Enpalm, Lcc v. Teitler Family Trust

Opinion

RUBIN, J.

Defendants Tracy P. Teitler, Teitler Investments, and the Teitler Family Trust appeal from the order reducing their award of contractual attorney fees after they were awarded judgment in a real estate fraud and breach of contract action. We hold that the trial court properly applied equitable principles to reduce the fee award and therefore affirm the order.

FACTS AND PROCEDURAL HISTORY 1

In December 2003, Ezri Namvar bought a Beverly Hills apartment building owned by the Teitler Family Trust (the Trust). Namvar was a principal of EnPalm, LLC, and he soon after assigned his interest in the deal to EnPalm. 2 When EnPalm learned that one of the tenants, Fred Yadegar, had a long-term lease in the building, it sued Yadegar, the Trust, and Tracy P. Teitler, presumably for breach of contract and misrepresentation concerning the existence of any tenants with such leases. 3 At the May 2006 bench trial, Yadegar tried to introduce a written 10-year lease supposedly signed by *773 Teitler. The court excluded that document because there was no proof that it or Teitler’s signature were authentic and because there was a genuine dispute about the terms of that purported agreement. According to the trial court’s statement of decision, because all of EnPalm’s causes of action were based solely on the existence of that purported lease extension, the exclusion of the document inevitably led to the entry of judgment for appellants.

Appellants then brought a motion asking the court to award them more than $116,000 for contractual attorney fees. (Civ. Code, § 1717.) The motion did not include a calculation based on their lawyers’ time and hourly rates (the lodestar) and did not include attorney timesheets. Even so, the trial court applied both its familiarity with the case and the lodestar principles to calculate a reasonable attorney fee of $50,000. Stating that its calculation did “not end there,” the court went on to apply equitable principles to reduce appellants’ fees by 90 percent to $5,000 because Teitler intentionally lied under oath about various material matters. According to the court’s minute order, “this action may well have resolved in its early stages, formally or informally, had Tracy Teitler been more forthcoming as to the true facts, i.e, the vast majority of the time incurred by the Teitler Defendants’ counsel was not reasonably incurred.”

As far as we can tell from the transcript of that hearing, even though serious authenticity questions led the court to exclude Yadegar’s purported 10-year lease addendum, there was evidence that Teitler concealed the existence of two- and three-year addendums to his lease. The court said that Teitler’s testimony was “just woven with unbelievable statements, half truths, misrepresentations and flat-out lies from the beginning of the transaction all the way through. [][] Miss Teitler created this monster, I believe, and of anyone I think [she] really is the culpable party because she had within her power before the sale, during the escrow, right after the sale, the power and the ability and the obligation to disclose what was going on with this property, and her selective recollection and flat-out recollection [ric] and flat-out false statements I think are really what created this whole situation.” The court concluded by stating that absent Teitler’s actions, she “could have avoided the bulk of what transpired in this litigation; I think that’s what the evidence shows.” On appeal, appellants do not challenge the trial court’s lodestar figure of $50,000, but contend the court erred by reducing that amount by 90 percent as “punishment” for Teitler’s conduct.

*774 DISCUSSION

Except as provided for by statute, compensation for attorney fees is left to the agreement of the parties. (Code Civ. Proc., § 1021.) Civil Code section 1717 (section 1717) provides that reasonable attorney fees authorized by contract shall be awarded to the prevailing party as “fixed by the court.” The trial court has broad discretion to determine the amount of a reasonable fee, and the award of such fees is governed by equitable principles. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1094-1095 [ 95 Cal.Rptr.2d 198 , 997 P.2d 511 ] (PLCM).) The first step involves the lodestar figure—a calculation based on the number of hours reasonably expended multiplied by the lawyer’s 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.” (Id. at p. 1095.) In short, after determining the lodestar amount, the court shall then “ ‘consider whether the total award so calculated under all of the circumstances of the case is more than a reasonable amount and, if so, shall reduce the section 1717 award so that it is a reasonable figure.’ ” (Id. at pp. 1095-1096, quoting Sternwest Corp. v. Ash (1986) 183 Cal.App.3d 74, 77 [ 227 Cal.Rptr. 804 ].) The factors to be considered include the nature and difficulty of the litigation, the amount of money involved, the skill required and employed to handle the case, the attention given, the success or failure, and other circumstances in the case. (PLCM, at p. 1096.) The “necessity for and the nature of the litigation” are also factors to consider. (Kannerv. Globe Bottling Co. (1969) 273 Cal.App.2d 559, 569 [ 78 Cal.Rptr. 25 ] [appellate court affirmed award of fees reduced by trial court].) We will reverse a fee award only if there has been a manifest abuse of discretion. (PLCM, supra, at p. 1095 .)

