Opinion
[REVIEW GRANTED BY CAL. SUPREME COURT]
[Reprinted without change in the Jan. 2000 Review Granted Opinions Pamphlet to permit tracking pending review and disposition by the Supreme Court.]
[Opinion certified for partial publication. ]
Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of part II, 4, 5, 6, 7 and 8.
See footnote, ante, page 693.
Superior Court of Los Angeles County, No. BC140906, David A. Workman, Judge. COUNSEL
David Drexler, in pro. per., for Defendant, Cross-complainant and Appellant.
Hart & Watters and Thomas L. Watters as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant. Horvitz & Levy, Barry R. Levy, Daniel J. Gonzalez, Jon B. Eisenberg; Carole Runcie Sherman for as Amicus Curiae on behalf of Defendant and Cross-complainant and Appellant.
Shand S. Stephens and Laurie J. Falik for Plaintiff and Respondent and for Cross-defendants and Respondents Dearborn Insurance Company and Anglo-American Insurance, Ltd.
Wilson, Elser, Moskowitz, Edelman & Dicker, Patrick M. Kelly, Martin K. Deniston and Jonathan C. Balfus for Cross-defendant and Respondent Assicurazioni Generali, S.P.A.
Benjamin Sybesma and Joel H. Levinson for California Correctional Peace Officers Association as Amicus Curiae on behalf of Plaintiff and Respondent.
Eric B. Simon for as Amicus Curiae on behalf of California International Chemical Company, Inc., Plaintiff and Respondent.
James R. Edwards, Steven Alan Bennett, and Susan J. Hackett for American Corporate Counsel Association as Amicus Curiae on behalf of Plaintiff and Respondent and Cross-defendants and Respondents.
OPINION
KITCHING, J.
In this appeal, we find that under Civil Code section 1717, corporate in-house counsel who have actively participated in the litigation are entitled to recover reasonable attorneys fees. We further find that the attorneys fees should be calculated by using the prevailing market rate in the legal community.
In the unpublished portion of this opinion we consider Drexler's remaining contentions.
I.
Factual and Procedural Background
In April 1990, defendant, cross-complainant and appellant, David Drexler, purchased a professional malpractice insurance policy through the Los Angeles County Bar Association (policy). The liability carriers were Dearborn Insurance Company, Anglo-American Insurance, Ltd., and Generali S.P.A. London Branch (collectively the insurers). The policy included a $20,000 deductible per claim on both indemnity and expense payments. PLCM Group, Inc. (PLCM), was retained to administer the bar association's professional liability program and to process claims.
In January 1991, Drexler was sued by a former client for malpractice, and tendered the claim to PLCM. On behalf of the insurers, PLCM hired the law firm of Haight, Brown & Bonesteel (Haight, Brown), Drexler's choice, to defend Drexler in the litigation. In November 1991, the lawsuit was settled and was dismissed with prejudice. By that date, Drexler had paid $9,680.38 to Haight, Brown for services rendered through August 1991. Drexler failed to pay Haight, Brown's remaining bills and owed the law firm $10,319.62 on his deductible.
A dispute over payment of the outstanding fees remained unresolved. For three months, Haight, Brown wrote Drexler and demanded payment. In March 1992, Drexler first advised PLCM that he was attempting to resolve the dispute with the law firm. For a year PLCM received no further information about the status of the unpaid bills from Drexler. In April 1993 and June 1993, Haight, Brown sent PLCM outstanding billing statements and copies of letters to Drexler. PLCM heard nothing from Drexler about efforts to resolve his billing concerns. The bills had remained unpaid since October 1991.
In October 1993, PLCM invoked section V-C of the policy and directly paid Haight, Brown the outstanding $10,319.62 bill. PLCM wrote Drexler about the payment and stated that he was to pay the $10,319.62 directly to PLCM or the administrator would send the matter to collection. Drexler reiterated to PLCM his refusal to pay any portion of the outstanding portion of the deductible. He claimed, in relevant part: "Your payment to Haight, Brown & Bonesteel's office was voluntary and unauthorized by me. It is clear that the payment was made as an attempt to prejudice and undercut my rights to dispute Haight, Brown & Bonesteel's entitlement to the claimed fee. [¶] ... [¶] It is apparent to me that Haight, Brown & Bonesteel's office has concealed from you my objections to their bill and their failure to respond to my continuous attempts to resolve this dispute." In February 1994, PLCM assigned and referred the matter of Drexler's nonpayment to Robinson & Associates for collection.
