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Rd Legal Funding, LLC v. Erwin & Balingit

January 10, 2011

RD LEGAL FUNDING, LLC,
PLAINTIFF,
v.
ERWIN & BALINGIT, LLP, ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: M. James Lorenz United States District Court Judge

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR INTEREST, ATTORNEY'S FEES, AND COSTS

In this diversity action for breach of contract and related state law claims, Plaintiff alleged it advanced to Defendants certain funds in exchange for assignment of Defendants' attorney's fees earned in two different litigations. After collecting the anticipated fees, instead of turning them over to Plaintiff, Defendants allegedly converted them for their own use. Plaintiff filed a motion for partial summary judgment, which was granted. After Plaintiff's dismissal of claims against Defendant Darrell N. Erwin, judgment was entered against Defendants Erwin & Balingit, LLP and Clarence M. Balingit for the amount owed under the assignment agreements. Plaintiff has filed a motion to amend judgment to add prejudgment interest, attorney's fees, costs and postjudgment interest. For the reasons which follow, Plaintiff's motion is GRANTED IN PART AND DENIED IN PART.

In the order granting Plaintiff's summary judgment motion, the court found that Defendants breached two agreements with Plaintiff for the assignment of legal fees Defendants were entitled to receive for settlement of In re HCA ("HCA Agreement") and Avery v. Werdowatz ("Avery Agreement," collectively "Agreements").*fn1 (Order Granting Mot. for Summ. Adjudication of Claims Against Defs Erwin & Balingit, LLP and Clarence M. Balingit, filed Aug. 19, 2009 ("Order"), at 4.) The total amount due from Defendants to Plaintiff under the Agreements was $234,038.04. (Id.) This sum was incorporated into the Clerk's Judgment. Plaintiff now requests that prejudgment interest, attorney's fees, costs and postjudgment interest be added to the judgment.

In diversity cases, state law applies to the issues whether prejudgment interest should be awarded and the rate of interest. Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949, 961 (9th Cir. 2008); Citicorp Real Estate, Inc. v. Smith, 155 F.3d 1097, 1107-08 (9th Cir. 1998). The Agreements provide for Plaintiff to recover, among other things:

(x) all funds paid to [Erwin & Balingit, LLP] or on account of [Erwin & Balingit, LLP] by Plaintiff, plus (y) all damages, . . . reasonable costs and expenses (including attorneys' fees and costs) incurred by [Plaintiff] arising or resulting from such Breach . . ., plus (z) interest calculated on the amounts described in clauses (x) and (y) above . . ... (Pl.'s Ex. 1, HCA Agreement ¶ 3(a) & Avery Agreement ¶ 3(a).) The court has already found that Defendants had breached the Agreements. (Order at 4.) Under California law, "[a]ny legal rate of interest stipulated by a contract remains chargeable after a breach thereof, as before, until the contract is superseded by a verdict or other new obligation." Cal. Civ. Code §3289(a). Accordingly, Plaintiff is entitled to recover prejudgment interest.

The agreed-upon rate was "equal to the lesser of (i) twenty four (24%) percent per annum, or (ii) the maximum rate permitted by law in the jurisdiction in which [Erwin & Balingit, LLP] conducts the practice of law . . .." (Pl.'s Ex. 1, HCA Agreement ¶ 1(c) & Avery Agreement ¶ 1(c).) Erwin & Balingit, LLP was a California law firm. (See id. at 1, respectively.)

Plaintiff argues that the applicable interest rate is the maximum rate pursuant to the California Constitution, or 11.25%. The California Constitution permits parties to contract for a not exceeding the higher of (a) 10 percent per annum or (b) 5 percent per annum plus the rate prevailing on the 25th day of the month preceding the earlier of (i) the date of execution of the contract to make the loan or forbearance, or (ii) the date of making the loan or forbearance established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13a of the Federal Reserve Act as now in effect or hereafter from time to time amended (or if there is no such single determinable rate of advances, the closest counterpart of such rate as shall be designated by the Superintendent of Banks of the State of California unless some other person or agency is delegated such authority by the Legislature).

