Opinion
Case No. CV 02-8636 MMM (PJWx).
January 14, 2005
ORDER GRANTING IN PART DEFENDANT ROGER T. FEATHERSTON'S MOTION TO ASSESS REASONABLE ATTORNEYS' FEES
Plaintiff Cambridge Electronics, Inc. commenced this contract action on November 11, 2002, naming MGA Electronics, Inc. ("MGA"), and Roger T. Featherston as defendants. After MGA filed for bankruptcy, plaintiff filed a first amended complaint naming new defendants Roger A. Featherston, Rosalyn D'Pree, MGA Midwest, LLC, RTF Associates, LLC, and Chandler Lake Elizabeth Development Group, LLC. The amended complaint alleged, in claims seven through ten, that certain defendants had violated California's Uniform Fraudulent Transfers Act, conspired fraudulently to transfer MGA assets, violated California's Bulk Sale Law, and violated California Business and Professions Code § 17200. The first five claims for relief in the amended complaint were directed solely against MGA, which did not file a responsive pleading because it was in bankruptcy proceedings. The sixth claim for relief sought "judgment against Roger T. Featherston . . . on disregard of the corporate entity." Since piercing the corporate veil, or "disregard of the corporate entity" is not an independent cause of action, but merely a method of imposing liability on an underlying claim, the court interpreted plaintiff's sixth claim for relief as seeking to hold Roger T. Featherston individually liable on the contract-based claims stated against MGA in the first five causes of action.
The court dismissed defendant Rosalyn De'Pree pursuant to a stipulation of the parties. (See Docket Entry No. 108).
First Amended Complaint, Sixth Claim for Relief.
See, e.g., In re Grothues, 226 F.3d 334, 337-38 (5th Cir. 2000) (recognizing that an alter ego theory is a remedy to enforce a substantive right, not an independent cause of action).
Order Granting Defendants' Motion For Summary Judgment ("SJ Order") (Docket Entry No. 124), 7, n. 24.
On June 23, 2004, the court granted defendants' motion for summary judgment on all claims except those against MGA, and entered judgment in their favor. Defendant Roger T. Featherston (hereinafter "defendant") now seeks recovery attorneys' fees of $72,983.20 that he alleges were reasonably incurred in defending against plaintiff's claims for relief.
Motion of Defendant Roger T. Featherston to Assess Reasonable Attorney's Fees Against Plaintiff ("Defendant's Motion"), § I.
I. DISCUSSION
A. Whether And For The Defense Of Which Claims Defendant Is Entitled To Attorneys' FeesCalifornia applies "the so-called American rule [that] requires both winners and losers to bear their own legal fees . . . in all litigation." Covenant Mutual Ins. Co. v. Young, 179 Cal.App.3d 318, 321 (1986); see also Reynolds Metals Co. v. Alperson, 25 Cal.3d 124, 127 (1979) ("Unless authorized by either statute or agreement, attorney's fees ordinarily are not recoverable as costs"). California Code of Civil Procedure § 1021 provides that "[e]xcept as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties." CAL. CODE CIV. PROC. § 1021. Plaintiff therefore argues that defendant is not entitled to fees, as the parties did not agree to change the American rule, and no statute specifically provides for an award of fees in connection with the causes of action pleaded in plaintiff's complaint.
The court's jurisdiction in this case is based on diversity of citizenship between the parties. 28 U.S.C. § 1332. In such cases, the court applies state substantive law, and federal procedural law. Erie v. Tompkins, 304 U.S. 64 (1938). Whether to award attorneys' fees is a matter of substantive law (except when the award is part of a sanction for the violation of federal procedural law). Galam v. Carmel (In re Larry's Apt., L.L.C.), 249 F.3d 832, 838 (9th Cir. 2001) ("When it comes to attorneys' fees, we have declared that `[a] federal court sitting in diversity applies state law in deciding whether to allow attorney's fees when those fees are connected to the substance of the case,' quoting Price v. Seydel, 961 F.2d 1470, 1475 (9th Cir. 1992)).
