Larisa KHAZAN et al., Plaintiffs, Respondents, and Cross–Appellants, v. Felix BRAYNIN et al., Defendants, Appellants, and Cross–Respondents.
This case returns to us after we decided two prior appeals in the same matter. Larisa Khazan (Khazan) and Boris Khazan (collectively plaintiffs) brought this action against Felix Braynin (Braynin), Vera Braynin, Vladislav Chernoguz (Chernoguz), and Biana Chernoguz (collectively defendants). Plaintiffs sought judicial foreclosure of a deed of trust on a property in San Francisco, alleging that defendants had defaulted on a promissory note secured by the deed of trust. They also alleged that defendants had defaulted on a second promissory note, committed fraud, and violated the Racketeer Influenced and Corrupt Organizations Act, 18 United States Code section 1961 et seq. (RICO). Defendants cross-complained for slander of title and cancellation of cloud on title. Plaintiffs prevailed on their causes of action for judicial foreclosure, declaratory relief, and default on the second promissory note and on the cross-complaint, but were unsuccessful in their fraud-based and RICO causes of action. The trial court then awarded plaintiffs contractual attorney fees in the amount of $1,370,604.
In one of the earlier appeals, Khazan v. Braynin (March 30, 2009, A113035) [nonpub. opn.] (Khazan I ), we affirmed the judgment on the merits. On the same date, we reversed the order determining the amount of attorney fees and directed the trial court to reconsider plaintiffs' fee request. (Khazan v. Braynin (March 30, 2009, A114369) [nonpub. opn.] (Khazan II ). The trial court has now done so. Defendants appeal the resulting decision, and plaintiffs have filed a cross-appeal challenging the trial court's ruling on when interest on the award should begin to accrue.
In the unpublished portion of this opinion, we reject defendants' challenges to the amount of the attorney fee award. In the published portion of this opinion, we conclude the trial court correctly ruled that interest should run not from the date of the original judgment, but from the date of the fee award on remand.
For the background of this dispute, we quote from our opinion in Khazan I:1
A. The Loan and Deed of Trust
Braynin and Chernoguz operated a real estate business known as Crown Real Estate and Investment (Crown), and together defendants owned a property on Hayes Street in San Francisco. Braynin asked plaintiffs for a loan to fund construction on the Hayes Street property. Plaintiffs agreed to loan them $300,000, with the loan secured by a deed of trust. In February 1995, Braynin gave plaintiffs a $300,000 promissory note and deed of trust, payable within one year. The parties dispute how much money plaintiffs gave in return. Plaintiffs took the position that they gave defendants checks totaling $140,000, and the remainder of the promissory note represented unpaid amounts defendants had previously borrowed from plaintiffs. According to defendants, all previous loans had been paid off, and Khazan gave Braynin checks totaling $119,000, promising him the balance of $181,000 within about two weeks.
B. Defendants' Version of Events
The parties gave dramatically different versions of the events that took place next. According to defendants, within a few days of lending the money, Khazan told defendants that plaintiffs no longer wanted to continue with the loan, and instead asked them to transfer the money to another company, A and A Financial Management (A & A).2 Chernoguz told A & A's owner, Alexander Lushtak, to transfer the $119,000, plus interest, from Crown's account at A & A to the Khazans' account, and Khazan was aware of the transfer. Braynin asked Khazan to return the note and deed of trust. At first she told him she was too busy to look for them. Later she said she had torn them up and thrown them away.
Braynin had a deed of reconveyance prepared, which recited that the indebtedness secured by the deed of trust had been fully paid and satisfied. He explained to plaintiffs that he wanted the deed of reconveyance executed so he could record it in the event the deed of trust and promissory note turned up. Plaintiffs signed the deed of reconveyance.3 However, although Braynin asked them to come to Crown's office to have it notarized, they did not do so. Braynin eventually forgot about the deed of reconveyance.
Plaintiffs made no demands on the note for at least two years, and defendants made no payments. In approximately April or May 1997, however, A & A collapsed,4 and plaintiffs lost money they had invested with A & A. In late May 1997, Khazan recorded the $300,000 deed of trust.
C. Plaintiffs' Version of Events
Plaintiffs' version of the events relevant to this appeal is irreconcilable with defendants'. Khazan testified that she did not have an account with A & A, that she never intended to loan money to A & A,5 and that the $300,000 note was fully funded by a combination of “new money” she gave defendants and “old money” rolled over from previous loans.6 Khazan did not immediately record the deed of trust because Braynin asked her not to do so, so that he could borrow more money against the property. She never told Braynin plaintiffs wanted to withdraw from the loan, did not ask him to have her money transferred to A & A, and did not tell him she had torn up the note and deed of trust. Khazan had no memory of signing the deed of reconveyance, although she agreed that the signatures on the document looked like plaintiffs'. She received numerous interest payments on the loan before April 1997, often in the form of cash and checks from Crown or A & A, but it appears that she did not keep records of the payments. When the note came due, she asked Braynin and Chernoguz when it would be paid, and they told her they would pay very soon. She decided to record the note after Braynin told her, in around April 1997, that he had lost his money. After the note was recorded, Khazan again asked defendants when they would repay the amounts due on the $300,000 note. They said they would repay the loan, and Braynin indicated the payment would be made within a year.
D. The Litigation
Plaintiffs brought this action, seeking judicial foreclosure of the deed of trust and alleging fraud and other causes of action, and defendants cross-complained for slander of title and cancellation of cloud on title.[7 ] A jury first heard the evidence and rendered its verdict. Responding to the special verdict form's questions regarding breach of the $300,000 note, the jury found that defendants had executed and delivered the note, that plaintiffs had fully funded the note with checks and the rolling over of an existing indebtedness, that plaintiffs had not instructed Braynin and Chernoguz to cancel the $300,000 promissory note and deed of trust and to transfer their money to A & A, and that the interest rate on the note was usurious.8 On the cause of action for breach of the $57,000 note, the jury found that Braynin and Chernoguz had executed and delivered the note to Khazan, and that it was supported by $57,000 consideration. The jury found against plaintiffs on the other causes of action submitted to it. [In particular, the jury rejected plaintiffs' allegations that Braynin and Chernoguz committed fraud by telling them that it was unnecessary to record the $300,000 deed of trust because there was sufficient equity in the Hayes Street property and they would not endanger the value of the deed of trust; that Braynin and Chernoguz falsely promised to repay the notes for $300,000 and $57,000 without intending to do so; and that Braynin and Chernoguz committed two “predicate acts” under RICO [¶]].
The trial court later issued a statement of decision ruling in plaintiffs' favor on their first cause of action for judicial foreclosure of the deed of trust—finding that plaintiffs were entitled to the unpaid balance on the note, plus interest and attorney fees, and indicating its intent to issue a judgment of foreclosure directing the sale of the Hayes Street property—and the seventh cause of action for declaratory relief.9 The court entered judgment in plaintiffs' favor on their causes of action for judicial foreclosure, declaratory relief, and default on the $57,000 note, as well as on the cross-complaint. [We end our quotation from our opinion in Khazan I.] In Khazan I we affirmed that judgment.
E. Initial Attorney Fee Order
As we explained in Khazan II “[t]he February 1995 note for $300,000 provided: ‘Should suit be commenced to collect this note or any portion thereof, such sum as the Court may deem reasonable shall be added hereto as attorney's fees.’ The promissory note for $57,000, dated June 1, 1997, contained nearly identical language.
“In ruling for plaintiffs on their causes of action for judicial foreclosure and declaratory relief, the trial court awarded plaintiffs their attorney fees in an amount to be determined. Plaintiffs brought a motion seeking a lodestar amount of $944,952 for the legal services of one of their attorneys, Arthur Brunwasser, and an additional $94,506 for the services of another attorney, Robert S. Rivkin, and asked to have the lodestar amount enhanced by a factor of 1.5.
“The trial court found that plaintiffs incurred lodestar attorney fees of $850,732 for Brunwasser's services, and applied a 1 .5 multiplier for those services, for an award of $1,276,098. It also awarded $94,506 for Rivkin's services, for a total attorney fee award of $1,370,604. It used a rate of $400 per hour as the prevailing rate in the community for similar services for Brunwasser's work, and $285 per hour for Rivkin's work. The court awarded no fees for the time spent on the failed RICO claim, but declined to apportion the fees incurred for the contract and fraud causes of action, concluding they arose from a common nucleus of facts.” (Fn.omitted.)
