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Date: 12-29-2018
Case Style: Jamie L. Etcheson v. FCA US LLC
Case Number: D072793
Judge: O'Rourke
Court: California Court of Appeals Fourth Appellate District, Division One on appeal from the Superior Court, County of San Diego
Plaintiff's Attorney: Hallen D. Rosner, Arlyn L. Escalante and Shaghayegh Dinata-Hanson
Defendant's Attorney: Nixon Peabody, David Henry Tennant and Scott S. Shepardson
Description:
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Plaintiffs and appellants Jamie L. Etcheson and Kelly M. Etcheson brought an
action under the Song-Beverly Consumer Warranty Act (Civ. Code,1 § 1790 et seq.,
commonly known as the "lemon law," hereafter the Act) against defendant and
respondent FCA US LLC (FCA) after experiencing problems with a vehicle they had
purchased new for about $40,000. After admitting the vehicle qualified for repurchase
under the Act, FCA made two offers to compromise under Code of Civil Procedure
section 998 (section 998): one in March 2015, to which plaintiffs objected and the trial
court found was impermissibly vague, and a second in June 2016, offering to pay
plaintiffs $65,000 in exchange for the vehicle's return. Following the second offer, the
parties negotiated a settlement in which FCA agreed to pay plaintiffs $76,000 and deem
them the prevailing parties for purposes of seeking an award of attorney fees.
Plaintiffs moved for an award of $89,445 in lodestar attorney fees with a 1.5
enhancement of $44,722.50 for a total of $134,167.50 in fees, plus $5,059.05 in costs.
Finding the hourly rates and amount of counsels' time spent on services on plaintiffs'
behalf to be reasonable, the trial court tentatively ruled plaintiffs were entitled to recover
$81,745 in attorney fees and $5,059.05 in costs. However, in its final order the court
substantially reduced its award, concluding plaintiffs should not have continued to litigate
the matter at all after FCA's March 2015 section 998 offer. It found their sought-after
attorney fees after the March 2015 offer were not "reasonably incurred," and cut off fees
from that point, awarding plaintiffs a total of $2,636.90 in attorney fees and costs.
Plaintiffs appeal from the postjudgment order. Pointing out their ultimate
recovery was double the estimated value of FCA's invalid March 2015 section 998 offer,
which they had no duty to counter or accept, they contend the trial court abused its
discretion by cutting off all attorney fees and costs incurred after that offer. We agree.
We reverse the order and remand to the court with directions to award plaintiffs
reasonable attorney fees for their counsels' services, including those performed after
FCA's March 2015 offer, as well as reasonable fees for services in pursuing their motion
for fees and costs.
FACTUAL AND PROCEDURAL BACKGROUND
In November 2010, plaintiffs purchased a new 2010 Chrysler Town & Country for
$40,040.69, including sales tax and fees. After one year and about 15,000 miles of usage,
the car began to exhibit abnormal engine noises and irregular shifting problems. These
problems persisted for the next several years, leading plaintiffs in August 2014 to request
that FCA repurchase the vehicle. FCA advised plaintiffs they could not do anything for
them because plaintiffs had put more than 40,000 miles on the vehicle.
In early February 2015, plaintiffs sued FCA and the vehicle's seller, Peck Jeep
Eagle, Inc., for damages, civil penalties and attorney fees under the Act, attaching their
retail installment sale contract as an exhibit to the complaint. About two weeks later,
FCA informally offered "to make restitution of the actual price paid or payable, including
any incidental or consequential expenses incurred" for the vehicle, less offsets permitted
4
by statute, plus reasonable attorney fees, expenses, and costs, in exchange for the
vehicle's return. FCA asked plaintiffs to provide a copy of the sales contract, current
registration, payment history and a 30-day payoff so it could calculate the amount of
restitution. It also asked plaintiffs to sign a release. FCA specifically stated that the offer
"should not be construed as an admission of liability." Plaintiffs responded several days
later, declining to accept the offer.2
FCA answered the complaint in early March 2015 and acknowledged the vehicle
"now qualifies for repurchase under the [Act]." FCA otherwise denied each allegation of
the original complaint, including those that would entitle plaintiffs to a civil penalty.3 It
also filed a cross-complaint against plaintiffs seeking a judicial declaration that it did not
willfully violate the Act and that plaintiffs were not entitled to any civil penalty. FCA
asked the court in advance to cut off plaintiffs' entitlement to attorney fees incurred after
FCA's February 2015 informal offer.
About a week later, FCA served an offer to compromise and to repurchase the
vehicle under section 998. In an accompanying letter, FCA stated it did "not have the
2 The record does not contain plaintiffs' response, but attorney invoices and other
evidence indicates that several days later they sent a letter rejecting the informal offer as
impermissibly vague and incapable of being accepted for failing to state a specific dollar
amount.
3 " 'If the buyer establishes that the failure to comply [with an obligation under the
Song-Beverly Act] was willful, the judgment may include, in addition to [actual
damages], a civil penalty which shall not exceed two times the amount of actual
damages.' " (Goglin v. BMW of North America, LLC (2016) 4 Cal.App.5th 462, 468
(Goglin); quoting § 1794, subd. (c).)
5
information necessary to compute the appropriate amount of restitution . . . or the amount
of attorney fees and other costs," but committed "to pay the full amounts owed pursuant
to the relevant code sections." Accordingly, FCA offered to make restitution in an
amount equal to the actual price paid for the vehicle (including charges for the
transportation and manufacturer-installed options as well as collateral charges such as
sales tax, license fees, and registration fees, but excluding nonmanufacturer items
installed by a dealer or the buyer) less an offset for plaintiffs' personal use, plus
reasonable costs, expenses, and attorney fees.4 Plaintiffs objected to the offer, stating in
part: (1) its terms were vague, ambiguous, uncertain, and incomplete; (2) section 1793.2,
subdivision (d)(2)(B) required restitution in an amount equal to the actual price "paid or
payable" rather than "paid" as indicated in the offer; (3) it did not specify a dollar amount
of restitution; (4) it did not indicate the mileage to be used in the offset calculation; (5) it
was silent as to specific incidental and consequential damages; (6) it failed to specify if
and when the vehicle was to be returned or the date plaintiffs would be paid; (7) it was
unclear as to whether plaintiffs would be required to sign a release; (8) it limited the
4 More fully, FCA's March 2015 section 998 offer was "to make restitution pursuant
to . . . section 1793.2[, subdivision] (d)(2)(B) in an amount equal to the actual price paid
for the vehicle, including any charges for the transportation and manufacturer-installed
options, but excluding nonmanufacturer items installed by a dealer or the buyer, and
including any collateral charges such as sales tax, license fees, and registration fees less
an amount directly attributable to plaintiffs' use of the vehicle between the date they
purchased the vehicle and the date on which the vehicle was first presented to an
authorized Chrysler repair facility for repairs that gave rise to the nonconformity alleged
in the complaint as calculated pursuant to . . . section 1793.2[, subdivision] (d)(2)(C) . . .