Defendant counters that he is entitled to fees under the promissory note, for breach of which plaintiff sued both him and MGA. The promissory note provides that "[i]n any litigation relating to this Note, the prevailing party shall be entitled to recover its costs and reasonable attorney's fees." Because the note provides that the prevailing party may recover fees, defendant argues that he is entitled to such fees, as he prevailed on the causes of action alleging the promissory note's breach. Defendant draws the court's attention to section 1717 of the California Civil Code:
Declaration of Roger T. Featherston ("Featherston Decl.), Ex. 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." CAL. CIV. CODE § 1717(a) (emphasis added).
Plaintiff disputes defendant's entitlement to fees under the note, because the note was signed by plaintiff and defendant, MGA — it was not signed by defendant Roger T. Featherston. Plaintiff asserts that it sought to hold defendant liable on the promissory note through allegations that he was an alter-ego of MGA, not because he was a signatory to the note. The argument plaintiff makes, however, was expressly rejected by the California Supreme Court more than twenty-five years ago:
The court refers to Roger T. Featherston throughout the remainder of this order simply as "defendant."
"Section 1717 was enacted to establish mutuality of remedy where [a] contractual provision makes recovery of attorney's fees available for only one party. . . . Its purposes require [that] section 1717 be interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney's fees should he prevail in enforcing the contractual obligation against the defendant." Reynolds, supra, 25 Cal. 3d at 128 (emphasis added).
There is no doubt that plaintiff sought to hold defendant liable on the promissory note "as if he were a party to it." Id. "Had plaintiff prevailed on its cause of action claiming defendant [was] in fact the alter ego of the corporation, defendant would have been liable on the notes. Since [defendant] would have been liable for attorney's fees pursuant to the fees provision had plaintiff prevailed, [defendant] may recover attorney's fees pursuant to section 1717 now that [he] ha[s] prevailed." Id. at 129; see also Rainier National Bank v. Bodily, 232 Cal. App. 3d 83, 86 (1991) ("Under Civil Code section 1717, the prevailing party is entitled to attorney's fees even when it wins on the grounds that the contract is inapplicable, invalid, unenforceable or nonexistent, so long as the party pursuing the lawsuit would have been entitled to attorney's fees had it prevailed. The rationale is that Civil Code section 1717 is guided by equitable principles, including mutuality of remedy, and it would be inequitable to deny attorney's fees to one who successfully defends, simply because the initiating party filed a meritless case"); North Associates v. Bell, 184 Cal. App. 3d 860, 865 (1986) ("As long as an action `involves' a contract, and one of the parties would be entitled to recover attorney fees under the contract if that party prevails in its lawsuit, the other party should also be entitled to attorney fees if it prevails, even if it does so by successfully arguing the inapplicability, invalidity, unenforceability, or nonexistence of the same contract."). Thus, it is clear that defendant is entitled to attorneys' fees for those causes of action alleging breach of the promissory note, because had plaintiff prevailed, plaintiff would have been entitled to an award of fees.
Consequently, the court must determine which causes of action give rise to a right to recover fees. Under California law, "[w]here 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." Reynolds, supra, 25 Cal. 3d at 129 (citations omitted).
Only two of the five contract-based causes of action are directly related to the promissory note. Both the second claim for balance due on the promissory note and third claim for breach of the promissory note are clearly linked to the fee provision, and defendant is entitled to recover fees incurred in defending against those two claims. Defendant is also entitled to recoup the fees he expended defending against the alter ego claim, as it was through this claim that plaintiff sought to hold defendant liable on the promissory note. Reynolds, supra, 25 Cal. 3d at 129-30 ("Attorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed. All expenses incurred with respect to the alter ego issue — common to both the note and the general line consignment agreement — qualify for award").
Plaintiff's Opposition, § II(A)(1).
First Amended Complaint, Second Cause of Action.
Id., Third Cause of Action.
