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Newport Beach Ctr. for Surgery, LLC v. Acclaim Recovery Mgmt.

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE
Mar 2, 2020
B290636 (Cal. Ct. App. Mar. 2, 2020)

Opinion

B290636 C/w B292109

03-02-2020

NEWPORT BEACH CENTER FOR SURGERY, LLC, Cross-complainant and Appellant, v. ACCLAIM RECOVERY MANAGEMENT, LLC, et al., Cross-defendants and Respondents.

Law Offices of Scott E. Schutzman, Scott E. Schutzman, for Cross-complainant and Appellant. Law Offices of Henry N. Jannol, Henry N. Jannol and Tracy P. Hom, for Cross-defendants and Respondents.


NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BC645094) APPEALS from a judgment of the Superior Court of the County of Los Angeles, Richard L. Fruin, Jr., Judge. Affirmed. Law Offices of Scott E. Schutzman, Scott E. Schutzman, for Cross-complainant and Appellant. Law Offices of Henry N. Jannol, Henry N. Jannol and Tracy P. Hom, for Cross-defendants and Respondents.

I. INTRODUCTION

Following a jury trial, the court entered a judgment in favor of plaintiff Acclaim Recovery Management, LLC (Acclaim) on its complaint and against defendant Newport Beach Center for Surgery, LLC (Newport) on its cross-complaint, followed by an order awarding Acclaim attorney fees. On appeal from the judgment on its cross-complaint, Newport contends that the trial court abused its discretion by: denying its motion in limine to exclude Acclaim's expert; conducting jury selection based on a seven-day trial estimate; and denying its motion for a new trial on the grounds that Acclaim failed to disclose insurance information and to produce responsive documents during discovery. On appeal from the order awarding attorney fees, Newport argues that the court violated its due process rights by awarding fees without adequate notice and abused its discretion by refusing to allocate fees between the contract and tort cross-claims. We affirm the judgment and attorney fee order.

Andrew Morris was originally a coplaintiff on the complaint but dismissed his claims on the first day of trial. He remained a party to the action by virtue of Newport's cross-claims against him. For ease of reference, we will refer to Acclaim and Morris collectively as Acclaim.

Acclaim had named George Brennan as a defendant on the complaint, but dismissed its claims against him on the first day of trial. Brennan had also filed cross-claims against Acclaim but dismissed his claims on the first day of trial. He was not named as a party to the judgment on Acclaim's complaint. Thus, contrary to the notices of appeal, Brennan is not a party to this appeal.

Newport does not challenge on appeal the judgment against it on the complaint.

II. PROCEDURAL BACKGROUND

Because Newport bases its appeal on certain pretrial and posttrial rulings, and not the sufficiency of evidence in support of the special verdicts, we do not include a detailed summary of the trial evidence.

Acclaim filed its complaint in December 2016 alleging: In March 2014, it contracted with Newport to provide medical billing and collection services in return for which Newport agreed to pay Acclaim a percentage of all monies recovered on behalf of Newport. On June 24, 2016, Newport gave notice it was terminating the agreement and the parties thereafter exchanged correspondence regarding payment of an outstanding balance due of $59,005.50. Despite assurances that it would satisfy the balance due under the agreement, Newport failed to make payment. Based on these facts, Acclaim asserted contract-based causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, goods and services rendered, and unjust enrichment.

Newport answered the complaint and cross-complained, asserting claims for breach of the implied covenant of good faith and fair dealing, negligence, and fraud. On the breach of covenant and negligence claims, Newport alleged that Acclaim had both a contractual and common law tort duty to provide competent medical billing and collection services and that it breached that duty by failing to act reasonably and competently in the provision of such services. On the fraud claim, Newport alleged that it was fraudulently induced to terminate its relationship with a prior billing and collection services provider and to contract instead with Acclaim based on certain false and misleading representations made by Acclaim during contract negotiations.

The trial court sustained without leave to amend a demurrer to the first cause of action for declaratory relief in the operative second amended cross-complaint.

Prior to trial, the court heard the parties' respective motions in limine, including Newport's motion to exclude Acclaim's expert, which we discuss in detail below.

Following trial, the jury returned a special verdict on the complaint in favor of Acclaim in the amount of $59,005.50. On the cross-complaint, the jury found against Newport on all claims asserted and the trial court entered judgment on the special verdicts.