[and] to pay reasonable costs, expenses and attorneys' fees based on actual time expended
up to the date of this [section 998 offer], pursuant to . . . section 1794[, subdivision] (d)."
(Some capitalization omitted.)
6
recovery of fees by cutting off attorney fees from the date of the offer, contradicting the
Act; and (9) it was silent as to prejudgment interest.
Following the March 2015 section 998 offer, the matter proceeded with a
demurrer to FCA's cross-complaint, discovery and other litigation over the next fifteen
months in anticipation of the July 29, 2016 trial date.
On June 27, 2016, FCA served an amended section 998 offer proposing to pay
plaintiffs $65,000 in exchange for dismissal of the action and the vehicle's return. FCA
offered to pay reasonable costs, expenses and attorney fees under section 1794,
subdivision (d) based on actual attorney time expended up to the date of the offer either
stipulated by the parties or by motion. By mid-July 2016, the parties had negotiated a
settlement in which FCA agreed to pay plaintiffs $76,000 plus attorney fees, costs and
expenses, and agreed plaintiffs were the prevailing parties.
Unable to reach an agreement with FCA for the amount of attorney fees, costs, and
expenses, plaintiffs moved for $139,227 in costs and fees, comprised of lodestar fees of
$89,445, a 1.5 multiplier on the fees of $44,723, and costs of $5,059.05. In the motion,
they summarized the litigation and efforts of their counsel, O'Connor & Mikhov, LLP,
who took the matter on a contingent fee basis. They also submitted declarations from
attorneys and staff, including partners Mark O'Connor5 and Steve Mikhov. Both detailed
5 Attorney Mark O'Connor provided the hourly rates of all attorneys and staff from
his firm in the matter. He stated the following individuals, including himself, worked on
the case: Partner Mark O'Connor at $650 per hour, partner Steve Mikhov at $500 per
hour, associate Russel Higgins at $400 per hour, associate Lauren Ungs at $350 per hour,
associate Stephanie Marshall at $200 per hour, associate Alastair Hamblin at $325 per
7
the hourly rates of attorneys and staff from their firm in the matter and described attorney
fee awards in other lemon law matters. Attorney Mikhov further detailed the bases for
their multiplier request, namely the risks associated with contingent fee arrangements and
the results achieved. Additionally, Mikhov stated it is "not uncommon for attorney's fees
and costs to exceed the client's damages . . . which is the reason behind the fee shifting
provision of the [Act]." According to Mikhov, his firm's clients (including plaintiffs)
realize cost savings due to the experience his firm has with lemon law cases because
relevant work product from one case may be used similarly in others.
FCA opposed the motion. Asserting plaintiffs' attorneys incurred the "maximum
amount of attorneys' fees possible before resolving the matter," it argued the requested
fees were excessive and unreasonable. FCA argued plaintiffs' attorneys ignored or
objected to its settlement offers as too vague and unspecific, despite FCA's
"straightforward and concise" offers to pay the "full amount of restitution according to
the statute's formula, and to pay reasonable costs, expenses, and fees incurred." Further,
FCA argued plaintiffs' counsel had all the information needed to make "[a] simple
calculation" to estimate the total dollar amount of FCA's offers. According to FCA, these
refusals preceded "aggressive discovery outside the bounds of what the value of the case
hour, associate Chris Swanson at $325 per hour, associate Shawna Melton at $325 per
hour, associate Amy Morse at $250 per hour, contract attorney Constance Morrison at
$350 per hour, associate Kevin Van Hout at $300 per hour, associate Daisy Ortiz at $225
per hour, associate Kristina Stephenson-Cheang at $350 per hour, contract attorney Kirk
Donnelly at $375 per hour, and paralegal Amy Fox at $175 per hour. O'Connor did not
summarize the total hours by individual, but instead referenced an attached exhibit of all
invoices. The invoices detailed the expenses and the work performed by attorneys and
staff, by date, from July 15, 2014, through January 31, 2017.
8
warrant[ed]" on a case they described as a basic Song-Beverly action without any novel
legal or unique technical knowledge required. FCA asserted that plaintiffs' counsel
created the risk of nonpayment by failing to accept or respond to FCA's offers, and were
solely responsible for the delays in the case. FCA argued that the Act should not permit
plaintiffs to recover attorney fees incurred solely in pursuit of a civil remedy or more
fees; it asserted plaintiffs' counsel's sole objective was to prolong the litigation so as to
incur substantial attorney fees before settling the action. FCA did not, however, establish
with legal authority or otherwise what hours and rates would be considered reasonable
for a case with a favorable result for the plaintiffs.
In reply, plaintiffs argued FCA had misstated facts and law. They pointed out
FCA did not dispute the lodestar method was the proper means for determining attorney
fees or their prevailing party status. They argued it was FCA that mishandled the case by
willfully failing to abide by its affirmative obligation under the Act to promptly offer
restitution or replacement of a vehicle at the time it qualified for such a remedy. They
argued FCA had a duty to inquire into the facts and circumstances but did not, and
rejected their August 2014 demand for repurchase or replacement. Plaintiffs also argued
FCA did not accurately recount the parties' settlement efforts; they pointed out it
qualified its first March 2015 section 998 offer with a refusal to admit liability, and that
offer was deemed withdrawn after 30 days so that plaintiffs had nothing to accept after
that point. They pointed out that once FCA made a reasonable settlement offer in June
2017, the case settled. Plaintiffs argued they were not in sole possession of information
that would permit FCA to comply with its obligations under the Act, as the sales contract
9
was attached to the complaint, and FCA could have determined the paid and payable
amount as the amount financed was at 0 percent interest. They argued the "only
explanation for the delay is that it took the skill and persistence of Plaintiffs' counsel for
FCA to appreciate its own exposure to civil penalties under the [Act]." Plaintiffs
reiterated that FCA had not rebutted the fact their case was taken on contingency basis,
and asserted that FCA's attacks on their counsel as motivated to run up fees were entirely
unsupported in the record.
