2008-00030719-CU-NP

John Moser vs. Wendy Jennings

Nature of Proceeding: Motion for Attorney Fees

Filed By: Koss, Charles A.

Defendant Valley of California, Inc. dba Coldwell Banker Residential Brokerage’s
(“CBRB”) motion for attorney fees following the dismissal of this action is GRANTED IN
PART, as follows.

The complaint in this case alleges three causes of action. The first is for breach of a
contract which purports to establish a real estate broker-client relationship between
defendants Wendy Jennings and CBRB on the one hand and plaintiff on the other but
defendant CBRB concedes there is no attorney fees provision in this contract which is
therefore not the basis for the present motion. The second cause of action is for
common counts (money had and received pursuant to a writing) but this cause of
action, consisting of two short paragraphs, does not identify any “writing” on which it is
purportedly based nor does it provide the Court with any insight into the essence of
this claim. This cause of action asserts in its entirety:

21. Within the past four years, Defendants became indebted to [plaintiff] for
money had and received pursuant to a writing.
22. No part of that money has been returned, and [plaintiff] is entitled to return
of that money in a sum according to proof.

The third cause of action is for breach of fiduciary duty and plaintiff alleges that
Jennings and CBRB breached their fiduciary obligations in various ways detailed in
Paragraph 27 of the complaint. CBRB’s moving papers specifically cite Paragraphs 27
(E) and (F) which allege that defendants, including CBRB, entered into promissory
notes which required plaintiff to pay “usurious interest rates” to Jennings’ husband (Donald) and other promissory notes which bore a face amount greater than the
amount actually loaned to plaintiff. The moving papers also cite Paragraph 28,
asserting that as a result of the breaches of fiduciary duties, plaintiff has been
damaged in an amount which includes “money paid to or for the benefit of defendants”
and Paragraph 29, alleging that plaintiff is entitled to disgorgement of all money paid to
defendants during the term of the fiduciary relationship.

Defendant CBRB points out in its moving papers that the promissory note referred to in
the complaint was not attached to the complaint but was discussed at length in
plaintiff’s deposition and it contains the attorney fees clause on which this motion is
based. According to CBRB, plaintiff claimed that although the face of the promissory
note was $450,000, he received only $300,000 but needed to repay a total of
$450,000 and thereby constituted usurious interest. CBRB contends that to the extent
plaintiff sought to hold Jennings, her husband and CBRB for this alleged usury, CBRB
is entitled to collect attorney fees pursuant to the underlying promissory notes since
this action was recently dismissed by the Court as a result of plaintiff’s failure to bring it
to trial within five (5) years settled. As the prevailing party, CBRB now seeks pursuant
to Civil Code §1717 an award of attorney fees in the amount of $149,362.50.

Plaintiff opposes, arguing the motion should be denied in its entirety. First, although
Civil Code §1717 generally permits a non-signatory to a contract such as CBRB to
recover fees pursuant to a contractual provision, the opposition insists that §1717’s
reciprocity is applicable only to claims based on contract and does not extend to tort
claims. Thus, plaintiff maintains that since CBRB’s motion is “predicated entirely on
[the] Third Cause of Action for Breach of Fiduciary Duty” (Oppos., p.3:8-9 (emphasis
added)) which is a tort theory of liability, CBRB may not rely on §1717 in order to
recover attorney fees. Plaintiff also notes that the third cause of action includes no
allegation that any defendant breached any obligation under the promissory note cited
by CBRB or any other contract with an attorney fees clause. Second, the opposition
contends that the attorney fees provision in the promissory note is not implicated here
because that provision is triggered only where the litigation “involves the protection,
preservation or enforcement of Lender’s rights or Borrower’s obligations under this
Note” (Id., at p.4:1-6), language which cannot be construed to extend to the tort claim
in the third cause of action for breach of fiduciary duty. In other words, the opposition
argues that even if the fee provision could be interpreted to cover tort claims, plaintiff’s
allegations in this case about the terms of the promissory note being usurious do not
‘involve the protection, preservation or enforcement of defendants’ rights or plaintiff’s
obligations under the Promissory Note.” (Id., at p.4:23-p.5:3.) Having concluded that
Civil Code §1717 does not assist CBRB in its motion for fees, plaintiff next asserts
CBRB cannot recover attorney fees here based on a claim that CBRB “stands in the
shoes” of a signatory to the promissory note or is a third party beneficiary theory of this
note. (Id., at p.5:4-p.7:16.) Finally, based on CBRB’s concession that attorney Koss’
stated hourly rate for handling the defense of this action was $225, the opposition
objects to an award based on the higher hourly rate claimed in the moving papers,
$350. (Id., at p.8:6-12.)

