Case Number: BC542350??? Hearing Date: September 21, 2016??? Dept: 78
Superior Court of California
County of Los Angeles
Department 78
RANDHIR S. TULI;
Plaintiff,
vs.
SPECIALTY SURGICAL CENTER OF THOUSAND OAKS LLC., et al.;
Defendants. Case No.: BC542350
Hearing Date: June 21, 2016
[TENTATIVE] RULING RE:DEFENDANTS? MOTION FOR ATTORNEYS? FEES AND COSTS.
Defendants? Motion for Attorneys? Fees is GRANTED in part. The court awards attorneys? fees in the amount of $524,374.67, but denies the request to award expert witness fees. Tuli to pay attorneys? fees by check provided to Defendants? counsel within thirty (30) days of this ruling.
FACTUAL BACKGROUND
In this case Plaintiff Randhir Tuli (?Tuli?) alleges claims for breach of contract and fiduciary duties, as well as claims for unfair competition. At the heart of this case is whether the Governing Board of defendant Specialty Surgical Center of Thousand Oaks (?SSC?) properly terminated Tuli under the operative Third Amended and Restated Operating Agreement (?Operating Agrement?) as a Member of the Board of SSC based on his sending a letter through his counsel to SSC?s Members and employees accusing SSC of medicare kickbacks and bad faith and illegal actions. Based on its assertion that this constituted a ?Terminating Event? under the Operating Agreement, the Governing Board voted to redeem Tuli?s membership interest for $0.
The facts of this case are set forth in more detail in this court?s March 22, 2016 order granting summary judgment in favor of defendants.
PROCEDURAL HISTORY
Tuli filed his original complaint on April 11, 2014. On June 4, 2015, this court denied a Motion for Summary Adjudication brought by Tuli.
Tule filed his FAC on December 11, 2015, alleging five causes of action:
1. Breach of Fiduciary Duties;
2. Breach of Written Operating Agreement;
3. Breach of Written Consulting Agreement
4. Breach of the Implied Covenant of Good Faith and Fair Dealing;
5. Violation of Business and Professions Code ? 17200 et. seq.
On March 22, 2016, this court granted defendants? Motion for Summary Judgment. On April 25, 2016, this court entered the following final judgment:
1. Judgment is entered in favor of Defendants and against Plaintiff on Plaintiff?s operative amended complaint and it is hereby dismissed with prejudice;
2. Plaintiff shall take nothing, and Defendants shall recover costs pursuant to Sections 1032 and 1033.5 of the California Code of Civil Procedure, and attorney?s fees as permitted by statute and/or by contract between Plaintiff and certain Defendants, in an amount, if any, to be determined by post-judgment motion;
Defendants filed their Motion for Attorneys? Fees and Costs on May 17, 2016. Tuli filed his Opposition on June 8, 2016. Defendants filed their Reply on June 14, 2016.
DISCUSSION
I. MOTION FOR ATTORNEYS? FEES
Attorneys fees are allowed as costs when authorized by contract, statute, or law. (Code Civ. Proc., ? 1033.5, subd. (a)(10)(B).) The Third Amended and Restated Operating Agreement of Specialty Surgical Center of Thousand Oaks, LLC (the ?Operating Agreement?) provides in section 16.12 that: ?In the event a party elects to incur legal expenses to enforce, defend or interpret any provision of this Agreement by judicial proceedings, the prevailing party will be entitled to recover such legal expenses, including, without limitation, reasonable attorneys? fees, costs and necessary disbursements at all court levels, in additional to any other relief to which such party shall be entitled.?
As an initial matter, the court finds that defendants are generally entitled to attorneys? fees in this matter as the prevailing parties pursuant to the operating agreement. Tuli argues that none of the defendants are entitled to attorneys? fees because only defendant SSC actually paid legal bills, and SSC was not a party to the contract. (Opposition at pp. 3?6.) This argument fails on several grounds.
As an initial matter, the court notes that Civil Code section 1717, subdivision (a) provides that ?In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.? Therefore, whether SSC or any of the individual defendants were parties to the Operating Agreement is not relevant as to whether they are entitled to attorneys? fees because all defendants were the ?prevailing parties? in an action brought by Tuli pursuant to the Operating Agreement.