The jury initially returned special verdicts that failed to address the negligence cross-complaint; but the trial court ordered further deliberations on that claim, and the jury returned shortly thereafter with a verdict against Newport.

Following entry of the original judgment, Newport filed a motion for new trial, which Acclaim opposed, and the trial court denied. Newport then filed an initial appeal from the judgment entered on the special verdicts; and, following briefing, a hearing, and a favorable ruling on Acclaim's motion for attorney fees, Newport also appealed from the amended judgment that added the attorney fee award.

III. DISCUSSION

A. Denial of Motion In Limine

Newport contends that the trial court abused its discretion when it denied Newport's motion in limine seeking to exclude the testimony of Acclaim's expert, Mark Flores. According to Newport, because Flores conceded during deposition that he was not a medical billing or coding expert, he should not have been allowed to testify at trial concerning those areas of expertise. As Flores's testimony was the only evidence Acclaim offered at trial to rebut Newport's expert opinions on medical billing and coding issues, Newport maintains that it was prejudiced by the denial of its motion.

1. Background

During discovery, Acclaim served its expert witness designation and supporting declaration identifying Flores as an expert witness. The accompanying declaration of Acclaim's counsel provided, in pertinent part: "Flores is a medical billing and collection expert, and has expertise and knowledge concerning ERISA[] [m]edical [c]laim [a]ppeals, as well as all [i]nsurance [c]laims [a]ppeal processes. . . . [¶] . . . The testimony of []Flores is expected to include testimony regarding all medical billing and collection efforts taken by [Acclaim] for [Newport] . . . , as well as [i]nsurance [c]laims [a]ppeals, and ERISA [m]edical [c]laim [a]ppeals carried out by [Acclaim] . . . . []Flores will also render opinions with respect to the testimony of [Newport's] . . . expert witnesses which fall within his area of expertise." Acclaim also produced a copy of Flores's biography.

ERISA is an acronym for the Employee Retirement Income Security Act.

Flores's biography provided in pertinent part: "Flores is the [v]ice [p]resident [of] AVYM[,] . . . a leading provider of consulting services focusing on the resolution of denied or disputed medical insurance claims. [¶] [Flores] offers compliance and consulting services for medical providers as well as [third-party administer] embezzlement auditing and recovery work for self-insured plan administrators. For over [a] decade, he has successfully integrated and managed ERISA claims and appeals management, ERISA . . . compliance as well as fraud and abuse prevention services for medical providers."

Based on the expert designation, Newport deposed Flores who testified as follows concerning his area of expertise:

"Q. Where did you get your training in medical billing, if anywhere?

"A. I am not a medical bill[ing] expert.

"Q. Okay. What type of expert do you consider yourself?

"A. A medical claims appeals expert."

Following Flores's deposition, Newport filed its motion in limine seeking to exclude Flores "from testifying to billing and coding issues . . . ." Newport also requested an Evidence Code section 402 hearing "to determine which portions, if any, of []Flores's opinion [were] admissible."

Acclaim opposed the motion in limine, explaining that, "[]Flores made two mistakes in an effort to be clear that he was not a coding expert during [deposition]. He first stated that he was not a medical billing expert. . . . This is of course incorrect. He intended to say that he was not a medical billing coding expert. The same thing happened [later in the deposition when Newport' counsel] stated 'You are not giving an opinion on how Acclaim billed the file.' []Flores once again believed that [counsel] was referring to the coding of the medical bills." But notwithstanding those mistakes, "[]Flores clearly stated that [Acclaim] was required to file ERISA appeals. . . . He has also stated in both of his previously filed declarations that he is an ERISA claim appeal and compliance [s]pecialist. The medical bills are part of the analysis used in filing an appeal."

In support of its reply, Newport attached an undated signature page from Flores's deposition transcript and an attached errata sheet with the following handwritten corrections by Flores: "I misunderstood the question. [¶] I am not a medical coding expert[.] I do not have a certificate in medical coding. I never applied for the certification. There are many types of coding certificates. I am a medical claims, processing and appeals expert." Newport argued that Flores's corrections to his deposition transcript were untimely because they were served only after Newport filed its motion in limine. Newport therefore urged that "Flores should not be allowed to testify as to medical billing and coding issues."

