Posts Tagged ‘attorney’s fee requests’

Mediation Message No. 104

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 104

DETERMINING THE PREVAILING PARTY IN CCP SECTION 1717 AND 1032 MOTIONS

Karton v. Dougherty (2014) 231 Cal.App.4th 600 demonstrates that determining the prevailing party in a Code of Civil Procedure section 1717 attorney’s fee motion is not always easy. In that matter, Karton represented Dougherty in a marital dissolution action. The retainer agreement contained an attorney’s fee provision providing, in substance, that the prevailing party in the collection of fees and/or the costs shall be entitled to legal fees and costs. Karton sued Dougherty, seeking to recover $65,246.63 in unpaid fees and costs, plus interest. Later on, the trial court entered a default judgment against Dougherty for $86,676.88, including accrued prejudgment interest, attorney fees and costs. Karton collected approximately $56,000 in partial satisfaction of the judgment. Thereafter, after Karton received an award from the trial court in excess of $1.1 million to enforce the original judgment, the appellate court reversed because Dougherty had not received notice of Karton’s application for that award.

On remand, the trial court granted Dougherty’s motion to vacate the default. The matter then proceeded to arbitration in which the panel decided that Dougherty had already paid Karton an amount in excess of the amounts owed for legal services plus interest on the amounts billed. The arbitration award did not provide for any relief to either party, other than finding that the arbitration fees shall be equally divided between the parties. The trial court granted Karton’s petition to vacate the arbitration award and for trial de novo. In a court trial, the court found that Karton had recovered all of the principal and interest payments due under the retainer. Although the trial court concluded that Dougherty’s contractual debt to Karton had been fully repaid, with interest, and that Karton was therefore not entitled to damages or any other remedy on the breach of contract, it found that Karton had established the breach of contract claim because it had to sue Dougherty to recover fees owed. The judgment stated that Karton may seek by way of post-trial motion legal fees and costs reasonably and necessarily incurred by it.

On appeal, the court found that Dougherty, and not Karton, was the prevailing party and directed the trial court to enter a new and different order granting Dougherty’s motion to be determined the prevailing party under both Code of Civil Procedure sections 1717 and 1032. Section 1717 provides, in pertinent part, that “(a) In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.” Subdivision (b)(1) states “Except as provided in paragraph (2), the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. … Where the defendant alleges in his or her answer that he or she tendered to the plaintiff the full amount to which he or she was entitled, and thereupon deposits in court for the plaintiff, the amount so tendered, and the allegation is found to be true, then the defendant is deemed to be a party prevailing on the contract within the meaning of this section.”

Besides finding that Karton had not recovered any relief in the action on the contract, the court reasoned that Dougherty’s claim to be the prevailing party was stronger because he had alleged not merely that he had tendered the full amount of the contractual debt but also that Karton had actually collected the entire debt, including interest, leaving nothing for Dougherty to deposit with the court. The court also found that the Supreme Court’s analysis in Hsu v. Abbara (1995) 9 Cal.4th 863, 865-866 dictated that Dougherty is the prevailing party. Hsu held that when the trial court “renders a simple, unqualified decision in favor of the defendant on the only contract claim in the action[,] … the defendant, who is unquestionably the sole victor, is the party prevailing on the contract as a matter of law and therefore entitled to reasonable attorney fees under section 1717.” Thus, “The Hsu holding applies straightforwardly here. The trial court rendered a simple, unqualified decision in favor of Dougherty on the only contract claim in the action—the court expressly determined that Dougherty owed Karton nothing on the contract because Dougherty had fully paid his contractual debt to Karton (with interest) nearly four years before trial. Dougherty is therefore the sole victor, is the prevailing party on the contract as a matter of law, and is entitled to reasonable attorney fees under section 1717.”

As to costs, the appellate court found that Dougherty was the prevailing party under section 1032, the controlling statute. Section 1032, subd. (a)(4) provides that the “’Prevailing party’” includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant.” The appellate court found that Dougherty was the prevailing party because neither he nor Karton had obtained any relief and Karton had not obtained any relief against Dougherty.