Thus, although the jury rejected the fraud causes of action, the trial court found that the facts relevant to each claim were closely related and could not be separated from each other. Based on this finding, the trial court did not apportion fees between contract causes of action, for which contractual attorney fees were available, and the fraud causes of action, for which they were unavailable. We considered the propriety of this action in Khazan II and reversed the attorney fee award. In doing so, we concluded that while we did not dispute a finding that some, or even most, of the attorney fees plaintiff sought arose from issues common to the contract and fraud claims, it was clear to us that at least some of the fees were incurred in connection with claims that were not relevant to the contract causes of action. In particular, we pointed to evidence of defendant's dealings with various third parties in connection with the A & A transactions, evidence that arguably had relevance to the fraud-based causes of action, but had no relevance to the contractual causes of action. We also noted the authority for a trial court correcting attorney fee awards to account for a party's limited success. (See, e.g., Harman v. City and County of San Francisco (2007) 158 Cal.App.4th 407, 417–418 (Harman II ); Sokolow v. County of San Mateo (1989) 213 Cal.App.3d 231, 250 (Sokolow ).) Accordingly, we directed the trial court to consider whether it was possible to apportion fees for time spent on issues not attributable to the contract-based causes of action, and if not, to exercise its discretion to reduce the award to reflect plaintiffs' limited success.
F. The Second Attorney Fee Order
On remand, after making reductions not at issue here but before reducing the award to account for the fraud claims, the trial court found that Brunwasser had spent 2073.13 hours on the case. The court established a lodestar of $400 per hour for Brunwasser's services, basing this amount on his experience, market rates in the San Francisco Bay Area, the skill he demonstrated, the high quality of his legal services, and the successful outcome. The court found that “[v]irtually all of the litigation objectives were attained by prevailing in the contract and declaratory relief causes of action. Plaintiffs successfully defended and prevailed on defendants' cross-complaint for slander of title and to remove a cloud on title. Brunwasser's legal services resulted in a highly successful outcome for Plaintiffs.” The court concluded that 30 percent of plaintiffs' case was devoted to the unsuccessful fraud causes of action, and subtracted that proportion from the gross hours. The court calculated the lodestar amount of attorney fees as $580,476.40 for Brunwasser's services.
The court went on to consider whether to increase or decrease the lodestar for Brunwasser's services by the application of a multiplier or other adjustment. The court listed the factors it considered: “First, the difficulty and complexity of the case, or lack thereof, of the various issues in this case and the kind of work performed by counsel. Second, the results achieved and those not achieved. Third, the contingent nature of the fee award. Fourth, the time value with regard to the delay in receipt of fees. Fifth, the extent to which the magnitude of the case and time expended precluded counsel from earning income from other sources during the pendency and trial of this case. Sixth, the fact that the successful outcome for Plaintiff conferred a private rather than a public benefit. Seventh, the difficulty of the case and the degree of risk involved.” The court concluded that the lodestar amount did not adequately compensate Brunwasser for his work: “The attorney performed these legal services on a contingent fee basis for Plaintiffs of modest means who were otherwise unable to assert their legal rights to preserve their assets. Therefore the outcome of the litigation had significant social utility even though a private benefit was conferred rather than a public benefit. The litigation has spanned a period of almost ten years during which no compensation has been paid to the attorney. The attorney's involvement in this case has unquestionably precluded him from performing remunerative work during an extended period of time. The time value of money in relation to the delay in receiving compensation is a significant [f]actor in the Court's consideration of enhancement fees․ Most significant was the successful outcome of the litigation for Plaintiffs. The Court finds these factors highly persuasive in allowing a multiplier.” The court applied a multiplier of 1.5 to Brunwasser's fees for total compensation of $870,714.60.
As to Rivkin, the court reduced the initial award by 30 percent, for an award of $66,154, and applied no multiplier. The court also awarded fees on appeal of $174,210 to Brunwasser and $14,235 to Rivkin, fees for the preparation of the fee application on appeal of $17,360 to Brunwasser, and fees for the preparation of the fee application after remand of $52,920 to Brunwasser. Thus, the total award to Brunwasser was $1,115,204, and to Rivkin was $80,389. In its May 7, 2010 order, the trial court ordered interest on the award to begin running on the date of the judgment reflecting that fee order.
A. Legal Standards*
Our Supreme Court has explained the rules governing awards of contractual attorney fees: “Civil Code section 1717 provides that ‘[r]easonable attorney's fees shall be fixed by the court.’ As discussed, this requirement reflects the legislative purpose ‘to establish uniform treatment of fee recoveries in actions on contracts containing attorney fee provisions.’ [Citation.] Consistent with that purpose, the trial court has broad authority to determine the amount of a reasonable fee. [Citations.] As we have explained: ‘The “experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong’—meaning that it abused its discretion. [Citations.] [¶] ․ [T]he fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate․ The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided. [Citation.]” (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1094–1095 (PLCM ).) The determination of a reasonable fee is committed to the discretion of the trial court, which “ ‘makes its determination after consideration of a number of factors, including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances of the case.’ [Citation.]” (Id. at p. 1096; see also Flannery v. Prentice (2001) 26 Cal.4th 572, 584 [in setting award, consideration may be given to attorney's experience, difficulty of issues, risk incurred, quality of work, and result achieved].)
B. Reduction in Lodestar*
Defendants contend the trial court applied the wrong standards in reducing the award by only 30 percent to account for time spent on the fraud-based claims. They rely upon Harman II in which Division One of the First Appellate District, relying on factors articulated in Hensley v. Eckerhart (1983) 461 U.S. 424, applied a two-step analysis in considering the propriety of an award of attorney fees under title 42 United State Code section 1988 where the party claiming fees achieved only partial success. (Harman II supra 158 Cal.App.4th at pp. 415–418.) As we explained in Khazan II the lodestar figure is first calculated by multiplying the number of hours expended times a reasonable hourly rate, with adjustments as necessary to fix a fair market value for the services. (Harman II supra 158 Cal.App.4th at p. 416.) Hours spent on claims unrelated to those on which the party was successful are excluded from the lodestar calculation, but “ ‘ “[a]ttorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed” ․ [or] when the issues in the fee and nonfee claims are so inextricably intertwined that it would be impractical or impossible to separate the attorney's time into compensable and noncompensable units.’ [Citation.]” (Id. at p. 417, fn. omitted.) In the second step, if successful and unsuccessful claims are found to be related, the court then evaluates “the ‘significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the litigation.’ [Citation.] If the plaintiff obtained ‘excellent results,’ full compensation may be appropriate. Ibid. If there was only ‘partial or limited success,’ full compensation ‘may be ․ excessive.’ [Citation.]” (Ibid.) In that case, “ ‘[t]he court may appropriately reduce the lodestar calculation “if the relief, however significant, is limited in comparison to the scope of the litigation as a whole.” [Citation.] ․ “[T]he most critical factor is the degree of success obtained.” [Citation.]’ [Citation.]” (Id. at p. 418.)
Defendants contend the trial court failed to carry out the second step of this analysis. That is, according to defendants, although the court apportioned the fees to account for time spent solely on the unsuccessful fraud causes of action, it did not then further reduce the fees that were attributable to both the contract and fraud claims to reflect plaintiffs' partial success.
After concluding that by prevailing in the contract and declaratory relief cause of action, plaintiffs had attained “[v]irtually all of the litigation objectives,” the trial court explained its reasons for reducing the gross hours by 30 percent as follows: “The Court's review of the case to award reasonable attorney's fees [ ] which do not include work attributable to the unsuccessful fraud claims has considered pre-trial litigation, pre[-]trial interviewing of witnesses, trial preparation and post-trial work. After detailed review of the litigation and having taken a broad overall view of the case, the Court finds that determination of a percentage allocation is the most reasonable method to determine the fraud component. Accordingly, the Court's overall conclusion is that 30 [percent] of the Plaintiff[s'] case was devoted to the unsuccessful fraud causes of action. Therefore, the Court subtracts 30 [percent] from Brunwasser's claimed gross hours ․” The court then considered whether the circumstances of the case—including “the results achieved and those not achieved” warranted an increase or decrease in the lodestar by a multiplier or other adjustment.
