Wednesday, October 7, 2009
Court Tosses $400,000 Attorney Fee Award as Arbitrary
By a MetNews Staff Writer
The Sixth District Court of Appeal yesterday ordered reconsideration of an attorney fee and cost award representing less than one third of the $1.3 million requested by a San Jose lawyer and his wife in their action against their former general contractor.
In a 71-page ruling by Presiding Justice Conrad L. Rushing, the appellate panel said it could not determine that the award by Santa Clara Superior Court Judge William J. Elfving was adequate. While a trial judge does not need to explain his or her decision on a motion for attorney fees and costs, the justice emphasized, the award “must be able to be rationalized to be affirmed on appeal.”
As Rushing said he was “unable to surmise any mathematical or logical explanation” for the judge’s award to John Gorman and Jennifer Cheng, the panel reversed.
Gorman is the chief executive officer, chief financial officer, president, and secretary of Gorman & Miller PC, a small business law firm with offices in San Jose and Santa Monica.
He and his wife contracted with the Tassajara Development Corporation in 1999 to build them a $1.5 million house in Los Altos Hills.
After the couple took occupancy of the home, Gorman and his firm filed suit on behalf of himself and his wife alleging defective construction.
Nearly three years later, Gorman and his wife entered into a global settlement with Tassajara and several other defendants. The settlement agreement provided that Gorman and his wife were to be deemed prevailing parties in the action for the purpose of invoking their right to recover attorney fees and costs pursuant to the terms of the construction contract.
Gorman ultimately requested attorney fees of $1,350,538.83 and costs in excess of $266,561.96. Over half of the requested attorney fees were billed by Gorman personally.
After a contested hearing on their motion, which lasted less than an hour, Elfving issued a 27-word order awarding “reasonable attorneys’ fees of $416,581.37 and reasonable costs of $142,432.46.”
On appeal, Gorman contended that Elfving’s failure to issue a statement of decision upon request violated Code of Civil Procedure Sec. 632.
However, Rushing opined that even if a hearing on a motion for attorney fees could qualify as a “trial” under Sec. 632, Gorman was not entitled to a statement of decision because his request—filed 10 days after the decision was rendered— was untimely.
Rushing also rejected Gorman’s argument that case law established a general rule that a trial court must provide an explanation for its ruling on a motion for attorney fees.
“The absence of an explanation of a ruling may make it more difficult for an appellate court to uphold it as reasonable, but we will not presume error based on such an omission,” Rushing said.
He then turned to Gorman’s contention that the fee and cost awards were too low, explaining that Gorman was not entitled to recover attorney fees for work he had performed himself.
The justice acknowledged that the law allows for professional law corporations, which are separate legal entities, but reasoned that in situations where the corporation’s client is also the chief executive officer, chief financial officer, and president of the corporation, there is no “true attorney-client relationship.”
Although the corporation “may send the bill, the same person is the attorney and the client,” Rushing opined.
As for Gorman’s wife, Rushing emphasized that her interests in the lawsuit were “joint and indivisible” with her husband’s interests and that their community estate was liable for their attorney fees.
Absent any evidence that Gorman spent extra time in this case representing his wife in addition to the time he spent representing himself or that his wife suffered any separate harm, Rushing concluded that Gorman’s billable hours were entirely attributable to representing himself.
Rushing then subtracted the fees charged by Gorman personally for representing himself and his wife from the total fee amount to reach a lodestar amount of $684,003.75, noting that the trial court’s award of $416,581.37 represented less than 61 percent of this amount.
“What has intrigued us is that the award is so precise and down to the penny,” he said, suggesting that such precision was indicative of some mathematical computations which he had “tried in vain for days to recreate.”
He said that a reduced award could be fully justified by “a general observation that an attorney overlitigated a case or submitted a padded bill or that the opposing party has stated valid objections,” but noted that the trial court had made no such findings in this case and that the record indicated no reasonable basis for the lodestar reduction.
“It is the essence of arbitrariness to make an award of attorney fees that cannot be justified by the plaintiffs’ request, the supporting bills, or the defendant’s opposition,” he said, adding that the cost award suffered from a similar infirmity.
Joined by Justices Eugene M. Premo and Franklin D. Elia, Rushing ordered the matter remanded for further proceedings.
The case is Gorman v. Tassajara Development Corporation, 09 S.O.S. 5868.
Copyright 2009, Metropolitan News Company