By Carl Mueller and Sam Fogas, The Maloney Firm, APC
It might seem obvious, but it bears repeating: diligence cannot be assumed or overlooked when it comes to a client’s case. Law firms should have checks in place to ensure they are preparing and prosecuting their client’s case diligently and not cutting corners. In a pair of recent California Court of Appeal decisions, the Court illustrated the consequences of counsel failing to diligently prepare and prosecute their clients’ cases.
Deposition Testimony: Get It Right the First Time
In Berroteran v. Superior Court (2019) 41 Cal.App.5th 518, the Court of Appeal reversed the trial court’s ruling to deny use of nine depositions of Ford’s current and former employees from prior state and federal cases under California Rule of Evidence § 1291. Despite all nine depositions being taken under oath, all nine declarants being unavailable, and all of the claims from the prior cases being identical to the present case, the trial court determined that Ford did not have a similar opportunity and interest to cross-examine the declarants at deposition in the prior litigation as they did in the current litigation.
However, the Court of Appeal disagreed,
Each deponent was represented by Ford’s counsel, and Ford had the same interest to disprove the allegations related to the [prior cases]. . . . Although each case involved a different plaintiff or additional plaintiffs, the gravamen of each lawsuit was the same or similar. The undisputable fact that every owner will have a different purchase and repair history does not negate Ford’s similar motive in questioning its witnesses on the substantial overlapping allegations . . . .
In its decision the Court of Appeal demonstrates that the circumstances under which a witness’s prior testimony can be admitted are very broad. As such, attorneys must diligently prepare their witnesses to give complete answers, avoiding partial answers that are not beneficial or that can be taken out of context. In other words, prepare your witness to respond for this case and the next.
Prosecuting the Case: Don’t Let Details Fall Through the Cracks
In MGA Entertainment, Inc. v. Mattel, Inc. (2019) 41 Cal.App.5th 554, MGA Entertainment (“MGA”) lost all of its claims because it failed to diligently investigate and pursue claims against Mattel within the statute of limitations. During a lengthy court battle over the ownership of the Bratz line of dolls, MGA became aware of potential trade secret misappropriation by Mattel. MGA, however, missed the statute of limitations deadline to file its claim for misappropriation of trade secrets by three days.
Mattel claimed that the statute of limitations had begun to run because, in a related action, MGA was aware of enough facts that it had served discovery to investigate whether Mattel had misappropriated its trade secrets. MGA hoped and argued that the statute of limitations should have been tolled until they discovered the actual facts underlying each separate act of trade secret misappropriation.
The Court of Appeal was not persuaded by MGA’s argument.
The standard of accrual of the statute of limitations under the discovery rule is not the receipt of documentary evidence of misappropriations. The question is when MGA was “ ‘on notice of a potential claim.’ ” . . . [T]he question is not when MGA actually discovered all 114 misappropriations; it is when MGA by the exercise of reasonable diligence should have discovered Mattel engaged in misappropriation.
Instead, the Court of Appeal held that the statute of limitations began to run as soon as MGA became aware of facts that led them to suspect that Mattel may have engaged in trade secret misappropriation. And, that as a result, MGA could not argue for a date for accrual of the statute of limitations later than the date it served discovery as to trade secrets misappropriations by Mattel.
The exact procedural history and specific aspects of the ruling are not as important as the practical implications: courts will not give clients or their attorneys a second chance to diligently investigate and pursue their claims, regardless of how meritorious those claims may be.
Be Diligent About Diligence
As the two recent decisions from the Court of Appeal reflect, the consequences of failing to diligently prepare and prosecute a client’s case are dire. While not all failures of diligence will result in harmful evidence being introduced or loss of claims, attorneys must be careful to ensure that they are not cutting corners and nothing is falling through the cracks.
About the Authors: Carl Mueller and Sam Fogas
Mr. Mueller represents attorneys and clients in disputes over legal fees and legal malpractice and Mr. Fogas is a civil litigation attorney at The Maloney Firm, APC. If you have questions regarding this article contact Carl Mueller at email@example.com and firstname.lastname@example.org.
By Carl Mueller, The Maloney Firm, APC
In our legal fee dispute practice, we have seen an uptick in cases involving contingent fee agreements. The vast majority of these disputes arise from written contingent fee agreements in litigation matters that suffer technical defects or contain ambiguous language concerning the manner of calculating the contingent fee. However, a recent case in the Los Angeles County Superior Court reveals a yet another issue – the failure to create any writing memorializing a contingent fee arrangement in a transactional matter.