Prior to jury selection, the trial court made an initial ruling denying the motion in limine. According to the court, Flores may have made misstatements in his deposition, but he was "experienced in medical billing" and "qualified." Therefore, the court concluded that Newport's objections to Flores's qualifications went "to the weight" to be accorded his testimony by the jury, but not to the admissibility of his opinions.

Later in the proceeding, Newport's counsel asked to be heard further on the motion. Counsel explained that, in reliance on Flores's admission that he was not a medical billing expert, counsel had refrained from deposing Flores further on that subject. Counsel asserted that Newport would therefore be prejudiced if Flores was allowed to testify on medical billing issues. In response, the trial court suggested a further deposition of Flores. Counsel replied that he "would prefer to [take Flores's] deposition," but added that he needed to consult with his clients before deciding to do so. Notwithstanding the opportunity for a supplemental deposition, Newport chose not to depose Flores prior to his trial testimony.

Following entry of judgment, Newport filed a motion for new trial in which it contended, among other things, that allowing Flores to testify about medical billing and coding issues prejudiced Newport at trial. As noted, following a hearing, the trial court denied the new trial motion in its entirety.

2. Legal Principles and Standard of Review

"'A person is qualified to testify as an expert if he has special knowledge, skill, experience, training, or education sufficient to qualify him as an expert on the subject to which his testimony relates.' (Evid. Code, § 720, subd. (a).) 'Against the objection of a party, such special knowledge . . . must be shown before the witness may testify as an expert.' (Ibid.) The witness's expertise 'may be shown by any otherwise admissible evidence, including his [or her] own testimony.' (Id., subd. (b).) Evidence Code section 801 provides that '[i]f a witness is testifying as an expert, his testimony in the form of an opinion is limited to such an opinion as is: [¶] (a) Related to a subject that is sufficiently beyond common experience that the opinion of an expert would assist the trier of fact; and [¶] (b) Based on matter (including his special knowledge, skill, experience, training, and education) perceived by or personally known to the witness or made known to him at or before the hearing, whether or not admissible, that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates, unless an expert is precluded by law from using such matter as a basis for his opinion.' [¶] 'The trial court's determination of whether a witness qualifies as an expert is a matter of discretion and will not be disturbed absent a showing of manifest abuse. [Citation.] "'Where a witness has disclosed sufficient knowledge of the subject to entitle his opinion to go to the jury, the question of the degree of his knowledge goes more to the weight of the evidence than to its admissibility.'" [Citation.]' (People v. Bolin (1998) 18 Cal.4th 297, 321-322 . . . .)" (People v. Nelson (2016) 1 Cal.5th 513, 536.)

3. Analysis

In ruling on the motion in limine, the trial court was presented with a declaration and biography in support of Flores's expert designation establishing his expertise in the area of medical billing. And, in response to the brief deposition excerpts suggesting that he lacked expertise in that area, Acclaim's counsel explained that Flores misunderstood the import of counsel's questions; and Flores clarified under oath in an errata that, although he was not a medical coding expert, he had expertise in medical billing due to his specialization in processing and evaluating ERISA appeals.

In light of the evidence in the record on the motion, the trial court did not abuse its discretion by concluding that Flores had made mistakes during deposition concerning his areas of expertise that may have affected the weight to be accorded his opinions on medical billing, but which did not affect the admissibility of those opinions.

Moreover, the only prejudice that Newport raised during the hearing on the motion concerned its inability to depose him on medical billing issues prior to trial. The trial court, however, adequately addressed that concern by offering Newport a further opportunity to depose Flores. Therefore, Newport's decision during trial to forego any further deposition of Flores waived any such claim of prejudice on appeal. B Jury Trial Estimate

Newport contends that the trial court abused its discretion when it "time-qualified" the jury during the selection process using a seven-day trial estimate. Pointing to the jury's initial failure to render a special verdict on the negligence cross-claim and the short duration of the further deliberations on that claim, Newport argues that the court's use of the seven-day estimate prejudiced its case by causing "hurr[ied]" verdicts on the cross-claims.

The term "time-qualify" ordinarily refers to the prescreening procedure by which a jury commissioner determines the potential jurors who would be able to serve for a specified length of time without hardship. (See generally People v. Eubanks (2011) 53 Cal.4th 110, 129.)

