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LONGS DRUG STORES CALIFORNIA, INC. v. FEDERAL INSURANCE CO.

August 26, 2005.

LONGS DRUG STORES CALIFORNIA, INC., Plaintiff,
v.
FEDERAL INSURANCE CO.; DOES 1 through 50, Defendants.



The opinion of the court was delivered by: JEFFREY S. WHITE, District Judge

ORDER RE DAMAGES PORTION OF PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Now before the Court is the damages portion of the motion for summary judgment by Plaintiff Longs Drug Stores California, Inc. ("Longs") and Plaintiff's request for sanctions. After careful consideration of the parties' papers and the relevant legal authority, for the reasons set forth herein, the Court GRANTS Long's damages portion of its summary judgment motion and GRANTS Long's request for sanctions against Defendant Federal Insurance Company ("Federal").

BACKGROUND

  As the parties are familiar with the facts and procedural history of this case, there is no need to recite them here, except where useful in reaching the disposition. The Court previously granted Long's motion for summary judgment and denied Federal's cross-motion for summary judgment, holding that Federal owed Longs a duty to provide coverage under an insurance policy for the underlying Palacio Action. Pursuant to Federal's request, the Court continued Long's motion only as to the amount of damages owed. Based on the Court's previous rulings, Federal does not dispute it owes damages to compensate Longs for the cost of defending the underlying Palacio Action, but merely disputes that the amount Longs' seeks is reasonable and justified.

  Longs is also moving for sanctions against Federal based on Federal's alleged failure to meet and confer regarding damages.

  ANALYSIS

  Longs contends it is entitled to attorneys' fees and costs incurred in defending against the underlying Palacio Action, plus pre-judgment interest through August 5, 2005, totaling $2,909,361.36. This amount reflects reductions Longs made in response to Federal's opposition to the damages portion of the pending motion for summary judgment. (Reply Br. at 6.)

  It is undisputed that the measure of Long's damages in this matter are the reasonable expenses of defending the underlying Palacio Action, including the costs and attorneys' fees, incurred after the defense was tendered to Federal, see Arenson v. National Auto. & Cas. Ins. Co., 48 Cal.2d 528, 537 (1957), as well as pre-judgment interest. Longs bears the burden of demonstrating the existence and amount of litigation expenses. Aerojet-General Corp. v. Transport Indem. Co., 17 Cal.4th 38, 64 (1997). However, once Longs does so, the litigation expenses incurred are presumed to be reasonable and necessary defense costs, and Federal bears the burden of demonstrating that such expenses were unreasonable or unnecessary. Id.

  A. Amount of Fees and Costs

  The Court concludes that Longs presented sufficient evidence to demonstrate it actually incurred $1,938,626.52 in attorneys' fees and costs, excluding pre-judgment interest, after it tendered the underlying Palacio Action to Federal. (Declaration of Paul R. Johnson in support of Reply Brief, ¶¶ 2, 3, Exs. 1, 2.) This amount reflects a reduction of $300,000 for the self-insured retention and does not include expenses relating to insurance coverage work, pursuit of damages resulting from the alleged defamatory publications by counsel for the Palacio plaintiffs, or for two entries for work on Qarshi v. Longs Drugs Stores Corp. that were inadvertently included in the invoices for the Palacio Action. (Johnson Decl., ¶¶ 2, 14, 15, Ex. 2.) The burden thus shifts to Federal to demonstrate that such expenses were unnecessary or unreasonable.

  Federal attacks the amount of damages Longs seeks on several grounds.*fn1 First, Federal argues that Longs is not entitled to recover costs for seeking a retraction for statements the Palacio plaintiffs' attorney made in the press or for costs related to potential claims for defamation or malicious prosecution against the plaintiffs' attorney. (Opp. Br. at 6.) Longs concedes that costs related to the defamation action should not be included as damages, but submits evidence demonstrating that expenses relating to seeking a retraction and pursuing a malicious prosecution claim were reasonable and related to defending the Palacio Action or mitigating damages from the underlying action. (Reply Br. at 9-10, 20-22; Declaration of Robert D. Essa in support of Reply Brief, ¶¶ 19-21.) Federal has not met its burden to demonstrate such expenses were unreasonable or unnecessary.

  Second, Federal argues that Longs double billed for Mr. Essa's time on July 13, 200 and May 2, 2001. (Opp. Br. at 7.) In response, Longs demonstrates that it did not actually double bill, but instead, accidentially used the wrong date on two invoices. (Reply Br. at 12-13; Essa Decl., ¶¶ 12-18, Exs. 3-9.) Accordingly, Federal has not met its burden to demonstrate such expenses were unreasonable or unnecessary.

  Third, Federal contends the rates charged were unreasonable. In support of this argument, Federal submits the declaration of its expert, Brand Cooper, who states that the initial rates charged by Longs' attorneys, which ranged between $125 to $165 an hour were reasonable, but that rates were then increased in an excessive manner. (Opp. Br. at 7-8; Cooper Decl., Ex. 2.) According to Federal, a 7% annual increase would have been reasonable. (Id. at 8.) As support, Federal cites to a case in which a magistrate judge recommended that the court approve the rates charged as reasonable. Etchell v. Royal Ins. Co., 165 F.R.D. 523, 546-47 (N.D. Cal. 1996). Notably, Federal does not argue the amounts charged were unreasonable, but only that the rates were increased too dramatically. Federal did not submit any authority demonstrating that increasing rates too quickly, even if the overall rate charged was reasonable, would render the attorneys' fees excessive or unreasonable. Therefore, Federal fails to meet its burden to demonstrate that the rates charged were unreasonable.

  Fourth, Federal argues that it should not be responsible for Longs' pursuit of attorneys' fees and costs in the underlying Palacio Action, and cites Hogan v. Midland Nat'l Ins. Co., 3 Cal. 3d 553, 564-66 (1970) for the proposition that such fees and costs are not an integral part of a reasonable defense by the insured. (Opp. Br. at 9.) However, Hogan does not stand for this proposition. Therefore, Federal fails to demonstrate that efforts by the insured to recover fees and costs is unreasonable or unnecessary. Alternatively, Federal contends it is entitled to an offset of $70,794.30, the amount of fees and costs awarded by the trial court in the Palicio Action. Although Longs was awarded $70,794.30, it does not appear that Long has yet collected on this amount. Within ten days from the date of this order, Longs shall inform Federal in writing of how much, if any, Longs has received of the $70,794.30. Federal shall be entitled to deduct the amount Longs has actually received from the damages awarded pursuant to this order. To the extent any portion of the $70,794.30 remains outstanding, Longs shall assign such portion to Federal.

  Fifth, Federal attacks the descriptions in some of Longs' bills. According to Federal, some descriptions on the invoices are too vague or inappropriately billed in block amounts, rather than describing how much time was spent on one particular task. (Opp. Br. at 10-11.) However, Federal does not dispute that Longs actually incurred these expenses. Nor does Federal provide any authority demonstrating that the manner in which an expense is described in an invoice may make an expense unreasonable, or that Longs has an obligation to attach a specific expense to every small task, rather than describing several tasks ...


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