In February 2017, the court issued a tentative ruling awarding plaintiffs $81,745 in
lodestar attorney fees and $5,059.05 in costs, stating it was "of the opinion that the
lodestar represents reasonable hourly rates for the Plaintiffs' counsel and that the time
was reasonably incurred."6 It denied the multiplier request. Following the hearing, the
court took the matter under submission.
About a month later, the court issued its final order. In it, the court drastically
reduced plaintiffs' sought-after fees, indicating it was persuaded by FCA's counsel's
argument that FCA's "repeated efforts to settle this matter immediately after litigation
was commenced should significantly reduce any fees awarded." The court summarized
FCA's February 12, 2015 informal settlement offer, FCA's March 3, 2015 answer
admitting the vehicle qualified for repurchase, and FCA's March 10, 2015 section 998
6 Plaintiffs' $89,445 lodestar request included twenty hours at $450 per hour in
anticipation of the reply and appearance at the hearing. Their reply did not include
support for this rate, therefore the court concluded a reasonable rate would be $325 and
adjusted the lodestar accordingly.
10
offer. The court stated: "It does not appear that Plaintiffs' counsel responded to these
letters or the [section 998 offer] with the numbers [FCA] sought to simply be able to
settle the case."
The court continued: "From essentially the moment the complaint was filed, the
Defendant sought to resolve this case on the terms specified under the . . . Act.
Notwithstanding Defendant's willingness to settle and communications of such intent, it
does not appear Plaintiffs ever attempted to facilitate a prompt resolution. For example,
later in 2015 when Defendant sought to ascertain by way of interrogatories the necessary
amounts to which Plaintiffs would be entitled, the responses failed to provide Defendant
that information."
"The Court would agree that if the issue before it was the enforceability of a
[section] 998 offer, that (1) the February 2015 letter was not a valid [section 998 offer];
and (2) the March 2015 offer was vague. [¶] However, the enforceability of a [section]
998 offer is not the issue before the Court. Rather the issue is whether the fees sought by
the Plaintiffs were 'reasonably incurred by [the Plaintiffs] in connection with the
commencement and prosecution of [this] action.' "
"The Court concludes that it cannot make a finding that the fees Plaintiffs seek
were reasonably incurred in the prosecution of this action when it appears abundantly
clear that Defendant from the beginning was trying to extricate itself from the case—
simply asking the Plaintiffs to tell it what the appropriate dollar amount was—with no
cooperation from the Plaintiffs. Neither Plaintiffs' arguments at the hearing nor in their
11
papers provided a satisfactory explanation for the continued litigation of this case after
Defendants' initial settlement offers."
"Having reviewed the billing records of counsel, the Court finds that Plaintiffs are
entitled to recover their attorneys' fees up to March 13, 2015, in the total amount of
$2,095. Plaintiffs have failed to explain why any fees over and above this amount were
'reasonably incurred.' In this regard, the Court again notes its initial review of the billing
records revealed services performed that appeared reasonable in amount in terms of the
amount of time spent on a given service and the dollar amount therefor. However, the
real issue here is whether the performance of those services in the first instance was even
necessary. The Court concludes that but for the services up to March 13, 2015, the
remaining fees charged were not necessary and, therefore, not reasonably incurred." The
court then found plaintiffs were entitled to $541.90 in costs for expenses incurred before
March 13, 2015 ($106.90 for service of summons, and $435 for the complaint filing fee).
It awarded a total of $2,636.90 in fees and costs.
Plaintiffs timely appealed from the postjudgment attorney fees order.
DISCUSSION
I. Legal Principles for Attorney Fee Recovery Under the Act and Standard of Review
We summarized the legal principles applicable to an attorney fee award under the
Act in Goglin, supra, 4 Cal.App.5th 462: "A prevailing buyer in an action under the
Song-Beverly Act 'shall be allowed by the court to recover as part of the judgment a sum
equal to the aggregate amount of costs and expenses, including attorney's fees based on
actual time expended, determined by the court to have been reasonably incurred by the
12
buyer in connection with the commencement and prosecution of such action.' (Civ.
Code, § 1794, subd. (d).) The statute 'requires the trial court to make an initial
determination of the actual time expended; and then to ascertain whether under all the
circumstances of the case the amount of actual time expended, and the monetary charge
being made for the time expended are reasonable. These circumstances may include, but
are not limited to, factors such as the complexity of the case and procedural demands, the
skill exhibited, and the results achieved. If the time expended or the monetary charge
being made for the time expended are not reasonable under all the circumstances, then
the court must take this into account and award attorney fees in a lesser amount. A
prevailing buyer has the burden of "showing that the fees incurred were 'allowable,'
were 'reasonably necessary to the conduct of the litigation,' and were 'reasonable in
amount.' " ' " (Goglin, at p. 470, in part quoting Nightingale v. Hyundai Motor America
(1994) 31 Cal.App.4th 99, 104.)
" 'We review an award of attorney fees under [the Song–Beverly Act] for abuse of
discretion. [Citations.] We presume the trial court's attorney fees award is correct, and
"[w]hen the trial court substantially reduces a fee or cost request, we infer the court has
determined the request was inflated." [Citation.] "The ' "experienced trial judge is the
best judge of the value of professional services rendered in his [or her] court, and while
his [or her] judgment is of course subject to review, it will not be disturbed unless the
appellate court is convinced that it is clearly wrong." ' " ' " (Goglin, supra, 4 Cal.App.5th
at pp. 470-471; Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 148;
see also 569 East County Boulevard LLC v. Backcountry Against the Dump, Inc. (2016) 6
13
Cal.App.5th 426, 433 (569 East County).) This standard of review applies to a trial
court's application of correct legal standards to the circumstances of a specific case. (569
East County, at p. 434.)
