What Constitutes Extrinsic Evidence that Changes the Standard of Review?

Well-established, seemingly clear principles like contract interpretation being a matter of law (absent ambiguity requiring extrinsic evidence to resolve), and de novo review of legal questions aren’t always so clear in practice. California National Bank v. Woodbridge Plaza, LLC, case no. G038623 (4th Dist. May 30, 2008, ordered published June 20, 2008) is a case in point.

At issue was the meaning of a lease provision that determined the maximum rent for the extended term. The landlord, who prevailed at the bench trial, contended that the court’s interpretation of the lease was governed by substantial evidence review because there was conflicting opinion testimony on the meaning of the lease provision.

Sound disingenuous to you? Me, too, and the court isn’t buying it, either:

We review a trial court’s construction of a lease de novo as long as there was no conflicting extrinsic evidence admitted to assist in determining the meaning of the language. [Citation.] If a lease provision is ambiguous, parol evidence may be admitted as to the parties’ intentions if the language is reasonably susceptible to a suggested interpretation. [Citation.] If there is conflicting evidence necessitating a determination of credibility, we use the substantial evidence test. [Citation.]

Here, not only was there no conflicting extrinsic evidence, there was no extrinsic evidence at all as to the intent of the parties about paragraph 3. Defendant points to testimony of the parties’ “differing interpretations of the lease.” But an interpretation of the lease is not the same as evidence of intent when negotiating or executing the lease, and there was no evidence of the latter. Thus, we construe the meaning of the lease de novo.

But the court does buy the trial court’s interpretation of the lease, so the landlord wins anyway.

(Yes, this case is old . . . by blogging standards, anyway. I turned up this post in my drafts queue.)

Contract Claims against Public Entities are Governed by Claims Statutes

In City of Stockton v. Superior Court (Civic Partners Stockton, LLC), case no. S139237 (Dec. 3, 2007), the Supreme Court holds that a claim for breach of contract against a public entity is subject to the claims presentation requirements of the Government Code.  (Govt. Code, §§ 905, 945.4.)  And to help keep people from losing sight of that holding, the court endorses “Government Claims Act” as the shorthand name for the claims statutes in place of the commonly used, and traditional, “Tort Claims Act.”

Beware the Statute of Frauds

As I think many lawyers are, I am constantly amazed at the relationships people are willing to enter into on little more than a handshake.  As every first-year law student knows, the Statute of Frauds can prevent the enforcement of a certain contracts not in writing, and in Elias Real Estate, LLC v. Tseng, case no. B192857 (2d Dist. Oct. 25, 2007), it rears its ugly head and gives us a rare example of reversal due (in part) to insufficiency of the evidence. If your looking for a company you can trust then I highly recommend Mission real estate.

The four defendant Tseng brothers own some real property as tenants in common, which they lease to the California company that imports and sells the clothes produced by their overseas businesses.  Arthur runs the California company and is the only one of the brothers that resides in the U.S.  When Arthur lists the property for sale, he is the only person brokers or buyers deal with, and he is the only brother to sign the sale agreement.  He has no written authority from his three brothers to act on their behalf in the sale.  When the brothers balk after the sales agreement is signed, the buyer sues for specific performance and prevails at trial.

California’s Statute of Frauds is pretty clear on sales of real property.  A contract for the sale of property is invalid unless subscribed by the party to be charged, or subscribed by the party’s agent with the written authority of the party to be charged.  (Civ. Code, § 1624, subd. (a)(3).)

The trial court found that Arthur’s agency was in writing, but the Court of Appeal finds no substantial evidence to support the finding.  Although Arthur had represented during the course of negotiations that he was an authorized agent, there was no written agency agreement introduced at trial and the only testimony on the issue was that the brothers had not granted written authorization.  Though under California’s “secondary evidence rule” (Evid. Code, § 1521) a party may prove the contents of a document through otherwise admissible secondary evidence, there simply was no evidence here that such a document ever existed.

