Fourth District, Division Three Remands $522,216 Fee Award For Recalculation, Rebuffs Homeowners’ Attempt to Have Lower Court Ignore Overbilling/Inefficiency Reductions, and Refuses To Allow Award of Nonstatutory Costs.
Palm trees are certainly a common vista around Southern California. They also generate frequent litigation in common interest developments, where homeowners battle each other or the homeowners association (HOA) to require removal or trimming of palms in order to preserve views. Hundreds of thousands of dollars in fee exposure potentially is at play, because Civil Code section 1354 or Civil Code section 1717 allows for fee shifting in favor of the prevailing party in litigation over view protections. The next case illustrates one such result in favor of homeowners, and arises out of an upscale south Orange County residential development dispute over palm trees.
Ekstrom v. Marquesa at Monarch Beach Homeowners Assn., Case No. G039280 (4th Dist., Div. 3 Nov. 3, 2008) (unpublished) was an appeal of a postjudgment award of $522,216 in attorney’s fees and $$36,192.61 in costs, as well as denial of $44,629.59 in nonstatutory costs, arising from homeowners prevailing against a HOA by compelling enforcement of CC&Rs relating to palm tree removal and trimming. (Homeowners were unsuccessful against individual defendant directors.) Both sides appealed, with the Fourth District, Division Three deciding the case in a recent decision penned by Justice O’Leary.
No one disputed that homeowners were entitled to fees and costs under one or both of the fee shifting statutes mentioned above. The dispute focused on the amount of fees and whether the lower court correctly denied plaintiffs an award of the sought-after nonstatutory costs.
After winning the litigation merits, plaintiffs sought fees of $673,130.19 up through March 2007, fees of $13,686.25 for fee petition work (known as “fees on fees”), and nonstatutory costs of $44,629.59, for a grand total of $731,446.03. Plaintiffs submitted detailed billing statements, excising out the time spent against the individual directors who were granted summary judgment earlier in the litigation. Plaintiffs agreed that their attorneys’ hours, not counting “fees on fees” work, came to 2,871. Plaintiffs also conceded that 13 attorneys worked on the case, with hourly rates ranging from $135 to $450 per hour, as well as three paralegals, with hourly rates ranging between $85-$100 per hour.
Association opposed on various grounds: (1) billing in minimum increments of 15 minutes violated the norm of billing in 6 minute increments for this type of litigation; (2) excessively rounding up time entries for each individual task to the next 15 minute increment; (3) unreasonable “congregational billing” (we like this term) for meetings and telephone calls by all attorneys; (4) excessive billing for e-mails (every attorney working on the case copied and reviewing each e-mail); and (5) overbilling. Association argued that homeowners’ fees should not have exceeded $200,000.
In awarding $522,216 in fees and denying nonstatutory costs, the trial court reasoned: (1) there was excessive billing, as evidenced by “a virtual army—[13] attorneys and three paralegals"—to work on the case with “no explanation [being] provided for the need to employ so many people and why the hourly rates were reasonable”; (2) individual directors’ counsel (who prevailed for their clients) charged half as much as the hourly rates claimed by plaintiffs’ attorneys; (3) overbilling resulted by plaintiffs’ attorneys use of .25 hour increments rather than the .10 industry standard; and (4) there was unnecessary duplication in labor. The trial judge announced his intention to reduce the claimed hours by 40% and set a lodestar of $200 per hour for plaintiffs’ attorneys.
Both sides appealed, which put the dispute in the hands of our local appellate court.
On behalf of the Fourth District, Division Three panel, Justice O’Leary reversed and remanded the fee award for recalculation. The Court of Appeal could not square the 40% reduction with the final figure awarded by the lower court. If the 2,871.3 conceded hour total was used, the award would have only been $347,520 rather than $522,216. The panel could not square the actual award with the math on the actual hours claimed, rejecting Association’s alternative scenarios for justifying the award because those methods still resulted in “sufficient uncertainty in the resulting award.”
