Khazan v. Braynin
Filed 9/12/12 Khazan v.
Braynin CA1/4
Opinion following rehearing
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST
APPELLATE DISTRICT
DIVISION
FOUR
LARISA
KHAZAN ET AL.,
Plaintiffs, Respondents, and
Cross-Appellants,
v.
FELIX
BRAYNIN ET AL.,
Defendants, Appellants, and
Cross-Respondents.
A128536
(City & County of San Francisco
Super. Ct. No. CGC00310997)
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) [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. (
A114369) [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.
We
reject defendants’ challenges to the amount of the attorney fee award, and
conclude the trial court correctly ruled that interest should run from the date
of the fee award on remand.
BACKGROUND
For
the background of this dispute, we quote from our opinion in
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).
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.
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.
to Crown’s office to have it notarized, they did not do so. Braynin eventually forgot about the deed of
reconveyance. 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.
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.
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.
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.[
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.
$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 [¶]].
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.
name="_ftnref9" title="">[9] 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
I, we affirmed that judgment.
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.,
(2007) 158 Cal.App.4th 407, 417-418 (Harman
II); Sokolow v. County of San Mateo
(1989) 213 Cal.App.3d 231, 250 (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.â€
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.
DISCUSSION
Legal
Standards
Our Supreme
Court has explained the rules governing awards of contractual attorney
fees: “Civil Code section 1717 provides
that ‘[r]easonable attorney’s fees shall be fixed by the court.’ As discussed, this requirement reflects the
legislative purpose ‘to establish uniform treatment of fee recoveries in
actions on contracts containing attorney fee provisions.’ [Citation.]
Consistent with that purpose, the trial court has broad authority to
determine the amount of a reasonable fee.
[Citations.] As we have
explained: ‘The “experienced trial judge
is the best judge of the value of professional services rendered in his court,
and while his judgment is of course subject to review, it will not be disturbed
unless the appellate court is convinced that it is clearly wrong’—meaning that
it abused its discretion.
[Citations.] [¶] . . . [T]he
fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e.,
the number of hours reasonably expended multiplied by the reasonable hourly
rate. . . . The lodestar figure may then
be adjusted, based on consideration of factors specific to the case, in order
to fix the fee at the fair market value for the legal services provided. [Citation.]â€
(PLCM Group, Inc. v. Drexler
(2000) 22 Cal.4th 1084, 1094-1095 (PLCM).) The determination of a reasonable fee is
committed to the discretion of the trial court, which “ ‘makes its
determination after consideration of a number of factors, including the nature
of the litigation, its difficulty, the amount involved, the skill required in
its handling, the skill employed, the attention given, the success or failure,
and other circumstances of the case.’
[Citation.]†(
572, 584 [in setting award, consideration may be given to attorney’s
experience, difficulty of issues, risk incurred, quality of work, and result
achieved].)
Reduction in Lodestar
Defendants
contend the trial court applied the wrong standards in reducing the award by
only 30 percent to account for time spent on the fraud-based claims. They rely upon Harman II, in which Division One of the First Appellate District,
relying on factors articulated in Hensley
v. Eckerhart (1983) 461 U.S. 424, applied a two-step analysis in
considering the propriety of an award of attorney fees under title 42 United
State Code section 1988 where the party claiming fees achieved only partial
success. (Harman II, supra, 158
Cal.App.4th at pp. 415-418.) As we
explained in Khazan II, the lodestar
figure is first calculated by multiplying the number of hours expended times a
reasonable hourly rate, with adjustments as necessary to fix a fair market
value for the services. (
Hours spent on claims unrelated to those on which the party was
successful are excluded from the lodestar calculation, but
“ ‘ “[a]ttorney’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†. . . [or] when the issues in the
fee and nonfee claims are so inextricably intertwined that it would be
impractical or impossible to separate the attorney’s time into compensable and
noncompensable units.’ [Citation.]†(Id.
at p. 417, fn. omitted.) In the second
step, if successful and unsuccessful claims are found to be related, the court
then evaluates “the ‘significance of the overall relief obtained by the
plaintiff in relation to the hours reasonably expended on the litigation.’ [Citation.]
If the plaintiff obtained ‘excellent results,’ full compensation may be
appropriate. Ibid. If there was only
‘partial or limited success,’ full compensation ‘may be . . . excessive.’ [Citation.]â€
(Ibid.) In that case, “ ‘[t]he court may
appropriately reduce the lodestar calculation “if the relief, however
significant, is limited in comparison to the scope of the litigation as a
whole.†[Citation.] . . . “[T]he most
critical factor is the degree of success obtained.†[Citation.]’