Plaintiff also argued that the authorization to act for the brothers need not be in writing because the sale was within the scope of Arthur’s authority in running the brothers’ business.  No dice.  The sale of real property might be within the ordinary course of a company whose business is holding, selling and buying real property, but it is not within the ordinary course of running a clothing business.

The amazing part of this case is that plaintiff knew at the time of signing the sale agreement both that Arthur was not the sole owner of the property and that an agency to sell property must be in writing . . . yet apparently never demanded to see any written agency authorization or for the other brothers to sign the sale agreement.

The Pro Bono Road to Riches!

Don’t be shy about asking for attorneys fees. Don’t be shy to ask for more than 100 times the suggested schedule in the local rules. Don’t be shy to ask for an amount that far exceeds the amount of damages awarded to your client. Don’t be shy about anything, including the fact that you’re asking for several hundred thousand dollars in fees for a case you took on pro bono.

Had O’Melveny and Myers been more forward, they might have received more than the roughly $124,000 in fees approved by the trial court and affirmed by the Court of Appeal in Cruz v. Ayromloo, case no. B190959 (2d Dist. Oct. 3, 2007).

The Case

The landlord in Cruz was sued by more than 30 tenants on several causes of action arising from landlord’s refusal to let the tenants return to their units after they were evacuated by the city because the building was unsafe. The trial court awarded a per-rental-unit measure of damages, plus damages individual to each tenant, such as the return of security deposits, loss of personal property, and emotional distress.

Four of the tenants — apparently the only ones with written lease agreements that included an attorney fee provision — moved for attorney fees of more than $400,000. They insisted this figure excluded fees unique to the remaining plaintiffs (such as for discovery relating only to other plaintiffs or for trial time related to issues exclusive to the other plaintiffs).

The trial court significantly trimmed the amount but awarded nearly $124,000 in fees. The Court of Appeal affirms in full.

The Rejected Challenges to the Attorney Fee Award

First, the fact that the award exceeds the amount set forth in the schedule of suggested fees in the local rules (specifically, Los Angeles Superior Court Local Rule 3.2) — indeed, the landlord contends the amount of fees awarded is 39 times the guideline in the schedule (and the fees awarded were less than a third of what was requested!) — doesn’t mean the court abused its discretion. The rule itself allows the court to depart from the guidelines and Civil Code section 1717 says fees shall be “fixed by the court.” It was reasonable for the court to use a “lodestar” method of calculation: hours times hourly rates.

Second, the court did not abuse its discretion in awarding fees in an amount greater than the damages awarded. “It is not uncommon to award attorneys’ fees in an amount higher than the total damages awarded to a plaintiff or plaintiffs in a particular case.”

Third, the court did not err by awarding fees for the non-contract claims as well as the contract claim. The fee provision in this case applied to any action “in connection with” the lease. Since all the claims and damages, including those in tort, arose from the breach of the lease, there was no need to apportion fees between contract and tort causes of action.

Fourth, the decision confirms that fees for work done regarding issues of fact or law common to all the plaintiffs do not have to be reduced to the requesting plaintiffs’ pro rata share:

In any event, respondents sought fees for legal work performed solely on their behalf and the fees were awarded only to them and not to the other tenants. Respondents and the other tenants all lived in the same building, were evacuated from the building, and were not allowed to return to the building by appellant. All tenants asserted the same causes of action. The attorneys conducted legal research pertaining to the overarching legal issues common to all tenants, including the Los Angeles Rent Stabilization Ordinance and the claims for forcible detainer, wrongful eviction, and negligent infliction of emotional distress. The attorneys had to do the same legal research and analysis in preparing their case on behalf of respondents, irrespective of the number of potential tenants benefiting from the legal work performed.

***

[T]he fact other tenants incidentally benefited from the legal work performed on behalf of respondents does not diminish respondents’ contractual right to recover attorneys’ fees litigating issues common to all.