1. Background

On Monday, February 26, 2018—the day before jury selection—the trial court discussed certain preliminary issues with counsel, including the length of the trial. In response to the court's inquiry about the parties' respective trial-time estimates, Acclaim's counsel estimated that the entire case would take seven days. Newport's counsel responded that he believed the trial would last "seven to ten [days] depending on [whether] we're going to go through the two days [of trial on] the complaint;" but he implied that the trial might take less time "if we could work that out." The court and Newport's counsel then had the following exchange:

"[The Court:] Do you really think it [is] more than seven?

"[Newport's counsel]: If the complaint goes forward for two days, yes.

"The Court: It won't. This complaint is going to be over in about two hours because [Acclaim is] going to want to show the jury that [it is] really fast . . . ."

The court later asked Newport's counsel, "Is [your trial-time estimate] really as long as seven days?" Newport's counsel responded, "I think it will be, Your Honor. What [is] going to take a long time here are the experts on both sides [on the cross-claims]."

The trial court and counsel then proceeded to have a lengthy discussion on several topics, but there was no further discussion of trial-time estimates. The court then directed the attorneys to appear the next morning, Tuesday, February 27, 2018, at 9:30 a.m., to commence jury selection.

On Tuesday morning, February 27, prior to commencement of jury selection, the trial court again asked Newport's counsel, "[H]ow long a trial is this going to be?" Counsel replied that he would be done with his case on "next Wednesday morning," i.e., March 7, 2018. After further inquiry by the court, counsel clarified that his case would take three and a half days—Thursday, March 1; Friday, March 2; Tuesday, March 6; and Wednesday morning, March 7. Acclaim's counsel then added that she would "put [her expert] on . . . Thursday," March 8. She also estimated that, with rebuttal witnesses and argument, the case would last through Friday, March 9.

Jury selection was completed on Tuesday, February 27 and counsel made opening statements. Acclaim's first witness, Andrew Morris, was called and sworn, but the jury was then excused for the day.

Because the jury voir dire was transcribed but not reported, there is no record on appeal concerning how, if at all, the trial court advised the jury concerning the estimated time of trial. But, in response to a juror question after the jury was empaneled, the trial court confirmed a trial estimate of seven days—February 27, March 1, March 2, March 6, March 7, March 8, and March 9.

Although the first witness was sworn on Tuesday, February 27, testimony did not commence until Thursday, March 1, and the verdict was returned on Monday, March 12. Because the court was dark on Wednesday, February 28, Monday, March 5, and on the weekends, the total trial time, including jury selection and opening statements, was approximately nine days. --------

2. Legal Principles

"A trial court has the inherent authority and responsibility to fairly and efficiently administer the judicial proceedings before it. (People v. Engram (2010) 50 Cal.4th 1131, 1146 . . . ; Code Civ. Proc., § 128.) This authority includes the power to supervise proceedings for the orderly conduct of the court's business and to guard against inept procedures and unnecessary indulgences that tend to delay the conduct of its proceedings. (Ellis v. Roshei Corp. [(1983)] 143 Cal.App.3d [642,] 648-649.) In this vein, the court has the power to expedite proceedings which, in the court's view, are dragging on too long without significantly aiding the trier of fact. (Germ v. City & County of San Francisco (1950) 99 Cal.App.2d 404, 424 . . . .) . . . [¶] However, the court must permit a party to have his day in court. Denying a party the right to testify or offer evidence deprives him of a fair trial and constitutes reversible error. (In re Marriage of Carlsson (2008) 163 Cal.App.4th 281, 291 . . . .)" (California Crane School, Inc. v. National Com. for Certification of Crane Operators (2014) 226 Cal.App.4th 12, 22-23.)

3. Forfeiture

Acclaim contends that because Newport did not object to the trial court's preliminary jury screening procedure, including specifically the trial court's use of a seven-day trial estimate, it has forfeited any challenge on appeal based on that estimate. We agree.

It is well established that a party who does not object to or otherwise acquiesces in a preliminary screening procedure during jury selection forfeits any challenge to the procedure on appeal. (People v. Eubanks, supra, 53 Cal.4th at p. 126 ["A defendant generally 'is barred from raising on appeal defects in the [preliminary jury screening] procedure in which he acquiesced.' (People v. Ervin (2000) 22 Cal.4th 48, 73 . . ."].) Here, the record reflects that the trial court and counsel discussed the issue of the estimated length of trial and that the trial court appeared to conclude that Acclaim's seven-day estimate was reasonable. Thereafter, however, our record is silent as to how, if at all, the court utilized that estimate in preliminarily screening the jury pool because, although the jury selection process was transcribed, no reporter's transcript was prepared. Thus, Newport's contention fails at the outset because we are unable to discern from the record whether and to what extent the seven-day estimate was used during the screening process.

