Opinion
No. A128536.
2012-05-30
Larisa KHAZAN et al., Plaintiffs, Respondents, and Cross–Appellants, v. Felix BRAYNIN et al., Defendants, Appellants, and Cross–Respondents.
Law Offices of Kirk B. Freeman, Kirk B. Freeman, Matthew A. Mallet, Travis & Pon, Monte S. Travis, Robert P. Travis, San Francisco, for Appellants. Arthur Brunwasser, Robert S. Rivkin, Spiegel Liao & Kagay, Charles M. Kagay, San Francisco, for Respondents.
Background: Lenders brought action against borrowers for judicial foreclosure, declaratory relief, default on promissory note, fraud, and a Racketeer Influenced and Corrupt Organizations Act (RICO) violation. Borrowers cross-complained for slander of title and cancellation of cloud on title. The Superior Court, City and County of San Francisco, No. CGC00310997, entered judgment on special jury verdict for lenders on all except the fraud and RICO claims, and awarded attorney fees. Lenders and borrowers appealed. The Court of Appeal affirmed the judgment on the merits, 2009 WL 808310, but reversed the attorney fee award, 2009 WL 808307. The Superior Court, Ernest H. Goldsmith, J., entered a new attorney fee award. Lenders and borrowers appealed.
Holding: The Court of Appeal, Rivera, J., held that interest on attorney fee award ran from date of new fee award after original award was reversed on appeal.
Affirmed. Law Offices of Kirk B. Freeman, Kirk B. Freeman, Matthew A. Mallet, Travis & Pon, Monte S. Travis, Robert P. Travis, San Francisco, for Appellants. Arthur Brunwasser, Robert S. Rivkin, Spiegel Liao & Kagay, Charles M. Kagay, San Francisco, for Respondents.
RIVERA, J.
This case returns to us after we decided two prior appeals in the same matter. Larisa Khazan (Khazan) and Boris Khazan (collectively plaintiffs) brought this action against Felix Braynin (Braynin), Vera Braynin, Vladislav Chernoguz (Chernoguz), and Biana Chernoguz (collectively defendants). Plaintiffs sought judicial foreclosure of a deed of trust on a property in San Francisco, alleging that defendants had defaulted on a promissory note secured by the deed of trust. They also alleged that defendants had defaulted on a second promissory note, committed fraud, and violated the Racketeer Influenced and Corrupt Organizations Act, 18 United States Code section 1961 et seq. (RICO). Defendants cross-complained for slander of title and cancellation of cloud on title. Plaintiffs prevailed on their causes of action for judicial foreclosure, declaratory relief, and default on the second promissory note and on the cross-complaint, but were unsuccessful in their fraud-based and RICO causes of action. The trial court then awarded plaintiffs contractual attorney fees in the amount of $1,370,604.
In one of the earlier appeals, Khazan v. Braynin (March 30, 2009, A113035, 2009 WL 808310) [nonpub. opn.] ( Khazan I ), we affirmed the judgment on the merits. On the same date, we reversed the order determining the amount of attorney fees and directed the trial court to reconsider plaintiffs' fee request. ( Khazan v. Braynin (March 30, 2009, A114369, 2009 WL 808307) [nonpub. opn.] ) ( Khazan II ). The trial court has now done so. Defendants appeal the resulting decision, and plaintiffs have filed a cross-appeal challenging the trial court's ruling on when interest on the award should begin to accrue.
In the unpublished portion of this opinion, we reject defendants' challenges to the amount of the attorney fee award. In the published portion of this opinion, we conclude the trial court correctly ruled that interest should run not from the date of the original judgment, but from the date of the fee award on remand.
I. BACKGROUND
For the background of this dispute, we quote from our opinion in Khazan I:
Brackets enclosing material denote additions to the opinion in Khazan I. Empty brackets [ ] denote deletions from the opinion.
A. The Loan and Deed of Trust
Braynin and Chernoguz operated a real estate business known as Crown Real Estate and Investment (Crown), and together defendants owned a property on Hayes Street in San Francisco. Braynin asked plaintiffs for a loan to fund construction on the Hayes Street property. Plaintiffs agreed to loan them $300,000, with the loan secured by a deed of trust. In February 1995, Braynin gave plaintiffs a $300,000 promissory note and deed of trust, payable within one year. The parties dispute how much money plaintiffs gave in return. Plaintiffs took the position that they gave defendants checks totaling $140,000, and the remainder of the promissory note represented unpaid amounts defendants had previously borrowed from plaintiffs. According to defendants, all previous loans had been paid off, and Khazan gave Braynin checks totaling $119,000, promising him the balance of $181,000 within about two weeks.
B. Defendants' Version of Events
The parties gave dramatically different versions of the events that took place next. According to defendants, within a few days of lending the money, Khazan told defendants that plaintiffs no longer wanted to continue with the loan, and instead asked them to transfer the money to another company, A and A Financial Management (A & A).
Chernoguz told A & A's owner, Alexander Lushtak, to transfer the $119,000, plus interest, from Crown's account at A & A to the Khazans' account, and Khazan was aware of the transfer. Braynin asked Khazan to return the note and deed of trust. At first she told him she was too busy to look for them. Later she said she had torn them up and thrown them away.
Defendants had introduced plaintiffs to A & A, which apparently specialized in arbitrage investments.
Braynin had a deed of reconveyance prepared, which recited that the indebtedness secured by the deed of trust had been fully paid and satisfied. He explained to plaintiffs that he wanted the deed of reconveyance executed so he could record it in the event the deed of trust and promissory note turned up. Plaintiffs signed the deed of reconveyance.
However, although Braynin asked them to come to Crown's office to have it notarized, they did not do so. Braynin eventually forgot about the deed of reconveyance.
Defendants presented evidence that the Khazans' signatures on the deed of reconveyance were genuine.