Though the trial judge has broad discretion in awarding reasonable attorney fees, it
is nevertheless "a legal discretion subject to the limitations of legal principles governing
the subject of its action . . . ." (569 East County, supra, 6 Cal.App.5th at p. 433, fn. 8.)
"[T]he determination of whether the trial court selected the proper legal standards in
making its fee determination is reviewed de novo [citation] and, although the trial court
has broad authority in determining the amount of reasonable fees, the award can be
reversed for an abuse of discretion when it employed the wrong legal standard in making
its determination." (Id. at p. 434; see also id. at p. 433, fn. 8 ["[W]hen the trial court
mistakenly applies erroneous legal principles when exercising its discretion, we may
review that error de novo."].) Further, when the record affirmatively shows the trial
court's discretionary determination of fees pivoted on a factual finding entirely lacking in
evidentiary support, the matter must be reversed with instructions to redetermine the
award. (Id. at p. 435, fn. 10 [interpreting McKenzie v. Ford Motor Co. (2015) 238
Cal.App.4th 695 (McKenzie)].)
II. Contentions
Plaintiffs contend the trial court abused its discretion and essentially punished
them and their counsel for pursuing their rightful recovery under the Act when it refused
to award any attorney fees incurred after FCA's March 2015 settlement offer, which
proposed to pay significantly less than the amount plaintiffs ultimately obtained in
14
settlement with FCA. They argue the court had no discretion to consider lesser
settlement offers in its analysis, which would be inconsistent with and defeat the purpose
of section 998. They point out the court found reasonable the hourly rates and amounts
their counsel charged for the services rendered, but disregarded the exceptional results
they achieved in settling their case for $76,000. According to plaintiffs, their attorneys'
time following the March 2015 offer was well spent and reasonably incurred; they argue
it would be beyond the bounds of reason to say that "obtaining a recovery of double the
amount initially offered is not 'a satisfactory explanation for the continued litigation.' "
Plaintiffs maintain upholding this sort of ruling would prevent consumer attorneys from
effectively representing their clients by fighting for the best result, and incentivize
manufacturers to never repurchase vehicles before litigation is filed or comply with the
Act's requirements, because it would be unlikely that a consumer would find an attorney
to represent them.
FCA counters with a broad criticism of the "way counsel for buyers litigate cases
under the Act." It says that counsel "litigates lemon law cases shorn of the conventional
principles of reasonable economic value, efficiency, risk-benefit weighing, and
proportionality—the normal principles that govern mainstream litigation and constrain
lawyers from over-litigating cases and routinely lead to negotiated settlements." FCA
asserts that "[a]ll but $2,095 of the attorney's fees . . . would have been avoided if
Plaintiffs' counsel had acted in an economically rational manner and behaved responsibly
and rationally when responding to a reasonable settlement offer (i.e., full statutory
restitution) upon [FCA] answering the complaint." Characterizing plaintiffs' fee request
15
as "overblown and unreasonable," and their counsel as "uncooperative and
obstructionist," they contend plaintiffs failed to demonstrate the fees generated after
March 10, 2015, were necessary and reasonably incurred.
We conclude plaintiffs' points have merit.
III. The Court Erred by Deciding Plaintiffs' Entitlement to Prevailing Party Attorney
Fees Based on Their Failure to Accept Unreasonable or Invalid Settlement Offers
As we have stated above, when a trial court severely curtails the number of
compensable hours in a fee award, as the court did here, a reviewing court may engage in
a presumption that the court determined the fee request was inflated and thus
unreasonable on that basis. (See 569 East County, supra, 6 Cal.App.5th at p. 434.) This
is in keeping with the settled appellate review principle that an order is presumed correct.
(Id. at p. 434, fn. 9.) But operation of that presumption has limits. We cannot indulge
in such a presumption if it is " ' "contradicted by or inconsistent with the record on
appeal . . . ." ' " (Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1250; see
also Keener v. Jeld-Wen, Inc. (2009) 46 Cal.4th 247, 261; United States Elevator Corp. v.
Associated International Insurance Company (1989) 215 Cal.App.3d 636, 648 ["on
appeal we cannot indulge in a presumption which contradicts an express recital in the
record. Where the record states what was done, it will not be presumed that something
else was done"]; accord, McKenzie, supra, 238 Cal.App.4th at p. 704.7) Here, the court's
7 In 569 East County this court interpreted McKenzie as standing for the proposition
that a court will abuse its discretion if its order contravenes uncontradicted evidence.
(569 East County, supra, 6 Cal.App.5th at p. 435, fn. 10.) McKenzie is more broadly
16
rationale for finding plaintiffs were not entitled to attorney fees after March 13, 2015,
was based on improper considerations as to the reasonableness of their response to and
continued litigation after FCA's unreasonable or invalid settlement offers.
Concededly, the trial court had broad discretion in determining the reasonableness
of plaintiffs' fee request, and in its tentative ruling appeared to adopt the requested
lodestar amount with some reductions for unsupported time and an excessive hourly rate
(see footnote 6, ante). But the court ultimately discarded the lodestar inquiry in its final
order; it used what the court itself found was a vague and invalid section 998 compromise
offer to cut off plaintiffs' attorney fees, under the apparent theory that it was unreasonable
for plaintiffs' counsel to reject that offer or counsel should have been more cooperative in
facilitating a settlement for an award of restitution rather than continue litigating the issue
of FCA's willfulness for a civil penalty under the Act or seek any additional recovery. In
substance and effect the court incorporated the penalty provisions of section 998
(applicable to instances—unlike this case—where the plaintiff's result obtained is less
than the defendant's settlement offer) into its reasonableness analysis, and failed to
acknowledge that plaintiffs for their counsel's litigation efforts recovered an amount more
than double the value of FCA's initial restitution offers. In this way, the court abused its
discretion. Its decision to cut off fees from the point of FCA's March 2015 offer,
particularly in the face of plaintiffs settlement for almost double the amount, was error.
persuasive and controlling on the circumstances presented here, as it similarly involved
an award under the Act and the trial court's erroneous decision to excise attorney fees
incurred after a first section 998 offer as unreasonable and not recoverable. (McKenzie,
supra, 238 Cal.App.4th at pp. 698, 702.)
