J.R. MARKETING, L.L.C. v. HARTFORD CASUALTY INSURANCERespondent, Hartford Casualty Insurance Company, Petition for ReviewCal.July 12, 2013T | . es SUP YY 9 $211645 me JUL 12 2013 Frank A. McGuire Clerk - INTHE | Deputy SUPREME COURT OF CALIFORNIA J.R. MARKETING,L.L.C.et al., Plaintiffs, Cross-Defendants and Respondents, Uv. HARTFORD CASUALTY INSURANCE COMPANY, Defendant, Cross-Complainant and Appellant. AFTER A DECISION BY THE COURT OF APPEAL, FIRST APPELLATE DISTRICT, DIVISION THREE CASE No. A133750 SUPREME COURT PETITION FOR REVIEW HORVITZ & LEVY LLP *DAVID M. AXELRAD (Bar No.75731) | ANDREAAMBROSE LOBATO(Bar No. 254996) 15760 VENTURA BOULEVARD, 18TH FLOOR ENCINO, CALIFORNIA 91436-3000 (818) 995-0800 + FAX: (818) 995-3157 daxelrad@horvitzlevy.com; alobato@horvitzlevy.com MENDES & MOUNT, LLP EDWARDS WILDMAN PALMERLLP DEAN B. HERMAN(Bar No.76752) IRA G. GR BERG(PRO HACVICE) _CATHERINEL. RIVARD (BAR No. 126237) 750 LEXINGTON AVENUE — 8TH FLOOR 601 SOUTH FIGUEROA STREET, SUITE 4676 NEW YORK, NEW YORK 10022 Los ANGELES, CALIFORNIA 90017 (212) 308-4411 + FAX (212) 308-4844 (218) 955-7700 * FAX: (218) 955-7725 . igreenberg@edwardswildman.com dean.herman@mendes.com catherine.rivard@mendes.com ATTORNEYS FOR DEFENDANT, CROSS-COMPLAINANT AND APPELLANT HARTFORD CASUALTY INSURANCE COMPANY TABLE OF CONTENTS Page TABLE OF AUTHORITIES 1.0...dedeeeecsasseececeeeeeesseeeesene ili ISSUE PRESENTED 2.00... cecccssccceccessscnceneccccceseseesstseeeenaas 1 INTRODUCTION: WHY REVIEW SHOULD BE GRANTED..... 2 STATEMENT OF THE CASE...eeeecccccceccccceeeees ceeeeseseeeeeeeeeee 4 A. Insureds tenderthree related actions to Hartford, Seeking a defense............ccccccsesseccscceseeseesssssssscecssessaaeeees 4 B. Insureds sue Hartford and the trial court orders Hartford to pay all defense fees and costs without resorting to the provisions of Civil Code section 2860. Hartford is permitted to challenge unreasonable and unnecessary defense fees and costs only by wayofan action for reimbursement after the underlying actions against the insureds ALC LOSOLVEM.........csecccscesssseeceeeeeessssceeeccescceesesssscececessrsese 5 C. After the three underlying actions conclude, Hartford files an action for reimbursement alleging that fees and costs charged by Squire Sanders were unreasonable, unnecessary, and UNCONSCIONADL]E .......... ccc eeeeseeescceessssscseceesseccessusssssseeceeees 6 D. The trial court’ dismisses Hartford’s reimbursementaction against Squire Sanders on the grounds that an insurer may only seek reimbursementofexcessive defense costs from its insured. The Court of Appealaffirms........000.. 7 LEGAL ARGUMENT.ececeeseeeseeeeeaeeeeeeeseaeeesaeeesaeeneesseeaes 8 I. WHERE CIVIL CODE SECTION 2860 DOES NOT APPLY, INSURERS SHOULD HAVE THE RIGHT TO SEEK REIMBURSEMENT OF EXCESSIVE, UNREASONABLE OR UNNECESSARY FEES FROM CUMIS COUNSELueceececeseeeseeeseeeenecesneecetsaeeenseaeeeeens 8 A. Hartford alleged sufficient facts to support a reimbursementaction against Squire Sanders.......... 8 B. This court’s decision in Buss supports the existence of an insurer’s right to seek restitution from Cumis counselfor excessive or unreasonable fees when section 2860 does not apply... 10 C. Public policy supports an insurer’s right to seek restitution from Cumis counsel for unreasonable or unnecessary legal fees ..........cccccccccececceeeeeeeeenestscess 11 CONCLUSION00...cecccccscscsccssssseccesscesssesccesecesceeesensntseesetsecenes 18 CERTIFICATE OF WORD COUNT. 1.0... ccccccessesseessesesessecsssensees 19 li TABLE OF AUTHORITIES Page(s) Cases Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106 Cal.App.4th 419.0... ccccesscscceeeesesseeeesoeseeeceeeeseneees 18 Buss v. Superior Court (1997) 16 Cal.4th 35 oocceeesessessseeeneeesweeeececeueaeeeeeaneaeaes passim Cotchett, Pitre & McCarthy v. Universal Paragon Corp. (2010) 187 Cal.App.4th 1405.00... ceceeceessssnsssstsessesessececenss13 Desny v. Wilder (1956) 46 Cal.2d 718 woccccscscsssscssccssssssssssssesssctseseseesnueceseessesaes 8 Doe v. City of Los Angeles (2007) 42 Cal.4th 531 oo.cccccccccesesssccceseccenscecececsceeseessstauseeeeesss 9 Durrell v. Sharp Healthcare (2010) 183 Cal.App.4th 1850....... ccc cccccccccccccseccecccceeeccccccesessectueeecs 8,9 Fireman’s Fund Ins. Companies v. Younesi (1996) 48 Cal.App.4th 451 ..cccccccccsccecsssssssessessessesrsstesteseseeseeseeseesses14 First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657 ...........cccccccecccsscscccsceseesesscecescecscenstacereeens 11 Gray Cary Ware & Freidenrich v. Vigilant Insurance Co. (2004) 114 Cal.App.4th 1185.00.00... ..cccceccccccccccsesccssesecececcesecssstaceecenss 14 Handy v. First Interstate Bank (1993) 13 Cal.App.4th 917 ...cccccccecccssssssesseesssssesssssecsecsesesecssesssessecsees 14 J.R. Marketing, LLC v. Hartford Cas. Ins. Co. (Nov. 30, 2007, A115846) 2007 WL 42174438... eeeeeeeeeeeeees 6 Long v. Century Indemnity Co. (2008) 163 Cal.App.4th 1460 ....cccccccccsssscsesssssesssssesececssesesessessscesecevee 14 McBride v. Boughton (2004) 123 Cal.App.4th 379 ..ccccccccccssssssecsecsecsssessessessescavsssesecsecaseesee 11 lil Rains v. Arnett (1961) 189 CalApp.2d 387 ......ccccccceccscsssscssssccessessecccessscessecssecesens 10 Ward v. Taggart (1959) 51 Cal.2d 736 oo...ccceccscccccssscecssccsssccessercesssseeessesersestsssessess 8 Statutes Civil Code § 2860...eee eececescecsseseseessesssseseesssseussesccssseseseseecseeessaueesseesuesass passim § 2860, subd. (C)........ccceccccssssscccssssscccceeccecesseccessecsestsscsceeceesseccess 5, 6,9 Rules of Court Cal. Rules of Professional Conduct LUE 4-200 ooceeeeseccsssssssssssceeecceeccececcescesstsessssnstausaacsseseceeseeneuens 7,9 LUle 4-200(A)......cccccccccssscssseeccessecesssccesseecsssssessssesesssssaseeseseeseesecensaaes 13 Miscellaneous Croskey,et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2012) J 7:80900... lececceeseessstscssceeeseecees 13, 14 1v IN THE SUPREME COURT OF CALIFORNIA J.R. MARKETING,L.L.C. et al., Plaintiffs, Cross-Defendants and Respondents, v. HARTFORD CASUALTY INSURANCE COMPANY, Defendant, Cross-Complainant and Appellant. PETITION FOR REVIEW ISSUE PRESENTED Wherean insurer has been deniedthe protection of Civil Code section 2860, may independent Cumis counsel shift to its clients liability for reimbursement of unreasonable and unnecessarylegal fees? Or do the principles articulated in Buss v. Superior Court (1997) 16 Cal.4th 35 (Buss) and the established common-law remedies for money wrongfully received give an insurer a common law, quasi-contractual right to maintain a direct action against Cumis counselfor reimbursement of unreasonable and unnecessary defense fees and costs? INTRODUCTION: WHY REVIEW SHOULD BE GRANTED The Court of Appeal held in a published opinion that, when the provisions of Civil Code section 2860 regulating independent Cumis counsel do not apply and an insurer’s only remedy for unreasonable or excessive attorney fees is to bring an action after defense costs have been paid, the insurer has no right to assert a quasi-contractual claim for reimbursement against the law firm that charged and received the fees and, instead, may only seek reimbursement from its insureds. By refusing to permit an insurer to seek relief in quasi- contract for the unjust enrichment of a law firm that charges excessive fees, the Court of Appeal’s decision undermines this court’s decision in Buss, wherethe court held that “[t]he insurer... | has a right of reimbursement that is implied in law as quasi- contractual, whetheror not it has one that is implied in fact in the policy as contractual.... [U]nder the law of restitution, such a right [implied in law] runs against the person who benefits from ‘unjust enrichment’ and in favor of the person whosuffers loss thereby ....”. (Buss, supra, 16 Cal.4th at p. 51, fn. omitted.) That statement of the law is consistent with the long established rule— providing a remedy against one who has unjustly received money from another. The Court of Appeal’s decision presents this court with an opportunity to address an issue that Buss implicitly decided but has not directly addressed—whether the restitutionary principles in Buss apply only to insureds, and not to Cumis counsel, when the statutory protection of section 2860 is unavailable. Cumis counselin this case received approximately $15 million in legal fees and costs, which the insurer’s cross-complaint alleged were excessive, unnecessary, and ‘unreasonable. In this circumstance, a number of public policies are advanced by the application ofthe restitutionary principles stated in Buss to permit the insurer to state a quasi-contractual unjust enrichment claim against Cumis counsel. It would be fundamentally unfair to make the insureds alone bear the burdenof litigation over their attorneys’ legal fees and answerfor their attorneys’ overbilling. It was Cumis counsel in this case, and not the insureds, who received the legal fees. More generally, the Court of Appeal’s decision carves a huge and unjustified hole in the general principle of California law that one may recover in quasi-contract or unjust enrichment for another’s wrongful receipt of money. It simply cannot be the law that Cumis counsel can bill any amount they want, no matter how excessive or unreasonable, and then passonliability for these excessive fees to their client or, if the client is judgment proof, the client’s