In Los Angeles Superior Court Case No. BC680066, in which well-known actor Johnny Depp and his associated production entities faced off against Mr. Depp’s former attorneys, Bloom Hergott Deimer Rosenthal La Viollette Feldman Schenkman & Goldman, LLP (“Bloom”). A critical issue in that litigation was the contingent fee arrangement between Depp and Bloom.
According to Bloom’s cross-complaint, Bloom and Depp entered “[a]n oral agreement” whereby Mr. Depp “agreed to pay a fixed percent of their gross entertainment income” as it was received. Notably, the oral agreement was never reduced to writing. Bloom cross-complained for further fees, alleging causes of action for (1) breach of the oral contingent fee agreement; (2) quantum meruit, and (3) unjust enrichment. The allegations within the pleadings put approximately $9,000,000 of attorneys’ fees at issue. However, the case recently settled, only weeks before trial was set to begin.
What makes the case still relevant, even after it has settled, was the trial court’s ruling on a motion for judgment on the pleadings that Bloom could not pursue his claim for breach of oral contract because he had not reduced the contingent fee agreement with Depp to writing, as required by California Business & Professions Code § 6147.
Granting Depp’s motion for judgment on the pleadings, the trial court held that Bloom sought to enforce a contingent fee agreement that did not meet the statutory requirements.
First, the trial court found Bloom and Depp had entered into a contingent fee arrangement:
[T]he contract as pled is a contingency fee contract. It is tied entirely to Cross-Defendants’ success in the entertainment business. As Cross-Defendants put it, when they made money, Cross-Complainants made money. That is the very definition of a performance-based incentive. Even if the court employed Cross-Complainant’s proposed test, the success of Cross-Defendants in their business endeavors was not guaranteed. This is a contingency fee agreement. There is nothing else it can be.
Second, the trial court held that because the contingent fee agreement was never reduced to writing—which Bloom admitted in its pleadings—it was impossible for Mr. Depp to have ratified the oral contingent agreement prior to effectively voiding the agreement by filing his Complaint:
[I]n order to establish ratification of a contract which is voidable under Section 6147, Cross-Complainant must (1) plead and prove the existence of a writing which complies with section 6147, and (2) plead and prove that Cross-Defendants signed said writing with full knowledge of their option to void. Cross-Complainant has given no indication that it can do so. Its argument for ratification is based on Cross-Defendants’ continued payment of the bills Cross-Complainant issued. Therefore, it does not appear probable that Cross-Complainant can amend its pleading to state a valid cause of action.
Third, and finally, the trial court held that because the oral contingency agreement was voided, Bloom was left solely with a claim for quantum meruit, which already existed in his second cause of action. Therefore, there was no reason to grant leave to amend.
Because this case was settled and will not result in any appeal, it is not citable as precedent. However, the trial court’s reasoning was sound, and should be considered a bellwether for how other trial courts are likely to rule when facing similar scenarios. To that end, the lesson of the trial court’s ruling is that all lawyers should ensure that their fee agreements comply with the applicable statutes. Because in the event of a later dispute a court may later find that a fee structure constitutes a contingent fee, counsel should ensure that their fee agreements are (1) written and (2) comply with all elements of California Business & Professions Code § 6147.
About the Author: Carl Mueller
Mr. Mueller represents attorneys and clients in disputes over legal fees and legal malpractice. If you have questions regarding this article contact Carl Mueller at email@example.com.
By Patrick Maloney and Sam Fogas, The Maloney Firm, APC
In October 2019, the California Court of Appeal provided guidance concerning the scrutiny that the trial courts are to apply when reviewing requests for attorneys’ fees. In Morris v. Hyundai Motor America, Mary Morris (“Morris”) appealed the trial court’s decision to reduce the award of attorneys’ fees from what Morris requested to what the trial court decided was reasonable. The Court of Appeal held:
1. A trial court can reduce attorneys’ fees awarded based on a determination that a routine, non-complex case was “overstaffed to a degree that significant inefficiencies and inflated fees resulted”; and
2. A trial court can reduce attorneys’ billable rates if the court finds that the rates were unreasonable given the complexity and length of the case.”
In March 2016, Morris sued Hyundai Motor America (“Hyundai”) in part under the Song-Beverly Consumer Warranty Act (“Song-Beverly Act”) for failing to conform a vehicle to its warranties. The parties ultimately settled the claim for $85,000.00 plus “reasonable attorney fees and expenses to be determined by the court in the absence of an agreement by the parties.” Morris sought $127,792.50 in fees based on work performed by eleven attorneys from two law firms, and one paralegal. Morris further sought a lodestar multiplier of 1.5 as additional compensation because Morris’s attorney had taken the case on contingency and payment had been delayed. Morris’s total attorneys’ fees sought totaled to $191,688.75.