The court concludes, by contrast, that plaintiff's first, fourth, and fifth claims for relief do not relate to the promissory note. Plaintiff's first claim for relief alleges that "[s]ince February 28, 2002, CEC has manufactured and delivered to defendants [g]oods worth at least US $384,420.53," and seeks the amounts due for manufacture and delivery of the goods. The promissory note, by contrast, reflected a loan by plaintiff's parent to MGA. MGA's obligation to repay the loan was separate from its obligation to pay for goods manufactured and delivered. Accordingly, defendant may not invoke the attorneys' fees provision in the note to recover fees incurred defending against the first claim for relief. Manier v. Anaheim Bus. Center Co., 161 Cal. App. 3d 503, 508 (1984) (whether a party is entitled to attorney's fees under section 1717 "depends not on the evidence adduced at trial or some interim proceeding, but on the pleadings").
Id., ¶ 16.
Id., ¶ 23.
The complaint alleges that MGA agreed to pay for goods delivered to it within 45 days, but no later than 60 days. (See id., ¶ 15.) It further alleges that plaintiff's parent was entitled to call the promissory note if MGA failed to make payment within these time parameters. ( Id., ¶ 23.) It is thus possible that, factually, defense of the two claims overlapped. To the extent any such overlap exists, defendant is entitled to recover fees incurred defending against the second claim for relief, even though that same work might have been of assistance in defending against plaintiff's first claim. See Reynolds, supra, 25 Cal. 3d at 129-30 ("Attorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed"). The existence of some factual overlap, however, does not demonstrate that the first claim is related to the loan evidenced by the promissory note.
Plaintiff's fourth claim alleging nonpayment of engineering charges is likewise not related to the note, as it concerns agreements between plaintiff and MGA that were executed on March 4, 2000, and September 11, 2001, long before the promissory note was executed in April 2002. The agreements, moreover, involved the payment of manufacturing costs rather than repayment of the loan evidenced by the note. Similarly, four of the five occasions on which plaintiff alleges in its fifth claim for relief that MGA made unauthorized deductions from its payments occurred before the promissory note was signed. Just as the defendant in Reynolds was not entitled to fees incurred in defense of causes of action arising out of a general line consignment agreement because those claims were not related to the promissory note causes of action, so here claims four and five do not relate sufficiently to the promissory note to merit an award of attorneys' fees incurred in their defense.
Id., ¶ 33.
Id., ¶ 37.
Reynolds, supra, 25 Cal. 3d at 129.
The court must also deny fees related to defense of the remaining causes of action. Plaintiff's seventh claim for relief alleges that defendant fraudulently transferred assets to avoid paying the promissory note debt. The court previously determined that plaintiff's Business and Professions Code § 17200 claim "appear[ed] to depend entirely on its fraudulent transfer claim." Plaintiff did not dispute this, either in opposition to this motion, or at the hearing on the motion for summary judgment. Thus, whether to award fees incurred in defending the § 17200 claim is coextensive with the analysis as the fraudulent transfer claim. Plaintiff's conspiracy claim was not well-developed in either the complaint, or in the summary judgment proceedings. It too, however, appears essentially coextensive with the fraudulent transfer claim, insofar as plaintiff alleged that defendant conspired with others to transfer assets so as to deprive plaintiff of collecting monies owed by defendant. In fact, plaintiff's complaint specifically asserts that "defendant[s] . . . knowingly conspired between themselves to hinder, delay and defraud [plaintiff] in the collection of its claim against MGA."
SJ Order, § II(E).
First Amended Complaint, ¶ 65.
The only case the court has located that addresses the extent to which a fraudulent transfer claim can form the basis of a fee award under § 1717 is Rothery v. Marshack (In re Rothery), 200 B.R. 644 (9th Cir. BAP 1996). Identifying the "primary issue [as] whether a fraudulent transfer action is `on a contract' within meaning of Cal. Civ. Code § 1717," the court found that the bankruptcy court's award of attorneys' fees to a prevailing party for defense of the claim was erroneous, as the claim did not come within the confines of § 1717. Id. at 650. The bankruptcy court had found that a fraudulent transfer action was a suit "on a contract" because it was intended to rescind a contract between a debtor and a third party for the benefit of the debtor's creditors. Id. at 648. The court disagreed, noting that "[a]ll that [i]s necessary [to support a fraudulent transfer claim] [i]s [a] finding that the transfer occurred without adequate consideration and within a certain time frame." Id. at 651. The court, therefore, concluded that liability for a fraudulent transfer was not contractual in nature even if the transfer was made for the purpose of avoiding a contract debt. Id. The court finds this analysis persuasive, and notes that in this case, there is little doubt that, had plaintiff prevailed on his fraudulent transfer claims, it would not have been entitled to attorneys' fees on the promissory note. At best, the fraudulent transfer claims are tangentially related to the promissory note, in that plaintiff implied that defendants engaged in fraudulent transfers to avoid MGA's debt arising, at least in part, out of the promissory note.
