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CA Court: Attorney Fees Might Have Been Awardable as Damages

October 23, 2018 | Posted in : Fee Agreement, Fee Award, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Jurisprudence, Fee Request, Fees as Damages, Prevailing Party Issues

A recent Metropolitan News story, “Attorney Fees Might Have Been Awardable as Damages” reports that the Fourth District Court of Appeal declared that a trust that had to continue defending against an action in an unlawful detainer when the plaintiff refused to file a request for dismissal after a settlement had been reached was probably entitled to recover its post-settlement attorney fees as damages, in a new action, rather than securing them through a post-judgment motion for costs in the UD case.

While indicating a preference for that view—and suggesting that two cases to the contrary were incorrectly decided—Justice Richard D. Fybel of Div.  Three said in an unpublished opinion that the issue need not be determined because the amount of the fees awarded—$118,000—was not supported by the evidence, consisting solely of inadmissible hearsay.  The opinion directs the trial court to enter judgment in favor of the defendant, Morris Cerullo World Evangelism, Inc. (“MCWE”), and against plaintiff Lloyd Copenbarger, as trustee of the Hazel I. Maag Trust.

“It appears to us the Maag Trust could recover, as damages for breach of the settlement agreement, its attorney fees incurred in the unlawful detainer action,” Fybel wrote.  “One purpose for the Maag Trust entering into the settlement agreement was to avoid continuing to run up attorney fees in the unlawful detainer action; had MCWE performed its obligations under the settlement agreement by dismissing the action, the Maag Trust would not have incurred those fees.”

This was not a case where a written agreement called for the award of attorney fees to the prevailing party.  MCWE pointed to Code of Civil Procedure §1021 which codifies the American Rule that party normally bears its own costs of attorney fees, “[e]xcept as attorney’s fees are specifically provided for by statute.”  Citing the 1985 California Supreme Court decision in Brandt v. Superior Court, Fybel said: “There is a difference, however, between attorney fees sought qua damages and attorney fees sought qua costs of suit.  ”In Brandt, recovery of attorney fees was permitted as tort damages in a case where an insurer wrongfully denied coverage.

Fybel wrote: “Although Brandt dealt with a tort cause of action, the principle that attorney fees qua damages are recoverable as damages, and not as costs of suit, applies equally to breach of contract.  In this case, for example, the Maag Trust’s attorney fees incurred in defending the UD Action are damages caused by MCWE’s breach of the Settlement Agreement.  Those attorney fees were not costs of suit because they were not costs incurred in the action to enforce the Settlement Agreement.  In contrast, the Maag Trust’s attorney fees incurred in the lawsuit for breach of the Settlement Agreement would be, if recoverable, costs of suit because they were incurred in the litigation in which they were sought.”

The jurist noted that there are two contrary Court of Appeal opinions: Olson v. Arnett, decided in 1980 by this district’s Div. Five, and Navellier v. Sletten, a 2003 decision from the First District’s Div. Four.  “We question whether Olson and Navellier were correctly decided because both opinions fail to recognize the difference between attorney fees sought as damages and attorney fees sought as costs of suit,” Fybel said.  “We are not bound by those opinions.”

Noting that comments on the recoverability of attorney fees as damages were dicta, he declared: Although it appears to us attorney fees may be recovered as damages for breach of contract, we do not need to decide the issue.  Nor do we need to decide whether, as MCWE contends, the Maag Trust had to plead attorney fees as special damages in its complaint, whether the Maag Trust failed to disclose those damages in discovery, or whether the Maag Trust had to plead and prove excuse of its own failure to perform its obligations under the Settlement Agreement.  Nor do we need to decide the offset issue.  If attorney fees were recoverable as damages for breach of the Settlement Agreement, the Maag Trust failed to prove them.”

The case is Copenbarger v. Morris Cerullo World Evangelism, Inc., G054731.  Fybel noted that the present appeal was the fifth one stemming from a lease of property in Newport Beach.  Neither Olson or Navellier discussed Brandt. Brandt damages are generally awarded in insurance cases.  Div. One of the First District Court of Appeal said in the 1994 case of Ramirez v. Sturdevant: “Plaintiffs’ attorneys were hopeful that the Brandt rationale could be extended beyond bad-faith insurance cases to other situations involving a breach of the covenant of good faith and fair dealing—such as wrongful termination cases.  There is no evidence that such an extension ever had been sanctioned judicially, however, and in 1990…Division Four of this court expressly found such an extension to be unwarranted.”

The holding in Brandt was criticized in a majority opinion by then-Justice Miriam Vogel (now returned to law practice) in the 1995 case of Burnaby v. Standard Fire Ins. Co., with Presiding Justice Vaino Spencer (now deceased) dissenting from that portion of the discussion.  Vogel wrote: “Whatever merit there may be to the criticisms regularly heaped upon the American rule…, the decision to change that rule is the Legislature’s, not the courts’. For that reason, we agree with Chief Justice Lucas’s dissent in Brandt…that courts ought to move cautiously in extending the nonstatutory bases on which awards of attorneys’ fees may be predicated.  For the same reasons, we suggest it is time for the Supreme Court to reconsider and reject the exception it adopted in Brandt.” The high court has not acceded to that suggestion.