Section V-C of the policy provides, in relevant part: "The deductible ... shall be paid by the Named Insured ... upon demand by the Company [the insurance companies] to the persons or entities designated by the Company. The Company shall have the right, but not the obligation, to advance sums on behalf of the Named Insured within the applicable deductible. If the Insured fails, after demand, to reimburse the Company for any amounts within the deductible which the Company has advanced, the Company may bring suit to recover such amounts and shall also be entitled to recover interest from the date of demand, and attorneys' fees and costs incurred in bringing the action."
On April 3, 1995, Robinson & Associates filed a complaint for moneys against Drexler and alleged he breached the insurance contract by failing to pay $10,319.62 remaining on his deductible. Drexler answered. On June 25, 1996, Drexler filed a first amended cross-complaint and alleged against the insurers and PLCM causes of action for breach of contract, insurance bad faith, and intentional infliction of emotional distress. The only basis for all three claims was the insurers' decision, acting through PLCM, to pay the delinquent deductible amount owed to Haight, Brown, and to seek reimbursement from him. The premise of Drexler's argument was that the payment was made without his consent and usurped and violated his rights to arbitrate or contest the bill.
The insurers and PLCM filed motions for summary judgment on the cross-complaint, which the trial court granted. The trial court, however, denied Drexler's motion for summary judgment on the complaint, and the matter proceeded to trial against Drexler.
Robinson & Associates reassigned its claim against Drexler to PLCM. On August 22, 1996, the parties stipulated that PLCM would be substituted as plaintiff in place of Robinson & Associates, who would no longer be a party to the action.
Trial began on January 31, 1997. During the four-day trial, Drexler defended his nonpayment of the remaining legal fees. He presented testimony, exhibits and correspondence with Haight, Brown and PLCM to show that he believed representations made by Haight, Brown about the settlement of his malpractice action would reduce his bill by $10,000. The jury returned a verdict in favor of PLCM on the complaint, and against Drexler, in the amount of $10,319.62.
On March 3, 1997, the trial court entered the judgment after the jury verdict and the judgment on the cross-complaint.
Drexler timely filed a notice of appeal from the judgments.
Following entry of judgment, PLCM, and Dearborn Insurance Company represented by in-house counsel, filed a memorandum of costs and moved for a fee award of $61,050 under the attorney fee provision in the policy. The requested amount included fees for both the trial and the defense of the cross-complaint on summary judgment. Drexler moved to tax costs, and filed supporting declarations. He opposed PLCM and Dearborn's motion on the grounds, inter alia, that (1) PLCM and Dearborn could not recover attorney fees because they had been represented by in-house counsel; and (2) the policy only permitted PLCM and Dearborn to recover fees expended at trial to collect the money. After a hearing, the trial court granted PLCM and Dearborn's motion and awarded "reasonable attorney fees" in the requested amount of $61,050.
Drexler timely filed a notice of appeal from the order awarding attorney fees.
II.
Discussion
Drexler contends the trial court abused its discretion by (1) awarding attorney fees for legal services performed by PLCM's in-house counsel, and (2) calculating the fees by using the prevailing market rate method.
We find that under Civil Code section 1717, PLCM is entitled to recover the reasonable value of legal services performed by in-house counsel on both the summary judgment motions and the trial. We further find that the trial court properly used the prevailing market rate in the legal community to calculate the fees.
1. Corporate In-house Counsel Who Have Actively Participated in the Litigation Are Entitled to Recover Reasonable Attorney Fees Under Civil Code Section 1717.
a. Standard of Review
Where the appellate court must determine the legal basis of the award, de novo review is the standard. (Honey Baked Hams, Inc. v. Dickens (1995) 37 Cal.App.4th 421, 425 [43 Cal.Rptr.2d 595], disapproved on other grounds in Santisas v. Goodin (1998) 17 Cal.4th 599, 614 fn. 8 [71 Cal.Rptr.2d 830, 951 P.2d 399].) If the challenge is to the amount of the fees awarded, the "abuse of discretion" standard is applied. (Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145, 1151 [56 Cal.Rptr.2d 33].)
b. Fees for In-house Counsel
Drexler first argues that our Supreme Court's decision in Trope v. Katz (1995) 11 Cal.4th 274[45 Cal.Rptr.2d 241, 902 P.2d 259] prevents a prevailing party from recovering attorney fees for in-house counsel because the party did not "incur" those fees. However, as we shall discuss, the Trope court expressly declined to decide the issue of in-house counsel attorney fees because the Trope appeal did not require a ruling on this issue. This appeal, however, squarely presents the issue of whether a prevailing party may recover in-house counsel fees.