?Section 1717 was enacted to establish mutuality of remedy where contractual provision makes recovery of attorney’s fees available for only one party [Citations.] Its purposes require section 1717 be interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in enforcing the contractual obligation against the defendant.? (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.)
Additionally, defendants point out that SSC is considered a party to the Operating Agreement by operation of Corporations Code section 17701.11, which provides that: ?[a] limited liability company is bound by and may enforce the operating agreement.?
Tuli then argues that because SSC paid all of the legal bills during the pendency of the litigation, the individual defendants are not entitled to attorneys? fees because they did not ?incur? fees as required by section 1717.
Tuli cites to the definition of ?incur? in the context of attorneys? fees as ?to ?become liable? for it [Citation], i.e., to become obligated to pay it.? (Trope v. Katz (?Trope?) (1995) 11 Cal.4th 274, 280, emphasis in original.) Trope held that an attorney litigating in pro per could not recover attorneys? fees because he did not ?incur? any such fees. However, the courts in other contexts have found that costs are recoverable even if not paid out-of-pocket by the defendant, for example, when a party uses the services of in-house counsel (see PLCM Group v. Drexler (?PLMC?) (2000) 22 Cal.4th 1084, 1088, 1092?1093) or pro bono work (Cruz v. Ayromloo (2007) 155 Cal.App.4th 1270, 1279 [?in the analogous situation of contingent fee and legal aid lawyers?where again the clients are not responsible for paying legal fees out of their own pockets?the majority of courts have approved awards at a full level of ?reasonable? fees?].)
Tuli bases his argument that a prevailing party is not entitled to attorneys? fees when those fees are paid by a third party on Young v. Exxon Mobil Corp. (?Young?) (2008) 168 Cal.App.4th 1467. In Young, the trial court found that attorneys? fees were properly awarded to individual defendant Lopez in a FEHA action where plaintiff Young?s claims were frivolous as to Lopez but not as to corporate defendant Exxon. However, the court only awarded Young nominal attorneys? fees of $1 with respect to his claims against Lopez because Exxon paid for his defense, holding that ?while a trial court should ordinarily award attorney fees to a prevailing defendant in a FEHA action when the court finds the plaintiff’s action was frivolous, the court has the discretion not to do so if the actual beneficiary of the attorney fee award is a defendant to which an award could not otherwise be made.? (Id. at p. 1475.)
The facts in this case are distinguishable from the unique facts of Young. In Young the court found that it would be unfair to award fees to one defendant where the other defendant paid for the joint defense but was not otherwise entitled to fees. Here, defendants? attorneys represented all defendants, all of whom were ?prevailing parties,? including the individual defendants, pursuant to an attorney-client relationship. The existence of an attorney-client relationship creates a legal obligation to pay the fees; the fees are thus ?incurred.? (See PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1092 [?the term ?attorney fees? implies the existence of an attorney-client relationship, i.e., a party receiving professional services from a lawyer.?].) Here, all defendants, as prevailing parties in an action brought under a contract containing an attorneys? fees provision, are entitled to attorneys? fees.
Tuli?s argument that the individual defendants who were not parties to the Operating Agreement are not entitled to attorneys? fees fails for a third reason. Tuli sued the individual defendants under an alter ego theory. (First Amended Complaint at ?? 3?6.) The Supreme Court has held that the reciprocity provision of section 1717 applies where individuals are sued as alter egos, holding: ?Had plaintiff prevailed on its cause of action claiming defendants were in fact the alter egos of the corporation [Citation], defendants would have been liable on the notes. Since they would have been liable for attorney’s fees pursuant to the fees provision had plaintiff prevailed, they may recover attorney’s fees pursuant to section 1717 now that they have prevailed.? (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129.)
Because all defendants are entitled to attorneys? fees in this matter, the court next turns to amount of fees that defendants may recover.
Recovery of Attorneys? Fees for Tort Claims
Tuli argues that the attorneys? fee provision is narrowly drafted such that attorneys? fees are recoverable only as to the breach of contract cause of action and not any of the tort claims. (Opposition at pp. 6?8.) It is true that as a general rule: ?Civil Code section 1717 does not apply to tort claims; it determines which party, if any, is entitled to attorneys’ fees on a contract claim only. [Citations.] As to tort claims, the question of whether to award attorneys’ fees turns on the language of the contractual attorneys’ fee provision, i.e., whether the party seeking fees has ?prevailed? within the meaning of the provision and whether the type of claim is within the scope of the provision. [Citation.] This distinction between contract and tort claims flows from the fact that a tort claim is not ?on a contract? and is therefore outside the ambit of section 1717.? (Exxess Electronixx v. Heger Realty Corp. (?Exxess?) (1998) 64 Cal.App.4th 698, 708.)