[Citation.]†(
Defendants
contend the trial court failed to carry out the second step of this
analysis. That is, according to
defendants, although the court apportioned the fees to account for time spent
solely on the unsuccessful fraud causes of action, it did not then further
reduce the fees that were attributable to both
the contract and fraud claims to reflect plaintiffs’ partial success.
After
concluding that by prevailing in the contract and declaratory relief cause of
action, plaintiffs had attained “[v]irtually all of the litigation objectives,â€
the trial court explained its reasons for reducing the gross hours by 30
percent as follows: “The Court’s review
of the case to award reasonable attorney’s fees [] which do not include work
attributable to the unsuccessful fraud claims has considered pre-trial
litigation, pre[-]trial interviewing of witnesses, trial preparation and
post-trial work. After detailed review
of the litigation and having taken a broad overall view of the case, the Court
finds that determination of a percentage allocation is the most reasonable
method to determine the fraud component.
Accordingly, the Court’s overall conclusion is that 30 [percent] of the
Plaintiff[s’] case was devoted to the unsuccessful fraud causes of action. Therefore, the Court subtracts 30 [percent]
from Brunwasser’s claimed gross hours . . .â€
The court then considered whether the circumstances of the
case—including “the results achieved and those not achieved†warranted an
increase or decrease in the lodestar
by a multiplier or other adjustment.
The trial
court made no finding that the contract and fraud claims were so interrelated
that the time devoted to each could not be separated. (See Harman
II, supra, 158 Cal.App.4th at p.
425.) In fact, the 30 percent deduction
exceeded the amount plaintiffs estimated their counsel had spent on the fraud
claims: Based on his review of the case history,
Brunwasser testified that he believed there was a direct relationship between
the amount of pretrial time he spent on various issues and his examination of
witnesses on those issues, and estimated that only 20 percent of his direct
examination of witnesses had been devoted to
attorneys for all parties had devoted only 15 percent of their trial time to
non-contract evidence. Accordingly, it
is by no means clear that the 30 percent deduction reflected only time that the
trial court concluded had been spent exclusively on the fraud claims or that it
included no time that may have been spent on issues common to the fraud and
contract claims.
In any
case, we are satisfied that the trial court was aware of its discretion to
decrease the award further to account for a partially successful outcome, and
that it exercised its discretion not to do so.
In Khazan II, after discussing
at length the rule of Harman II, we
directed the trial court to consider whether it was possible to further
apportion fees for time not attributable to the contract-based causes of
action, and, if such apportionment was not possible, to exercise its discretion
to reduce the award to reflect plaintiffs’ limited success. (Khazan
II, slip op. at pp. 16-18.)
Plaintiffs argue the trial court adhered to the terms of this
directive. We agree. Moreover, consistent with our reasoning and
with the rule of Harman II, the trial
court, after reducing the award by 30 percent to reflect time spent on the
fraud claims, then considered whether to reduce
the resulting lodestar based on a variety of factors, including “the results
achieved and those not achieved.†The
question before us, then, is not whether the trial court in fact exercised its
discretion to decide whether to reduce the award to reflect plaintiffs’ limited
success, but whether its exercise of that discretion in declining to reduce the
award was reasonable and consistent with the governing legal standards.
In
considering this issue, we first note that a reduction in a fee award to
account for partial success is not mandatory.
In Khazan II, we explained
that “in certain cases, courts have not required apportionment between
successful and unsuccessful causes of action.
As stated in Wysinger v.
Automobile Club of Southern California (2007) 157 Cal.App.4th 413, 431,
‘[w]here a lawsuit consists of related claims, and the plaintiff has won
substantial relief, a trial court has discretion to award all or substantially
all of the plaintiff’s fees even if the court did not adopt each contention
raised.’ [Citation.] ‘To reduce the attorneys’ fees of a
successful party because he does not prevail on all his arguments, makes it the
attorney, and not the defendant, who pays the costs of enforcing’ the
plaintiff’s rights. [Citations.]†However, ‘when a plaintiff has achieved
limited success, or has failed with respect to distinct and unrelated claims, .
. . a reduction from the lodestar is appropriate.’ . . .
(Hogar Dulce Hogar v. Community
Development Com. of City of Escondido (2007) 157 Cal.App.4th 1358,
1369.)†(Khazan II, slip op. at p. 13.)
