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Firstsource Solutions USA, LLC v. Tulare Regional Medical Center

United States District Court, E.D. California

June 28, 2019



         This matter involves a breach of contract dispute concerning the provision of various fee collection services performed by plaintiff and counter-defendant Firstsource (hereinafter "plaintiff or "Firstsource") on behalf of defendant and counter-claimant Tulare Regional Medical Center (hereinafter "defendant" or "TRMC"). This matter is currently before the court on plaintiffs motion for attorneys' fees, costs, and interest. (Doc. Nos. 98, 105.) Following submission of requested supplemental briefing, on December 18, 2018, the case again came before the court for hearing. Attorneys Emily Feinstein and Patrick Proctor-Brown appeared telephonically on behalf of plaintiffs, and attorney Benjamin Nicholson appeared in person on behalf of defendants. Having considered the parties' briefing, and having heard the oral arguments of counsel, the court will grant plaintiffs motion in part.


         This case concerns a dispute over billing-related services provided by plaintiff to defendant. Virtually all the salient facts were undisputed. The parties entered a valid contract on November 18, 2010 in which plaintiff agreed to perform billing and other business services for defendant. (Doc. No. 62 at 4-6.) Plaintiff was to receive a contingency fee of 3.75 percent of the total fee payments that it collected for defendant. (Id. at 6.) The contract stated defendant would pay invoices monthly and be liable for a service charge of 1.5 percent per month for any invoices unpaid after more than thirty days. (Id. at 9.) The contract also included a fee-shifting provision that states: "In the event of any default of the payment provision herein, [TRMC] agrees to pay, in addition to any defaulted amount, all actual legal costs, including but not limited to, attorney fees, collection costs and court costs First source has incurred to collect the overdue amount." (Doc. No. 98-1 at 4.)

         Defendant terminated the agreement by letter on September 11, 2014, to be effective May 31, 2015. (Doc. No. 62 at 11.) Plaintiff continued to perform services for defendant between September 11, 2014 and May 31, 2015. (Id. at 12.) Nevertheless, defendant failed to pay plaintiff for services rendered during this period. (Id. at 14-15.) Plaintiff invoiced defendant for $724, 385.08, which defendant refused to pay. (Id. at 16-23.) Plaintiff began assessing late fees on unpaid invoices in January 2015. (Id. at 25.)

         Plaintiff filed this suit on July 21, 2015 alleging one claim for breach of contract in its complaint. (Doc. No. I.)[1] On June 13, 2018, the court granted summary judgment in favor of plaintiff. (Doc. No. 93.) On July 12, 2018, plaintiff filed a motion for attorneys' fees. (Doc. Nos. 98, 99.) Plaintiffs motion for attorneys' fees first came before the court for hearing on August 21, 2018. (Doc. No. 104.) During the hearing, the court granted both parties permission to submit supplemental briefing addressing the lodestar analysis. Plaintiff submitted supplemental briefing on September 19, 2018. (Doc. Nos. 105, 106.) Defendant submitted an opposition and objections on October 2, 2018. (Doc. Nos. 107, 108.) Plaintiff submitted a reply on October 9, 2018. (Doc. No. 109.)[2]


         Plaintiff argues that it is the prevailing party in this action, having both secured a judgment for the service fees that defendant failed to pay and defeated defendant's counterclaim. (Doc. No. 98-1 at 3.) Therefore, plaintiff contends that it is entitled to reasonable attorneys' fees, actual legal costs, and prejudgment interest. (Id.)

         A. Contractual Agreement for Attorneys' Fees

         Plaintiff asserts that it should be awarded its actual attorneys' fees pursuant to the fee-shifting provision of the parties' contract. Plaintiff argues it is entitled to an award in the amount of the attorneys' fees that it paid to its counsel (hereinafter "Quarles & Brady" or "plaintiffs counsel"). (Doc. No. 98-1 at 3-12.)

