Opinion
B164669.
10-24-2003
KROSSCENT TRUST III, Plaintiff and Appellant, v. EMC MORTGAGE CORPORATION, Defendant and Respondent.
Harry L. Haubert and Lowell Robert Fuselier for Plaintiff and Appellant. Moss Pite & Duncan and Peter J. Salmon for Defendant and Respondent.
The question in this case is whether the trial court abused its discretion in an attorney fee award. The prevailing party, Krosscent Trust III, requested an award of over $86,000, but the court awarded $7,000, principally because only a small amount of money was at issue in the litigation. The amount of fees Krosscent requested exceeded a reasonable fee for the issues on which it prevailed. Nonetheless, the record also shows a $7,000 award was inadequate. The trial court abused its discretion when it considered only the amount of money at issue, and failed to take into account any other factors bearing on the exercise of its discretion in determining a reasonable fee. The matter must therefore be remanded for a new hearing to determine the reasonable amount of attorney fees to which Krosscent is entitled.
FACTUAL AND PROCEDURAL BACKGROUND
Krosscent Trust III is a family trust that held a second loan and trust deed on a house in Long Beach owned by unrelated parties. When the owners defaulted on both their first and second loans in early 1997, Krosscent cured the default on the first loan and foreclosed on its second trust deed, acquiring the property in August 1997. Norwest Mortgage, Inc., held the first trust deed and note, which it sold to EMC Mortgage Corporation about a year later.
After curing the default in September 1997, Krosscent began making monthly payments, through an independent escrow service, of $1,370.48. This amount was apparently the same as payments made on the note before the foreclosure. In February 1998, Krosscent began to make requests for an explanation of the monthly amount due, statements showing how funds it paid in 1997 were applied, and a copy of the original note. In October 1998, Krosscent finally obtained a copy of the original note, and discovered the note called for payments of $1,301.72—principal and interest only. In November 1998, Krosscent reduced its monthly payments to that amount. At about the same time, Norwest sold the note and trust deed to EMC. EMC insisted that monthly payments of $92.36 were also due for private mortgage insurance (PMI), which the lender had required of the original borrowers. Krosscent disagreed and demanded documentation of the PMI and an accounting. Other disputes arose over payment of taxes and insurance; both Krosscent and EMC made various payments, some of them duplicative. The dispute continued, with EMC and Krosscent unable to agree on amounts due. In October 1999, Krosscent increased its monthly payments to $1,394.08—principal, interest and the $ 92.36 PMI charge—but continued to dispute the charge and the amounts EMC claimed were due.
The trust deed required the borrower to pay the lender for certain "Escrow Items" such as taxes and various insurances.
On November 16, 2000, EMC initiated foreclosure proceedings on the property. On November 27, 2000, Krosscent filed this lawsuit, asserting thirteen different causes of action against four defendants, including EMC. These included a cause of action for rescission under the Federal Truth in Lending Act, in which Krosscent asserted the original lender did not give the original borrower certain notices, and Krosscent was entitled to rescind the note. On December 15, 2000, Krosscent sought a preliminary injunction enjoining EMC, Norwest and others from foreclosing against the property. EMC demurred to the complaint. On February 20, 2001, the court sustained EMCs demurrer, without leave to amend, to the two Truth in Lending Act and four other causes of action; EMCs demurrer to seven other causes of action was sustained with leave to amend. A week later, the trial court granted Krosscents motion for a preliminary injunction, conditioned on posting of a $ 7,000 bond. Krosscent then filed an amended complaint alleging eighteen causes of action. EMC demurred. The court sustained the demurrer without leave to amend as to fifteen causes of action, and struck another cause of action on its own motion, leaving only Krosscents claims for declaratory relief and an accounting.
In a statement dated October 16, 2000, EMC claimed an amount due of $8,733.27, as of June 1, 2000. EMCs November 2000 notice of default asserted $8,785.00 was owed.
The other named defendants were Norwest, the previous holder of the note and trust deed; Cal-Western Reconveyance Corporation, EMCs agent in the foreclosure proceedings; and PLM Lender Services, Inc., also a provider of professional foreclosure services to lenders. EMC is the only party to this appeal.
EMC answered the amended complaint on June 26, 2001, and filed a motion for summary judgment on November 16, 2001. EMC asserted, among other things, that Krosscent could not establish its lawful ownership of the property, because Krosscent had initiated the foreclosure of its junior lien one day after the original owners had filed for bankruptcy, violating the automatic stay and voiding the foreclosure proceeding. On January 22, 2002, Krosscent filed a motion for summary adjudication of issues.
