Special Fee Shifting Statute: Court Of Appeal Sustains Large Fee Recovery Against City Of Los Angeles Under Both California’s False Claims Act And Wrongful Retention Payment Statute

Second District, Division 2 Finds Objective Test Governs Fee Recovery Under False Claims Act.

     California’s False Claims Act has a fee-shifting provision, stating that a court may award a prevailing defendant its reasonable attorney’s fees and expenses against a state or political subdivision that proceeds with a false claim for payment claim if the court finds the claim was “clearly frivolous, clearly vexatious, or brought solely for purposes of harassment.” (Gov. Code, § 12652(g)(9).) Public Contracts Code section 7107(f) provides that a prevailing party shall be entitled to attorney’s fees and costs in an action for collection of retention payment illegally withheld vis-à-vis public entities. Both these fee shifting provisions were in play in the next case we review.

     In Dillingham-Ray Wilson v. City of Los Angeles, Case No. B192900 (2d Dist., Div. 2 Mar. 18, 2010) (certified for partial publication, but with the fee recovery sections unpublished in nature), a contractor obtained a $36 million award against City of Los Angeles for delays, unpaid contract retention, prompt pay penalties, prejudgment interest, and attorney’s fees. Of this amount, contractor was awarded $1,634,188.50 in fees under the False Claims Act and $3,799,048.74 in fees under the retention payment statute. Also, a subcontractor was awarded $1,211,858 in fees against City of Los Angeles under the False Claims Act as the prevailing party. City filed a cross-appeal, when contractor filed a primary appeal on certain in limine rulings that excluded $25 million of contractor’s damage claims. (On appeal, contractor obtained a reversal of the excluded claims.)

     Our focus is on the City’s cross-appeal of the fee awards, determinations affirmed upon review in an unpublished portion of the appellate panel’s decision.

     Because there was substantial evidence to support the determination that the failure to pay retentions was not backed by a bona fide dispute, the fee recovery was justified under section 7107(f).

     That brought the Court of Appeal to City’s challenges to the False Claims Act fee awards. City’s main argument was that the award could not stand unless the lower court found that the false claims act counts subjectively were brought in bad faith and lacked probable cause. Not so, said the appellate panel. Government Code section 12652(g)(9) is disjunctive in nature, meaning that an objective determination of frivolity would suffice. Even analogous Federal False Claims Act cases supported the view that an objective analysis could satisfy the fee recovery predicate. (See, e.g., Pfingston v. Ronan Engineering Co., 284 F.3d 999, 1006 (9th Cir. 2002); Mikes v. Straus, 274 F.3d 687, 705 (2001).) The lower court’s factual findings amply demonstrated objective frivolity, such that City was liable.

     City also argued that the fee award could not stand because the trial court’s denial of in limine motions after an Evidence Code section 402 hearing showed that the claims were not clearly frivolous in nature. Again, observed the appellate panel, City failed to recognize an important distinction—in limine motions are not merit determinations, like denied summary judgment motions, such that “[w]e decline to extend the interim adverse judgment rule to rulings on the admissibility of evidence.” (Slip Opn., p. 34.)

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