Chapman v. Hyundai Motor America CA1/5 ( 2021 )

Filed 1/28/21 Chapman v. Hyundai Motor America CA1/5
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115.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
FIRST APPELLATE DISTRICT
DIVISION FIVE
RICHARD E. CHAPMAN, JR.,
Plaintiff and Appellant, A158279
v.
HYUNDAI MOTOR AMERICA, (Solano County
Defendant and Respondent. Super. Ct. No. FCS047403)
Richard E. Chapman, Jr. (Chapman) appeals from an order awarding
him attorney fees as the prevailing party under the Song-Beverly Consumer
Warranty Act (Song-Beverly Act; Civ. Code, § 1790, et seq.) after he accepted
a settlement offer under Code of Civil Procedure section 998 (section 998).
Chapman contends the court erred in denying recovery of attorney fees he
incurred for services rendered after an earlier section 998 offer. We will
reverse the order and remand for further proceedings.
1
I. FACTS AND PROCEDURAL HISTORY
A. Chapman’s Hyundai Sonata
Chapman purchased a new 2011 Hyundai Sonata in June 2011 for
$37,536.20. The vehicle was manufactured and distributed by respondent
Hyundai Motor America (HMA), which provided an express written
warranty.
After driving the car for a year and less than 13,000 miles, the vehicle
began to show electrical problems. Chapman gave HMA several chances to
make repairs. The vehicle later exhibited severe engine problems, resulting
in the engine shutting down and smoke emanating from the vehicle; the
vehicle remained at the repair facility for 44 days while repair technicians
removed the engine and transmission and installed a new engine. In all,
Chapman took the vehicle in for repairs and recalls 10 times in a period of
just over three years, but problems persisted.
B. Pre-Litigation Negotiations
Chapman contacted HMA customer service on November 4, 2015 and
requested that HMA repurchase the vehicle. Six weeks later, HMA made an
offer that Chapman contends was invalid under the Song-Beverly Act
because it deducted improper amounts for mileage, “Hyundai ESP,” and
“GAP.” Chapman rejected the offer and contacted The Knight Law Group,
LLP, to represent him.
C. Litigation
Chapman filed a lawsuit against HMA on July 20, 2016, alleging willful
violations of the Song-Beverly Act and the federal Magnuson-Moss Warranty
Act (15 U.S.C. § 2301 et seq.). He sought damages, rescission, civil penalties,
attorney fees, and other relief.
2
HMA answered the complaint, denying Chapman’s allegations and
asserting affirmative defenses. HMA also filed a notice of removal to federal
court.
1. First 998 Offer Rejected
In August 2016, HMA served Chapman with an Offer to Compromise
pursuant to section 998 (First 998 Offer) and an Offer of Judgment pursuant
to rule 68 of the Federal Rules of Civil Procedure. Both offers were in the
amount of $10,415.77, plus $2,000 reimbursement for Chapman’s down
payment. Chapman rejected the offers.
2. Second 998 Offer Rejected
In late December 2016 or early January 2017, HMA served a Second
Offer to Compromise pursuant to section 998 (Second 998 Offer) in the
amount of $34,000, along with recovery of his attorney fees to date.
Chapman rejected this offer. The case was remanded to superior court on or
about January 4, 2017.
After the Second 998 Offer, Chapman served written discovery and
counsel engaged in “meet and confer” efforts on discovery matters. In August
2017, HMA took Richard and Kimberly Chapman’s depositions. A mediation
session was held in September 2017, but Chapman did not appear in person
(due to the failure of counsel to instruct him to do so) and the case did not
settle.
3. Third 998 Offer Rejected
In October 2017, HMA served a Third Offer to Compromise pursuant to
section 998 (Third 998 Offer) for $50,000 plus recovery of his attorney fees.
Chapman rejected the offer.
In February 2018, Chapman filed a motion to amend his complaint by
adding causes of action for fraudulent inducement.
