahon — Fri, 30 Oct 2009 10:22:31 -0800

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

David J. McMahon — Mon, 26 Oct 2009 16:43:45 -0800

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.

Trial Court Errs In Refusing to Award Litigation Costs but Not Fees to Adverse Party

David J. McMahon — Tue, 29 Sep 2009 11:11:57 -0800

In Vons Companies Inc. v. Lyle Parks Jr. Inc., 2009 DJDAR 13828, the California Court of Appeal, 2nd District, decided a complex case involving both the “prevailing party” doctrine (CCP§ 1032) and CC § 1717, the reciprocal remedy statute.

Vons Companies Inc. (Vons) hired Lyle Parks Jr. Inc. (Parks) to construct a shopping center in 2002. The construction contract contained a prevailing party attorney fee clause. When the work was completed, Parks issued a warranty for the work for a one year time period. There was no attorney fee clause in the warranty agreement.

In 2004, Vons sold the shopping center to a third party, Mock Ranch Inc. (Mock). In 2006, Mock sued Parks for breach of warranty and negligence, claiming that Parks engaged in poor workmanship. Mock also sued Vons for failing to disclose material information about the suitability of the purchase.

Prior to trial, Mock and Vons settled their case. As part of the settlement, Mock assigned its claims for negligence and breach of warranty against Parks to Vons. Thus, Vons sought damages from Parks and the jury found in favor of Vons on the claims for breach of express warranty and negligence. Vons sought costs, asserting that it was entitled to recover Mock’s costs as its assignee. Parks moved to strike or tax costs, pointing out that Vons was the prevailing party only as to Mock’s two claims against Parks.

The trial court granted Parks’ motion to strike and tax costs, finding no factual support for the claim that Vons was Mock’s assignee and that due to the cursory cost memorandum submitted, that Vons had not met its burden of proof on the issue. In addition to the cost memorandum, Vons also submitted a request for more than $1 million in attorneys’ fees based on the provisions in the construction contract. The trial court denied that motion for fees, observing that Vons did not assign the construction contract to Mock, only the warranty agreement.

The Court of Appeal disagreed with the trial court, in part.

The court noted that a prevailing party is entitled to recover costs. Courts do not have the discretion to deny costs to a prevailing party absent contrary statutory authority. The court noted that Vons was the prevailing party on the negligence and breach of warranty claims that Mock assigned to it. The Court noted, however, that in the cost memorandum, Vons sought all of its own pretrial litigation costs without regard to whether those costs were necessary to the claims on which it prevailed. Thus, the court stated that the trial court should have determined a proper cost award based on arguments presented in relation to Lyle’s motion to tax costs. Further, the entire trial was based on the assignment of Mock’s claims to Vons. Thus, Vons was entitled to costs as the prevailing party on the claims that Mock assigned to it.

As to the fee claim, the Court of Appeal affirmed the trial court’s decision, noting that there was no fee clause in the warranty agreement.

Liability Insurance Carrier Only Required to Pay A Pro Rata Share of Fees Incurred In The Subrogated Recovery Context, Not The Entire Amount Under The "Made Whole" Doctrine

David J. McMahon — Tue, 15 Sep 2009 11:43:13 -0800

In 21st Century Insurance Co. v. Superior Court, 2009 DJDAR 12587 (August 24, 2009), the California Supreme Court ruled on an undecided question pertaining to the proper application of the “Made-Whole” rule versus application of the “Common Fund” doctrine in the context of an automobile liability insurance policy.

Silvia Quintana (Quintana) was insured by 21st Century Insurance Co. (21st Century). She was injured in an automobile accident with a third party. 21st Century paid $1,000 under the no‑fault medical payment (med‑pay) insurance provision contained in the policy. Quintana then sought damages against the third party. She eventually settled the third party claim for $6,000.

In the course of the suit, she incurred more than $2,000 in attorney fees and costs. Quintana’s insurance policy required her to reimburse 21st Century for the med‑pay amount, so to avoid double recovery by her. She paid $600 representing full reimbursement of $1,000 less the pro rata attorneys' fees of $400 but argued that 21st Century was required to reimburse all the litigation expenses incurred in order to satisfy the "made-whole" rule. 21st Century contended that California law did not require an insurer to pay such expense to meet this rule. Rather, litigation expenses should be determined separately per “the common fund doctrine” on a pro rata basis.

Quintana subsequently filed a class action lawsuit against 21st Century. The insurer demurred to the complaint, asserting that Quintana did not state a cause of action because California law does not include attorneys’ fees in the made-whole doctrine. The trial court overruled the demurrer and 21st Century filed a petition for writ of mandate. The Fourth Division of the California Court of Appeal agreed with 21st Century’s view of the law and Quintana petitioned for review before the Supreme Court.

The Court of Appeal ruling was affirmed by the Supreme Court. The court stated that the made‑whole rule “limits the insurer’s reimbursement right . . . where the insured has not recovered [her entire debt.].” Thus, an insurer may not accept any money from a third party until the insured “has been fully compensated for [her] injuries.”

The common fund doctrine holds that where “a number of parties are entitled in common to a specific fund, such action brought . . .in [their] benefit . . . results in the creation or preservation of the fund such that . . . attorney’s fee [may be awarded] out of the fund.”

Here, Quintana argued that reimbursement of her litigation costs would better reflect compensation of her entire debt. However, the court found no law requiring or supporting her contention. Rather the policies underlying these two legal theories supported the conclusion that 21st Century should be responsible only for the pro rata share of the litigation expenses incurred.

Plaintiff Denied Attorney Fees Even Where He Prevailed on Appeal

David J. McMahon — Tue, 08 Sep 2009 17:37:42 -0800

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.

Federal Judge Reduces Fees Requested by 75%

Gary A. Bresee — Mon, 24 Aug 2009 12:36:00 -0800

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.