The trial court made no finding that the contract and fraud claims were so interrelated that the time devoted to each could not be separated. (See Harman II supra 158 Cal.App.4th at p. 425.) In fact, the 30 percent deduction exceeded the amount plaintiffs estimated their counsel had spent on the fraud claims: Based on his review of the case history, Brunwasser testified that he believed there was a direct relationship between the amount of pretrial time he spent on various issues and his examination of witnesses on those issues, and estimated that only 20 percent of his direct examination of witnesses had been devoted to non-contract evidence, and that the attorneys for all parties had devoted only 15 percent of their trial time to non-contract evidence. Accordingly, it is by no means clear that the 30 percent deduction reflected only time that the trial court concluded had been spent exclusively on the fraud claims or that it included no time that may have been spent on issues common to the fraud and contract claims.
In any case, we are satisfied that the trial court was aware of its discretion to decrease the award further to account for a partially successful outcome, and that it exercised its discretion not to do so. In Khazan II after discussing at length the rule of Harman II we directed the trial court to consider whether it was possible to further apportion fees for time not attributable to the contract-based causes of action, and, if such apportionment was not possible, to exercise its discretion to reduce the award to reflect plaintiffs' limited success. (Khazan II slip op. at pp. 16–18.) Plaintiffs argue the trial court adhered to the terms of this directive. We agree. Moreover, consistent with our reasoning and with the rule of Harman II the trial court, after reducing the award by 30 percent to reflect time spent on the fraud claims, then considered whether to reduce the resulting lodestar based on a variety of factors, including “the results achieved and those not achieved.” The question before us, then, is not whether the trial court in fact exercised its discretion to decide whether to reduce the award to reflect plaintiffs' limited success, but whether its exercise of that discretion in declining to reduce the award was reasonable and consistent with the governing legal standards.
In considering this issue, we first note that a reduction in a fee award to account for partial success is not mandatory. In Khazan II we explained that “in certain cases, courts have not required apportionment between successful and unsuccessful causes of action. As stated in Wysinger v. Automobile Club of Southern California (2007) 157 Cal.App.4th 413, 431, ‘[w]here a lawsuit consists of related claims, and the plaintiff has won substantial relief, a trial court has discretion to award all or substantially all of the plaintiff's fees even if the court did not adopt each contention raised.’ [Citation.] ‘To reduce the attorneys' fees of a successful party because he does not prevail on all his arguments, makes it the attorney, and not the defendant, who pays the costs of enforcing’ the plaintiff's rights. [Citations.]” However, ‘when a plaintiff has achieved limited success, or has failed with respect to distinct and unrelated claims, ․ a reduction from the lodestar is appropriate.’ ․ (Hogar Dulce Hogar v. Community Development Com. of City of Escondido (2007) 157 Cal.App.4th 1358, 1369.)” (Khazan II slip op. at p. 13.) We also noted, however, that in certain cases in which courts had not required apportionment of fees for issues common to both successful and unsuccessful causes of action, it appeared that the trial court had already corrected the fee request to account for the prevailing party's limited success. (Id. at pp. 9, 14, citing Nazemi v. Tseng (1992) 5 Cal.App.4th 1633, 1642 (Nazemi ), Korech v. Hornwood (1997) 58 Cal.App.4th 1412, 1422, Akins v. Enterprise Rent–A–Car Co. (2000) 79 Cal.App.4th 1127, 1134, and Greene v. Dillingham Construction N.A., Inc. (2002) 101 Cal.App.4th 418, 423 .) Indeed, in Harman II the Court of Appeal found the trial court had not abused its discretion when it deleted from a fee request hours not intertwined with a successful damages claim, but declined to make further adjustments for a number of reasons, including that “additional reductions for lack of success ‘would amount to doubly reducing the fees.’ “ (Harman II supra 158 Cal.App.4th at pp. 424–426.)
Defendants argue, however, that the trial court's findings on the degree of plaintiffs' success fly in the face of our decision in Khazan II and that these findings impermissibly infected the choice of a lodestar figure. In Khazan II we concluded that some of the evidence presented at trial—such as evidence of third-party transactions—was not relevant to the contract-based causes of action, and that defendants should not bear the cost of the time spent on plaintiffs' unsuccessful attempt to prove they acted fraudulently. (Khazan II slip op. at pp. 11–12.) We concluded, “[w]ith respect to their broader goals, plaintiffs achieved only limited success. They failed in all their fraud-related causes of action, in which they had sought not only compensatory but also punitive damages. They cannot be said to have achieved all or substantially all of their objectives in the litigation.” (Khazan II slip op. at p. 17, fn. omitted.) We did not, however, require the trial court to apply any specific formula, but only directed it to exercise its discretion to address this issue. (Khazan II slip op. at p. 18.)
In setting the rate of $400 per hour for Brunwasser's services, the trial court referred to “the highly successful outcome for Plaintiffs,” and also “considered all facts and circumstances of the case,” including that “[v]irtually all of the litigation objectives were attained by prevailing in the contract and declaratory relief causes of action. Plaintiffs [also] successfully defended and prevailed on defendants' cross-complaint for slander of title and to remove a cloud on title. [Therefore,] Brunwasser's legal services resulted in a highly successful outcome for Plaintiffs.” In declining to decrease the lodestar—and at the same time in deciding to apply a multiplier of 1.5—the court relied on a variety of factors, including the factor it stated was “[m]ost significant[,] ․ the successful outcome of the litigation for Plaintiffs.” This was not error.
According to defendants, however, this reliance on the “successful outcome” was inconsistent with our statements in Khazan II and violated the doctrine of law of the case.10 In our earlier decision, we concluded that plaintiffs had not achieved all or substantially all of their goals in the litigation, based on their failure to prevail in their fraud-based causes of action, but we made no finding on the degree of plaintiffs' overall success. On remand, the trial court was clearly of the view that, on the whole, plaintiffs were successful in this litigation, but reduced the fees originally claimed for the fraud-based and contract-based claims by nearly one-third to account for plaintiffs' lack of success on the fraud claims. As the court pointed out, plaintiffs succeeded not only on their own contract-based causes of action, but on the claims defendants raised in their cross-complaint for slander of title and cancellation of cloud on title. We see no violation of the law of the case in the trial court's analysis.
Defendants also contend that even on the contract claims, plaintiffs were only partially successful because defendants prevailed on their affirmative defense that the 17.6 percent interest rate on the $300,000 note was usurious. The trial court found that interest rate usurious and ordered interest to accrue from June 1997, the due date of the principal amount, at the legal rate of seven percent. Defendants argue that as a result, plaintiffs received only one quarter of the amount they had sought on the contract causes of action, and contend the trial court should have reduced the attorney fee award to reflect this partial success.11 Plaintiffs dispute the figures defendants provide, arguing they were awarded half the amount they sought, and point out in addition that they were successful in defeating defendants' cross-claims for slander of title, for which defendants requested $415,800 in damages, and that they were successful in their foreclosure and declaratory relief claims.
Harman II cautions against requiring direct proportionality between an attorney fee award and the amount of compensatory damages awarded. (Harman II supra 158 Cal.App.4th at pp. 420–421.) Defendants have made no showing the usury defense consumed a significant amount of attorney time in relation to the time spent on the contract claims as a whole. Nor have they made an adequate showing of the amount the parties sought on the various causes of action. In the circumstances, they have not met their burden to show abuse of discretion in the trial court failing to reduce the fee award to account for the usury defense.
C. Reasonableness of Multiplier*
Defendants also challenge the trial court's application of a multiplier of 1.5 to increase the fee award for Brunwasser's services. They argue at length that an enhancement is not appropriate in this case vindicating private, rather than public rights, and suggest that enhancements are not available on an award of contractual attorney fees under section 1717.