Plaintiffs made no demands on the note for at least two years, and defendants made no payments. In approximately April or May 1997, however, A & A collapsed,
and plaintiffs lost money they had invested with A & A. In late May 1997, Khazan recorded the $300,000 deed of trust.
Lushtak was later indicted for wire fraud (18 U.S.C. § 1343) and money laundering ( id. § 1956(a)(1)(A)(i)) in connection with his operation of A & A. He pled guilty to money laundering. It appears that some of the clients whom defendants had introduced to A & A—and who held A & A notes cosigned by Lushtak, Braynin, and Chernoguz—held Braynin and Chernoguz responsible for the losses they suffered in A & A's collapse. According to defendants, in order to forestall lawsuits by these clients, Braynin and Chernoguz issued promissory notes to the clients to replace the A & A notes, and they indicated they would pay the note amounts if they earned enough money from their other business operations. Although the balance in Khazan's A & A account was $357,000, she told Braynin to prepare a note for $57,000, and Braynin and Chernoguz did so.
C. Plaintiffs' Version of Events
Plaintiffs' version of the events relevant to this appeal is irreconcilable with defendants'. Khazan testified that she did not have an account with A & A, that she never intended to loan money to A & A,
and that the $300,000 note was fully funded by a combination of “new money” she gave defendants and “old money” rolled over from previous loans.
She believed A & A was defendants' company and that checks to A & A went to defendants.
Khazan did not immediately record the deed of trust because Braynin asked her not to do so, so that he could borrow more money against the property. She never told Braynin plaintiffs wanted to withdraw from the loan, did not ask him to have her money transferred to A & A, and did not tell him she had torn up the note and deed of trust. Khazan had no memory of signing the deed of reconveyance, although she agreed that the signatures on the document looked like plaintiffs'. She received numerous interest payments on the loan before April 1997, often in the form of cash and checks from Crown or A & A, but it appears that she did not keep records of the payments. When the note came due, she asked Braynin and Chernoguz when it would be paid, and they told her they would pay very soon. She decided to record the note after Braynin told her, in around April 1997, that he had lost his money. After the note was recorded, Khazan again asked defendants when they would repay the amounts due on the $300,000 note. They said they would repay the loan, and Braynin indicated the payment would be made within a year.
The funding included the $119,000 paid to defendants, and an additional $21,000 check made out to A & A, at Braynin's request.
D. The Litigation
Plaintiffs brought this action, seeking judicial foreclosure of the deed of trust and alleging fraud and other causes of action, and defendants cross-complained for slander of title and cancellation of cloud on title. [
] A jury first heard the evidence and rendered its verdict. Responding to the special verdict form's questions regarding breach of the $300,000 note, the jury found that defendants had executed and delivered the note, that plaintiffs had fully funded the note with checks and the rolling over of an existing indebtedness, that plaintiffs had not instructed Braynin and Chernoguz to cancel the $300,000 promissory note and deed of trust and to transfer their money to A & A, and that the interest rate on the note was usurious.
The Fifth Amended Complaint, which was the operative complaint, alleged 14 causes of action: (1) judicial foreclosure of deed of trust; (2) fraud; (3) common count for money had and received; (4) common count for money lent; (5) fraud—entering into contract without intention of performing; (6) appointment of receiver; (7) declaratory relief; (8) promissory note; (9) common count for money had and received; (10) common count for money lent; (11) fraud—entering into contract without intention of performing; (12) fraudulent conveyance; (13) fraudulent conveyance; and (14) RICO (18 U.S.C. § 1961 et seq.). Counts 1 through 6 related to the $300,000 promissory note and deed of trust. Count 7 sought declaratory relief in connection with the third-party promissory notes secured by deeds of trust. Counts 8 through 11 related to the $57,000 promissory note. Counts 12 and 13 alleged Chernoguz and Braynin had fraudulently executed interspousal deeds of trust to their wives. Count 14 alleged a criminal enterprise among defendants and Lushtak.
On the cause of action for breach of the $57,000 note, the jury found that Braynin and Chernoguz had executed and delivered the note to Khazan, and that it was supported by $57,000 consideration. The jury found against plaintiffs on the other causes of action submitted to it. [In particular, the jury rejected plaintiffs' allegations that Braynin and Chernoguz committed fraud by telling them that it was unnecessary to record the $300,000 deed of trust because there was sufficient equity in the Hayes Street property and they would not endanger the value of the deed of trust; that Braynin and Chernoguz falsely promised to repay the notes for $300,000 and $57,000 without intending to do so; and that Braynin and Chernoguz committed two “predicate acts” under RICO [¶]].
Because the jury found plaintiffs had not instructed Braynin and Chernoguz to cancel the note and deed of trust and to transfer their money to A & A, it did not reach the question of whether the money had in fact been transferred to A & A. Based on these findings, the jury similarly did not reach the cross-complaint's cause of action for slander of title. [ ]
The trial court later issued a statement of decision ruling in plaintiffs' favor on their first cause of action for judicial foreclosure of the deed of trust—finding that plaintiffs were entitled to the unpaid balance on the note, plus interest and attorney fees, and indicating its intent to issue a judgment of foreclosure directing the sale of the Hayes Street property—and the seventh cause of action for declaratory relief.
The court entered judgment in plaintiffs' favor on their causes of action for judicial foreclosure, declaratory relief, and default on the $57,000 note, as well as on the cross-complaint. [We end our quotation from our opinion in Khazan I.] In Khazan I we affirmed that judgment.
The court declared plaintiffs' deed of trust in second position for purposes of disposition of the proceeds of the sale of the property.
E. Initial Attorney Fee Order
As we explained in Khazan II “[t]he February 1995 note for $300,000 provided: ‘Should suit be commenced to collect this note or any portion thereof, such sum as the Court may deem reasonable shall be added hereto as attorney's fees.’ The promissory note for $57,000, dated June 1, 1997, contained nearly identical language.
