Cal Biz Lit

Attorneys’ Fees and Fee Awards Under California Law, Part I

    The original purpose of this blog was to provide commentary on California law for out-of-state companies and others who only occasionally have to deal with litigation here in the Golden State.  And one area where I get many questions in my practice has to do with attorneys’ fees and California’s fee-shifting statutes.

    I’ve been trying to get around to writing a white paper on the subject, and haven’t been able to do it (that pesky law practice of mine keeps getting in the way).  So instead, I’m going to try to put together a series of posts, probably three of them, discussing the fundamental rules having to do with fee shifting.  In today’s post, I’ll be talking about the basic rule, where the parties pay their own fees, and Civil Code section 1717, California’s contractual fees reciprocity statute.  The second post will be about the public attorney general statute, fees in civil rights and employment litigation, lodestars and multipliers.  The final post (probably) will discuss fees in consumer litigation.

    So first, the basic rule: Under California’s Code of Civil Procedure section 1021, if there is no statute or contract to the contrary, the parties to a suit pay their own fees (although the prevailing party is entitled to certain costs, which are usually pretty minimal).

    That was the easy part.  We start with the hard part after the jump.

California -- Not a Judicial Hell Hole?

In April, the Chamber of Commerce published its list of judicial hellholes, giving California sixth place for the worst in the country, as I reported here.

At year end, here comes the judicial hellhole listing from the American Tort Reform Association.  I don't know what's happening here, but California didn't even make the hellhole list.  The best the golden state could do was number six on the "watch" list, based on ADA accessibility litigation.

Attorneys' Fee Awards: Big City Lawyers In Small Towns

A good deal of the litigation our firm defends involves the risk – or even the certainty – that one side or the other is going to be awarded attorneys' fees at the end of the proverbial day. 

• Much of our firm’s contract litigation involves contracts providing that fees go to the prevailing party.  Under Civil Code section 1717, even if the contractual provision only goes in one direction (e.g., the contract provides for fees to the company if it successfully defends suit), California law makes the provision reciprocal, allowing fees to the prevailing party on either side.
• Much of our firm’s consumer litigation is brought under the Consumer Legal Remedies Act or Song Beverly Consumer Warranty Act, both of which specifically provide for attorneys’ fees for a successful plaintiff.
• In our dealership work, the Automobile Sales Finance Act provides for fees for the successful plaintiff, while the Automobile Leasing Act provides for fees for the prevailing party, plaintiff or defendant.
• And then there is California’s private attorney general act, Code of Civil Procedure section 1021.5, which provides for attorneys’ fees for a successful party in a case which “has resulted in the enforcement of an important right affecting the public interest” under certain circumstances.  This statute is just about always in play in Proposition 65 matters and Unfair Competition Law cases.

All of this means that, in many cases, the attorney fee award is like the bomb that gets dropped at the end of the case:  the plaintiff or plaintiff class is awarded (or settles for) a modest amount of money.  Then comes the attorneys’ fee petition, seeking for the attorneys many multiples of what the plaintiff (or the plaintiff class) received.  And, on top of everything else, the plaintiff attorneys are likely entitled to their fees incurred in obtaining fees.

Under California’s leading case of Ketchum v. Moses (2001) 24 Cal. 4th 1122, an attorneys’ fee award is to be based, in part, on the hours reasonably spent times the prevailing hourly rates for attorneys in the same community conducting noncontingent work of the same type.  The resulting figure (the “lodestar”) may then be adjusted upward or, occasionally, downward, based on a variety of factors which have been developed by the courts.  Serrano v. Priest (1977) 20 Cal.3d 25;  Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128.

What happens, though, when a firm charging big city rates comes to the small town?  Under Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, the out of town firm may receive the out of town rate if it demonstrates that the plaintiff could not have received adequate representation using local counsel.

Now a new case fleshes out the limit of this rule.  In Nichols v. City of Taft (October 2, 2007), ___ Cal.App.4th ___, F051477, Morrison & Foerster (a San Francisco based AmLaw 100 firm universally known as “MoFo”) brought a case in Kern County under California’s Fair Employment and Housing Act, which provides for attorneys’ fees for successful plaintiffs.  On the eve of trial, the parties settled the case for $175,000, reserving to MoFo the right to move for attorneys’ fees. 

And move MoFo did, claiming some $507,000 at hourly rates as high as $550 (again demonstrating that CalBizLit and his partners are woefully underpaid).  The City challenged the rates, demonstrating that the highest hourly rate charged in the community was $250.

