STAFFORD v. SIPPER

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Court of Appeal, Second District, Division 5, California.

John STAFFORD, Plaintiff, Cross-defendant and Respondent, v. Mary Ann SIPPER, Defendant, Cross-complainant and Appellant;

Robert J. Murrin et al., Cross-defendants and Respondents. Mary Ann SIPPER, Plaintiff and Appellant, v. Robert J. MURRIN et al., Defendants and Respondents.

No. B102770.

Decided: July 21, 1998

Mazur & Mazur and Janice R. Mazur, for Defendant, Cross-complainant, and Appellant and for Plaintiff and Appellant. Federico Castelan Sayre, Kevin M. McGuire, Newport Beach, and Steven M. Nunez, for Plaintiff, Cross-defendant, and Respondent and for Defendants and Respondents. Richard Scott Lysle, Marina Del Rey, for Cross-defendants and Respondents and for Defendants and Respondents.

Defendant, cross-complainant, and appellant Mary Ann Sipper appeals from the post-judgment order awarding contractual attorney's fees and Code of Civil Procedure section 998 expert witness costs to plaintiff, cross-defendant, and respondent John Stafford and from the order awarding contractual attorney's fees to cross-defendants and respondents Robert Murrin and Peter Logan.   This action involves disputes between a landlord (Sipper), a tenant (Stafford), and guarantors (Murrin and Logan) arising out of a roof repair performed by Economy Roofing.   Sipper incurred repair costs and lost rents and Stafford incurred business losses.   Sipper contends:  (1) Stafford was not the prevailing party on the contract;  (2) the attorney's fees awarded Stafford were excessive;  and (3) the contractual attorney's fee provision in the lease did not apply to Murrin and Logan as guarantors.   In the published portion of this opinion, we conclude an award of reasonable attorney's fees under Civil Code section 1717 cannot exceed the amount of fees actually incurred by the prevailing party under a contingent fee agreement.   In the unpublished portion of the opinion, we consider Sipper's remaining contentions.   We reverse the attorney's fee award and remand for a redetermination of the reasonable attorney's fees to be awarded Stafford.   We also reverse the Code of Civil Procedure section 998 costs award, which is dependent on the amount of the attorney's fee award.   We otherwise affirm.

FACTS***

PROCEDURAL BACKGROUND

Stafford brought an action against Sipper for the losses he incurred as a result of the defective roof, on contract and tort causes of action.   Sipper cross-complained against Economy, Stafford, and Murrin and Logan for the cost to repair the roof and lost rents, also on contract and tort causes of action.   Before trial, Sipper settled with Economy for $19,500.   Stafford went to the jury on both tort and contract causes of action.   Sipper went to the jury only on a cause of action that Stafford and Murrin and Logan had breached their contracts with her.

The jury returned a general verdict in favor of Stafford, awarding $122,000 on his causes of action against Sipper.   Sipper was awarded $19,343 on her breach of contract cause of action against Stafford.   However, Sipper's prior $19,500 settlement with Economy completely offset this amount.   Murrin and Logan were found not liable to Sipper.

Stafford and Murrin and Logan then moved for contractual attorney's fees as prevailing parties on the contract.   They claimed a right to attorney's fees under the attorney's fee provision of the lease, which provided:  “If either party named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his court costs, reasonable attorney's fees and legal expenses to be paid by the losing party as fixed by the court.”   Stafford was awarded fees of $312,668.50;  Murrin and Logan were awarded fees of $125,864.22.   Additionally, Stafford was awarded expert witness costs under Code of Civil Procedure section 998 on the theory that his recovery, including attorney's fees, exceeded his pretrial settlement offer of $175,000, which Sipper had rejected.   Sipper filed a timely notice of appeal.

DISCUSSION

I. Statutory Framework

A prevailing party is entitled as a matter of right to recover costs.   (Code Civ. Proc., § 1032, subd. (b).)  Attorney's fees authorized by contract are allowable as recoverable costs.  (Id., § 1033.5, subd. (a)(10).)   “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded ․ to the prevailing party, then the party who is determined to be the party prevailing on the contract ․ shall be entitled to reasonable attorney's fees in addition to other costs.  [¶] Reasonable attorney's fees shall be fixed by the court, and shall be an element of the costs of suit.”   (Civ.Code, § 1717, subd. (a).)  “[T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.”  (Id., subd. (b)(1).)

II.†

III. Amount of Fees Awarded to Stafford

Sipper contends the award of attorney's fees to Stafford was unreasonable as a matter of law because it exceeded the amount of fees incurred by Stafford under his contingent fee agreement with his attorney.   Although the precise nature of Stafford's fee agreement is not part of the record, it is undisputed that Stafford was not obligated to pay all of the $312,668.50 which was awarded.4  We therefore consider whether an award of “reasonable attorney's fees” under Civil Code section 1717 can exceed the amount of fees the prevailing party actually incurred under a contingent fee agreement.

 “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties․”  (Code Civ. Proc., § 1021.)  Code of Civil Procedure section 1021 gives individuals a broad right to enter into agreements providing for the allocation of attorney's fees.  (Trope v. Katz (1995) 11 Cal.4th 274, 279, 45 Cal.Rptr.2d 241, 902 P.2d 259.)   This broad right, however, is not unrestricted.  (Ibid.) “Contractual arrangements regarding the allocation of attorney's fees ‘are subject to the restrictions and conditions of [Civil Code] section 1717 in cases to which that provision applies.’  [Citation.]”  (San Dieguito Partnership v. San Dieguito River Valley Regional etc.   Authority (1998) 61 Cal.App.4th 910, 917, 72 Cal.Rptr.2d 91.)  Civil Code section 1717 applies to contractual provisions authorizing recovery of attorney's fees by a prevailing party on a contract.  (Santisas v. Goodin (1998) 17 Cal.4th 599, 614, 71 Cal.Rptr.2d 830, 951 P.2d 399.)