With these rules in mind, it appears that the trial court acted within its discretion by reducing appellants’ fee award. After determining the lodestar figure of $50,000, the trial court was entitled to consider whether that sum should be reduced to a reasonable figure under the applicable equitable principles. 4 ( PLCM, supra, 22 Cal.4th at pp. 1095-1096.) It did just that, *775 finding that (1) Teitler engaged in conduct that made much of the litigation unnecessary and; (2) as a result, most of the lodestar figure represented attorney fees that were unreasonable.

Appellants do not dispute these principles. In fact, they do not address them at all. Instead, they contend the trial court erred by reducing their attorney fees as punishment for Teitler’s litigation misconduct. Because this contention is unsupported both factually and legally, we disagree.

On the factual end of this equation, while appellants contend in their statement of facts that the trial court’s ruling was not supported by the evidence, they do not support that claim by way of argument, discussion, analysis, or citation to the record. In fact, as noted earlier, the record does not include any of the trial proceedings, leaving us no way to evaluate the merits of such a contention had it ever been made. This leads us to deem that issue waived, a determination that has profound consequences for appellants. Although they contend the trial court “punished” them, the trial court never used that term, and the state of the record, combined with the lack of argument on the issue, compels us to assume that Teitler engaged in conduct before and during the trial that rendered most of appellants’ claimed attorney fees unnecessary. (Amato v. Mercury Casualty Co. (1993) 18 Cal.App.4th 1784 , 1794—1795 [ 23 Cal.Rptr.2d 73 ].) Therefore, as we see it, the issue is not whether a trial court may “punish” a party’s litigation conduct by reducing its attorney fees. Instead, as framed by the undisputed findings and the applicable standard of review, the issue is whether a trial court has discretion to reduce a prevailing party’s contractual attorney fees to the extent they were unnecessary. 5 We hold that it may.

*776 Their legal argument is equally flawed. It rests on language in Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 583 [ 21 Cal.Rptr.3d 331 , 101 P.3d 140 ] (Graham), where fees were awarded under the private attorney general statute (Code Civ. Proc., § 1021.5), and which considered the propriety of using a multiplier to enhance the award for fees incurred in separately litigating the fee issue itself, as opposed to the merits of the underlying litigation. 6 As part of its discussion, the Graham court said that “attorney fees may not be used to punish defendants . . . .” (Graham, at p. 582.) Relying solely on this statement, appellants contend that the trial court did just that when it reduced their attorney fee award.

First, it is arguable that Graham is not even applicable because it arose in a far different factual setting under an entirely separate fee statute. Second, even if Graham’s principles apply to contractual fee awards, appellants have both misread and misapplied that decision. Instead, as set forth below, we conclude that the principles to be derived from Graham are in fact consistent with the trial court’s proper application of equitable principles in this case. 7

Appellants’ conclusion is based on a cribbed interpretation of the facts, a selective reading of Graham , and a parallel failure to consider the decisions the Graham court relied on. As support for the proposition that attorney fees may not be used to punish defendants, Graham cited Ketchum v. Moses (2001) 24 Cal.4th 1122, 1141 [ 104 Cal.Rptr.2d 377 , 17 P.3d 735 ] (Ketchum). (Graham, supra, 34 Cal.4th at p. 582 .) At issue in Ketchum was the propriety of increasing the lodestar amount of a prevailing defendant’s attorney fees incurred at trial for litigating the fee award itself after successfully obtaining dismissal of the complaint as a SLAPP (strategic lawsuit against public participation) action under Code of Civil Procedure section 425.16. The Ketchum court reversed a fee award that used a multiplier to enhance the amount of the award for fees incurred in litigating the fee issue itself, then remanded for a recalculation of the fees. Near the end of its discussion, and apparently as guidance for the trial court, the Supreme Court addressed the plaintiffs contention that he believed the trial court enhanced the defendant’s fee award because it disapproved of the plaintiff’s litigation strategy, including statements that he intended to tie up the defendant in court. In a nod to *777 that concern, the Supreme Court said that a fee enhancement may not be imposed “merely for the purpose of punishing [plaintiff].” (Ketchum, supra, at p. 1142 .) We believe this statement leaves open the option of enhancing (or as in this case, reducing) a fee award if there is some other proper basis aside from “mere” punishment, a notion confirmed by both the Graham court and the cases it relied on.