17
We do not write on a blank slate in reaching our conclusions. Goglin involved a
plaintiff who in November 2014 settled her action under the Act against the defendants
for $75,000, less her loan balance. (Goglin, supra, 4 Cal.App.5th at pp. 468-469.)
Defendants had previously offered to resolve the matter several times: Before the
plaintiff filed suit, one of the defendants offered to repurchase her vehicle for all costs
with an offset and reimburse her reasonable attorney fees, but conditioned the offer on
her agreeing to sign a general release, a waiver of section 1542, and a confidentiality
clause. (Id. at p. 465.) The plaintiff responded that she would accept an unconditional
offer of reimbursement without offsets, and declined to sign the proposed release
agreement with its contingencies and waivers. (Id. at p. 466.) After the plaintiff filed suit
and some discovery had taken place, the defendants collectively offered to repurchase her
vehicle and settle the matter for about $54,000, but again conditioned that offer on the
plaintiff dismissing her case and executing a settlement agreement with a confidentiality
clause and a waiver of unknown claims. (Id. at p. 467.) The plaintiff stated she would
accept the offer if it were an unconditional offer to comply with section 1793.2,
subdivision (d)(2) with a stipulation that she was the prevailing party, but again rejected
the release with its contingencies and waivers. (Id. at pp. 467-468.) About five months
before the parties settled the case for $75,000, the defendants served a section 998 offer
to repurchase her vehicle for $45,762, pay her incidental and consequential damages, and
reimburse her for attorney fees and costs to be determined by noticed motion. (Id. at
p. 468.)
18
The plaintiff in Goglin moved for an award of about $200,000 in attorney fees and
costs; the defendants in opposition argued her counsel should not be compensated for any
litigation activities given the pre-trial settlement offer, and thus any time spent on
litigation-related activities were unnecessary and unreasonable; the claimed fees were
grossly inflated and not reasonably expended because the plaintiff "ignored repeated
offers of restitution, filed an unnecessary lawsuit, and engaged in unnecessary litigation
activity"; the case did not warrant such an award because it was not complex; the plaintiff
settled for only a portion of the total recovery she initially sought; and none of the costs
were reasonably necessary given the prelitigation offer to reimburse the plaintiff for
everything she was owed. (Goglin, supra, 4 Cal.App.5th at p. 469.) The trial court
awarded the plaintiff about $185,000 in attorney fees and costs. (Id. at p. 470.)
On appeal, we addressed the defendants' argument that the plaintiff was not
entitled to any fees or costs because she unreasonably refused to accept one of the
defendant's prelitigation settlement offers. (Goglin, supra, 4 Cal.App.5th at p. 471.) We
stated "this contention ignores the unfavorable aspects of the offer, including requiring
[the plaintiff] to agree to a broad release of claims and a confidentiality clause.[] [The
plaintiff] repeatedly and consistently objected to these extraneous provisions and the
parties' final settlement agreement does not include them. Rejecting the prelitigation
settlement because of these unfavorable extraneous terms was not unreasonable." (Ibid.)
In reaching this conclusion, we relied in part on McKenzie, supra, 238
Cal.App.4th 695. (Goglin, supra, 5 Cal.App.4th at p. 471.) In McKenzie, after the
19
plaintiff settled his lemon law claims with the defendant, the trial court awarded him
$28,350 in attorney fees out of his requested $48,000. (McKenzie, 238 Cal.App.4th at
p. 697.) The defendant had made earlier settlement offers, the first in April 2013
including a broad release and a confidentiality clause, which were removed from the
second offer that the plaintiff accepted. (Id. at pp. 698, 699-700.) The trial court refused
to award the plaintiff any of his attorney fees incurred after the defendant's initial
settlement offer, ruling that the offer the plaintiff eventually accepted was identical to the
first offer he had rejected, thus the 42 hours billed by counsel in the face of the first offer
"amounted to 'plaintiff's counsel exaggerating the amount of their fees to increase their
prized fees' " and the plaintiff had "unreasonably delayed settlement for the sole purpose
of 'ginning up' his fee award." (Id. at pp. 698, 702.) The court also found the plaintiff's
two attorneys had billed for many hours of duplicative work, which it deemed
unreasonable. (Ibid.)
Our Division Three colleagues reversed. (McKenzie, supra, 238 Cal.App.4th at
p. 698.) They declined to indulge the inference that the trial court had simply made an
assessment of the usual lodestar factors to reach its award of $28,350 in reasonable fees:
"[W]hile we could certainly do that in the absence of any specific analysis provided by
the trial court, we cannot ignore the court's reasoning when detailed in the order. In this
case, the court was quite explicit in explaining the basis for reducing McKenzie's fees—
rather than imposing a general reduction on the fees requested from the outset, on the
basis the rates charged by McKenzie's counsel were too high or the overall time claimed
was unreasonable given the complexity of the case, the court characterized its reduction
20
as 'based on redaction of fees for duplicated and unnecessary services and billing
performed after defendant's service of its CCP Section 998 offer.' . . . The court awarded
McKenzie 100 percent of the fees he requested for the period before Ford's initial offer,
but found the entirety of 'the subsequent billing was unreasonable' and excised that
specific portion of the fees from McKenzie's award. When the court states its reasons
explicitly, we cannot infer its exercise of discretion rested on a wholly different basis."
(Id. at pp. 704-705.)