         "In federal litigation, the American Rule generally precludes an award of attorneys' fees absent statutory authorization or an enforceable contractual fees provision." Golden Pisces, Inc. v. Fred WahlMarine Const, Inc., 495 F.3d 1078, 1081 (9th Cir. 2007); see also MRO Commc 'ns, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1281 (9th Cir. 1999) (describing the "American Rule" in which "each party must bear its own attorneys' fees in the absence of a rule, statute or contract authorizing such an award").

         However, when there is an enforceable contractual fees provision, federal courts apply state law in awarding attorneys' fees. See Resolution Tr. Corp. v. Midwest Fed. Sav. Bank of Minot, 36 F.3d 785, 800 (9th Cir. 1993) (noting that, where award of attorneys' fees was premised on contractual provision, "the district court should have applied California law in interpreting the attorneys' fees provision in the contract") (citing Hellon & Assoc, Inc. v. Phoenix Resort Corp., 958 F.2d 295, 300 (9th Cir. 1992)); Krug v. Wells Fargo Bank, N.A., No. 11-CV-5190 YGR, 2012 WL 3257814, at *1 (N.D. Cal. Aug. 8, 2012) ("State law governs the interpretation and application of contractual attorneys' fees provisions."); Lyon Fin. Servs., Inc. v. Tomlinson, No. CV-10-0067-PHX-JAT, 2011 WL 977702, at *1 (D. Ariz. Mar. 18, 2011) ("Where a contract provides for an award of fees to the prevailing party, both California and Arizona state law require the Court to honor that provision and award fees, as stipulated in the contract.").

         California law permits parties to include provisions in contractual agreements that explain how the parties wish to account for attorneys' fees that may arise from disputes related to the contract. See Cal. Civ. Proc. Code §§ 1021, 1033.5(a)(10); Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338, 1341 (1992) ("It is quite clear from the case law interpreting Code of Civil Procedure section 1021 that parties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract."). Courts look to the language of the agreement between the parties to determine the extent of attorneys' fees covered. See Monster, LLC v. Superior Court, 12 Cal.App. 5th 1214, 1226 (2017) ("[Although] [t]he parties to a contract are free to agree that one or more of them shall recover their attorney fees if they prevail on a tort or other noncontract claim, . . . the right to recover those fees depends solely on the contractual language.") (quoting Brown Bark III, L.P. v. Haver, 219 Cal.App.4th 809, 820 (2013)); Cruz v. Ayromloo, 155 Cal.App.4th 1270, 1277 (2007) (awarding attorneys' fees for tort claims based on "the broad language of the attorneys' fees clause in the lease agreement [which] covered all fees in any civil action stemming from the lease"); Thompson v. Miller, 112 Cal.App.4th 327, 336-37 (2003) (holding that an attorneys' fee award appropriate with respect to tort claims related to contractual provisions, based on the broad language of contract); Santisas v. Goodin, 17 Cal.4th 599, 608 (1998) ("If a contractual attorney fee provision is phrased broadly enough ... it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims."); Gerard v. Salter, 146 Cal.App. 2d 840, 848 (1956) (disallowing attorneys' fees for an arbitration because the contract stated reasonable attorneys' fees would be awarded if either party brought suit "in court").

         In this case, the parties' contract contains the following operative language: "In the event of any default of the payment provision herein, [defendant] agrees to pay, in addition to any defaulted amount, all actual legal costs, including but not limited to, attorney fees, collection costs and court costs [plaintiff] has incurred to collect the overdue amount." (Doc. No. 1-1 at 2.) Defendant argues that only the attorneys' fees incurred in "collecting] the overdue amount" may be included in an attorney fee award under the contract, and therefore any time spent defending against its counterclaim should not be included therein. (Doc. No. 100 at 7-8.) In its supplemental briefing, defendant argues that "[g]iven the simplicity of the complaint and the complexity of the counterclaim" one third of the attorneys' fees should be apportioned to the complaint, and two thirds should be apportioned to the counterclaim. (Doc. No. 107 at 6.)