(Footnotes omitted.)

The Pro Bono Angle

Finally, it’s very interesting that the trial court trimmed the $413,000 request by half right off the top because “counsel knew this was a mildly pro bono type of work.” Mildly pro bono?

Plaintiffs did not cross-appeal to contest the amount of the award. I’m sure O’Melveny now wishes they did:

Finally, we find it important to emphasize something we are not deciding in this case. Respondents elected not to appeal the trial court’s ruling the fee award should be reduced in part because respondents’ counsel had agreed to provide representation on a “pro bono” basis. This court’s affirmance of the judgment should not be construed as signifying our approval of this particular element of that judgment. We do not find it self-evident a law firm’s commendable willingness to provide its services on a pro bono basis to low income clients should necessarily justify a diminishment in the fee award when that pro bono representation proves successful. Because respondents did not directly challenge the court’s decision to reduce the fee award based on the pro bono nature of the litigation, we had no reason to invite the parties to brief the issue. Our research indicates courts reduce a fee award to adjust, for example, for duplicative work, for lack of success on certain issues, or the like. However, our research uncovered no case in which a trial court reduced a fee award simply because of the “pro bono type of work” involved. Moreover, in the analogous situation of contingent fee and legal aid lawyers—where again the clients are not responsible for paying legal fees out of their own pockets—the majority of courts have approved awards at a full level of “reasonable” fees.

(Footnotes omitted.)

This is very interesting in light of the fact that the attorneys who represented the plaintiffs “pro bono” in the recent U.S. Supreme Court case against Seattle Public Schools have generated some controversy for seeking $1.8 million in statutory fees.

Admittedly, the cases do implicate somewhat different concerns. In Cruz, no one is going to complain much about sticking it to a landlord who is seen as stealing his tenants’ homes out from under them. In the Seattle Schools case, however, much of the controversy centers around the fact that the attorneys are seeking fees from a public entity, and specifically from a school district. The argument against recovery is that if pro bono representation is indeed for the public good, then the attorneys should not take funds from education.

Might the Cruz court have felt differently in the case of a public sector defendant?

For more on the Seattle schools case

From the Seattle Times: If attorneys get paid for pro bono work, is it still pro bono?

From the Seattle Post-Intelligencer: “. . . a little contrary to the idea that pro bono is for the public good” and some letters to the editor that include several on the side of the attorneys.

And here’s some coverage by the ABA, the Sound Politics blog, and Overlawyered.

UPDATE (10/9/07): I did not make this point as clearly as I should have – the court’s discussion on recovering fees in pro bono cases is dictum, as is made plain by the court’s opening words: “Finally, we find it important to emphasize something we are not deciding in this case.” (Emphasis added.) This is all interesting discussion, but not something that can result in Supreme Court review of the issue.

One other item to note in the decision is that the trial court’s award of fees was pursuant to a contractual provision rather than a fee-shifting statute. The California cases cited in the court’s dictum in support of the proposition that fees should be recoverable in pro bono cases were all concerned with fee-shifting statutes. One wonders whether a party who agrees to a contractual fee provision contemplates paying out fees where none actually accrue.

UPDATE # 2 (10/10/07): I am writing an article on this case, and so looked at it yet again.  Relevant to my contract provision/fee statute dichotomy, the fee provision in this case entitled a party to recover “any reasonable attorney’s fees,” much like many fee statutes do.  It did not explicitly require fees to be “incurred” to be recoverable.  The existence of “incurred” as a modifier of “fees” in a fee-shifting statute, however, has seldom, if ever, been an obstacle to recovery in a California pro bono case.  I’ll elaborate in the article.

Mercedes-Benz Asks for a Low Standard for Assessing the Merchantability of an Automobile

Click on the “Only Mercedes-Benz” link on the home page of the Mercedes-Benz USA website, and you are presented with a new page with the following title: 

Leadership

120 years later, the legend continues.