The Court of Appeal concluded the trial court's actual reasoning was an abuse of
discretion, as the court had erroneously viewed the two settlement offers as essentially
identical, and thus believed the plaintiff acted unreasonably in rejecting the first offer for
the purpose of exaggerating his fees. (McKenzie, supra, 238 Cal.App.4th at p. 705.) The
appellate court observed that though the defendant had conceded on appeal that its initial
settlement offer contained numerous extraneous provisions, it took the position that they
were legally meaningless or unenforceable, and continued to assert that the plaintiff's
refusal to accept the first offer was unreasonable. (Ibid.) After pointing out the problems
in the defendant's extraneous provisions, and rejecting the defendant's assertions
concerning the duplication of work, the Court of Appeal held that the plaintiff had acted
reasonably in rejecting the first proposed compromise offer, and "[t]he trial court's
decision to award no fees in the wake of Ford's initial section 998 offer to compromise
amounted to an abuse of discretion in the circumstances of this case." (Id. at p. 708.) It
reversed the fee award and remanded the case, directing the court to reconsider the
21
amount of fees to be awarded the plaintiff for the period following the defendant's initial
section 998 offer. (Ibid.)
The import of both Goglin and McKenzie is that where a defendant's settlement
offer contains unfavorable provisions or is otherwise invalid, as FCA's offers were here,
it is not unreasonable for a plaintiff to reject that offer. (Goglin, supra, 4 Cal.App.5th at
p. 471; McKenzie, supra, 238 Cal.App.4th at p. 708.) We recognize that the plaintiffs in
these cases engaged in some negotiating following the defendants' settlement offers,
responding with counter offers. (Goglin, at pp. 466-468; McKenzie, at p. 700.) In
McKenzie, the court observed that the plaintiff's prompt service of a counter offer
stripped of the extraneous terms reflected his willingness to complete a settlement.
(McKenzie, at p. 708.) But the holdings in Goglin and McKenzie turn on evidence that
the plaintiffs did not act unreasonably in continuing to litigate their cases in the face of
the defendants' settlement offers, and on the absence of evidence that the failure to
resolve the cases was solely attributable to counsel's desire to generate more fees. (See
Goglin, at p. 472.) In Goglin, we specifically rejected the defendant's argument that the
plaintiff's counsel's hours were unreasonable and unnecessary because the defendants'
settlement offers obviated the plaintiff's need to prove liability: "The settlement offers
themselves contained no admission of liability and two of the three offers expressly
indicated liability was not being admitted. Thus, until the case actually settled, Goglin
had to conduct discovery and prepare to prove liability on her varied claims with their
varied elements. She also had to be prepared to counter the numerous affirmative
defenses raised in the answers to her complaint. We, therefore, cannot conclude the court
22
abused its discretion in finding the time spent by Goglin's counsel on litigation activities
was reasonable." (Id. at p. 473.)
In this case, as in McKenzie, we cannot indulge an inference that the trial court's
order drastically reducing plaintiffs' fee request from $89,445 to $2,636 was based on a
legitimate lodestar assessment of the overall reasonableness of counsel's fees based on
rates, duplication of effort, or complexity. The court here found counsel's hourly rates
and the time spent on tasks to be reasonable. Rather, it expressly based its ruling on the
necessity of plaintiffs' continued efforts in litigating the case to the eventual settlement.
But as in Goglin and McKenzie, FCAs settlement offers were unacceptable; the first
informal offer required them to sign a release without stating any release terms, and the
second was insufficiently specific, as the trial court found. (See MacQuiddy v. MercedesBenz
USA, Inc. (2015) 233 Cal.App.4th 1036, 1050 [to be valid, a section 990 offer "must
be sufficiently specific to permit the recipient meaningfully to evaluate it and make a
reasoned decision whether to accept it, or reject it and bear the risk he may have to
shoulder his opponent's litigation costs and expenses"]; Chen v. Interinsurance Exchange
of the Automobile Club (2008) 164 Cal.App.4th 117, 121-122 [valid section 998's terms
and conditions must be sufficiently certain to be capable of valuation].) On this record, it
was not unreasonable for plaintiffs to reject FCA's settlement offers, and thus the court
erred by using this criteria to assess plaintiffs' entitlement to fees.
Nor can we conclude that the trial court's order was correct regardless of its
underlying reasoning. (569 East County, supra, 6 Cal.App.5th at p. 435, fn. 10.) That is
because the record otherwise does not support the trial court's finding as to the
23
unreasonableness of plaintiffs' attorney fees incurred after March 13, 2015. The record
shows that FCA declined to accept plaintiffs' April 2014 pre-litigation demand that it
repurchase their vehicle, but instead waited until after plaintiffs filed suit to make its first,
nonspecific, offer to pay restitution. Absent a court finding that FCA's conduct was not
willful as a matter of law, plaintiffs were entitled to proceed to litigate the issue of FCA's
willfulness and pursue their claims for not only restitution, but civil penalties under the
Act. " 'Attorneys generally must pursue all available legal avenues and theories in pursuit
of their clients' objectives; it is impossible, as a practical matter, for an attorney to know
in advance whether or not his or her work on a potentially meritorious legal theory will
ultimately prevail.' " (Greene v. Dillingham Construction, N.A., Inc. (2002) 101
Cal.App.4th 418, 424; see also Thayer v. Wells Fargo Bank, N.A. (2001) 92 Cal.App.4th
819, 839 (Thayer); Sokolow v. County of San Mateo (1989) 213 Cal.App.3d 231, 250.)
Plaintiffs' persistence eventually paid off; they reached a result in keeping with their
efforts when they settled with FCA for $76,000 and were deemed the prevailing parties
entitled to recover their reasonable attorney fees. In evaluating reasonableness, "the most
critical factor is the degree of success obtained." (Hensley v. Eckerhart (1983) 461 U.S.
424, 436.) Plaintiffs here achieved a relatively high degree of success in resolving their
claims.
Citing Harman v. City and County of San Francisco (2006) 136 Cal.App.4th 1279,
Thayer, supra, 92 Cal.App.4th 819, and Meister v. Regents of University of California
(1998) 67 Cal.App.4th 437, FCA argues that the trial court could properly look to
evidence of spurned settlement offers to determine if subsequently incurred attorney fees
24
were in fact reasonably incurred. They acknowledge the cases such as these typically
involve instances where the plaintiff obtains a less favorable result at trial, but maintain
we should read them to allow a court to consider rejected settlement offers "whenever the
post-settlement litigation produces a huge disparity between the legal fees incurred and
the recovery obtained." FCA argues we should not look to the fact plaintiffs in the end
obtained double the amount of their settlement offers, but focus on the "valued added" by
plaintiffs' counsel in "running up nearly $90,000 in fees." They suggest plaintiffs
spurned "good faith, reasonable settlement offers" and characterize plaintiffs' counsel as
engaging in "self-dealing," "patent over-lawyering," "over-staff[ing]," and seeking
"overblown fees."