On February 1, 2002, Krosscent offered to pay EMC $4,390.89 in return for rescission of the notice of default. This amount included disputed PMI amounts and an amount for taxes and insurance. At some point in April 2002, before the August trial, Krosscent and EMC stipulated to Krosscents payment of $4,390.98 to EMC to cure the default, subject to resolution of the amount due, if any, for PMI.
Meanwhile, on March 5, 2002, the court denied EMCs motion for summary judgment, finding triable issues of fact as to the relevance of certain documents and the amounts due EMC. Krosscents motion for summary adjudication was denied for failure to give timely notice. A motion to compel production of documents filed by Krosscent was also denied as untimely, and Krosscent then filed a second motion to compel. On April 25, 2002, the court denied Krosscents motion for summary adjudication of issues, finding issues of fact for trial, and denied Krosscents second motion to compel as again untimely.
The matter was tried on August 26 and 27, 2002. The court found Krosscent was not legally obligated to make any payments toward PMI after it acquired the property in August 1997, and was entitled to a refund from EMC of payments totaling $ 2,493.00, plus interest of 10 percent from November 1, 2000. The court also found Krosscent was the prevailing party and awarded it costs, to be governed by Code of Civil Procedure sections 998 and 1032 at a future hearing.
Krosscent then filed a motion for attorney fees and costs totaling $95,779.94, including $86,952.00 in attorney fees and $ 6,241.50 in expert witness fees. The motion was accompanied by an affidavit from Kennett Slater, Krosscents trustee, invoices from three attorneys, and invoices for expert witness fees.
EMC argued the attorney fees sought were disproportionate to the judgment, and the court should deny or significantly reduce fees and costs. It contended, inter alia, that Krosscent did not qualify as prevailing party on most of the causes of action in its two complaints; Krosscent did not obtain a judgment in excess of its offer to compromise under Code of Civil Procedure section 998; and the attorney fees and costs sought were unreasonable. Fees were asserted to be unreasonable because they included multiple attorneys billing for the same work, time for improper discovery motions, and time for causes of action on which EMC prevailed. EMCs specific objections were these:
&bulsml; Krosscent incurred over 90 hours of attorney time prior to the courts ruling on EMCs demurrer to the first amended complaint, and did not distinguish fees incurred for the 29 causes of action on which EMC prevailed on its demurrers.
&bulsml; Billing entries for primary attorney Harry Haubert contained questionable or duplicative charges, totaling 92.9 hours.
This included time Haubert spent at trial as a witness rather than as counsel for Krosscent. EMC also objected to another 16.9 hours Haubert recorded on December 6, 2000 and on January 20, February 27, and May 25, 2001; however, these were already included in the 90 hours of time recorded prior to the courts ruling on EMCs demurrer.
&bulsml; Attorney Robert Fuselier was hired to conduct the trial in the case, as Haubert was to testify as a witness. Fuseliers invoice totaled $14,475 (57.9 hours at $250 per hour). EMC objected to time spent reviewing documents already included in time sought by Haubert, and to a total billing of 24.7 hours in a single day. EMC contended the latter was impossible, and in any event reflected a "lumping" of time so that reasonableness could not be determined.
&bulsml; Attorney Douglas Haubert billed $5,355 (30.6 hours at $ 175 per hour). Douglas Haubert was brought in on August 24, 2002, two days before the trial began to represent Krosscent on August 27, since Fuselier was not available on that date. EMC objected to time spent reviewing documents already reviewed by Harry Haubert.
&bulsml; Time spent by the three attorneys (a total of 3.9 hours) preparing the memorandum of costs was unreasonable.
Giving EMC the benefit of every doubt, its specific objections apply to $44,536.50 of the $86,952.00 in attorney fees sought by Krosscent.
The 90 hours of attorney time expended up to and through the trial courts ruling on EMCs second demurrer (Harry Hauberts time, billed at $180 an hour) totaled $16,200. Hauberts 92.9 hours of questionable or duplicative billing entries amounted to $16,722. EMCs objections to Fuseliers time added up to a maximum of 39.7 hours, or $9,925.00. Objections to Douglas Hauberts time totaled 5.5 hours or $962.50. Time spent, at least in part, on the memorandum of costs totaled $727.00.