Our Supreme Court has explained, “ ‘[T]he Legislature appears to have endorsed the [lodestar adjustment] method of calculating fees, except in limited situations.’ [Citation.] When the Legislature has determined that the lodestar adjustment approach is not appropriate, it has expressly so stated. Thus, in 1993, it amended Code of Civil Procedure section 1021.5 to provide that attorney fees awarded to a public entity under the section ‘shall not be increased or decreased by a multiplier based upon extrinsic circumstances, as discussed in [Serrano v. Priest (1977) ] 20 Cal.3d 25, 49 [ (Serrano III ) ].’ (Stats.1993, ch. 645, § 2, p. 3747.) Its express restriction on the use of fee enhancements therein ‘can be read as an implicit endorsement of their use in other contexts.’ [Citations.]” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1135 (Ketchum ); see also Flannery v. California Highway Patrol (1998) 61 Cal.App.4th 629, 643, 646.) The high court noted in Ketchum that one of the contexts in which the lodestar adjustment method had been applied was in the award of contractual attorney fees pursuant to Civil Code section 1717 (section 1717). (Ketchum supra 24 Cal.4th at pp. 1134–1135, citing Sternwest Corp. v. Ash (1986) 183 Cal.App.3d 74, 75–76 (Sternwest ).)
In describing the rules governing fee awards under section 1717, our high court stated that the lodestar amount “may then be adjusted, based on consideration of factors specific to the case,” in order to determine the fair market value of the services. (PLCM supra 22 Cal.4th at p. 1095.) For this proposition, it cited Serrano III which listed a number of factors that could be used to augment or reduce an award, including the novelty and difficulty of the issues, the skill displayed, the extent to which the litigation precluded other employment, and the contingent nature of the fee award. (Ibid.; Serrano III supra 20 Cal.3d at p. 49.) Moreover, the court in Sternwest held unambiguously that enhancements are within the trial court's discretion under section 1717. The court did not except from its holding cases in which the rights vindicated were private, rather than public (Sternwest supra 183 Cal.App.3d at p. 76), and our Supreme Court has cited this holding with approval. (Ketchum supra 24 Cal.4th at pp. 1134–1135.) In the circumstances, the trial court could properly consider, in its discretion, whether to award an enhancement.12
Defendants argue we should follow a recent case of the United States Supreme Court, Perdue v. Kenny A. (2010) ––– U.S. ––––, [130 S.Ct. 1662] (Perdue ). There, the court addressed the question of whether, under federal fee-shifting statutes, the lodestar may be increased due to superior performance and results. (Id. at p. 1669.) The court concluded that although there was a strong presumption that the lodestar was adequate to compensate counsel, such an enhancement may be available in “ ‘ “rare” ‘ and ‘ “exceptional” ‘ circumstances” “in which the lodestar does not adequately take into account a factor that may properly be considered in determining a reasonable fee”; those circumstances could occur where the method used to determine the hourly rate does not adequately measure the attorney's true market value, where the attorney faced an extraordinary outlay of expenses and exceptionally protracted litigation, or where there is exceptional delay in the payment of fees. (Id. at pp. 1673–1675.) In reaching this decision, the court discussed six rules established in its earlier cases concerning federal fee-shifting statutes: a reasonable fee is one sufficient to induce a capable attorney to undertake a meritorious civil rights case; there is a strong presumption that the lodestar fee is sufficient to achieve this objective; enhancements for performance may be awarded in rare and exceptional circumstances; the lodestar figure includes most, if not all, factors relevant to determining a reasonable attorney fee; the fee applicant has the burden to prove an enhancement is necessary; and the fee applicant must produce “ ‘specific evidence’ “ to support the award. (Id. at pp. 1672–1673.)
We reject defendants' invitation to apply the standards of Perdue to this case. By its terms, Perdue considers the standards for federal fee-shifting statutes. The case before us is governed by California law, and our state's Supreme Court has made clear that “the lodestar adjustment method, including discretion to award fee enhancements, is well established under California law.” (Ketchum supra 24 Cal.4th at p. 1137.)13 As noted in Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 568–569 (Graham ), “United States Supreme Court interpretation of federal statutes does not bind us to similarly interpret similar state statutes. Indeed, in the realm of attorney fees for private attorneys general, this court has markedly diverged from United States Supreme Court precedent.” (See also Flannery v. California Highway Patrol supra 61 Cal.App.4th at p. 646 [no showing that California Legislature intends federal standards to apply to limit trial court's discretion to calculate reasonable attorney fees].) Consistent with this authority, we interpret the trial court's authority to award attorney fees according to California precedent.
We also note that the contractual fee provisions at issue were broad, authorizing the trial court to award “ ‘such sum as the Court may deem reasonable.’ “ Nothing in this language suggests the parties intended to fetter the trial court's discretion to enhance the fee award as authorized by California law to reflect the value of counsel's services.
Defendants contend, additionally, that the factors the trial court relied on were improper. In particular, they challenge the court's reliance on the contingent nature of plaintiffs' fee agreement with their counsel, the fact that counsel could not work for paying clients while performing work for plaintiffs, the time value of money, and the social utility of the litigation.
The trial court may consider a variety of factors in deciding whether to adjust the lodestar. “[T]he unadorned lodestar reflects the general local hourly rate for a fee-bearing case; it does not include any compensation for contingent risk, extraordinary skill, or any other factors a trial court may consider under Serrano III. The adjustment to the lodestar figure, e.g., to provide a fee enhancement reflecting the risk that the attorney will not receive payment if the suit does not succeed, constitutes earned compensation; unlike a windfall, it is neither unexpected nor fortuitous. Rather, it is intended to approximate market-level compensation for such services, which typically includes a premium for the risk of nonpayment or delay in payment of attorney fees.” (Ketchum supra 24 Cal.4th at p. 1138; see also Pellegrino v. Robert Half Internat., Inc. (2010) 182 Cal.App.4th 278, 292 (Pellegrino ) [where legal work done on contingency basis, enhanced fee award proper to compensate attorney for taking risk of nonpayment and reflects market value of services]; Flannery v. California Highway Patrol, supra 61 Cal.App.4th at p. 646 [contingent nature of case may warrant enhancing lodestar]; Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1216 [in adjusting lodestar upward, court may consider novelty and difficulty of issues, skill in presenting them, extent to which nature of litigation precluded other employment, and contingent nature of fee award].) However, in determining an appropriate enhancement, the trial court must not consider factors that were already encompassed in the lodestar. To do so would “result in unfair double counting and be unreasonable.” (Ketchum supra 24 Cal.4th at pp. 1138–1139; see also Robertson v. Fleetwood Travel Trailers of California, Inc. (2006) 144 Cal.App.4th 785, 822; Northwest Energetic Services, LLC v. California Franchise Tax Bd. (2008) 159 Cal.App.4th 841, 879 (Northwest ).)
In determining the enhancement, the trial court relied on several factors to decide the lodestar amount was not adequate compensation: the services were performed on a contingent basis for plaintiffs of modest means who would otherwise have been unable to assert their rights, and the litigation therefore had “significant social utility”; because of the complexity of the issues and the skill of opposing counsel, there was a high degree of risk of not being paid; the attorney had not been paid during the ten years of the litigation, and had been precluded from performing work for paying clients during that time; and “[m]ost significant,” the outcome of the litigation was successful for plaintiffs.
Based on the authorities we have discussed, we find no fault with the court's reliance on the contingent nature of the fee agreement, its attendant risk and delay in payment, or the extent to which counsel was precluded from working for other clients.14 Nor are we persuaded by defendants' challenge to the court's reliance on the social utility of the litigation; this point was made in connection with the contingent nature of the fee agreement, a factor that is well established as proper for the court to consider. (Ketchum supra 24 Cal.4th at p. 1138; Pellegrino supra 182 Cal.App.4th at p. 292.) Finally, the trial court could properly consider the successful results and the complexity of the case in enhancing the lodestar. (See PLCM supra 22 Cal.4th at p. 1096; Serrano III supra 20 Cal.3d at p. 49; Flannery v. Prentice supra 26 Cal.4th at p. 584.)15
In the second attorney fee order, entered on May 7, 2010, the trial court ordered interest to run from the date of the judgment reflecting that fee order. In their cross-appeal, plaintiffs contend interest should instead have run from November 21, 2005, the date of the original judgment on the merits in the case (the 2005 judgment), which provided: “There is now due and owing to plaintiffs Larisa Khazan and Boris Khazan from defendants Felix Braynin, Vera Braynin, Vladislav Chernoguz and Biana Chernoguz ․ $_ as attorney's fees that may be determined upon motion by plaintiffs.”