FCA's points concerning the reasonableness of their settlement offers and their
characterizations of plaintiff's counsel's efforts are contradicted by the trial court's own
findings and the nature of the settlement offers. And "[g]eneral arguments that fees
claimed are excessive, duplicative, or unrelated do not suffice." (Premier Medical
Management. Systems, Inc. v. California Insurance Guarantee Association (2008) 163
Cal.App.4th at 550, 564.) Otherwise, we are not persuaded by FCA's arguments that we
should judge plaintiffs' success in relation to the attorney fees expended to get there.
Harman's plaintiff was only partially successful on his claims under the federal
Civil Rights Act; the Court of Appeal observed that case law was not consistent as to
whether a party's refusal of a settlement offer should be part of a court's analysis of a
reasonable attorney fee. (Harman v. City and County of San Francisco, supra, 138
Cal.App.4th at p. 1315.) But in that case, there was a "significant disproportionality"
25
between the attorney's trial fees, $247,903, and the additional recovery following trial,
$5,000 more than the defendant's settlement offer of $25,000 made one month before
trial. (Id. at pp. 1312, 1315-1316.) Under those facts, the appellate court held the trial
court could consider defendant's settlement offer in evaluating the benefit to the plaintiff
of the attorney's services at trial.8 Unlike in Harman, plaintiffs here succeeded on their
sole claim, with FCA deeming them the prevailing party and agreeing to pay almost
double the estimated restitution/repurchase amount (estimated by FCA on appeal at about
$40,000) for their vehicle. Harman's principles are not applicable, and do not permit us
to uphold the trial court's use of plaintiffs' rejection of FCA's settlement offers to deny
them any fees incurred after March 13, 2015.
Nor does Thayer, supra, 92 Cal.App.4th 819 support FCA. Thayer involved the
Court of Appeal's assessment of one (of many) counsel's request for enhanced lodestar
fees in a case in which the defendant bank, two months after the lawsuit's filing,
"promptly capitulated" entirely without ever disputing the plaintiffs' factual or legal
8 Notably, on remand and having been directed to reconsider the reasonableness of
the attorney fee award using the lodestar method, the trial court in Harman again
awarded over $1.1 million in attorney fees in the case, in which the plaintiff had obtained
a recovery of $30,300. (Harman v. City and County of San Francisco (2007) 158
Cal.App.4th 407, 415.) In upholding that award, the Court of Appeal emphasized that
"[t]he law does not mandate . . . that attorney fees bear a percentage relationship to the
ultimate recovery of damages in a civil rights case. . . . '[T]he Supreme Court has not
adopted a rule that measures a fee award by a proportion of the damages awarded.' " (Id.
at p. 421.)
26
claims. (Id. at pp. 829, 838-839.)9 The trial court had applied a positive multiplier to
two of four periods of time for which counsel sought fees (for preparing the complaint
and negotiating the substantive provisions of the settlement agreement, id. at p. 831), and
on appeal the bank challenged the court's order applying the lodestar factors and
multiplier (though it did not contest the number of hours worked or the hourly fee used
by the trial court). (Id. at pp. 833-834.) The Court of Appeal found no justification for
the enhanced lodestar under the unique circumstances of that case, involving a bank's
speedy and total concession of the plaintiffs' legal claims as well as their right to
reasonable fees, and multiple counsel engaging in "protracted negotiations that delayed
execution of the settlement agreement." (Id. at pp. 834-839.) At the same time, the
Thayer court recognized the "need to encourage 'private attorneys general' willing to
challenge injustices in our society" and that "[a]dequate fee awards are perhaps the most
effective means of achieving this salutary goal." (Id. at p. 839.) Thus, it counseled,
courts should not be "unduly parsimonious in the calculation of such fees." (Ibid.)
"Compensation should not be strictly limited to efforts that were demonstrably
productive. 'Lawyers for plaintiffs . . . must evaluate, accept and prosecute suits on the
basis of the entire spectrum of theories that show early promise of vindicating their
clients' rights. Every lawyer, indeed every judge, has pursued blind alleys that initially
9 Thayer involved nine law firms for plaintiffs in five coordinated class action law
suits arising from Wells Fargo's anticipatory breach of a promise to provide checking
accounts free of any service charge during the account's lifetime. (Thayer, supra, 92
Cal.App.4th at pp. 824-825.) The bank had retracted its notice to impose service fees on
certain accounts and granted lifetime free checking to every account holder who had
received the notice, claiming this mooted the law suit. (Id. at pp. 825 & fn. 2, 829.)
27
seemed reasonable or even professionally obligatory. To reward only the pursuit of a
successful theory in cases such as this undercompensates the inevitable exploratory
phases of litigation, and may also invite overly conservative tactics or even prohibit some
high-risk but deserving actions entirely.' " (Ibid.) Ultimately, the Court of Appeal
remanded the matter to the trial court to consider applying a negative multiplier for
counsel's fee request, in view of the fact that "[d]uplication was . . . the hallmark of the
coordinated proceeding." (Id. at pp. 840, 844-845) Nevertheless, the court concluded:
"Nothing we have said in this opinion signals any retreat from our firm and continuing
commitment to the settled principle that attorneys entitled to fee awards for advancing
important public interests must be fully and fairly compensated, so as to encourage the
provision of such legal assistance. However, the predicate of any attorney fee award,
whether based on a percentage-of-the-benefit or a lodestar calculation, is the necessity
and usefulness of the conduct for which compensation is sought. To award an attorney a
premium for duplicative work that was neither difficult nor particularly productive,
involved little or no risk, may well have delayed settlement, and seems to have been
primarily designed to line counsel's pockets, would reward behavior which it is in the
public interest (and as well the special interest of the legal profession) to strongly
discourage." (Id. at p. 846.)
