Source: https://www.calattorneysfees.com/cases_assignment/
Timestamp: 2019-04-25 16:13:11+00:00

Document:
Assignment, Prevailing Party, Reasonableness of Fees: No Abuse Of Discretion In Awarding Prevailing Defendant $92,155 After Reasonableness Reduction.
It Was Not Necessary For Court To Apportion Fees Between Contract-Based Causes Of Action, Claims Dismissed Before Trial, Defense of Defendant Corporation, and Defense of Corporation’s CEO Because Plaintiff’s Causes Of Action All Stemmed From A Common Factual Core, And All Claims Against CEO Were Also Alleged Against Entity.
In Grant v. AssistMed, Inc., Case No. B289996 (2d Dist., Div. 1 March 1, 2019) (unpublished), Plaintiff filed his original complaint against former employer and its CEO alleging 5 causes of action related to his employment agreement. The trial court sustained Defendants’ joint demurrer, and Plaintiff filed a first amended complaint alleging 5 causes of action with some changes to the causes of action from the original complaint. Defendants again filed a joint demurrer which was sustained. Finally, Plaintiff filed his second amended complaint alleging 2 causes of action – breach of contract and fraud in the inducement. The trial court partially sustained Defendants’ joint demurrer to this second amended complaint – leaving Plaintiff with only the breach of contract cause of action.
The case proceeded to bench trial against only the Corporation as the CEO died and was dismissed as a party shortly before trial. At trial, the court granted Corporation’s Code Civ. Proc. section 631.8 request for Motion for Judgment (based on evidence – or lack thereof – presented by Plaintiff). A month later, Plaintiff requested the trial court take judicial notice of the fact that Corporation had ceased business operations several months earlier, and made “an Assignment for the Benefit of Creditors to BOT Financial.” Corporation acknowledged this fact, and neither party provided any other documents related to the assignment.
In a postjudgment motion, Corporation requested attorney fees incurred in defending against the three different iterations of Plaintiff’s complaint – basing the request on a prevailing party attorney fees provision in the employment agreement. Plaintiff argued that Corporation did not have standing to seek attorney fees in light of the Assignment, and should not recover fees incurred defending non-contract claims or fees incurred defending CEO. The trial court disagreed – noting that Plaintiff had waived arguments regarding the Assignment by waiting several months after learning of it to raise it with the court – and awarded Corporation $92,155 in attorney fees after a reasonableness reduction. Plaintiff appealed.
The 2/1 DCA concluded that the trial court did not err in concluding Corporation had standing to collect an attorney fee award as the record was unclear as to what assets were included in the Assignment. It further concluded that Plaintiff had the opportunity to bring the assignee into the case below, but made no effort to do so after learning of the Assignment. Finally, citing Bell v. Vista Unified School Dist. (2000) 82 Cal.App.4th 672, the 2/1 DCA concluded that all causes of action alleged by Plaintiff shared a “primary economic focus” such that the litigation did not involve “separate and distinct claims, one entitled to statutory fees and the other not.” The appellate court also concluded that the trial court did not err in determining apportionment was not required for the fees attributable to defending Corporation as opposed to its CEO as the claims at issue were made against both Defendants, and were so factually interrelated that it would have been impossible to separate the activities.
Code of Civil Procedure Section 697.590 governed this one.
MDQ, LLC v. Gilbert, Kelly, Crowley & Jennett LLP, Case No. B283025 (2d Dist., Div. 8 February 27, 2019) (published) provides a valuable lesson in the importance of perfecting assigned security interests through the filing of a financing statement pursuant to Division 9 of the Commercial Code.
Floyd Mutrux was one of the authors of a Tony-award winning Broadway musical, “Million Dollar Quartet.” Four limited liability companies (LLCs) held production rights or were producers of the musical. Mr. Mutrux and/or his corporation (Mutrux) was a member, manager, shareholder or owner of each of the LLCs, and held certain economic rights to be allocated profits, and receive distributions and payments from the LLCs.
In 2012, a record company filed a lawsuit against Mutrux. A proposed statement of decision was filed by the trial court, on April 14, 2015, in favor of the record company to the tune of over $1 million. Eight days later, Mutrux and the law firm representing him in the record company litigation executed a “Notice of Assignment and Irrevocable Letter of Direction” assigning a portion of Mutrux’s economic interests in the LLCs to the law firm for the payment of legal fees until payments totaling $175,000 had been made. A few months later, on August 5, 2015, the trial court entered judgment in favor of the record company in the amount of $965,851.47. Then, on August 21, 2015, the record company received a charging order – pursuant to Corporations Code section 17705.03 – directing the LLCs “to pay any and all profits, distributions, disbursements or other payments otherwise due to [Mutrux] . . . directly to counsel for Judgment Creditor [record company], until the August 5, 2015 judgment was fully satisfied.