Civil Code section 1717, subdivision (a), states, in relevant part, that "[i]n 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." (Italics added.)
Section V-C of the policy provides, in relevant part, that "[i]f the Insured fails, after demand, to reimburse the Company [insurers] for any amounts within the deductible which the Company has advanced, the Company may bring suit to recover such amounts and shall also be entitled to recover interest from the date of demand, and attorneys' fees and costs incurred in bringing the action."
In a case of first impression, this district, in Garfield Bank v. Folb (1994) 25 Cal.App.4th 1804 [31 Cal.Rptr.2d 239], overruled in part by Trope v. Katz, supra, 11 Cal.4th at page 292, allowed the recovery of attorney fees for in-house counsel. The court's ruling was based on several considerations.
The court determined that the purpose of Civil Code section 1717 is to establish " 'mutuality of remedy where contractual provision makes recovery of attorney's fees available for only one party [citations] and to prevent oppressive use of one-sided attorney's fees provisions. [Citations.]' [Citations.]" (Garfield Bank v. Folb, supra, 25 Cal.App.4th at p. 1808.)
The court relied on Beverly Hills Properties v. Marcolino (1990) 221 Cal.App.3d Supp. 7 [270 Cal.Rptr. 605], where the prevailing party was permitted to recover legal fees when represented by nonprofit legal counsel (Garfield Bank v. Folb, supra, 25 Cal.App.4th at p. 1807), and Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1409 [235 Cal.Rptr. 165]), where the prevailing party recovered fees although an insurance carrier paid for his defense. The court also relied on the reasoning in a significant body of federal and other non-California case law that permitted prevailing parties to collect fees when they were represented by nonprofit counsel, government-employed attorneys, and for-profit in-house counsel. (Garfield Bank, supra, at pp. 1808-1809.)
The Garfield Bank court also considered contemporary case law that permitted "[a]ttorneys who litigate their own claims [to be] entitled to recover attorney fees under Civil Code section 1717. [Citations.]" (25 Cal.App.4th at p. 1807.) The court reasoned that "[a]llowing a party 'to escape [their] obligation to pay the attorney's fees required under the contract simply because the attorney chose to rely on her own professional skill rather than hire another attorney would create a windfall for the [losing party] at the tangible expense of the prevailing party[].' [Citation.] The utilization of an attorney's time in prosecuting or defending a case represents lost opportunities to utilize that time in another productive manner. [Citations.]" (Id. at p. 1808.)
This portion of the Garfield opinion was overruled by our Supreme Court in Trope v. Katz, supra, 11 Cal.4th 274, as we discuss, infra.
After consideration of all these factors, the Garfield Bank court permitted defendant's in-house counsel to recover fees and stated: "Because disallowing fees for in-house counsel would provide a windfall for appellant, we can see no reason to distinguish the lost opportunities from actual expenditures on outside counsel." (Garfield Bank v. Folb, supra, 25 Cal.App.4th at pp. 1809-1810.)
In Trope v. Katz, supra, 11 Cal.4th 274, our Supreme Court disapproved the statements in Garfield Bank that pro se attorneys could recover attorney fees under Civil Code section 1717. The Trope court held that "... an attorney who chooses to litigate in propria persona and therefore does not pay or become liable to pay consideration in exchange for legal representation cannot recover 'reasonable attorney's fees' under [Civil Code] section 1717 as compensation for the time and effort he expends on his own behalf or for the professional business opportunities he foregoes as a result of his decision." (11 Cal.4th at p. 292.)
Trope disapproved several appellate cases that approved of fee awards for pro se attorneys, including Garfield Bank. (Trope v. Katz, supra, 11 Cal.4th at p. 292.) Trope, however, did not address any other aspects of Garfield Bank's reasoning or holding, particularly the conclusion that in-house counsel could recover reasonable attorney fees under Civil Code section 1717. (11 Cal.4th at p. 292.) In fact, the Trope opinion observed: "[Trope & Trope] reasons that if we hold that a litigant cannot recover attorney fees unless he actually paid or became liable to pay consideration in exchange for legal representation, it would mean that a litigant represented by in-house counsel could not recover such fees because it paid its attorney a salary rather than a fee. The conclusion does not necessarily follow, because an argument can be made that in such circumstances the salary is the functional equivalent of the fee. Resolution of that question, however, must await another day: we have no occasion in this case to decide whether a litigant represented by in-house counsel can or cannot recover 'reasonable attorney's fees' under section 1717, and nothing in our opinion should be read as endorsing or precluding such an award." (Id. at p. 291.) Thus, Trope left the issue of attorney fees for in-house counsel unresolved.
Trope noted the underlying rationale of the United States Supreme Court's decision in Kay v. Ehrler (1991) 499 U.S. 432 [111 S.Ct. 1435, 113 L.Ed.2d 486] denying attorney fee awards to prevailing attorneys electing to appear in propria persona under the Civil Rights Attorney's Fees Awards Act of 1976. (42 U.S.C. section 1988; Trope v. Katz, supra, 11 Cal.4th at p. 292.) Kay said that the word "attorney" assumes an agency relationship and that Congress likely "contemplated an attorney-client relationship as the predicate for an award under [42 U.S.C.] section 1988." (Kay v. Ehrler supra, 499 U.S. at p. 436 [111 S.Ct. at p. 1437].) Kay rejected the petitioner's argument that because Congress intended organizations to receive an attorney fee award even when they represented themselves, an individual attorney should be permitted to receive an attorney fee award when he represented himself. The court said that "an organization is not comparable to a pro se litigant because the organization is always represented by counsel, whether in-house or pro bono, and thus, there is always an attorney-client relationship." (Id. at p. 436, fn. 7 [111 S.Ct. at p. 1437].)
The Trope court stated that the "issue presented by this case is whether an attorney who chooses to represent himself—and therefore does not pay or become liable to pay any sum out of pocket for such representation—can nevertheless recover 'reasonable attorney's fees' under section 1717 as compensation for the time and effort expended and the professional business opportunities lost as a result." (Trope v. Katz, supra, 11 Cal.4th at p. 279.)
The Trope court explained the meaning of the phrase contained in Civil Code section 1717 which provides: "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract ...." (Italics added.) The court thus focused on two specific elements of section 1717—"attorneys fees" and "incurred."
With regard to the concept of "incur," the court stated that to "incur" a fee is to " 'become liable' " for it, that is, to become obligated to pay it. Trope therefore concluded that an "attorney litigating in propria persona cannot be said to 'incur' compensation for his time and his lost business opportunities." (Trope v. Katz, supra, 11 Cal.4th at p. 280.)
With regard to the words "attorneys fees," the court found that the usual and ordinary meaning of these words was "the consideration that a litigant actually pays or becomes liable to pay in exchange for legal representation. An attorney litigating in propria persona pays no such compensation." (Trope v. Katz, supra, 11 Cal.4th at p. 280.)
Thus, under our Supreme Court's definition of "incurred" and "attorneys fees," expenses for work in-house legal counsel performs are recoverable as attorney fees under Civil Code section 1717 to the extent they constitute consideration that the litigant became liable to pay in exchange for counsel's representation.
In our case, PLCM and Dearborn Insurance Company (Dearborn) are subsidiaries of the parent corporation, Aon Corporation. They are represented in litigation by the San Francisco office of the Aon Corporation law division. The costs of the corporate law division (including salaries) are charged to each corporate subsidiary each year in proportion to the number and complexity of the subsidiary's files. PLCM and Dearborn were represented by private retained counsel before the establishment of the corporate law division.
Using Trope's analysis, we find that since PLCM and Dearborn became liable to pay consideration to the corporate law division in exchange for legal representation, they may recover reasonable attorney fees under Civil Code section 1717.
2. Attorney Fees for In-house Counsel Should Be Based on Prevailing Market Rates in the Legal Community.
Drexler again relies on the incurred language of Civil Code section 1717 to challenge the amount of the attorney fee award. Drexler argues that the fee was not incurred because there is no evidence that PLCM paid $61,050 in attorney fees. Drexler argues that the trial court should have considered the salary received by in-house counsel, plus the relevant and related costs, in determining the attorney fees. PLCM argues the trial court properly calculated the fees using the market rate of comparable legal services. We agree with PLCM and find that the court should use a prevailing market rate approach rather than a salary plus cost approach in determining the awarded fee.
