Bohm, Matsen, Kegel & Aguilera v. Bonilla CA4/3 ( 2014 )

Filed 9/9/14 Bohm, Matsen, Kegel & Aguilera v. Bonilla CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
BOHM, MATSEN, KEGEL &
AGUILERA,
G048212
Plaintiff and Respondent,
(Super. Ct. No. 30-2012-00566173)
v.
OPINION
JOSE EULOGIO BONILLA etc.,
Defendant and Appellant.
Appeal from a judgment of the Superior Court of Orange County, Gregory
H. Lewis, Judge. Reversed and remanded with directions.
Sayre & Levitt, Federico Castelan Sayre and Adam L. Salamoff for
Defendant and Appellant.
The Aguilera Law Group, A. Eric Aguilera and Raymond E. Brown for
Plaintiff and Respondent.
INTRODUCTION
Appellant Jose Bonilla appeals from a default judgment entered against him
and in favor of a law firm, Bohm, Matsen, Kegel & Aguilera, LLP (the law firm), which
represented him on contingency in several legal proceedings. After Bonilla fired it – and
did not pay his legal fees – the law firm sued to collect them. Bonilla defaulted, and the
law firm wound up with a $2.2 million default judgment.
We reverse the judgment and send it back to the court for recalculation.
Once again, we reiterate that obtaining a default is not the legal equivalent of hitting a
fair ball into the stands, after which the plaintiff makes a pro forma trot around the bases.
The Code of Civil Procedure requires a prove-up; therefore, a plaintiff seeking a default
judgment must prove its entitlement to the amount requested. For its part, the trial court
does not merely sign off on whatever amounts the plaintiff sets down on the judicial
council form. The court must instead evaluate the supporting evidence.
The law firm did not present evidence to support the amount of default
damages. For this reason, the prejudgment interest and the attorney fee awards, which
were based on the underlying damages amount, must also be reconsidered. We return the
matter to the trial court to fix an amount based on proper evidence, should the law firm
renew its request for default judgment.
FACTS
Bonilla hired the law firm in July 2009, on contingency, to represent him as
a plaintiff in a case before the Orange County Superior Court. The case went to trial, and
a money judgment was entered in Bonilla’s favor for $4.3 million in June 2011. In
addition, the court awarded him a 20 percent interest in three Santa Ana commercial
properties: a market, a liquor store, and a tortilla shop.
Dissatisfied with the outcome of the case, the defendants instituted other
legal proceedings to thwart Bonilla’s ability to collect or to otherwise make life miserable
for him. As a result, Bonilla and the law firm entered into a new contingency agreement,
2
dated November 6, 2011 (the fee agreement). Under the new fee agreement, the law firm
would continue to represent Bonilla with respect to the original lawsuit and in the now-
proliferating legal proceedings triggered by the judgment in his favor, but on somewhat
different terms. Instead of the 25 percent contingency of the original agreement, the law
firm would receive one-third of the $4.3 million judgment (and of any recovery from the
other proceedings) plus one-third of the future profits and payments from the 20 percent
interest in the three commercial properties or a one-time payment of $500,000, whichever
he chose. Bonilla also agreed to reimburse the law firm for costs it advanced in the
course of the representation.
Bonilla fired the law firm on January 27, 2012. By that time, the law firm
had, for all practical purposes, put out all the forest fires started by his defeated
opponents. As of February 27, 2012, Bonilla was clear of all the postjudgment
proceedings.
The law firm sued Bonilla to collect under the fee agreement on May 2,
2012. Bonilla did not answer, and his default was entered on July 24, 2012. A motion to
set aside the default was denied. The law firm moved to enter default judgment in
January 2013, supporting the request with two declarations from attorney Raymond
Brown and three exhibits: a copy of the fee agreement, a copy of the notice of client’s
1
right to arbitration, and a copy of the entry of default form.
A default judgment was entered in February 2013 as follows: $2.2 million
in damages, $250,000 in prejudgment interest, $24,733 in attorney fees, and $312 in
2
costs. The court denied an ex parte application to set aside the judgment. Bonilla has
appealed from the entry of the default judgment.
1
Raymond Brown signed the November 2011 fee agreement on the law firm’s behalf.
2
These costs must be distinguished from the costs incurred during litigation, while the law firm was
still representing Bonilla.
3
DISCUSSION
We review the entry of a default judgment for jurisdictional matters and
pleading defects. (Aheroni v. Maxwell (1988) 205 Cal.App.3d 284, 294.)
“‘Substantively, “[t]he judgment by default is said to ‘confess’ the material
facts alleged by the plaintiff, i.e., the defendant’s failure to answer has the same effect as
an express admission of the matters well pleaded in the complaint.”’ [Citation.] The
‘well-pleaded allegations’ of a complaint refer to ‘“‘all material facts properly pleaded,
but not contentions, deductions or conclusions of fact or law.’”’ [Citations.] [¶] Because
the default confesses those properly pleaded facts, a plaintiff has no responsibility to
provide the court with sufficient evidence to prove them – they are treated as true for
purposes of obtaining a default judgment. [Citation.]” (Kim v. Westmoore Partners, Inc.
(2011) 201 Cal.App.4th 267, 281-282, second italics added (Kim).)
As we said in Kim, or rather reiterated in Kim, “‘[I]t is the duty of the [trial]
court to act as gatekeeper, ensuring that only the appropriate claims get through. That
role requires the court to analyze the complaint for itself . . . , ascertaining what relief is
sought against each defaulting party . . . . The court must then compare the properly pled
damages for each defaulting party with the evidence offered in the prove-up.’” (Kim,
supra, 201 Cal.App.4th at p. 272.) The performance of this gatekeeper function is all the
more important because, although the defendant cannot participate to point out flaws in
the evidence, the statute allows the court to award only that amount “as appears by the
evidence to be just.” (Code Civ. Proc., § 585, subd. (b).) This means the court must cast
a critical eye on the evidence presented at the prove-up. (Heidary v. Yadollahi (2002) 99
Cal.App.4th 857, 868.)
I. Jurisdiction
Before discussing the amount of the default judgment in detail, we must
dispose of Bonilla’s arguments dealing with the trial court’s power to enter a judgment at
4
all. On appeal, Bonilla challenges the court’s jurisdiction to enter judgment on two
grounds.
A. Judicial Reference
Bonilla argues the trial court did not have subject matter jurisdiction with
respect to the law firm’s claims against him, because the fee agreement contained a
3
judicial reference clause. Bonilla interprets this clause to deprive the superior court of
subject matter jurisdiction from the outset. “‘The principle of “subject matter
jurisdiction” relates to the inherent authority of the court involved to deal with the case or
matter before it.’ [Citation.]” (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th
180, 196.)
Bonilla has confused judicial reference with arbitration. It is possible to go
straight to arbitration, bypassing a court entirely, and an arbitrator can assume jurisdiction
without having been appointed by a court. But judicial reference, as the name suggests,
requires the involvement of a judge. It is a statutory procedure by which a judge may
appoint a referee “if the court finds a reference agreement exists between the parties.”
(Code Civ. Proc., § 638.) The procedure assumes the existence of a lawsuit over which
the court has jurisdiction. (See Sy First Family Ltd. Partnership v. Cheung (1999) 70
Cal.App.4th 1334, 1341 [reference involves sending pending case to referee for hearing,
determination, and report back to court].)
Under California Rules of Court rule 3.901(a), a referee can be appointed
only after a written stipulation is filed with the court or after a motion of one of the
parties. Under rule 3.902, the trial court must issue an order appointing a referee before a
3
The fee agreement provided in pertinent part, “The parties agree that any and all claims arising out
of, under, or relating, to the agreement will be resolved by reference to a retired judge of the Orange County
Superior Court or such other person as the parties mutually agree [sic] with each side paying the cost of such
proceedings equally. . . . The parties expressly waive their rights to have the matter resolved by a jury and/or sitting
judge.”
5
referee can begin to decide anything. A court must perforce have subject matter
4
jurisdiction in order to make this appointment.
By agreeing to judicial reference, Bonilla agreed to a court proceeding. To
implement and enforce a contract provision requiring judicial reference – as Bonilla
advocates – a court would have to have subject matter jurisdiction.
Bonilla seems to be arguing that a trial court could not enter a default
judgment – only a referee could do so. The main problem with this argument is that the
proceedings never got to the point where the court could consider appointing a referee,
because Bonilla did not timely respond to the complaint. Another problem is that a
referee cannot enter a judgment of any description. Only a judge can do that.
The lawsuit was instituted when the complaint was filed. The court
obtained personal jurisdiction over Bonilla when he was properly served.
Unquestionably the court was empowered to adjudicate a claim based on causes of action
brought under California law. The case was therefore pending before the court. To
activate the judicial reference provision of the fee agreement, Bonilla had to appear and
either stipulate or make a motion. His failure to do so had no effect on the court’s subject
matter jurisdiction (cf. Aheroni v. Maxwell, supra, 205 Cal.App.3d at p. 294 [attorney’s
failure to give notice of right to arbitration did not deprive court of jurisdiction]) and
meant the case was properly before the court.
B. Failure to State a Cause of Action
A default confesses all properly pleaded facts, and the plaintiff is not
required to prove them. If, however, a complaint fails to state a cause of action, a default
judgment cannot stand, because the trial court lacks jurisdiction to enter a default
judgment on a non-existent cause of action. (Kim, supra, 201 Cal.App.4th at p. 282.)
4
Moreover, a court may refuse to appoint a referee, despite an agreement between the parties to
have their disputes decided by judicial reference. (Tarrant Bell Property, LLC v. Superior Court (2011) 51 Cal.4th
538, 544-545.)
6
The law firm’s complaint alleged three causes of action: breach of contract,
5
account stated, and declaratory relief. A cause of action for breach of contract requires
the plaintiff to plead a contract, plaintiff’s performance or excuse for failure to perform,
breach by the defendant, and resulting damages. (McKell v. Washington Mutual, Inc.
(2006) 142 Cal.App.4th 1457, 1489.) The law firm’s complaint alleged all of these
elements. A declaratory relief cause of action requires allegations of an actual present
controversy over a proper subject. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79;
see also Code Civ. Proc., § 1060 [declaratory relief available to “[a]ny person interested
. . . under a contract . . . in cases of actual controversy relating to the legal rights and
duties of the respective parties”].) The complaint sufficiently alleged an actual
controversy about the legal rights and duties of the law firm and Bonilla under the fee
agreement.
Bonilla argues that, having been fired, the law firm could recover its fees
only in quantum meruit for the reasonable value of its services. Because it failed to
allege a cause of action for quantum meruit, the law firm could not obtain a default
judgment.
The allegations of the complaint, which, as Bonilla defaulted, do not have
to be proven, established that the law firm fully performed its part of the fee agreement
before being discharged. It is therefore entitled to the “negotiated fees as specified in the
contract.” (Joseph E. Di Loreto, Inc., v. O’Neill (1991) 1 Cal.App.4th 149, 154
(O’Neill).) Unlike an attorney discharged before full performance, one who has fully
performed may sue and recover on the contract. (Id. at pp. 157-158.)
O’Neill closely resembles this case. In O’Neill, the lawyer represented the
client on contingency in a personal injury action against a bus line. The client prevailed
5
The complaint also included “causes of action” for constructive trust, injunctive relief, and
appointment of a receiver. All of these are remedies, not causes of action. (See Kim, supra, 201 Cal.App.4th at p.
277, fn. 4 [constructive trust]; County of Del Norte v. City of Crescent City (1999) 71 Cal.App.4th 965, 973
[injunction]; Code Civ. Proc., § 564 [appointment of receiver].)
7
and was awarded a substantial judgment. The contingency fee agreement did not require
the lawyer to continue representing the client through an appeal. After entry of judgment,
the client fired the lawyer and obtained new counsel. Although the bus line filed a notice
of appeal, the appeal was later dismissed. The client settled with the bus company, and
the lawyer sued for his share of the recovery plus costs advanced. (O’Neill, supra, 1
Cal.App.4th at pp. 153, 154.) The reviewing court held he was entitled to the fees per the
contract; it was not necessary that the client actually receive the funds from the bus line
while he represented her in order for him to recover. (Id. at p. 158.)
By defaulting, Bonilla has “confessed” that the law firm in this case fully
performed all its obligations. It is therefore entitled to compensation under the terms of
the fee agreement.
We address two more arguments Bonilla has made with respect to failure
6
to state a cause of action. He argues the law firm lacks standing to bring a claim based
on the fee agreement, apparently because the composition of the law firm had changed
between the time it entered into the fee agreement in November 2011 and when it filed
suit in May 2012. We reject this argument for two reasons.
First, nothing in the record supports it. Bonilla filed a request for judicial
notice on July 24, 2013, including materials regarding the Aguilera Law Group, which
represented the law firm at least as of July 24, 2012, when the request to enter Bonilla’s
default was filed. We denied the request for judicial notice without prejudice, pending a
showing of relevance to the issues on appeal, on August 27, 2013. No such showing was
ever made. Nevertheless, Bonilla’s opening brief, filed September 19, 2013, refers
repeatedly to materials in the denied request for judicial notice, in direct violation of
California Rules of Court rule 8.204(a)(2)(C), which restricts the summary of significant
6
We do not here address the remaining two arguments. Constructive trust is not a cause of action,
so whether the law firm failed to state such a cause of action is irrelevant. We deal below with Bonilla’s argument
about fulfillment of the condition for the law firm’s entitlement to its fees.
8
facts to “matters in the record.” We disregard any “facts” for which the record provides
no support. (See McOwen v. Grossman (2007) 153 Cal.App.4th 937, 947.)
Second, even if we were to credit Bonilla’s assertion that some members of
the law firm had left to start their own enterprise before the complaint was filed, the law
firm’s standing to sue would not be affected. A limited liability partnership such as the
7
law firm is an entity separate from the people who make it up. (Corp. Code., § 16201.)
It has standing to sue in its own name. (Code Civ. Proc., § 369.5, subd. (a), Corp. Code,
§ 16307, subd. (a); see also Wallner v. Parry Professional Bldg., Ltd. (1994) 22
Cal.App.4th 1446, 1449.)
The law firm, not its members individually, was a party to the fee
agreement. The law firm is entitled to relief for failure to pay for its services. (Color-
Vue, Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1604 [standing refers to right to relief
in court].) It therefore has standing to sue Bonilla for its fees, regardless of who
composed the law firm when it filed the complaint.
Bonilla also argues the complaint fails to state a cause of action because the
complaint lacks allegations to rebut the presumption of undue influence. To support his
argument, Bonilla relies on Cooley v. Miller & Lux, Inc. (1914) 168 Cal. 120 (Cooley),
which held that, by entering into a second – less onerous – fee agreement with his clients,
an attorney had obtained an advantage, and “the presumption of undue influence attached
to the transaction.” (Id. at p. 131.)
Cooley was decided at a time when former Civil Code section 2235
provided that all transactions between a trustee and a beneficiary during the existence of
the trust “are presumed to be entered into by the latter without sufficient consideration,
and under undue influence.” (See Rader v. Thrasher (1962) 57 Cal.2d 244, 249.) This
7
Limited liability partnerships are governed by Corporations Code section 16951 et seq., part of the
Uniform Partnership Act of 1994.
9
statute was held to apply to the attorney-client relationship. (Ibid.) The statute has since
been both amended and repealed.
The corresponding statute is now Probate Code section 16004, subdivision
(c), which provides: “A transaction between the trustee and a beneficiary which occurs
during the existence of the trust or while the trustee’s influence with the beneficiary
remains and by which the trustee obtains an advantage from the beneficiary is presumed
to be a violation of the trustee’s fiduciary duties. This presumption is a presumption
affecting the burden of proof. This subdivision does not apply to the provisions of an
agreement between a trustee and a beneficiary relating to the hiring or compensation of
the trustee.” The last sentence of the subdivision “specifically exempts from the
presumption of undue influence any agreement relating to the ‘hiring or compensation’ of
the trustee/attorney. This exemption has been held to apply ‘even where there is a pre-
existing attorney-client relationship.’ [Citations.]” (Ramirez v. Sturdevant (1994) 21
Cal.App.4th 904, 917; see also Walton v. Broglio (1975) 52 Cal.App.3d 400, 403-404.) It
was therefore unnecessary for the law firm to include allegations in the complaint
negating the presumption of undue influence in order to state a cause of action.
The law firm has stated a cause of action for breach of the fee agreement. It
is not limited to recovery in quantum meruit. The trial court had the jurisdiction to enter
the judgment against Bonilla.
II. Amount of the Default Judgment
Code of Civil Procedure section 585, subdivision (b), provides, in pertinent
part: “[T]he clerk, upon written application of the plaintiff, shall enter the default of the
defendant. The plaintiff thereafter may apply to the court for the relief demanded in the
complaint. The court shall hear the evidence offered by the plaintiff, and shall render
judgment in the plaintiff’s favor for that relief, not exceeding the amount stated in the
complaint, in the statement required by Section 425.11, or in the statement provided for
by Section 425.115, as appears by the evidence to be just. If the taking of an account, or
10
the proof of any fact, is necessary to enable the court to give judgment or to carry the
judgment into effect, the court may take the account or hear the proof, or may, in its
discretion, order a reference for that purpose. . . .”
The amount of the default judgment against Bonilla consisted of
$2,218,387 in contract damages, $250,404 in prejudgment interest, $24,733 in attorney
fees, and $312 in costs to obtain the judgment. Bonilla does not dispute the amount of
the costs.
A. Damages
The law firm computed its damages based on the November 2011 fee
agreement, and Bonilla’s awards in the action in which the law firm had represented him
and from which he emerged with a substantial judgment in June 2011. The fee
agreement provided that the law firm’s contingency payment would be 33.3 percent of all
sums Bonilla received from the lawsuits, including attorney fees (first element), and
either one-third of the future profits and payments from any non-monetary recovery or a
one-time payment of $500,000, at his discretion (second element). If the court awarded
Bonilla attorney fees in an amount greater than the contingency payment (first and
second elements), the law firm would get that amount instead. The law firm was also
entitled to be reimbursed for its litigation costs (third element).
In the complaint, the law firm alleged that Bonilla owed it $1,441,782,
which equaled one-third of the monetary judgment he was awarded in the lawsuit (first
element); $79,552, which was one-third of Bonilla’s prejudgment interest award (part of
the first element); $500,000 from the non-monetary recovery (second element); and
$197,052 in litigation costs (third element); for a total of $2,218,387. This was the
amount entered as damages in the default judgment.
1. First element – percentage of monetary award
The fee agreement entitled the law firm to a third of “all sums received by
[Bonilla] on [Bonilla’s] behalf relating to the above-named cases from any and all
11
sources whatsoever (including but not limited to fees received in satisfaction of judgment
or in settlement of disputed claims) including attorney’s fees.” (Italics added.) The
complaint contained no allegation that Bonilla had received anything from the judgment
awarded to him. Likewise, the evidence the law firm submitted to obtain the default
judgment did not include evidence that Bonilla received anything, either in compensatory
8
damages or in prejudgment interest. The clear intent of the fee agreement was that the
law firm would be paid one-third of the money Bonilla actually collected, not that he
would pay his lawyers regardless of whether he himself collected the judgment. That is
the nature of a contingency agreement.
As any lawyer knows, a monetary award often signals the start of a long
and arduous battle to collect, one that may be only partially successful or even lost
altogether. The law firm’s complaint contains no allegation that Bonilla collected
anything, so he has not “confessed” the fulfillment of this condition. The law firm did
not submit sufficient evidence to prove its entitlement to compensatory damages.
“Ordinarily when a judgment is vacated on the ground the damages
awarded exceeded those pled, the appropriate action is to modify the judgment to the
maximum amount warranted by the complaint.” (Ostling v. Loring (1994) 27
Cal.App.4th 1731, 1743.) In this case, however, we cannot determine the maximum
amount warranted by the complaint, because nothing was pleaded or proved up as to the
amount Bonilla recovered in damages and prejudgment interest. We therefore return the
matter to the trial court for sufficient evidence on this subject, should the law firm wish to
submit it.
2. Second element – non-monetary award
The second element of the contingency is the law firm’s recovery from
non-monetary awards to Bonilla. In this case, the law firm alleged he was awarded a 20
8
Oddly enough, the evidence did not even include a copy of the June 2011 judgment, awarding
Bonilla $4.3 million plus 20 percent of the commercial properties.
12
percent interest in certain properties. The fee agreement specified that the law firm could
collect either one-third of the future profits and payments from these properties or, at
9
Bonilla’s discretion, a one-time payment of $500,000. In the default prove-up, the law
firm selected the one-time payment of $500,000, and the trial court included that amount
in the total judgment. The law firm’s complaint contained no allegation regarding
Bonilla’s election under this part of the fee agreement.
The question becomes whether anyone else – namely, the law firm or the
court – can choose for Bonilla. Left to his own devices, Bonilla would most likely
choose the alternative that would work to his advantage. If he thought the commercial
properties would be quite profitable in the future, he would probably pay the law firm the
lump sum. By contrast, if he thought future payments from the properties would be low,
he would very likely keep his $500,000 and let a third of these payments trickle into the
10
law firm’s coffers over time. Under the fee agreement, he is entitled to choose, but,
having defaulted, he cannot come into court to make his choice.
The law firm’s cause of action for declaratory relief permits the trial court
to exercise its equitable powers to break this logjam. The trial court can issue an order to
Bonilla requiring him to choose, within a reasonable time, which option he prefers – the
one-time payment or the payments over time. If Bonilla fails or refuses to choose within
the time limit – which must permit him enough time to forecast what the future returns
from the property are likely to be – then the court can, upon the presentation of sufficient
evidence from the law firm, make the election for him. (See Bertero v. National General
9
“In the event that this matter is resolved on terms that include non-monetary recovery and/or the
potential for future monetary recovery, including but not limited to [Bonilla’s] obtaining a partnership interest and
receiving a share of the future profits in the El Toro Market and related businesses, [the law firm] shall be entitled to
one-third of the future profits and payments resulting from the non-monetary recovery on an ongoing basis (such
fees to be paid within 10 days of [Bonilla’s] receipt thereof for as long as [Bonilla] continues to receive monetary
recovery pursuant to any settlement or judgment in this action) or a one-time payment of $500,000 at [Bonilla’s]
discretion.”
10
The law firm submitted no evidence to the court as to which alternative would be more to
Bonilla’s benefit.
13
Corp. (1967) 254 Cal.App.2d 126, 145-146 [defendant in declaratory relief action
ordered either to reinstate stock options or pay money damages].) If Bonilla refuses
completely to cooperate, the law firm would be entitled to conduct a judgment debtor
examination in order to obtain the information necessary for the court to decide which
option would be fairer to Bonilla.
3. Third Element – litigation costs
With respect to litigation costs, the fee agreement provided, “At all stages
of the proceedings, [Bonilla] agrees to pay all the necessary costs, including but not
limited to court costs, jury fees, charges for depositions, investigation costs and expert
fees plus any other costs which may be incurred in the proper presentation and trial of
said action. [The law firm] may advance, on an item by item basis, these costs on behalf
of [Bonilla], in which case such costs are to be reimbursed either directly by [Bonilla] or
disbursed directly out of the proceeds of the action from [Bonilla’s] share of those
proceeds.”
Unlike the promise to pay a percentage of his recovery from any judgment
or settlement, Bonilla’s promise to reimburse the law firm for litigation costs did not
depend on his collecting anything. He could pay this element either directly or from the
11
proceeds of any award, but he had to pay. The intent here is different – he agreed to
reimburse the law firm for costs whether or not he collected anything from his
adversaries.
Although the law firm’s ability to recover its fees depends on some proof of
Bonilla’s recovery from the judgment, the same does not apply to litigation costs.
Attorney fees and costs are separate items. (See Ripley v. Pappadopoulos (1994) 23
Cal.App.4th 1616, 1626; Tasker v. Cochrane (1928) 94 Cal.App. 361, 366 [in absence of
11
Rule 4-210 of the Rules of Professional Conduct prohibits lawyers from paying prospective or
existing clients’ personal or business expenses, but excepts “advancing the costs of prosecuting or defending a claim
or action or otherwise protecting or promoting the client’s interests, the repayment of which may be contingent on
the outcome of the matter.”
14
special agreement to the contrary, client bound to repay attorney for expenses of carrying
on litigation].) Of course, the litigation costs must be reasonably incurred – the client
does not write the attorney a blank check for costs by agreeing to repay them. (See Rule
Prof. Conduct, rule 4-210(A)(3) [“Such costs . . . shall be limited to all reasonable
expenses of litigation or reasonable expenses in preparation for litigation or in providing
any legal services to the client.”].)
Once again the evidence of the amount of litigation costs was insufficient.
“‘[T]he default of the defendant merely admits that something is due but does not admit
that the amount prayed for constitutes that amount.’” (Lynch v. Bencini (1941) 17 Cal.2d
521, 526.) Code of Civil Procedure section 585, subdivision (d), permits evidence of the
amount of damages to be submitted by affidavit, but “[t]he facts stated in the affidavit or
affidavits shall be within the personal knowledge of the affiant and shall be set forth with
particularity, and each affidavit shall show affirmatively that the affiant, if sworn as a
witness, can testify competently thereto.”
The evidence about litigation costs consisted solely of a statement in a
lawyer’s declaration that Bonilla owes the law firm “$133,832.41 (costs paid on behalf of
[Bonilla]) and $63,220.30 (costs paid to [Bonilla]).” Nothing in the declaration indicates
any foundation for these amounts or facts showing how the declarant knows what the
costs are. There are no copies of bills, invoices, receipts, or other documents to
substantiate nearly $200,000 in litigation costs.
The only evidence of the attorney’s competence as a witness is the
conclusory statement “I have personal knowledge of the following facts and if called as a
witness in this matter could and competently [sic] testify thereto.” The recitation of this
formula, in the absence of facts showing a basis for personal knowledge, is not sufficient
foundation. (Mamou v. Trendwest Resorts, Inc. (2008) 165 Cal.App.4th 686, 692, fn. 1;
Snider v. Snider (1962) 200 Cal.App.2d 741, 754.)
15
The evidence of the amount of litigation costs is insufficient. The trial
court must have evidence based on personal knowledge of the amount of costs and their
reasonableness in order to make an award that “appears by the evidence to be just.”
(Code Civ. Proc., § 585, subds. (b), (d).)
If the amount of the litigation costs is not to be established through properly
authenticated documents, then the declarant must (1) explain how he acquired the
knowledge to state what the costs are and (2) provide a breakdown at least by category
(e.g., deposition transcripts, filing fees, expert fees, etc.) of the kinds of things on which
the money was spent. Recitation of lump sums is not enough. Likewise, the declaration
must address the issue of reasonableness of the costs incurred.
Nothing in the declaration submitted by the law firm supports either the
declarant’s personal knowledge or his ability to testify competently about the amount of
litigation costs, let alone their reasonableness. This element of damage too must be
recalculated after the court receives sufficient evidence of both amount and
reasonableness.
B. Prejudgment Interest
Bonilla objects to the award of prejudgment interest as part of the default
judgment, claiming, in effect, that the fee agreement constitutes a waiver of the law
12
firm’s ability to collect prejudgment interest as part of this judgment. He asserts that the
integration clause in the fee agreement precludes the law firm from extracting from him
anything other than the sums mentioned in the contract itself.
12
This prejudgment interest must be distinguished from the prejudgment interest Bonilla was
awarded as part of the June 2011 judgment.
16
13
Entitlement to prejudgment interest is set by statute. It is not dependent
on provisions in a contract, but is awarded as a matter of law, once the conditions for
such an award have been established. (See Leff v. Gunter (1983) 33 Cal.3d 508, 519.)
In the absence of a specific waiver of prejudgment interest in the fee agreement, the law
firm would be entitled to interest on “damages certain or capable of being made certain
by calculation” that have vested on a particular day or interest on unliquidated damages
in the court’s discretion. (Civ. Code, § 3287.)
Because the underlying amount of the damages must be reevaluated, the
trial court will have to look again at the prejudgment interest ($250,404) as well. When it
does so, it will keep in mind the difference between an award under Civil Code section
3287, subdivision (a), and one under Civil Code section 3287, subdivision (b).
Civil Code section 3287, subdivision (a) requires evidence of damages
“certain or capable of being made certain by calculation” as of a particular date, and
interest is calculated from that date. “‘[The] certainty requirement of [Civil Code]
section 3287, subdivision (a) has been reduced to two tests: (1) whether the debtor knows
the amount owed or (2) whether the debtor would be able to compute the damages.’
[Citation.]” (Polster, Inc. v. Swing (1985) 164 Cal.App.3d 427, 434-435.) If the contract
damages are unliquidiated, however, the court must exercise its discretion as to when
interest starts to run, and it may not be earlier than the date the complaint was filed, in
this case May 2, 2012. (See Civ. Code, § 3287, subd. (b).)
13
Civil Code section 3287 provides: “(a) A person who is entitled to recover damages certain, or
capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular
day, is entitled also to recover interest thereon from that day, except when the debtor is prevented by law, or by the
act of the creditor from paying the debt. This section is applicable to recovery of damages and interest from any
debtor, including the state or any county, city, city and county, municipal corporation, public district, public agency,
or any political subdivision of the state. [¶] (b) Every person who is entitled under any judgment to receive damages
based upon a cause of action in contract where the claim was unliquidated, may also recover interest thereon from a
date prior to the entry of judgment as the court may, in its discretion, fix, but in no event earlier than the date the
action was filed.”
17
As of now, there is no evidence in the record as to when the damages
14
became certain – if ever. Any award of prejudgment interest must, like the award of
damages, appear by the evidence to be just. There must be evidence to support not only
the amount but the starting date as well.
C. Attorney Fees
The fee agreement provided, “The prevailing party shall be entitled to
recover the costs of the reference and attorney’s fees.” The Superior Court of Orange
County, Local Rules, rule 366 sets a fee schedule for default judgments. The trial court
consulted this schedule when it awarded the law firm’s attorney fees.
Because the amount of the default judgment must be reexamined in light of
the absence of evidence that Bonilla collected anything from the judgment, the attorney
fees will have to be reexamined as well. The award of fees must be based on the amount
the law firm can show Bonilla actually collected, not on what he was awarded.
Bonilla asserts the law firm cannot recover attorney fees because it
represented itself in the default judgment proceedings. (See Trope v. Katz (1995) 11
Cal.4th 274, 282-283.) Although the law firm represented itself when it filed the
complaint, the default proceedings were handled by another firm. There is no evidence in
the record that the law firm represented itself in obtaining the default or the default
judgment. The law firm is entitled to attorney fees assuming it can make the requisite
showing of recovery under the contract.
14
The law firm picked December 21, 2011, as the date from which interest should start to run, but
gave no explanation as to why that date had any significance.
18
III. Rule Violation
Finally, Bonilla argues the fee agreement is unenforceable because it
15
violates California State Bar Rules of Professional Conduct, rule 3-300. As the court
held in Plummer v. Day/Eisenberg (2010) 184 Cal.App.4th 38, 49, a contingency fee
agreement does not have to comply with rule 3-300 to create at attorney lien. The
reasons for this exemption bear on the issues in this case: “(a) the attorney and client
have agreed that the attorney’s fee will be limited to a percentage of, and derived only
from, a successful recovery created by the attorney’s work; (b) the attorney and client
share the risk of a recovery; (c) any fee the attorney earns or receives is delayed until the
client obtains a recovery, usually at the very end of the representation; and (d) the
recovery often represents the only source of funds from which the attorney can ever be
paid.” (Ibid.) The law firm need not comply with the rule because it shares with the
client a risk of nonrecovery. The client’s default does not erase this risk.
DISPOSITION
The default judgment is reversed, and the matter is remanded to the trial
court for additional proceedings with respect to (1) the law firm’s entitlement to a
percentage of the amounts Bonilla has actually collected from the $4.3 million monetary
damages awarded in the underlying lawsuit and from the other proceedings covered by
the fee agreement; (2) issuing an order requiring Bonilla to elect whether to make the
one-time payment of $500,000 or pay over time from future profits and, if Bonilla refuses
to choose within a reasonable time, conducting further proceedings to make this election;
(3) litigation costs as to which the law firm is entitled to reimbursement under the fee
15
Rule 3-300 of the Rules of Professional Conduct provides: “A member shall not enter into a
business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary
interest adverse to a client, unless each of the following requirements has been satisfied: [¶] (A) The transaction or
acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the
client in a manner which should reasonably have been understood by the client; and [¶] (B) The client is advised in
writing that the client may seek the advice of an independent lawyer of the client’s choice and is given a reasonable
opportunity to seek that advice; and [¶] (C) The client thereafter consents in writing to the terms of the transaction or
the terms of the acquisition.”
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agreement; (4) prejudgment interest in this action; and (5) attorney fees awardable in a
default judgment. The default judgment is affirmed as to its costs. The parties are to
bear their own costs on appeal.
BEDSWORTH, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
MOORE, J.
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