Fee Recovery Not Allowable Under Adoption of Joshua S.
Adoption of Joshua S., 42 Cal.4th 945, 949, 956 (2008) established an additional restriction on the scope of California’s private attorney general statute (Code of Civil Procedure section 1021.5): fees cannot be awarded against someone who has not adversely affected the rights of the public or a substantial class of people other than raise an issue in the course of private litigation that could establish legal precedent adverse to a portion of the public.
Joshua was dispositive when it came to affirming the denial of a section 1021.5 fee request by appellant in Azure Limited v. I-Flow Corp., Case No. G046048 (4th Dist., Div. 3 June 21, 2012) (published), authored by Justice Ikola on behalf of a 3-0 panel.
There, Azure sued I-Flow for breach of fiduciary duty when I-Flow transferred shares of its stock owned by Azure to the state as escheated property even though it knew Azure’s location, with the state selling the stock at a depressed price of $13 less per share than its market selling price at the time. I-Flow won a judgment on the pleading based on an unclaimed property law immunity section. The California Supreme Court reversed the judgment on the pleadings after vindicating Azure’s position that the cited immunity was not in play under the circumstances.
Azure then settled the case for $350,000, but retained the right to seek section 1021.5 fees–which it did request, but which was denied by the lower court.
Our local appellate court affirmed based on Joshua. Although Azure advanced the state of the law, section 1021.5 fees should not be imposed against I-Flow because it had no institutional interest in the litigation but only sought to avoid liability for Azure’s economic losses caused by I-Flow’s past actions. “This was a standard zero sum game, backward-looking case in which two private parties fought over who would be left holding the bag for losses that had already occurred. This is not a case in which Azure volunteered to take on a party who was adversely affecting the public interest.” (Slip Opn., p. 8.)
Azure also argued that fees were justified based on the “scorched earth” litigation tactics by I-Flow, but this is not one of the section 1021.5 assessment factors, with such tactics being appropriately dealt with through discovery abuse and sanctions provisions.