So I find it rather funny that in Isip v. Mercedes-Benz USA, LLC, case no. B192382 (2d Dist. Sept. 12, 2007), Mercedes-Benz requested the court to instruct the jury that the warranty of merchantability is not breached so long as a vehicle gets you from place to place in one piece.  Isip contended she experienced the following problems with her car:

The air-conditioning emitted an offensive smell every time it was turned on, giving Isip a headache and making her sister sneeze.  The car made a loud tugging noise when she engaged the gear, and it made a clanking noise when Isip released the brake in reverse.  When the car automatically shifted gears to pick up speed, the car pulled back, hesitated, and then took off like a slingshot.  It also hesitated and pulled back before slowing down.  The engine made a loud knocking sound and there were fluid leaks.  White smoke came out of the exhaust system. 

At the time of trial, Isip’s automobile still had problems with smoke, transmission hesitation, and a clanking noise in the brakes.The trial court refused a request from Mercedes-Benz to add language to the standard instruction (CACI 3210) for the implied warranty of merchantability.  The requested addition was:

The implied warranty of merchantability does not impose a general requirement that goods precisely fulfill the expectations of the buyer; rather, it provides for a minimum level of quality which the law describes as being fit for the ordinary purposes for which such goods are used.  In the case of automobiles, the implied warranty of merchantability can be breached only if the vehicle manifests a defect that is so basic that it renders the vehicle unfit for its ordinary purpose of providing transportation. 

The court of appeal affirmed the trial court’s refusal to give the additional instruction:

[Mercedes-Benz’s] attempt to define a vehicle as unfit only if it does not provide transportation is an unjustified dilution of the implied warranty of merchantability.  We reject the notion that merely because a vehicle provides transportation from point A to point B, it necessarily does not violate the implied warranty of merchantability.  A vehicle that smells, lurches, clanks, and emits smoke over an extended period of time is not fit for its intended purpose. 

Let alone fit to be a Mercedes-Benz!  But what the heck, everyone produces a lemon once in a while.

Given the amount at issue (the car’s purchase price was approximately $47,000 and the judgment for Isip was only $20,000), this case could not have been very cost-effective to litigate through appeal, and initially I was surprised no settlement was reached at the trial level.  Perhaps Mercedes-Benz was using this as a test case for the requested jury instruction.  A decision adopting the requested language would have given automobile manufacturers a significant advantage in future suits.

Arbitration Agreement May Be Invoked by Non-Parties Sued as Alter Egos of a Party to the Agreement

A contract contains an arbitration provision.  Plaintiff sues you on the contract, even though you are not a party, on the ground that you are an alter ego of the corporation that is a party to the agreement.  Can you invoke the arbitration provision even though you are not a party to the contract?

Yes, says the Court of Appeal in Rowe v. Exline, case no.A116463 (1st Dist. July 31, 2007).  After all, reasons the court, the whole theory behind alter ego liability is that the corporation and the alter ego are one in the same.  Since the corporate party is entitled to the benefit of the provision, so must be the alter ego.  The court also finds that the plaintiff is equitably estopped by his assertion of alter ego liability to deny that the defendants are entitled to the benefits of the provision.

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Third Party Beneficiary to Contract May Invoke Attorney Fee Provision

A few days ago, in my post “Of Walnut Trees and Attorney Fees,” I took issue with the Third District Court of Appeal’s holding that a party suing on a contract that it alleges does not include an attorney fee provision is not entitled to recover attorney fees notwithstanding that the defendant alleges that additional written terms of the contract contain an attorney fee provision.  Yesterday, a different panel of the Third District Court of Appeal and I agree on the attorney fee issue in Laduca v. Polyzos, case no. C050757 (July 16, 2007).  The issue is whether the property owner, as a third party beneficiary of the contract between the general contractor and subcontractor, is able to invoke the attorney fee provision of the general-sub contract when the owner brings suit on the contract directly against the sub.

