Cassim v. Allstate Insurance

*814 BAXTER, J., Concurring and Dissenting.

The court’s holding has two parts. In the first part, the court, without deciding whether the closing argument under review constituted misconduct, holds that any error was harmless. I join this part of the court’s opinion, which is of importance to the parties to this litigation. In the second part, the court holds that plaintiffs are entitled to some unspecified percentage of their $3,594,600 compensatory damage award as “Brandt[ 1 ] fees, that is, the amount of attorney fees payable as damages.” (Maj. opn., ante, at p. 805.) According to the majority, the correct percentage depends on “the percentage of the legal fees paid to the attorney that reflects the work attributable to obtaining the contract recovery,” which will require the trial court first to “determine the total number of hours an attorney spent on the case” and “how many hours were spent working exclusively on the contract recovery.” (Id. at p. 812.) The trial court must next determine how many hours were “spent working on issues jointly related to both the tort and contract” and then, without any criteria to guide its decision, apportion “some hours ... to the contract and some to the tort.” (Ibid.) “This latter figure, added to the hours spent on the contract alone, when divided by the total number of hours worked, should provide the appropriate percentage.” (Ibid.)

This complicated yet uncertain method of calculation, which must nonetheless be applied every time an insured prevails on a claim of a breach of the implied covenant of good faith and fair dealing, all but guarantees increasingly complicated and protracted litigation over Brandt fees. Because a request for Brandt fees will now “result in a second major litigation” (Hensley v. Eckerhart (1983) 461 U.S. 424, 437 [ 76 L.Ed.2d 40 , 103 S.Ct. 1933 ]), I respectfully (and regretfully) dissent.

The majority discusses the issue of Brandt fees at length and gives preclearance to a variety of hypothetical fee awards not presented here (such as approving a Brandt fee award, when the attorney is retained on an hourly basis, in excess of the damages recoverable under the policy itself) 2 but nowhere acknowledges the purpose of Brandt fees. My analysis begins there.

In Brandt, we held that “[w]hen an insurer’s tortious conduct reasonably compels the insured to retain an attorney to obtain benefits due under a policy, it follows that the insurer should be liable in a tort action for that *815 expense. The attorney’s fees are an economic loss—damages—proximately caused by the tort.” (Brandt, supra, 37 Cal.3d at p. 817.) The purpose of this rule is obvious: in order to be made whole, the insured in such circumstances must recover the policy benefits in full, undiminished by the attorney fees reasonably incurred to recover those policy benefits. The attorney fees reasonably incurred to recover the policy benefits thus are damages suffered by the insured “in the same way that medical fees would be part of the damages in a personal injury action.” (Id. at p. 817.)

We underscored the purpose of a Brandt fee award by emphasizing that “[flees attributable to obtaining any portion of the plaintiff’s award which exceeds the amount due under the policy are not recoverable.” (Brandt, supra, 37 Cal.3d at p. 819, italics added.) The reason that “[flhese fees must be distinguished from recovery of attorney’s fees qua attorney’s fees, such as those attributable to the bringing of the bad faith action itself” (id. at p. 817) is that Brandt is not designed to make the insured whole for all of the attorney fees incurred as a result of the insurer’s tortious conduct. Rather, Brandt merely entitles the insured to all of the benefits due under the policy, undiminished by the expenses incurred in retaining an attorney to recover under the policy.

In sum, “the theory of Brandt (and the cases on which it relies)... [is] that a plaintiff is entitled to be made whole for the harm he suffered by reason of the defendant’s tortious conduct in denying benefits due under the insurance policy.” (Burnaby v. Standard Fire Ins. Co. (1995) 40 Cal.App.4th 787, 795 [ 47 Cal.Rptr.2d 326 ]; May v. Miller (1991) 228 Cal.App.3d 404, 408 [ 278 Cal.Rptr. 341 ] [“The theory is the insured is not made whole unless such fees are awarded”]; Fuhrman v. California Satellite Systems (1986) 179 Cal.App.3d 408, 430 [ 225 Cal.Rptr. 140 , 231 Cal.Rptr. 113 ] (cone. & dis. opn. of Sims, J.) [“The court’s answer to that question is that where a plaintiff is necessarily required to pay attorneys to make the plaintiff whole as a result of a tort, amounts paid by the plaintiff to the attorneys are compensatory tort damages and not attorneys’ fees”], disapproved on other grounds in Silberg v. Anderson (1990) 50 Cal.3d 205, 219 [ 266 Cal.Rptr. 638 , 786 P.2d 365 ].)

