Litigation Management & Attorney Fee Analysis Blog

Fee Awards in Class Actions Vary Widely

Peter Felsenfeld — Tue, 08 May 2012 14:45:04 -0800

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.

Attorney Fees are Properly Awarded Under Prison Litigation Reform Act

David J. McMahon — Tue, 08 May 2012 06:00:00 -0800

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

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

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

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

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

Chairperson of Insurance Board Denied Claim for Attorney Fees

David J. McMahon — Mon, 07 May 2012 08:09:09 -0800

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

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

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

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

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

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

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

Attorney, Not the Client, is Entitled to Retain Attorney Fees in Wage and Overtime Litigation

David J. McMahon — Fri, 04 May 2012 13:15:16 -0800

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

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

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

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

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

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

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

For Better or For Worse, Court Finds Joint 998 Offer To Husband and Wife Sufficient Basis For Expert Witness Fees and Costs Award

David J. McMahon — Tue, 01 May 2012 11:05:17 -0800

By David J. McMahon and Tino X. Do

In Farag v. ArvinMeritor Inc., 2012 DJDAR 5206 (April 24, 20120), the California Court of Appeal for the Second Appellate District affirmed a post-judgment order denying plaintiffs’ motion to tax expert witness costs. Defendant sought these costs pursuant to California Code of Civil Procedure section 998 after defeating plaintiffs’ claims at trial.

Plaintiffs husband and wife sued defendant, among many others, after the husband was disabled by mesothelioma. Plaintiffs alleged that the husband was exposed to defendant’s asbestos-containing products while working on cars. Prior to trial, defendant served a section 998 offer to compromise of $0.01 on plaintiffs jointly. Plaintiffs did not accept this offer and proceeded to trial. The jury returned a verdict in defendant’s favor. Defendant then submitted a memorandum of costs for approximately $11,033 for expert witness fees as well as $2,173 in expert travel costs, based on the rejected section 998 offer. Plaintiffs filed a motion to tax these costs which was denied.

On appeal, Plaintiffs claimed that the section 998, made jointly and unallocated to husband and wife, was void in the absence of a showing the offer provided fair and reasonable value. The appellate court rejected this claim.

The appellate court first found that plaintiffs failed to properly raise the issue of whether a section 998 offer made jointly to a husband and wife was void in the trial court, and therefore waived the ability to raise it on appeal.

The court also rejected plaintiff’s claim as a prior court in Barnett v. First National Ins. Co. of America, 184 Cal.App.4th 1454 (2010) concluded that a section 998 offer could be made jointly to spouses because, under California’s community property law, a cause of action for personal injury damages is community property and either spouse can accept an offer to settle that claim on behalf of the community. The court found that defendant’s joint section 998 offer was valid, and affirmed the post-judgment order.

No Attorney Fees Can Be Awarded for Non-Payment of Rest Breaks, California Supreme Court Rules

Barger & Wolen LLP — Tue, 01 May 2012 09:32:01 -0800

by Michael A.S. Newman

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

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

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

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

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

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

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

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

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

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

District Court Doesn't 'Like' Facebook In Fee Award Decision

David J. McMahon — Thu, 26 Apr 2012 09:13:35 -0800

By David J. McMahon and Tino X. Do

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

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

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

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

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

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

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

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

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

FEHA-Related Fee Claims Must Be Based on a Finding that the Claim is Actually Frivolous

David J. McMahon — Wed, 18 Apr 2012 09:00:00 -0800

In Baker v. Mulholland Security and Patrol Inc., 2012 DJDAR 4093 (2012), the California Court of Appeal for the Second Appellate District overturned an award of expert witness fees granted to the prevailing defendant in employment related litigation. The appellate court overturned the award of expert witness fees to the defendant, concluding that the trial court applied an erroneous legal standard in granting the award.

The plaintiff began working for a security company. Almost immediately, the company received complaints about the plaintiff’s work‑related capabilities. After being notified of the work‑related criticisms, the plaintiff complained that the security firm’s client made racist and discriminatory remarks to him. Nonetheless, the plaintiff was soon terminated from employment.

The plaintiff sued the security company under the provisions of California’s Fair Employment and Housing Act (“FEHA”). In defense, the security company filed a motion for summary adjudication, claiming that it decided to terminate the plaintiff due to his poor job performance, well prior to learning of the alleged discriminatory remarks. The trial court concluded that the employer had a valid basis for the decision to fire the plaintiff, and the motion for summary adjudication was granted. The employer then moved to recover expert witness fees.

The trial court ruled that the employer was entitled to costs, including expert fees. The court of appeal reversed the ruling concluding that trial court used an improper legal standard.

The court of appeal noted that a prevailing party under FEHA is entitled to attorney fees where an action is frivolous, unreasonable or without foundation. The court stated that the question presented by this appeal was whether a claim for expert witness fees recovery had to be judged by the same standard used for attorneys’ fees. The court noted that FEHA allows recovery of expert witness fees, “within the court’s discretion.” The court of appeal noted, however, that a defendant who wins may recover attorney fees when the plaintiff’s action was frivolous, unreasonable or without foundation. The trial court concluded it was not necessary to find that the lawsuit was actually “frivolous” in granting witness the fee award.