“In ruling for plaintiffs on their causes of action for judicial foreclosure and declaratory relief, the trial court awarded plaintiffs their attorney fees in an amount to be determined. Plaintiffs brought a motion seeking a lodestar amount of $944,952 for the legal services of one of their attorneys, Arthur Brunwasser, and an additional $94,506 for the services of another attorney, Robert S. Rivkin, and asked to have the lodestar amount enhanced by a factor of 1.5.
“The trial court found that plaintiffs incurred lodestar attorney fees of $850,732 for Brunwasser's services, and applied a 1.5 multiplier for those services, for an award of $1,276,098. It also awarded $94,506 for Rivkin's services, for a total attorney fee award of $1,370,604. It used a rate of $400 per hour as the prevailing rate in the community for similar services for Brunwasser's work, and $285 per hour for Rivkin's work. The court awarded no fees for the time spent on the failed RICO claim, but declined to apportion the fees incurred for the contract and fraud causes of action, concluding they arose from a common nucleus of facts.” (Fn. omitted.)
Thus, although the jury rejected the fraud causes of action, the trial court found that the facts relevant to each claim were closely related and could not be separated from each other. Based on this finding, the trial court did not apportion fees between contract causes of action, for which contractual attorney fees were available, and the fraud causes of action, for which they were unavailable. We considered the propriety of this action in Khazan II and reversed the attorney fee award. In doing so, we concluded that while we did not dispute a finding that some, or even most, of the attorney fees plaintiff sought arose from issues common to the contract and fraud claims, it was clear to us that at least some of the fees were incurred in connection with claims that were not relevant to the contract causes of action. In particular, we pointed to evidence of defendant's dealings with various third parties in connection with the A & A transactions, evidence that arguably had relevance to the fraud-based causes of action, but had no relevance to the contractual causes of action. We also noted the authority for a trial court correcting attorney fee awards to account for a party's limited success. (See, e.g., Harman v. City and County of San Francisco (2007) 158 Cal.App.4th 407, 417–418, 69 Cal.Rptr.3d 750( Harman II );Sokolow v. County of San Mateo (1989) 213 Cal.App.3d 231, 250, 261 Cal.Rptr. 520( Sokolow ).) Accordingly, we directed the trial court to consider whether it was possible to apportion fees for time spent on issues not attributable to the contract-based causes of action, and if not, to exercise its discretion to reduce the award to reflect plaintiffs' limited success.
F. The Second Attorney Fee Order
On remand, after making reductions not at issue here but before reducing the award to account for the fraud claims, the trial court found that Brunwasser had spent 2073.13 hours on the case. The court established a lodestar of $400 per hour for Brunwasser's services, basing this amount on his experience, market rates in the San Francisco Bay Area, the skill he demonstrated, the high quality of his legal services, and the successful outcome. The court found that “[v]irtually all of the litigation objectives were attained by prevailing in the contract and declaratory relief causes of action. Plaintiffs successfully defended and prevailed on defendants' cross-complaint for slander of title and to remove a cloud on title. Brunwasser's legal services resulted in a highly successful outcome for Plaintiffs.” The court concluded that 30 percent of plaintiffs' case was devoted to the unsuccessful fraud causes of action, and subtracted that proportion from the gross hours. The court calculated the lodestar amount of attorney fees as $580,476.40 for Brunwasser's services.
The court went on to consider whether to increase or decrease the lodestar for Brunwasser's services by the application of a multiplier or other adjustment. The court listed the factors it considered: “First, the difficulty and complexity of the case, or lack thereof, of the various issues in this case and the kind of work performed by counsel. Second, the results achieved and those not achieved. Third, the contingent nature of the fee award. Fourth, the time value with regard to the delay in receipt of fees. Fifth, the extent to which the magnitude of the case and time expended precluded counsel from earning income from other sources during the pendency and trial of this case. Sixth, the fact that the successful outcome for Plaintiff conferred a private rather than a public benefit. Seventh, the difficulty of the case and the degree of risk involved.” The court concluded that the lodestar amount did not adequately compensate Brunwasser for his work: “The attorney performed these legal services on a contingent fee basis for Plaintiffs of modest means who were otherwise unable to assert their legal rights to preserve their assets. Therefore the outcome of the litigation had significant social utility even though a private benefit was conferred rather than a public benefit. The litigation has spanned a period of almost ten years during which no compensation has been paid to the attorney. The attorney's involvement in this case has unquestionably precluded him from performing remunerative work during an extended period of time. The time value of money in relation to the delay in receiving compensation is a significant [f]actor in the Court's consideration of enhancement fees.... Most significant was the successful outcome of the litigation for Plaintiffs. The Court finds these factors highly persuasive in allowing a multiplier.” The court applied a multiplier of 1.5 to Brunwasser's fees for total compensation of $870,714.60.
As to Rivkin, the court reduced the initial award by 30 percent, for an award of $66,154, and applied no multiplier. The court also awarded fees on appeal of $174,210 to Brunwasser and $14,235 to Rivkin, fees for the preparation of the fee application on appeal of $17,360 to Brunwasser, and fees for the preparation of the fee application after remand of $52,920 to Brunwasser. Thus, the total award to Brunwasser was $1,115,204, and to Rivkin was $80,389. In its May 7, 2010 order, the trial court ordered interest on the award to begin running on the date of the judgment reflecting that fee order.
II. DISCUSSION
A.–C.
See footnote *, ante.
D. Cross–Appeal
In the second attorney fee order, entered on May 7, 2010, the trial court ordered interest to run from the date of the judgment reflecting that fee order. In their cross-appeal, plaintiffs contend interest should instead have run from November 21, 2005, the date of the original judgment on the merits in the case (the 2005 judgment), which provided: “There is now due and owing to plaintiffs Larisa Khazan and Boris Khazan from defendants Felix Braynin, Vera Braynin, Vladislav Chernoguz and Biana Chernoguz ... $____ as attorney's fees that may be determined upon motion by plaintiffs.”