What damages would be necessary to make plaintiffs whole in this case? Plaintiffs agreed to pay their attorney 40 percent of any damages recovered. The tort and punitive damages need not concern us here, though, inasmuch as Brandt was not intended to make the plaintiff whole for the cost of retaining an attorney to recover tort or punitive damages. Rather, Brandt fees allow the plaintiff to recover the policy benefits in full, undiminished by the “attorney’s fees incurred in connection with the contract cause of action.” (Brandt, supra, 37 Cal.3d at p. 816.) Accordingly, plaintiffs’ out-of-pocket expense for *816 retaining an attorney to recover benefits due under the policy is the portion of the policy benefits the attorney is claiming—i.e., 40 percent. That amount will make plaintiffs whole. 3

Indeed, had the jury failed to return a verdict on the tort causes of action, “plaintiffs would have been out of pocket exactly 40 percent of the contract recovery.” (Maj. opn., ante, at p. 808.) Similarly, “[i]f the insured were to recover benefits under the policy in a separate action before suing on the tort, the distinction between fees incurred in the policy action, recoverable as damages, and those incurred in the tort action, nonrecoverable, would be unmistakable.” (Brandt, supra, 37 Cal.3d at p. 818.) Once again, the insured would be out of pocket 40 percent of the contract recovery. Likewise, if the trial court were to bifurcate the causes of action and try the contract claim first, plaintiffs again would be out of pocket only the 40 percent of the contract recovery. (Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, 1074-1075 [ 13 Cal.Rptr.3d 586 ] [affirming Brandt fee award limited to 40 percent of the recovery under the policy].)

The majority, however, refuses to embrace this logical solution. In its view, none of these hypotheticals applies here because plaintiffs did prevail on their tort claim and the tort claim and contract claim were tried together. This is true, but irrelevant. That plaintiffs prevailed on their tort claim affects their entitlement to—but not the amount of—Brandt fees, since their out-of-pocket expenses for recovering under the policy remain unaffected by any tort recovery (or, for that matter, by their punitive damages award). That the contract and tort causes of action were tried simultaneously rather than sequentially is equally beside the point. Whether the claims are tried together or separately, in separate trials or in bifurcated proceedings, the out-of-pocket cost to the plaintiff under a contingent fee agreement remains the same. We said as much in Brandt, where we observed there is “ ‘no disadvantage to defendant in the fact that the causes, although separate, were concurrently tried.’ ” (Brandt, supra, 37 Cal.3d at p. 818.)

The majority’s fundamental error is in failing to acknowledge the purpose of the Brandt rule. Only by failing to comprehend the purpose of a Brandt fee award could the majority assert (1) that Brandt might authorize an award of less than 40 percent of the contract recovery in this case, even though plaintiffs are obligated to pay their attorney 40 percent of the contract recovery (maj. opn., ante, at p. 810); and (2) that an award of only 40 percent *817 of the contract amount “would necessarily diminish their contract recovery.” (Ibid.) Inasmuch as plaintiffs’ out-of-pocket cost in this case was 40 percent of the contract recovery, an award less than that would necessarily undercompensate plaintiffs, while an award equal to that could not possibly diminish their contract recovery. Hence, neither of the majority’s assertions is true.