EMC also objected to several cost items. Principal among them were expert witness fees in the amount of $5,791.50 for Ronald Perrot, which Krosscent sought under Code of Civil Procedure section 998. On November 2, 2001, Krosscent had made a section 998 offer to settle which EMC refused. The offer consisted of a net payment from Krosscent to EMC of $1,751.81, rescission of EMCs notice of default, and Krosscents continued payment of $1,301.72—principal and interest only—until payoff of the note.
At the hearing on Krosscents motion for costs and attorney fees and EMCs motion to tax costs, the trial court made the following observations:
&bulsml; "[A]t no time were the monies in issue ... in excess to [ sic] 10 to $12,000. [¶] Given that, justifying an attorney fee award in the amount requested or anything near it just does not seem to be in order. [¶] I also note that there were unsuccessful summary judgment motions, unsuccessful motions which Krosscent asked for witness fees. The only witness who testified at trial was Mr. Haubert. He is not one of those for whom witness fees were set."
&bulsml; "The thing that concerned me from the beginning, and theres been no question about it I think from the very first hearing, the question was always the legitimacy of the PMI issue. [¶] I think that that has some value, but I certainly cannot attribute $86,000 to that single issue."
&bulsml; "Let me get to the very point that you are addressing, that is all of these other matters [EMCs notice of default and the accounting issues] were resolved without the need for trial, and there was no reservation of rights as to attorneys fees, or costs, or anything else in any resolution that you made, at least nothing that was communicated to the court. [¶] The question is, should the court even be concerned with the manner in which those resolutions took place or attorneys fees with respect to those other issues which were resolved outside the court environment."
&bulsml; "The court finds that the reasonable value of attorneys fees for the enforcement of the PMI issue is $7,000."
The court allowed costs of $2,133.17, striking costs of $6,694.77. The principal cost disallowed was the charge for expert witness fees in the amount of $6,241.50; the court concluded Krosscent was not entitled to expert witness fees under Code of Civil Procedure section 998.
The courts order was entered on December 30, 2002, and this appeal followed.
DISCUSSION
A. Attorney fees.
A considerable amount of time and effort was expended over a five-year period to resolve an argument over PMI, tax and insurance payments amounting to only a few thousand dollars. From the outset, Krosscent took positions and made claims that may be characterized as unfounded, such as its claim it was entitled to rescind the loan under federal law. It asserted more than 20 other causes of action found to have no merit. Krosscent also filed a number of untimely and unsuccessful motions. We therefore agree with the courts understandable conclusion that an attorney fee award of $86,000, or "anything near it," was not in order. We also are well aware that the trial court has wide discretion to fix the value of attorney fees, and its award should not be disturbed unless the appellate court is convinced that it is clearly wrong. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095.)
This includes almost three years—1998, 1999 and most of 2000—prior to the initiation of litigation, for which no attorney fees were sought.
Nonetheless, we conclude the trial court was erroneous in awarding only $7,000 in attorney fees for "enforcement of the PMI issue." The articulated bases for the $7,000 award were the small amount of money at issue, and the filing of "unsuccessful summary judgment motions." However, while the amount involved in a case is a factor to be considered, it is by no means the only factor. "All elements should be considered in fixing the value of the attorneys services." (Matthiesen v. Smith (1936) 16 Cal.App.2d 479, 483; see Dorman v. DWLC Corp. (1995) 35 Cal.App.4th 1808, 1816 ["the record does suggest that the court did not give adequate consideration to all of the factors bearing on its exercise of discretion in deciding whether to allow costs and fees"].) Moreover, the fact that only a small amount is at issue in a case may not be used to deny a party reasonable attorney fees. (Deane Gardenhome Assn. v. Denktas (1993) 13 Cal.App.4th 1394, 1399 [denying the prevailing homeowners attorney fees where the homeowners gain was minute compared to litigation costs would be "tantamount to holding homeowners must always yield to the demands of their homeowners association"].)
While not precisely on point, the case of Deane Gardenhome Assn. v. Denktas, supra, 13 Cal.App.4th 1394, is instructive. In Deane the trial court refused to award any attorney fees to homeowners who prevailed in a lawsuit brought by a homeowners association after the homeowners allegedly painted their house in violation of the associations covenants (CC&Rs). The trial court thought the homeowners behaved unpleasantly and the dispute could have been resolved in small claims court if the homeowners had repainted the house and sued for damages. (13 Cal.App.4th at p. 1398.) However, as the court of appeal pointed out:
"Often the economic value of what the homeowner gains is minute compared to the litigation costs. However, holding the homeowner cannot recover reasonable attorney fees ... in effect renders the attorney fees provision of the CC&Rs unilateral .... Furthermore, such a holding would be tantamount to holding homeowners must always yield to the demands of their homeowners association and then pursue their damage remedy rather than forcing the association to prove a violation of the CC&Rs." (13 Cal.App.4th at p.1399.)
