The appellate court in Reynolds v. Ford Motor Company, — Cal.Rptr.3d —-, 2020 WL 1921742, made it absolutely clear: Courts cannot consider the contingency fee when making statutory fee awards under the California Lemon Law fee shifting provisions. Trial court judges have no discretion to reduce or deny statutory fee awards based on a contingency fee agreement.
In California Lemon Law cases, prevailing plaintiffs, but not defendants, are entitled to recover their costs and expenses, including their attorney’s fees based on actual time expended and determined by the court to have been reasonably incurred. But what happens when the the defendant alleges that plaintiff’s retainer agreement with her or his attorneys also provides that the attorneys get a portion of the recovery?
Lemon law defendants have repeatedly attempted to create an ambiguity by arguing the court should deduct the amount of any contingency fee plaintiffs’ attorneys may be receiving from the statutory fees to be awarded under the one-way fee shifting provisions of the California Lemon Law. It is not surprising that defendants have taken such a position because deducting the contingency fee from the statutory fees award means that (1) plaintiff’s lawyers get less money (thereby reducing the incentive for qualified attorneys to take up plaintiffs’ lemon law cases and placing a chilling effect on the consumer protection statutory scheme created by the Song Beverly Consumer Warranty Act; and (2) guilty manufacturers would have to pay less money.
The problem with the defendant automakers argument is that California Lemon Law was created to protect California consumers, not huge car manufacturers. All of the California Lemon Law provisions, including the mandatory award of fees and costs to prevailing plaintiffs, are intended to incentivize attorneys to take on these cases — no matter how little the value of the vehicle or truck — and to incentivize manufacturers to comply with their affirmative duty to promptly offer replacement or repurchase of defective vehicles. Any interpretation of the California Lemon Law that undermines those incentives harms California consumers and is invalid.
In a recently published decision, the California Court of Appeal has now held unequivocally that the terms of a plaintiff’s retainer agreement with his or her attorneys has zero relevance to the amount of fees the court should award pursuant to the Song-Beverly Consumer Warranty Act’s fee shifting provision, §1794(d). Shooting down arguments from Ford that recovery of both a contingency fee and a statutory fee would amount to a double recovery, a windfall, and an unreasonable award, the Court held that the trial court’s sole task in deciding a motion for attorney’s fees is to determine whether the actual fees billed for the tasks performed was reasonable, and billed at a reasonable rate. Whether the plaintiff’s attorney received fees from elsewhere, such as from a contingency fee provision in the retainer agreement, is legally irrelevant.
In 2006, Reynolds purchased a 2005 Ford F-250 truck with a 6.0-liter diesel engine. After 15 unsuccessful repair attempts, Reynolds contacted Ford directly and requested a buyback under the California Lemon Law. Not surprisingly, Ford denied the request. Reynolds hired counsel and sued Ford. After extensive litigation, the parties settled Reynolds’s claims for $277,500 plus attorney’s fees and costs, to be resolved by agreement or, if the parties could not agree, by motion.
Reynolds then filed his motion for attorney’s fees, costs, and expenses pursuant to Cal. Civil Code §1794(d). Ford opposed, arguing that Reynolds’s attorneys were not entitled to recover both a suspected contingency fee (of which Ford had no actual proof) and statutory fees. In an auspicious effort to make its argument, Ford demanded production of Reynolds’s confidential attorney client privileged retainer agreement or,at least, disclosure of its terms.
The trial court rejected Ford’s argument and found that Reynolds’s counsel’s fees were reasonable in both the amount of time expended and the hourly rates charged. The trial court also awarded a lodestar multiplier of 1.2. The trial court reasoned that the California Lemon Law did not require, or allow, the court to consider whether the total amount was “reasonable” in light of any other factors, including the speculative existence of a contingency fee. “The court’s review of the overall reasonableness of the attorney fees is, thus, restricted by the specific language in the fee award provision of the Song-Beverly Act. The court does not have the discretion to consider whether plaintiff’s attorney received additional compensation by … way of a separate retaine[r] agreement.”
The Court of Appeal affirmed. The appellate court agreed that the trial court had no discretion to deny or reduce an award simply because plaintiff’s attorneys were also receiving a contingency fee, theoretical or actual. The appellate court explained that the trial court’s sole task in deciding a motion for attorney’s fees is to determine whether the actual fees billed for the tasks performed was reasonable, and billed at a reasonable rate. The appellate court held that the terms of the retainer agreement were “legally irrelevant.”
The Court of Appeal also affirmed the award of a 1.2 multiplier. The appellate court observed with approval that the trial court’s grant of a multiplier was based on the complexity of the factual issues, counsel’s extensive experience in this type of litigation, and “[i]n litigating these types of cases with a large corporate defendant such as Ford Motor Company, many attorneys may decline to represent plaintiffs due to the financial resources of defendant and the prospect of long and hard fought litigation.”
The appellate court expressly distinguished Holguin v. Dish Network LLC (2014) 229 Cal.App.4th 1310, which had previously held that a trial court deciding a fee motion under section California Civil Code §1717 may consider a contingency fee agreement in calculating a lodestar sum. The key difference between Holguin and the present case was the source of the fee award. Civil Code §1717 allows a trial court to calculate a lodestar figure and then make additional adjustments (up or down) to reach a “reasonable” figure. Section 1794(d) does not allow such an adjustment and as such in a California Lemon Law action the existence and terms of a contingency fee agreement has no relevance to the lodestar calculation, including the decision whether to award a multiplier.
Finally, the appellate court noted that by leaving the retainer agreement out of the analysis entirely, the trial courts, and appellate courts, will avoid becoming enmeshed in a “wholly ancillary litigation” which would increase the costs of fee awards. In short, this decision should shut down any future attempts by a manufacturers or distributor to argue, demand production of, or even refer to the existence or terms of plaintiffs’ engagement agreements in the context of motions for attorney’s fees under California Lemon Law.
So what’s the bottom line? The trial court’s sole job in deciding a motion for attorney’s fees under the California Lemon Law is to determine whether the actual time billed for the tasks preformed was reasonable in amount and to billed at a reasonable hourly rate. The court has no discretion to make any further cuts based on outside circumstances, including the theoretical existence of a contingency fee agreement with the buyer.
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