In reply, CBRB first insists that the opposition erroneously characterizes this action as
one involving only tort claims since the common count cause of action is fundamentally
a contract claim and further that Civil Code §1717 may support an award of attorney
fees if the provision governing such an award is broad enough to encompass non-
contract claims as well. Thus, CBRB next contends that the fees clause in this case is
sufficiently broad to include the fiduciary duty claim asserted by plaintiff but even if it
did not, the common count claim is a contract claim based on the aforementioned
promissory note, providing a clear basis for CBRB’s recovery of attorney fees. The
reply concludes with an assertion that CBRB is entitled to recover all fees incurred
without the need to apportion amounts incurred in connection with the contract and
non-contract claims.

At the outset, the Court hereby sustains plaintiff’s objections to CBRB’s evidence
about the prevailing rate for attorneys in Sacramento with similar experience.

The Court finds that CBRB’s reference in its reply to the common counts claim and
CBRB’s reliance thereon is unavailing for at least two reasons. First, while the moving
papers nowhere explicitly stated that this motion is based solely on the third cause of
action for breach of fiduciary duty, it is readily apparent this tort cause of action was
the primary, if not exclusive, basis for this motion. To be sure, the moving papers
discussed the fiduciary duty claim in significant detail while mentioning than the
common counts claim essentially only in passing. (See Mov. Memo. P&A, p.2:11-
p.4:22.) Second, the Court is not persuaded by CBRB’s argument in its reply that the
common counts cause of action is actually based on the promissory note signed by
plaintiff. There is nothing in the complaint itself which compels this conclusion or
which compels the exclusion of other possible interpretations of the second cause of
action, particularly in light of the various allegations found elsewhere in the complaint.
Neither CBRB’s moving nor reply papers sufficiently demonstrate with evidence that
the common counts claim is premises solely or even in part on the promissory note
containing the attorney fees provision. Instead, CBRB merely asserts in conclusory
terms in its reply at Page 4:14-16 that the writing on which the common counts claim is
based is the promissory note but there is no explanation for this conclusion or why
other possibilities ought to be excluded. Accordingly, the fact that the complaint
includes the common counts claim does not advance CBRB’s position since it remains
unclear if the common counts claim is actually premised on any contract with an
attorney fees provision and since CBRB failed to carry its burden as the moving party.

In any event, the crux of this motion is whether the attorney fees provision in the
promissory note clearly implicated in the fiduciary duty cause of action is broad enough
to support an award of attorney fees pursuant to Civil Code §1717. The promissory
note signed by plaintiff provides in pertinent part:

In the event of (a) any action or proceeding that involves the protection,
preservation or enforcement of Lender’s rights or Borrower’s obligations under
this Note, (b) Lender’s collection or enforcement without institution of litigation
proceedings, or (c) Lender’s participation in any proceeding which is authorized
under the terms of this Note, Lender shall be entitled to reimbursement, upon
demand, from Borrower of all costs and expenses associated therewith,
including reasonable attorneys’ fees and litigation expenses. Borrower will
reimburse Lender for all reasonable attorneys’ fees and expenses incurred in
the representation of Lender in any aspect of any bankruptcy or insolvency
proceeding initiated by or on behalf of Borrower or any appellate proceeding
that concerns any of its obligations to Lender under this Note, or otherwise.
(Emphasis added.)

