Second District Affirms Large Fee Award Based on Indemnification Clause in the Parties’ Banking Account Agreement.
In our July 12, 2008 post, we discussed what type of indemnification clauses can give rise to attorney’s fees exposure, with the upshot being that the answer depends on the specific wording of the clause at issue. The next case, which involved protracted litigation over an eight year time span, involved an indemnification clause that was interpreted to allow a fee grant to the prevailing party and which stung the losing party with an ultimate fee judgment of almost $400,000, plus future fees for losing the second appeal decided a few days ago. The case we discuss also has a good discussion on a cross-over issue that we have discussed previously, reinforcing the principle that generalized attacks on fee reasonableness will not prevail without necessary specificity on what fee items are being challenged.
The genesis of the litigation odyssey at issue dated back to 1999, when Prestige’s president, director and shareholder executed three casino markers in Las Vegas (for $20,000 in gambling credits). After he left without paying off the markers, the casino presented the markers for payment to First Federal, Prestige’s checking account bank. First Federal honored the markers and paid casino $20,000 from Prestige’s account. Prestige filed a complaint against First Federal alleging contractual breach, breach of UCC section 4401, negligence and conversion on March 22, 2000. First Federal’s summary judgment grant was appealed by Prestige, which won a reversal in May 2002. At trial in March 2004, the jury returned a complete defense verdict in First Federal’s favor. First Federal sought attorney’s fees of $311,453 from Prestige, but the trial court denied the fee motion as a matter of law. Both sides appealed, with the appellate court deciding the merit challenges to the jury verdict and fee issues in First Federal’s favor.
In Prestige of Beverly Hills, Inc. v. First Federal Bank of California, 2006 WL 278995 (2d Dist., Div. 7 Feb. 6, 2006) (Prestige I), the Second District panel found that an indemnification clause in the Prestige-First Federal Account Agreement did allow for an award of attorney’s fees to First Federal. The clause read: “Accountholder [Prestige] releases and indemnifies Depository [First Federal], its trustees, directors, officers, employees and agents from and against any liability demand or expense in connection with the collection of any item which is handled by Depository without negligence for or on behalf of any Accountholder ….” Because Prestige conceded that the indemnity extended to direct liability as well as third party liability, the Second District in Prestige Ifound the indemnification clause was distinguishable from the Myers general rule that applied only to third-party claims. (See Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547, 555 (2004).) The Second District remanded to determine First Federal’s fee award under the indemnification clause.
First Federal filed a cost memorandum seeking $64,724 for winning appeal number one, with Prestige moving to tax these costs. First Federal also sought to “strike” the original trial judge under Code of Civil Procedure section 170.6, which was denied by the lower court but overturned when the Second District issued mandate otherwise and awarded costs on appeal to First Federal for the mandate win (Prestige II). First Federal sought $24,011.50 from Prestige for this appellate exercise. First Federal and Prestige entered into stipulations by which the $311,453 and $64,724 fee requests were set for argument. The trial court sustained First Federal’s fee requests in these amounts, which—when added to the $24,011.50 mandate exercise—means that Prestige lost fee awards totaling almost $400,000 in favor of First Federal.
Prestige appealed yet again, and finally lost in Prestige III—Prestige of Beverly Hills, Inc. v. First Federal Bank of California, Case No. B199897 (2d Dist., Div. 7 July 15, 2008) (unpublished), a 3-0 decision authored by Justice Zelon.
The appellate record in Prestige III was fairly circumscribed by the fee entitlement ruling in Prestige I. This meant that the principal challenge was to fee reasonableness, which is reviewed under the deferential abuse of discretion standard. (EnPalm, LLC v. Teitler, 162 Cal.App.4th 770, 774 (2008), reviewed in our May 12, 2008 post. California Supreme Court review was denied in EnPalm on July 16, 2008.) The Court of Appeal found that the lodestar was reasonable and that the amount of time was not challenged by Prestige.
Additionally, the appellate court rejected generalized, substantiated reasonableness challenges that failed to address specific costs. In the absence of such particularized challenges, the presumption that fees are reasonable and necessarily incurred was left unrebutted. (Hadley v. Krepel, 167 Cal.App.3d 677, 684 (1985).) “Prestige has not alleged its objections with enough specificity to rebut the presumption that defendant’s fees are reasonably incurred.” (Slip Opn., at p.6.) This underscores a message that was made in our prior review of Premier Medical Mgt. Sys. Inc. v. Cal Ins. Guar. Assn. in our June 2, 2008 post.
Because First Federal prevailed on all causes of action, there was no need to apportion work between successful and unsuccessful claims, distinguishing situations like Mann v. Quality Old Time Service, Inc., 139 Cal.App.4th 328, 342 (2006) where the prevailing party prevailed on only one out of four causes of action at the trial level.
The ending conclusion of Justice Zelon sums up the rationale for affirmance: “Considering this case is on appeal for the third time and has been litigated over eight years, with two jury trials, a multitude of unsuccessful motions, requests filed, and numerous substitutions of counsel by Appellant, this court finds that the fee amount totaling almost $400,000 is not unreasonable. The trial court did not abuse its discretion.” (Slip Opn., at p. 7.) In addition, First Federal was awarded attorney’s fees on appeal, to be determined on remand. These concluding remarks demonstrate that both trial and appellate courts are not insensitive to the protracted nature of litigation, frequently making decisions on fee awards based on the perception of whether the winning or losing litigant was candid, was credible, and took actions that had merit or furthered the goal to resolve the matter efficiently.