??If a contractual attorney fee provision is phrased broadly enough, . . . it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims: ?[P]arties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.?? [Citation.]? (Id. at p. 708.)
In Exxess, the attorneys? fee provision in the relevant lease allowed fees ??[i]f any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder.?? (Exxess, supra, 64 Cal.App.4th at pp. 708?09.) The Court of Appeal found that plaintiff?s claims for constructive fraud and breach of fiduciary duty were not brought to ?enforce the terms? of the lease. (Id. at p. 709.) These causes of action were brought after the lessee discovered several defects in the premises. (Id. at p. 702.)
Tuli cites to many cases involving narrow attorney fees? provisions providing for attorneys? fees to ?enforce the provisions? of the agreement, contrasting them from broad language in an agreement allowing for fees ?arising out of? the agreement. Here, the attorneys? fee provision is broader than only to ?enforce? the Operating Agreement, and allows recovery of fees for an action to ?enforce, defend or interpret any provision of this Agreement.? The use of the term ?interpret? in the Agreement is significant, and the court finds that this language broadens the attorneys? fees provision to show an intent to allow recovery of attorneys? fees where a cause of action, whether sounding in contract or tort, required the interpretation of the Operating Agreement.
Having determined that attorneys? fees are appropriate for any cause of action brought that requires the interpretation of the Operating Agreement, the court next looks to whether all of the causes of action in the Tuli FAC ? specifically, the breach of fiduciary duty and UCL causes of action ? required the interpretation of the Operating Agreement.
Tuli argues that the court?s ruling on these two causes of action was based solely on common law and statutory provisions. (Opposition at p. 8.) Tuli argues that the court was able to decide the breach of fiduciary duty claim entirely on the common-law doctrine of the business judgment rule, and that the UCL claim was decided entirely on the conclusion that Tuli was not harmed by the technical violation of The California Revised Uniform Limited Liability Company Act (?RULLCA?). (Ibid.)
Tuli alleges in his FAC that the defendants violated their fiduciary duties as described by RULLCA by engaging in a ?terminating event? under the relevant provision of the Operating Agreement. (FAC ? 69.) In ruling on this cause of action, the court undertook an analysis of the Operating Agreement?s definition of a ?terminating event,? and in finding that the business judgment rule applied to shield defendants from liability for their determination that such an event occurred, interpreted whether the Board was required under the Operating Agreement to engage in any specific type of investigation prior to declaring a terminating event. (See March 22, 2016 Ruling at pp. 9?16.)
Specifically, the court held: ?Defendants have met their initial burden on summary judgment to show that the business judgment rule insulates them from liability for their actions in finding that Tuli had engaged in a ?terminating event? under the Operating Agreement and subsequently redeeming his shares for $0.? (Id. at p. 10.) The court proceeded to find that Tuli had not met his burden to show that any exceptions apply, and that the business judgment rule was a full defense to tuli?s breach of fiduciary duty claim. (Id. at p. 15.)
The court therefore finds that the breach of fiduciary duty cause of action was premised on language in the Operating Agreement and required the interpretation of the Operating Agreement for the court to rule on this cause of action. Accordingly, attorneys? fees are recoverable for work spent on the breach of fiduciary duty cause of action.
Tuli?s UCL cause of action was premised on a violation of RULLCA, specifically, that Defendants? actions resulted in the expulsion of a member contrary to the terms of the Operating Agreement. (FAC ?? 95?104.) The court?s determination that Tuli was not harmed by the violation of RULLCA, and therefore did not have standing to bring a UCL claim, was in part premised on its conclusions after analyzing the breach of fiduciary duty cause of action. The court stated ?[A]s shown above, [Defendants] did not breach any fiduciary duties imposed in RULLCA because of their business judgment rule immunity,? a conclusion that was reached only after interpreting the Operating Agreement. (March 22 Ruling at p. 20.) The UCL cause of action therefore also required an interpretation of the Operating Agreement, and attorneys? fees are available to the prevailing defendants on this cause of action.
