First District, Division Three Affirms Large Fee Award and Adds Costs on Appeal in Favor of Contractor.
Fee shifting statutes can have disastrous consequences, shifting the risk allocation in dramatic fashion such that fees get awarded to a winning party even though they dwarf the amount at issue in the underlying dispute. That is exactly what happened in the case we next review.
As explored in our prior posts of May 29 and June 1, 2008, Civil Code sections 3260(g) and 3260.1(b) provides penalties and attorney’s fees to a contractor having any retention or progress payments wrongfully withheld by an owner constructing a work of improvement. (Section 3260.1(b) borrows the penalty, and possibly the fee, feature of section 3260(g).) These provisions were at play in Massa v. Ruskin, Case No. A119214 (1st Dist., Div. 3 July 14, 2008) (unpublished) (Massa II).
Previously, the same Court of Appeal had affirmed an arbitration award in favor of contractor against homeowner where a judgment included $262,385 in fees, some awarded by the arbitrator and some awarded in post-arbitration confirmation proceedings. Subsequently, the trial court awarded contractor $86,083.24 more for fees and costs incurred in winning the prior appeal. Homeowner appealed the second fee award and lost again, with the appellate court indicating contractor’s appellate fees in defending the second appeal should be determined on remand.
Contractor was to be paid $586,700 to build homeowner a house. When a payment dispute erupted (which homeowner tried to minimize later as only a $10,000 retention withholding dispute), the matter eventually was arbitrated. Contractor was awarded $168,253.36 for “unpaid sums on the base contract, change orders and extra work,” interest penalties, and attorney’s fees of $209,197.50 under Civil Code section 3260. Another $53,000 in attorney’s fees was awarded in post-confirmation arbitration proceedings. Homeowner appealed, lost, and suffered an additional fee hit of $86,083.24 for losing the first appeal.
However, the tail of the litigation dog was still not finished wagging. Homeowner lost appeal number two, with the appellate panel remanding to determine the fees he would pay to contractor for having to defend against the second losing appeal.
Homeowner tried to challenge the initial fee award, even though the prior appellate opinion was likely law of the case when it affirmed the arbitration award (inclusive of the fee award). Relying on McAndrews v. Hazegh, 128 Cal.App.4th 1563, 1567 (2005), homeowner argued the initial award was flawed because it involved disputes well beyond the $10,000 retention for which section 3260(g) authorizes fee recovery. This argument was waived because homeowner never requested apportionment of the attorney’s fees between the retention dispute and other payment dispute issues. Beyond that, Massa II seemed to suggest that section 3260(g)’s fee entitlement provision for retention disputes may be incorporated into section 3260.1(b) as a fee shifting provision for progress payment disputes, even though the latter section only mentions borrowing the penalty aspects of section 3260(g). (Slip Opn., at pp.4-5.) (BLOG NOTE—This is dictum, but interesting dictum, because the law of the case doctrine likely precluded challenging the arbitrator’s initial fee award in the second appeal.)
Beyond the propriety of the initial fee award, the First District panel had no difficulty find that the lower court correctly awarded appellate fees to contractor for prevailing in the first appeal when a fee shifting statute was involved. (See Morcos v. Board of Retirement, 51 Cal.3d 924, 927 (1990).)
The appellate panel concluded by observing that much more than the $10,000 retention payment was at issue, especially given the arbitrator’s award of substantial additional amounts found to be owed under the base contract. It had this poignant ending remark: “We are not unsympathetic with the substantial amount of attorney fees that [appellant homeowner] has been compelled to pay, but we have no basis to question that the fees reflect reasonable hourly rates and the number of hours that [respondent contractor’s] attorneys were required to expend to defend against [appellant’s] many claims and contentions that have been determined to be without merit.” Ouch – the litigation tail gotcha!
One of the important lessons taught by Massa II is that the litigant trying to reduce a fee hit needs to request apportionment and actually perform the apportionment, unless you get a trial judge–with an accounting bent—who has the time and patience to parse through all the billings and associates invoices (a rare situation, in our experience).