The trial court explained its reasons for ordering interest to run from the date of the judgment reflecting the second attorney fee order as follows: “The Court of Appeal reversed the fee award and remanded the case to the trial court to reduce the amount attributable to the fraud claims. The Court of Appeal did not modify the fee order. Accordingly, the Court is awarding new fees in this order, therefore interest runs from the date of the new judgment reflecting this order.”
The trial court appears to have been relying on Stockton Theatres, Inc. v. Palermo (1961) 55 Cal.2d 439 (Stockton Theatres ). There, our Supreme Court considered when interest began to accrue on the cost of a bond on appeal. (Id. at pp. 440–441.) The court explained that in 1954, the trial court had disallowed the cost item, and on appeal, the order was reversed with instructions for the trial court to determine the necessity of the bond. After a hearing, the trial court in 1957 found the expenditure unnecessary and again disallowed the challenge item. On a subsequent appeal, the Supreme Court held the expenditure necessary as a matter of law and reversed, with directions to a trial court to allow the premiums on the bond as a cost on appeal. In 1959, the trial court entered such an order. (Id. at pp. 440–444.)
The parties then litigated the question of when interest should begin to accrue on the cost award. The high court applied the following principles: “A judgment bears interest from the date of its entry in the trial court, even though it is still subject to direct attack”; when a judgment is modified on appeal, the new sum draws interest from the date of the original order, not from the date of the new judgment; when, however, a judgment is reversed on appeal, the new award bears interest only from the date of the new judgment. (Stockton Theatres supra 55 Cal.2d at pp. 442–443 .) The court also relied on the rule enunciated in Supera v. Moreland Sales Corp. (1938) 28 Cal.App.2d 517, 521, that “a judgment for costs of appeal is separate from and independent of the final judgment in the case.” The court in Stockton Theatres stated: “A judgment for costs should be governed by the law applicable to judgments generally. Such awards are, in fact, separate and complete judgments in themselves. (Supera v. Moreland Sales Corp., [supra ] 28 Cal.App.2d [at p.] 521.) Costs on appeal are provided for in section 1034 of the Code of Civil Procedure, and are therein made enforceable by execution in the same manner as a final judgment.” (Stockton Theatres supra 55 Cal.2d at p. 443.) Applying these principles, the court rejected the argument that interest should run from the date of the 1954 order, pointing out that the court of appeal reversed rather than modified that order, and that until the trial court held the required hearing on the necessity of the bond, there could have been no award of costs for that item. (Ibid.) The court also rejected, however, the contention that interest ran from the date of the 1959 trial court order allowing the cost in response to the Supreme Court's directive. Rather, the high court ruled, interest began to run from the date of the 1957 order denying the bond premium as a cost, because the Supreme Court's decision reversing the 1957 order was effectively a modification, holding that the plaintiff was entitled to the cost of the bond as a matter of law. (Id. at pp. 443–444.) The court stated, “Although the order in that case was couched in terms of a reversal with directions, it had the legal and practical effect of modifying the original award.” (Id. at p. 444.)
Following Stockton Theatres our Supreme Court in Snapp v. State Farm Fire & Cas. Co. (1964) 60 Cal.2d 816, 817–820 (Snapp ), held that where a trial court's judgment finding an insurer liable for only a portion of the policy limits was reversed on appeal with directions to enter judgment in the amount of the policy limits, interest on the amount of the resulting award should run from the date of the first award. As the court stated, “The legal effect of that reversal was to determine that as of the date of the original judgment plaintiffs were entitled to $25,000. Thus the original judgment was increased from $8,168.25 to $25,000, based solely on the record then before the appellate court. No issues remained to be determined. No further evidence was necessary. Thus the so-called ‘reversal’ with directions, was, in fact and in law, a ‘modification.’ “ (Id. at p. 820.)
Under Stockton Theatres and Snapp the question of when interest begins depends on substance, not formalism, and a reversal that effectively acts as a modification will be treated as such. So, for example, in Munoz v. City of Union City (2009) 173 Cal.App.4th 199, 207 (Munoz ), the court concluded that a modification, rather than a reversal, had taken place where the original judgment had allocated fault among a victim, a police officer, and a city; the appellate court had concluded that a portion of the fault allocated to the city was not legally sustainable; and, in a second appeal, the court reversed the judgment and directed the trial court to enter a new judgment allocating fault between the remaining parties based on the jury's original allocation. (Id. at pp. 202–203, 207.) The court noted, “Unlike the situation in Stockton ․ here there was no factual determination to be made, no prerequisite to be satisfied before liability could be allocated properly.” (Munoz, supra, 173 Cal.App.4th at p. 206; see also Ehret v. Congoleum Corp. (2001) 87 Cal.App.4th 202, 204, 210 (Ehret ) [appellate decision reinstating original jury verdict after judgment notwithstanding verdict and calculating offsets based on original jury verdict treated as modification rather than reversal].)
Defendants argue the trial court properly applied the rule of Stockton Theatres and Snapp to award interest only from the date of the judgment reflecting the May 7, 2010 (second) attorney fee order. They point out that after we reversed the original attorney fee order, on remand the parties provided additional briefing, evidence, and argument, and the trial court made further determinations of law and fact before entering the new award. Thus, defendants contend, this question is governed by the rule that where a judgment is reversed, rather than modified, and the matter returns to the trial court for further factual determinations, interest begins to run on the award at the time of the order after remand.
Plaintiffs assert Stockton Theatres does not govern this question, based upon a two-part argument. First, they contend that the statutes governing interest on costs provide that interest runs from the date of entry of the judgment allowing attorney's fees, and not from the date of the later order setting the amount of attorney's fees. Second, they characterize Khazan I and II respectively, as an affirmance of the judgment awarding the right to attorney fees and a reversal of only the postjudgment order setting the amount of fees, and, accordingly, they argue, the question of whether Khazan II was a “reversal” or a “modification” does not even come into play. Upon these constructs plaintiffs conclude that interest accrues on the attorney's fee award from the date of entry of the original judgment as a matter of law, irrespective of any subsequent reversal and readjudication of the attorney fee amount.16
We disagree with both parts of plaintiffs' argument.
1. Accrual Date of Interest on Attorney's Fees Incurred Prior to Judgment
Plaintiffs' foundational contention is that accrual of interest on attorney fees from entry of judgment is “decreed by statute,” relying on the following statutory collage: “Code of Civil Procedure section 685.020[, subdivision] (a) provides ․ that ‘interest commences to accrue on a money judgment on the date of entry of the judgment.’ In particular, ‘[i]nterest accrues at the rate of 10 percent per annum on the principal amount of a money judgment remaining unsatisfied.’ (Code Civ. Proc. § 685.010, subd. (a).) [¶]․ The phrase ‘principal amount of the judgment’ is a defined term in the Code․[I]t includes attorneys' fees, even if the amount of attorneys' fees is determined sometime after the judgment is entered. Specifically, ‘ “[p]rincipal amount of the judgment” means the total amount of the judgment as entered ․ together with the costs thereafter added to the judgment.’ (Code Civ. Proc.[,] § 680.300.) And, the ‘costs thereafter added to the judgment’ include ‘[a]ttorney's fees, when authorized by [c]ontract.’ (Code Civ. Proc.[,] § 1033.5[, subd.] (a)(10)(A).)”17 Plaintiffs contend that, taken together, these statutes require that interest on attorneys fees awarded as costs after judgment is entered runs from the date of entry of the original judgment.
Plaintiffs' reliance on section 680.300, however, is misplaced and misleading. This statute is plaintiff's logical link that purports to prove that, by law, the “principal amount of the judgment” (on which interest accrues at 10 percent per annum from the date of entry of judgment) is comprised of the judgment as entered “together with the costs thereafter added to the judgment,” which include attorney's fees awarded pursuant to contract. But in quoting the statute, plaintiffs carefully excised a critical phrase. Section 680.300 actually provides: “ ‘Principal amount of the judgment’ means the total amount of the judgment as entered ․, together with the costs thereafter added to the judgment pursuant to Section 685.090․ ” But costs pursuant to section 685.090 pertain to postjudgment costs incurred in enforcing the judgment. (§ 685.090, subd. (a) [“costs are added to and become a part of the judgment: [¶] (1)[u]pon the filing of an order allowing the costs pursuant to this chapter ”] [Italics added]; §§ 685.010 through 685.110 comprise Chapter 5 and include § 685.040 authorizing the costs and fees which a judgment creditor may claim to enforce the judgment.) The cited statutes, therefore, cannot be read as a group to compel a conclusion that interest begins to accrue from the date of the original judgment on the amount of attorney's fees later incorporated into the judgment.