         Adopting defendant's position in this regard, however, would assign an impossible task to the court. As plaintiff correctly notes, defendant's single counterclaim for breach of contract was precisely the same as its affirmative defense that plaintiff had materially breached the contract. (Compare Doc. No. 6 at 4 (alleging an affirmative defense of anticipatory repudiation based on plaintiffs material breach of the contract), with Id. at 7 (alleging a counterclaim based on plaintiffs purported material breach of the contract).) In its order granting summary judgment in favor of plaintiff, the court concluded that it would not consider evidence that the defendant failed to disclose during discovery and, accordingly, rejected both defendant's counterclaim and its affirmative defense due to the absence of admissible evidence. (See Doc. No. 93 at 9-14.) As discussed in that order, the untimely evidence which defendants put forward was "the sole evidence before the court supporting defendant's opposition, its affirmative defenses, and its counterclaim." (Id. at 10.) Therefore, there is no logical way to separate the attorney time expended litigating the counterclaim from that spent litigating the affirmative defense. See Reynolds Metals Co. v. Alperson, 25 Cal.3d 124, 129-30 (1979) ("Attorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed."); Amtower v. Photon Dynamics, Inc., 158 Cal.App.4th 1582, 1604 (2008) ("[Allocation is not required when the issues are 'so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not.'") (quoting Akins v. Enterprise Rent-A-Car Co., 79 Cal.App.4th 1127, 1133 (2000)); Yield Dynamics, Inc. v. TEA Sys. Corp., 154 Cal.App.4th 547, 577 (2007) (same).

         Therefore, the court will not attempt to allocate attorney time between that which was necessary to litigate plaintiffs claim and that reasonably expended to defend against defendant's counterclaim. Plaintiff may collect attorneys' fees for time expended on both fronts.

         B. Lodestar Method

         Plaintiffs original motion argued that attorneys' fees should be awarded based on the actual legal fees paid. (See Doc. No. 98-1 at 3.) At the hearing on August 21, 2018, the court indicated that a lodestar analysis was necessary to evaluate the reasonable attorneys' fees in this case and permitted plaintiff the opportunity to provide supplemental briefing addressing this issue. (See Doc. No. 104.) In that supplemental briefing, plaintiff provided a lodestar analysis and argued that the amount sought for attorneys' fees, based on the fees actually paid by plaintiff, is reasonable when cross-checked with the lodestar amount. (See Doc. No. 105 at 2-10.)

         Courts typically use the traditional lodestar approach to calculate attorneys' fees awardable under a contract. See, e.g., Williams v. Wells Fargo Bank, N.A., No. 5:13-cv-03387-EJD, 2017 WL 4877439, at *l-2 (N.D. Cal. Oct. 30, 2017) (using lodestar method to determine contractual attorneys' fees); Salameh v. Tarsadia Hotel, No. O9cv2739-GPC(BLM), 2014 WL 3797283, at *2 (S.D. Cal. July 31, 2014) ("Attorneys' fees under California Civil section 1717, the provision for attorney's fees in a contract action, are calculated using the lodestar method."); Meredith v. e-MDs, No. 14-cv-00899 JAM CMK, 2014 WL 2612112, at *4 (E.D. Cal. June 11, 2014) ("Traditionally, statutory/contractual attorneys' fees are calculated using the 'lodestar' calculation."); Suretec Ins. Co. v. BRC Const, Inc., No. 2:11-cv-2813 KJM AC, 2013 WL 4676334, at *1 (E.D. Cal. Aug. 30, 2013) ("In California, 'the fee setting inquiry . . . ordinarily begins with the "lodestar," i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.'") (quoting PLCM Grp., Inc. v. Drexler, 22 Cal.4th 1084, 1095 (2000)).

         "The 'lodestar' is calculated by multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonable hourly rate." Camacho, 523 F.3d at 978 (quoting Ferland v. Conrad Credit Corp., 244 F.3d 1145, 1149 n.4 (9th Cir. 2001)); see also Moreno v. City of Sacramento, 534 F.3d 1106, 1111 (9th Cir. 2008) ("The number of hours to be compensated is calculated by considering whether, in light of the circumstances, the time could reasonably have been billed to a private client."). Applying these standards, "a district court should exclude from the lodestar amount hours that are not reasonably expended because they are 'excessive, redundant, or otherwise unnecessary.'" Van Gerwen v. Guarantee Mut. Life Co., 214 F.3d 1041, 1045 (9th Cir. 2000) (quoting Hensley v. Eckerhart, 461 U.S. 424, 434 (1983)).