You can guess what came next. The LLCs filed a complaint in interpleader alleging conflicting claims by the record company and law firm to the applicable distributions owed to Mutrux. The LLCs then deposited the distributions at issue to interpleader funds. Before trial in this matter, the trial judge released the LLCs from any and all liability to the interpleader defendants, ordered them to continue to deposit any additional distributions with the court, and ordered $11,500 payed to the LLCs from the interpleader funds for their attorney fees and costs.
At trial, the record company argued that, pursuant to Code Civ. Proc. section 697.590, it had first priority to the distributions as the law firm had failed to perfect its security interest by filing a financing statement (UCC-1). The record company further argued that the $11,500 payment to the LLCs for attorney fees should be paid by the law firm rather than out of the interpleader funds. The trial court agreed – finding the assignment to the law firm inferior to the judgment lien recorded by the record company, and ordering the law firm to pay the LLCs attorney fees.
The law firm appealed to no avail. The 2/8 DCA affirmed the trial court’s judgment – finding the priority of a perfected judgment lien over an unperfected security interest to be clearly established by section 697.590, and finding no abuse of discretion regarding the trial court’s order for payment of the LLCs attorney fees – to which it was entitled under Code Civ. Proc. section 386.6.
Appellant law firm appealed, but the fee award stood. The appellate court agreed that the conversion claim fell within the ambit of the broad deed of trust clause, and that the law firm as assignee had to bear the burdens as well as the benefits of the assignment (inclusive of the adverse fee award).
Assignment: Can A Guarantor Of Attorney’s Fees Defend Against Fee Recovery Based On Malpractice Claim Of Obligor/Client Without Client Involvement?
No California Case Directly On Point, But Two Out-Of-State Cases Suggest "No."
Can a guarantor of a client's fee obligation to client's attorney sue the attorney for malpractice if the client does not somehow participate or intervene? Although there is no California case on the subject to our knowledge, two out-of-state decisions suggest the answer is likely "no."
The closest California authority, Borissof v. Taylor & Faust, 33 Cal.4th 523, 530 (2004), generally holds that third parties not in contractual privity with the attorney cannot sue for malpractice unless they were intended beneficiaries of the attorney-client relationship, an exception which would likely not apply to a guarantor.
The two out-of-state cases are DeAngelis v. Rose, 320 N.J. Super. 263, 727 A.2d 61 (N.J. App. Div. 1999), which did hold that a guarantor cannot sue for malpractice against client's attorney unless the client joins in the action or unless guarantor relied on attorney-client communications during the relationship, and Schroeder v. Hudgins, 142 Ariz. 395, 398-400 (Ariz. Ct. App. 1984), which by analogy held that a guarantor of an LLC could not sue LLC's former attorney based on the notion that malpractice actions are personal/not assignable in a fair number of jurisdictions.
If any of our readers have a different perspective or know of a California case on point, let us know.
Plus, Great Quote On Appellate Advocacy … Ostrich Beware!
Oliver W., the famous trotting ostrich. Circa 1903. Library of Congress.
Also Error To Not Order Contribution By Co-Judgment Debtors To Fee/Costs Component Of Judgment.
In LSREF2 APEX3, LLC v. Nomicos, Case No. G050175 (4th Dist., Div. 3 Aug. 19, 2015) (unpublished), one judgment debtor (who was jointly/severally liable and owned 10% of the property involved in the dispute) paid off a Colorado judgment which was registered as a California sister court judgment—paying off the full amount of the judgment plus interest as well as the costs and fees component which was ordered in Colorado after the Colorado “base” judgment was registered as a California sister state judgment. Judgment creditor assigned the judgments over to the “paying” judgment debtor. This debtor then moved to amend the California judgment to include the amount of fees/costs awarded subsequently by the Colorado court and moved to compel co-judgment debtors to compel contribution from her co-judgment debtors for all the judgment components. The lower court denied the motion to amend based on the perception that the judgment could not be amended and that the assignment extinguished the judgment. However, the trial judge did grant the contribution motion to compel, but ordered that contribution was only due on the “base” judgment (not the fees/costs subsequent component).
