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Court of Appeal:
Pre-Dispute Agreement to Cap Litigation Costs Is Enforceable
Opinion Declines to Find That Such Waivers Contravene Public Policy; Fourth District’s Div. One Weighs In on Circumstances Where Lawyer May Recover Gees From Opposing Party in Representation of Spouse
By Kimber Cooley, associate editor
Div. One of the Fourth District Court of Appeal held yesterday that a pre-litigation agreement to limit a statutory right to recover litigation costs is enforceable, rejecting the argument that such waivers violate California policy and are invalidated by a Civil Code provision providing that “a law established for a public reason cannot be contravened by a private agreement.”
At issue is the interplay between Civil Code §1032(b) and Code of Civil Procedure §3513. The former provides that “[e]xcept as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding,” and the latter specifies that “anyone may waive the advantage of a law intended solely for their benefit” but that “a law established for a public reason cannot be contravened by a private agreement.”
Yesterday’s opinion, authored by Justice William Dato and joined in by Justice Joan K. Irion and Justice Martin N. Buchanan, declares:
“The…novel question presented by this appeal is whether parties to a contract may, by agreement entered into before a contract dispute arises, waive in whole or in part their statutory right to recover litigation costs under section 1032(b). In part by analyzing the interplay between section 1032 and Civil Code section 3513, we conclude the answer is yes….Their voluntary decision to waive or otherwise limit the recovery of costs is in no way inconsistent with Civil Code section 3513 because the primary purpose of awarding costs under section 1032 is to further private rather than public interests.”
In a separately filed opinion, the same three-judge panel addressed whether a party may recover attorney fees for work performed by a lawyer-spouse if the interests of the couple are “joint and indivisible.” The court declined to adopt a bright-line rule precluding recovery and instead held that the analysis turns on whether an attorney-client relationship existed during the pendency of the legal action.
Landlord-Tenant Dispute
The questions arose after married plaintiffs Michael Gogal and Hildy Baumgartner-Gogal filed a complaint against their former landlords, Xinhui Deng and Jianhua Wu, asserting a claim for retaliatory eviction under Civil Code §1942.5, among other causes of action. Gogal, a solo practitioner based in San Diego, represented the couple in the litigation.
After succeeding on their retaliatory eviction claim, the couple filed a motion seeking $152,000 in attorney fees as the “prevailing party” under §1942.5(i). A small portion of the fees, $1,780, was attributable to attorney Darwin Bustarde, and the remaining amount represented charges for work allegedly performed by Gogal on behalf of his wife.
The plaintiffs’ motion asserts $100,440 in fees, based on 502.2 hours worked on the case and multiplying that number by $200, which the plaintiffs contend represents half of Gogal’s $400 billing rate. They argued that the amount corresponds to Baumgartner-Gogal’s responsibility for the attorney fees on the case; they also sought a multiplier to account for lost business opportunities.
San Diego Superior Court Judge Cynthia A. Freeland granted the plaintiffs’ request as to Bustarde’s fees but denied it as to the remainder.
Memorandum of Costs
The couple then filed a memorandum of costs, seeking more than $15,000 under §1032(b).
The defendants moved to strike costs, pointing to a clause in the governing lease providing that “[i]n any action…arising out of this agreement, the prevailing party between landlord and tenant shall be entitled to reasonable attorney fees and costs, collectively not to exceed $1,000.” They argued that the provision barred any further recovery in light of the $1,780 award for attorney fees.
Freeland disagreed and awarded the plaintiffs approximately $14,000 in litigation costs under §1032(b), reasoning:
“Given California Civil Code §1942.5’s expansive remedial intent to protect tenants from abusive conduct by their landlords, the court must conclude that to cap [tenants’] attorney’s fees and costs in this matter at $1,000[] would run afoul of that important public policy.”
On appeal, the Fourth District reversed with directions to enter a new order striking the plaintiffs’ memorandum of costs.
