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The Impact of Attorney Fees in Civil Litigation and The Importance of Early Analysis of The Merits of The Case

By Fritz Reich | October 27th, 2016 | Tags: , , , | 0 Comments.

The award of attorney fees at the conclusion of a civil lawsuit often constitutes the most important recovery to the prevailing party.  If the prevailing party is the defendant, recovery of attorney fees permits the defendant to “break even.”  If the prevailing party is the plaintiff, the attorney fee award may provide for additional compensation above and beyond any recovery of actual damages.  In fact, the fee award often exceeds a plaintiff’s recovery for actual damages.

Because of the significant impact of attorney fees awards in civil litigation, it is important to evaluate cases early in the process in terms of such potential awards.

General Principles regarding the award of attorney fees:

California follows the “American Rule” regarding attorney fees – each party bears the cost of their respective legal representation.  However, exceptions exist.  First, if the action is based on a contract which contains an attorney fees provision, the prevailing party is entitled to recover their reasonable fees.  Second, certain statutes provide for attorney fees to the prevailing party.  Examples include certain labor claims and consumer actions.

As such, the prevailing party must establish a predicate contract or statute providing for an award of attorney fees.  Cargill, Inc. v. Souza (2011) 201 Cal.App.4th 962, 966.

            A trial court is afforded wide latitude in ruling on fee motions and it ruling is reviewed on appeal by the abuse of discretion standard.   The trial court’s determination:

“…will only be disturbed when there is no substantial evidence to support the trial court’s findings or when there has been a miscarriage of justice.” ’ ” (citation) As with all orders and judgments, this fee order “is presumed correct, all intendments and presumptions are indulged in its favor, and ambiguities are resolved in favor of affirmance.” (citation). “Ascertaining the fee amount is left to the trial court’s sound discretion. (citations); Trial judges are entrusted with this discretionary determination because they are in the best position to assess the value of the professional services rendered in their courts. (citations); Thus, the court’s fee award “ ‘will not be disturbed unless the appellate court is convinced that it is clearly wrong.’ ” (citation).  Ellis v. Toshiba America Information Systems, Inc. (2013) 218 Cal.App.4th 853, 882, as modified (Aug. 14, 2013), as modified on denial of reh’g (Sept. 10, 2013).

In determining the reasonableness of attorney fees requested, the court should consider:

The nature of the litigation, its difficulty, the amount involved, the skill required and the skill employed in handling the litigation, the attention given, the success of the attorney’s efforts, his learning, his age, and his experience in the particular type of work demanded; the intricacies and importance of the litigation, the labor and the necessity for skilled legal training and ability in trying the cause, and the time consumed. Clayton Development Co. v. Falvey (1988) 206 Cal.App.3d 438, 447 (quoting Clejan v. Reisman (1970) 5 Cal.App.3d 224, 241 (internal citations omitted)).

Furthermore, whether a case is difficult or involves a novel question or questions of law is important in determining the reasonableness of the attorney fees.  Olson v. Cohen (2003) 106 Cal.App.4th 1209, 1218.  Courts have determined that attorneys’ rates are reasonable if they are within the range of rates charged by private attorneys of similar skill and reputation for comparably complex litigation.  Bihun v. AT&T Info.Sys. (1993) 13 Cal.App.4th 976, 997.  As to the hours expended, a successful party is entitled to “compensation for all hours reasonably spent.” Serrano v. Unruh (1982) 32 Cal.3d 621, 639.

When a party prevails on some, but not all, claims – allocation of fees is required:

Cases often resolve where a party prevails on some claims but not on others.  In that situation, the party is entitled to recovery only those fees associated with their successful prosecution or defense.

“A trial judge deciding attorney fees may appropriately “allocate” or “apportion” fees…”  Ritter & Ritter, Inc. v. Churchill Condominium Ass’n (2008) 166 Cal.App.4th 103, 129. “Apportionment of a fee award between fees incurred on a contract cause of action and those incurred on other causes of action is within the trial court’s discretion.”  Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111, as modified on denial of reh’g (Mar. 22, 1996).

In the context of a contractual attorney fees, the California Supreme Court has observed that:

Where a cause of action based on the contract providing for attorney’s fees is joined with other causes of action beyond the contract, the prevailing party may recover attorney’s fees under section 1717 only as they relate to the contract action. (McKenzie v. Kaiser-Aetna (1976) 55 Cal.App.3d 84, 88-90, 127 Cal.Rptr. 275; see Schlocker v. Schlocker, supra, 62 Cal.App.3d 921, 923, 133 Cal.Rptr. 485.) Describing the attorney’s fees provision, section 1717 specifically refers to fees “incurred to enforce the provisions of such contract.” A litigant may not increase his recovery of attorney’s fees by joining a cause of action in which attorney’s fees are not recoverable to one in which an award is proper.   Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-30.

Thus, under California law, trial courts should exercise its discretion to apportion attorney fee award in at least two circumstances: (1) in cases in which fees are contractually or statutorily recoverable on some but not all causes of action; and (2) in cases in which the prevailing party was unsuccessful on portion of its suit.   In re Gorina (Bankr.C.D.Cal.2002) 296 B.R. 23, 32–33.

Partial success, however, reduces the awardable fees and costs; and the party seeking attorney fees bears the burden of demonstrating to the court the time and costs expended on the claims on which it prevailed.  ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1016-1020; Bowman v. City of Berkeley (2005) 131 Cal.App.4th 173, 177-178; Lyons v. Chinese Hosp. Ass’n (2006) 136 Cal.App.4th 1331, 1344.

In Conclusion:

Attorney fee awards can have significant impact on the ultimate outcome of a case.  For the prevailing defendant, an attorney fees provision in the contract at issue or the applicable statute may allow the defendant to shift the cost of the defense to the plaintiff.  For the prevailing plaintiff, such an award may substantially increase the recovery.  For these reasons, it is important to realistically analyze the merits of a civil lawsuit at the outset where attorney fees may be awarded to the prevailing party.

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