The Fourth District, Division 3, in decision penned by Presiding Justice O’Leary, reversed on both counts and remanded.
Also, Mediation and Other Routine Costs Were Justified.
Landlord won damages, attorney’s fees, and routine costs against lease assignees in Town Square Properties v. Mansouri, Case No. B236871 (2d Dist., Div. 5 July 15, 2013) (unpublished). The fee award alone was $167,407.55 in favor of landlord, as well as routine costs for mediation fees, attorney service, and parking expenses of $3,256. Everything was affirmed on appeal.
Because a written lease necessarily included enforcement of assignment agreements (given that assignees are liable for rental obligations unless expressly released), the fees were “on the contract” under Civil Code section 1717.
Tri Valley Land Development, Inc. v. Turner Ranch Family Dairy, Case No. F061515 (5th Dist. Sept. 25, 2012) (unpublished) is a situation where fee exposure turned on whether an assignment of claims was made to a certain cross-defendant. This case carefully tells attorneys to carefully review assignment/lien documents, because the appellate court ultimately found that claims (including fee recovery) were not assigned to a particular cross-defendant; rather, instead, only a lien was given on proceeds from the claims, not an assignment. In this instance, this important substantive difference did prevent one cross-defendant from obtaining fee recovery under the “non-assignment” arrangement.
Although Controlling the Litigation, Nonsignatory Had No Rights Assigned Under The Fees-Clause Bearing Settlement Agreement.
Estate of Bennett, Case Nos. G043050 et al. (4th Dist., Div. 3 Mar. 8, 2011) (unpublished), although a probate action, actually is a Civil Code section 1717 fees clause case, with the fee award affirmed by a 3-0 opinion authored by Justice Rylaarsdam. It also demonstrates that assignment of rights must be specific; if the fees clause is in a settlement agreement, make sure the specific settlement agreement rights are assigned.
Claimant was granted a $51,236.21 fee award against petitioners losing a motion to set aside an assignment of an interest in decedent’s estate to claimant, although claimant did not get the award extended to another party (Brea) allegedly assigned petitioners’ interest in certain probate litigation.
The Court of Appeal affirmed. The award against petitioners was justified based on a fees clause in a settlement agreement between claimant and petitioners. Brea (the other party), which was not a party to the settlement agreement, was properly not exposed to fees--even though it may have controlled the litigation--because it was not assigned any rights under the settlement agreement (just the probate litigation, which was not good enough).
Assignor Controlling Litigation Should Not Avoid Fee Exposure Via Assignment.
Plaintiff owner and his wholly-owned corporation lost a specific performance, rescission, and declaratory relief suit to trustees of a revocable trust after trustees obtained an evidentiary preclusion order upon plaintiffs’ refusal to provide discovery on the “ready, willing, and able” purchaser issue. Then, the trial court held plaintiff owner individually liable for attorney’s fees of $816,683.80 and $41,544.67 of costs under a fees clause in the purchase agreement, notwithstanding his assignment of interests in the litigation to his corporation on the eve of trial.
He appealed the merits and fees/costs judgments, but lost on appeal in Clement v. Alegre, Case No. A125953 (1st Dist., Div. 2 Oct. 18, 2011) (unpublished).
Simplicity often times determines cases, as it did here. An assignment carries with it all rights of the assignor. Even though the assignor can transfer his or her rights, the assignor cannot escape the burden of his or her obligation by an assignment. Plaintiffs could cite no cases holding “that a plaintiff may evade its liability for attorney fees by assigning its rights in the litigation to its coplaintiff”--all the more so because plaintiff controlled the litigation since inception.
BLOG UNDERVIEW--For all you California real estate practitioners, this case has a great discussion of the “ready, willing, and able purchaser” case law. Also, it demonstrates that if you put an issue at stake in a case, you better provide the other side discovery on that issue or risk preclusion (the “you cannot blow hot and cold” principle).
Fourth District, Division 3 Remands Fee Recovery Under Unusual Procedural Circumstances.
Here is an interesting decision with a procedural twist—with apologies to Chubby Checker (oh, boy, are we dating ourselves).
Chubby Checker does the Twist.