But, even if we assume that the trial court time-qualified the prospective jurors for a seven-day trial, there is nothing in the record to suggest that Newport objected to that procedure during the jury selection process. Indeed, our reading of the record suggests that Newport's counsel ultimately acquiesced in the court's trial-time estimate. Newport therefore forfeited its challenge to that time-estimate on appeal.

Moreover, there is nothing in the record to show that Newport was prejudiced by the trial court's use of such an estimate. Although Newport emphasizes that the jury initially failed to address the negligence cross-claim and thereafter quickly returned its verdict on that claim, those facts, by themselves, do not support an inference that the initial seven-day estimate was a substantial factor in the length of the deliberations. As Acclaim asserts, Newport did not submit any juror declarations in support of the new trial motion showing a nexus between that estimate and the length of the deliberations or otherwise suggesting that Newport was prejudiced by the estimate. C. Withheld Documents

Newport maintains that, during discovery, Acclaim withheld insurance information and responsive documents. It asserts that if Acclaim had disclosed that there was no insurance coverage for the cross-claims, the case would have settled. Similarly, Newport maintains that, had Acclaim timely produced all responsive documents, Newport would not have been prejudiced by the belated production of documents on the eve of trial.

1. Background

a. Insurance coverage for cross-claims

During discovery, Acclaim responded to form interrogatory no. 4.1 disclosing: that Acclaim had general and professional liability coverage; the names and address of its insurance carriers; that Acclaim was the named insured on and the custodian of each policy; the policy numbers; and that there was no reservation of rights or controversy regarding coverage. Acclaim, however, objected on relevance grounds to disclosing the policy limits of its coverage. According to Acclaim, the parties met and conferred in writing over Acclaim's policy limits objection, but did not resolve the dispute. Newport, however, did not file a motion to compel a further response to the insurance interrogatory.

Following entry of judgment, Newport filed a motion seeking, among other things, a new trial on the grounds that Acclaim had withheld information during discovery "relating to any insurance coverage." Newport characterized that conduct as "unethical behavior." Newport's counsel opined that, "[h]ad my clients known that there was no insurance [from the discovery responses], they would have resolved the action. In opposition, Acclaim's new counsel explained that, "[w]hen preparing for trial, [she] learned that although the matter had been tendered to [an] insurance carrier, the carrier declined to defend or be responsible for the case [because] the incident occurred prior to the coverage date. There was no misrepresentation."

During oral argument on the insurance issue, Newport's counsel explained that after the meet and confer process on the policy limits objection, he assumed "there was an insurance policy out there which had a certain amount of limits for what was being alleged in the cross-complaint. [¶] . . . [¶] [T]here was a settlement offer made to [Newport] by [Acclaim] in September of 2017. [Newport] would have taken that settlement offer had [it] known there was no insurance. One of the biggest reasons [Newport] rejected [Acclaim's offer] was because there was . . . an insurance policy. And at no point did [Acclaim] say, 'Well we don't think there [is] insurance. [Nor did it advise that t]here [was] a coverage dispute.'"

In response, Acclaim's new counsel explained that she and her client did not become aware that the insurance company had denied coverage until they were responding to the notice to appear and produce at trial.

As noted, following argument, the trial court denied the motion for new trial in its entirety.

b. Withheld Documents

Although Newport contends that the trial court erred in denying its motion for new trial based on Acclaim's alleged withholding of documents, it does not identify which particular documents were produced late or when they were produced. Newport concedes, however, that the documents were produced before trial. Acclaim's counsel represented to the trial court that additional documents were produced during the course of expert depositions. Further, Acclaim's counsel explained that, to the extent some relevant documents were not originally produced in response to Newport's document requests, any such failure "was the result of inadvertence" and Acclaim eventually produced the documents. Counsel also noted that Newport did not serve supplemental document requests prior to trial or object to any exhibits that Acclaim introduced at trial.

During oral argument on the new trial motion, Newport's counsel responded as follows to the assertion that he had not objected at trial to any of Acclaim's exhibits: "At trial[, Newport's counsel] was put in a position after [Acclaim's counsel] objected . . . to [Newport's] documents . . . where no documents would go to the jury if [Newport's counsel] didn't agree to allow [Acclaim's] documents to go to the jury. So [Newport's counsel] was put in a position where [he] had no choice [but to refrain from objecting]."