The trial courts comments also suggest that attorney fees need not be awarded for services relating to EMCs notice of default and the accounting issues, since these issues were resolved without the need for trial. If this factored into the courts rationale for the amount of the attorney fee award, we respectfully disagree. Krosscent sued to enforce its rights under the note and to prevent EMC from foreclosing, and the record is replete with Krosscents repeated insistence on an accounting. A satisfactory accounting was not forthcoming until April 2002, when the parties finally agreed on all amounts due except the PMI. Krosscent could not have prevented foreclosure or obtained EMCs agreement on the actual amounts due without this litigation. The only alternative available to Krosscent was to pay the amounts EMC demanded, including the PMI payments for which it was not liable. Resolution of these items prior to trial should not deprive the prevailing party of reasonable compensation for the effort required to reach that result.
EMC accepted Krosscents February 1, 2002 offer to tender $ 4,390.98, in return for rescission of its notice of default, in April 2002.
The record reveals the trial court failed to consider the full effort legitimately expended in reaching a favorable result, or any other factor, focusing almost exclusively on the amount of money at issue. Although the record shows numerous meritless claims by Krosscent for which it should not recover fees, it also reflects Krosscents understandable exasperation at EMCs inability or unwillingness to provide a comprehensible accounting. Most importantly, the trial court ultimately determined that the essence of Krosscents case was correct. No legal basis existed for EMCs requirement that Krosscent make PMI payments. Nonetheless, EMC adamantly insisted upon PMI payments through trial of the matter.
In the course of this litigation, EMC, as well as Krosscent, took positions of dubious merit, such as the claim Krosscent did not really own the property because of an alleged violation of a bankruptcy stay, requiring Krosscent to obtain an amended order from the bankruptcy court.
Several illustrations show that the courts award of $7,000 was necessarily inadequate under virtually any set of assumptions:
&bulsml; First, EMCs specific objections to the attorney fees requested—including the suggestion there should be no compensation from the filing of the complaint up to and through the sustaining of EMCs demurrers—amount to less than $45,000. That leaves more than $40,000 in fees to which EMC generated no specific objection.
Our comments should not be construed as suggesting that Krosscent should receive no fees for services rendered prior to the courts granting of EMCs second demurrer on June 5, 2001. While it may be inappropriate to award fees relating to meritless causes of action, we see no basis for refusing fees relating, for example, to Krosscents efforts to enjoin the foreclosure proceeding.
&bulsml; Second, even under the trial courts theory that only attorney fees relating specifically to the PMI issue were appropriate, $7,000 could not possibly be adequate. If we consider only the trial lawyers time (Fuseliers time, plus Douglas Hauberts time for the day on which Fuselier could not be present), and subtract the single-day entry of more than 24 hours to which EMC objected, that time alone amounted to more than $ 10,000. Thus, eliminating all charges for the two years leading up to the trial—which we do for purposes of illustration only—the court did not award enough to compensate for trial preparation and trial by one lawyer on the PMI issue.
EMC brought an ex parte motion to continue the trial from its scheduled August 14 date, and the trial date was continued to August 26. According to Krosscent, this schedule change resulted in a scheduling conflict for Fuselier on the second day of trial, requiring Krosscent to bring in a second trial lawyer for that day.
This consisted of approximately $8,175 for Fuselier and $2,240 for Douglas Haubert. Again, we do not suggest it is appropriate to confine the second lawyers time to the single day he spent in trial, or that the trial lawyers should not be paid for reviewing documents previously reviewed by the primary attorney; that is a matter for the trial court. We also note that neither the trial court nor EMC has suggested that the rates charged by any of Krosscents lawyers ($180, $250 and $175 for Harry Haubert, Fuselier, and Douglas Haubert, respectively) were excessive.
While it is appropriate to exclude time spent on untimely motions, other matters were clearly compensable. For example, Krosscent certainly was required to resist EMCs motion for summary judgment.