insurer. Such a result places the burden on the wrong parties, undermines the relationship between Cumis counsel and the insured, and opens the door for rampant overbilling practices by Cumis counsel, contrary to the public policy against excessive and unreasonable attorney fees and costs. Additionally, it would require the insured to bring a separate action against their Cumis counsel, unnecessarily adding to the burdens on the judicial system. | The issue presented hereis likely to recur frequently.! Any time an insurer initially declines to defend an action, it is vulnerable to losing its section 2860 rights and, under the Court of Appeal’s opinion, to then losing its right to seek the equitable remedy of restitution from Cumis counsel for unreasonable or unnecessary fees. STATEMENT OF THE CASE A. Insureds tender three related actions to Hartford, seeking a defense. Hartford issued business insurancepolicies to J.R. Marketing, LLC and Noble Locks Enterprises, Inc. (1 AA 8-9.) Three actions - were tendered to Hartford for defense and indemnity underthese policies: e Anaction filed in Marin County Superior Court (Marin Action). (1 AA 9.) ° An action filed in Clark County, Nevada District Court (Nevada Action). (1 AA 9.) e A third party action filed in the United States District Court for the Eastern District of Virginia (Virginia Action). (1 AA 10.) Hartford initially disclaimed coverage of the Marin Action, but after being provided with additional information,later agreed to 1 After the Court of Appeal issued its opinion, six requests for publication werefiled, strongly suggesting that the issue presented here is a recurring one. provide a defense. (1 AA 9; typed opn., 3.) Hartford denied coverage of the Nevada Action and agreed to defend the Virginia Action through panel counsel, as Virginia law permitted, under a reservation of rights. (1 AA 10.) B. Insureds sue Hartford and the trial court orders Hartford to pay all defense fees and costs without resorting to the provisions of Civil Code section 2860. Hartford is permitted to challenge unreasonableand unnecessary defense fees and costs only by way of an action for reimbursementafter the underlying actions against the insuredsare resolved. The insureds sued Hartford alleging breach of contract and breach of the implied covenant of good faith and fair dealing. (1 AA 9.) The insuredsalleged that Hartford had a dutyto provide and pay fees for independent counsel from the date of tenderofthe Marin Action. (Typed opn., 3.) The trial court ordered Hartford to pay defense fees and costs and provide independent (Cumis) counsel for the insureds in the Marin Action. The trial court further ordered that Hartford was not entitled to the protection of Civil Code section 2860, subdivision (c), that it had to pay bills on an ongoing basis without deduction within 30 days of their presentation, and “[t]o the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursementafter resolution of the Avganim [Marin] matter.”2 (1 AA 2-4, 10-11, emphasis added.) By stipulation of the parties, the insureds’ bad faith action against Hartford was stayed, pending resolution of the underlying actions. (1 AA 11.) Hartford paid approximately $15 million in legal fees and costs to or at the behest of the insureds’ Cumis counsel, Squire Sanders, for the defense of the insureds in the underlying actions. (1 AA 11.) C. After the three underlying actions conclude, Hartford files an action for reimbursementalleging that fees and costs charged by Squire Sanders were - unreasonable, unnecessary, and unconscionable. Pursuant to the trial court’s order, Hartford filed a cross- complaint, which included claims for reimbursement and unjust enrichment against both the insureds and Squire Sanders. (1 AA 6- 17.) Hartford sought reimbursement from Squire Sandersoflegal fees and costs paid to them because: (1) fees were paid that were outside the scope ofthetrial court’s order, which required Hartford to pay all “reasonable and necessary defense costs” (1 AA 2, 13, emphasis added); and (2) Squire Sanders charged fees which violated ethical rules governing attorneys, including but not limited, 2 Ina prior opinion (J.R. Marketing, LLC v. Hartford Cas. Ins. Co. (Nov. 30, 2007, A115846) 2007 WL 4217443, at p. *2 [nonpub. opn.]), the Court of Appeal upheld these orders, as well as the trial court’s ruling that Hartford is not entitled to the protection of Civil Code section 2860, subdivision (c). (1 AA 2, 76-78.) to rule 4-200 of the Rules of Professional Conduct, or which otherwise were unreasonable, unnecessary, or unconscionable. (1 AA 12.)8 D. The trial court dismisses Hartford’s reimbursement action against Squire Sanders on the grounds that an insurer may only seek reimbursement of excessive defense costs from its insured. The Court of Appeal affirms. Thetrial court sustained a demurrer without leave to amend and dismissed Hartford’s cross-complaint as to Squire Sanders on grounds that Hartford could not assert a claim forreimbursement against a law firm hired as independent counsel to represent its insureds, but was instead limited to seeking reimbursement from the insureds themselves. (2 AA 430-431, 459; RT 3-4.) The Court of Appeal affirmed, concluding that the policies underlying section 2860 do not permit Hartford to sue Squire Sandersdirectly for reimbursement. (Typed opn., 12.) 3 Inthe reimbursementaction, Hartford also sought fees that were paid for defense of persons and entities who were not insureds under Hartford’s policies and for actions not covered by those policies. (1 AA 13-14.) LEGAL ARGUMENT I. WHERE CIVIL CODE SECTION 2860 DOES NOT APPLY, INSURERS SHOULD HAVE THE RIGHT TO SEEK REIMBURSEMENT = OF EXCESSIVE, UNREASONABLE OR UNNECESSARY FEES FROM CUMIS COUNSEL. | A. Hartford alleged sufficient facts to support a reimbursementaction against Squire Sanders. A claim of restitution is appropriate to remedy unjust enrichmentin the absence of an express contract. (Durrell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 (Durell); see Wardv. Taggart (1959) 51 Cal.2d 736, 741 [“the public policy of this state does not permit oneto ‘take advantage of his own wrong’ [citation] and the law provides a quasi-contractual remedy to prevent one from being unjustly enriched at the expense of another”].) The law of restitution thus imposesa relationship upon parties who have no express contract between them “ ‘for the purpose of bringing about justice without referenceto the intention ofthe parties.” (Ward, at p. 743); see Desny v. Wilder (1956) 46 Cal.2d 715, 734 [“The law... is dedicated to the proposition that for every wrong there is a remedy ...and for the sake ofprotecting one party it must not close the forum to the other”].) Thefacts stated in the cross-complaint are that Hartford paid Squire Sanders approximately $15 million inlegal fees and costs to defend its insureds as Cumis counsel and that Hartford is entitled to reimbursement. The cross-complaintalleges that (a) fees were paid to Squire Sanders that were outside the scope of thetrial court’s order, which required Hartford to pay all “reasonable and necessary defense costs” (1 AA 2, 18, emphasis added); and (b) that Squire Sanders charged fees that violated ethical rules governing attorneys, including but not limited to rule 4-200 of the Rules of Professional Conduct, or which otherwise were unreasonable, unnecessary, or unconscionable. (1 AA 12.) These facts justify imposing an implied-in-law, quasi- contractual obligation on the part of Squire Sandersto restore to Hartford any fees Hartford paid by which Squire Sanders was unjustly enriched. (See Durrell, supra, 183 Cal.App.4th at p. 1370 [“ “Underthe law ofrestitution, “[a]n individual is required to make restitution if he or she is unjustly enriched at the expense of another” ’”]; Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 549- oe 550 [a complaint will be upheld “‘so long as the pleading gives notice ofthe issuessufficient to enable preparation of a defense’ ”}.) Thetrial court held that the provisions of Civil Code section 2860 were unavailable in this case, and Hartford’s sole remedyfor excessive attorney fees was a reimbursementaction, and then only upon completion of the underlying Marin Action.* But the right to seek reimbursement exists separate and apart from section 2860, and is rooted in principles of equity. There is simply nothing to 4 If Civil Code section 2860 applied, Hartford would have had a timely, relatively inexpensive way to challenge Squire Sanders’ billings (Civ. Code § 2860, subd.(c).) indicate that removalofthe protection of section 2860 abrogates the commonlaw right of an insurer to seek reimbursementofexcessive attorney fees from the attorneys to whom those fees were paid under the principles of restitution founded upon the law of quasi- contract. . The inapplicability of section 2860 does not and should not limit the common law and equitable claims that arise from an insurer’s quasi-contractual relationship with Cumis counsel. B. This court’s decision in Buss supports the existence of an insurer’s right to seek restitution from Cumis counsel for excessive or unreasonable fees when section 2860 does not apply. This court’s decision in Buss strongly suggests that an insurer should have the right to seek restitution directly from Cumis counsel where,as in the present case, the insurer’s sole remedy for excessive Cumisfees is an action for reimbursement. In language that applies with equal force to this case, this court explained in Buss that “[t]he insurer... has a right of reimbursement that is implied in law as quasi-contractual, whetheror not it has one that is implied in fact in the policy as contractual .... [U]nder the law of restitution, such a right [implied in law] runs against the person who benefits from ‘unjust enrichment’ and in favor of the person whosuffers loss thereby ...” (Buss, supra, 16 Cal.4th at p. 51; see also Rains v. Arnett (1961) 189 Cal.App.2d 337, 344 [“an action for money had andreceived lies in cases where one person hasin his 10 possession money whichin equity and good conscience he ought to pay over to another”].) Buss does not hold or even imply that the reimbursementaction authorized there is the only reimbursement action that an insurer mayever bring under any circumstance, or that an insurer cannot seek restitution directly from Cumis counsel on the basis of the implied-in-law obligation of Cumis counsel to charge the insureronly for reasonable and necessary legal services. Reading Buss in that way would improperly attribute to the Buss court the unstated intention to overrule a large body of established California law. The Court of Appeal’s refusal to apply these restitutionary principles suggestsa lack ofclarity in the law after Buss concerning ‘the scope of an insurer’s right to seek equitable remedies for excessive and unreasonable attorney fees in those circumstances where the protection of section 2860 is unavailable. This case presents the court with an opportunity to provide that clarity. C. Public policy supports an insurer’s right to seek restitution from Cumis counsel for unreasonable or unnecessary legalfees. Whether the law of restitution should be applied in a particular case involves an evaluation of public policy to determine whether a person has been unjustly enriched. (See McBride v. Boughton (2004) 123 Cal.App.4th379, 389[“ ‘[dletermining whether it is unjust for a person to retain a benefit may involve policy considerations’ ”]; accord, First Nationwide Savings v. Perry (1992) 11 11 Cal.App.4th 1657, 1663 [same].) Here, contrary to the Court of Appeal’s conclusion (typed opn., 12), permitting Hartford’s restitution claim to proceed directly against Squire Sanders ensures fundamental fairness and furthers judicial economy without undercutting the policies underlying Civil Code section 2860. If, because Civil Code section 2860 does not applyin this case, Hartford is limited to seeking reimbursement solely from its insureds, the insureds are exposed to a double litigation burden. They would first have to bear the burden of litigating the reasonablenessof legal fees in excess of $15 million that they did not charge or collect, and then, if Hartford is successful, face the burdenoflitigating an action for reimbursement against their own lawyers. | Whyshould the insureds (and the court system) be subjected to this double litigation burden over reimbursementof fees they never charged or received? And,ifthe insuredsare, for any reason, unable to pursue a reimbursementaction against their attorneys, why should they be left holding the bag for their attorneys’ overbilling practices? The only fair result in this circumstanceis to apply traditional principles of restitution to recognize the implied- in-law obligation that exists between Hartford and Squire Sanders and permit that obligation to be enforced by Hartford in a direct action for reimbursement against Squire Sanders. Becauseit is Cumis counsel, and not the insured, that charged and received the fees from the insurer, Cumis counsel should be directly responsible for any excesses. 12 Indeed, it makes no sense to conclude that, while Cumis counsel would be a properparty to fee dispute if Civil Code section. 2860 applied (see Croskey,et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2012) J 7:809, p. 7B-106.6 [binding arbitration is required of the “parties to the dispute” over Cumis fees under Civil Code section 2860; “‘[p]arties to the dispute’ presumably includes the Cumis counsel, in addition to the insurer and the insured”]), Cumis counsel cannot be a party to a fee dispute in this case where the court has ruled section 2860 is inapplicable and limited the “parties to the dispute” to a reimbursement action after all of the fees have been paid. Allowing an insurer to hold Cumis counsel directly responsible for excessive fees in a restitution action also advances the public policy against. unreasonable attorney fees embodied in the California Rules of Professional Conduct. (See Bird, Marella, Boxer & Wolpert v. Superior Court (2008) 106 Cal.App.4th 419, 431 (“Rule 4-200(A)of the Rules of Professional Conduct... states: ‘A membershall not .. . charge, or collect an illegal or unconscionable fee.’ The Rules of Professional Conduct . . . ‘serve as an expression of public policy to protect the public’”]; Cotchett, Pitre & McCarthy v. Universal Paragon Corp. (2010) 187 Cal.App.4th 1405, 1417 [“Fee agreements that violate the Rules of Professional Conduct may be deemed unenforceable on public policy grounds”].) Cumis counsel should not be permitted to collect fees for unreasonable and unnecessary work, and then leave the insureds holding the bag. 13 The Court of Appeal ignored these policies and refused to apply restitutionary principles articulated in Buss because ofits concern that allowing an insurer to seek reimbursement directly from Cumis counsel threatens the independence of counsel by enabling the insurer to second-guess defense counsel. (Typed opn., 13-14.) But the Court of Appeal acknowledged that Hartford may bring a reimbursement action against its insured (typed opn., 15- 16), which if successful, will result in the insured bringinga follow- up reimbursement action against its counsel. (Typed opn., 16.) Thus, Cumis counsel’s fees will be second guessed twice—oncein the insurer’s reimbursementaction against the insured, and then again in the insured’s action against its counsel. Moreover, if section 2860 had applied, Hartford would have been able to second-guess Cumis counsel by submitting a claim for excessive fees to bindingarbitration in which Squire Sanders would have been a properparty. (Handy v. First Interstate Bank (1993) 13 Cal.App.4th 917, 923; Long v. Century Indemnity Co. (2008) 163 Cal.App.4th 1460, 1471; Fireman’s Fund Ins. Companies v. Younesi (1996) 48 Cal.App.4th 451,459; Croskeyet al., Cal. Practice Guide: Insurance Litigation, supra, { 7:809, p. 7B-106.6.) There is no principled reason why the difference in outcome should hinge on whethersection 2860 applies. Section 2860 is a mechanismto allow an insurerto identify and arbitrate independent counsel’s excessive billings as they arise. (See Gray Cary Ware & Freidenrich v. Vigilant Insurance Co. (2004) 114 Cal.App.4th 1185, 1193 [in enacting section 2860, “[i]t appears the Legislature focused on the rates to be paid Cumis counsel and a methodfor resolving disputes 14 over these rates’].) The right to seek reimbursement exists separate and apart from section 2860, andis rooted in principles of equity. The inapplicability of section 2860 means only that Hartford is not protected by the statutory restrictions on independent counsel experience and rates or the availability of binding arbitration of attorney fee disputes, nothing more. Removal of the protection of section 2860 does not abrogate the common law right of an insurer to seek reimbursementofexcessive attorneyfees from the attorneys to whom thosefees werepaid. The Court ofAppeal’s concern is unfoundedfor an additional reason. The independence of Cumis counsel is not threatened where,as in this case, the underlyinglitigation is concluded and the purpose for which Cumis counsel was retained has been fulfilled. Hartford’s reimbursementaction involves the question of whether Squire Sanders should reimburse Hartford for attorney fees and costs that have already been paid. Accordingly, the insureds’ ability to defend themselvesin the underlyingaction is not threatened, any more than the reimbursement action against the insureds, permitted by the decision in Buss. The Court of Appeal also expressed concern that allowing a reimbursement action against Cumis counsel in this case would “afford the insurer that has waived the protections of section 2860 through its own wrongdoing more rights in afee dispute with independent counsel thantheinsurer that has not waived such protections. Specifically, while the insurer in compliance withits duty to defend would belimited undersection 2860 to arbitrating a 15 fee dispute, the insurer in breach of its duty could bring the fee dispute to court.” (Typed opn., 14.) The underlyingpremise of this conclusion—that it is more advantageousfor an insurer to seek reimbursementin a court of law than through arbitration—is erroneous. The streamlined methodof resolving disputes under section 2860 enables insurers burdened by excessive fees to seek relief simply andefficiently, while the underlying action is still pending, without the need to initiate time consuming and expensivelitigation in court. Here, where section 2860 does not apply, Hartford was required to wait until the underlying action was complete and approximately $15 million in fees had already been paid before it could challenge the unreasonable or unnecessary bills, and then hadto incurthe cost of litigating the reimbursement action in court. Moreover, Hartford must prove its claims without the benefit of the attorney fee rate restrictions that would govern if section 2860 applied. Seeking reimbursementin a courtoflaw is therefore less advantageous than arbitration under section 2860, and whatever differences exist do not justify immunizing Cumis counsel from an action for reimbursement from the insurer under circumstancessuch as those present in this case. Finally, the Court of Appeal concluded that Hartford’s reimbursementaction was inappropriate because “Squire [Sanders] did not confer any benefit upon Hartford. Rather, Squire [Sanders] conferred a benefit on its clients.” (Typed opn., 15.) The Court of Appeal’s analysis misses the mark for two reasons. First, the cross- complaint alleges that Squire Sanders received an unjust benefit 16 from Hartford when Squire Sanders charged fees that were unreasonable and unnecessary (which totaled approximately $15 million) for the defense of the insureds and engaged in excessive billing practices. Second, the insuredsdid not necessarily receive a benefit from Squire Sanders simply because hours werebilled on their case. If work was unnecessary or unreasonable and never needed to be performed in thefirst place, as the cross-complaint alleges and as must therefore be assumedto be true on demurrer, the insureds received no benefit from the additional work. This court should grant review to confirm that public policy favors an insurer’s right to seek reimbursementdirectly from Cumis counsel in those circumstances where section 2860 does not apply. 17 CONCLUSION Review should be granted. June 26, 2013 HORVITZ & LEVY LLP DAVID M. AXELRAD ANDREA AMBROSE LOBATO MENDES & MOUNT,LLP DEAN B. HERMAN CATHERINEL. RIVARD EDWARDS WILDMAN PALMERLLP IRA G. GREENBERG » “NZ AndreaAmbrose Lobato Attorneys for Defendant, Cross- Complainant and Appellant HARTFORD CASUALTY INSURANCE COMPANY 18 CERTIFICATE OF WORD COUNT (Cal. Rules of Court, rule 8.504(d)(1).) The text of this petition consists of 3,896 words as counted by the Microsoft Word version 2010 word processing program used to generate the petition. Dated: June 26, 2013 . /) kL Andrea Ambrose Lobato 19 Filed 5/17/13 . NOT TO BE PUBLISHEDIN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts andparties from citingor relying on opinionsnotcertified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not beencertified for publication or ordered published for purposes of rule 8.1715. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT F ; L E D DIVISION THREE MAY 17-2013 ; Court of Appeal - First App.Dist. J.R. MARKETING,L.L.C.et al., DIANA HERBERT Plaintiffs, Cross-Defendants and ry DEPUTY Respondents, A133750 v. | (San Francisco County HARTFORD CASUALTY INSURANCE Super. Ct. No. CGC-06-449220) COMPANY, Defendant, Cross-Complainant and Appellant. This is an appeal from an order sustaining the demurrers ofrespondents/cross- defendants Squire Sanders L.L.P. (Squire) and Scott Harrington in a cross-action by appellant Hartford Casualty Insurance Company (Hartford) for reimbursement of allegedly excessive or otherwise inappropriate legal fees and costs billed by Squire to Hartford. Squire served as independentcounselfor cross-defendants J.R. Marketing, L.L.C., Noble Locks Enterprises, Inc., Jane and Robert Ratto, Lenore and Germain DeMartinis, and Penelope Kane(collectively, insured cross-defendants) in a California tort action after Hartford disclaimed coveragefor the action underthe relevant insurance policy. Squire also served as counselfor certain ofthe insured cross-defendants in two non-California actions, and as counsel for the non-insured cross-defendants — to wit, Harrington, Wheatland Baking Inc., and Kane Processing, L.L.C. — in the California action or one or more ofthe non-California actions (collectively, uninsured cross- defendants). According to Hartford, someportion ofthe fees and costs billed by Squire and paidby Hartford were for legal services provided to cross-defendants outside the scope ofHartford’s contractual obligations as insurer under the relevant policy. For reasons discussed below, we affirm the order. FACTUAL AND PROCEDURAL BACKGROUND Thisis not the first time this court been called upon to review trial court rulings in this i ngurance coverage lawsuit. We have twice before decided appeals in this matter. (BeesR*Mabketing, L.L.C. v. Hartford Cas. Ins. Co., A115472 (Oct. 30, 2007) (nonpub); JR:Marketing, L.L.C. v. Hartford Cas. Ins. Co., Al 15846 (Nov.30, 2007) (nonpub).)! . ‘As’‘Sue,Wwe!Have:‘already set forth in detail much ofthe relevant factual and procedural background:ofthis coverage dispute, allowing us, in the nameofjudicialefficiency, to borrow extensively from our previous opinions for purposes of this appeal. With respect to more recent events, however, we abide by well-established principles requiring us, when reviewing an order on demurrer, to accept as true all factual allegations set forth in the operative complaint. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 664, fn. 2.) We thus turn to the relevantfacts. In Summer 2005, Hartford issued two commercial general liability policies, the first policy to cross-defendant Noble Locks Enterprises, Inc., effective July 28, 2005 to July 28, 2006, and the secondpolicy to cross-defendant J.R. Marketing, L.L.C., effective August 18, 2005 to August 18, 2006 (collectively, the JR. Marketing and Noble Locks policies). Under these policies, Hartford promised to defend and indemnifyclaims | against the named insureds forcertain business-related damagessubj ectto various ~ exclusions of coverage. In September 2005, several individuals, including Meir Avganim, sued cross- defendants (except Wheatland Baking, Inc.) and others for intentional misrepresentation, 1 In the first appeal, we uphelda trial court order requiring Hartford to immediately pay Squire’s outstanding legal fees and costs and declining to permit Hartfordto avail itself ofthe protections provided to insurers pursuant to Civil Code section 2860, subdivision (c). This order will be discussed in greater detail herein. In the second appeal, we upheld trial court order denying Hartford’s motion to disqualify Squire as counsel. breach offiduciary duty, unfair competition, restraint of trade, defamation, interference with business relationships, conversion, accounting, mismanagement and conspiracy in ~ Marin Superior Court (Marin or Avganim matter). Cross-complaints were subsequently filed by J.R. Marketing, L.L.C., the Rattos, Kane and Kane Processing, L.L.C. ‘The Marin matter was immediately tendered to Hartford for defense and indemnity underthe ' J.R. Marketing and Noble Lockspolicies. Aroundthe sametime, two actions were broughtagainst various ofthe cross- defendants in non-California courts (non-California matters). The complaints in the non- California matters were likewise tendered to Hartford for defense and indemnity under the J.R. Marketing and/or Noble Lockspolicies. In the Marin matter, Hartford refused to defend or indemnify the namedcross- defendants on the ground, amongothers, that the acts complained of appeared to have occurred before the relevant insurance policy’s inception date. Hartford nonetheless invited them to provide more information should they believeits position to be erroneous. In February 2006, cross-defendants J.R. Marketing, L-L.C., Noble Locks Enterprises, Inc., the Rattos, and Kane, represented by Squire, filed this coverage lawsuit, after which Hartford reconsideredits position and, based on newly provided information, agreed in March 2006to provide a defense in the Marin matter under the J.R. Marketing policy subject to a reservation of rights. In doing so, Hartford continuedto refuse to pay defense costs incurred before January 19, 2006, or to provide the named cross-defendants independent counsel in place of its panel counsel. The named cross-defendants thus moved for summary adjudication on the issue ofwhether Hartford owed them a duty to defend, including a duty to provide independent counsel, from the initial tender ofthe Marin matter in September 2005. Thetrial court granted their motion on July 26, 2006, finding a legal duty to defend and to fund independent (“Cumis”) counsel under the J.R. Marketingpolicy.” 2 See San Diego Fed. Credit Union v. Cumis Ins. Society Inc. (1984) 162 Cal.App.3d 358. For purposes ofthis appeal, we use the terms “Cumis counsel” and “independent counsel” interchangeably. Thetrial court also granted a subsequent motion by cross-defendants J.R. Marketing, L.L.C., Noble Locks Enterprises, Inc., the Rattos, and Kane to enforce Hartford’s duty to defend and fund independent counsel under the J.R. Marketing policy (hereinafter, enforcement order). Specifically, on September 27, 2006,thetrial court ordered Hartford to pay the insured cross-defendants’ outstanding invoices within 15 days and to pay “all future reasonable and necessary defense costs within 30 days of receipt.” Acknowledging a right ofreimbursement, the enforcementorder provided, “[tjo the extent Hartford seeks to challenge fees and costsas unreasonable or unnecessary,it may do so by way ofreimbursementafter resolution of the Avganim matter. American Motorists Insurance Co. v. Superior Court (“AMICO”) (1998) 68 Cal.App.4th 864, 874; _ Buss v. Superior Court (1997) 16 Cal.4th 35, 50 et seq.” Finally, the order provided that, while Squire’s bills had to be reasonable and necessary, Hartford was barred from invoking the protective provisions afforded insurers under Civil Code section 2860 becauseit “has breached and continuesto breachits defense obligations by (1) failing to pay all reasonable and necessary defense costs incurred by the insured and by(2)failing to provide Cumis counsel.” (See, e.g., 3 Hartford subsequently agreed to defend and fund independent counsel for Germain and Lenore DeMartinis in the Marin matter based upontheir status as J.R. Marketing employees. They were also addedasplaintiffs in this coverage action. 4 Civil Code section 2860, discussed in much greater detail below, provides in full: “(a) If the provisions of a policy ofinsurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counselto the insured, the insurer shall provide independent counsel to represent the insured unless, at the time the insured is informedthat a possible conflict mayarise or does exist, the insured expressly waives, in writing, the right to independent ~ counsel. An insurance contract may contain a provision which sets forth the method of selecting that counsel consistent with this section. . “{b) For purposes ofthis section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reservesits rights on a given issue and the outcomeofthat coverage issue can be controlled by counselfirst retained by the insurer for the defense ofthe claim, a conflict of interest may exist. No conflict of interest shall be deemedto exist as to allegations of punitive damages or be deemedto exist solely because an insured is sued for an amount in excess ofthe insurance policy limits. Stalberg v. Western Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1233.) In so ordering, the trial court expressly reasoned there was “no authority for the proposition that once an insurer breachesits duty to defend by refusing to provide Cumis counsel, when that insurer is later ordered to provide Cumis counsel, and continues to refuse the order, but later agrees to provide that counsel, it can unilaterally take advantage ofthe rate limitation provision of Section 2860. Indeed, such an outcome would encourage insurers to reject their Cumis obligation for as long as they chose, safe in the notion that they “(c) When the insured has selected independent counsel to represent him or her, the insurer may exercise its right to require that the counsel selected by the insured possess certain minimum qualifications which may include that the selected counsel have (1) at least five years of civil litigation practice which includes substantial defense experience in the subject at issue in the litigation, and (2) errors and omissions coverage. The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained byit in the ordinary course of businessin the defense of similar actionsin the community where the claim arose or is being defended. This subdivision does not invalidate other different or additional policy provisions pertaining to attorney’s fees or providing for methods of settlement of disputes concerning those fees. Any dispute concerning attorney’s fees not resolved by these methodsshall be resolved by final and bindingarbitration by a single neutral arbitrator selected by the parties to the dispute. “(d) When independentcounsel has been selected bythe insured,it shall be the duty of that counsel and the insured to disclose to the insurer all information concerning the action except privileged materials relevant to coverage disputes, and timely to inform and consult with the insurer.on all matters relating to the action. Any claim ofprivilege asserted is subject to incamera review in the appropriate law and motion department of the superior court. Any information disclosed by the insured or by independent counselis not a waiverofthe privilege as to any other party. “(e) The insured may waiveits right to select independent counsel by signing the following statement: ‘I have been advised and informed of myright to select independent counsel to represent mein this lawsuit. I have considered this matter fully and freely waive my right to select independent counsel at this time. I authorize my insurer to select a defense attorney to represent mein this lawsuit.’ “(f) Where the insured selects independent counsel pursuantto the provisions of this section, both the counsel provided by the insurer and independent counselselected by the insured shall be allowedto participate in all aspects ofthe litigation. Counsel shall cooperate fully in the exchange of information that is consistent with each counsel’s ethical and legal obligation to the insured. Nothing in this section shall relieve the insured of his or her duty to cooperate with the insurer underthe terms ofthe insurance contract.” could, at anypoint, invoke the protection ofthe statute, effectively forcing their policyholder to transferthe file to yet another law firm whoserates are lower.” In this case, the court added, “such a result would work an injustice, since Hartford has already forced its policyholders to transfer the defense ofthe Avganim matter from [Squire] to Hartford’s panel counsel, only to have it come back again.” Finally, the court concluded: “[T]he province ofthe Court is not to continually monitor the conduct of a breaching insurer to determineat whatpointit is no longer in ‘breach’sothat it may benefit from a statute whose protection it previously waived.” | This court affirmed both the enforcement order and the underlying summary adjudication order inthe aforementioned nonpublished opinion dated November30, 2007.5 On or about October 2009, the Marin matter was resolved. Cross-defendants, including the insured and uninsured, submitted bills to Hartford for defense fees and costs totaling over $15 million, which Hartford subsequently paid. According to Hartford, these defense fees and costs were charged by Squire forits legal services as independent counsel for the insured cross-defendants in the Marin matter, as well as for its services as counsel for the insured and uninsured cross-defendants in the Marin and/or non- California actions. Hartford further alleges cross-defendants authorized andratified each act of legal service rendered by Squire on their behalf as counselin those actions, and did so undertheauspicesoftheenforcement order. After paying Squire’s invoices, on July 15, 2011, Hartford filed the operative -cross-complaintin this action, asserting causes of action for reimbursement ofmonies 5 After cross-defendants J.R. Marketing, L.L.C., Noble Locks Enterprises, Inc., the Rattos, and Kanefiled their motion to enforce the duty to defend but before the motion washeard, Hartford filed its motion to disqualify Squire for reasons not relevant herein. Weaffirmedthetrial court’s decision to deny this motion in the appeal mentioned above filed in October 2007. (JR. Marketing, L.L.C. v. Hariford Cas. Ins. Co., A115472 (Oct. 30, 2007) (nonpub).) paid pursuantto the enforcement order, unjust enrichment, accounting and rescission.* In this cross-complaint, Hartford alleges Squire submitted improper invoices to Hartford “under the auspices ofthe enforcement order,” which causedit to pay in excess of $15 million in defense fees and costs. As such, Hartford claims a right under the enforcement order to obtain reimbursementof“all unreasonable or unnecessary fees and costs billed to and paid by Hartford,” including those amounts outside the scope ofthe enforcement order for services rendered: (a) for individuals and entities not insured underthe _ underlyingpolicies; (b) prior to any propertender to Hartford by any individualorentity; (c) for any individual or entity in one ofthe non-California actions; (d) for prosecution of any affirmative cross-complaints in the Marin action; and/or (e) for any individual or entity to the extent such fees or costs are abusive, excessive, unreasonable or unnecessary. Respondents Squire and Harrington, as well as cross-defendants J.R. Marketing, L.L.C., the Rattos, the DeMartinis, and Kane, thereafter demurredto the operative cross- complaint on the ground that each cause of action fails to allege facts sufficientto state a valid legal claim against any ofthe named cross-defendants. Following a hearing on September1, 2011, the trial court sustained the demurrerto the unjust enrichment and accounting causes of action without leave to amendas toall cross-defendants and to the reimbursement and rescission causes of action without leave to amend as to respondents Squire and Harrington. Thetrial court overruled the demurrer to the reimbursementand rescission causes of action as to cross-defendants J.R. Marketing, L.L.C., the Rattos, the DeMartinis, and Kane. On December21, 2011, a judgment of dismissal was thus entered in favor of Squire and Harrington and against Hartford. Hartford appeals. DISCUSSION Hartford raises one primary issue for our review in seeking to overturn thetrial court’s order sustaining without leave to amend the demurrer ofrespondents Squire and 6 Therescission cause of action was asserted againstall cross-defendants except Squire. The remaining causes of action were asserted against all cross-defendants. Harrington: Does Hartford have a quasi-contractualright rooted in commonlaw to maintain a direct suit against Squire, independent counsel for certain cross-defendants in the Marin action, or Harrington, an uninsured defendant in the Marin action,for | reimbursement of excessive or otherwise improperly-invoiced defense fees and costs? y For reasonsset forth below, we conclude the answer with respect to both respondents is “No.” | IL. Standard of Review . “In evaluating a trial court’s order sustaining a demurrer, we review the complaint de novo to determine whetherit contains sufficient facts to state a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].) In doing so, we acceptas true all properly pleaded material facts, as well as facts that may be implied from the properly pleadedfacts [citation], and we also consider matters that may be judicially noticed [citation]. We do not assumethetruth of contentions, deductionsor conclusions offact or law. (/bid.)” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1589.) “When a demurrer has been sustained . . . without leave to amend, we decide whetherthere is a reasonablepossibility that the defect can be cured by amendment: if it can be, ... we reverse; if not,... we affirm.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “The plaintiff ‘bears the burden of demonstrating that the trial court erroneously sustained the demurreras amatter oflaw’ and ‘must show the complaintalleges facts sufficient to establish every element of [the] cause of action.’ [Citation.]” (Peterson v. Cellco Partnership, supra, 164 Cal.App.4th at p. 1589.) Il. The Law Governing the Relationship Among Insurer, Insured and Independent Counsel. Underwell-established California insurance law, an insurer has the right to control defense and settlement ofa third party action against its insured, and to otherwise directly participate in the litigation on the insured’s behalf, so long as no conflict of interestarises 7 Hartford does not challenge on appeal the trial courts ruling on its cause ofaction for rescission. between the insurer and the insured. (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1406-1407 (Gajcon) [recognizing a fiduciary relationship between an attorney retained by an insurer, on the one hand, and both the insurer and insured, on the other hand, where no conflict of interest exists]; see also National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal.App.3d 1718, 1727 [“[s]o long as the interests of the insurer and the insured coincide, they are both the clients ofthe defense attorney and the defense attorney’s fiduciary duty runstoboth the insurer and the insured”’].) In this case, however, it is undisputed a conflict of interest between Hartford and the insured cross-defendants did in fact arise. As such, a different rule wastriggered. Specifically, where, as here, the interests of the insurer and the insured nolongeralign, the insured is entitled under Civil Code section 2860 (section 2860) to independent counsel at the insurer’s expense. (§ 2860 [codifying and clarifying the Cumis doctrine]; e.g., Gafcon, supra, 98 Cal.App.4th at pp. 1421-1422.) Although independent counsel owes certain limited duties to the insurer under these circumstances (mainly related to sharing nonprivileged information), independent counsel represents the insured alone. (§ 2860, subds. (d), (f).) Otherwise stated, “there is no attorney-client relationship between Cumis counsel andthe insurer.” (Assurance Co. ofAmerica v. Haven (1995) 32 Cal.App.4th 78, 87-88, 90 [Assurance].) Section 2860 also provides certain protections for the insurer. These protections -include provisions governing the amount of fees payable to independent counsel, the subject matter of this dispute. For example, the statute limits the rate of fees an insurer may be obligated to pay to “the rates whichare actually paid by the insurerto attorneys retained by it in the ordinary course of businessin the defense of similar actions in the community where the claim arose or is being defended.” In addition, the statute mandatesthat fee disputes “shall be resolved by final and binding arbitration by a single neutral arbitrator selected by the parties to the dispute.” (§ 2860, subd.(c).) Yet these protective rules come with an important caveat. “ ‘To take advantage of the provisionsof [section] 2860, an insurer must meet its duty to defend and accept tender ofthe insured’s defense, subjectto a reservation of rights.’ ” (Atmel Corp.v. St. Paul Fire & Marine (N.D.Cal. 2005) 426 F.Supp.2d 1039, 1047; see also Truck Ins. Exchange v. Superior Court (1996) 51 Cal.App.4th 985, 998.) When,to the contrary, the insurer fails to meet its duty to defend and accept tender, theinsurer forfeits the protections of section 2860, including its statutory limitations on independent counsel’s fee rates and resolution of fee disputes. More generally, “[w]hen an insurer wrongfully refuses to defend, the insuredis relieved of his or her obligation to allow the insurer to manage the litigation and may proceed in whatever manner is deemed appropriate.” (Eigner v. Worthington (1997) 57 Cal_App.4th 188, 196. See also Stalberg v. Western Title Ins. Co., supra, 230 Cal.App.3d at p. 1233 [an insurer that wrongfully refuses to defend the insured forfeits its right to control the defense, includingits rights to select defense counsel andlitigation strategy].) Here, undisputedly, Hartford failed to meetits duty to defend and accept tender of the defense in the Marin matter, thereby, as this court recognized in 2007, forfeiting its right to rely on the statutory protections of section 2860 and to otherwise control the defense. (See J.R. Marketing, L.L.C. v. Hartford Cas. Ins. Co., A115846 (Nov. 30, 2007), at pp. 18-19.) Ili. The Right of an Insurer to Seek Reimbursement for Defense Fees and Costs. A. Does Hartford havea right to seek reimbursement from Squire? It is within this context that weare left to consider Hartford’s asserted right to seek reimbursementin adirect suit against Squire. In doing so, wefirst identify two well- established legal principles relevant to any claimedright ofreimbursement by an insurer. First, with respect to claimsthat are at least partially covered under the relevantpolicy, an insurer’s duty to defend extendsto the insured’s entire defense cost. (Buss v. Superior Court, supra, 16 Cal.4th at pp. 47-48 [recognizing that insurers contract to pay the entire cost of defending at-least-potentially-covered claims] [Buss]). And second, with respect to claims not even potentially covered underthe relevant policy, an insurer, like Hartford, does indeed have a right to seek reimbursementofits cost to defend such claims oncethe underlying suit has been resolved. (E.g., Buss, supra, 16 Cal.4th at p. 50 [“Asto the claimsthat are not even potentially covered, however, the insurer may indeed seek 10 reimbursementfor defense costs”]; Reliance Ins. Co. v. Alan (1990) 222 Cal.App.3d 702, 710.) However, having acknowledgedthis right to seek reimbursementas to not-even- potentially-covered claims, the question remains against whom maythe insurerassert this right. Hartford, in arguingits right to seek reimbursement extends against independent counsel, looks to languagein the California case law, including the high court’s decision in Buss, describing the natureofthis right as both contractual and quasi-contractual: “Underthe policy, the insurer does not have a duty to defend the insuredas to the claims that are not even potentially covered. With regard to defense costs for these claims, the insurer has not been paid premiumsbythe insured.It did not bargain to bear these costs. To attemptto shift them would not upset the arrangement. [Citation.] The insurer therefore has aright ofreimbursementthat is implied in law as quasi-contractual, whetheror notit has onethat is impliedinfact in the policy as contractual. [Fn. omitted.] Asstated, under the law of restitution such a right runs against the person whobenefits from ‘unjust enrichment? and in favor ofthe person whosuffers loss thereby. The ‘enrichment’ ofthe insured bythe insurer through the insurer’s bearing ofunbargained- for defense costs is inconsistent with the insurer’s freedom under the policy and therefore must be deemed ‘unjust.’ * (Buss, supra, 16 Cal.4th at pp. 51-52 [italics added]; see also Durell vy. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 [Durell] [* ‘where - appropriate[in cases involving fraud, duress, conversion,or similarconduct], the law will imply a contract(or rather, a quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment’ ”’].) 8 The California Supreme Court justified its conclusion as follows: “Notonly isit good law that the insurer may seek reimbursement for defense costsas to the claimsthat are not even potentially covered, but it also makes good sense. Withouta right of reimbursement, an insurer might be tempted to refuse to defend an action in any part-- especially an action with many claimsthat are not even potentially covered and only a few that are--lest the insurer give, and the insured get, more than they agreed. With such a right, the insurer would not be so tempted, knowingthat, if defense ofthe claimsthat are not even potentially covered should necessitate any additional costs, it would be able to seek reimbursement.” (Buss, supra, 16 Cal.4th at pp. 52-53.) 