Cal Biz Lit

Consumer Legal Remedies Act: Court of Appeal Provides a Guide to How Defendants Can Shut These Actions Down

It’s nice once in awhile when a court understands how the real world works. It’s also nice when a court holds a statute means what it says. The Court of Appeal recently did both those things in Benson v. Southern California Auto Sales, Inc. (August 27, 2015) ___ Cal.App.4^th ___ (Fourth Appellate Dist. G050484). This was a case involving California’s Consumer Legal Remedies Act, Civil Code Section 1750 and following, (often known as the “CLRA”).

First, some background: Section 1790 of the CLRA declares some 23 practices in the sale of goods or services to be “unfair methods of competition” and “unfair or deceptive acts or practices.” The itemized proscribed practices are quite broad, including “Passing off goods or services as those of another,” “Representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another,” or “Inserting an unconscionable provision in the contract.” The 23 practices are sufficiently broad that consumer plaintiff attorneys can often find one that matches just about anything their clients are unhappy about.

More after the jump.

The Rich Are Different Than You and Me . . . .

The rich are different than you and me.  They have more money.

           -- Famous phony quote of conversation between F. Scott Fitzgerald and Ernest                  Hemingway.

OK, let's see if I have this right.  Jeffrey Drazan is a big deal VC in Silicon Valley, now the managing partner of Bertram Capital.  Worth a few bucks.  In 2002, he decides to build a $13 million house in Woodside.  He hires a contractor by the name of Vance Brown to build it for him.

But construction manager?  He don't need no stinkin' construction manager.  He's going
to be the construction manager himself, starting an LLC, Frog Creek Partners, LLC to manage the project.

And lawyers?  He don't need no stinkin' lawyers either.  He let's Brown start the job
before a contract is signed, and for some time after that, drafts of contracts pass back and forth, and by the time they are done, nobody seems to know exactly what is and what is not the contract.

Drazan / Frog Creek sue Brown.  Brown cross complains, but also moves to compel arbitration under Brown's version of the contract.  The trial court denied arbitration in that it couldn't find mutual assent for Brown's contract version, and the Court of Appeal affirmed.  This was about six years ago.

So then Brown apparently pieces together Fox Creek's version of the contract and it has an arbitration provision also, and he moves to compel arbitration on that one.  The trial court denied the motion, but the Court of Appeal reversed, ordering arbitration in 2007.  

Now the case goes to arbitration.  As we learn in the latest Court of Appeal case involving Mr. Drazan's Dream House, 

Following 50 days of arbitration hearings, an American Arbitration Association panel issued a 65-page decision awarding Brown damages against Frog Creek of $1,905,902.90, plus $2,517,687.31 in attorney fees for the arbitration proceeding and $666,422.78 in costs.  The arbitrators declined to rule on whether attorney fees and costs might be awarded for litigation activity before the arbitration.  Frog Creek paid the arbitration award in February 2010, and the trial court entered judgment on it on April 7, 2010.

The contract -- whatever it is -- has a provision that the prevailing party in any dispute gets attorneys fees.  So Brown moves for pre and post arbitration attorneys' fees of close to a million bucks.  And Drazan goes, oh yeah?  and moves for attorneys' fees of his own for defeating the first attorneys' fee petition.  And the trial court gives Brown about $700K in attorneys' fees and Drazan about $125K.

To which the Court of Appeal says, "nope."  Doesn't work that way.  Under Civil Code section 1717, there is only one prevailing party, and that's the one who gets the most relief.  Hmm, Vance Brown -- got about $2 million in damages.  Jeffrey Drazan -- gets to delay arbitration for five or six years.  i'm thinking it worked out better for Brown.  And that's what the Court of Appeal thought too, as they (a) took away Drazan's $125K, and (b) told the trial court to give Brown fees for the first effort to take the case to arbitration, and for this appeal.

Read all about it in Frog Creek Partners LLC v. Brown (May 24, 2012) ___Cal.App.4th___ .  Or not.  The opinion is 37 pages long.

CBL is going with the commentary of Legal Pad a few years ago talking about the same case:  

Anyway the moral of the story is: if you want someone who knows how to pick start-up stars like FrontBridge Technologies  and Theravance, call Jeff Drazan. If you want someone to manage construction of your next $13 million home, call someone else, like Bob the Builder.

Attorney General Posts 2010 Proposition 65 Settlements

All Proposition 65 settlements are supposed to be reported to the California Attorney General at least 45 days before going to court for approval, and all are posted on the Attorney General's web site.  Then, once a year, the AG posts a compilation of the settlements on her web site here.