MDM’s observations: Karton v. Dougherty’s most important lesson is that when moving to collect fees and costs under section 1717, pursuant to a contract claim, make certain that the trier of fact has found that you prevailed on the contract claim. Karton lost sight of that basic principle and forged ahead after the trial court held that it was not entitled to damages on the claim.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, November 2014

Mediation Message No. 99

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 99

FEE APPLICATIONS AND MULTIPLIERS

The very recent opinion of Chodos v. Borman (Second Appellate District, Division Five, June 18, 2014) 2014 Cal.App. LEXIS 529; B252446 has an interesting discussion on the application of multipliers in fee applications by prevailing attorneys.

Hillel Chodos (Attorney) represented the wife, without a written fee agreement, in two divorce cases and a related Marvin action. He originally told the client he would charge her $1,000 an hour for his time. Attorney valued the client’s ultimate settlement at a tax-free $26 million and claimed he had spent 300 hours on the first divorce case, 1,500 hours on both the second divorce case and the Marvin action and that the reasonable value of his services was $9 million. Attorney called a family law expert at trial, which he is not, to opine that Attorney was entitled to a multiplier of six for his efforts. The trial court instructed the jury it could use a lodestar adjustment method, including an enhancement or multiplier, in calculating a reasonable fee. The jury awarded Attorney $300,000 for his work on the first divorce case based on the $1,000 hourly rate. On the second divorce case and the Marvin action, the jury found that Attorney had expended 1,500 hours, his reasonable hourly rate was $1,000, and that the hourly rate should be increased to $5,000 using a multiplier of five, for a fee of $7.5 million and a total fee award of $7.8 million.

The appellate court reversed the judgment and returned the matter back to the trial court with instructions to enter judgment for $1.8 million, with certain minor adjustments. It explained that the recognized rationale of applying a multiplier to a lodestar sum to “compensate a skilled attorney who voluntarily assumes a contingent risk of nonpayment at the outset of his or her representation” did not apply since Attorney was charging client $1,000 an hour or, at a minimum, the reasonable value of his services, regardless of the outcome. The court also found that the instant family law matters “were not the type of constitutional or public interest cases that require an exceptionally skilled attorney to assume the risk of representation.” Finally, the court held that awarding Attorney a substantial premium on his attorney fees would, in effect, reward him for his violations of Business and Professions Code sections 6147 and 6148, which require written contracts for contingency matters and cases in which fees shall exceed $1,000.

MDM’s observations: The application of multipliers to lodestar amounts in fee applications remains a viable option; Chodos v. Borman only discourages their use when an attorney’s payment of fees is not contingent upon the success of the case and the underlying case is unremarkable. The opinion also appears to frown upon multipliers when the lodestar, itself, is already substantial.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, June 2014

Mediation Message No. 98

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 98

ATTORNEY’S FEES AND THE TORT OF ANOTHER

According to the American rule, “except as provided by statute or agreement, the parties to litigation must pay their own attorney fees.” (21st Century Insurance Co. v. Superior Court (2009) 47 Cal.4th 511, 531.) An established exception to the rule is the “tort of another” or “third party tort” which allows parties their attorney’s fees if required to employ counsel to prosecute or defend an action against a third party because of a defendant’s tort. (Prentice v. North American Title Guaranty Corp. (1963) 59 Cal.2d 618, 620.)

In Prentice, plaintiffs sold land to the Hortons for a deed of trust for most of the purchase price and subordinated that interest to any loan the Hortons might obtain to construct an apartment building on the land. The Hortons obtained a loan from Neal but used the proceeds for purposes other than constructing an apartment house. Plaintiffs sued the Hortons, Neal and North American Title Guaranty (North American). The counts against North American were based on negligence. The trial court found that North American had been negligent in closing the sale and awarded plaintiffs their attorney’s fees in prosecuting Horton and Neal.