Plaintiffs secondarily rely on Lucky United Properties Investment, Inc. v. Lee (2010) 185 Cal.App.4th 125 (Lucky ) for the proposition that interest on attorney's fees as costs runs from the date of the original judgment. In Lucky the question posited was whether a judgment had been fully satisfied. (Id. at p. 130.) In the course of its discussion, however, the court reviewed the rules regarding costs, attorney fees, and interest. It stated, “As a general rule, the prevailing party may recover certain statutory costs incurred in the litigation up to and including entry of judgment. (§§ 1032, 1033.5.) These costs may include attorney fees, if authorized by contract, statute ․ or law. (§ 1033.5, subd. (a)(10).) ․ Where costs are established by the judgment, but the amount of the award is ascertained at a later time, the court clerk enters the costs on the judgment after the amount is determined. (Cal. Rules of Court, rule 3.1700(b)(4); Bankes v. Lucas (1992) 9 Cal.App.4th 365, 369 (Bankes ).) In other words, the amount of the cost award is incorporated into the judgment. [¶] Interest at the rate of 10 percent per annum accrues on the unpaid principal amount of the judgment (§ 685.010), including the amount of the cost award and attorney fees award (§ 680.300), as of the date of judgment entry (§ 685.020, subd. (a)). Therefore, interest ordinarily begins to accrue on the prejudgment cost and attorney fees portion of the judgment as of the same time it begins to accrue on all other monetary portions of the judgment—upon entry of judgment. [Citation.]” (Lucky supra 185 Cal.App.4th at pp. 137–138, italics added.)18
We must respectfully disagree with the Lucky court's reasoning on this point. First, the court's statement in Lucky—that interest begins to accrue on the prejudgment cost and attorney fees award from entry of judgment—was not the basis for the court's determination of any disputed issue. Therefore, it is of no precedential value. (Childers v. Childers (1946) 74 Cal.App.2d 56, 61 [“a decision is not authority for what is said in the opinion but only for the points actually involved and actually decided”].)
Second, as we have noted, sections 685.010 et seq. refer to costs incurred to enforce the judgment, not prejudgment costs and fees. But even if they did refer to prejudgment costs, the language provides that “[c]osts are added to and become a part of the judgment: ․ [¶] (1)[u]pon the filing of an order allowing the costs.” (§ 685.090, subd. (a)(1).) These words do not compel the conclusion that interest is calculated from the date of the original judgment; rather, it may reasonably be read to mean that the date on which the costs become part of the judgment for purposes of an interest calculation—that is, the date on which the costs “become a part of the judgment”—is the date of “the filing of an order allowing the costs.” (§ 685.090, subd. (a)(1).)
Third, the court in Lucky cited Sternwest for the proposition that interest “ordinarily begins to accrue on the prejudgment cost and attorney fees portion of the judgment as of the same time it begins to accrue on all other monetary portions of the judgment—upon entry of judgment.” (Lucky supra 185 Cal.App.4th at p. 138, citing Sternwest supra 183 Cal.App.3d at pp. 76–77.) Sternwest does not appear to us to stand for this principle. The defendant in Sternwest was found not liable to the plaintiff, dismissed from the action, and found entitled to attorney fees under Civil Code section 1717. A hearing then took place to set the amount of the fees. (Sternwest supra 183 Cal.App.4th at p. 75.) The trial court denied interest on the resulting fee award, concluding that interest could not feasibly be calculated since the fees had been incurred over a period of several years. (Sternwest supra 183 Cal.App.3d at p. 76.) The Court of Appeal reversed on this issue, ruling that interest should be awarded for “the period from the filing of the appellant's claim for attorney's fees and the date of computation of the award,” because “[a] litigant can scarcely be expected to pay Civil Code 1717 fees until an appropriate demand is made on him.” (Ibid.) The court went on to rule that interest should be awarded to the plaintiff in addition to the lodestar fees, and “[t]hat total figure should be added to appellant's normal costs of appeal and other items normally included in a judgment.” (Id. at p. 77.) Thus, Sternwest does not hold not that interest should run from the date of the judgment establishing a right to as yet uncalculated attorney fees, but that it should run from the time of the claim for attorney fees made after the defendant had been dismissed from the case, and presumably made after the judgment had been entered in his favor.19
We recognize that a number of federal cases conclude that, under federal law,20 interest on an attorney fee award runs from the date the party becomes unconditionally entitled to fees, even if the amount of those fees is not quantified until a later hearing. (See, e.g., Copper Liquor, Inc. v. Adolph Coors Co. (5th Cir.1983) 701 F.2d 542, 543–545, overruled on other grounds in J.T. Gibbons, Inc. v. Crawford Fitting Co. (5th Cir.1986) 790 F.2d 1193, 1195; Associated Gen. Contrs. of Ohio, Inc. v. Drabik (6th Cir.2001) 250 F.3d 482, 495 (Associated Gen. Contrs.); Jenkins v. State of Missouri (8th Cir.1991) 931 F.2d 1273, 1275–1277, cert. den. (1991) 502 U.S. 925 (Jenkins ); Mathis v. Spears (Fed.Cir.1988) 857 F.2d 749, 760; see also Friend v. Kolodzieczak (9th Cir.1995) 72 F.3d 1386, 1388, 1391–1392; BankAtlantic v. Blythe Eastman Paine Webber, Inc. (11th Cir.1994) 12 F.3d 1045, 1048, 1052–1053.) This view, however, is not universally accepted; other federal courts have concluded that interest begins to run when the amount of the fees is ascertained and included in the judgment. (See, e.g., Eaves v. County of Cape May (3d Cir.2001) 239 F.3d 527, 542; MidAmerica Federal Sav. & Loan Ass'n v. Shearson/American Express, Inc. (10th Cir.1992) 962 F.2d 1470, 1475–1476.)
An important difference between the California and federal schemes for postjudgment interest is the amount of that interest. In California, postjudgment interest accrues at the rate of 10 percent per year. (§ 685.010, subd. (a).) Under federal law, on the other hand, interest accrues at the rate of a one-year Treasury bill. (28 U.S.C. § 1961, subd. (a).) Thus, the federal rate of postjudgment interest, by its very nature, is achievable by an ordinary investor. The California rate, however, although apparently originally intended to approximate the market rate of interest in 1982—the year the rate was set21 —now bears no relation to the amount an investor may reasonably expect to receive from investments during the period between entry of judgment and a ruling on an application for attorney fees.22 Thus, unlike the federal rate, the California rate has the potential to give prevailing parties a windfall at the expense of the losing parties. (Compare Jenkins supra 931 F.2d at p. 1277 [fee-paying party suffers no prejudice from delay in quantifying award because it has use of the money and interest rate is tied to Treasury bill rate]; Associated Gen. Contrs. supra 250 F.3d at p. 485 [no windfall in award of interest on attorney fees because interest rate is set at Treasury bill rate].)
Moreover, it has long been an equitable principle in California that “a person who does not know what sum is owed cannot be in default for failure to pay.” Under this rubric, interest is traditionally denied on unliquidated claims. (Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 906 (Chesapeake Industries ), citing Cox v. McLaughlin (1888) 76 Cal. 60, 67.) For purposes of the calculation of prejudgment interest, this principle is embodied in Civil Code section 3287, subdivision (a), which provides that a person “who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day․” (See Chesapeake Industries supra 149 Cal.App.3d at p. 906.) Although the interest in question here is postjudgment and therefore not governed by Civil Code section 3287, the same principle should apply.