As noted, following argument on the new trial motion, the court denied it in its entirety.

2. Legal Principles

A ruling on a motion for new trial on the grounds of an irregularity in the proceedings is reviewed for an abuse of discretion. "'The determination of a motion for a new trial rests so completely within the [trial] court's discretion that its action will not be disturbed unless a manifest and unmistakable abuse of discretion clearly appears, and the order will be affirmed if it may be sustained on any ground, although the reviewing court might have ruled differently in the first instance. . . .'" (Malkasian v. Irwin (1964) 61 Cal.2d 738, 747, see also Schelbauer v. Butler Mfg. Co. (1984) 35 Cal.3d 442, 452; Jiminez v. Sears, Roebuck & Co. (1971) 4 Cal.3d 379, 387.)

3. Analysis

Newport's contention based on the policy limits objection to the insurance interrogatory fails to articulate any arguable prejudice at trial from the withholding of that information in discovery. Their assertion that the matter would have settled prior to trial if Acclaim had disclosed the denial of coverage for the cross-claims is wholly speculative, as the trial court found. The evidence before the court on the new trial motion showed that Acclaim was unaware that its insurance carriers had denied coverage until just before trial. Thus, its response during discovery that there was no coverage dispute was not intentionally misleading and could not have impacted the settlement discussions. Moreover, Newport did not make a motion to compel a further response to the insurance interrogatory, thereby waiving any claim of prejudice from the original response and objection. Thus, the trial court did not abuse its discretion in denying the motion for new trial on this issue.

As to Newport's argument that Acclaim "withheld documents," even if, as Newport contends, Acclaim's new counsel was not completely candid concerning her belated discovery of additional documents, the record shows that Newport's counsel was nevertheless provided the documents prior to trial. These facts, when combined with the fact that Newport did not in their moving papers specifically identify any documents that were withheld—either by bates and/or exhibit number—or otherwise articulate for the trial court any cognizable prejudice from their late production, demonstrate that the court's denial of the new trial motion on this ground was not beyond the bounds of reason. D. Attorney Fees

Newport's final contention on appeal is that the trial court's attorney fee award violated due process and was otherwise an abuse of discretion. According to Newport, Acclaim's complaint did not provide adequate notice that Acclaim was seeking attorney fees, did not attach copies of the contracts upon which the fee claim was based, and did not otherwise set forth the factual or legal basis for the fee claim. In addition, Newport contends that the notice of motion did not specify whether the fee claim was against Brennan, Newport, or both. Newport also asserts that because the award did not allocate between attorney fees incurred on the contract cross-claim and those incurred defending the tort cross-claims, the court abused its discretion.

1. Background

In its complaint, Acclaim asserted contract-based claims and included a prayer for attorney fees, but did not specifically allege in the body of the pleading the basis for the fee claim or attach a copy of the contract or contracts in issue. In its answer to the complaint, Newport included certain affirmative defenses to the contract-based claims and a prayer for attorney fees. And, in its original cross-complaint and the operative second amended cross-complaint, Newport attached and incorporated, as exhibit A, a contract between the parties in support of its second cause of action for breach of the implied covenant of good faith and fair dealing. The attached contract contained an attorney fees provision and each of the cross-complaints included a prayer for "attorney's fees pursuant to the agreement attached as [e]xhibit 'A.'"

Following entry of the original judgment, Acclaim filed a motion for attorney fees. The notice of motion specified that Acclaim was seeking an award of $317,637.50 and that it was "made pursuant to Civil Code [section] 1717 [(section 1717)] . . . ." The notice did not, however, specify the party against whom the award was sought. The motion was supported by, among other documents, the declarations of Acclaim's former and current counsel attaching invoices billed to and paid by Acclaim for services rendered on this matter. According to Acclaim, the attorney fees provisions in its contracts with Newport entitled it under section 1717 to all the fees incurred in prosecuting the complaint and defending the cross-claims, including the tort-based cross-claims for negligence and fraud "as they [were] interrelated to the written agreement."