Cal. Cons. Art. XV §1(2). The Agreements were entered on March 8, 2007. (Pl.'s Ex. 1, HCA Agreement at 1 & Avery Agreement at 1.) The applicable discount rate of the Federal Reserve Bank of San Francisco is therefore 6.25%, see www.frbsf.org/banking/data/discount/ index.html, and the maximum prejudgment interest rate is 11.25%.

Pursuant to the Agreements, prejudgment interest began to accrue "from the date of [Erwin & Baligit, LLP's] receipt of any amount of the Settlement and/or Legal Fees." (Pl.'s Ex. 1, HCA Agreement ¶ 3(c)(iii) & Avery Agreement ¶ 3(c)(iii).) In the HCA case, the check for Defendants' fees is dated January 23, 2008. (Pl.'s Ex. 3.) Defendants received the fees in the case on April 5, 2007. (Id. Ex. 2.) Judgment was entered on April 29, 2010. Defendants assigned to Plaintiff the fees of $70,251.15 in the HCA case (HCA Agreement at 1 & ¶¶ 1(a) & 2(a)) and $163,786.89 in the Avery case (Avery Agreement at 1 & ¶¶ 1(a) & 2(a)). Accordingly, the amount of prejudgment interest on the HCA fees is $17,882.02 and for the Avery fees it is $56,489.58. The total amount of prejudgment interest is $74,371.60.

Federal Rule of Civil Procedure 59(e) applies to the issue whether a judgment should be amended to add prejudgment interest. McCalla v. Royal MacCabees Life Ins. Co., 369 F.3d 1128 (9th Cir. 2004). Plaintiff's motion was timely filed under Rule 59(e). "There are four grounds upon which a Rule 59(e) motion may be granted: 1) the motion is necessary to correct manifest errors of law or fact upon which the judgment is based; 2) the moving party presents newly discovered or previously unavailable evidence; 3) the motion is necessary to prevent manifest injustice; or 4) there is an intervening change in controlling law." Turner v. Burlington N. Santa Fe R. Co., 338 F.3d 1058, 1063 (9th Cir. 2003) (emphases, internal quotation marks and citation omitted). Because Plaintiff is entitled to recover prejudgment interest, Plaintiff's motion to amend judgment to include it is GRANTED.

Plaintiff next requests attorney's fees and costs pursuant to Federal Rule of Civil Procedure 54(d). "In a diversity case, the law of the state in which the district court sits determines whether a party is entitled to attorney fees, and the procedure for requesting an award of attorney fees is governed by federal law." Carnes v. Zamani, 488 F.3d 1057, 1059 (9th Cir. 2007).

Rule 54(d)(2)(A) provides in pertinent part that "[a] claim for attorney's fees and related nontaxable expenses must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages." Under California law, contractual attorney's fees need not be proved at trial as an element of damages. Port of Stockton v. W. Bulk Carrier KS, 371 F.3d 1119, 1121 (9th Cir. 2004) (analyzing Cal. law). Accordingly, attorney's fees must be requested by a Rule 54(d) motion.

Pursuant to the Agreements, Plaintiff is entitled to recover "reasonable costs and expenses (including attorneys' fees and costs)." (Pl.'s Ex. 1, HCA Agreement ¶ 3(a) & Avery Agreement ¶ 3(a).) Under such circumstances, the party prevailing in a breach of contract action is entitled to recover attorney's fees. Cal. Civ. Code § 1717(a); see also Berkla v. Corel Corp., 302 F.3d 909, 919 (9th Cir. 2002) (interpreting Cal. law).

Plaintiff requests $69,045.75 for attorney's fees. It argues that it should be allowed to recover all of the fees incurred, rather than reasonable fees as provided in the Agreements. Plaintiff's reliance on Ketchum v. Moses, 24 Cal.4th 1122, 1133 (2001), is unavailing. First, Ketchum addresses statutory attorney's fees for defending important civil rights, which is not the case here. ...


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