3
4. Fourth 998 Offer Accepted
The parties attended a vehicle inspection on March 14, 2018. That
same day, while Chapman’s motion to amend his complaint was pending,
HMA made a Fourth Offer to Compromise under section 998 in the amount of
$120,372 (Fourth 998 Offer). The Fourth 998 Offer allowed Chapman to seek
fees and costs by motion if the parties could not agree on the amounts.
Chapman accepted the offer on April 17, 2018.
5. Chapman’s Motion for Attorney Fees
As prevailing party pursuant to the terms of the Fourth 998 Offer, in
December 2018 Chapman filed a motion to recover his attorney fees and costs
pursuant to Civil Code section 1794, subdivision (d) of the Song-Beverly Act.
Specifically, he sought attorney fees in the amount of $49,835 with a lodestar
enhancement of 0.5, for a total of $74,752.50, along with costs and expenses
in the amount of $8,396.38.
Chapman’s motion was supported by declarations from counsel and
exhibits detailing the basis for the requested fees. Declarations from
Chapman’s attorneys—at the Knight Law Group, LLP and associated counsel
at The Altman Law Group—explained the experience and skill of counsel and
their hourly rates. Attached as exhibits to those declarations were records of
services provided by each law firm, setting forth the work, time spent, hourly
rates, and fees incurred. According to these records, Knight Law Group, LLP
generated fees of $29,022.50 and The Altman Law Group generated fees of
$20,812.50, for a total of $49,835. Noteworthy for this appeal, these fees
included amounts for services rendered after the Second 998 Offer in January
2017, in connection with discovery, a case management conference, the
motion to amend the complaint, and the motion for attorney fees and costs.
4
HMA opposed the attorney fees motion on several grounds. First, HMA
contended that Chapman’s counsel was seeking a double recovery of its fees,
because the statutory attorney fees would be “on top of an undisclosed
contingency percentage” Chapman would have to pay counsel pursuant to his
retention agreement. Although HMA did not have a copy of Chapman’s
retention agreement, it presented evidence that Knight Law Group, LLC was
formerly the law firm of O’Connor & Mikhov, which used a retention
agreement that entitled the firm to 40 percent of any damages recovered
above the amount for the vehicle (including civil penalties). HMA also
presented evidence that a class action lawsuit had been filed against the firm
by a former client, who alleged that the firm used fee agreements that
unlawfully gave the firm a contingency fee in addition to its hourly fees when
“additional damages” were recovered (Osequera v. O’Connor & Mikhov LLP,
Los Angeles County Superior Court Case No. BC591708). (See also Hanna v.
Mercedes-Benz USA, LLC (2019) 36 Cal.App.5th 493, 510 (Hanna) [retainer
agreement produced by O’Connor & Mikhov provided that the firm would
“receive its hourly rate for all time expended on the litigation . . . [and] also
be entitled to a bonus equal to 40 percent of all additional damages
recovered”].) In addition, HMA presented an order in another superior court
case, which denied a plaintiff recovery for attorney fees unless attorney
Mikhov disclosed amounts received or expected to be received from his client
under the retainer agreement. HMA argued that, since Chapman’s counsel
presumably stood to receive $33,134 under the retention agreement, it would
not be reasonable to award counsel an additional $49,835 based on their
hourly rates. HMA urged the court to require Chapman’s lawyers to disclose,
perhaps in camera, their fee agreement with Chapman.
5
HMA next argued that Chapman’s counsel had violated the parties’
written settlement agreement by filing the motion for attorney fees without
first submitting a statement for fees to HMA’s counsel. On this basis, HMA
argued, the attorney fees motion should be denied entirely.
In addition, HMA attacked the fee request as to amounts for certain
services: $11,375 for services that were rendered after the Fourth 998 Offer
was made; $7,705 in fees (and $525 in costs) for the mediation, which was
unproductive due to the failure of Chapman’s attorneys to instruct Chapman
to attend the mediation (for which counsel was sanctioned by the court);
$1,770.50 because the case was overstaffed with 11 attorneys and a
paralegal; and $4,752.50 for other excessive billings. Finally, HMA argued
that counsel’s hourly rates were excessive. By HMA’s calculation, even if
Chapman could show that the attorney fees requested were not duplicative of
the contingency fee presumably contained in the retention agreement, the
court should award no more than $16,967.50, reduced by a 0.2 lodestar
multiplier.1
The court issued a tentative ruling that awarded Chapman attorney
fees of just $11,425, concluding that Chapman had not met his burden of
showing that “any fees incurred following the settlement offer for $34,000
1 HMA also pointed to Chapman’s deposition testimony that he had not
seen or known of HMA’s section 998 offer that offered to pay $34,000 to
repurchase the vehicle plus compensation for attorney fees. Besides the
serious implications this would have under rule 1.4.1 of the California Rules
of Professional Conduct, a failure to advise Chapman of the Second 998 Offer
could raise questions as to whether Chapman would have accepted the offer
and, therefore, the reasonableness of continuing to litigate the case.
Chapman counters that his attorney’s records indicate that counsel reviewed
the Second 998 Offer on January 3, 2017 and had a “communication with
client” on January 5, 2017. The court made no factual finding in this regard,
and we therefore do not consider the matter further.
6
made on or about January 3, 2017” were reasonably necessary to the conduct
of the litigation and reasonable in amount. Specifically, the court explained,
Chapman had “not demonstrated that it was reasonable to continue to
prosecute his action after [HMA] offered to settle the action for $34,000,
which apparently included attorneys’ fees by motion. . . [Chapman’s] only
reason for rejecting the offer is a conclusory assertion that it was ‘inadequate’
without making any effort to articulate in what manner the offer was
inadequate. [Citation] Instead, based on the facts presented to the Court, it
seems that an offer of restitution of $34,000 would have exceeded statutory
requirements. The ‘actual price paid or payable by the buyer,’ excluding
‘nonmanufacturer items installed by a dealer of the buyer,’ was $37,536.20.
[Citations.] This amount could legally be reduced in an ‘amount directly
attributable to use by the buyer prior to the time the buyer first delivered the
vehicle to the manufacturer or distributor, or its authorized service and
repair facility.’ [Citation] [Chapman’s] counsel avers that the vehicle began
exhibiting problems after ‘less than 13,000 miles.’ [Citation] Employing
13,000 miles in the statutory formula, [HMA] was entitled to reduce the
restitution amount by $4,066.42. [¶] Upon reviewing counsel’s billing
records, [Chapman] incurred attorneys’ fees of $11,425 prior to the January
3, 2017 settlement offer. All other attorneys’ fees incurred were not
reasonable.” HMA had not made this specific argument.
At the ensuing hearing on March 21, 2019, Chapman’s lawyer argued
that the court appeared to believe Chapman should have accepted the
$34,000 settlement offer, but Chapman was entitled to pursue civil penalties
and, in fact, counsel ultimately achieved an excellent result. The court
rejected counsel’s characterization of the tentative ruling, explaining that the
offer of $34,000 in restitution would have exceeded statutory requirements,
7
Chapman had the burden of showing it was reasonable and necessary to
continue the litigation beyond that point, Chapman offered only a conclusory
assertion that the $34,000 proposal was inadequate, and the court did not
have enough information to order more fees than it did. Chapman’s attorney
pointed out that Chapman was actually entitled under the statute to recover
three times the $37,556 purchase price, not $34,000.
HMA reiterated that Chapman’s attorneys should have to disclose to
the court what they received under the contingency agreement. The court
adopted the tentative ruling as its order.
6. Cost Memorandum and HMA’s Motion to Strike or Tax Costs
Chapman filed a cost memorandum, and HMA filed a motion to strike
or tax those costs. At a hearing on the motion on May 2, 2017, HMA’s
counsel again insisted that Chapman divulge how much counsel was
receiving in fees and costs under the retention agreement, prompting the
court to ask Chapman’s attorney why he could “continue to hide from the
Court the information about how much in fees you’ve already received when
the court is now asked to set, quote, ‘reasonable fees’ or ‘reasonable costs.’ ”
Counsel replied that there was no requirement to disclose the privileged
retention agreement, explaining that the court’s obligation under the statute
was to determine reasonable fees under the lodestar method, and “[w]hether
the plaintiff had an issue with how their fees are portioned or not [would be]
between the plaintiff and their attorney.” When questioned further as to fees
and costs to be received under the retention agreement, counsel conceded
“there may be an agreement in their retainer” for fees and costs in addition to
what the court orders.
The court then added the following to its earlier order on the fee
motion: “As further grounds for the Court’s ruling on this fee motion, the
8
Court finds it cannot rationally calculate what are reasonable fees and costs
herein without knowing what fees and costs the client/plaintiff has paid or is
or will be obligated to pay under plaintiff’s retainer agreement with his
counsel.” (The court also adopted its tentative ruling on the motion to tax
costs—an order not at issue in this appeal.)
7. Written Order on Attorney Fees Motion
Chapman submitted a proposed written order to the court, which the
court issued on May 7, 2019. The parties soon realized, however, that the
submitted order had not included the court’s second basis for its decision,
which the court had announced at the hearing on the motion to tax costs.
The parties then submitted a stipulated order setting forth both bases for the
court’s ruling, incorporating the language of the court’s tentative order (that
Chapman had not shown the reasonableness of fees incurred after the Second
998 Offer) as well as the court’s language announced at the later hearing
(that the court would need to know the amounts counsel would receive under
the retainer agreement); the court signed and issued that written order on
May 28, 2019. This appeal followed.
II. DISCUSSION
A. Appealability
As HMA points out, Chapman agreed to the entry of the stipulated
order that is the subject of this appeal. A stipulation is usually binding
unless illegal or contrary to public policy. (Hehr v. Swendseid (1966) 243
Cal.App.2d 142, 149.) More specifically, a party who stipulates to entry of a
judgment generally cannot appeal from that judgment. (Delagrange v.
Sacramento Sav. & Loan Assn. (1976) 65 Cal.App.3d 828, 831; Papadakis v.
Zelis (1991) 230 Cal.App.3d 1385, 1387––1388.) An exception arises, however,
when “ ‘consent was merely given to facilitate an appeal following adverse
9
determination of a critical issue.’ ” (City of Gardena v. Rikuo Corp. (2011)
192 Cal.App.4th 595, 600; Magaña Cathcart McCarthy v. CB Richard Ellis,
Inc. (2009) 174 Cal.App.4th 106, 120–121.)
Here, Chapman’s stipulation was not to the content of the order from
which he appeals, but to the replacement of the initial incomplete order with
a new order that accurately reflected the court’s intended disposition as
articulated at the hearing. Contrary to HMA’s argument, there is no basis
for inferring that Chapman relinquished his right to appeal the court’s
calculation of attorney fees; if anything, Chapman’s agreement to entry of the
order facilitated appellate review.
B. Merits
The Song-Beverly Act requires manufacturers and retail sellers of new
cars to extend an implied warranty of merchantability to the buyer that the
car is fit for the ordinary purposes for which cars are used. (Civ. Code,
§§ 1791.1, subd. (a)(2), 1792.) It also regulates how any express warranties
are created and enforced. (Civ. Code, §§ 1793.1, 1793.2, 1793.3, 1795.)
Under the Song-Beverly Act, “[i]f the manufacturer or its
representative in this state is unable to service or repair a new motor vehicle
. . . to conform to the applicable express warranties after a reasonable number
of attempts, the manufacturer shall either promptly replace the new motor
vehicle . . . or promptly make restitution to the buyer in accordance with
subparagraph (B).” (Civ. Code, § 1793.2, subd. (d)(2). Italics added.) The
buyer has the right to choose restitution instead of replacement. (Ibid.)
Pursuant to subdivision (d)(2)(B) of the statute, restitution shall be “in
an amount equal to the actual price paid or payable by the buyer, including
any charges for transportation and manufacturer-installed options, but
excluding nonmanufacturer items installed by a dealer or the buyer, and
10
including any collateral charges such as sales or use tax, license fees,
registration fees, and other official fees, plus any incidental damages to which
the buyer is entitled under Section 1794, including, but not limited to,
reasonable repair, towing, and rental car costs actually incurred by the
buyer.” (Civ. Code, § 1793.2, subd. (d)(2)(B).)
If the manufacturer or retail seller “fail[s] to comply” with any “implied
or express warranty,” the car buyer has a right to sue. (Civ. Code, § 1794,
subd. (a).) The buyer’s damages include the replacement or reimbursement
set forth in Civil Code section 1793.2, subdivision (d), described ante. (Civ.
Code, § 1794, subd. (b).) In addition, the buyer may recover a civil penalty if
the manufacturer's or retail seller's failure to comply with the Act was willful.
(Civ. Code, § 1794, subd. (c).)
The Song-Beverly Act further entitles the buyer to recover reasonable
attorney fees. Civil Code section 1794, subdivision (d) provides: “If the buyer
prevails in an action under this section, the buyer shall be allowed by the
court to recover as part of the judgment a sum equal to the aggregate amount
of costs and expenses, including attorney’s fees based on actual time expended,
determined by the court to have been reasonably incurred by the buyer in
connection with the commencement and prosecution of such action.” (Italics
added.) By this provision, “our Legislature has provided injured consumers
strong encouragement to seek legal redress in a situation in which a lawsuit
might not otherwise have been economically feasible.” (Murillo v. Fleetwood
Enterprises, Inc. (1998) 17 Cal.4th 985, 994 [“the prospect of having to pay
attorney fees even if one wins a lawsuit can serve as a powerful disincentive
to the unfortunate purchaser of a malfunctioning automobile”].)
To determine the attorney fees to be awarded under the Song-Beverly
Act, the trial court must apply the lodestar method. (E.g., Reynolds v. Ford
11
Motor Company (2020) 47 Cal.App.5th 1105, 1112 (Reynolds); Robertson v.
Fleetwood Travel Trailers of California, Inc. (2006) 144 Cal.App.4th 785,
817–821; see generally Meister v. Regents of University of California (1998) 67
Cal.App.4th 437, 448–449 [lodestar method applies to statutory attorney fees
award unless the statute applies otherwise].)
Under the lodestar method, the court calculates a lodestar figure by
multiplying a reasonable number of hours worked by a reasonable hourly
rate; the court may then adjust that lodestar by applying a multiplier based
on factors such as the novelty and difficulty of the issues, the skill in
presenting them, the extent to which the nature of the litigation precluded
other employment, and the contingent nature of the fee award. (Reynolds,
supra, 47 Cal.App.5th at p. 1112; see Nightingale v. Hyundai Motor America
(1994) 31 Cal.App.4th 99, 104.)
Here, the court awarded Chapman recovery of attorney fees in the
amount of $11,425 (as compared to the $49,835 plus multiplier requested),
corresponding to services rendered only through the date of the Second 998
Offer, on two grounds: (1) Chapman had not “demonstrated that it was
reasonable to continue to prosecute his action after Defendant offered to
settle the action for $34,000, which apparently included attorneys’ fees by
motion;” and (2) the court could not “rationally calculate what are reasonable
fees and costs herein without knowing what fees and costs the client/plaintiff
has paid or is or will be obligated to pay under plaintiff’s retainer agreement
with his counsel.” We examine each ground.2
2 Section 998 does not in itself provide a basis for the trial court’s order.
Under section 998, subdivision (c)(1), a plaintiff who fails to accept a section
998 offer and does not obtain a more favorable judgment cannot recover
postoffer costs. Here, the judgment Chapman obtained was more favorable
than the Second 998 Offer.
12
1. Reasonableness of Fees After $34,000 Settlement Offer
The court denied Chapman recovery for fees incurred after HMA’s
$34,000 offer because Chapman had not proven those fees were reasonably
incurred. Put slightly differently, while the court accepted the proposition
that the requested fees were reasonable up to the point of the $34,000 offer, it
believed Chapman had not presented evidence of reasonableness after that
point. The court did not take issue with the reasonableness of any specific
time entries or counsel’s hourly rates. Instead, it concluded that Chapman
had not shown the reasonableness of continuing to litigate after the $34,000
offer because his “only reason for rejecting the offer is a conclusory assertion
that it was ‘inadequate’ without making any effort to articulate in what
manner the offer was inadequate,” and “based on the facts presented to the
Court, it seems that an offer of restitution of $34,000 would have exceeded
statutory requirements.”
As Chapman pointed out at the hearing, however, the Song-Beverly Act
not only mandated payment of $34,000 in restitution, but also subjected
HMA to potential liability for civil penalties—up to two times his actual
damages—if HMA’s failure to comply with the Song-Beverly Act was willful.
(Civ. Code, § 1794, subd. (c).) While Chapman’s counsel could have more
clearly articulated the insufficiencies of the $34,000 offer or the evidence that
HMA’s violation was willful, there was more evidence in the record than his
conclusory assertion that the $34,000 offer was “inadequate.” Counsel’s
declaration averred that HMA failed to comply with the Song-Beverly Act
because it did not repair his vehicle or provide a repurchase or restitution as
set forth in the statute, and it did not respond to Chapman’s purchase
request for six weeks and even then, included improper terms. Chapman
alleged in his complaint that these failures to comply with the statute were
13
willful, a proposition that could be established if HMA intentionally chose not
to meet a known statutory obligation without a reasonable and good faith
belief the obligation did not apply. (See Kwan v. Mercedes-Benz of North
America, Inc. (1994) 23 Cal.App.4th 174, 185; Lukather v. General Motors
LLC (2010) 181 Cal.App.4th 1041, 1051; CACI No. 3244.) His theory, on this
point, is that the $34,000 should have been offered before the litigation.
Furthermore, according to the billing summaries Chapman submitted to the
court, attorney fees incurred after the Second 998 Offer included fees for
defending HMA’s depositions of Chapman and his wife, addressing HMA’s
discovery responses, and participating in a case management conference—
none of which compel the conclusion that counsel was merely indulging in
activities to run up fees. And after rejecting the Second 998 Offer and
pursuing discovery and an amendment to the complaint that would have
allegedly subjected HMA to punitive damages, counsel was able to persuade
HMA to pay Chapman over $86,000 more than he would have received under
the Second 998 Offer. Given HMA’s ultimate decision to give Chapman 3.5
times the Second 998 Offer to resolve the case, it is difficult to see how all the
work of Chapman’s counsel after the Second 998 offer was unreasonable.
(See Hanna, supra, 36 Cal.App.5th at pp. 507–508 [plaintiff in Song-Beverly
case was entitled to recover attorney fees, incurred after reasonably rejecting
a section 998 offer, in pursuit of evidence of willfulness needed to recover a
civil penalty].) We also note that, in refusing to award fees for any services
after the Second 998 Offer, the court awarded no fees as to the attorney fees
motion that the court in part granted.
Thus, in finding that $34,000 exceeded what Chapman could recover,
and that continued litigation was not shown to be reasonable and no fees
should be awarded for services after the Second 998 Offer, the court
14
misapprehended either the law, the evidence, or both. Because the court’s
stated premise for its order was incorrect, we cannot presume the correctness
of the order and will remand to the trial court for further consideration and
an award of reasonable attorney fees consistent with applicable law. (See
569 East County Boulevard LLC v. Backcountry Against the Dump, Inc.
(2016) 6 Cal.App.5th 426, 434 [“although the trial court has broad authority
in determining the amount of reasonable legal fees, the award can be
reversed for an abuse of discretion when it employed the wrong legal
standard in making its determination”]; Horsford v. Board of Trustees of
California State University (2005) 132 Cal.App.4th 359, 393 (Horsford) [a
judicial decision, even if reasonable, is an abuse of discretion if it starts from
a mistaken premise]; Etcheson v. FCA US LLC (2018) 30 Cal.App.5th 831,
841, 845 (Etcheson) [“when the record affirmatively shows the trial court’s
discretionary determination of fees pivoted on a factual finding entirely
lacking in evidentiary support, the matter must be reversed with instructions
to redetermine the award,” and when the court states its reasons explicitly,
we cannot infer its exercise of discretion rested on a different basis].)3 We do
not limit the court to a specific result, but it must examine the matter anew.
3 The parties debate whether Etcheson applies. In Etchesen, the plaintiff
rejected a section 998 offer, continued to litigate the issue of the defendant’s
willfulness in the hope of recovering a civil penalty, accepted a later section
998 offer, and sought attorney fees as the prevailing party under the
Song-Beverly Act. The trial court found the first section 998 offer to be
invalid, but nonetheless refused to allow recovery for attorney fees incurred
after that offer because it believed the plaintiff should have accepted it. The
court of appeal held that the court abused its discretion. (Etcheson, supra, 30
Cal.App.5th at pp. 842–846.) Etcheson is not directly on point, because the
court here did not find HMA’s Second 998 Offer invalid. The case
nonetheless provides authority for reversing an order that was premised on
an apparent misapprehension of the law or facts in the assessment of fees.
15
2. Reasonableness of Fees in Light of Retainer Agreement
As a second ground for denying Chapman’s requested fees, the trial
court asserted that it could not “rationally calculate what are reasonable fees
and costs herein without knowing what fees and costs the client/plaintiff has
paid or is or will be obligated to pay under plaintiff’s retainer agreement with
his counsel.” (Italics added.) Chapman did not address this ground directly
in its opening brief in this appeal, and HMA contends the issue was therefore
waived. However, the court’s ruling on this point was erroneous as a matter
of law, and we address it here to provide guidance for the court and parties
on remand.
HMA defends the court’s ruling by insisting that “[t]he trial court was
entitled to consider [plaintiff’s] retainer agreement in awarding [] fees.”
(Citing Hanna, supra, 36 Cal.App.5th at p. 509 [indicating the propriety of
considering the retainer agreement but reversing the trial court’s order
because it misinterpreted the agreement]; Horsford, supra, 132 Cal.App.4th
at p. 401 [“plaintiffs’ counsel are not permitted to take contractual fees in
addition to statutory fees”].) Chapman failed to provide the retention
agreement or divulge its terms despite the court’s inquiry, and even if the
retention agreement is privileged, the information concerning the amount of
fees counsel would receive is not. (Los Angeles County Bd. Of Supervisors v.
Superior Court (2016) 2 Cal.5th 282, 297.)
The cases on which HMA relies, however, are not on point. Hanna
ruled that an incorrect interpretation of a retainer agreement could not
supplant the lodestar method, but it did not decide whether terms of a
retainer agreement, even if correctly interpreted, may be used by the trial
court to adjust an attorney fees award under the Song-Beverly Act. Likewise,
Horsford stated that plaintiffs’ counsel are not allowed to take contractual
16
fees in addition to statutory fees, but it did not hold that the trial court may
reduce the lodestar by amounts counsel might obtain pursuant to a retention
agreement; to the contrary, the court ruled, a departure from the lodestar
method and resort to considerations of hypothetical contingency fees was an
abuse of discretion. (Horsford, supra, 132 Cal.App.4th at p. 401; see also
Reynolds, supra, 47 Cal.App.5th at p. 1115 [Horsford was commenting on the
terms of the retention agreement in that case, not pronouncing a general
principle that a statutory award must be offset against an amount the client
owes to counsel under the retention agreement].)
Simply put, the trial court’s job in awarding fees under the
Song-Beverly Act is to apply the lodestar method by examining the
reasonableness of the services rendered, time spent, and hourly rate. (Civ.
Code, § 1794, subd. (d).) The statutory language invites an inquiry into
whether fees were “reasonably incurred,” not whether the fee award is
reasonable in light of all other sources of attorney compensation. (Ibid.,
italics added.) To the extent counsel ends up with a potential double recovery
(or unconscionable fees) from the combination of the statutory fee award and
amounts to be paid from the settlement proceeds under a contingency fee
agreement, it is a matter between the attorney and client. As Horsford
stated: “If the contingency fee is larger than the statutory fee award, counsel
is permitted to accept that fee, with a setoff for statutory fees received. If the
contingency fee is smaller than the statutory fee, counsel must reimburse the
plaintiff [client] from the statutory award for any amounts already paid by
the client pursuant to the contingency contract.” (Horsford, supra, 132
Cal.App.4th at p. 401.)
The recent opinion in Reynolds—involving the very law firms that
represent Chapman in this matter—is on point. (Reynolds, supra, 47
17
Cal.App.5th at p. 1105.) In Reynolds, the plaintiff filed a motion for attorney
fees under the Song-Beverly Act without disclosing the retention agreement
or its terms; the defendant argued that counsel was not entitled to recover
both a contingency fee under the retention agreement and statutory fees.
The trial court awarded fees pursuant to the lodestar method, and the court
of appeal affirmed. Under section 1794, subdivision (d), the court explained,
the trial court is only tasked with calculating attorney fees based on actual
hours expended that were reasonably incurred for the litigation, and making
that determination yields an award that represents the reasonable value of
services under the Song-Beverly Act. The contingency fee provisions of the
retention agreement are irrelevant to that determination, and the court had
no obligation to evaluate further whether the result under the lodestar
method was inappropriate. (Id. at pp. 1113–1114.)
Contrary to HMA’s urging, therefore, in deciding the amount of
attorney fees to be awarded under the Song-Beverly Act, the trial court is not
“acting in a role to protect the financial wellbeing of a litigant in the face of
what appears to be a gross conflict of interest between [Chapman] and his
counsel.” That said, we also adopt the following observations pronounced in
Reynolds: “In awarding attorney fees, the trial court is limited by the terms
of subdivision (d) of section 1794, which ‘controls what the losing defendant
must pay, not what the prevailing plaintiff must pay his lawyer. What a
plaintiff may be bound to pay and what an attorney is free to collect under a
fee agreement are not necessarily measured by the “reasonable attorney’s
fee” that a defendant must pay pursuant to a court order.’ [Citation.]
[¶] . . . [¶] ‘[N]othing we say in this opinion . . . alters existing rules
forbidding attorneys to charge or obtain unreasonable fees, or diminishes
clients’ established remedies if unreasonable fees are sought or exacted. (See,
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e.g., Bus. & Prof. Code, § 6200 et seq. [arbitration of attorney fees].)’ ”
(Reynolds, supra, 47 Cal.App.5th 1105 at pp. 1116, 1118. Italics added.)4
III. DISPOSITION
The order is reversed. The matter is remanded for the trial court to
award reasonable attorney fees consistent with this opinion. Appellant shall
recover from respondent his costs on appeal.
4 At oral argument, HMA contended that Reynolds was
distinguishable because it dealt only with the standard for awarding fees
under section 1794, subdivision (d), while in this case the section 998 offer
that Chapman accepted had placed further limitations on the recovery of
fees. The offer stated: “HMA is also willing to allow the Court to determine,
in a noticed motion filed pursuant to Civil Code Section 1794(d), the
reasonable and actually incurred amount of attorney's fees, expenses and
costs in this matter.” Since the issue was not briefed below or before us, and
nothing in the record indicates the trial judge believed that the 998 offer
limited the recovery of fees, we do not consider this argument.
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NEEDHAM, Acting P.J.
We concur.
BURNS, J.
SELIGMAN, J. *
Chapman v. Hyundai Motor America / A158279
* Judge of the Superior Court of Alameda County, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
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