Newport opposed the motion, arguing that its due process rights were violated because the complaint did not attach the contract providing for attorney fees or quote the terms of the attorney fees provision upon which the fee claim was based. In the alternative, Newport argued the amount of fees claimed should be reduced because the complaint was "largely uncontested" and, of the three cross-claims, two were tort-based claims upon which fees could not be awarded under section 1717. Newport also argued that the fee award should be reduced because there was a duplication of services rendered between Acclaim's former and current counsel.

At the hearing on the fee motion, the trial court questioned counsel regarding Newport's contention that the notice of motion failed to specify the party against whom the award was sought. In response, Acclaim's counsel clarified that because the judgment on the complaint was entered against the corporate defendant, Newport, only and the contract on which the fee claim was based was between Newport and Acclaim, fees were sought only against Newport. The court and defense counsel then had the following exchange on the issue:

"The Court: Okay. So the notice, defendant claims to be deficient, but the attorney's fees are only sought against [Newport]. [¶] Is that sufficient?

"[Newport's counsel]: Well, I still . . . object that they have . . . to say it in the notice. You know, as far as due process goes, I don't think you can . . . waive due process, and I think they would have had to say [in the notice] they're seeking [fees] against [Newport].

"The Court: Well, do you want me to continue this hearing so they can supplement their notice?

"[Newport's counsel]: I would just stand on my objection. I don't think there's any need for that.

"The Court: Well, I'm quite willing to continue this hearing for two weeks so that they can supplement a notice and you can be notified [that Newport] is the party . . . against whom [Acclaim is] seeking attorney's fees. [¶] Do you want to come back in two weeks?

"[Newport's counsel]: I don't, Your Honor.

"The Court: All right. So I'll deem that deficiency to have been resolved over

[Newport's counsel]: Objection.

"The Court: —Objection.

"[Newport's counsel]: We can agree to disagree, Your Honor."

In response to Newport's argument that "the overarching problem was that three-quarters of [the fees incurred in] the case were on noncontract claims," the trial court disagreed, observing: "This was a nine-day trial. Almost all of the trial was spent looking at the 53 [patient billing] files that you wanted the jury to determine that [Acclaim] had failed to properly bill. That had nothing to do with fraud in the inducement." (Italics added.)

The trial court thereafter entered a minute order granting attorney fees to Acclaim. In response to Newport's due process argument, the order concluded: "[Newport's] argument that legal fees are not recoverable because Acclaim did request such in its prayer is not tenable. When an action is brought on a contract that provides for attorney's fees the prayer does not have to specifically request attorney's fees. [Yassim v. Solis] (2010) 184 Cal.App.4[th] 524, 533. Furthermore, [Newport's] operative [s]econd [a]mended [c]ross-[c]omplaint sought reasonable attorney's fees per the contract, thus, triggering []section 1717."

On the allocation claim, the order provided: "Reasonable attorney's fees are to be calculated using a lodestar analysis . . . [.] [Newport] does not assert that the hourly rates are not reasonable. [Newport] does argue that Acclaim's claimed fees should be reduced by [two-thirds]. However, [Newport] does not identify any legal tasks that were unnecessary. Most of Acclaim's legal work related to defending against [Newport's] cross-complaint that alleged that Acclaim had negligently performed services under the medical billing contract. That being so, the legal fees were necessarily incurred in defending against [Newport's] claims based on the contract."

The order did, however, reduce the total amount of fees claimed by $45,000 based on the duplication of services rendered by Acclaim's new counsel in "'getting up to speed.'"

The order concluded that "The recoverable legal fees by . . . Acclaim thus are $317,637.50 - $45,000 = $272,637.50. . . . The [c]ourt will amend the judgment to state the attorney fee amount and also for costs (no motion to tax costs having been filed)."

2. Due Process

Newport's due process argument based on the defect in the notice of the fee motion is unpersuasive. First, Acclaim conceded that, because the judgment was against Newport only and the fee provision was in a contract between that entity and Acclaim, its fee claim could only be asserted against Newport. Given the facts underlying that concession, Newport fails to explain how it was prejudiced by Acclaim's failure to give notice that the fee award was sought only against Newport. Second, although the trial court offered to continue the hearing to cure any prejudice from the defective notice, Newport elected to go forward with the hearing, thereby tacitly conceding that it was not prejudiced by the defective notice.