Plain Reading
Dato said that “a plain reading” of the statutory language “demonstrates the fallacy in tenants’ argument” as to costs. He explained:
“The statute creates a general ‘default rule’ that prevailing parties in civil actions have a right to recover costs….The sole purpose of section 1032(b) is to create a right, subject to certain exceptions. It says nothing about whether that same right can be waived.”
Continuing, he remarked:
“Tenants’ reliance on the preliminary ‘except as’ language of the statute is misplaced. That clause merely permits the Legislature to identify circumstances in which the ‘default rule’ should not apply, i.e., where there is no automatic right to recover costs for a prevailing party.”
Turning to §3513, Dato wrote:
“Having determined that cost waivers are not prohibited by section 1032(b), we must address tenants’ alternative argument that such waivers are nonetheless unenforceable under Civil Code section 3513. In undertaking this endeavor, we write on a relatively clean slate, as it does not appear any court has been asked to consider whether section 1032(b) costs are waivable under Civil Code section 3513.”
The plaintiffs cited language in the 2015 California Supreme Court decision in Williams v. Chino Valley Independent Fire District recognizing that §1032(b) “serves an important public policy, relieving a party whose position was vindicated in court of the basic costs of litigation.”
Some Public Benefit
Unpersuaded that the case resolves the present dispute, the justice opined:
“[E]ven to the extent Williams can be read to assume that section 1032(b) might provide some public benefit, that would not preclude enforcement of a party’s waiver of costs.”
He added:
“In tenants’ view, enforcing the $1,000 cap would make the ‘tenant statutes that landlords violated less meaningful and chill enforcement of statutory tenant rights.’ But section 1032 is a statute of general application to all civil cases; it is not a tenant protection statute. The question before us is whether the general right created by section 1032(b) can be waived. Absent express language in a different statute that overrides the general application of section 1032(b)—and tenants point to nothing in any tenant protection statute that would create an express exception—we cannot adopt an interpretation of the costs statute that would vary depending on the nature of the underlying case.”
Under these circumstances, he reasoned:
“In short, section 1032(b) creates a general right for prevailing parties in civil cases to recover certain specified litigation costs. Nothing in the statute prevents those parties from waiving that right, either before or after the commencement of litigation.”
The case is Gogal v. Deng, D084158.
Lawyer-Spouse Fees
As to whether Baumgartner-Gogal may recover attorney fees for work performed by Gogal, the court acknowledged the 2009 Sixth District decision in Gorman v. Tassajara Development Corp. in which the panel assumed that a “true attorney-client relationship” did not exist where the interests of the spouses in the legal action were “joint and indivisible.
Dato said that the “more nuanced” fact-based approach taken by Div. One of this district’s Court of Appeal in its 2012 opinion in Rickley v. Goodfriend is “correct” and that “Gorman can be harmonized with Rickley if it is construed narrowly to say that in the absence of other evidence, spouses with totally joint interests and seeking only coincident damages will generally be unable to establish a true attorney-client relationship.”
He declared that courts should look to factors generally governing the existence of an attorney-client relationship—such as whether the party is obligated to pay the lawyer’s fees—as well as unique circumstances relevant to the specific question at hand, including whether the attorney has an indivisible pecuniary interest in the outcome of the litigation.
The jurist opined:
“While joint interests and coincident damages are relevant and often determinative considerations, they do not necessarily preclude an attorney-client relationship any more than separate interests and distinct damages define it…. Although we do not decide what other evidence would suffice, it may include any facts tending to show that the nonattorney spouse played a significant substantive role in the litigation rather than merely deferring to the other spouse.”
The court affirmed Freeman’s order denying fees for Gogal’s work, declaring:
“The key evidence that is missing in this case concerns Hildy’s role in the litigation, the circumstances of her consultations with Michael, and their purpose….Simply put, tenants did not introduce evidence sufficient to overcome the natural inferences that arise from an attorney spouse pursuing an entirely joint claim with entirely coincident damages, evidence that is necessary to demonstrate a bona fide attorney-client relationship in this context.”
That case is Gogal v. Deng, D084405.
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