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Sunstone Behavioral Health, Inc. v. Alameda County Medical Center

August 19, 2009

SUNSTONE BEHAVIORAL HEALTH, INC., PLAINTIFF,
v.
ALAMEDA COUNTY MEDICAL CENTER DEFENDANT.



MEMORANDUM AND ORDER RE: MOTION FOR ATTORNEYS' FEES AND EXPENSES, REQUEST TO RECOVER COSTS

I. Factual and Procedural Background

Plaintiff Sunstone Behavioral Health Inc. ("Sunstone") brought this action on November 22, 2006, against defendant Alameda County Medical Center ("ACMC") alleging breach of contract and breach of the implied covenant of good faith and fair dealing with respect to an "Outpatient Psychiatric Consulting Contract." The matter came on regularly for trial before the court, sitting without a jury, on June 16, 18, 19, and 23, 2009. The court ruled in plaintiff's favor, awarding $492,680.58 in damages, and judgment was entered accordingly.

Plaintiff now moves for attorneys' fees and untaxed costs pursuant to California Civil Code section 1717 in the amounts of $328,970.65 and $15,922.46, respectively, and also requests to recover taxable costs in the amount of $10,637.31 pursuant to Federal Rule of Civil Procedure 54(d)(1) and Eastern District Local Rule 54-292.

II. Discussion

A. Motion for Attorneys' Fees and Untaxed Costs

"A federal court sitting in diversity applies the law of the forum state regarding an award of attorneys' fees." Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000). Because this case arises under diversity jurisdiction, 28 U.S.C. § 1332(a), the court must apply California law in deciding plaintiff's motion for attorneys' fees and untaxed costs.

Although California law "ordinarily does not allow for the recovery of attorneys' fees," California Civil Code section 1717 provides for an award of attorneys' fees where "the parties contractually obligate themselves" to so compensate each other. Farmers Ins. Exchange v. Law Offices of Conrado Joe Sayas, Jr., 250 F.3d 1234, 1237 (9th Cir. 2001) (citing Cal. Civ. Code 1717; Trope v. Katz, 11 Cal. 4th 274, 279 (1995)). Section 1717 specifically instructs:

In any action on a contract, where the contract specifically provides that attorney[s'] fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney[s'] fees in addition to other costs.

Cal. Civ. Code 1717(a).

The contract upon which this action was brought contained the following provision regarding attorneys' fees and costs:

Failure of [defendant] to pay any outstanding fees in full prior to termination of this Agreement, for any reason, shall subject [defendant] to specific damages in the amount of one thousand dollars ($1,000) per day until fees are paid in full, plus attorneys['] fees and expenses incurred in collecting outstanding fees and enforcing the terms of this provision. (Ex. 1 § F.3, at 11.)

"California courts liberally construe 'on a contract' to extend to any action '[a]s long as an action "involves" a contract and one of the parties would be entitled to recover attorney[s'] fees under the contract if that party prevails in its lawsuit.'" In re Baroff, 105 F.3d 439, 442-43 (9th Cir. 1997) (quoting Milman v. Shukhat, 22 Cal. App. 4th 538, 545 (1994)) (alteration in original). This flexible standard is easily satisfied in the instant case, and defendant does not dispute that plaintiff's lawsuit was brought "on a contract." (See Opp'n Mot. Atty. Fees 1:24-26.)

Although the attorneys' fees provision of the contract in this case only refers to "attorneys['] fees and expenses incurred in collecting outstanding fees and enforcing the terms of this provision" (Ex. 1 § F.3, at 11 (emphasis added)), section 1717 instructs that "[w]here a contract provides for attorney[s'] fees, . . . that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract." Cal. Civ. Code 1717(a). California courts have held that this provision requires, as a matter of law, that a contract which provides for an award of attorney[s'] fees for enforcing any part of a contract must be interpreted to provide for an award of attorney[s'] fees for enforcing any [other] part of the contract, regardless of any limitation in the language of the fees clause.

Pajaro Dunes Rental Agency, Inc. v. Pajaro Dunes Ass'n, No. 97-2516, 2002 WL 202412, at *2 (N.D. Cal. Feb. 5, 2002) (citing Myers Building Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App. 4th 949, 968 (1993)).

Here, the contract is silent as to whether the parties were represented by counsel during its negotiation, and defendant does not dispute that the attorneys' fees provision applies to enforcing the entire contract and not merely the collection of outstanding fees. (See Opp'n Mot. Atty. Fees 1:24-26.) Nonetheless, defendant contends that plaintiff was not a "prevailing party" with respect to fees incurred between June 15, 2006, and October 4, 2006. Defendant further argues that certain fees and untaxed costs should be disallowed as unreasonable or unnecessarily incurred.

1. Whether Plaintiff Was a "Prevailing Party" for Fees Incurred Between June 15, 2006 and October 4, 2006

On October 4, 2006, plaintiff voluntarily dismissed a prior action against defendant before subsequently re-filing the complaint and initiating this case on November 22, 2006. (See Opp'n Mot. Atty. Fees 4:19-5:6; see also Complaint (Docket No. 2), Sunstone Behavioral Health Inc. v. Alameda County Med. Ctr., (No. 06-1643); Complaint (Docket No. 2), Sunstone Behavioral Health Inc. v. Alameda County Med. Ctr., (No. 06-2664).) Relying on Civil Code section 1717(b)(2), defendant contends that plaintiff is precluded from obtaining attorneys' fees incurred before October 4, 2006. Section 1717(b)(2) instructs, "Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section."

Although neither party can claim to have "prevailed" in the prior action that was subject to voluntary dismissal, defendant does not dispute that plaintiff is the prevailing party in the instant action. Furthermore, while a court "may not award fees for legal work that is unrelated to a cause of action for which fees are authorized," Thompson Pac. Constr., Inc. v. City of Sunnyvale, 155 Cal. App. 4th 525, 555-56 (2007), the fees incurred between June 15, 2006, and October 4, 2006, plainly relate to the instant lawsuit, as the two complaints allege identical causes of action and pertain to the same factual circumstances. Thus, it is reasonable to infer that the efforts expended by plaintiff's counsel between June 15, 2006, and October 4, 2006, were not unnecessary and in fact directly furthered the prosecution of the instant lawsuit. (See Aug. 10, 2009 Browne Decl. ¶ 7 (providing that the second complaint was filed after only 1.1 hours of additional attorney time).) Accordingly, plaintiff is not precluded from recovering reasonable attorneys' fees incurred between June 15, 2006, and October 4, 2006.

2. Whether Certain Fees Are Unreasonable or Were Unnecessarily Incurred

The purpose of California Civil Code section 1717 is "to establish uniform treatment of fee recoveries in actions on contracts containing attorney fee provisions." PLCM Group v. Drexler, 22 Cal. 4th 1084, 1094-95 (2000) (quoting Santisas v. Goodin, 17 Cal. 4th 599, 616 (1998)). To achieve this goal, the trial court is given "broad authority to determine the amount of a reasonable fee." Id. at 1095 (citing Int'l Indus., Inc. v. Olen, 21 Cal. 3d 218, 224 (1978)); see Montgomery v. Bio-Med Specialties, Inc., 183 Cal. App. 3d 1292, 1297 (1986) (providing that the trial court has "wide latitude in determining the amount of an award of attorneys['] fees"). In exercising this authority, the court is primarily guided by principles of equity. See Beverly Hills Props. v. Marcolino, ...


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