Finally, defendant has failed to provide any support for his argument that plaintiff's ninth claim for relief for failure to provide notice of a bulk sale transfer, is sufficiently related to the promissory note claims to warrant an award of attorneys' fees. This claim was based on allegations that defendant and his co-defendants participated in a bulk sale of MGA's assets. See CAL. COM. CODE §§ 6101 et seq. The only possible relationship between this claim, and the promissory note claims is the suggestion that defendants conducted the sale to avoid MGA's debts. The claim is not an action on the promissory note, and defendant is not entitled to fees incurred in defending against it as a result.
Accordingly, the court concludes that defendant is entitled to an award of the attorneys' fees he incurred defending against the second, third, and sixth claims for relief only.
C. Legal Standard Governing Calculation Of Reasonable Attorneys' Fees
The Ninth Circuit "requires a district court to calculate an award of attorneys' fees by first calculating the `lodestar.'" Caudle v. Bristow Optical Co., 224 F.3d 1014, 1028 (9th Cir. 2000) (citing Morales v. City of San Rafael, 96 F.3d 359, 363 (9th Cir. 1996) (reversing the district court's award of attorneys' fees because it failed to calculate a lodestar figure and assess the extent to which recognized bases for adjusting that figure applied)). "The `lodestar' is calculated by multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonable hourly rate" ( Morales, supra, 96 F.3d at 363); it incorporates consideration of the results obtained by the prevailing litigant, as required by Hensley v. Eckerhart, 461 U.S. 424 (1983), and several other relevant considerations as well (see Morales, supra, 96 F.3d at 363, n. 8). "A strong presumption exists that the lodestar . . . represents a reasonable fee. . . ." G G Fire Sprinklers, Inc. v. Bradshaw, 136 F.3d 587, 600 (9th Cir. 1998), vacated on other grounds sub nom. Bradshaw v. G G Fire Sprinklers, Inc., 526 U.S. 1061 (1999). After computing the lodestar, the district court must assess whether additional considerations identified by the Ninth Circuit (see Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 70 (9th Cir. 1975)) require adjustment of the figure (see Morales, supra, 96 F.3d at 363-64). California uses the same method for calculating attorneys' fees. Ketchum v. Moses, 24 Cal.4th 1122, 1132-33 (2001).
1. Lodestar Calculation
The fees defendant incurred in this case can be fairly divided into three categories: (1) fees incurred prior to filing of the First Amended Complaint while defendant was represented by Ervin, Cohen Jessup, LLP ("ECJ"), and was defending against the allegations contained in the original complaint; (2) fees incurred after the filing of the First Amended Complaint while defendant was represented by Tisdale Nicholson, LLP ("TN"); and (3) fees incurred for which defendant is not entitled to compensation.
a. Hourly Rate
Declarations regarding the prevailing market rate in the relevant community suffice to establish a reasonable hourly rate. See Widrig v. Apfel, 140 F.3d 1207, 1209 (9th Cir. 1998); Guam Soc'y of Obstetricians Gynecologists v. Ada, 100 F.3d 691, 696 (9th Cir. 1996). A plaintiff must submit "satisfactory evidence . . . that the requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation." Blum v. Stenson, 465 U.S. 886, 895-96, n. 11 (1984). The relevant community is that where the district court sits. See Schwarz v. Secretary of Health and Human Servs., 73 F.3d 895, 906 (9th Cir. 1995).