The incurred language in the contract at issue here and in Civil Code section 1717 does not purport to define the amount of attorney fees. That language merely means the prevailing party has become liable for attorney fees. In addition, the holding of Trope is not that Civil Code section 1717 requires a fee award to equal the exact amount of dollars paid by a litigant; rather it is that to be eligible for a fee award, a litigant must become liable to pay some consideration for legal representation, and attorneys appearing in propria persona do not meet that test. Trope does not discuss how to measure attorney fee awards for in-house counsel. Civil Code section 1717, subdivision (a), provides in part that "[r]easonable attorney's fees shall be fixed by the court ...." For several reasons, we find those fees should be calculated by using the prevailing market rate in the legal community.
In California, " 'Any fee-setting inquiry begins with the "lodestar": the number of hours reasonably expended multiplied by a reasonable rate.' " (Margolin v. Regional Planning Com. (1982) 134 Cal.App.3d 999, 1004 [185 Cal.Rptr. 145], citing Copeland v. Marshall (D.C. Cir. 1980) 641 F.2d 880, 892.) " 'The reasonable hourly rate is that prevailing in the community for similar work.... [A] reasonable hourly rate is the product of a multiplicity of factors ... the level of skill necessary, time limitations, the amount to be obtained in the litigation, the attorney's reputation, and the undesirability of the case." (Margolin v. Regional Planning Com., supra, 134 Cal.App.3d at p. 1004, citing Copeland v. Marshall, supra, 641 F.2d at p. 892.) "California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys' fee award. [Citations.]" (Margolin v. Regional Planning Com., supra, 134 Cal.App. 3d at pp. 1004-1005.)
Various courts have relied on the market value approach to determine attorney fee awards and have rejected the salary plus cost approach. They have generally rejected the salary plus cost approach because it would lead to complicated, collateral litigation.
In Copeland v. Marshall, supra, 641 F.2d 880, the court en banc reviewed "an order of the District Court awarding an attorney's fee of $160,000 for the successful prosecution of a gender-discrimination class suit against the United States Department of Labor." (Id. at p. 883.)
The court determined that there were difficulties in trying to calculate the reasonable hourly rate according to a " 'cost-plus' " approach. Under that approach the fee would be based on " 'the sums paid out to [the] attorneys as personal income and to defray overhead costs attributable to the maintenance of the attorneys in the firm,' plus a 'reasonable and controllable margin for profit.' " (Copeland v. Marshall, supra, 641 F.2d at p. 896.)
The court observed that "[t]he 'lodestar,' or 'market value,' method of fee setting has the virtue of being relatively easy to administer.... We fear that the proposed 'cost-plus' method of calculating fees would indeed become the inquiry of 'massive proportions' that we strive to avoid. The problems associated with administering a 'cost-plus' calculus are multifarious. How might a firm allocate its overhead costs to a particular piece of litigation? In what manner does one calculate the costs associated with the 'imputed salaries' of firm partners? What is a 'reasonable' profit to be awarded? The necessity, under 'cost-plus,' of answering these and other questions creates the specter of a monumental inquiry on an issue wholly ancillary to the substance of the lawsuit. [¶] To address questions like these, considerable discovery would be necessary to obtain documentary evidence. A law firm's financial structure is highly relevant to a 'cost-plus' inquiry, so the firm's financial records would be discoverable. Third-party and expert testimony would have to be proffered. Because time spent litigating the fee request is itself compensable, the depth of the inquiry ironically might lead to an increase, rather than a diminution, in fee awards." (Copeland v. Marshall, supra, 641 F.2d at p. 896, fns. and italics omitted.)
The court further determined that its rejection of the "cost-plus" system does "not depend on administrative inconvenience alone. We think ... [a] fee should be based on the market value of services rendered, not on some notion of 'cost' incurred by the law firm." (Copeland v. Marshall, supra, 641 F.2d at p. 897.)
The Copeland court further observed that "... the vast majority of courts that have considered this issue agrees with us that attorney's fees should not be based on the costs of the successful party. Instead, fees should be based on the market value of the legal services rendered." (Copeland v. Marshall, supra, 641 F.2d at pp. 899-900.)
In Serrano v. Unruh (1982) 32 Cal.3d 621 [186 Cal.Rptr. 754, 652 P.2d 985], the court was faced with the similar issue of setting reasonable attorney fees. The trial court refused to permit defendants to discover the salaries of plaintiffs' counsel and related overhead costs. (Id. at p. 640.) Defendants contended on appeal "that costs are pertinent to setting the reasonable hourly compensation of plaintiffs' attorneys." (Ibid.) The Serrano court disagreed.
The court explained that a prior opinion (Serrano III [Serrano v. Priest (1977) 20 Cal.3d 25 [141 Cal.Rptr. 315, 569 P.2d 1303]]) "expressly approved Judge Jefferson's 1975 use of prevailing hourly rates as the basis for the reasonable market value of lawyers' services in the underlying school-finance litigation. [Citation.]" (Serrano v. Unruh, supra, 32 Cal.3d at p. 640.) The court also recognized the danger of a cost-based determination of attorney fees. "Inquiries as to cost could also be cumbersome." (Id. at p. 642.) Furthermore, " '[t]he "lodestar", or "market value", method of fee setting has the virtue of being relatively easy to administer. We do not want "a [trial] court, in setting an attorney's fee, [to] become enmeshed in a meticulous analysis of every detailed facet of the professional representation. It ... is not our intention that the inquiry into the inadequacy of the fee assume massive proportions, perhaps dwarfing the case in chief." [Citation.]' " (Ibid.)
State of Ill. v. Sangamo Const. Co. (7th Cir. 1981) 657 F.2d 855, also measured attorney fees by prevailing market rates. In Sangamo, the State of Illinois successfully litigated a Clayton Act (15 U.S.C. section 15) violation and was entitled to attorney fees under section 4 of the act. (657 F.2d at p. 857.) The Sangamo court disagreed with defendants' argument that "... if a state represented by its Attorney General is entitled to attorneys' fees, then the award of attorneys' fees should be limited to the actual costs incurred by the state, i.e., the salaries of the state lawyers." (Id. at p. 858.) The court determined that "the use of generally prevailing market rates for attorneys of comparable skill, experience, and reputation is proper." (Id. at p. 861.) The court explained, in relevant part: "[R]eliance on generally prevailing market rates for attorneys with comparable skill, experience, and reputation simplifies the already difficult task district courts face in awarding reasonable attorneys' fees. Defendants' approach would require courts to investigate the overhead and incidental expenses incurred by a state in connection with the prosecution of an antitrust suit. Such an inquiry would be a cumbersome means for arriving at a tentative figure of reasonableness. It is far better to rely upon generally prevailing market rates, which take into consideration factors such as overhead and support personnel. The initial use of an objective standard of reasonableness, i.e., generally prevailing market rates, is far preferable to extensive judicial scrutiny of private fee arrangements or of the internal economics of the Attorney General's office ...." (Id. at pp. 861-862.)
In Shaffer v. Superior Court (1995) 33 Cal.App.4th 993 [39 Cal.Rptr.2d 506], this division explained why an inquiry into the costs of providing legal services was irrelevant and cumbersome to determining attorney fee rates: "[I]f a law firm's profit margin were relevant to the analysis of the conscionability of its fees, a veritable pandora's box of questions and problems would be opened. For example, how are we to define 'profit margin.' Is it gross revenues minus total costs? If so, are those numbers measured on an accrual basis, a cost basis, or some other basis? Are they to be evaluated in absolute dollar terms or in terms of a percentage of its costs[?] Is every single item of cost incurred by a firm (e.g., both capital expenditures and costs of operations) to be part of the calculation? What special rules must be adopted in order to avoid punishing law firm efficiency or a firm's skill or luck in negotiating favorable leases or vendor contracts? Is every single item of revenue received by a firm to be included in the calculation (e.g., what about investment income)? How will the quality of the legal services be incorporated into the analysis? What about other intangibles, like professional reputation and goodwill? Will the firm be forced to disclose the compensation it pays to every lawyer and staff member? Will it be forced to disclose the amounts it pays for office space, equipment, supplies, furniture or utilities? Will it be forced to disclose the individuals or entities to whom it makes these payments? What portion of the attorney's overall costs of doing business should be allocated to the particular case in which the fee dispute arises? " (Id. at p. 1001.)
Shaffer concluded that "[a] determination of a 'reasonable' attorney fee based on costs is neither appropriate or practical. [¶] ... [Examination of profits] would place courts in the position of supervising attorney fees on the basis of individual profit margins instead of the going market [rate] for given services. This would be an unwarranted burden and bad public policy." (Shaffer v. Superior Court, supra, 33 Cal.App.4th at p. 1003.)