The trial court explained its reasons for ordering interest to run from the date of the judgment reflecting the second attorney fee order as follows: “The Court of Appeal reversed the fee award and remanded the case to the trial court to reduce the amount attributable to the fraud claims. The Court of Appeal did not modify the fee order. Accordingly, the Court is awarding new fees in this order, therefore interest runs from the date of the new judgment reflecting this order.”
The trial court appears to have been relying on Stockton Theatres, Inc. v. Palermo (1961) 55 Cal.2d 439, 11 Cal.Rptr. 580, 360 P.2d 76( Stockton Theatres ). There, our Supreme Court considered when interest began to accrue on the cost of a bond on appeal. ( Id. at pp. 440–441, 11 Cal.Rptr. 580, 360 P.2d 76.) The court explained that in 1954, the trial court had disallowed the cost item, and on appeal, the order was reversed with instructions for the trial court to determine the necessity of the bond. After a hearing, the trial court in 1957 found the expenditure unnecessary and again disallowed the challenge item. On a subsequent appeal, the Supreme Court held the expenditure necessary as a matter of law and reversed, with directions to a trial court to allow the premiums on the bond as a cost on appeal. In 1959, the trial court entered such an order. ( Id. at pp. 440–444, 11 Cal.Rptr. 580, 360 P.2d 76.)
The parties then litigated the question of when interest should begin to accrue on the cost award. The high court applied the following principles: “A judgment bears interest from the date of its entry in the trial court, even though it is still subject to direct attack”; when a judgment is modified on appeal, the new sum draws interest from the date of the original order, not from the date of the new judgment; when, however, a judgment is reversed on appeal, the new award bears interest only from the date of the new judgment. ( Stockton Theatres, supra, 55 Cal.2d at pp. 442–443, 11 Cal.Rptr. 580, 360 P.2d 76.) The court also relied on the rule enunciated in Supera v. Moreland Sales Corp. (1938) 28 Cal.App.2d 517, 521, 82 P.2d 963, that “a judgment for costs of appeal is separate from and independent of the final judgment in the case.” The court in Stockton Theatres stated: “A judgment for costs should be governed by the law applicable to judgments generally. Such awards are, in fact, separate and complete judgments in themselves. ( Supera v. Moreland Sales Corp., [ supra ] 28 Cal.App.2d [at p.] 521 .) Costs on appeal are provided for in section 1034 of the Code of Civil Procedure, and are therein made enforceable by execution in the same manner as a final judgment.” ( Stockton Theatres, supra, 55 Cal.2d at p. 443, 11 Cal.Rptr. 580, 360 P.2d 76.) Applying these principles, the court rejected the argument that interest should run from the date of the 1954 order, pointing out that the court of appeal reversed rather than modified that order, and that until the trial court held the required hearing on the necessity of the bond, there could have been no award of costs for that item. ( Ibid.) The court also rejected, however, the contention that interest ran from the date of the 1959 trial court order allowing the cost in response to the Supreme Court's directive. Rather, the high court ruled, interest began to run from the date of the 1957 order denying the bond premium as a cost, because the Supreme Court's decision reversing the 1957 order was effectively a modification, holding that the plaintiff was entitled to the cost of the bond as a matter of law. ( Id. at pp. 443–444, 11 Cal.Rptr. 580, 360 P.2d 76.) The court stated, “Although the order in that case was couched in terms of a reversal with directions, it had the legal and practical effect of modifying the original award.” ( Id. at p. 444, 11 Cal.Rptr. 580, 360 P.2d 76.)
Following Stockton Theatres our Supreme Court in Snapp v. State Farm Fire & Cas. Co. (1964) 60 Cal.2d 816, 817–820, 36 Cal.Rptr. 612, 388 P.2d 884( Snapp ), held that where a trial court's judgment finding an insurer liable for only a portion of the policy limits was reversed on appeal with directions to enter judgment in the amount of the policy limits, interest on the amount of the resulting award should run from the date of the first award. As the court stated, “The legal effect of that reversal was to determine that as of the date of the original judgment plaintiffs were entitled to $25,000. Thus the original judgment was increased from $8,168.25 to $25,000, based solely on the record then before the appellate court. No issues remained to be determined. No further evidence was necessary. Thus the so-called ‘reversal’ with directions, was, in fact and in law, a ‘modification.’ ” ( Id. at p. 820, 36 Cal.Rptr. 612, 388 P.2d 884.)
Under Stockton Theatres and Snapp the question of when interest begins depends on substance, not formalism, and a reversal that effectively acts as a modification will be treated as such. So, for example, in Munoz v. City of Union City (2009) 173 Cal.App.4th 199, 207, 92 Cal.Rptr.3d 527( Munoz ), the court concluded that a modification, rather than a reversal, had taken place where the original judgment had allocated fault among a victim, a police officer, and a city; the appellate court had concluded that a portion of the fault allocated to the city was not legally sustainable; and, in a second appeal, the court reversed the judgment and directed the trial court to enter a new judgment allocating fault between the remaining parties based on the jury's original allocation. ( Id. at pp. 202–203, 207, 92 Cal.Rptr.3d 527.) The court noted, “Unlike the situation in Stockton ... here there was no factual determination to be made, no prerequisite to be satisfied before liability could be allocated properly.” ( Munoz, supra, 173 Cal.App.4th at p. 206, 92 Cal.Rptr.3d 527; see also Ehret v. Congoleum Corp. (2001) 87 Cal.App.4th 202, 204, 210, 104 Cal.Rptr.2d 370( Ehret ) [appellate decision reinstating original jury verdict after judgment notwithstanding verdict and calculating offsets based on original jury verdict treated as modification rather than reversal].)
