McManis Faulkner v. Clyde Berg		CASE NO. 113CV250076
DATE: 19 December 2014	TIME: 9:00	LINE NUMBER: 14

This matter will be heard by the Honorable Judge Socrates Peter Manoukian in Department 19 in the Old Courthouse, 2nd Floor, 161 North First Street, San Jose. Any party opposing the tentative ruling must call Department 19 at 408.808.6856 and the opposing party no later than 4:00 PM Thursday 18 December 2014.  Please specify the issue to be contested when calling the Court and counsel.

On 19 December 2014, the motion of plaintiff and cross-defendant McManis Faulkner (“McManis Faulkner”) to compel further deposition testimony of defendant and cross-complainant Clyde Berg (“Mr. Berg”) and for an award of monetary sanctions was argued and submitted.  Mr. Berg filed a formal opposition to the motion, in which he requests an award of monetary sanctions.

1. Statement of Facts

This is a breach of contract action for unpaid legal fees.  McManis Faulker alleges that it entered into an agreement with Mr. Berg on 15 October 2012, to provide legal services in connection with an underlying dissolution of marriage case. On 20 February 2013, Berg failed to pay McManis Faulkner’s monthly billing statement for services rendered and costs and expenses advanced pursuant to the terms of the agreement.  As of 21 June 2013, McManis Faulkner has incurred $102,331.21 in damages for unpaid fees and expenses.

On 25 July 2013, McManis Faulkner filed its complaint against Mr. Berg, asserting two causes of action for breach of contract and common counts.

On 5 September 2013, Mr. Berg filed a cross-complaint against McManis Faulkner. On 18 September 2014, Mr. Berg filed the operative first amended cross-complaint (“FACC”) against McManis Faulkner, asserting four causes of action for: (1) breach of contract; (2) breach of fiduciary duty; (3) unjust enrichment; and (4) legal malpractice.

In the FACC, Mr. Berg alleges that McManis Faulkner breached its fiduciary duties to him and increased the costs and expenses allegedly owed to it by performing unnecessary work in the case, failing to supervise inexperienced attorneys, and failing to manage billings.  (See FACC, ¶ 16.)  As a result, McManis Faulkner overstated its fees by approximately $200,000.  (See FACC, ¶ 9.)

1. Discovery Dispute

Mr. Berg was deposed in this matter on 27 August 2014.  Attorney Tyler Atkinson (“Mr. Atkinson”) took Mr. Berg’s deposition on behalf of McManis Faulkner and Mr. Berg was represented at his deposition by attorney David Sloan (“Mr. Sloan”).

During the deposition, Mr. Berg, at the advice of his counsel, refused to testify concerning his net worth or income at the present time or the time of the underlying marital dissolution proceeding.  The relevant portion of the deposition transcript is set forth below:

1. Did Ms. Bechtel ask you what your income was?
2. I don’t think I have an income.
3. You don’t have an income?
4. No.
5. Today you don’t have an income?
6. No.
7. Is that what you told Ms. Bechtel?
8. I’ve never – I’ve always been self-employed. So I don’t have an income.
9. Do you understand that you can have an income even if you’re self-employed? It’s not just wages. It’s any money coming to you.
10. Well, I have various money coming in at various times.
11. And how much on average, per year, do you have coming to you?

Mr. Sloan:  I’m going to object. This is protected by his Constitutional right of privacy.

Mr. Atkinson then advised Mr. Sloan that he believed Mr. Berg’s privacy interests in his financial information were outweighed by McManis Faulkner’s discovery interests because Mr. Berg alleges in the FACC that McManis Faulker overbilled him and performed unnecessary work and “the stakes of the litigation are a consideration in determining whether or not a fee is a legitimate fee.”  (Lambie Dec., Ex. 1, p. 268:5-7.)  Mr. Sloan continued to disagree with Mr. Atkinson and instructed Mr. Berg not to answer the pending question, provide any information about his current wealth, provide any information about his current income or his income at the time of the underlying litigation, or answer any questions about his sources of income.