We also note that one of the factors the trial court here considered in setting the multiplier was the fact that the litigation had “spanned a period of almost ten years during which no compensation ha[d] been paid to the attorney.” The time value of money during that time was “a significant [f]actor” in the court's determination of the fee enhancement. This is consistent with our Supreme Court's statement that a delay in payment of attorney fees was properly considered in enhancing a fee award. (Ketchum supra 24 Cal.4th at p. 1138.) As we have stated, our high court described an enhancement for delay in payment as “tantamount to an interest rate.” (Graham supra 34 Cal.4th at p. 584.) Thus, there is no reason to conclude prevailing parties entitled to fees would be harmed by a rule under which interest begins to accrue when a fee award is quantified. Based upon all of the above considerations, we conclude the better rule is that interest begins to run upon entry of the order setting the amount of fees awarded.23
2. Was Khazan II a Reversal or a Modification?
The question remains whether interest should run from the date of the initial fee award, which we reversed, or the second award, which is under consideration here. Pursuant to Stockton Theatres and its progeny, resolution of this issue depends upon whether our decision in Khazan II was a reversal or a modification.
Plaintiffs argue that Stockton Theatres does not apply at all because there, the court reversed a post-appeal order allowing costs for postjudgment litigation, viz., the bond premium as a cost on appeal, which is a separate judgment, i.e., “it is an award for a liability that arose entirely after the original judgment was entered.” Here, plaintiffs argue, “there was no ‘reversed judgment’ and no ‘new judgment.’ Instead, the original judgment (which by statute included the later-determined attorneys' fees) was affirmed, not reversed, and therefore the interest on the judgment (including the attorneys' fees) continues to run from the date of its entry.” The appeal and reversal were from the “fee order” and not from the judgment, and therefore, plaintiffs conclude, the first fee order was replaced by the second fee order, entered on remand, “[b]ut the judgment, which set the interest running on the attorneys' fees, was never changed or disturbed ․ [but was] affirmed in full.”
This argument suffers from several flaws. First, as we have already determined, interest on attorney's fees runs from the date of the order awarding the amount of fees, not from the date of the judgment allowing fees. Second, plaintiffs' contention that the later-determined amount of attorney's fees was a part of the “original judgment” for purposes of the accrual of interest, but was only a postjudgment “order” for purposes of the Stockton Theaters analysis is inherently inconsistent. Plaintiffs cannot have it both ways. Third, plaintiffs distinguish Stockton Theaters based upon the fact that the cost award at issue was a postjudgment award, yet plaintiffs ignore the fact that the reversals in subsequent cases, which followed the Stockton Theaters rule, pertained to original judgments, and not to postjudgment costs. (See, e.g., Snapp, supra, 60 Cal.2d at pp. 817–820 [modification of amount of damages awarded in original judgment]; Munoz, supra, 173 Cal.App.4th at p. 207 [reversal of allocation of liability in original judgment].) In any event, plaintiffs do not explain why the reversal of a prejudgment cost award requires a different analysis than the reversal of a postjudgment cost award. We must therefore analyze the reversal of the initial fee order pursuant to the criteria set forth in Stockton Theaters.
After the appeal of the initial fee order, the trial court could not simply modify the award based on our directions, but instead was required to review the evidence and exercise its discretion anew to set the fee award. As evidence that Khazan II was a reversal, the record shows that in support of their motion for attorney fees after remand, both parties submitted hundreds of pages of evidence, including detailed time records, analysis of the time spent at trial on contract and non-contract issues, extensive excerpts from the reporter's transcript of the trial proceedings, and pleadings from the litigation. In their briefing in support of and in opposition to the motion, the parties argued about whether apportionment was possible and how the trial court might adjust the fee award to account for plaintiffs' partial success. In its order setting the fees after remand, the trial court indicated that it had conducted a “detailed review of the litigation,” including “pre-trial litigation, pre[-]trial interviewing of witnesses, trial preparation and post-trial work,” before deciding to use a percentage allocation for the fraud component of the action. The trial court could not have responded to our directions in Khazan II without such a review and exercise of discretion, and we agree with the trial court that we reversed, rather than modified, the initial order setting fees.
In the circumstances, we conclude our decision in Khazan II was in effect, as well as in name, a reversal, and that the trial court correctly ordered interest to run from the time of the fee award it made on remand.
The order appealed from is affirmed. The parties shall bear their own costs on appeal.
1. Brackets enclosing material denote additions to the opinion in Khazan I. Empty brackets [ ] denote deletions from the opinion.
2. Defendants had introduced plaintiffs to A & A, which apparently specialized in arbitrage investments.
3. Defendants presented evidence that the Khazans' signatures on the deed of reconveyance were genuine.
4. Lushtak was later indicted for wire fraud (18 U.S.C. § 1343) and money laundering (id. § 1956(a)(1)(A)(i)) in connection with his operation of A & A. He pled guilty to money laundering. It appears that some of the clients whom defendants had introduced to A & A—and who held A & A notes cosigned by Lushtak, Braynin, and Chernoguz—held Braynin and Chernoguz responsible for the losses they suffered in A & A's collapse. According to defendants, in order to forestall lawsuits by these clients, Braynin and Chernoguz issued promissory notes to the clients to replace the A & A notes, and they indicated they would pay the note amounts if they earned enough money from their other business operations. Although the balance in Khazan's A & A account was $357,000, she told Braynin to prepare a note for $57,000, and Braynin and Chernoguz did so.
5. She believed A & A was defendants' company and that checks to A & A went to defendants.
6. The funding included the $119,000 paid to defendants, and an additional $21,000 check made out to A & A, at Braynin's request.
7. The Fifth Amended Complaint, which was the operative complaint, alleged 14 causes of action: (1) judicial foreclosure of deed of trust; (2) fraud; (3) common count for money had and received; (4) common count for money lent; (5) fraud—entering into contract without intention of performing; (6) appointment of receiver; (7) declaratory relief; (8) promissory note; (9) common count for money had and received; (10) common count for money lent; (11) fraud—entering into contract without intention of performing; (12) fraudulent conveyance; (13) fraudulent conveyance; and (14) RICO (18 U.S.C. § 1961 et seq.). Counts 1 through 6 related to the $300,000 promissory note and deed of trust. Count 7 sought declaratory relief in connection with the third-party promissory notes secured by deeds of trust. Counts 8 through 11 related to the $57,000 promissory note. Counts 12 and 13 alleged Chernoguz and Braynin had fraudulently executed interspousal deeds of trust to their wives. Count 14 alleged a criminal enterprise among defendants and Lushtak.
8. Because the jury found plaintiffs had not instructed Braynin and Chernoguz to cancel the note and deed of trust and to transfer their money to A & A, it did not reach the question of whether the money had in fact been transferred to A & A. Based on these findings, the jury similarly did not reach the cross-complaint's cause of action for slander of title. [ ]
9. The court declared plaintiffs' deed of trust in second position for purposes of disposition of the proceeds of the sale of the property.
FOOTNOTE. See footnote, ante, page 1.
FOOTNOTE. See footnote, ante, page 1.
10. The doctrine of law of the case states that “where an appellate court states in its opinion a principle of law necessary to the decision, that principle becomes law of the case and must be adhered to in all subsequent proceedings, including appeals․ ‘Application of the rule is now subject to the qualifications that “the point of law involved must have been necessary to the prior decision, that the matter must have been actually presented and determined by the court, and that application of the doctrine will not result in an unjust decision.” [Citations.]’ [Citations.]” (Citizens for Open Access etc. Tide, Inc. v. Seadrift Assn. (1998) 60 Cal.App.4th 1053, 1064.)
11. We are unable to verify these amounts from the record citations plaintiffs provide.
FOOTNOTE. See footnote, ante, page 1.
12. Defendants point out that the court in San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority (1998) 61 Cal.App.4th 910, 918–919 (San Dieguito ) questions the reasoning of Sternwest. The court in San Dieguito concluded section 1717 does not authorize an award of more fees than the prevailing party actually incurred, and therefore the trial court there had not erred in refusing to apply a multiplier. (Id. at pp. 916–919.) Our Supreme Court has disapproved San Dieguito to the extent it suggests “that fees can be recovered only when, and to the extent that, a litigant incurs fees on a fee-for-service basis.” (PLCM supra 22 Cal.4th at p. 1097, fn. 5.) The parties also disagree on the effect of Vella v. Hudgins (1984) 151 Cal.App.3d 515, which stated that because an award of fees is an element of costs under section 1717, it is “limited to those costs reasonably and necessarily incurred by the prevailing party” (id. at p. 519), but also noted that in awarding contractual fees, the trial court should consider the Serrano III factors (id. at p. 521). The court in San Dieguito cited Vella in questioning Sternwest's holding. (San Dieguito supra 61 Cal.App.4th at pp. 918–919.) In light of our Supreme Court's statements in PLCM and Ketchum however, we conclude the rule of Sternwest on this point is good law.