[1] Defendants argue the trial court properly applied the rule of Stockton Theatres and Snapp to award interest only from the date of the judgment reflecting the May 7, 2010 (second) attorney fee order. They point out that after we reversed the original attorney fee order, on remand the parties provided additional briefing, evidence, and argument, and the trial court made further determinations of law and fact before entering the new award. Thus, defendants contend, this question is governed by the rule that where a judgment is reversed, rather than modified, and the matter returns to the trial court for further factual determinations, interest begins to run on the award at the time of the order after remand.
[2] Plaintiffs assert Stockton Theatres does not govern this question, based upon a two-part argument. First, they contend that the statutes governing interest on costs provide that interest runs from the date of entry of the judgment allowing attorney's fees, and not from the date of the later order setting the amount of attorney'sfees. Second, they characterize Khazan I and II respectively, as an affirmance of the judgment awarding the right to attorney fees and a reversal of only the postjudgment order setting the amount of fees, and, accordingly, they argue, the question of whether Khazan II was a “reversal” or a “modification” does not even come into play. Upon these constructs plaintiffs conclude that interest accrues on the attorney's fee award from the date of entry of the original judgment as a matter of law, irrespective of any subsequent reversal and readjudication of the attorney fee amount.
Plaintiffs also contend, without any discussion or analysis, that the trial court's post-remand fee order was not a “new” fee award, but merely a “determin[ation] [of] what part of the originally-awarded fees—the portion attributable to litigation over the contract claims—plaintiffs' attorneys would ultimately be awarded.” This could be understood as an argument that Khazan II was a modification and not a reversal, but because the assertion is made without any citations or argument, we will not consider it. ( Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784–785, 79 Cal.Rptr.2d 273.)
We disagree with both parts of plaintiffs' argument.
1. Accrual Date of Interest on Attorney's Fees Incurred Prior to Judgment
Plaintiffs' foundational contention is that accrual of interest on attorney fees from entry of judgment is “decreed by statute,” relying on the following statutory collage: “Code of Civil Procedure section 685.020 [, subdivision] (a) provides ... that ‘interest commences to accrue on a money judgment on the date of entry of the judgment.’ In particular, ‘ [i]nterest accrues at the rate of 10 percent per annum on the principal amount of a money judgment remaining unsatisfied.’ (Code Civ. Proc. § 685.010, subd. (a).) [¶].... The phrase ‘principal amount of the judgment’ is a defined term in the Code....[I]t includes attorneys' fees, even if the amount of attorneys' fees is determined sometime after the judgment is entered. Specifically, ‘ “[p]rincipal amount of the judgment” means the total amount of the judgment as entered ... together with the costs thereafter added to the judgment.’ (Code Civ. Proc.[,] § 680.300.) And, the ‘costs thereafter added to the judgment’ include ‘[a]ttorney's fees, when authorized by [c]ontract.’ (Code Civ. Proc.[,] § 1033.5[, subd.] (a)(10)(A).)”
Plaintiffs contend that, taken together, these statutes require that interest on attorneys fees awarded as costs after judgment is entered runs from the date of entry of the original judgment.
All further code references are to the Code of Civil Procedure unless otherwise specified.
[3] Plaintiffs' reliance on section 680.300, however, is misplaced and misleading. This statute is plaintiff's logical link that purports to prove that, by law, the “principal amount of the judgment” (on which interest accrues at 10 percent per annum from the date of entry of judgment) is comprised of the judgment as entered “together with the costs thereafter added to the judgment,” which include attorney's fees awarded pursuant to contract. But in quoting the statute, plaintiffs carefully excised a critical phrase. Section 680.300 actually provides: “ ‘Principal amount of the judgment’ means the total amount of the judgment as entered ..., together with the costs thereafter added to the judgment pursuant to Section 685.090.... ” But costs pursuant to section 685.090 pertain to postjudgment costs incurred in enforcing the judgment. (§ 685.090, subd. (a) [“costs are added to and become a part of the judgment: [¶] (1) [u]pon the filing of an order allowing the costs pursuant to this chapter ”] [Italics added]; §§ 685.010 through 685.110 comprise Chapter 5 and include § 685.040 authorizing the costs and fees which a judgment creditor may claim to enforce the judgment.) The cited statutes, therefore, cannot be read as a group to compel a conclusion that interest begins to accrue from the date of the original judgment on the amount of attorney's fees later incorporated into the judgment.
Plaintiffs secondarily rely on Lucky United Properties Investment, Inc. v. Lee (2010) 185 Cal.App.4th 125, 110 Cal.Rptr.3d 159( Lucky ) for the proposition that interest on attorney's fees as costs runs from the date of the original judgment. In Lucky the question posited was whether a judgment had been fully satisfied. ( Id. at p. 130, 110 Cal.Rptr.3d 159.) In the course of its discussion, however, the court reviewed the rules regarding costs, attorney fees, and interest. It stated, “As a general rule, the prevailing party may recover certain statutory costs incurred in the litigation up to and including entry of judgment. (§§ 1032, 1033.5.) These costs may include attorney fees, if authorized by contract, statute ... or law. (§ 1033.5, subd. (a)(10).) ... Where costs are established by the judgment, but the amount of the award is ascertained at a later time, the court clerk enters the costs on the judgment after the amount is determined. (Cal. Rules of Court, rule 3.1700(b)(4); Bankes v. Lucas (1992) 9 Cal.App.4th 365, 369 ( Bankes ).) In other words, the amount of the cost award is incorporated into the judgment. [¶] Interest at the rate of 10 percent per annum accrues on the unpaid principal amount of the judgment (§ 685.010), including the amount of the cost award and attorney fees award (§ 680.300), as of the date of judgment entry (§ 685.020, subd. (a)). Therefore, interest ordinarily begins to accrue on the prejudgment cost and attorney fees portion of the judgment as of the same time it begins to accrue on all other monetary portions of the judgment—upon entry of judgment. [Citation.]” ( Lucky, supra, 185 Cal.App.4th at pp. 137–138, 110 Cal.Rptr.3d 159, italics added.)