Counsel for McManis Faulker and Mr. Berg exchanged meet and confer correspondence on 29 October 2014 and 5 November 2014, regarding Mr. Berg’s deposition testimony and the question concerning Mr. Berg’s net worth and income.  (See Lambie Dec., Exs. 2-3.)  The parties’ counsel also engaged in a telephone conference on 6 November 2014, in an attempt to resolve the dispute, but were unsuccessful.  (See Lambie Dec., ¶ 6.)

On 12 November 2014, McManis Faulkner filed the instant motion to compel further deposition testimony of Mr. Berg.  Mr. Berg filed papers in opposition to the motion on 8 December 2014.  McManis Faulkner filed a reply on 12 December 2014.

III.     Discussion

McManis Faulkner moves to compel further deposition testimony of Mr. Berg, concerning Mr. Berg’s financial condition and the amount at stake in the underlying dissolution of marriage proceeding.

1. Legal Standard

If a deponent fails to answer a question at his or her deposition, the party seeking discovery may move for an order compelling an answer.  (See Code Civ. Proc., § 2025.480, subd. (a).)  There is no requirement that the moving party show good cause to compel answers at a deposition.  (Compare Code Civ. Proc., §§ 2025.450, subd. (b)(1) [showing of good cause required where motion pertains to production of documents described in deposition notice] with 2025.480 [no good cause requirement where motion pertains to oral testimony].)  A deponent who has objected to a question and refused to answer bears the burden of justifying such refusal.  (See Coy v. Super. Ct. (1962) 58 Cal.2d 210, 220-221.)  If the court determines that the answer sought is subject to discovery, it shall order that the answer be given on the resumption of the deposition.  (See Code Civ. Proc. § 2025.480, subd. (i).)

1. Analysis

In his opposition papers, Mr. Berg asserts that his objections to deposition questions pertaining to his personal financial information, such as his net worth and income, were proper because such information is protected by his right to privacy.

 

1. Applicable Standards In Privacy Cases.

In ruling on objections to discovery based on privacy, courts apply a three-factor test.  (See Alch v. Super. Ct. (“Alch”) (2008) 165 Cal.App.4th 1414, 1423-1424.)  The first inquiry is whether the discovery sought actually implicates privacy interests.  (See id.)  If so, the court must then decide whether the party whose privacy interests are implicated has a reasonable expectation of privacy, and whether the discovery sought would result in a serious invasion of any such reasonable expectation of privacy.  (See id.; see also Pioneer Electronics, Inc. v. Super. Ct. (2007) 40 Cal.4th 360, 370 [stating that the right to privacy protects an individual’s “reasonable expectation of privacy against a serious invasion.”].)

If permitting the discovery would result in such an invasion, the court must determine whether the materials sought are directly relevant and essential to a fair resolution of the lawsuit.  (See Alch, supra, at pp. 1423-1424.)  If the answer is in the affirmative, the Court must allow the discovery, but in doing so, may order the propounding party to take appropriate measures to assuage any existing privacy concerns. (See id.)

It is well-established that there is a legally recognized right to privacy in a person’s financial affairs.  (See Valley Bank of Nevada v. Super. Ct. (1975) 15 Cal.3d 652, 656-657; see also Cobb v. Super. Ct. (Tleel) (1979) 99 Cal.App.3d 543, 550; see also Fortunato v. Super. Ct. (2003) 114 Cal.App.4th 475, 480; see also Sacramento Cnty. Employees’ Ret. Sys. v. Super. Ct. (2011) 195 Cal.App.4th 440, 468.)

In this case, Mr. Berg clearly has a legally recognized privacy interest in his personal financial information, such as his net worth and income.  It follows that any discovery that would result in the disclosure of such information would result in a serious invasion of Mr. Berg’s privacy rights.

Having concluded that a serious invasion of privacy rights would occur, the Court turns to the issue of whether the discovery sought is directly relevant to the pleadings and essential to a fair resolution of the lawsuit.

2.             “Amount at Stake.”           