13. In Ketchum the court rejected an invitation to adopt the policy arguments in the United States Supreme Court decision of Burlington v. Dague (1992) 505 U.S. 557, which barred the use of fee enhancements in federal courts in certain types of cases. (Ketchum supra 24 Cal.4th at pp. 1136–1137.)
14. Our Supreme Court has cautioned, however, that an enhancement for delay in payment, “which is tantamount to an interest rate, is by itself quite small and may be reduced or eliminated if the lodestar rate is based on the present hourly rate rather than the lesser rate applicable when the services were rendered. [Citations.]” (Graham supra 34 Cal.4th at p. 584.)
15. We recognize that in finding a $400 hourly rate appropriate for Brunwasser's services, the trial court in the second fee order alluded not only to his experience and the market rate in the Bay Area, but also to his skill, the quality of the services, and the highly successful outcome for plaintiffs. In their discussion of the Perdue case, defendants suggest that the successful outcome (as well as the complexity of the case and the quality of the legal services) was already subsumed in the lodestar, and it was therefore inappropriate for the court to consider it when setting an enhancement. We are not persuaded. In the initial fee order (the order at issue in Khazan II ), the court set an hourly rate of $400, “based on rates prevailing in the community for similar work,” and noted that the rate was “in the lower end of the range for market rates.” It thus appears that, independent of the factors the trial court mentioned in its second fee order, the court had concluded a rate of $400 was reasonable some six years ago. In the circumstances, we see no impermissible double counting of factors both to set the lodestar and to enhance it. (See Northwestsupra 159 Cal.App.4th at p. 879.)
16. Plaintiffs also contend, without any discussion or analysis, that the trial court's post-remand fee order was not a “new” fee award, but merely a “determin[ation] [of] what part of the originally-awarded fees—the portion attributable to litigation over the contract claims—plaintiffs' attorneys would ultimately be awarded.” This could be understood as an argument that Khazan II was a modification and not a reversal, but because the assertion is made without any citations or argument, we will not consider it. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784–785.)
17. All further code references are to the Code of Civil Procedure unless otherwise specified.
18. Plaintiffs also draw our attention to City of Oakland v. Oakland Raiders (1988) 203 Cal.App.3d 78 (Oakland Raiders ). There, the trial court rendered judgment for the Oakland Raiders in 1984, and the Raiders filed a costs memorandum that included statutory attorney fees in 1986. (Id. at p. 81.) The trial court awarded interest on the fee award from the date of the 1984 judgment. (Id. at p. 83.) However, the propriety of that action was not at issue on appeal.
19. None of the parties contend interest here should have been calculated from the date a claim for attorney fees was filed, and we are aware of no statutory authority for such a rule.
20. The cases construe 28 U.S.C. section 1961, subdivision (a), which provides in pertinent part: “Interest shall be allowed on any money judgment in a civil case recovered in a district court․ Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1–year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment․”
21. See Recommendation Relating to Interest Rate on Judgments (Jan.1980) 15 Cal. Law Revision Com. Rep. (1980) pp. 7, 9, 11–14, 16–17; Tentative Recommendation Proposing the Enforcement of Judgments Law (Oct.1980) 15 Cal. Law Revision Com. Rep. (2001) p.2003); Recommendation on 1982 Creditor's Remedies Legislation (Sept.1982) 16 Cal. Law Revision Com. Rep. (1982) p. 1003; Outline of Enforcement of Judgments Law (Sept.1982) 16 Cal. Law Revision Com. Rep. (1982) p. 1229; Annual Report (Dec.1982) 16 Cal. Law Revision Com. Rep. (1982) pp.2001, 2025; Assem. Com. on Judiciary, Analysis of Assem. Bill No. 707 (1981–1982 Reg. Sess.), as amended Jan. 14, 1982, p. 11; Governor's Off. of Legal Affairs, Enrolled Bill Rep. on Sen. Bill No. 203 (1981–1982 Reg. Sess.), April 5, 1982, pp. 1–2; Assem. Com. on Judiciary, Analysis of Sen. Bill 203 (1981–1982 Reg. Sess.) as amended Aug. 18, 1981, p. 2; Assem. Off. of Research, 3d reading corrected analysis of Sen. Bill No. 203 (1981–1982 Reg. Sess .) as amended Sept. 4, 1981, p. 1; see also Ehretsupra 87 Cal.App.4th at p. 206. The 10 percent interest rate was initially set when section 685.010 was added in 1982 (Stats.1982, ch. 150, § 3, p. 495), and continued when the Legislature adopted the Enforcement of Judgments Law, section 680.010 et seq., later that year (Stats.1982, ch. 1364, § 2, p. 5070; see also Legis. Com. com ., 16B West's Ann.Code Civ. Proc., foll. § 685.010, p. 197). By this change, the Legislature increased the postjudgment rate of interest from 7 percent to 10 percent, as authorized by the California Constitution. (Cal. Const., Art. 15, § 1; see Recommendation Relating to Interest Rate on Judgments, supra 15 Cal. Law Revision Com. Rep., p. 11.)
22. A notice of motion to claim prejudgment attorney fees must be filed within the time for filing a notice of appeal—a time that can be as long as six months after entry of judgment. (Cal. Rules of Court, rules 3.1702(b), 8.104(a)(3) & 8.108(b)(1)(C).)
23. Lucky also relied on California Rule of Court, rule 3.1700(b)(4) and Bankes, supra, 9 Cal.App.4th 365 to support the statement that “the amount of the cost award is incorporated into the judgment” and presumably, its conclusion that interest commences on the later-added attorney fees portion of the judgment “upon entry of judgment.” (Lucky, supra, 185 Cal.App.4th at pp. 137–138.) Unquestionably, the amount of the cost and fees awards become part of the judgment when entered thereon; the question, however, is when interest on those awards begins to run. In Bankes, the court stated that “[w]hen the court's subsequent order setting the final amount [of costs and fees] is filed, the clerk enters the amounts on the judgment nunc pro tunc.” (Id. at p. 369.) Bankes, in turn, refers to Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 996–997, which also stated that such an order is entered on the judgment nunc pro tunc, citing California Rules of Court, rule 870(b)(4), the predecessor to rule 3 .1700(b)(4). (This statement is repeated in Nazemi supra 5 Cal.App.4th at p. 1637, and in 7 Witkin, Cal. Procedure, Judgment, § 147, pp. 680–681.) Rule 3.1700(b)(4), however, does not provide that the order is entered nunc pro tunc; it states only that “[a]fter the time has passed for a motion to strike or tax costs or for determination of that motion, the clerk must immediately enter the costs on the judgment.” (Cal. Rules of Court, rule 870(b)(4) provided “․ the clerk must enter the costs on the judgment forthwith.”) Additionally, in our view, the incorporation of the later-determined amount of an attorney's fees award nunc pro tunc would be an improper use of that unusual power. As our high court has explained, its use is justified only for “the preservation of the legitimate fruits of the litigation which would otherwise be lost to the prevailing party or the correction of a deficiency in the recordation of a previous decision․” (Mather v. Mather (1943) 22 Cal.2d 713, 719; see also Hamilton v. Laine (1997) 57 Cal.App.4th 885, 891 [“[It] is not proper to amend an order nunc pro tunc to ․ show what the court might or should have done as distinguished from what it actually did. An order made nunc pro tunc should correct clerical error by placing on the record what was actually decided by the court but was incorrectly recorded”]; Gouskos v. Aptos Village Garage, Inc. (2001) 94 Cal .App.4th 754, 764, n. 5 [“ ‘The court can only make the record show that something was actually done at a previous time; a nunc pro tunc order cannot declare that something was done that was not done.’ [Citation.]”)
We concur: RUVOLO, P.J., and REARDON, J.