By untethering Brandt from its moorings, the majority inevitably finds itself at sea. I do not dispute that the legal issues in this litigation were to some extent intertwined or that some portion of the attorney’s work was used for both the contract and tort claims. But, under a contingent fee agreement, the nature and extent of the work actually performed is irrelevant to the costs actually incurred by the client. (Rader v. Thrasher (1962) 57 Cal.2d 244, 253 [ 18 Cal.Rptr. 736 , 368 P.2d 360 ] [“ ‘[a] contingent fee contract, since it involves a gamble on the result, may properly provide for a larger compensation than would otherwise be reasonable’ ”]; accord, Mau v. Woodburn, Forman, Wedge, Blakey, Folsom & Hug (Nev. 1964) 80 Nev. 184 [ 390 P.2d 721, 722 ] [under a contingent fee arrangement, “compensation is not related to services actually performed”].) In other words, regardless of whether almost all or virtually none of the work undertaken for the contract claim was also applicable to the tort claim, plaintiffs’ out-of-pocket costs to retain an attorney—and, in particular, their costs to recover on the contract—remained the same. 4 That is why we said in Brandt that “[f]ees attributable to obtaining any portion of the plaintiff’s award which exceeds the amount due under the policy are not recoverable.” (Brandt, supra, 37 Cal.3d at p. 819, italics added.)

Without any support in Brandt, the majority is forced to rely heavily (but only inferentially) on a single Court of Appeal decision, Campbell v. Cal-Gard Surety Services, Inc. (1998) 62 Cal.App.4th 563 [ 73 Cal.Rptr.2d 64 ] (Campbell), in which the Brandt fee award did exceed the contract recovery. The problem with Campbell , of course, is that the Court of Appeal supplied no legal analysis for its ruling, nor did it provide the basis for its calculation. It relied instead on the fact that the defendant insurer “did not challenge the reasonableness of the amount.” (Id. at p. 572, italics added.) 5

I would rely instead on Textron Financial Corp. v. National Union Fire Ins. Co., supra, 118 Cal.App.4th 1061 , a subsequent decision by the same *818 division that decided Campbell , but which the majority fails to discuss or even cite. In Textron, as in this case, the plaintiff retained legal counsel under an agreement entitling counsel to 40 percent of any recovery. The plaintiff, like plaintiffs here, recovered contract and tort damages as well as punitive damages. The trial court awarded Brandt fees equal to 40 percent of the amount recovered under the policy, and the plaintiff appealed. The Court of Appeal affirmed: “The retainer agreement required plaintiff to pay counsel 40 percent of all sums recovered in this action. It had no further legal obligation to pay counsel for the legal services rendered to it. Brandt held the ‘fees recoverable . . . may not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on the insurance contract.’ [Citation.] Plaintiff cites no authority permitting a posttrial modification of the retainer agreement. The trial court did not err by limiting the damage award under Brandt v. Superior Court, supra, 37 Cal.3d at p. 813 to the percentage specified in the parties’ contingency agreement.” (Textron, supra, at p. 1075 .)

Finally, the majority’s approach suffers from a number of fatal inconsistencies and uncertainties. For example, under the majority’s approach, the trial court must apportion hours spent working on issues jointly related to both the tort and contract, “with some hours assigned to the contract and some to the tort.” (Maj. opn., ante, at p. 812.) But the majority offers no guidance for making such an apportionment. The majority’s hypothetical assumes that the trial court “could reasonably conclude that half the hours spent on the joint contract/tort issues are fairly attributable to the contract” but fails to explain why that would be so. (Ibid.) Indeed, the majority fails to foreclose other apportionment methods (such as 95 percent to the contract and 5 percent to the tort, or vice versa). Yet, at another point, the opinion states in passing that plaintiffs may not recover “the majority of their attorney fees attributable to the entire compensatory damages award” (id. at p. 811), which suggests the existence of some arbitrary (but unknown) upper limit on the apportionment.

Later on, the majority advises that, as an “immediately discernible” outer limit, “the Brandt fees can never exceed the legal fees for the combined tort and contract recovery.” (Maj. opn., ante, at p. 812.) But in Campbell—the only “illustrative” case the majority has been able to find (maj. opn., ante, at p. 809)—the Brandt fee award of $13,010 substantially exceeded the entire compensatory damage award (Campbell, supra, 62 Cal.App.4th at p. 569 [$2,500 for the contract claim; $7,288 for the tort claim].) The Brandt fee award therefore greatly exceeded the legal fees for the combined tort and contract recovery, since the case was handled on a contingent fee basis. ( Campbell, supra, 62 Cal.App.4th at pp. 569, 572.)