Having determined that all defendants may recover reasonable attorneys? fees incurred in defending the breach of contract, fiduciary duty, and UCL causes of action in the FAC, the court next turns to whether the requested attorneys? fees are reasonable.
Reasonableness of Requested Attorneys? Fees
As the party seeking attorneys? fees, Defendants bears the burden in demonstrating that the amount of fees she seeks is reasonable. (See Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1320.) As part of that burden, Defendants may be required ?to produce records sufficient to ?provide a proper basis for determining how much time was spent?.?? (Lunada Biomedical v. Nunez (2014) 230 Cal.App.4th 459, 486 [quoting Ketchum v. Moses (2001) 24 Cal.4th 1122, 1131-32].) Defendants? ??evidence should allow the court to consider whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended.?? (Id. at pp. 486-87.)
Defendants have filed extensive detailed billing records for this case, and have submitted documents that support the average ranges of hourly rates for the partners, associates, and paralegals who worked on this matter. (Weaver Decl. ? 17, Ex. F.) Tuli does not dispute the hourly rates of the partners, associates, and paralegals. The court finds that the hourly rates charged by the partners ranging from $340 to $500 per hour and associates from $210 to $254 per hour are reasonable rates for attorneys to charge given the experience levels of the attorneys. Defendants have also submitted a declaration from attorney James Hinds, Jr. to support recovery of the hourly rates billed by Defendants? attorneys.
Tuli also does not challenge the billing records of Defendants? attorneys in this litigation other than arguing that specific charges should be removed. As to the total number of hours spent during this two-year litigation involving complex legal issues and multiple claims against numerous defendants, the court finds that the total number of hours of 2,217.9 is a reasonable number of hours given the two-years of litigation, responses to dozens of written discovery requests, propounding of Defendants? discovery, preparation for nine depositions, research on the many complex issues involved in the case, responsive documents to Tuli?s motion for summary judgment, preparation for Defendants? motion for summary judgment, two mediations and preparation for trial. Indeed, Tuli does not challenge the reasonableness of these hours. In addition, SSC actually paid the bill for the attorneys? fees requested in this motion, which reflected a fifteen percent discount on fees charged due to counsel?s relationship with the Defendants. (See Weaver Decl. ?? 16, 18.)
The court addresses the arguments as to specific argued reductions in time below.
1. Charges for Consulting Agreement and Cross-Complaint
Tuli argues that defendants have agreed to remove charges solely relating to the Consulting Agreement (which contains no attorneys? fees provision) and the Cross-Complaint, but has not sufficiently reduced the fees charged. (Opposition at pp. 8?9.) The court notes that Defendants have reduced their fees by 307.40 hours and $57,745.70. (Weaver Decl. ? 14; Ex. I to Weaver Decl.)
Tuli argues that Exhibit I shows that no fee reductions were made during the period from February 26, 2015 until January 30, 2016, during which period the cross-complaint was still pending. (Opposition at p. 9.) Tuli argues that this shows that Defendants are seeking improper fees in their fee request.
First, Tuli is correct that Exhibit I does not reflect any fee reductions for this eleven month period. However, Tuli does not point to any entries in the billing records for time spent on the consulting agreement or cross-complaint during this period that shows that improper work was included or that the hours spent were otherwise unreasonable. Significantly, no motions were ever filed by either side with respect to the cross-complaint, .Also, as to the cross-complaint, it was voluntarily dismissed on April 7, 2016, indicating that the parties were not spending time on the cross-complaint because they intended to dismiss it. The court will not reduce the award on this basis.
Tuli also argues that only two entries are made identifying the ?consulting agreement? as the subject of the work, for a total of 8.3 hours. Tuli argues that Defendants? counsel must have spent more than 8.3 hours on work relating to the consulting agreement over the two-year history of this litigation. (Opposition at p. 9.)
??Attorney’s fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed.? [Citation.]? (Wilshire Westwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 747.) The court agrees with Defendants that there are multiple overlapping issues between the consulting agreement and the Operating Agreement. The court notes that the consulting agreement was not raised as an issue in this case until the filing of the FAC on December 11, 2015, explaining why so little work was done only on that discrete issue. The court will not reduce the award on this basis.