1] According to Hartford, Buss and Durell stand for the proposition that a right of restitution lies, independent of a contractual relationship, between any person who has suffered loss and the person whohasbeen unjustly enriched thereby. Thus, relying on the above-identified language, and in particular the language in Buss relating to an | insurer’s right toreimbursementfor unbargained-for defense costs, Hartford argues one step further that insurers are entitled to reimbursement from independent counselofthose costs to prevent counsel’s unjust enrichment by the insurer. As wewill explain, the relevant law and policy both suggest otherwise. With respect to the law, Hartford’s argumentignores several implications ofthe important caveat governingrestitution claims identified in both Buss and Durell. ec 6 66Accordingto this caveat, [t]he fact that one person benefits another is not, by itself, _ sufficient to require restitution. The person receiving the benefit is required to make restitution only ifthe circumstancesare such that, as between the twoindividuals,it is unjust for the person toretain it. [Citation.]” ’ [Citation.]” (Durell, supra, 183 Cal.App.4th at p. 1370; see also Buss, supra, 16 Cal.4th at pp. 50-52.)’ Or, as other courts have expressed, “restitution should be required only whenit ‘ “ ‘involves no violation or frustration of law or opposition to public policy, either directly or indirectly.” ’ ” ({County ofSan Bernardino v. Walsh (2007)] 158 Cal.App.4th [533,] 542.)” (Peterson v. Cellco Partnership, supra, 164 Cal.App.4th at p. 1595.) In this case, important policies — to wit, those underlying the enactmentof section 2860 — would indeedbe frustrated by allowing Hartford to directly sue Squire for reimbursement. As explained in great detail above, Hartford’s and Squire’s relationship ’ Thus, as the California Supreme Court explained in Buss, while “[a]ny ‘enrichment’ of the insured by the insurer through the insurer’s bearing ofbargained-for defense costs is consistent with the insurer’s obligation under the policy and therefore cannot be deemed ‘unjust,’ ” the same cannotbe said ofunbargained-for defense costs (i.e., those not even potentially covered underthe policy). Asto the latter costs only, an implied quasi-contractual right to reimbursement would be appropriate because “[t]he ‘enrichment’ of the insured by the insurer through the insurer’s bearing ofunbargained- for defense costs is inconsistent with the insurer’s freedom underthe policy and therefore must be deemed ‘unjust.’ ” (Buss, supra, 16 Cal.4th at pp. 50-51.) 12 is governed by the Cumis scheme, which “envisions an attorney pursing an insured’s defense independently ofthe insurer rather than intertwined with it.” (Assurance, supra, 32 Cal.App.4th at p. 91, fn. 8.) Thus, under this scheme, where,as here, the insurer _ breaches its duty to defendthe insured, the insurerlosesall right to control the defense, including, necessarily, the right to control financial decisions such asthe rate paid to independent counselorthe cost-effectiveness of any particular defense tactic or approach. (James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093,1103, fn.3 [“Th[e] right to control the defense necessarily encompassesthe right to determine what measures are cost effective, bearing in mindliability and indemnity exposure” ]; Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1009, fn. 9 [insurers are barred from imposing on the insured’s counsel discovery or research limitations that . would impede counsel’s professional judgment or otherwise unreasonablyinterfere with the insured’s defense].)” Retroactively imposing the insurer’s choice of fee arrangement for the defense ofthe insured by meansofa post-resolution quasi-contractualsuit for reimbursement against the insured’s separate counsel, such as Hartford seeks to pursue here against Squire, runs counter to these Cumis-schemeprinciples for several reasons well-illustrated by the facts at hand. Recall Hartford, an insurerin breach ofits duty to defend, chose notto align its interests with the insured cross-defendants for purposes ofthe Marin defense and thereby 10 Indeed, even wherethe insurer is not in breach of its duty to defend, independent counselstill owes very few duties directly to the insurer given the lack of an attorney- client relationship between them and the consequent “compelling need for Cumis counsel to remain free from the oftentimes subtle ethical dilemmas and temptations that arise along with conflict in joint representations.” (Assurance, supra, 32 Cal.App.4th at pp. 87-88 [insurer may sue Cumis counsel for breach of section 2860-specified duties to disclose, inform, consult or cooperate regarding information known to Cumis counsel, but may not sue Cumis counselfor negligentfailure “to investigate, prepare, assert, establish, or perform similar functions regarding a defense or position in [the insurer’s] favor’]; see also § 2860, subds. (d), (f) [identifying only the following duties of Cumis counselto the insurer: To “disclose . . . all information concerning the action except privileged materials relevant to coverage disputes,” to timely “inform and consultwith the insurer on all matters relating to the action,” and to “cooperate fully in the exchange of information that is consistent with . . . counsel’sethical and legal obligation to the insured”].) 13 forfeited all right to control that defense. Placed in this position, cross-defendants, not Hartford, hired Squire as independent counsel to represent their interests in the defense, negotiated the relevant fee arrangement with Squire, and oversaw all matters of defense strategy including, presumably, deciding with Squire the cost/benefit ofvariouslitigation pursuits. It is within this context that Hartford claims the legal right to bring a reimbursementaction against Squire for allegedly charging excessive, unreasonable or unnecessary fees for their provision of legal services in the name ofcross-defendants’ defense. Wethink not. Asset forth above, it is clear California law bars an insurer, like Hartford, in breach of its duty to defend from thereafter imposing on its insured its own choice of defense counsel, fee arrangementor strategy. This court now takes the law one slight step further by holding Hartford likewise barred from later maintaining a direct suit against independent counsel for reimbursementof fees and costs charged by such counsel for crafting and mountingthe insureds’ defense where Hartford considers those fees unreasonable or unnecessary. | To hold otherwise would effectively afford the insurer that has waived the protections of section 2860 through its own wrongdoing morerights in a fee dispute with independentcounsel than the insurer that has not waived such protections. Specifically, while the insurer in compliance with its duty to defend would be limited under section 2860 to arbitrating a fee dispute, the insurer in breach of its duty could bring the fee dispute to court.!! The law does not sanctionthis inequitable result. (See Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 660 [“Certainly an insurer who a wrongfully refused to defend should bein no better position than if it had assumed the defense”]; The Housing Group v. PMA Capital Ins. Co. (2011) 193 Cal.App.4th 1150, 1157 [rejecting the position that “ ‘insurers always can take advantage of [§2860] despite immediately failing to meet their burden to defend’ ” because it “would encourage ut As Squire also points outs, had Hartford metits duty to defend in the Marin matter, the issue ofits right to directly sue Squire for reimbursement would not have arisen. Under section 2860, subdivision (c), Hartford would not only have hadthe right to pay a specific hourly rate, it would have hadthe right to arbitrate any fee dispute. 14 insurers to reject their Cumis obligations for as long as they chose because they knew they could invoke the limitations and remedies of section 2860 at any time”J.) Indeed, by providing legal services to cross-defendants, Squire did not confer any benefit upon Hartford. Rather, Squire conferred a benefit on its clients — to wit, cross- defendants. That Hartford paid Squire for those services does not change this fact. There simply is no legal basis here for the restitution claim that Hartford has asserted against Squire. Here,itis the insured cross defendants — rather than independent counsel — that the insurer should look to for reimbursementif it believes the fees were incurred to defend claims that were not covered by the insurer’s policies or that the insured agreed to pay Squire more than was reasonable forthe services that Squire performed. Finally, we add that our holding in this regard is actually quite limited. Given the precise issue raised by the parties to this appeal, we have no reason to, and donot, take a position as to whether an insurer would havethe right to maintain a direct suit against independent counsel for fraudulentbilling practices in connection with the underlying defense of its insured. (Cf. Caiafa Prof. Law Corp.v. State Farm Fire & Cas. Co. (1993) 15 Cal.App.4th 800, 803 [pointing outthat if “the only issue in dispute truly was the amount of Cumis counsel fees the insurance company owed,it would be improper, in most circumstancesatleast, for a trial court to stay the arbitration proceeding mandated under section 2860 in order to allow a judicial proceeding in the California courts to decide that issue and thatissue alone”]; Fireman ’s FundIns. Companies v. Younesi (1996) 48 Cal.App.4th 451, 455-459 [where an insurersued its insured’s Cumis counsel for fraudulentbilling practices, the appellate court affirmed an order denying counsel’s motion to compelarbitration under section 2860, subd. (c), holding “the language of [section 2860, subd. (c)] can only be interpreted to limitthe scope ofarbitrable disputes to those in which only the amountoflegal fees or the hourly billing rates are at issue”].) Thus,for all the reasons stated, we conclude that, where a conflict arises with respect to defense fees or costs paid by an insurer in breach of its duty to defendto the 15 independent counselhired by its insured following this breach, the insurer mustlookto. the insured, not independent counsel, to resolve the conflict.’ B. Does Hartford have a right to seek reimbursement from Harrington? Finally, we address Hartford’s contention the trial court erred by sustaining the demurrerto its reimbursementcause of action as to respondent Harrington, an individual namedasa defendantin the Marin matter but not insured by Hartford.”* In seeking reimbursement from Harrington, Hartford raises one argumentin its opening brief without anycitation to legal authority or to the factual record: Hartford claims simply that it has a right to restitution from Harrington because he was unjustly enriched by receiving a Hartford-financed defensein the Marin matter.’ As respondents point out, however, in addition to failing in its opening brief to cite to relevant legal authority or to the record, Hartford also failed in the operative complaint to allege that any fees or costs were incurred or legal services provided solely for Harrington’s defense (as opposed to for one or more ofthe insured cross-defendants). Moreover, Hartford offered no explanation in its opening brief as to how this failure to allege could be remedied. 2 Hartford’s accounting cause of action against Squire, which Hartford acknowledgesis simply an extension of its reimbursement cause ofaction,fails for the same reason: It is based on the nonexistent right of an insurer in breach ofits duty to defend to directly sue independent counsel for reimbursement ofmoniespaid for the insured’s defense. As reflected in the operative complaint, this cause of action, by which Hartford “seeks an accounting from [Squire] as to all monies paid to, or for the benefit of, each ofthe Cross-defendants” in the Marin and non-California actions, serves no purpose other than to permit an accurate calculation of the amount subject to reimbursement. Because wehold thereis no right to reimbursement from Squire in this case, there is no amount subject to reimbursement. 13 Thetrial court sustained the demurrer to the reimbursementcauseofaction as to respondents Squire and Harrington without leave to amend. In doing so, the court noted the need to protect the attorney-client relationship between the insured andtheir counsel. However, the court did not specifically state why the demurrer wassustainedas to Harrington, as distinguished from Squire. 14 Hartford’s entire argumenton this point is as follows: “Had Hartford not provided Harrington a defense, he would have had to pay for his own defense. Accordingly, he was unjustly enriched and should be subject to a restitution action. Hartford should be entitled to recover the value ofthe legal services provided to Harrington.” 16 Weconclude based onthis record that Hartford has failed its burden to prove the trial court abusedits discretion by sustaining the demurrer as to Harrington without leave to amend. This court is not obligated to research the relevant law or to develop an appellant’s otherwise conclusory legal assertions. (Dills v. Redwoods Associates, Ltd. (1994) 28 Cal.App.4th 888, 890, fn. 1; HFH, Ltd. v. Superior Court (1975) 15 Cal.3d 508, 513, fn. 3.) To the contrary, this court is entitled to disregard legal assertions not _ supported by meaningful argument, particularly where the proponent of such assertions has the burden to prove groundsfor reversal. (McComberv. Wells (1999) 72 Cal.App.4th 512, 522; Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp. (2003) 111 Cal-App.4th 1328, 1345, fn. 16.) While Hartford may have provided additional argumentin its replybrief, its argument did no more than respondtopoints raised by respondents in their appellate brief.'* This backward approach, particularly where Hartford carried the burden of demonstratingthe trial court’s error, runs contrary to our well-established rules of appellate litigation. (Scott v. CIBA Vision Corp. (1995) 38 Cal.App.4th 307, 322 [“[w]e do not entertain issues raised for the first time in a reply brief, in the absence of a showing of good cause whysuchissues were notraised in the openingbrief. [Citations.] No good cause appearing here, we will disregard these issues”].) Moreover, to condone this approach for purposesofthe present appeal would be unfair to respondents, who 18 After pointing out the above-mentioned deficiencies in Hartford’s opening brief with respectto its challenge to the order sustaining Harrington’s demurrer, respondents set forth two legally supported arguments for affirming: (1) Harrington, as an uninsured, was not subject to the enforcement order upon which Hartford relies in seeking reimbursement; and (2) because there was no contractual relationship between Hartford and Harrington, Hartford has no remedy against Harrington for reimbursement. In its reply brief, Hartford briefly responds to each ofthese arguments, claimingforthefirst time that the lack of a contractual relationship or binding order between Hartford and Harrington is irrelevant becauseits right to reimbursementis “implied in law as quasi- contractual.” (See Buss, supra, 16 Cal.4th at p. 51.) Further, Hartford claimsforthefirst time that it was not required to plead specific fees incurred on behalf ofHarrington “given that Squire Sanders was in possession of that information, not Hartford. (See Doe v. City ofLos Angeles (2007) 42 Cal.4th 531, 549-550... .)” 17 have been deprived by Hartford’s tactic of any opportunity to counter its reply arguments. (Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.) As our appellate colleagues in the Third District have aptly noted: “ ‘Obvious considerations of fairness in argument demand that the appellant presentall of his points in the opening brief. To withhold a pointuntil the closing briefwould deprive the respondent of his opportunity to answerit or require the effort and delay of an additional brief by permission. Hencetheruleis that points raisedin the reply brieffor the first time will not be considered, unless good reason is shown for failure to present them before.’ ” (Neighbors v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 335, fn. 8.) Thus, we conclude that, given Hartford’s failure to state facts supportingits reimbursement cause of action against Harrington, and to present timely andlegally- supported arguments asto how thetrial court erred or how the operative complaint could be amendedto removeany defect, there are no groundsfor reversing this order. DISPOSITION The judgment ofdismissal in favor ofrespondents and against Hartfordis affirmed. Respondents are entitled to recover costs on appeal. /// | | /// 18 Jenkins,J. Weconcur: Pollak, Acting P. J. Siggins, J. J.R. Marketing, L.L.C. et al. v. Hartford Casualty Insurance Company, A133750 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES At the timeof service, I was over 18 years of age and nota partyto this action. I am employedin the County of Los Angeles, State of California. My business addressis 15760 Ventura Boulevard, 18th Floor, Encino, California 91436-3000. On June 26, 2013, I served true copies ofthe following document(s) described as PETITION FOR REVIEWontheinterested parties in this action as follows: SEE ATTACHED SERVICE LIST BY MAIL: I enclosed the document(s) in a sealed envelope or package addressed to the persons at the addresses listed in the Service List and placed the envelopefor collection and mailing, following our ordinary businesspractices. I am readily familiar with Horvitz & Levy LLP’s practice for collecting and processing correspondence for mailing. On the same day that the correspondenceis placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid. I declare underpenalty ofperjury under the lawsofthe Stateof California that the foregoingis true andcorrect. Executed on June 26, 2013, at Encino, California. /s/ Jan Loza SERVICE LIST J.R. Marketing, LLC, et al., v. Hartford Casualty Ins. Co. Counsel/ Individual Served Ethan A. Miller Barry D. Brown, Jr. Michelle M.Full Squire, Sanders & Dempsey (US) LLP 275 Battery Street, Suite 2600 San Francisco, CA 94111 Party Represented Attorneys for Cross-Defendants and Respondents J.R. MARKETING, LLC; JANE E. RATTO; ROBERT E. RATTO; PENELOPEA. KANE; LENORE DeMARTINIS; GERMAIN DeMARTINIS; SQUIRE SANDERS(US) LLP; SCOTT HARRINGTON Clerk, Court of Appeal First Appellate District, Division Three 350 McAllister Street San Francisco, CA 94102-7421 [Case No. A133750] Clerk to the Honorable Loretta Giorgi San Francisco Superior Court Civic Center Courthouse 400 McAllister Street, Dept. 302 San Francisco, CA 94102 [Case No. CGC-06449220]