Prentice holds that plaintiffs could recover their attorney’s fees from North American because they had been required by North American’s negligence to bring a successful quiet title action against the Hortons and Neal (id. at p. 620) and the causes of action against the Hortons, Neal and North American could be “tried in the same court at the same time.” (Id. at p. 621.)

Mega RV Corporation v. HWH Corporation (2014) 225 Cal.App.4th 1318 reminds that the existence of an underlying tort by a defendant is a basic requirement for applying the tort of another. In that case, the Ertzes sued Mega RV (the retailer of an allegedly defective motor home), Country Coach (the manufacturer of the motor home) and Bank of America (which had financed the transaction), under the Song-Beverly Consumer Warranty Act. Mega RV cross-complained for partial indemnification against HWH Corporation, which had manufactured hydraulic components for the motor home. The trial court concluded HWH was not required to indemnify Mega RV and  awarded $166,000 to HWH in attorney’s fees because of the tort of another and against Mega RV, pursuant to HWH’s cross-complaint. HWH had argued it was entitled to these fees because Mega RV was negligent in servicing the Ertzes’ motor home.

After agreeing with the trial court that Mega RV was not entitled to indemnity from HWH, the  appellate court found that the tort of another did not apply and struck the award of damages to HWH, because no tort had been committed by any of the defendants against the Ertzes and the Ertzes had not sued for negligence, or any other tort. (Id. at p. 1338.) The appellate court also rejected HWH’s contention that Mega RV had negligently serviced the Ertzes’ motor home since Mega RV owed no duty of care to HWH with regard to servicing the motor home. (Id. at p. 1339-1342.) The court reasoned, “(T)he connection between HWH’s harm and Mega RV’s servicing of the motor home is extremely attenuated. There is no moral blame attached to Mega RV’s servicing repair failures, even assuming failures occurred; there was certainly no evidence of reckless or purposeful behavior, or of anything other than economic damages suffered by anyone involved in this case. Imposing a duty on retail sellers to component part manufacturers like HWH would not reduce the likelihood of future harm; retail sellers like Mega RV already have strong incentives (relationship with retail buyers, relationship with manufacturers, financial liability, reputation) to perform adequate repair and warranty services.” (Id. at p. 1342.)

MDM’s word of caution: Manning v. Sifford (1980) 111 Cal.App.3d 7, 10-12, which was criticized by both Mega RV Corporation and Sooy v. Peter (1990) 220 Cal.App.3d 1305, 1311–1312, holds that the tort of another does not require the existence of a tort. Regardless, until the California Supreme Court resolves this conflict, parties who plan to sue for their attorney’s fees, pursuant to the tort of another, should be careful to identify an existing tort committed by a defendant; otherwise, like HWH, they face losing that claim.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, May 2014

Mediation Message No. 91

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 91

WHAT WAS SHE THINKING?

Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853 is about human frailties, including greed, bad judgment and overreaching.
Lori Sklar (Sklar), a member of the California and Minnesota Bars, and a Texas law firm (TLF) filed a class action against Toshiba on behalf of Toshiba laptop customers who had problems with their laptop covers. The case settled, with each class member receiving either a repair warranty extension or nominal credit vouchers. TLF then indicated to Los Angeles Superior Court Judge Anthony Mohr it would seek $1,125,000 in fees and costs. Sklar stated she would ask for legal fees of $24,743,965.50 (less whatever was awarded TLF), including expenses of $99,750, later increased to $114,900. Judge Mohr awarded TLF $1,125,000 in fees and costs. Sklar then requested fees of $12,079,534.69, plus expenses of $905,752.72. This request was lodestar based whereas the earlier $24 million plus request had been based on Sklar’s valuation of the class settlement. Toshiba did not oppose TLF’s fees request but opposed Sklar’s and initiated discovery regarding it.
Sklar fought Toshiba’s efforts for her original time entries. Apparently, she also destroyed relevant electronic files. After many discovery disputes, Judge Mohr ordered $165,000 in monetary sanctions against Sklar because of her failures to comply with discovery orders and to meet and confer with Toshiba in good faith. Judge Mohr also awarded Sklar’s law office (SLO) $176,900 in fees (1,769 hours at $100 an hour) for its work during the merit phase of the class action. He subtracted the $165,000 in sanctions from the $176,900, leaving SLO with a net award of $11,900. Judge Mohr did not award Sklar anything for her work because her billing records were unusable. “They contain troubling inconsistencies and omissions. There are numerous instances of what appear to be inaccurate and even contradictory billing entries. Moreover, the total number of hours claimed is excessive.” (Id. at pp. 872-873.) Judge Mohr also found that “the vast majority of (Sklar’s) efforts were not calculated to benefit the class, but to protect or inflate her fee claim” and that she had achieved minimal success on behalf of the class. Finally, he held that Sklar had “relinquished her entitlement to a fee” by her unprofessional misconduct, including refusal to provide straight answers to the court’s questions; refusal to cooperate in discovery; fighting legitimate efforts by Toshiba to confirm her time and making unfounded accusations against Toshiba and its counsel. (Id. at pp. 873-875.) Sklar appealed both the sanctions and fee orders. Toshiba cross-appealed the fees to be awarded SLO.
The appellate court’s analysis of the trial court’s goings on is anticlimactic – Sklar’s conduct and Judge Mohr’s rulings are the “meat and potatoes” of the case. The court quoted Judge Mohr extensively in affirming his decision not to award Sklar fees and to sanction her $165,000. It approved Judge Mohr’s finding that he would have to use “speculation and guesswork to figure out (Sklar’s) lodestar for the merits phase.” “We reach that conclusion after reviewing (her fee records) and agreeing with the trial court that it is a disorganized jumble, even as it appears in the record on appeal, so that any reorganization attempted by Sklar was fruitless.” (Id. at p. 885.) The appellate court also had problems with the number of hours claimed by Sklar and how she spent her time. Her time estimates for “over five years … show(ing) her working almost 11 hours a day, including weekends and holidays …are ‘hard to accept.’”https://advance.lexis.com/GoToContentView?requestid=f1ee8cf-3136-e68c-473e-251d58b7f326&crid=c54d74b3-56ef-43f7-9ceb-c9ef50577e9c (Quoting Judge Mohr.) (Id. at pp. 873-874.) The court also noted that Judge Mohr had used the correct legal standard in finding Sklar to not be credible. (Id. at pp. 883-884.)
An interesting part of the appellate court opinion is whether or not SLO should have received any costs for its work. Toshiba contended it was not entitled to any monies because, as required by Business and Professions Code section 6450, none of SLO’s personnel possessed certificates of completion from a paralegal program; they did not have baccalaureate degrees; none had obtained three years of law-related supervised work and Sklar had not provided a written declaration that any of them were qualified to perform paralegal tasks. Sklar argued that the staff were paralegals under Minnesota requirements, they had complied with California’s continuing education requirements and their billing rate of $100 was less than one-half of the rate at which Toshiba’s counsel had billed its paralegals. The appellate court side stepped the issue by finding it had ”found no California state cases holding, that compliance with the educational requirements of Business and Professions Code section 6540 is in every case a prerequisite to the recovery of paralegal fees.” (Id. at p. 890.) Besides, it noted that Judge Mohr had not found, in awarding SLO its fees, that Sklar’s staff were paralegals or that the $176,900 was for the work of paralegals. (Ibid.)
For reasons unrelated to the above paralegal issue, the appellate court reversed the $176,900 in fees awarded SLO and remanded that issue back to the trial court to correct the amount due, with a maximum cost award of $114,900. The trial court was also directed to award monetary sanctions for attorney’s fees and costs to Toshiba related to its motion on appeal to strike some of Sklar’s evidence. The clerk of the court was also directed to send a certified copy of the opinion to the State Bar. (Id. at pp. 890-891.)

The lessons to be learned from this case: The lessons are so obvious that they need not be stated; the facts of the case, by themselves, are a sufficient teaching tool.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, September 2013