This Court finds no factual basis on which to conclude that the provisions of either (b)
or (c) are implicated by the allegations in the present case and as such, the question of
whether any attorney fees are recoverable here turns on the limited issue of whether the plaintiff’s complaint posed any claim which may be reasonably construed as
‘involving the protection, preservation or enforcement of Lender’s rights or plaintiff’s
obligations’ under the subject promissory note. To the extent the third cause of action
seeks damages from defendants (including CBRB) as a result of their alleged usurious
loan to plaintiff, the Court holds that this claim is fairly characterized as ‘involving the
protection, preservation or enforcement of Lender’s rights and/or plaintiff’s obligations’
under the note and thus, CBRB is pursuant to Babcock v. Omansky (1973) 31
Cal.App.3d 625 and Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124 entitled to
recover those attorneys fees which were reasonable and necessary to the defense of
the now dismissed action despite CBRB not itself being a signatory to the subject
promissory note.

Although plaintiff argued on Page 7 of the opposition that Babcock was overruled,
plaintiff provided no discussion or analysis whatsoever of the decision(s) which
purportedly overruled Babcock . Regardless, the Court has reviewed the subsequent
history of Babcock and finds that the First District Court of Appeal’s decision in
Canal-Randolph Anaheim, Inc. v. Wilkowski (1978) 78 Cal.App.3d 477 does indeed
state that Babcock was decided incorrectly ( Canal-Randolph Anaheim, Inc., at 485-
486) but the First District did not (and could not) “overrule” the Second District’s
Babcock decision. Additionally, the decision of Leach v. Home Savings & Loan Assoc.
(1986) 185 Cal.App.3d 1295, also by the First District, recognized that Babcock was
“overruled” by the Canal-Randolph Anaheim, Inc. decision but then noted that the
California Supreme Court had cited Babcock with approval in Reynolds Metals Co. (
Reynolds Metals Co., at 128-129.) Given that the First District’s decisions in 1978 and
1986 could not formally overrule the Second District’s Babcock decision and further
that this state’s Supreme Court effectively affirmed Babcock’s application of Civil Code
§1717, this Court must reject plaintiff’s claim that Babcock is no longer good law.

As noted above, CBRB seeks attorney fees in the amount of $149,362.50 based on
the 275.25 hours billed by attorney Koss and another 151.5 hours which attorney
Luther estimates he spent on this matter. Both attorneys seek attorney fees based on
a $350 hourly rate although attorney Koss admits his actual rate was $225 and
attorney Luther stated he does not normally keep track of his time.

Notwithstanding CBRB’s claim that the attorney fees should be calculated on a $350
hourly rate, the Court finds it appropriate that attorney Koss’ hours should be
compensated at the $225 rate at which he was retained. Coupled with the fact that
attorney Luther was apparently not retained at a specific hourly rate, his fees should
also be compensated at the same $225 rate as attorney Koss.

After completing a detailed review of the billing records submitted by attorney Koss
and the estimate of time spent by attorney Luther (which appears to be based in part
on attorney Koss’ records), the Court cannot agree that all of the 426 hours claimed by
CBRB were both reasonable and necessary under the circumstances. Among other
things, a number of the billing entries are too vague for the Court to determine that the
time claimed was both reasonable and necessary. Numerous time entries by both
counsel appear to be excessive in relation to the nature of the tasks described, while
some other entries billed by the attorneys should have been delegated to staff
members. The Court also notes that the records show an unreasonable number of
telephone calls and meetings and to compound the problem, the entries often lack any
detail as to the subject(s) discussed by counsel. Attorney Koss billed time for
essentially instructing his staff about the handling scheduling and other administrative matters. The submitted records also reveal what appears to be significant but
unreasonable and unnecessary duplication of work by both attorneys, including
preparation for and attendance at depositions and court hearings.

In light of the foregoing, the Court concludes that no more than 80 of the 151 hours
claimed by attorney Luther and no more than 220 of the 275 hours claimed by attorney
Koss in defending this action on behalf of CBRB were both reasonable and necessary
under the circumstances. In light of the $225 hourly rate which the Court holds is
appropriate here, defendant CBRB is hereby awarded a total of $67,500 in attorney
fees.

Finally, the Court notes that plaintiff has not (timely) opposed defendant CBRB’s
Memorandum of Costs except to the extent it includes a claim for attorney fees, which
was resolved above. Accordingly, CBRB is also awarded costs in the amount of
$8,506.22.

This minute order is effective immediately. No formal order or other notice is required.
(Code Civ. Proc. §1019.5; CRC Rule 3.1312.)