McManis Faulkner asserts that “[t]he amount at stake in Mr. Berg’s divorce is directly relevant” to Mr. Berg’s claims that McManis Faulkner “‘demanded and received far more than the reasonable fee for [their] services’ and performed ‘unnecessary work in the Litigation’” and “[t]here can be no question that Mr. Berg’s substantial net worth and income had a direct bearing on the ‘amount at stake’ in the dissolution of his marriage.”  (Mem. Ps & As., p. 7:13-25.)  McManis Faulkner points out that “legal work that would be excessive in a limited jurisdiction matter may be appropriate and even necessary in a multi-million dollar litigation” and contends that “the reasonable rate for a given task will vary depending upon the magnitude of its potential consequences.”  (Id.)  McManis Faulkner argues that this has been recognized by California courts “as evidenced by their inclusion of ‘amount at stake’ as a factor to be considered in determining reasonable attorney’s fees under the ‘lodestar’ method,” citing Lealao v. Beneficial California, Inc. (2000) 82 Cal. App. 4th 19 and City of Oakland v. Oakland Raiders (1988) 203 Cal. App. 3d 78.

Conversely, Mr. Berg asserts that his personal finances are irrelevant to his allegations in the FACC that McManis Faulkner performed unnecessary work, failed to supervise inexperienced attorneys, failed to manage the billings of employees, and allowed multiple employees to perform work for the purpose of increasing the costs and expenses allegedly owed by Mr. Berg.  Mr. Berg contends that it would be unethical and against public policy for McManis Faulkner to base the reasonableness of its attorneys’ fees on the net worth of its clients and that, in the absence of a contingency fee agreement, McManis Faulkner’s assertion that “the reasonable rate for a given task will vary depending upon the magnitude of its potential consequences” lacks merit.  Mr. Berg further argues that the cases cited by McManis Faulkner, in which the courts utilized the “amount at stake” as one factor to determine reasonable attorneys’ fees, are inapplicable because the “amount at stake” factor may only be considered under the lodestar method when the agreement between the attorney and client is a contingency fee agreement.

In its reply, McManis Faulkner asserts that Mr. Berg’s argument regarding the absence of a contingency fee agreement is misplaced as it is not seeking to apply a lodestar multiplier to its fees and costs, but generally cited cases in its moving papers discussing the “amount at stake” factor as illustrative examples of the effect the amount at stake can have on the attorney’s task selection and the reasonableness of the attorney’s bills.

On the one hand, Mr. Berg’s net worth and income at the time of the underlying marriage dissolution proceeding would provide some indication as to the amount at stake in the underlying litigation such that it is directly relevant and essential to the fair resolution of the lawsuit.  The amount of Mr. Berg’s net worth, the variety and number of Mr. Berg’s sources of income, and the complexity of the manner in which Mr. Berg held his assets could certainly have had an impact upon the complexity of the marriage dissolution proceeding and the number of hours that McManis Faulkner was reasonably required to perform.  If Mr. Berg only had a few assets and limited sources of income, it would be reasonable to expect that the time required to handle his marriage dissolution would be less than if his net worth was substantial and distributed amongst a wide variety of monetary funds and assets.

Courts have held that “[e]ven where the parties agree as to the amount of attorney fees,” such as in a settlement agreement, “courts properly review and modify the agreed-upon fees if the amount is not reasonable” and, thus, “the judicial determination of ‘reasonable’ attorney fees … does not depend solely upon hourly rates and the number of hours devoted to the case.”  (Laffitte v. Robert Half Internat. Inc. (Cal. App. 2d Dist. Oct. 29, 2014) 2014 Cal. App. LEXIS 1059; see also Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127; see also City of Oakland v. Oakland Raiders (1988) 203 Cal.App.3d 78, 83.)  “While these two factors are ‘the starting point of every fee award’ [citation], numerous other factors must also be considered, including the novelty and difficulty of the issues presented, the quality of counsel’s services, the time limitations imposed by the litigation, the amount at stake, and the result obtained by counsel. [Citations.]”  (Id.)  Additionally, as McManis Faulkner argues, it is not seeking to apply a lodestar multiplier to its fees and costs, but generally cited cases in its moving papers discussing the “amount at stake” factor as illustrative examples of the effect the amount at stake can have on the attorney’s task selection and the reasonableness of the attorney’s bills.