Plaintiffs also draw our attention to City of Oakland v. Oakland Raiders (1988) 203 Cal.App.3d 78, 249 Cal.Rptr. 606( Oakland Raiders ). There, the trial court rendered judgment for the Oakland Raiders in 1984, and the Raiders filed a costs memorandum that included statutory attorney fees in 1986. ( Id. at p. 81, 249 Cal.Rptr. 606.) The trial court awarded interest on the fee award from the date of the 1984 judgment. ( Id. at p. 83, 249 Cal.Rptr. 606.) However, the propriety of that action was not at issue on appeal.
We must respectfully disagree with the Lucky court's reasoning on this point. First, the court's statement in Lucky—that interest begins to accrue on the prejudgment cost and attorney fees award from entry of judgment—was not the basis for the court's determination of any disputed issue. Therefore, it is of no precedential value. ( Childers v. Childers (1946) 74 Cal.App.2d 56, 61, 168 P.2d 218 [“a decision is not authority for what is said in the opinion but only for the points actually involved and actually decided”].)
Second, as we have noted, sections 685.010 et seq. refer to costs incurred to enforce the judgment, not prejudgment costs and fees. But even if they did refer to prejudgment costs, the language provides that “[c]osts are added to and become a part of the judgment: ... [¶] (1) [u]pon the filing of an order allowing the costs.” (§ 685.090, subd. (a)(1).) These words do not compel the conclusion that interest is calculated from the date of the original judgment; rather, it may reasonably be read to mean that the date on which the costs become part of the judgmentfor purposes of an interest calculation—that is, the date on which the costs “become a part of the judgment”—is the date of “the filing of an order allowing the costs.” (§ 685.090, subd. (a)(1).)
Third, the court in Lucky cited Sternwest for the proposition that interest “ordinarily begins to accrue on the prejudgment cost and attorney fees portion of the judgment as of the same time it begins to accrue on all other monetary portions of the judgment—upon entry of judgment.” ( Lucky, supra, 185 Cal.App.4th at p. 138, 110 Cal.Rptr.3d 159, citing Sternwest Corp. v. Ash (1986) 183 Cal.App.3d 74, 76–77, 227 Cal.Rptr. 804.)Sternwest does not appear to us to stand for this principle. The defendant in Sternwest was found not liable to the plaintiff, dismissed from the action, and found entitled to attorney fees under Civil Code section 1717. A hearing then took place to set the amount of the fees. ( Sternwest, supra, 183 Cal.App.3d at p. 75, 227 Cal.Rptr. 804.) The trial court denied interest on the resulting fee award, concluding that interest could not feasibly be calculated since the fees had been incurred over a period of several years. ( Sternwest, supra, 183 Cal.App.3d at p. 76, 227 Cal.Rptr. 804.) The Court of Appeal reversed on this issue, ruling that interest should be awarded for “the period from the filing of the appellant's claim for attorney's fees and the date of computation of the award,” because “ [a] litigant can scarcely be expected to pay Civil Code 1717 fees until an appropriate demand is made on him.” ( Ibid.) The court went on to rule that interest should be awarded to the plaintiff in addition to the lodestar fees, and “[t]hat total figure should be added to appellant's normal costs of appeal and other items normally included in a judgment.” ( Id. at p. 77, 227 Cal.Rptr. 804.) Thus, Sternwest does not hold not that interest should run from the date of the judgment establishing a right to as yet uncalculated attorney fees, but that it should run from the time of the claim for attorney fees made after the defendant had been dismissed from the case, and presumably made after the judgment had been entered in his favor.
None of the parties contend interest here should have been calculated from the date a claim for attorney fees was filed, and we are aware of no statutory authority for such a rule.
We recognize that a number of federal cases conclude that, under federal law,
interest on an attorney fee award runs from the date the party becomes unconditionally entitled to fees, even if the amount of those fees is not quantified until a later hearing. (See, e.g., Copper Liquor, Inc. v. Adolph Coors Co. (5th Cir.1983) 701 F.2d 542, 543–545, overruled on other grounds in J.T. Gibbons, Inc. v. Crawford Fitting Co. (5th Cir.1986) 790 F.2d 1193, 1195;Associated Gen. Contrs. of Ohio, Inc. v. Drabik (6th Cir.2001) 250 F.3d 482, 495( Associated Gen. Contrs.);Jenkins v. State of Missouri (8th Cir.1991) 931 F.2d 1273, 1275–1277, cert. den. (1991) 502 U.S. 925, 112 S.Ct. 338, 116 L.Ed.2d 278( Jenkins );Mathis v. Spears (Fed.Cir.1988) 857 F.2d 749, 760; see also Friend v. Kolodzieczak (9th Cir.1995) 72 F.3d 1386, 1388, 1391–1392;BankAtlantic v. Blythe Eastman Paine Webber, Inc. (11th Cir.1994) 12 F.3d 1045, 1048, 1052–1053.) This view, however, is not universally accepted; other federal courts have concluded that interest begins to run when the amount of the fees is ascertained and included in the judgment. (See, e.g., Eaves v. County of Cape May (3d Cir.2001) 239 F.3d 527, 542;MidAmerica Federal Sav. & Loan Ass'n v. Shearson/American Express, Inc. (10th Cir.1992) 962 F.2d 1470, 1475–1476.)
The cases construe 28 U.S.C. section 1961, subdivision (a), which provides in pertinent part: “Interest shall be allowed on any money judgment in a civil case recovered in a district court.... Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1–year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment....”