The trial court agreed, reducing the hourly rates accordingly.  But what the trial court took away with one hand, it gave with the other.  It concluded that it was required to use a “multiplier,” (i.e., an upward enhancement) to compensate MoFo for the fee reduction. It then applied a multiplier of 33 1/3%, bouncing the fee award back up to more than $470,000.

No dice, said the court of appeal.  The trial court was right in using local rates.  But it was wrong in using the multiplier (which MoFo had not even requested) to repair the damage.  Not only was the trial court not required to use a multiplier to compensate for a rate reduction, it was prohibited from using the multiplier for this purpose.  So the case was remanded to see if there was any other basis for applying a multiplier, or if MoFo would have to just struggle along with an award based on local rates – a mere $302,000.

As a side note, the defendant also argued that the $302,000 was too high because it was out of proportion to the result obtained.  But that argument fell flat.  The court added to the legion of other opinions holding that the defendant can’t drive the plaintiff’s hours off the chart with an aggressive defense and then argue that the lawyers spent too much time on the case.  A similar holding is in a case issued just yesterday, Cruz v. Ayromloo (October 3, 2007) ___ Cal.App.4th ___ (B190159), in which the court also stated clearly (albeit in dictum) that the lodestar should not be reduced just because the attorneys took the case “pro bono.”

How To Get Out Of A Contract: More Musings on Gentry

Last week I blogged about the first half of the Cal Supremes’ decision in Gentry v. Circuit City (2007) ___Cal.4th___, S141502.  And the first half –- casting considerable doubt on “class action waivers” in binding arbitration agreements, at least as to overtime claims – was noteworthy and got the most notice in the blawgosphere.  But I think the second half is potentially much more far-reaching.  It may open up the potential for unconscionability arguments in all kinds of contracts, and strike a big blow against all kinds of “contracts of adhesion.”

More after the jump.

Choice of Law in Contract Cases

I've been on hiatus from blogging for a few weeks owing to (a) crush of work, followed by (b) vacation at the beach with my family, including my brand new granddaughter.

But I'm back now, spending this beautiful California Sunday taking a look at what's new in the world of litigation and appeals in the Golden State.

One new Court of Appeal decision stands out, dealing with conflicts of laws.  This is a subject that gave me a headache thirty plus years ago in law school, and not much has changed in that regard since then.  In most cases, and particularly in tort cases, California courts apply a fairly convoluted version of the "governmental interest test," about which I will say no more in order to avoid sending either readers, or myself, off to an afternoon nap.

But the new case has to do with contracts.  Specifically, it involves an insurance contract between a Texas based insured and a Texas based insurer.  The insured's oil and gas drilling activities in Beverly Hills supposedly caused personal injuries and death, and the insured was sued.

You probably won't be surprised to learn that California's law on an insurer's  duty to defend lawsuits is more pro-insured than the law in Texas.  So under California law, the insurer potentially had a duty to defend under California law, and not under Texas law. 

After a long discussion of all those governmental interest cases that pretty much lost my attention, the Court of Appeal held that they didn't matter because of California's Civil Code section 1646:  in a contract case, questions of interpretation are determined by the law of the place of performance.  An insurance policy is performed in the place where the risk exists.  So California law applies.

The Court seemed to feel that no previous court had squarely addressed this question in this context.  I didn't go back and check the Court's work, but I don't remember seeing anything directly on point.  The ruling goes well beyond insurance contracts, and seems to apply to just about any contract interpretation case involving a choice of law issue.  It is refreshing to have a court hold that a statute means what it says.

By the way, Civil Code section 1646.5 says the parties can draft around this "place of performance" rule in contracts involving more than $250,000 that aren't consumer, employment or service contracts.

Off-topic post -- RIP Max Roach

I rarely include off-topic posts.  But while I was gone, Max Roach passed at the age of 83, and the loss is a tremendous one.  As all jazz lovers know, he was the second to last of the great bop and post-bop drummers (Roy Haines is still alive), and, just as importantly, an innovator all his life. You can hear him at his most vibrant on  Clifford Brown and Max Roach (Emarcy/Universal, 1954), Thelonius Monk's Brilliant Corners (Riverside/Concord, 1956) and Money Jungle, in trio with Duke Ellington and Charles Mingus (Blue Note/EMI, 1962), which Ben Ratliffe of the NYT aptly called "an odd record of aggression and calm," but which I never get tired of.  You can also hear him with Clifford Brown here, and see him playing solo here.   