While this Court recognizes that the “amount at stake” or “the parties’ resources” is a factor used to determine attorneys fees in many cases, the Court is hard-pressed to see how that factor is of much relevance here.

As this Court sees the matter, Plaintiff claims that $501,451 was a reasonable fee.  Mr. Berg believes that a reasonable fee “was no more than $300,000.”  (First Amended Cross Complaint, ¶¶ 7, 11.)

What is unclear to the Court at this time are the specifics of the terms of compensation stated by McManis Faulkner in its retainer agreement with Mr. Berg.[1]

For purposes of providing examples to counsel and to the litigants, this Court notes that it reviews requests for attorneys fees every week on the discovery calendar.  The Court has the opportunity to review the product for which a client was billed and a claim for the value of generating that product by an attorney.  For example, consider an unopposed motion to compel the opposing party to respond to form interrogatories.  That is a pretty typical garden-variety motion that this Court believes should not take more than two hours.  It is work capable of being done by a junior associate attorney.  However, this Court has seen such motions being billed by associate attorneys claiming four hours of attorney time at $500 an hour, a junior partners time at $750 for one hour to review the work of the junior associates and then half an hour for a Senior Partner at $900 an hour to review all of the work by the other attorneys.  To this Court, that is overbilling and file churning.  While the Court may have some understanding as to the “amount at stake” in the litigation, there is little reason to consider that factor in awarding attorneys fees to prevailing parties in discovery motions of this type.

In another example, a person of modest means might be willing to pay $20,000 for a new car.  A person of fabulous wealth might be interested in buying a more expensive car, perhaps in the $100,000 range.  This Court does not see why that person would expect to pay $200,000 for that same automobile.

This Court has tried several cases which involved claims of overbilling by lawyers.  The wealth of clients has not been a significant factor in any of those trials.  More often, this Court or the jury was asked to consider the evidence as to what was the reasonable time and rate for the work that was billed.

In fact, quite often the “amount at stake” is of little concern when matters of principle are involved.  Many times the party will be an attorney much more to fight a claim then it would have cost to settle the claim with the opposing party for the purposes of deterring future litigation brought by third parties.

On the state of this record, this Court finds that disclosure of information about Mr. Berg’s personal financial information at the time of the underlying marriage dissolution case would constitute a serious invasion of privacy.   McManis Faulkner’s interest in discovering information essential to its defense of the claims alleged in the FACC does not outweigh Mr. Berg’s privacy interests.

1. Conclusion

Accordingly, Mr. Berg’s privacy objection is SUSTAINED.  McManis Faulkner’s motion is DENIED to the extent it seeks to compel the further deposition of Mr. Berg concerning Mr. Berg’s financial condition at the time of the underlying dissolution of marriage dissolution and the amount at stake in the underlying dissolution of marriage litigation.[2]

1. Requests for Monetary Sanctions

Both McManis Faulkner and Mr. Berg request monetary sanctions pursuant to Code of Civil Procedure section 2025.480, subdivision (j).

The mutual request for monetary sanctions are DENIED as both sides acted with substantial justification on this interesting issue.

1. Conclusion and Order

McManis Faulkner’s motion is DENIED to the extent it seeks to compel the further deposition of Mr. Berg concerning Mr. Berg’s financial condition at the time of the underlying dissolution of marriage dissolution and the amount at stake in the underlying dissolution of marriage litigation.

The mutual request for monetary sanctions are DENIED.

 

 

________________­­­____________ DATED:

_________________________­­­________________________ HON. SOCRATES PETER MANOUKIAN Judge of the Superior Court County of Santa Clara

[1] This Court is operating under the assumption that Mr. Berg was being charged an hourly rate.  If the facts are otherwise, the Court would appreciate being so advised.

[2] The Court notes that McManis Faulkner seeks a broad order compelling further deposition of Mr. Berg regarding his financial condition generally and the amount at stake in the underlying marriage dissolution.  (See Notice of Motion, p. 1:26-28.)  To the extent that McManis Faulkner seeks to depose Mr. Berg about his present income or net worth, the Court finds that would be inappropriate as McManis Faulkner has only shown direct relevance for information regarding Mr. Berg’s net worth and income at the time of the underlying dissolution of marriage case.