i. ECJ Rates
Prior to MGA's bankruptcy filing and plaintiff's decision to file a First Amended Complaint, ECJ jointly represented MGA and defendant. During the course of this representation, eight ECJ attorneys, with rates ranging from $165 to $400 per hour, performed various defense-related tasks, as detailed in invoices submitted by defendant. Although defendant has failed to submit any evidence that ECJ's "requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation," other than an assertion in its brief that "the foregoing fees are reasonable given the nature of the services rendered." Plaintiff, however, does not contest the reasonableness of the hourly rate of any ECJ attorney who worked on the case, and the court concludes that the declaration submitted by Guy Nicholson, discussed infra, is adequate to establish that the rates charged are in line with those prevailing in the community. As a consequence, the court finds ECJ's rates reasonable for purposes of the lodestar calculation.
Defendant's Memo, § II(B)(1); Featherston Decl., Ex. B.
See Blum, supra, 465 U.S. at 895-96, n. 11.
Defendant's Memo, § II(B)(1).
ii. TN Rates
Subsequent to MGA's bankruptcy filing and plaintiff's filing of its First Amended Complaint, defendant has been represented by TN. According to the declaration of TN partner Guy C. Nicholson, "although [he] relied upon other attorneys with [his] firm to assist [him] in this engagement, [Nicholson] personally performed over 90% of the legal services provided to [his] clients." To justify his $300 hourly rate, Nicholson provides a thorough description of his own background and experience as a twenty-two year trial attorney and former partner in a large national law firm. He also asserts, under penalty of perjury, that he recently "personally conducted a survey of law firms employing fewer than twenty attorneys in the Los Angeles area," and that the "average hourly rate for experienced trial counsel . . . ranges from approximately [$]250.00 per hour to approximately $400.00 per hour." Plaintiff does not contest the reasonableness of Nicholson's rate or the rates of other TN attorneys who assisted in the defense. Consequently, based both upon the survey evidence Nicholson presents, and plaintiff's lack of objection thereto, the court finds the TN rates reasonable for purposes of the lodestar calculation.
Declaration of Guy C. Nicholson ("Nicholson Decl."), ¶ 1.
See id., ¶ 6.
Id.
2. Hours Expended
A court may award attorneys' fees only for the number of hours it concludes were reasonably expended litigating the matters for which fees are to be awarded. Hensley, supra, 461 U.S. at 434. Defendant asserts in its brief that "the attorney's fees billed by ECJ totaled $24,581.50 (representing 95.30 hours)," and that he "is personally obligated to pay the entire amount." The court's review of ECJ's billing statements reveals ten entries, totaling $1,219.50 in fees, where the description of services performed has been redacted. Although defendant need not itemize the time his attorneys spent on each task, "at least counsel should identify the general subject matter of his time expenditures." Hensley supra, 461 U.S. at 437 (citing Nadeau v. Helgemoe, 581 F.2d, 275, 279 (1983)). Because the general subject matter of these charges is not identified, the court must reduce the requested ECJ fees by $1,219.50. Thus, the total amount of reasonable fees charged by ECJ is $23,362.
Defendant's Memo, § II(B)(1).
See Featherston Decl., Ex. B. The dates and amounts corresponding to these blacked-out entries are: 11/05/02-$16.50; 11/06/02-$115.50; 11/08/02-$105; 11/15/02-$105; 12/06/02-$25; 03/20/03-$262.50; 03/21/03-$157.50; 03/24/03-$175; 04/25/03-$82.50; and 04/28/03-$175.
b. TN Fees
As with the ECJ fees, defendant does not identify which hours charged by TN relate to the seven non-compensable claims. Defendant has recommended, however, that any award of fees charged by TN be reduced by ten percent because roughly ten percent of the fees billed by the firm were attributable solely to his father's defense. Defendant thus contends that he is entitled to $48,401.70 ($53,783.00-$5,378.30). As plaintiff does not contest the percentage of fees defendant attributes to defense of his father, the court accepts the proposed reduction and will use it in calculating recoverable fees.