What Does American Business Think About the Golden State?

The US Chamber of Commerce's Institute for Legal Reform is out with its annual state-by-state rankings of "state liability systems."  I'm not sure this is the right name for it -- it's more a combination of rankings of systems, the players (i.e., judges and juries) and outcomes.  Nonetheless, it will come as no surprise that California doesn't fair well in the eyes of in-house counsel.  Overall, California ranked sixth worst (or 45th best, depending on your level of optimism), ahead of only Illinois, Alabama, Louisiana, Mississippi and West Virginia. 

More after the jump.

Contracts and "Extrinsic Evidence"

It’s been two weeks since I got back from vacation, and aside from practicing law, I’m still working my way through significant appellate decisions and events of interest to businesses litigating in California.  One Supreme Court decision issued while I was gone, Sterling v. Taylor, S121676,  has been the subject of surprisingly little discussion (with the exception of May It Please The Court, discussed below), particularly since the Cal Supremes disapproved no fewer than five earlier statute of frauds decisions.  The facts of the case also win this week's "What Were They Thinking?" award.

More after the jump.

Punitive Damages Exceeding Compensatory Damages Held Violation of Due Process

I've been in China for twelve days, completely removed from blogging (and any news other than state-run television and the People's Daily), and have much catching up to do.  With something like 600 posts in my reader, I despair of ever catching up. However, there are a few developments that caught my attention.

The first one appears in Jet Source Charter, Inc. v. Dougherty, where the Court of Appeal held that a $26 million punitive damage award violated the due process requirements of Campbell v. State Farm when the compensatory damage award, including pre-judgment interest, was $6.5 million.  The Court held that the award was impermissibly excessive for just three reasons:  (1)  the compensatory award was already substantial;  (2)  the harm caused was solely economic (this was essentially a breach of fiduciary / fraud case involving business transactions) and (3)  the plaintiff was not a particularly vulnerable victim.

Sean Martin, who manages to blog about nearly every appellate decision in California, sets forth the opposing view here.

Given the amounts involved, I'm betting on a petition to the California Supremes.  And I'm further betting that the decision sticks.

On Contract Language, Film Stars and Charlie's Angels

“When I use a word,” Humpty Dumpty said, in a rather scornful tone, “it means just what I choose it to mean, neither more nor less.”

Most of you who are lawyers or business people (or both) would think that the trick to writing a contract that would stay out of litigation and not be subject to conflicting interpretations would be to use clear, plain, unambiguous language.  And in most of the world, you would be correct.

But not in California – you’re not surprised by this are you?  In California, we had a case called Pacific Gas & Electric Company v. G.W. Thomas Drayage & Rigging Company decided by our Supreme Court in 1968.  The case seems to inject uncertainty into every contract.

Happy to say that a recent twist on the case gives me the opportunity to blog about contract litigation, Charlie's Angels, Robert Wagner and Natalie Wood all at the same time.  (For those readers born after about 1970, Charlie's Angels = cheesy cop show from the 1970's;  Robert Wagner = film and TV actor from the 1970's and, to some extent, up to now, married to the late Natalie Wood = child star of the late forties, film star in fifties and sixties.)

More after the jump.

Tough Year for the Garbage Business in Compton

I don't know how I missed this, but it's out in the most recent Verdict Search California (paid subscription required) and appeared not long ago in The Compton Bulletin. 

The target for this blog is the small to mid-sized business with litigation problems in California, and Hub City Solid Waste Services had some huge ones.  In 2001, it landed a 15-year, $100 million waste hauling franchise agreement from the City of Compton.  Within a matter of weeks, Compton's then mayor and two of its city council members started getting thousands of dollars in campaign contributions from -- guess who? -- Hub City.  Hub's owner tried to get a similar deal from another Southern California city -- Carson -- which resulted in his being convicted of attempted bribery.  At that point, Compton understandably decided to audit Hub's books.  It followed the money and terminated Hub's contract.

Hub decided to sue Compton.  Bad idea.  Compton cross-complained back at Hub, and at its owner, Aloyan, to get all of its money back under California Government Code section 1090 and following.  In mid-2006, the trial judge ruled that Aloyan and Hub were alter egos (so each could be held responsible for the wrongdoing of the other) and that the termination of the contract was proper, given the evidence of bribery.  Then, late last year, she turned the whole thing over to a jury, which ruled in favor of Compton on both the complaint -- finding the termination proper -- and its cross complaint, awarding the city $22,402,759 against Hub and Aloyan.  Read more here.