The full quote from Graham came in the context of when and whether to enhance a fee award based on litigating the private attorney general fee issue, as opposed to the merits of the underlying action. After stating that an enhancement based on the results obtained was seldom justified in the litigation over the amount of fees, the court noted that fee litigation is usually far simpler than litigation on the merits. The court then said: “On the other hand, while attorney fees may not be used to punish defendants (Ketchum, supra, 24 Cal.4th at p. 1141 ), fees for fee litigation may be enhanced when a defendant’s opposition to the fee motion creates extraordinary difficulties.” ( Graham, supra, 34 Cal.4th at pp. 582-583.) As authority for the latter proposition, the Graham court cited Edgerton v. State Personnel Bd. (2000) 83 Cal.App.4th 1350, 1363 [ 100 Cal.Rptr.2d 491 ] (Edgerton) and Crommie v. State of Cal., Public Utilities Com’n (N.D.Cal. 1994) 840 F.Supp. 719, 726 (Crommie). ( Graham, supra, 34 Cal.4th at pp. 582-583.) In Edgerton , the trial court applied a multiplier to enhance the prevailing plaintiffs’ lodestar fee determination under Code of Civil Procedure section 1021.5 because the defendant passed on a chance to settle the litigation early on in exchange for nothing more than an agreement to change the drug testing policy that led to the litigation, conduct the trial court characterized as “intransigent opposition.” The appellate court affirmed that reasoning. (Edgerton, supra, at p. 1363 .) The Crommie court considered a fee award to successful plaintiffs under both federal and California age discrimination statutes, and enhanced their attorney fee award because their counsel obtained an exceptional result in the face of “defense counsel’s excessively vexatious and often unreasonable opposition” during trial. (Crommie, supra, at p. 726 .)

Taken as a whole, Graham therefore stands for far more than appellants suggest. After reading the full quote and its underlying authority, it is best read as a prohibition against enhancing fee awards solely to punish a party, while permitting fee enhancements in the context of fee litigation itself if a party has engaged in litigation conduct that has caused the prevailing party to spend more time on a case than was otherwise reasonably necessary. Does this rule apply as a ground for reducing a prevailing party’s fee award, as happened here? The Edgerton court said it does: “Once the lodestar amount is determined, the court may consider a variety of other factors justifying augmentation or reduction of the award.” (Edgerton, supra, 83 *778 Cal.App.4th at p. 1363 , italics added.) Although Edgerton, Graham, and Ketchum all involved statutory fee awards, their conclusions are consistent with the use of equitable principles to adjust a prevailing party’s lodestar fees under section 1717. ( PLCM, supra, 22 Cal.4th at pp. 1094-1096, quoting International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 224 [ 145 Cal.Rptr. 691 , 577 P.2d 1031 ] [under section 1717, once the lodestar is calculated, that figure may be reduced by reliance on “ ‘equitable considerations . . . [which must] prevail over ... the technical rules of contractual construction’ ”]; accord, Kanner v. Globe Bottling Co., supra, 273 Cal.App.2d at p. 569 [citing necessity of litigation as a factor in a case where prevailing plaintiff’s contractual attorney fees were reduced].) We therefore see no good reason not to apply their holdings here. In short, the trial court’s use of equitable considerations to reduce the lodestar amount of appellants’ attorney fees because most of those fees were unnecessary was proper under both PLCM and Graham. 8

DISPOSITION

For the reasons set forth above, the attorney fee award is affirmed. Respondents shall recover their appellate costs.

Egerton, J., * concurred.

Appellants failed to include in the record the pleadings, the trial exhibits, any of the reported trial proceedings, or respondents’ written opposition to appellants’ attorney fee motion. Instead, we are limited to the statement of decision, appellants’ fee motion, the transcript of the hearing on that motion, and the court’s written order setting the amount of attorney fees. Although the statement of facts suffers from some incurable factual gaps as a result of appellants’ failure to include those items in the record, we were able to glean the essential facts and were therefore able to conduct a meaningful appellate review. (See Santa Clara County Environmental Health Assn. v. County of Santa Clara (1985) 173 Cal.App.3d 74, 83-84 [ 218 Cal.Rptr. 678 ].)