We also noted, however, that in certain cases in which courts had not
required apportionment of fees for issues common to both successful and
unsuccessful causes of action, it appeared that the trial court had already
corrected the fee request to account for the prevailing party’s limited
success. (Id. at pp. 9, 14, citing Nazemi
v. Tseng (1992) 5 Cal.App.4th 1633, 1642 (Nazemi), Korech v. Hornwood
(1997) 58 Cal.App.4th 1412, 1422, Akins
v. Enterprise Rent-A-Car Co. (2000) 79 Cal.App.4th 1127, 1134, and
(2002) 101 Cal.App.4th 418, 423.)
Indeed, in Harman II, the
Court of Appeal found the trial court had not abused its discretion when it
deleted from a fee request hours not intertwined with a successful damages
claim, but declined to make further adjustments for a number of reasons,
including that “additional reductions for lack of success ‘would amount to
doubly reducing the fees.’ †(
Defendants
argue, however, that the trial court’s findings on the degree of plaintiffs’
success fly in the face of our decision in Khazan
II, and that these findings impermissibly infected the choice of a lodestar
figure. In Khazan II, we concluded that some of the evidence presented at
trial—such as evidence of third-party transactions—was not relevant to the
contract-based causes of action, and that defendants should not bear the cost
of the time spent on plaintiffs’ unsuccessful attempt to prove they acted
fraudulently. (Khazan II, slip op. at pp. 11-12.)
We concluded, “[w]ith respect to their broader goals, plaintiffs
achieved only limited success. They
failed in all their fraud-related causes of action, in which they had sought
not only compensatory but also punitive damages. They cannot be said to have achieved all or
substantially all of their objectives in the litigation.†(Khazan
II, slip op. at p. 17, fn. omitted.)
We did not, however, require the trial court to apply any specific
formula, but only directed it to exercise its discretion to address this
issue. (Khazan II, slip op. at p. 18.)
In setting
the rate of $400 per hour for Brunwasser’s services, the trial court referred
to “the highly successful outcome for Plaintiffs,†and also “considered all
facts and circumstances of the case,†including that “[v]irtually all of the
litigation objectives were attained by prevailing in the contract and
declaratory relief causes of action.
Plaintiffs [also] successfully defended and prevailed on defendants’
cross-complaint for slander of title and to remove a cloud on title. [Therefore,] Brunwasser’s legal services
resulted in a highly successful outcome for Plaintiffs.†In declining to decrease the lodestar—and at
the same time in deciding to apply a multiplier of 1.5—the court relied on a
variety of factors, including the factor it stated was “[m]ost significant[,] .
. . the successful outcome of the litigation for Plaintiffs.†This was not error.
According to
defendants, however, this reliance on the “successful outcome†was inconsistent
with our statements in Khazan II and
violated the doctrine of law of the case.
plaintiffs had not achieved all or substantially all of their goals in the
litigation, based on their failure to prevail in their fraud-based causes of
action, but we made no finding on the degree
of plaintiffs’ overall success. On
remand, the trial court was clearly of the view that, on the whole, plaintiffs
were successful in this litigation, but reduced the fees originally claimed for
the fraud-based and contract-based claims by nearly one-third to account for
plaintiffs’ lack of success on the fraud claims. As the court pointed out, plaintiffs succeeded
not only on their own contract-based causes of action, but on the claims
defendants raised in their cross-complaint for slander of title and
cancellation of cloud on title. We see
no violation of the law of the case in the trial court’s analysis.
Defendants
also contend that even on the contract claims, plaintiffs were only partially
successful because defendants prevailed on their affirmative defense that the
17.6 percent interest rate on the $300,000 note was usurious. The trial court found that interest rate
usurious and ordered interest to accrue from June 1997, the due date of the
principal amount, at the legal rate of seven percent. Defendants argue that as a result, plaintiffs
received only one quarter of the amount they had sought on the contract causes
of action, and contend the trial court should have reduced the attorney fee
award to reflect this partial success.
provide, arguing they were awarded half the amount they sought, and point out
in addition that they were successful in defeating defendants’ cross-claims for
slander of title, for which defendants requested $415,800 in damages, and that
they were successful in their foreclosure and declaratory relief claims.
direct proportionality between an attorney fee award and the amount of
compensatory damages awarded. (
defense consumed a significant amount of attorney time in relation to the time
spent on the contract claims as a whole.
Nor have they made an adequate showing of the amount the parties sought
on the various causes of action. In the
circumstances, they have not met their burden to show abuse of discretion in
the trial court failing to reduce the fee award to account for the usury
defense.