These same problems of cumbersome and ancillary litigation would arise if a court tried to determine costs for in-house counsel. In addition, there could be disputes over how to allocate items used in common by both the in-house counsel operation and the nonlegal operation, i.e., computer system, phone system, physical plant.
The prevailing market rate method relieves the court and the litigants from the specter of wasteful and prolonged litigation over a matter ancillary to the primary case. Courts have extensive experience in awarding attorney fees based on the local market rate for similarly situated lawyers. Based upon these considerations, we find the prevailing market rate is the most reasonable, equitable, and predictable method of calculating reasonable attorney fees for in-house counsel.
San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority (1998) 61 Cal.App.4th 910 [72 Cal.Rptr.2d 91] is not contrary to our opinion because in that case the parties had apparently agreed in advance to a below-market billing rate.
3. The Trial Court Did Not Abuse Its Discretion in Awarding Attorney Fees.
The trial court has the discretion to determine the reasonable amount of the attorney fee award. Our opinion in no way reduces that responsibility. "The 'experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong.' [Citations.]" (Serrano v. Priest, supra, 20 Cal.3d 25, 49.)
In determining the reasonableness of the requested fees, the court considers such factors as the nature of the litigation, the difficulty of the litigation, the amount of money involved, the level of skill required and employed in the handling of the litigation, the attention given to the issues, the success of the attorney's efforts, and time consumed. (Clayton Development Co. v. Falvey (1988) 206 Cal.App.3d 438, 447 [253 Cal.Rptr. 609].)
The record reflects that PLCM and Dearborn requested attorney fees in the amount of $61,050. In support of the fee award, PLCM and Dearborn provided the trial court reconstructed contemporaneous records of billing times based on electronic and paper files. Counsel also provided a declaration that stated, in relevant part:
"9. I graduated from the University of California Los Angeles School of Law in 1992 and practiced in the San Francisco office of a large California law firm until April 1994. For the past three years I have performed intensive litigation and advisory work, as in this case. Most of the matters I handle have amounts at stake ranging from $100,000 to $4 million, as this case did during the pendency of the cross-complaint. At least one-third of my case load at any given time is venued in Los Angeles County. "10. When I left my old law firm three years ago, my time was billed out at $145.00 per hour. Based on my review of bills from outside counsel doing work for Aon companies, a reasonable rate for an attorney of my current experience in this community is $185.00 per hour. That rate would almost certainly be somewhat higher in Los Angeles. "11. At the rate of $185.00 per hour, the 330 hours expended on this matter merit an award of $61,050 as reasonable attorney's fees."
In another supporting declaration, the financial manager of the Aon Corporation law division stated, in relevant part: "Based on my review of bills from outside counsel doing work for Aon companies in similar matters, the hourly rate for attorneys in the Los Angeles area with sufficient skill and experience to handle this matter from inception through summary judgment and/or trial would have ranged from $160.00 to $215.00 per hour." In opposition to PLCM and Dearborn's motion, Drexler provided his own declaration and that of a collection attorney to prove the excessiveness of PLCM and Dearborn's requested fees. PLCM and Dearborn's objections to this evidence were sustained by the trial court. Drexler presents no argument on appeal regarding the striking of his opposing evidence, and has waived the issue on appeal. (In re Marriage of Ananeh-Firemprong (1990) 219 Cal.App.3d 272, 278 [268 Cal.Rptr. 83].)
We find the trial court used the correct standard to calculate the fee and there was sufficient evidence to support the award.
We further find that while the fee may seem "excessive" for a $10,000 breach of contract action case, Drexler transferred this municipal court collection action into the superior court and then increased the stakes by adding tort claims for bad faith and intentional infliction of emotional distress and causing the litigation to go on for 17 months. As long as the fees are reasonable on the record, and supported by the evidence, it is irrelevant that the requested fees exceed the amount of the jury verdict. (Clayton Development Co. v. Falvey, supra, 206 Cal.App.3d at p. 447.)
The trial court did not abuse its discretion.
4. -8. *
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III.
Disposition
The order granting PLCM and Dearborn attorney fees is affirmed.
The summary judgments entered in favor of PLCM and the insurers are affirmed.
The judgment after jury verdict entered in favor of PLCM is affirmed.
PLCM and Dearborn are awarded costs on appeal. PLCM and the insurers' request for sanctions is denied.
Croskey, Acting P. J., and Aldrich, J., concurred.