Newport's contention based on the lack of notice in the complaint concerning Acclaim's fee claim is equally flawed. That contention is based on the decision in Wiley v. Rhodes (1990) 223 Cal.App.3d 1470 which held that including a fee award in a default judgment violated due process because the complaint did not allege a contract authorizing fees and did not include a prayer for fees. (Id. at p. 1474.) But the award in that case was entered following a defendant's default, and the holding therefore delineated a defendant's due process rights to notice in that procedural context, that is, where a defendant was precluded from appearing and opposing the entry of the judgment or the fee award.

Here, the fee award was entered only after Newport: was served with a complaint alleging contract-based claims and praying for a fee award; asserted an answer praying for fees; and asserted a cross-complaint that not only prayed for fees, but also attached the contract containing the fee provision upon which the fee claim was based. In addition, following a jury trial and entry of judgment, Newport was served with a notice and motion that specified the factual and legal basis of Acclaim's entitlement to fees and included invoices itemizing the total amount of fees claimed. Newport not only filed a written opposition to the fee motion, it also argued extensively against the fee award at the hearing. Under these circumstances, which distinguish this case from Wiley v. Rhodes, supra, 223 Cal.App.3d 1470, Newport cannot demonstrate that it lacked adequate notice of its potential liability for Acclaim's attorney fees or a meaningful opportunity to be heard on that claim.

3. Failure to Allocate

"'Where a cause of action based on the contract providing for attorney[] fees is joined with other causes of action beyond the contract, the prevailing party may recover attorney[] fees under section 1717 only as they relate to the contract action.' (Reynolds [Metals Co. v. Alperson (1979)] 25 Cal.3d [124,] 129 [(Reynolds)]; see Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1603-1604 . . . (Amtower).) The prevailing party therefore must generally allocate the attorney fees it incurred between the causes of action on the contract and the noncontract causes of action. (Reynolds, [supra, 25 Cal.3d] at p. 129; Amtower, [supra, 158 Cal.App.4th] at pp. 1603-1604.)

"Attorney fees, however, 'need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed. All expenses incurred with respect to [issues common to all causes of action] qualify for award.' (Reynolds, supra, 25 Cal.3d at pp. 129-130; see Amtower, supra, 158 Cal.App.4th at pp. 1603-1604.) The governing standard is whether the 'issues are so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not . . . .' (Akins v. Enterprise Rent-A-Car Co. (2000) 79 Cal.App.4th 1127, 1133 . . .; see Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111 . . . [allocation not required when the claims are '"'inextricably intertwined'" [citation], making it "impracticable, if not impossible, to separate the multitude of conjoined activities into compensable or noncompensable time units"'].)" (Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 829-830.)

Newport's allocation claim assumes that its tort-based cross-claims were wholly unrelated to its contract claim and the unsupported assertion that the attorney time expended to defend against each claim was roughly equal. But, as the trial court noted, the majority of the attorney time expended in defending the cross-claims was devoted to Newport's interrelated contract and negligence theories, each of which involved proving breach of the same duty, i.e., to competently and timely bill and collect charges for medical services rendered. Thus, given the trial court's familiarity with the contract and negligence theories and the attorney time required to defend against those claims, it was not an abuse of discretion to refuse to allocate the fees among the claims. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 [trial court has broad discretion to determine the amount of a reasonable fee under Civil Code section 1717].)

And, although Newport's fraud in the inducement claim was distinct from its contract/negligence claims, the trial court observed that very little attorney time was expended defending that claim. Moreover, as noted by the trial court, Newport's opposition did not attempt to quantify for the court the attorney hours spent in defending that distinct claim. Therefore, because the court had no factual basis upon which to allocate the attorney fees related to the fraudulent inducement claim, it did not abuse its discretion in failing to do so.

IV. DISPOSITION

The judgment and the order awarding attorney fees are affirmed. Acclaim is awarded costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KIM, J. We concur:

RUBIN, P. J.

MOOR, J.


Summaries of

Newport Beach Ctr. for Surgery, LLC v. Acclaim Recovery Mgmt.

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE
Mar 2, 2020
B290636 (Cal. Ct. App. Mar. 2, 2020)
Case details for

Newport Beach Ctr. for Surgery, LLC v. Acclaim Recovery Mgmt.

Case Details

Full title:NEWPORT BEACH CENTER FOR SURGERY, LLC, Cross-complainant and Appellant, v…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE

Date published: Mar 2, 2020

Citations

B290636 (Cal. Ct. App. Mar. 2, 2020)