An important difference between the California and federal schemes for postjudgment interest is the amount of that interest. In California, postjudgment interest accrues at the rate of 10 percent per year. (§ 685.010, subd. (a).) Under federal law, on the other hand, interest accrues at the rate of a one-year Treasury bill. (28 U.S.C. § 1961, subd. (a).) Thus, the federal rate of postjudgment interest, by its very nature, is achievable by an ordinary investor. The California rate, however, although apparently originally intended to approximate the market rate of interest in 1982—the year the rate was set
—now bears no relation to the amount an investor may reasonably expect to receive from investments during the period between entry of judgment and a ruling on an application for attorney fees.
See Recommendation Relating to Interest Rate on Judgments (Jan. 1980) 15 Cal. Law Revision Com. Rep. (1980) pp. 7, 9, 11–14, 16–17; Tentative Recommendation Proposing the Enforcement of Judgments Law (Oct. 1980) 15 Cal. Law Revision Com. Rep. (2001) p. 2003; Recommendation on 1982 Creditor's Remedies Legislation (Sept. 1982) 16 Cal. Law Revision Com. Rep. (1982) p. 1003; Outline of Enforcement of Judgments Law (Sept. 1982) 16 Cal. Law Revision Com. Rep. (1982) p. 1229; Annual Report (Dec. 1982) 16 Cal. Law Revision Com. Rep. (1982) pp. 2001, 2025; Assem. Com. on Judiciary, Analysis of Assem. Bill No. 707 (1981–1982 Reg. Sess.), as amended Jan. 14, 1982, p. 11; Governor's Off. of Legal Affairs, Enrolled Bill Rep. on Sen. Bill No. 203 (1981–1982 Reg. Sess.), April 5, 1982, pp. 1–2; Assem. Com. on Judiciary, Analysis of Sen. Bill 203 (1981–1982 Reg. Sess.) as amended Aug. 18, 1981, p. 2; Assem. Off. of Research, 3d reading corrected analysis of Sen. Bill No. 203 (1981–1982 Reg. Sess.) as amended Sept. 4, 1981, p. 1; see also Ehret, supra, 87 Cal.App.4th at p. 206, 104 Cal.Rptr.2d 370. The 10 percent interest rate was initially set when section 685.010 was added in 1982 (Stats.1982, ch. 150, § 3, p. 495), and continued when the Legislature adopted the Enforcement of Judgments Law, section 680.010 et seq., later that year (Stats.1982, ch. 1364, § 2, p. 5070; see also Legis. Com. com., 16B West's Ann.Code Civ. Proc., foll. § 685.010, p. 197). By this change, the Legislature increased the postjudgment rate of interest from 7 percent to 10 percent, as authorized by the California Constitution. (Cal. Const., Art. 15, § 1; see Recommendation Relating to Interest Rate on Judgments, supra 15 Cal. Law Revision Com. Rep., p. 11.)
Thus, unlike the federal rate, the California rate has the potential to give prevailing parties a windfall at the expense of the losing parties. (Compare Jenkins, supra, 931 F.2d at p. 1277 [fee-paying party suffers no prejudice from delay in quantifying award because it has use of the money and interest rate is tied to Treasury bill rate]; Associated Gen. Contrs., supra, 250 F.3d at p. 485 [no windfall in award of interest on attorney fees because interest rate is set at Treasury bill rate].)
A notice of motion to claim prejudgment attorney fees must be filed within the time for filing a notice of appeal—a time that can be as long as six months after entry of judgment. (Cal. Rules of Court, rules 3.1702(b), 8.104(a)(3) & 8.108(b)(1)(C).)
[4] Moreover, it has long been an equitable principle in California that “a person who does not know what sum is owed cannot be in default for failure to pay.” Under this rubric, interest is traditionally denied on unliquidated claims. ( Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 906, 197 Cal.Rptr. 348( Chesapeake Industries ), citing Cox v. McLaughlin (1888) 76 Cal. 60, 67, 18 P. 100.) For purposes of the calculation of prejudgment interest, this principle is embodied in Civil Code section 3287, subdivision (a), which provides that a person “who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day....” (See Chesapeake Industries, supra, 149 Cal.App.3d at p. 906, 197 Cal.Rptr. 348.) Although the interest in question here is postjudgment and therefore not governed by Civil Code section 3287, the same principle should apply.
[5][6][7] We also note that one of the factors the trial court here considered in setting the multiplier was the fact that the litigation had “spanned a period of almost ten years during which no compensation ha[d] been paid to the attorney.” The time value of money during that time was “a significant [f]actor” in the court's determination of the fee enhancement. This is consistent with our Supreme Court's statement that a delay in payment of attorney fees was properly considered in enhancing a fee award. ( Ketchum v. Moses (2001) 24 Cal.4th 1122, 1138, 104 Cal.Rptr.2d 377, 17 P.3d 735.) As we have stated, our high court described an enhancement for delay in payment as “tantamount to an interest rate.” ( Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 584, 21 Cal.Rptr.3d 331, 101 P.3d 140.) Thus, there is no reason to conclude prevailing parties entitled to fees would be harmed by a rule under which interest begins to accrue when a fee award is quantified. Based upon all of the above considerations, we conclude the better rule is that interest begins to run upon entry of the order setting the amount of fees awarded.
