PLCM Is the Leading Case Under Civil Code Section 1717, And Likely In Other Contexts.
We would like to thank Michael J. Ireland, General Counsel of Majestic Investment Group in Woodland Hills, for this message: “I don’t know if there are many of us out there, but I would like to see cases discussing calculation of fees awards to In House Counsel.” We have not seen any along the way since we have been blogging in this area, but set forth what seems to be California law on the subject. Put another way, this one is for all you California in-house counsel out there that get involved in litigation with fee-shifting clauses or statutes.
The leading case relating to the proper compensation for in-house counsel in fee shifting cases is PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084 (2000), specifically arising in a Civil Code section 1717 context. The prevailing party in PLCM utilized the services of in-house counsel, but the trial court based the award of fees on the number of hours expended by counsel, multiplied by the prevailing market rate for comparable legal services in the city where counsel was located (a lodestar approach). Disgruntled litigant hit with the award contended the fee should have been based a “cost-plus” approach, namely, the precise calculation of the actual salary, costs, and overhead of in-house counsel. The California Supreme Court disagreed with appellant’s contention. The supreme court noted that the fee setting inquiry in California ordinarily begins with the lodestar approach, which then may 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 rendered. (Id. at 1095.) Even where the representation is by in-house counsel, a court may properly base an award on the number of hours expended multiplied by the prevailing market rate for comparable legal services in the area. (Id. at 1096.) In fact, the PLCM court went to great lengths to indicate that it was “neither appropriate nor practical” to base in-house compensation in section 1717 cases on actual costs and overhead rather than the prevailing market value of comparable legal services. (Id. at 1098, quoting Shaffer v. Superior Court, 33 Cal.App.4th 993, 1003 (1995).)
PLCM, although indicating that the lodestar method is presumptively reasonable when calculating fees for in-house counsel, did leave the door open for other approaches, observing that in “exceptional circumstances, the trial court is not precluded from using other methodologies.” (Id. at 1095-1097.) Although no case law has involved the possible “exceptional circumstances,” PLCM does set the lodestar approach as the “baseline” in this area. (Several California unpublished appellate decisions have cited PLCM, suggesting the lodestar approach is the one to use for compensation of in-house counsel.)
One of the more interesting discussions of in-house compensation occurred in Feurzeig v. Insurance Company of the West, 2003 WL 21003733 (4th Dist., Div. 1 May 5, 2003). There, an insurer effectively abandoned an insured, which chose to use its in-house counsel to conduct the defense denied to it by the insurer’s breach of its duty to defend. A judgment to insurer based on breach of its defense obligation included $261,579 for the fair market value of in-house counsel’s attorney time in defending the insured. Insurer griped about this award, but was rebuffed on appeal (based on waiver as well as on the merits). The appellate panel found PLCM persuasive over a prior intermediate appellate decision, ultimately concluding even in this insurance context that “PLCM suggests that as a matter of policy the lodestar approach is a reasonable measure of an appropriate award.” (Id. at *14.)
So, in-house counsel, take refuge in the lodestar approach in most fee-shifting cases. Again, we thank Mr. Ireland for his question—hope we provided some insight!