2. Recovery of Expert Witness Fees
Defendants also request expert witness fees. (Motion for Attorneys? Fees at pp. 11?13.) Defendants argue that California court have held that expert witness fees are generally recoverable under contractual attorneys? fees provisions. However, the case cited in support of expert witness fees, Bussey v. Affleck (1990) 225 Cal.App.3d 1162, has been abrogated by two published decisions in the same appellate district, the First District Court of Appeal. (See Hsu v. Semiconductor Systems, Inc. (?Hsu?) (2005) 126 Cal.App.4th 1330; Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141.)
The court in Hsu specifically disavowed its earlier ruling in Bussey, holding:
Nor may the disputed costs be awarded to plaintiff as an element of attorney fees under the rationale that the expenses were disbursed by the attorneys in the course of litigation. We disavow this court’s previous adoption of that view as an unwarranted conflation of fees and costs. (Bussey v. Affleck (1990) 225 Cal.App.3d 1162, 1167, 275 Cal.Rptr. 646.) As persuasively argued by our colleagues in the Third Appellate District in disagreeing with Bussey: ?In the absence of some specific provision of law otherwise, attorney fees and the expenses of litigation, whether termed costs, disbursements, outlays, or something else, are mutually exclusive, that is, attorney fees do not include such costs and costs do not include attorney fees.? (Ripley v. Pappadopoulos (1994) 23 Cal.App.4th 1616, 1626, 28 Cal.Rptr.2d 878.) We join other divisions of this district in following Ripley on this point. (First Nationwide Bank v. Mountain Cascade, Inc., supra, 77 Cal.App.4th at p. 878, 92 Cal.Rptr.2d 145; Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1154, 82 Cal.Rptr.2d 143.)
(Hsu, supra, 126 Cal.App.4th at p. 1342, italics added.)
In Hsu, similar to the provision here, the agreement provided for recovery of ?all fees, costs and expenses.? (Id. at p. 1341.) The court still found that expert witness fees were not recoverable, holding: ??In the absence of some specific provision of law otherwise, attorney fees and the expenses of litigation, whether termed costs, disbursements, outlays, or something else, are mutually exclusive, that is, attorney fees do not include such costs and costs do not include attorney fees.? [Citation.]? (Id. at p. 1342.)
While the Supreme Court has not overturned the holding in Bussey, the court declines to follow a decision disavowed by the appellate courts. Indeed, Bussey has not been cited with approval by a California appellate court for the proposition that expert witness fess are recoverable as attorney fees under a contractual attorneys? fee provision since it was published in 1990, and appears to be an outlier in the Court of Appeal?s jurisprudence. The court therefore declines to follow Bussey and does not award defendants their expert witness fees.
3. Recovery of Attorneys? Fees for Filing Motion
Defendants are entitled to recover their reasonable attorneys? fees spent in filing their motion for attorneys? fees. (See Graham v. Daimler Chrysler Corp. (2004) 34 Cal.4th 553, 580.) Defendants argue that they have already expended $20,429.55 in fees as of the time of filing the motion, and anticipate incurring a total of 124.8 hours of time on the motion, including time for the hearing. (See Motion at p. 10; Weaver Decl. ? 18.) The court finds that the amount of fees charged for the motion is excessive. For example, while extensive work goes into the filing of a motion for attorneys? fees, Defendant?s counsel included future estimated fees that included preparing evidentiary objections to opposing declarations, researching legal issues and other work that was not necessary in responding to Tuli?s Opposition, which did not include declarations by any experts. The court finds that a total amount of attorneys? fees for preparation of a motion for attorneys? fees is the amount expended by Defendants? counsel as of the time of filing the motion in the amount of $20,429.55, and awards this amount. While this court recognizes that additional time was spent on the Reply brief and will be spent at the hearing, the court finds that a total amount of attorneys? fees spent on the motion of approximately $20,000 is reasonable.
The court GRANTS the Motion for Attorneys? Fees as to the $503,945.12 spent in litigation plus $20,429.55 spent on the Motion for Attorneys? fees for a total of $524,374.67. The court does not award the $109,546.00 in expert witness fees.
Defendants to provide notice.
DATED: June 21, 2016 ________________________________
Hon. Gail Ruderman Feuer
Judge of the Superior Court