C.
Reasonableness of Multiplier
Defendants
also challenge the trial court’s application of a multiplier of 1.5 to increase
the fee award for Brunwasser’s services.
They argue at length that an enhancement is not appropriate in this case
vindicating private, rather than public rights, and suggest that enhancements
are not available on an award of contractual attorney fees under section 1717.
Our Supreme
Court has explained, “ ‘[T]he Legislature appears to have endorsed the
[lodestar adjustment] method of calculating fees, except in limited
situations.’ [Citation.] When the Legislature has determined that the
lodestar adjustment approach is not appropriate, it has expressly so
stated. Thus, in 1993, it amended Code
of Civil Procedure section 1021.5 to provide that attorney fees awarded to a
public entity under the section ‘shall not be increased or decreased by a
multiplier based upon extrinsic circumstances, as discussed in [
49 [(Serrano III)].’ (Stats. 1993, ch. 645, § 2, p.
3747.) Its express restriction on the
use of fee enhancements therein ‘can be read as an implicit endorsement of
their use in other contexts.’ [Citations.]†(Ketchum
v. Moses (2001) 24 Cal.4th 1122, 1135 (Ketchum);
see also Flannery v. California Highway
Patrol (1998) 61 Cal.App.4th 629, 643, 646.) The high court noted in Ketchum that one of the contexts in which the lodestar adjustment
method had been applied was in the award of contractual attorney fees pursuant
to Civil Code section 1717 (section 1717).
(Ketchum, supra, 24 Cal.4th at pp. 1134-1135, citing Sternwest Corp. v. Ash (1986) 183 Cal.App.3d 74, 75-76 (
In
describing the rules governing fee awards under section 1717, our high court
stated that the lodestar amount “may then be adjusted, based on consideration
of factors specific to the case,†in order to determine the fair market value
of the services. (PLCM, supra, 22 Cal.4th at
p. 1095.) For this proposition, it cited
Serrano III, which listed a number of
factors that could be used to augment
or reduce an award, including the novelty and difficulty of the issues, the
skill displayed, the extent to which the litigation precluded other employment,
and the contingent nature of the fee award.
(Ibid.; Serrano III, supra, 20
Cal.3d at p. 49.) Moreover, the court in
Sternwest held unambiguously that
enhancements are within the trial court’s discretion under section 1717. The court did not except from its holding
cases in which the rights vindicated were private, rather than public (
this holding with approval. (
properly consider, in its discretion, whether to award an enhancement.
Defendants
argue we should follow a recent case of the United States Supreme Court,
[130 S. Ct. 1662] (Perdue). There, the court addressed the question of
whether, under federal fee-shifting statutes, the lodestar may be increased due
to superior performance and results. (
strong presumption that the lodestar was adequate to compensate counsel, such
an enhancement may be available in “ ‘ “rare†’ and
‘ “exceptional†’ circumstances†“in which the lodestar does not
adequately take into account a factor that may properly be considered in determining
a reasonable feeâ€; those circumstances could occur where the method used to
determine the hourly rate does not adequately measure the attorney’s true
market value, where the attorney faced an extraordinary outlay of expenses and
exceptionally protracted litigation, or where there is exceptional delay in the
payment of fees. (Id. at pp. 1673-1675.) In
reaching this decision, the court discussed six rules established in its
earlier cases concerning federal fee-shifting statutes: a reasonable fee is one sufficient to induce
a capable attorney to undertake a meritorious civil rights case; there is a
strong presumption that the lodestar fee is sufficient to achieve this
objective; enhancements for performance may be awarded in rare and exceptional
circumstances; the lodestar figure includes most, if not all, factors relevant
to determining a reasonable attorney fee; the fee applicant has the burden to
prove an enhancement is necessary; and the fee applicant must produce
“ ‘specific evidence’ †to support the award. (Id.
at pp. 1672-1673.)
We reject
defendants’ invitation to apply the standards of Perdue to this case. By its
terms, Perdue considers the standards
for federal fee-shifting
statutes. The case before us is governed
by California law, and our state’s Supreme Court has made clear that “the
lodestar adjustment method, including discretion to award fee enhancements, is
well established under California law.â€
(Ketchum, supra, 24 Cal.4th at p. 1137.)
interpretation of federal statutes does not bind us to similarly interpret
similar state statutes. Indeed, in the
realm of attorney fees for private attorneys general, this court has markedly
diverged from United States Supreme Court precedent.†(See also Flannery
v. California Highway Patrol, supra,
61 Cal.App.4th at p. 646 [no showing that California Legislature intends
federal standards to apply to limit trial court’s discretion to calculate
reasonable attorney fees].) Consistent
with this authority, we interpret the trial court’s authority to award attorney
fees according to California precedent.