The court says the property owner is entitled to attorney fees under the general-sub contract.  The property owner is indisputably an intended third party beneficiary of the general-sub contract, the attorney fee provision is extremely broad, and the contract imposes no limitation on third party rights.  Thus, the third party beneficiary’s right to enforce the contract includes the right to enforce the attorney fee provision.

Confusing Jurisdiction with Forum Selection

It’s common to see forum selection clauses in contracts.  It’s also common to see such clauses purport to limit “jurisdiction” to the courts of a given state or even a specific county within the state.

Nice try.  No matter the skill of the lawyers, parties simply cannot strip a court of subject matter jurisdiction by private agreement, as we are reminded by the Third District Court of Appeal in Miller-Leigh, LLC v. Henson, case no. C051652 (June 28, 2007).  The parties to a lease guaranty for leased property in Arizona included a provision stating that the guaranty was governed by Arizona law and that “Arizona is the proper jurisdiction for any matters relating to” the lease or guaranty.  The lease provisions was more restrictive, stating that “any court action relating to this Lease shall be instituted and prosecuted only in a court of competent jurisdiction in Maricopa County, Arizona, and each party waives his rights, if any, to institute or prosecute suit in any forum other than Maricopa County, Arizona.”  The California trial court sustained defendants’ demurrer brought on the ground that it lacked subject matter jurisdiction over the claims for breach of guaranty, fraud, account stated and open book account, but denied their motion for attorney fees because it held it likewise lacked jurisdiction to decide the fee motion.

The Court of Appeal reverses.  While the trial court could have chosen to enforce the forum selection clause, it erred in dismissing for lack of jurisdiction.  The trial court’s subject matter jurisdiction over these claims cannot be limited by the agreement of the parties.  The concepts of subject matter jurisdiction and forum selection are distinct, and the forum selection clause cannot be enforced by a demurrer asserting lack of subject matter jurisdiction.

This is not to say, of course, that the forum selection clause is unenforceable.  Two statutory procedures exist for challenging the forum.  Code Civil Procedure section 418.10, subdivision (a)(2) authorizes a motion to dismiss on the ground of inconvenient forum, and Code of Civil Procedure section section 410.30, subdivision (a) provides that a court may dismiss an action “in whole or in part on any conditions that may be just” where “in the interest of substantial justice an action should be heard in a forum outside this state.”

Great Lawyers Can Write Unenforceable Arbitration Agreements

I’m beginning to wonder if writing the perfect arbitration provision is something like understanding the rule against perpetuities. You all remember that case from torts class, don’t you? The court holds that an attorney can’t be liable for malpractice related to the rule against perpetuities because no one understands the rule against perpetuities. Hence, the attorney could not have violated the standard of care.

A little over a month ago, the Ninth Circuit ruled in Davis v. O’Melveny & Myers, case no. 04-56039 (9th Cir. May 14, 2007) that the arbitration provision in the employment contract of a prominent, powerful L.A.-based law firm was unenforceable. Not just unenforceable, but “shock the conscience” unenforceable. The case was blogged about at Workplace Prof Blog, the Adjunct Law Prof Blog, and Settle it Now Negotiation Blog, among many others.

Just as you’re asking yourself, “If a high-powered law firm can’t draft an enforceable arbitration provision for its own contracts, then who can?” comes Gatton v. T-Mobile USA, Inc., case no. A112082 (June 22, 2007), in which the arbitration provision in T-Mobile’s customer agreement gets similar treatment in California state court. The First District Court of Appeal holds that T-Mobile’s arbitration provision in its customer agreements is unenforceable because of the minimal degree of procedural unconscionability arising from its adhesive nature and the “high degree of unconscionability arising from the class action waiver.”

I’m going to go out on a limb and say that T-Mobile probably had pretty good lawyers draft its agreement, and that the lawyers who drafted the provision for O’Melveny were no slouches, either. Who will fall next?