See §§ I(B)(1-3), supra, for the Court's determination that defendant may not recover fees for defending against claims one, and seven through ten.
Defendant's Memo, § II(B)(3).
D. How To Apportion Fees Among The Different Causes Of Action
Defendant argues that he is entitled to recover the fees he incurred defending against all of plaintiff's claims because it is impossible to apportion the work among the different claims. This is contrary to the controlling precedent, however. "When a cause of action for which attorney fees are provided by statute is joined with other causes of action for which attorney fees are not permitted, the prevailing party may recover only on the statutory cause of action." Akins v. Enterprise Rent-A-Car Co. of San Francisco, 79 Cal.App.4th 1127, 1133 (2000). Although "fees need not be apportioned when incurred for representation of an issue common to both a cause of action for which fees are permitted and one for which they are not" ( id.), defendant has failed to show that all of plaintiff's claims, including the promissory note counts, involved common issues. Indeed, with the exception of the alter ego claim, the court has concluded that they involve distinct legal and factual questions. See id. at 1133 ("When the liability issues are so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not, then allocation is not required"). Accordingly, the court may award fees only for defense of the three causes of action related to the promissory note containing the attorneys' fees provision.
Because defendant has made no effort to apportion fees among the various causes of action, the case is reminiscent of the Ninth Circuit's decision in Schwarz v. Secretary of Health Human Servs., 73 F.3d 895 (9th Cir. 1995). There, a district court found that a litigant was entitled to attorneys' fees in connection with the prosecution of only one of four claims asserted by her. Id. at 904. The litigant claimed, in district court, that she was entitled to all of her fees, for essentially the same reasons that defendant claims he is entitled to them here — i.e., that all of her claims involved common legal issues. Id. at 901-02. The district court disagreed, and awarded plaintiff twenty-five percent of the fees she incurred. Id. at 905. Plaintiff appealed the method by which the district court apportioned fees. The Ninth Circuit affirmed, holding that "a district court does not abuse its discretion when it resorts to a mathematical formula, even a crude one, to reduce the fee award to account for limited success." Id. (citing Harris v. McCarthy, 790 F.2d 753, 759 (9th Cir. 1986) ("this `rather cold mathematical approach,' as the trial judge called it, is not an abuse of discretion")). As in Schwarz, defendant here has "made no effort to identify for the district court which of the hundreds of hours were spent on the unsuccessful claims," and has "always maintained that he was entitled to all hours expended by [his] attorneys." Id. at 905, n. 3.
Consistent with the approach utilized in Schwarz, therefore, the court awards defendant thirty percent of all fees charged by TN, because defendant is entitled to recover attorneys' fees for defending three of the ten causes of action in the first amended complaint. The court will award defendant twenty-five percent of all fees charged by ECJ, because defendant is entitled to recover fees for defending three of the six causes of action asserted in the original complaint. Because ECJ also defended defendant MGA, which is not entitled to recoup attorneys' fees, the court will further reduce the ECJ fees awarded by one-half. The court appreciates that it has employed a somewhat "cold mathematical approach." Litigants who make no effort to apportion fees among compensable and non-compensable claims run the risk, however, that a court will adopt such an approach.
This percentage is reached as the fees must first be reduced by fifty percent to account for the fact that only fifty percent of the causes of action asserted entitled defendant to fees. The fees must be reduced by a further fifty percent, because defendant Roger T. Featherston is a prevailing party, but the other party ECJ was defending, MGA, is not a prevailing party. (Fifty percent of fifty percent is twenty-five percent.)
Thus, the court awards defendant attorneys' fees of $14,520.51, or thirty percent of the $48,401.70 total, for work done by TN. The court also awards defendant $5,840.50, or twenty-five percent of the $23,362 total, for work done by ECJ. Having considered the factors identified in Kerr v. Screen Extras Guild, supra, 526 F.2d 67, the court finds no departure from the lodestar amount appropriate.
II. CONCLUSION
For the reasons stated, the court awards defendant Roger T. Featherston attorneys' fees of $20,361.01.