2. Was Khazan II a Reversal or a Modification?
Lucky also relied on California Rule of Court, rule 3.1700(b)(4) and Bankes, supra, 9 Cal.App.4th 365, 11 Cal.Rptr.2d 723 to support the statement that “the amount of the cost award is incorporated into the judgment” and presumably, its conclusion that interest commences on the later-added attorney fees portion of the judgment “upon entry of judgment.” ( Lucky, supra, 185 Cal.App.4th at pp. 137–138, 110 Cal.Rptr.3d 159.) Unquestionably, the amount of the cost and fees awards become part of the judgment when entered thereon; the question, however, is when interest on those awards begins to run. In Bankes, the court stated that “[w]hen the court's subsequent order setting the final amount [of costs and fees] is filed, the clerk enters the amounts on the judgment nunc pro tunc.” ( Id. at p. 369, 11 Cal.Rptr.2d 723.)Bankes, in turn, refers to Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 996–997, 3 Cal.Rptr.2d 654, which also stated that such an order is entered on the judgment nunc pro tunc, citing California Rules of Court, rule 870(b)(4), the predecessor to rule 3.1700(b)(4). (This statement is repeated in Nazemi v. Tseng (1992) 5 Cal.App.4th 1633, 1637, 7 Cal.Rptr.2d 762, and in 7 Witkin, Cal. Procedure, Judgment, § 147, pp. 680–681.) Rule 3.1700(b)(4), however, does not provide that the order is entered nunc pro tunc; it states only that “[a]fter the time has passed for a motion to strike or tax costs or for determination of that motion, the clerk must immediately enter the costs on the judgment.” (Cal. Rules of Court, rule 870(b)(4) provided “... the clerk must enter the costs on the judgment forthwith.”) Additionally, in our view, the incorporation of the later-determined amount of an attorney's fees award nunc pro tunc would be an improper use of that unusual power. As our high court has explained, its use is justified only for “the preservation of the legitimate fruits of the litigation which would otherwise be lost to the prevailing party or the correction of a deficiency in the recordation of a previous decision....” ( Mather v. Mather (1943) 22 Cal.2d 713, 719, 140 P.2d 808; see also Hamilton v. Laine (1997) 57 Cal.App.4th 885, 891, 67 Cal.Rptr.2d 407 [“[It] is not proper to amend an order nunc pro tunc to ... show what the court might or should have done as distinguished from what it actually did. An order made nunc pro tunc should correct clerical error by placing on the record what was actually decided by the court but was incorrectly recorded”]; Gouskos v. Aptos Village Garage, Inc. (2001) 94 Cal.App.4th 754, 764, n. 5, 114 Cal.Rptr.2d 558 [“ ‘The court can only make the record show that something was actually done at a previous time; a nunc pro tunc order cannot declare that something was done that was not done.’ [Citation.]”] )
The question remains whether interest should run from the date of the initial fee award, which we reversed, or the second award, which is under consideration here. Pursuant to Stockton Theatres and its progeny, resolution of this issue depends upon whether our decision in Khazan II was a reversal or a modification.
Plaintiffs argue that Stockton Theatres does not apply at all because there, the court reversed a post-appeal order allowing costs for postjudgment litigation, viz., the bond premium as a cost on appeal, which is a separate judgment, i.e., “it is an award for a liability that arose entirely after the original judgment was entered.” Here, plaintiffs argue, “there was no ‘reversed judgment’ and no ‘new judgment.’ Instead, the original judgment (which by statute included the later-determined attorneys' fees) was affirmed, not reversed, and therefore the interest on the judgment (including the attorneys' fees) continues to run from the date of its entry.” The appeal and reversal were from the “fee order” and not from the judgment, and therefore, plaintiffs conclude, the first fee order was replaced by the second fee order, entered on remand, “[b]ut the judgment, which set the interest running on the attorneys' fees, was never changed or disturbed ... [but was] affirmed in full.”
This argument suffers from several flaws. First, as we have already determined, interest on attorney's fees runs from the date of the order awarding the amount of fees, not from the date of the judgment allowing fees. Second, plaintiffs' contention that the later-determined amount of attorney's fees was a part of the “original judgment” for purposes of the accrual of interest, but was only a postjudgment “order” for purposes of the Stockton Theatres analysis is inherently inconsistent. Plaintiffs cannot have it both ways. Third, plaintiffs distinguish Stockton Theatres based upon the fact that the cost award at issue was a postjudgment award, yet plaintiffs ignore the fact that the reversals in subsequent cases, which followed the Stockton Theatres rule, pertained to original judgments, and not to postjudgment costs. (See, e.g., Snapp, supra, 60 Cal.2d at pp. 817–820, 36 Cal.Rptr. 612, 388 P.2d 884 [modification of amount of damages awarded in original judgment]; Munoz, supra, 173 Cal.App.4th at p. 207, 92 Cal.Rptr.3d 527 [reversal of allocation of liability in original judgment].) In any event, plaintiffs do not explain why the reversal of a prejudgment cost award requires a different analysis than the reversal of a postjudgment cost award. We must therefore analyze the reversal of the initial fee order pursuant to the criteria set forth in Stockton Theatres.
After the appeal of the initial fee order, the trial court could not simply modify the award based on our directions, but instead was required to review the evidence and exercise its discretion anew to set the fee award. As evidence that Khazan II was a reversal, the record shows that in support of their motion for attorney fees after remand, both parties submitted hundreds of pages of evidence, including detailed time records, analysis of the time spent at trial on contract and non-contract issues, extensive excerpts from the reporter's transcript of the trial proceedings, and pleadings from the litigation. In their briefing in support of and in opposition to the motion, the parties argued about whether apportionment was possible and how the trial court might adjust the fee award to account for plaintiffs' partial success. In its order setting the fees after remand, the trial court indicated that it had conducted a “detailed review of the litigation,” including “pre-trial litigation, pre[-]trial interviewing of witnesses, trial preparation and post-trial work,” before deciding to use a percentage allocation for the fraud component of the action. The trial court could not have responded to our directions in Khazan II without such a review and exercise of discretion, and we agree with the trial court that we reversed, rather than modified, the initial order setting fees.
In the circumstances, we conclude our decision in Khazan II was in effect, as well as in name, a reversal, and that the trial court correctly ordered interest to run from the time of the fee award it made on remand.
III. DISPOSITION
The order appealed from is affirmed. The parties shall bear their own costs on appeal.