Namvar was also a principal in Maram Holdings, LLC, which was a plaintiff below and is a respondent on appeal. Teitler Investments was also named as a defendant and is a party to this appeal. Neither the record nor the parties’ appellate briefs shed any light on the roles those two entities played in the relevant transaction.

We say presumably because the pleadings are not in the appellate record and the parties have not described the causes of action in their appellate briefs. It appears that various related cross actions were also filed, but they were dismissed before judgment was entered. We will sometimes refer to the Trust, Teitler, and Teitler Investments collectively as appellants, and to EnPalm and Maram Holdings collectively as respondents.

The trial court’s statement that it had fixed a “reasonable” lodestar sum of $50,000 appears to have caused a mistaken belief that the trial court was somehow barred from going on to reduce that amount under equitable principles. First, as PLCM noted, the court can determine a reasonable lodestar fee (based on the apparent reasonable amount of hours and a reasonable hourly rate) and then proceed to adjust it downward by way of equitable principles. ( PLCM, supra, 22 Cal.4th at pp. 1095-1096.) Second, because the trial court ultimately determined that Teitler’s conduct meant that most of the time incurred by appellants’ counsel was not reasonable, it appears to us that this so-called equitable calculation in fact occurred as part of the first step described in PLCM, where the trial court determines the lodestar fee by determining the reasonable, not actual, number of hours expended by counsel for the prevailing party.

We therefore agree with the dissent’s rejection of a rule that would allow a trial court to reduce a prevailing party’s contractual attorney fees for purely subjective reasons, such as its views on the merits of a case, or antipathy toward a party, her counsel, or counsel’s litigation strategy. Nor do we intend that fees may be reduced solely to punish a party for such reasons. As just discussed, our holding is based solely on the undisputed finding that, given how the case unfolded at trial, the bulk of appellants’ fees was unnecessary. The dissent itself implicitly recognizes the propriety of this factor when it cites statutory attorney fee decisions such as Harman v. City and County of San Francisco (2007) 158 Cal.App.4th 407, 417 [ 69 Cal.Rptr.3d 750 ], and Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 161 [ 50 Cal.Rptr.3d 273 ], for the proposition that a trial court may strike fees that were not reasonably expended, or were duplicative or excessive.

We disagree, however, with the dissent’s contention that because equitable considerations such as a party’s litigation conduct may not be used when determining who prevailed at trial (Hsu v. Abbara (1995) 9 Cal.4th 863, 877 [ 39 Cal.Rptr.2d 824 , 891 P.2d 804 ]), the same holds true when determining how much of a prevailing party’s claimed attorney fees were in fact reasonable. The rule makes sense in the context of the initial prevailing party determination, because using such factors to deny that status to a winning party amounts to a true interference with contract by denying her the ability to recover fees at all. On the other hand, it seems not *776 just equitable, but in line with the reasonable expectations of contracting parties, to deny attorney fees that were not reasonably necessary.

Code of Civil Procedure section 1021.5 gives a trial court discretion to award attorney fees to the successful party in an action that resulted in enforcement of an important right affecting the public interest, so long as a significant public benefit was realized, the burden of private enforcement makes the award appropriate, and the interests of justice show that the fees should not be paid from any recovery.

Of course, if Graham and the other decisions it cites do not apply because they are not interpreting section 1717, then presumably in a contractual attorney fees case we should also disregard Graham’s statement about not using fee awards to punish a party.

We disagree with the dissent’s contention that PLCM’s discussion about the procedure and factors used to determine contractual attorney fees should not be given much weight because it was no more than a general recitation of the applicable principles in an unrelated factual and legal context. We are aware of no decisions that cast doubt on the principles announced in PLCM. Because the Supreme Court in PLCM relied on those principles to resolve the question whether a contractual attorney fee award was reasonable ( PLCM, supra, 22 Cal.4th at pp. 1094-1096), that decision is binding on us and we may not ignore its teachings. (California Coastal Com. v. Office of Admin. Law (1989) 210 Cal.App.3d 758, 762-763 [ 258 Cal.Rptr. 560 ].) Even if those statements are considered dicta, we will not reject them without a compelling reason. (Id. at p. 763.)

Judge of the Superior Court of Los Angeles County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.