We also
note that the contractual fee provisions at issue were broad, authorizing the
trial court to award “ ‘such sum as the Court may deem
reasonable.’ †Nothing in this
language suggests the parties intended to fetter the trial court’s discretion
to enhance the fee award as authorized by California law to reflect the value
of counsel’s services.
Defendants
contend, additionally, that the factors the trial court relied on were
improper. In particular, they challenge
the court’s reliance on the contingent nature of plaintiffs’ fee agreement with
their counsel, the fact that counsel could not work for paying clients while
performing work for plaintiffs, the time value of money, and the social utility
of the litigation.
The trial
court may consider a variety of factors in deciding whether to adjust the
lodestar. “[T]he unadorned lodestar
reflects the general local hourly rate for a fee-bearing case; it does not
include any compensation for contingent risk, extraordinary skill, or any other
factors a trial court may consider under Serrano
III. The adjustment to the lodestar
figure, e.g., to provide a fee enhancement reflecting the risk that the
attorney will not receive payment if the suit does not succeed, constitutes
earned compensation; unlike a windfall, it is neither unexpected nor
fortuitous. Rather, it is intended to
approximate market-level compensation for such services, which typically
includes a premium for the risk of nonpayment or delay in payment of attorney
fees.†(Ketchum, supra, 24
Cal.4th at p. 1138; see also Pellegrino
v. Robert Half Internat., Inc. (2010) 182 Cal.App.4th 278, 292 (
contingency basis, enhanced fee award proper to compensate attorney for taking
risk of nonpayment and reflects market value of services]; Flannery v. California Highway Patrol, supra, 61 Cal.App.4th at p. 646 [contingent nature of case may
warrant enhancing lodestar]; Amaral v.
Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1216 [in adjusting lodestar
upward, court may consider novelty and difficulty of issues, skill in
presenting them, extent to which nature of litigation precluded other
employment, and contingent nature of fee award].) However, in determining an appropriate
enhancement, the trial court must not consider factors that were already
encompassed in the lodestar. To do so
would “result in unfair double counting and be unreasonable.†(Ketchum,
supra, 24 Cal.4th at pp. 1138-1139;
see also Robertson v. Fleetwood Travel
Trailers of California, Inc. (2006) 144 Cal.App.4th 785, 822;
California Franchise Tax Bd. (2008) 159 Cal.App.4th 841, 879 (
In
determining the enhancement, the trial court relied on several factors to
decide the lodestar amount was not adequate compensation: the services were performed on a contingent
basis for plaintiffs of modest means who would otherwise have been unable to
assert their rights, and the litigation therefore had “significant social
utilityâ€; because of the complexity of the issues and the skill of opposing
counsel, there was a high degree of risk of not being paid; the attorney had
not been paid during the ten years of the litigation, and had been precluded
from performing work for paying clients during that time; and “[m]ost
significant,†the outcome of the litigation was successful for plaintiffs.
Based on the
authorities we have discussed, we find no fault with the court’s reliance on
the contingent nature of the fee agreement, its attendant risk and delay in
payment, or the extent to which counsel was precluded from working for other
clients.
title="">[14] Nor are we persuaded by defendants’ challenge
to the court’s reliance on the social utility of the litigation; this point was
made in connection with the contingent nature of the fee agreement, a factor
that is well established as proper for the court to consider. (Ketchum,
supra, 24 Cal.4th at p. 1138;
Finally, the trial court could properly consider the successful results
and the complexity of the case in enhancing the lodestar. (See PLCM,
supra, 22 Cal.4th at p. 1096;
v. Prentice, supra, 26 Cal.4th at
p. 584.)
title="">[15]
D. Cross-Appeal
1. Background and Contentions
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.â€
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.â€
The trial
court appears to have been relying on Stockton
Theatres, Inc. v. Palermo (1961) 55 Cal.2d 439 (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.) 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.)
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 attackâ€; 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.) 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.) But the court also rejected 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. (
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.)
Following
(1964) 60 Cal.2d 816, 817-820 (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.)
Under
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 (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.) The court noted, “here there was
no factual determination to be made, no prerequisite to be satisfied before
liability could be allocated properly.â€
(Munoz, supra, 173 Cal.App.4th
at p. 206; see also Ehret v. Congoleum
Corp. (2001) 87 Cal.App.4th 202, 204, 210 (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].)