*819 It is not surprising the majority has no ready sense of how the apportionment of attorney efforts jointly attributable to both contract and tort theories might actually be made, since it is not our practice to apportion fees when, as here, they are “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.” (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130 [ 158 Cal.Rptr. 1 , 599 P.2d 83 ]; see also Del Cerro Mobile Estates v. Proffer (2001) 87 Cal.App.4th 943, 951 [ 105 Cal.Rptr.2d 5 ] [“since Del Cerro’s two causes of action arose from a common core of operative facts, the court was not required to apportion the attorney fees incurred by Proffer between those causes of action”].) Trial courts thus will find no guidance in the majority opinion.

Another inconsistency involves the tension between, on the one hand, the majority’s statement that fees for legal work on issues that are intertwined with the contract issue are recoverable under Brandt and, on the other hand, the majority’s other “immediately discernible” limitation that Brandt fees must exclude legal fees related to the punitive damage award. (Maj. opn., ante, at p. 812.) If, as the majority contends, an entitlement to fees beyond those necessary to make the plaintiff whole arises whenever some portion of the attorney’s efforts are jointly attributable to contract and tort theories, then logic suggests the same would be true when (as here) a portion of the attorney’s efforts are jointly attributable to contract and punitive damage theories. A review of plaintiffs’ closing argument reveals that the asserted lack of evidence for some of Allstate’s allegations—which the majority concedes was part of the contract litigation—was also part of plaintiffs’ contention that Allstate was “trying to set these people up” and had therefore acted with “malice,” which was essential to an award of punitive damages. Thus, the majority’s logic, if taken seriously, would require the trial court to apportion this legal work among the contract, the tort, and punitive damage awards. The majority offers no legitimate reason for refusing to do so.

Brandt entitles the plaintiff insured to full recovery of policy benefits, undiminished by the attorney fees incurred to recover those benefits. In this case, where the attorney was retained under a contingent fee agreement of 40 percent, the correct award is 40 percent of the recovery under the policy. The method proposed by the majority is not only inconsistent with Brandt but will *820 also burden the system with bitterly contested litigation over which contract issues are intertwined with the tort claims and how legal work on such issues should be apportioned. Because this method is predictably unwise and unworkable, I respectfully dissent.

Brown, J., and Sims, J * ., concurred.

Appellant’s petition for a rehearing was denied October 13, 2004, and the opinion was modified to read as printed above. Chin, J., did not participate therein.

Brandt v. Superior Court (1985) 37 Cal.3d 813 [ 210 Cal.Rptr. 211 , 693 P.2d 796 ] (Brandt).

Unlike the majority, I will confine my discussion to the fee agreement at issue here— plaintiffs’ agreement to pay counsel 40 percent of any recovery. The majority’s discussion concerning the proper calculation of Brandt fees under an hourly fee agreement is obiter dicta. (See maj. opn., ante, at p. 812.)

No party disputes that these fees were “reasonably incurred" to recover benefits due under the policy. (Brandt, supra, 37 Cal.3d at p. 815, fn. 1 .)

If (as I propose) plaintiffs must pay their attorneys 40 percent of their recovery under the policy and then are awarded the same 40 percent as Brandt fees, I am puzzled how such an award “would necessarily result in a diminution of their policy benefits.” (Maj. opn., ante, at p. 808.)

The entirety of the Court of Appeal’s reasoning can be set forth here in full: “Campbell concedes that she is only entitled to her attorney fees attributable to the contract cause of action. At trial she documented that amount to be $13,010. [Defendant] did not challenge the reasonableness of the amount.” (Campbell, supra, 62 Cal.App.4th at p. 572 .)

Associate Justice of the Court of Appeal, Third Appellate District, assigned by the Chief Justice pursuant to article VI, Section 6 of the California Constitution.