In Nguyen v. Dang, Case Nos. G041224/G041380 (4th Dist., Div. 3 Mar. 11, 2010) (unpublished), a signatory of a contract with a fees clause was hit with a $71,000 damages award arising out of a radio station purchase dispute and a subsequent $99,263.40 fee award as well as $14,912.06 costs award. Appellant signatory appealed, mainly banking on the theory he was a mere assignor who never really ran the radio station. Interestingly enough, on appeal, the appellate court reversed the damages as being excessive, giving the respondent a chance to agree to a remittitur of damages down to $4,110. So, how did this impact the attorney’s fees award?
Civil Code Section 1717 Fees to Assignee: Make Sure Your Assignments Cover Documents With Fee Clauses … Or Else Assignees Get No Fees!
Second District, Division 8 Case Illustrates Lesson, Although Finds Trial Court Erred In Not Awarding Routine Costs to Assignee.
Because lawsuit claims and judgments are usually considered choses in action, they are generally assignable (except for some personal claims in the real estate, malpractice, and personal injury/likeness misappropriation areas). However, the next case reinforces a simple but expensive lesson: assignees of lawsuits needs to make sure that the assignment includes documents that have proper attorney’s fees clauses so that recovery is allowable under Civil Code section 1717. Otherwise, like the litigant in the next case, fee recovery will not be forthcoming.
In The Vons Companies v. Parks, Case No. B208335 (2d Dist., Div. 8 Aug. 17, 2009) (unpublished), Vons (owner) and contractor entered into a construction contract with a fees clause, with contractor also giving owner a separate warranty for work that did not contain a fees clause. Vons sold the shopping center to Mock Ranch, assigning the separate warranty but not the construction contract to Mock. Mock later sued Vons and contractor for certain property conditions, with Vons also cross-complaining against contractor. Mock settled with Vons, with all of its claims assigned to Vons as part of the settlement. Vons eventually was awarded $35,556 in damages by a jury as against contractor. Vons then sought routine costs, which was denied by the trial court. Vons also filed a motion to recoup $1,509,364 in attorney’s fees against contractor, a request that was denied.
Vons appealed, with the Second District, Division 8 (in a 3-0 decision authored by Judge Helen Bendix, sitting by assignment) affirming the fee denial but remanding for a determination of costs awardable to Vons.
Second District Affirms Fee Award Against Both Assignor and Assignee Based on California Wholesale and the Assignor’s Surety Status.
One of the time-honored principles in assignment law is that assignee’s voluntary acceptance of benefits normally means consent to bear the burdens from the assignment. Civil Code sec. 1589. However, the assignor normally still remains liable to the promisee. These tenets were fully at play in the next case, where both the assignor and assignee where assessed with an adverse $1.4 million fee award which was affirmed by the Second District, Division Four on appeal.
In New York Times Company v. Click2Boost, Inc., Case No. B195419 (2d Dist., Div. 4 June 20, 2008) (unpublished), plaintiff assignee asserted both contract and tort claims against defendant, which in turn cross-claimed for breach of contract against assignor. The trial court granted summary judgment in defendant’s favor on assignee’s complaint, issuing a substantial fee award of $1,430,754.50 (out of a sought-after $1,732,298) against both assignee and assignor. The trial judge also observed that even if defendant won its cross-complaint in the future, he would be careful to not allow a “double dipping” as far as fee recovery in the cross-action. Assignor appealed, with Justice Manella affirming on behalf of a 3-0 panel consisting of Presiding Justice Epstein and Justice Willhite.
The appellate court then summarized the standards of review governing fee awards: (1) the section 1717 prevailing party determination is examined for abuse of discretion, Sears v. Baccaglio, 60 Cal.App.4th 1136, 1158 (1998); (2) a party’s contractual entitlement to a fee award is reviewed de novo unless there are factual disputes, Exxess Electronixx v. Heger Realty Corp., 64 Cal.App.4th 698, 705 (1998); and (3) factual findings made in the award, expressed or implied, are examined under the substantial evidence rule, Federal Home Loan Mortg. Corp. v. La Conchita Ranch Co., 68 Cal.App.4th 856, 860 (1998). (Slip Opn., at p. 5, fn. 8.) Good primer on review standards.
Click2Boost is a sobering lesson to assigning parties that fee awards can be issued against them jointly and severally. Assignors are well advised to think carefully before making an assignment of a contract with a fees clause. In California, section 1717 will render the clause reciprocal in operation such that nonsignatory plaintiffs face exposure if they would have been entitled to a fee award under the contractual clause.

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