The court of appeal noted that the same standard for recovery of attorneys’ fees should be utilized with regard to expert fees. Because the trial court awarded fees without making the required finding the award was overturned.

Court Invalidates Fee Award Premised on Financial Ramifications on Non-Prevailing Party

David J. McMahon — Tue, 17 Apr 2012 09:19:46 -0800

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

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

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

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

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

Plaintiff Wins Expert Costs and Attorney Fees Pursuant to Code of Civil Procedure Section 998(D)

David J. McMahon — Fri, 06 Apr 2012 10:30:36 -0800

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

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

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

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

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

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

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

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

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

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

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

TranscriptPad for iPad Offers Powerful Mobile Transcript Review

Barger & Wolen LLP — Fri, 23 Mar 2012 11:08:39 -0800

By John M. LeBlanc

TranscriptPad is an elegant, fast and powerful transcript review app for the Apple iPad, designed specifically for the legal field, from the same folks who designed TrialPad, their flagship trial presentation and legal file management app. Similar software exists for your PC or Mac, such as the excellent Deposmart (from Clarity Legal), but TranscriptPad is the first dedicated transcript review and annotation app for the iPad.

TranscriptPad accepts transcripts in .txt format, and exhibits in .pdf format. (Make sure you request the transcript in .txt format, as some court reporting agencies have their own proprietary format). The .txt format is a simple and relatively small file format that all court reporters can generate, and usually do so at no extra charge. Importing is a breeze, and can be done via email, Dropbox or even iTunes. I’ve uploaded multiple transcripts simultaneously, quickly and without any problems.

Transcripts are imported into case folders that you create and that are stored on your iPad. Opening a case folder reveals a deponent folder (created automatically upon import, with the deponent’s name and date of the deposition, along with the volume number). Multiple sessions of the same deponent are placed automatically in the deponent’s folder.

You can read a transcript hands-free by pressing the play button at the bottom of the screen, which allows you to adjust the speed. You can also flip back and forth as if you are reading a book (either in landscape or portrait orientation).

Most attorneys like to annotate their transcript when reviewing, and here’s where the software really shows off. You can create your own “issue” codes to any part of the transcript. Issue codes can be assigned any name along with a choice of six colors, and appear in the margins of the transcript. You can also flag a portion of the transcript for later review. Issues codes, flags or any portion of the transcript can be emailed or exported to Dropbox.

TranscriptPad contains a powerful search feature that allows you to search across any transcript or even multiple transcripts. Each hit is highlighted in the text, and you can create issue codes or flags from there, or email the section containing the search result. Detailed or summary reports of your issue codes, flags and searches are easily generated, and can be exported in .pdf or .txt format.

TranscriptPad’s price tag is $49.99, which is pricey for an app, but on the other hand, this is robust and professional software. Similar software for the Mac or PC start at $200, and go much higher. For lawyers, paralegals, experts, in house counsel, and others who review and annotate transcripts, and who place a premium on mobility, TranscriptPad is a must. TranscriptPad can be found here (www.transcriptpad) and purchased in the Apple App store.

Originally posted on Barger & Wolen's Life, Health & Disability Insurance Law blog.

Earliest Reasonable Offer Governs Cost Recovery Under Code of Civil Procedure Section 998

David J. McMahon — Tue, 20 Mar 2012 09:59:37 -0800

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

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

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

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

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

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

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

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

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

Nonpayment of Arbitration Fees Dooms Arbitral Award

David J. McMahon — Mon, 19 Mar 2012 10:47:51 -0800

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

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

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

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

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

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

Court is Entitled to Render Equitable Apportionment of Attorney Fees in Partition Action

David J. McMahon — Thu, 08 Mar 2012 09:13:38 -0800

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

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

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

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

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

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

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

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

Counsel's Mistaken Decision Constituted Good Cause to Extend the Deadline for Filing of a Fee Petition

David J. McMahon — Tue, 28 Feb 2012 11:31:16 -0800

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

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

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

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

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

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

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

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

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

Fee Award Rendered Against Prisoner for Maintaining Frivolous Litigation is Not Subject to Discharge Under the Federal Bankruptcy Code

David J. McMahon — Thu, 09 Feb 2012 12:40:26 -0800

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

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

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

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

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

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

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

The BAP affirmed the decision by the bankruptcy court.

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

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

David J. McMahon — Tue, 31 Jan 2012 16:40:37 -0800

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

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

The Teixeiras soon defaulted on the promissory notes.

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

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

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

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

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

David J. McMahon — Wed, 18 Jan 2012 10:59:10 -0800

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

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

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

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

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

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

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

David J. McMahon — Tue, 17 Jan 2012 15:36:20 -0800

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

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

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

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

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

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

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

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

David J. McMahon — Thu, 12 Jan 2012 14:11:23 -0800

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

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

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

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

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

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