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 fact and law 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.
Plaintiffs
assert Stockton Theatres does not
govern this question. They contend,
first, that the statutes governing interest on fees as costs require that
interest begin to accrue from the date of entry of the judgment establishing
the right to attorney’s fees, and not from the date of any later order setting
the amount of attorney’s fees. Upon this
premise they argue that because Khazan I affirmed
the judgment establishing the right
to attorney fees and Khazan II was a
reversal of only the postjudgment order setting the amount of fees, then the question of whether Khazan
II was a “reversal†or a “modification†is irrelevant. To put it another way, plaintiffs assert that
because interest begins to accrue on the attorney’s fee award from the date of
entry of the judgment establishing the right
to fees, any subsequent reversal and readjudication of an order setting the
interest. We conclude that, even assuming interest on an attorney’s fee award runs from the
date of the judgment allowing fees, the cases do not support the proposition
that interest would continue to accrue on that fee award even after it has been
excised from the judgment by an appellate order vacating the award, remanded to
the trial court for further evidentiary and adjudicatory proceedings, and made
the subject of a new decision and order.
Analysis
Plaintiffs’ foundational
contention—that interest on contractual attorney fees runs from entry of
judgment regardless of when the order setting the amount of fees is entered—is
a debatable proposition. We need not resolve
that question, however, because the issue is not when interest begins to run in
the first instance, but whether interest continues to run irrespective of
subsequent events. As we have noted,
plaintiffs say Stockton Theatres
does not apply 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.†~(RB
69)~ 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.†~(RB 67)~
The appeal and reversal, plaintiffs maintain, were from the “fee order†and not
from the judgment, so “the judgment, which set the interest running on the
attorneys’ fees, was never changed or disturbed . . . [but was] affirmed in
full.â€
~(RB 67)~
We
disagree with plaintiffs’ analysis primarily because it fails to explain why—or
under what authority—interest would continue to run on a fee award even after
the award is reversed on appeal and remanded for redetermination. Plaintiffs do not identify anything about
this case that would distinguish it from Stockton
Theatres and its progeny, which establish the principle that the
date of accrual of interest is controlled, not by the affirmance of the
underlying judgment, but by the nature of the proceedings after the reversal of
an award on appeal. This is made clear
in Snapp. There, the court concluded its reversal of
the judgment was actually a “modification†not because the underlying judgment
was affirmed, but because after the reversal and remand, nothing was left for
the trial court to do except to enter the new amount in the judgment, as
directed by the court of appeal. “[O]n
the first appeal [the court] decided that the plaintiffs were not only entitled
to recover $8,168.25, on October 31, 1960, but on that date were entitled to
recover more—that is, as a matter of law, the trial court should have allowed
$25,000. This required no further
determination of law or of fact. It required no taking of evidence. It required
no legal showing or argument. The
appellate court decided, as a matter of law, that $25,000 was owed.†(Snapp,
supra, 60 Cal.2d at 821 [emphasis added]; see, also, Munoz, supra, 173
Cal.App.4th at p. 207 [appellate court’s reversal reallocated damages based upon
jury verdict’s “unambiguous[]†determination of comparative fault; “there was no factual determination to be made, no
prerequisite to be satisfied before liability could be allocated properly.â€]; Stockton Theatres,
supra, 55 Cal.2d at pp. 443-444
[appellate court held as a matter of law that cost item should have been
allowed by trial court; therefore reversal was, in effect, a “modificationâ€
because it merely “ma[de] the [trial court’s] order of April 12, 1957, state
what it should have stated on that date.â€].)
Applying
these principles here, we reach the ineluctable conclusion that the reversal in
Khazan II was not a
modification. In Khazan II we did not determine, as a matter of law, the correct
amount of the fee award; rather, we remanded the matter for “further
proceedings consistent with th[e] opinion.â€
Upon remand, the trial court could not simply enter a new award, but
instead was required to review the evidence and exercise its discretion anew to
set the fee award. To this end, a
hearing was held and the 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.
>
The order
appealed from is affirmed. The parties
shall bear their own costs on appeal.
_________________________
RIVERA,
J.
We concur:
_________________________
RUVOLO, P. J.
_________________________
REARDON, J.
Brackets enclosing material denote additions to the opinion in
opinion.
Defendants had introduced plaintiffs to A&A, which apparently specialized
in arbitrage investments.