CalBizLit spent some time looking at this year's settlements to see what we could detect in the way of trends.  And we now have our own compilation showing the average penalty, attorneys' fee / costs allocation and other payment for each bounty hunter private party enforcer.  But first, some caveats:

First, what the AG herself says about this data is true: 

Settlements generally include injuctive relief . . . such as product reformulation, emission reduction or warnings.  This injunctive relief is often complex, cannot be presented in summary form, and requires reference to the actual settlement documents to accurately assess.  This report should not be used by itself to evaluate Proposition 65 settlements.

Fine.  Now another thing.  The AG's counting of numbers of settlements isn't always accurate.  For example, the AG shows 37 settlements by Center for Environmental Health for a thumping total of $6,933.300.  That would average $187K per settlement, seemingly suggesting we should have all become bounty hunter private party enforcer lawyers when we got out of law school.  But that's not right.  Several of these were large opt-in settlements where scores of companies chose to join in.  Since CBL doesn't have the time to wade through these settlement documents to get an actual count, we left these out of our analysis.

So with those caveats, here are the numbers for 2010 (you can click the image to see it upclose and big):

  

As you can see, the major players for 2010 were Russel Brimer, Center for Environmental Health, Consumer Advocacy Group, Anthony Held and Mateel Environmental Justice.  CBL took a look at how their average settlement numbers compared over the last four years.  Again, you can click the graphic to get a larger version:

Finally, CBL compared allocation of all the settlements over the same four year period amongst penalties (75% of which go to the State of California, which can use the money), "other payments" (environmental organizations designated by the plaintiff, and often the plaintiff organization itself) and attorneys' fees and costs.  The more cynical among our readers will not be surprised at what we found:

Yes, that's right.  Looking just at bounty hunters with settlements in 2010, less than 10% of the more than $38 million paid to them in the past four years went to penalties.  64% went to attorneys' fees and costs.  And if you exclude the settlements by As You Sow and Center for Environmental Health, which are genuine environmental adocacy groups with missions far broader than Proposition 65 enforcement, seventy-six percent of all amounts paid to the remaining persons and organizations over the past four years went to attorneys' fees and costs.

Hmm, do we think this is what the voters had in mind twnty-five years ago when they went to the polls and enacted the "Safe Drinking Water and Toxic Enforcement Act of 1986?"  I'm thinking maybe not . . . . .

Is Your Alternative Fee Agreement Against The Law?

For years and years, we over here at Cal Biz Lit have been reading that the hourly fee arrangement was a thing of the past, that the only way to avoid conflicts with corporate, insurance  and other institutional litigation clients was alternative fee agreements.  These can be flat fee agreements, or for the more adventurous, defense contingency fees, where the law firm's compensation is based, in whole or in part, on the results achieved.

We, and more specifically our law firm, Adams Nye Becht LLP love contingent deals, because they allow us to share risks with clients and share in the financial  rewards of good work.  We hope we can do more of them.

But today's new case reports brought a reminder (to us, and, hopefully, to every California law firm) that if we have any kind of contingency arrangements, we need to follow the same rules as plaintiff attorneys with contingency fee arrangements.

The cautionary tale comes in the case of Arnall v. Superior Court of Los Angeles County (Liker, Real Party In Interest) (November 22, 2010) ___Cal.App.4th___ (2nd Dist., B225264).  Simple facts:  lawyer does a deal with Ameriquest Mortgage to provide advisory services in such a way as to reduce its tax liability.  He has a written agreement that in addition to a monthly flat fee, he'll get a "success fee" of  2% of the tax savings up to $2 million.  Lawyer saves them a whole bunch of money.  They decide not pay him and declare the agreements void.  He sues them. 

The Court of Appeal says ixnay to the success fee.  Why?  Well, because of this little thing called California Business and Professions Code section 6147, which provides in part:

(a) An attorney who contracts to represent a client on a contingency fee basis shall, at the time the contract is entered into, provide a duplicate copy of the contract, signed by both the attorney and the client, or the client's guardian or representative, to the plaintiff, or to the client's guardian or representative. The contract shall be in writing and shall include, but is not limited to, all of the following:
   (1) A statement of the contingency fee rate that the client and attorney have agreed upon.
   (2) A statement as to how disbursements and costs incurred in connection with the prosecution or settlement of the claim will affect the contingency fee and the client's recovery.
   (3) A statement as to what extent, if any, the client could be required to pay any compensation to the attorney for related matters that arise out of their relationship not covered by their contingency fee contract. This may include any amounts collected for the plaintiff by the attorney.
   (4) Unless the claim is subject to the provisions of Section 6146 [dealing with medical malpractice], a statement that the fee is not set by law but is negotiable between attorney and  client.
  . . . .
   (b) Failure to comply with any provision of this section renders the agreement voidable at the option of the plaintiff . . . .

Here, the attorney did not include the "not set by law" language in the fee agreement.  Presumably, he thought the requirement applied to only plaintiffs' personal injury practice, or at least  only to litigation matters.  Wrong on both counts.  Good-bye $2 million success fee.  Ouch.