In their cross-appeal, homeowners argued that the trial court erred in reducing fees at all for overstaffing and unjustified billing practices. The Court of Appeal rejected this argument, finding no abuse of discretion in the reduction of the hours claimed for the reasons stated in the lower court’s order.
The last issue considered the propriety of denying an award of $44,629.59 in nonstatutory costs—such matters as photocopy charges, messenger fees, attorney travel expenses, computerized research fees, and expert witness fees–to prevailing homeowners. Plaintiffs conceded that these costs were not allowable as routine costs under Code of Civil Procedure section 1033.5(b), but argued that Civil Code section 1354(c)’s authorization of “costs” was broader and allowed for an award of costs not cognizable under section 1033.5(b). Wrong, said Justice O’Leary, because a similar argument was rejected in Davis v. KGO-T.V., Inc., 17 Cal.4th 436, 443-444 (1998) and the reasoning in Davis controlled. Plaintiffs then argued that the nonstatutory costs were recoverable under a CC&R provision allowing the prevailing party entitlement to “costs of suit … as the Court deems reasonable.” Although acknowledging that the CC&Rs allow costs, the appellate panel observed that contractual costs provisions are presumed to adopt the statutory definition and that nonstatutory costs may only be recovered as special contract damages after pleading and proof at trial, something which did not occur in the case before it. (Hsu v. Semiconductor Systems, Inc., 126 Cal.App.4th 1330, 1342 (2005); see also Carwash of America-PO v. Windswept Ventures No. I, 97 Cal.App.4th 540, 543-544 (2002); First Nationwide Bank v. Mountain Cascade, Inc., 77 Cal.App.4th 871, 878 (2000); Robert L. Cloud & Associates, Inc. v. Mikesell, 69 Cal.App.4th 1141, 1154 (1999); Ripley v. Pappadopoulos, 23 Cal.App.4th 1616, 1625-1626 (1994); contra, Bussey v. Affleck, 225 Cal.App.3d 1162, 1165-1167 (1990).) This meant plaintiffs were not entitled to recover the nonstatutory costs not allowable under section 1033.5.
BLOG OBSERVATION #1—See our June 5, 2008 post for a discussion on Bussey, which was finally even decided to be against the grain by the appellate decision deciding it (subsequently, in Hsu v. Semiconductor Systems, Inc., supra, 126 Cal.App.4th 1330).
BLOG OBSERVATION #2—The Court of Appeal in Ekstrom was not bothered at all by the 40% wholesale reduction adopted by the trial court. This demonstrates the liberality given to California state trial judges when confronted with overstaffing/inefficiencies/excessive billing challenges. (See, e.g., Christian Research Inst. v. Alnor, 165 Cal.App.4th 1345 (2008) [Aronson, J.] [reviewed on our August 13, 2008 post].) In contrast, the Ninth Circuit Court of Appeals requires that fee reductions over 10% have to be justified with particularity, even though the trial court’s reasoning in Ekstrom was thorough. (See Moreno v. City of Sacramento, 534 F.3d 1106 (9th Cir. 2008) [reviewed in our August 2, 2008 post].)
BLOG OBSERVATION #3—Fee recovery is the tail that wags the litigation dog in homeowner-HOA disputes. As support for this, we refer you to past cases we have surveyed: Tezak v. Blanco (September 9, 2008 post)—defendant HOA (through a group of homeowners) awarded $47,335.72 costs and $264,549.60 in fees, recovering against a plaintiff homeowner; Ritter & Ritter, Inc. v. The Churchill Condominium Assn. (July 24, 2008 post)—plaintiff homeowners awarded fees of $531,159 against HOA); Pasternak v. Bear Brand Ranch Community Assn. (May 22, 2008 post)—neither plaintiff homeowner nor HOA found to be a prevailing party; plaintiff spent $413,983.50 in trial fees and HOA spent $28,122 in trial fees.