         1. Reasonable Hourly Rates

         In assessing fee applications, the reasonable hourly rates are calculated according to the prevailing market rates in the relevant legal community. Blum v. Stenson, 465 U.S. 886, 895 (1984); Gonzalez v. City of Maywood, 729 F.3d 1196, 1205 (9th Cir. 2013); Ingram v. Oroudjian, 647 F.3d 925, 928 (9th Cir. 2011) ("We have held that '[i]n determining a reasonable hourly rate, the district court should be guided by the rate prevailing in the community for similar work performed by attorneys of comparable skill, experience, and reputation.'") (quoting Chalmers v. City of Los Angeles, 796 F.2d 1205, 1210-11 (9th Cir. 1986)); Van Skike v. Dir., Office of Workers' Comp. Programs, 557 F.3d 1041, 1046 (9th Cir. 2009); Carson v. Billings Police Dep't, 470 F.3d 889, 891 (9th Cir. 2006). Typically, the "relevant legal community" is the forum district[3] and the local hourly rates for similar work should normally be employed. Gonzalez, 729 F.3d at 1205; Prison Legal News, 608 F.3d at 454; Gates v. Rowland, 39 F.3d 1439, 1449 (9th Cir. 1994); Deukmejian, 987 F.2d at 1405.

         The parties state that the following hourly rates represent the prevailing hourly rates in the Eastern District of California:


Plaintiff’s Requested Rates

Defendant’s Requested Rates [4]

Partners (20 years) $370-$575/hour $400/hour
Partners (10-20 years) $300/hour
Associates (4-10 years) $275-$325/hour $250/hour
Associates (0-3 years) $200/hour
Paralegals $230-$245/hour $150/hour
Litigation Support $170-$245/hour $0/hour

         First, defendant argues that plaintiffs requested rates are too high to reflect the prevailing rates within Fresno. (Doc. No. 107 at 7-8.) Defendant argues that the cases and hourly rates cited by plaintiff reflect a lodestar cross-check in a class action settlement context and are therefore inapplicable (id. at 8-9), and that plaintiffs use of the "Laffey Matrix" methodology is also inapplicable (id. at 9-10). Additionally, defendant argues that the court should not award out-of-district attorney fee rates in this case, because competent local counsel was available to represent plaintiff. (Id. at 10-12.)

         a. Lodestar Cross-Check

         In support of its argument that Quarles & Brady's actual billing rates reflect the prevailing attorney fee rates in this district, plaintiff points to several cases within this district where similar rates have been found to be reasonable. (Doc. No. 105 at 3-4.) Defendant, however, counters that in those cases relied upon by plaintiff, the judges of this district were merely conducting lodestar cross-checks in the class action litigation context. (Doc. No. 107 at 8-9.)

         In class actions, "the district court has discretion in common fund cases to choose either the percentage-of-the-fund or the lodestar method" in awarding attorneys' fees. Vizcaino v. Microsoft Corp.,290 F.3d 1043, 1047 (9th Cir. 2002). When district courts award attorneys' fees based upon the percentage of the fund, they may also cross-check such an award by calculating the lodestar, which "may provide a useful perspective on the reasonableness of a given percentage award." Id. at 1051. Where a lodestar is merely being used as a cross-check, the court "may use a 'rough calculation of the lodestar.'" Bond v. Ferguson Enters., Inc., No. 1:09-cv-1662 OWW MJS, 2011 WL 2648879, at *12 (E.D. Cal. June 30, 2011) (quoting Fernandez v. Victoria Secret Stores, LLC, No. CV 06-04149 MMM (SHx), 2008 WL 8150856 (CD. Cal. July 21, 2008)). In the context of a lodestar cross-check, hourly rates are merely used as a secondary method to evaluate the reasonableness of attorneys' fees based upon the percentage ...

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