The trial court rejected Morris’s requested fee award, finding that “[f]or a case that did not present particularly complex or unique issues, which did not require any discovery motions, and which did not go to trial . . . a reasonable number of attorneys is one partner and at most two associates/paralegals.” The trial court further found that the hourly rates for each attorney was not reasonable, and declined to apply the requested multiplier. The trial court awarded attorney fees of $73,864.00.
Morris appealed, arguing that the trial court engaged in inappropriate proportionality analysis and abused its discretion by cutting hours billed by six of the eleven attorneys and by reducing the attorneys’ hourly rates. Morris relied on the Song-Beverly Act, which bars a court from decreasing an award of attorneys’ fees to lower the proportion between the attorney fees award and the settlement/damages amount.
The Court of Appeal Upholds the Trial Court’s Reduction of Attorneys’ Fees
Acknowledging the Song-Beverly Act, the Court of Appeal held that a trial court is free to reduce an award for attorneys’ fees where “it was unreasonable to have so many lawyers staffing a case that did not present complex or unique issues, did not involve discovery motions, and did not go to trial.”
In sweeping aside Morris’s arguments that the trial court abused its discretion, the Court of Appeal held, “Plainly, it is appropriate for a trial court to reduce a fee award based on its reasonable determination that a routine, non-complex case was overstaffed to a degree that significant inefficiencies and inflated fees resulted.”
Finally, the Court of Appeal set forth a number of factors that the trial court did and could consider when determining if an award of attorneys’ fees is reasonable – including the trial court judge’s own experience and opinion. Those factors include: “finding that the matter was not complex; that [the matter] did not go to trial ; that the name partners were doing work that could have been done by lower-billing attorneys; and that all the attorneys were doing work that could have been done by paralegals.”
Hindsight Is 20/20, But Foresight May Save You Time and Money When It Comes to Recovering Attorneys’ Fees
While Morris involved recovery of attorneys’ fees under the Song-Beverly Act, the Court of Appeal’s reasoning is not limited to actions based on that statute. Absent obvious bias or error, a trial court’s fee award is likely to be upheld. As such, even where recovery of reasonable attorneys’ fees is mandated by contract or statute, attorneys should guard against inefficiency, redundancy, and overbilling to avoid the risk of not recovering their time and resources.
About the Authors: Patrick Maloney and Sam Fogas
The founding shareholder of The Maloney Firm, APC, Mr. Maloney represents attorneys and clients in disputes over legal fees and legal malpractice. Mr. Fogas is a post-bar law clerk at The Maloney Firm. The authors may be reached at firstname.lastname@example.org and email@example.com.
Employment Law Alert
Lactation Law SB 142
Breaks and Location
Obligations to provide break time and lactation accommodations are significantly expanded by SB 142. Starting January 1, 2020, California employers must now provide:
1. Break time to allow employees to express breast milk “each time such employee has need to express milk.”
2. A lactation room (other than a bathroom) close to the employee’s work area, shielded from view and free from intrusion when in use. It must also:
a. be safe, clean, and free of hazardous materials;
b. contain a surface to place a breast pump and personal items;
c. contain a place to sit; and
d. have access to electricity (or alternative device) to power a breast pump.
3. Access to a nearby sink with running water and a refrigerator (or cooling device) for storing milk.
SB 142 contains exceptions for certain employers, including those in multi-unit worksites and those who designate a temporary lactation location due to operational, financial, or space limitations. Employers with fewer than 50 employees may be exempt from lactation room requirements that impose an undue hardship in relation to the size, resources, or nature of the business.
SB 142 also creates potential exposure for employers who fail to comply with its lactation rules or discriminate on the basis of an accommodation request. Denial of reasonable break time or adequate space to express breast milk is deemed a violation of California Labor Code Section 226.7, triggering premium wage payments as well as civil Labor Commission penalties.
California businesses must also include specific lactation accommodation policies in their employee handbooks. The policies must detail the employee’s right to request lactation accommodations, the process by which requests may be made, the employer’s obligation to respond, and information about employee rights to file complaints with the Labor Commissioner.
Before the end of the year, California employers should review their policies and prepare to provide required lactation breaks and location accommodations. They should also draft and distribute a compliant lactation policy to all employees prior to SB 142’s January 1, 2020, effective date.
If you have questions regarding this alert, contact Lisa Von Eschen, Esq., Chair of the Employment Law Department at The Maloney Firm, APC at firstname.lastname@example.org or Samantha Botros at email@example.com
The California legislature continues to enact increasingly employee-favorable legislation (with a few exceptions.) Issues related to employee and independent contractor classifications and the Dynamex decision are at center stage of the discussion and likely to have the most impact for California businesses. Also, the legislature is reintroducing numerous employment bills addressing paid family leave, harassment, and discrimination as well as proposing legislation on new topics.
Click here to read the Maloney Firm’s 2019 Mid-Year Employment Law Update.
California Supreme Court Clarifies Standards For Seeking Costs In Arbitration Pursuant To CCP Section 998
By Carl Mueller, The Maloney Firm, APC
In Heimlich v. Shivji, published May 30, 2019, the California Supreme Court overturned an appellate court’s holding that “required” a trial court to hear a timely request for fees pursuant to a rejected 998 offer if an arbitrator refused to hear it. I previously wrote an article discussing the opinion Seeking Costs Under CCP § 998, which concluded with:
In short, the Court of Appeal ensured that the costs provision under CCP § 998 is available to parties in arbitration – at least those in AAA – notwithstanding whether the arbitrator will consider the request for fees.
In that case, one party (Shivji) made a CCP § 998 offer that was rejected, and then Shivji prevailed on the merits. After the issuance of the final award, Shivji’s counsel emailed the arbitrator seeking costs pursuant to CCP § 998, but the arbitrator refused to consider the request. The appellate court ruled that in that situation, the trial court must consider the fee request if the arbitrator does not. The Supreme Court overruled the appellate court, holding that the trial court lacked the authority to overturn the arbitrator’s refusal to consider the timely fee request:
We hold a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award. In response to such a request, an arbitrator has authority to award costs to the offering party. However, if an arbitrator refuses to award costs, judicial review is limited. The Court of appeal erred in relying on a narrow exception to those limits for failure to consider evidence. We reverse.
Notably, the Supreme Court made clear that evidence of a CCP § 998 offer may be given in arbitration either before or after the issuance of a final award:
With certain limits, evidence of a 998 offer may be presented before or after an arbitrator’s final award on the merits. While Shivji would not have been categorically prohibited from advising the arbitrator of the rejected 998 offer sooner, his proffer six days after the final award was timely.
Specifically, the Supreme Court held that overlapping common law and statutory schemes allow an arbitrator to consider evidence of the rejected CCP § 998 offer and a request for costs “within 15 days after issuance of a final award.” However, a trial Court lacks the authority to overturn an arbitrator’s failure to consider such a request for costs, as in the instant case, because the “court’s power to correct or vacate an erroneous arbitration award is closely circumscribed.” This holding is based on the well-established rule that “[o]rdinary errors in ruling on costs are not subject to correction, nor do they serve as the basis for vacating an award.”
In addition to its holding on the merits, the Supreme Court’s decision points out a trap for the unwary practitioner, which any litigator that ventures into arbitration must take to heart:
Insofar as appears from the record, Shivji did not seek a stipulation that would allow the parties jointly to advise the arbitrator of a 998 offer. Instead, he chose to wait until shortly after the arbitrator’s merits award to raise the issue. While Shivji was legally entitled to do so, he ran the risk that the arbitrator would erroneously refuse to award costs, leaving him without recourse under the narrow ground for vacation or correction contained in the statutory scheme.
As such, introducing a CCP § 998 offer into evidence at arbitration and requesting leave to make a post-award request for costs should be on any litigator’s arbitration check-list.
The Maloney Firm is proud to announce that Greg Smith and Vanessa Willis have been named to the 2019 Rising Stars list in Southern California Super Lawyers Magazine.
This is the fourth consecutive year that Greg has received this distinction and the first for Vanessa. The honor is bestowed on only the top 2.5% of attorneys who are under age 40.
Please join us in congratulating them!
Know Your ABCs: Dynamex ABC Test Applies Retroactively
By Vanessa Willis, The Maloney Firm, APC
On May 2, 2019 in Vazquez v. Jan-Pro Franchising International, Inc. No. 17-16096 (9th Cir. 2019), the Ninth Circuit held that the landmark 2018 Dynamex decision applies retroactively. The Dynamex decision adopted the more stringent ABC test for determining independent contractor status. Under Dynamex, to establish that a worker is an independent contractor, the employer must prove that the worker: (a) is free from control and direction in the performance of his or her work, both under the contract for the performance of the work and in fact; (b) performs work that is outside the usual course of the hiring entity’s business; and (c) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work that he or she is performing for the hiring entity. Dynamex Corporations West, Inc v Superior Court (2018) 4 Cal. 5th 903, 916-917.
The Vazquez case involved a decade-long dispute between janitorial workers classified as independent contractors and Jan-Pro Franchising International. The court ruled that janitors working for a franchise-structured cleaning firm could not be classified as independent contractors and found that “franchise context” doesn’t change how Dynamex should apply.
The Ninth Circuit concluded that Dynamex applies retroactively largely because the Dynamex Court stated it was merely “clarifying” existing law rather than changing it, and remanded the case to the district court for further proceedings in which the new “ABC” test is to be applied retroactively. The Ninth Circuit rejected two main arguments for applying Dynamex only prospectively. First, the Court noted the default rule that judicial decisions have retroactive effect and Dynamex did not fall into any exception to that rule. Second, the Court held that applying Dynamex retroactively did not violate due process.
This opinion has major implications, especially for California employers that rely on independent contractors, including gig economy companies. The Ninth Circuit’s decision also has particularly important application to businesses that use a franchise model. Employers should not only make sure that new workers are classified correctly according to Dynamex, but also revisit existing independent contractor agreements to verify they conform to the standards established by Dynamex. As a result of this decision, employers may see an uptick in wage and hour lawsuits and businesses may be subject to liability for misclassifying workers as independent contractors even before the test became law.
The Maloney Firm is proud to be a Silver Sponsor of this year’s South Bay Women’s Conference, an annual event that centers on awarding scholarships to deserving South Bay women to pursue business degrees.
Back from the Dead: When an Arbitration Clause May Survive an Agreement to Terminate the Agreement Containing the Arbitration Clause
By Gregory M. Smith, The Maloney Firm, APC
On April 23, 2019, in the matter of Oxford Preparatory Academy v. Edlighten Learning Solutions, the California Court of Appeal, Fourth Appellate District, held that parties can still be bound to an arbitration provision in a written agreement, even after they mutually agree to terminate the agreement containing the arbitration clause.
In December 2015, Oxford Preparatory Academy (“Oxford”) and Edlighten Learning Solutions (Edlighten”) entered into: (1) an Affiliation Agreement); (2) a Personnel Services Agreement); and (3) a Management Services Agreement (collectively “the Agreements”). The Management Services Agreement contained an arbitration provision, which was incorporated by reference into the other Agreements, which stated: “Any controversy or claim arising out of this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.”
Only a few months later, the parties entered into an agreement to “terminate the Affiliation Agreement, the Management Services Agreement, and the Personnel Services Agreement … by mutual consent upon the terms set forth herein.” The Termination Agreement stated that effective June 17, 2016, “all rights and obligations of [the parties] under the [Agreements] shall cease” but that the obligations of each party to pay for the services rendered prior to the termination date survived the termination of the Agreements. The Termination Agreement also included an integration clause which stated: “There are no agreements, understandings, commitments, representations or warranties with respect to the subject matter hereof except as expressly set forth in this Agreement. This Agreement supersedes all prior oral or written negotiations, understandings and agreements with respect to the subject matter hereof.”
Thereafter, Oxford sued Edlighten for failure to timely pay as required by the survival clause, and Edlighten moved to compel arbitration pursuant to the clause in the Management Services Agreement. The trial court denied the petition because: “(1) the parties explicitly agreed in writing to terminate all three agreements and to extinguish ‘all rights and obligations’ under them, with only two specified exceptions; and (2) the parties’ right and obligation to resolve their dispute through arbitration is not among the rights and obligations” surviving termination of the agreements.
The Court of Appeal disagreed with Oxford and the trial judge. The Court ruled “The Termination Agreement does not demonstrate any intent that it would supersede the Arbitration Clause, or, for that matter, any other right or obligation which arose under the parties’ agreements before the termination date.” The Court reasoned that the use of the phrase “shall cease” in the Termination Agreement indicated that the parties had no intent to terminate any rights that were already vested to the parties (including arbitration), instead the Termination Agreement “merely divided the rights and obligations of the parties on a temporal basis.” Further, the Court ruled that because the Termination Agreement was silent as to any repudiation of the arbitration clause, it fell outside of the “subject matter” of performance specified in the integration clause.
The lesson to be learned from the case is that clarity is always paramount when drafting a document creating, amending, or terminating an agreement. Leaving a term silent and hoping that a court might see it your way may lead to unintended consequences. Instead, parties and their counsel should seek to maximize the clarity of the bargains they strike. This is even more important in the context of arbitration because, as Oxford Preparatory Academy v. Edlighten Learning Solutions demonstrates, there is a judicial presumption in favor of arbitration, even after the parties terminate the underlying agreement.