&bulsml; Third, if we were to eliminate all attorney fees claimed by both trial lawyers, and allow all of EMCs objections to Harry Hauberts time entries, including all time prior to the demurrer ruling and all Hauberts trial time, more than $34,000 in apparently unobjectionable attorney time would remain.
In sum, we conclude the trial court "did not give adequate consideration to all of the factors bearing on its exercise of discretion" when it awarded only $7,000 in attorney fees to Krosscent. (Dorman v. DWLC Corp., supra, 35 Cal.App.4th at p. 1816.) The court improperly relied on a single factor, the amount in controversy. It ignored the fact that, absent this litigation, Krosscent would be forced to pay a charge for which it was not liable or face foreclosure. If other appropriate reasons existed for reducing the attorney fee award to $7,000, the trial court did not identify them. Accordingly, "the case must be remanded for the purpose of redetermining the reasonable value of the services rendered" (Clejan v. Reisman (1970) 5 Cal.App.3d 224, 241), bearing in mind that "[a]ll elements should be considered" in fixing the value of a lawyers services. (Matthiesen v. Smith, supra, 16 Cal.App.2d at p. 483.)
"Among the factors to be considered ... are 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 attorneys efforts, his learning, his age, and his experience in the particular type of work demanded [citation]; 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." (Berry v. Chaplin (1946) 74 Cal.App.2d 669, 679.)
B. Expert witness fees.
Krosscent argues it obtained a more favorable judgment than the terms reflected in its section 998 offer to compromise, and was therefore entitled to recover its expert witness fees. Section 998 permits recovery of expert witness fees "actually incurred and reasonably necessary in either, or both, preparation for trial ... or during trial," in the courts discretion. (Code Civ. Proc., § 998, subd. (d).) Krosscent also points out the trial court, without explanation, taxed costs EMC did not ask it to tax, and suggests the possibility of a mathematical error. We agree with the latter point, but perceive no abuse of discretion in the courts decision not to award expert witness fees.
As to the expert witness fees, an appellate court will interfere with the trial courts discretionary determination only if it finds that "no judge could reasonably have made the challenged order." (Michelson v. Camp (1999) 72 Cal.App.4th 955, 976, citing Marsh v. Mountain Zephyr, Inc. (1996) 43 Cal.App.4th 289, 303-304.) The trial court concluded Krosscent did not qualify for an award of expert witness fees under section 998, because Krosscents 998 offer was to pay EMC $ 1,751.81. After the 998 offer and before the trial, however, Krosscent paid EMC $4,390.98, including $2,493.00 in disputed PMI fees which EMC was required to return to Krosscent as a result of the judgment. Krosscents resulting net payment to EMC was $1,897.98, a sum that exceeded the amount it offered to pay in compromise by $146.17. Krosscent argues the trial court cannot consider its $4,390.98 payment, since that payment was not a part of the judgment. We disagree. The trial court is not obliged to ignore clearly relevant transactions that occur between the section 998 offer and the final judgment. In any event, an award of expert witness fees under section 998 is not mandatory; it is made in the trial courts discretion. There is no evidence that discretion was abused.
In addition, Krosscent made no evidentiary showing that the costs of the services of its expert witness were "reasonably necessary" in preparation for or during trial. (Code Civ. Proc., § 998, subd. (d).) Krosscent merely listed its expert fees in its memorandum of costs and attached the experts invoice to its motion for attorney fees and costs. When EMC moved to tax this cost, Krosscents justification was its comment, in its memorandum of points and authorities, that "[i]n addition to preparing testimony, the loan expert prepared a twenty (20) page report which was provided to EMC." The expert did not testify at trial, although his invoice shows 20 hours spent attending trial.
Like Krosscent, we are unable to determine how the trial court arrived at costs of $2,133.17. Krosscent sought costs of $8,827.94, and EMC sought to tax costs amounting to $6,387.50 ($6,241.50 in expert fees and $146.00 in motion and filing fees). This leaves an unexplained discrepancy of $307.27 between the costs Krosscent sought, and to which EMC did not object, and the costs awarded. On remand, the trial court should correct any miscalculation or identify the additional items of costs to be taxed.
DISPOSITION
The order appealed from is reversed and the matter is remanded to the trial court for a new hearing to determine the reasonable amount of attorney fees to which Krosscent is entitled, including those pertaining to this appeal, and for correction of costs awarded. Krosscent is to recover its costs on appeal.
We concur: COOPER, P.J., and RUBIN, J.