 Civil Code section 1717 provides that a party prevailing on a contract, which contains an attorney's fee provision, is entitled to an award of “reasonable attorney's fees.”   The phrase “reasonable attorney's fees” means “the consideration that a litigant pays or becomes liable to pay in exchange for legal representation.”  (Trope v. Katz, supra, 11 Cal.4th at p. 282, 45 Cal.Rptr.2d 241, 902 P.2d 259.)   The consideration that a litigant pays or becomes liable to pay in exchange for legal representation is the amount of attorney's fees actually incurred by the litigant.  (San Dieguito Partnership v. San Dieguito River Valley Regional etc.   Authority, supra, 61 Cal.App.4th at p. 918, 72 Cal.Rptr.2d 91.)   The term “reasonable attorney's fees” does not include fees which exceed the fees the litigant actually incurred.  (Id. at p. 917, 72 Cal.Rptr.2d 91.)   Thus, an attorney who represents himself or herself in litigation is not allowed to recover any attorney's fees as a party prevailing on a contract, because the attorney litigant has not incurred any fees.  (Trope v. Katz, supra, 11 Cal.4th at p. 292, 45 Cal.Rptr.2d 241, 902 P.2d 259.)   Similarly, a prevailing litigant who has negotiated a below-market rate with his or her attorney is not entitled to a lodestar amount based on fair market rates or the application of a multiplier.  (San Dieguito Partnership v. San Dieguito River Valley Regional etc.   Authority, supra, 61 Cal.App.4th at p. 919, 72 Cal.Rptr.2d 91.)  “Reasonable attorney's fees” may not exceed that amount necessary “to reimburse a party for attorney fees the party has paid, or to indemnify the party for fees the party has become liable to pay․”  (Id. at p. 918, 72 Cal.Rptr.2d 91.)

 A prevailing party who has entered into a contingent fee arrangement with an attorney is not precluded from an attorney's fee award under Civil Code section 1717.  (Gonzales v. Personal Storage, Inc. (1997) 56 Cal.App.4th 464, 479-480, 65 Cal.Rptr.2d 473.)   A prevailing party with a contingent fee arrangement incurs a liability for attorney's fees in the amount of the contingent fee, i.e., the applicable percentage of the judgment.  (Id. at p. 479, 65 Cal.Rptr.2d 473;  Vella v. Hudgins (1984) 151 Cal.App.3d 515, 520, 198 Cal.Rptr. 725.)   Once a judgment has been entered, the contingency has occurred, and the prevailing party has “incurred” an obligation to pay fees in the amount provided by the contingent fee agreement.   In determining a reasonable attorney's fee award pursuant to Civil Code section 1717, the trial court must consider the terms of the contingent fee agreement.   The trial court is not compelled to award reasonable attorney's fees in the amount of the contingent fee;  it is simply a factor to be considered.  (Vella v. Hudgins, supra, 151 Cal.App.3d at p. 520, 198 Cal.Rptr. 725.)   The reasonable attorney's fee award may not, however, exceed the amount of the contingent fee.  (See id. at pp. 519-520, 198 Cal.Rptr. 725 [affirming an attorney's fee award that did not exceed the contingent fee].)   An award of “reasonable attorney's fees” under Civil Code section 1717 may not exceed the fees the prevailing party actually pays or is liable to pay.   When the attorney's fees the prevailing party is liable to pay are measured by a percentage of the recovery under a contingency agreement, the fee award cannot exceed the amount that the prevailing party is liable to pay under the agreement.

In this case, Stafford was represented sequentially by two attorneys.   Stafford's fee agreement with his first attorney is not ascertainable from the record.   Stafford entered into a contingent fee agreement with his second attorney, the precise nature of which is also not ascertainable from the record.   It is unquestioned, however, that the fees awarded by the trial court are in excess of the fees which Stafford has paid or is obligated to pay to his attorneys.   To this extent, the attorney's fee award to Stafford is unreasonable as a matter of law.   Accordingly, the attorney's fee award must be reversed and the matter remanded to the trial court for a redetermination of a reasonable fee award not to exceed the amount of fees actually incurred by Stafford.

IV.- V.††

DISPOSITION

The award of attorney's fees in favor of Stafford is reversed and the matter is remanded to the trial court for a redetermination of the reasonable attorney's fees to be awarded Stafford, not to exceed the fees Stafford actually incurred.   As the award of Code of Civil Procedure section 998 expert witness costs to Stafford depended, in part, on the amount of the attorney's fees awarded, the expert witness costs award is also reversed, subject to redetermination following the reasonable attorney's fees redetermination.   The award of attorney's fees in favor of Murrin and Logan is affirmed.   Murrin and Logan are to recover their costs and attorney's fees on appeal from Sipper.   Sipper and Stafford are to bear their own costs on appeal.

FOOTNOTES

FOOTNOTE.   See footnote *, ante.

FOOTNOTE.   See footnote *, ante.

4.   The fees awarded to Stafford encompassed fees claimed by two different attorneys.   Stafford's prior attorney, Steven Ruben, claimed a total of $188,856 in attorney's fees.   The record is silent as to whether Stafford actually paid Attorney Ruben the $188,856 claimed, or if he was ever obligated to do so.   Stafford's current attorney, Federico Sayre, claimed a total of $123,812.50 in attorney's fees, based on hourly rates.   Stafford concedes that Attorney Sayre represented him on a contingent fee basis.

FOOTNOTE.   See footnote *, ante.

GRIGNON, Associate Justice.

TURNER, P.J., and GODOY PEREZ, J., concur.

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