Unlike the defendant in Thayer, supra, 92 Cal.App.4th 819, FCA did not entirely
or promptly capitulate on plaintiffs' claims, which included a request for civil penalty
based on allegations that FCA engaged in a willful violation of the Act. FCA, as was its
right, denied liability for a civil penalty, and went so far as to file a cross-complaint
28
seeking a judicial declaration to the contrary, to which plaintiffs demurred. The trial
court here found no issues with counsel's time or hourly rates, rejecting any suggestion of
duplicative or inefficient effort. When FCA proposed a settlement taking into account
some measure of relief over and above straight restitution, plaintiffs promptly negotiated
a settlement. These circumstances are nothing like those in Thayer, in which the record
lacked any justification for enhancing the attorney's requested fees. Rather, the
controlling principle is Thayer's focus on granting plaintiffs' counsel "[a]dequate fee
awards" in cases vindicating important public interests—here, consumer protection. (See
Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Cal.4th 985, 990.) As we have said,
"California law requires that attorney fee awards be 'fully compensatory.' " (Roth v.
Plikaytis (2017) 15 Cal.App.5th 283, 290.)
Meister v. Regents of University of California, supra, 67 Cal.App.4th 437, held a
court has discretion to consider a reasonable nonstatutory settlement offer so as to reduce
an attorney fee award if the party seeking fees continues to litigate after rejecting an offer
greater than the relief the party ultimately obtained. (Id. at pp. 450, 452, 456.) Meister
relied on authority reasoning that " 'where a rejected settlement offer exceeds the ultimate
recovery, the plaintiff—although technically the prevailing party—has not received any
monetary benefits from the postoffer services of his attorney.' " (Id. at p. 452, quoting
Marek v. Chesny (1985) 473 U.S. 1, 11.) In Greene v. Dillingham Construction N.A.,
Inc., supra, 101 Cal.App.4th 418, Division Four of the First District Court of Appeal
disagreed with the Sixth District's reasoning in Meister. The Greene court declined "to
follow [Meister's] holding that a trial court can consider an informal settlement offer" in
29
determining whether fees were reasonably spent. (Id. at p. 426.) We need not decide
which is the better reasoned analysis, because Meister has no application here. Plaintiffs
did not continue to litigate after receiving and rejecting an offer more favorable to them
than their ultimate recovery; plaintiffs obtained more in their final settlement than the
earlier straight restitution settlement offers made by FCA. Their litigation activities in
pursuit of that result cannot be said to be unreasonably spent under Meister's rationale.
We cannot justify the trial court's order on the stated basis that plaintiffs' counsel
failed to give FCA information to enable it to calculate a full and complete offer of
restitution. The trial court apparently reasoned plaintiffs unnecessarily prolonged the
case by failing to "facilitate a prompt resolution," thus any fees incurred after FCA's offer
were unreasonable. On appeal, FCA does not continue to assert that it was unable to
calculate a restitution amount for settlement purposes, and we observe it had in its
possession the copy of plaintiffs' sales contract showing gross sales price, document fees
and sales tax, registration, the total amount financed, monthly payment amounts, and the
beginning and final payment dates (January 12, 2011, and December 12, 2016). FCA
does not deny having access to warranty information related to the vehicle. Rather, FCA
argues plaintiffs and their counsel made a "tactical decision" to refuse to engage in
settlement talks when invited to do so. It maintains courts should not be obligated to
award attorney fees to a plaintiff who rejects an offer of full statutory restitution "for th[e]
speculative inquiry" in exploring a possible civil penalty. We are unable to conclude on
this record that plaintiffs alone somehow stonewalled or obstructed settlement
negotiations by withholding key information. And as we have explained, plaintiffs were
30
entitled to reject FCA's unreasonable offers and seek their full remedy in the absence of a
court's finding as a matter of law that FCA did not willfully violate the Act. Their
litigation efforts resulted in an outcome much more favorable to them than either of those
offers.
FCA argues plaintiffs' request for a 1.5 multiplier shows the unreasonableness of
their fee request. They cite no authority for the proposition, and we are not persuaded.
While it is permissible to account for the pursuit of unsuccessful claims in determining a
reasonable attorney fee, the fact that counsel seeks a multiplier as a component of its fee
request—denied by the court in this case—is not itself a proper factor in determining the
reasonableness of sought-after fees. In fact, it is not unusual for counsel to ask for a
multiplier in contingent fee cases as this one. (See Bernardi v. County of Monterey
(2008) 167 Cal.App.4th 1379, 1399 ["An enhancement of the lodestar amount to reflect
the contingency risk is '[o]ne of the most common fee enhancers . . . .' "].)
IV. The Trial Court Erred as a Matter of Law by Applying the Section 998 Penalty in
Awarding Reasonable Attorney Fees
As we have stated, in reducing plaintiffs' fee award the trial court in substance and
effect applied the penalty of section 998 for plaintiffs' failure to accept FCA's March
2015 settlement offer. Section 998 is intended to encourage settlement by punishing the
party who fails to accept a reasonable offer. (Elite Show Services, Inc. v. Staffpro, Inc.
(2004) 119 Cal.App.4th 263, 268.) Under the law, a plaintiff who fails to accept an offer
and then fails to obtain a more favorable result at trial cannot recover his postoffer costs
and must pay the defendant's costs from the time of the offer, including expert witness
31
fees. (§ 998, subd. (c)(1).) Costs include attorney fees where authorized by statute, as
here. (See Mangano v. Verity, Inc. (2008) 167 Cal.App.4th 944, 948.) Where a section
998 offer is invalid it will not operate to cut off a plaintiff's costs. (See MacQuiddy v.
Mercedes-Benz USA, LLC, supra, 233 Cal.App.4th at p. 1051.)
None of the factors triggering section 998's penalty warranted its application here.
Under the circumstances, the court's use of the March 13, 2015 date to cut off plaintiffs'
attorney fees was arbitrary and unsupportable. We therefore reverse the order.
Outcome: The postjudgment order is reversed and the matter remanded with directions that
the trial court award plaintiffs reasonable attorney fees for their counsels' services, including those performed after FCA's March 2015 offer, as well as reasonable fees for services in pursuing their motion for fees and costs. Plaintiffs shall recover their costs on appeal.
Plaintiff's Experts:
Defendant's Experts:
Comments: