Second District Affirms Lower Court Award, Rebuffing Apportionment, Inadequate Fee Substantiation, and Reasonableness Challenges.
Redevelopment Agency of the City of Pomona (RA) foreclosed on a $9.3 million loan made to plaintiffs for purposes of developing a retail commercial center. Plaintiffs pursued contract and wrongful foreclosure claims against RA, which primarily defended based on an unclean hands defense. RA also brought cross-claims against plaintiffs for breach of contract and fraud. RA eventually won even though there was a reversal of some interim summary judgment/adjudication rulings adverse to plaintiffs. After a bench trial, the trial judge ultimately determined that the main plaintiff failed to pay over $1 million in delinquent taxes, which breached trust deed obligations to RA and also constituted unclean hands of a nature to bar equitable relief.
Now to the salient part of the case for this post. There was a note and owners participation agreement with fees clauses. The trial judge awarded RA $4,126,638.98 in attorney’s fees. Main plaintiff lost her appeal on the merits, but also appealed the fee award. She also lost that appeal, also.
In Kline v. Redevelopment Agency of the City of Pomona, Case No. B184453 (2d Dist., Div. 7 June 17, 2008) (unpublished), the Second District rejected apportionment, inadequate fee substantiation, and reasonableness challenges by the appealing main plaintiff.
Citing Webber v. Inland Empire Investments, Inc., 74 Cal.App.4th 884, 919 (1999), the Second District panel determined apportionment did not need to be done because the fees involved representation on an issue common to both the complaint and cross-complaint. Because the entire case centered on the wrongful foreclosure claim, the trial judge correctly found that the operative cross-claim facts were the same ones that related to RA’s unclean hands defense to plaintiff’s complaint. No apportionment necessary, the appellate court determined.
RA had attached declarations and extensive details of the hours spent on the litigation in support of its fee motion. Not only that, but RA did a very smart move—it only asked to recoup a “blended” hourly rate (billing attorneys at a lower rate and other personnel at a higher rate, but using the same hourly rate in the end). The Second District found that the trial judge easily could find that this substantiation and hourly rate position were reasonable in natue.
As to overall reasonableness, the Court of Appeal stated the trial judge did use discretion in lowering the fee request by $150,000 on the basis that RA did not need to have two to three attorneys present throughout the trial. (Slip Opn., at pp. 30-31.)
So, in the end, marathon litigation cost a plaintiff over $ 4 million, with a trial judge reducing RA’s fee request by a little under 4%–after plaintiff had lost her wrongful foreclosure claim. This catastrophic result illustrates how cases can end when there is a fees clause that reallocates risk between the contracting parties.