Fee Award to Insurance Defense Firm May Be at Augmented Rates

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In Nemecek & Cole v. Horn, 2012 DJDAR 11353 (2012), the California Court of Appeal for the Second Appellate District decided an interesting fee case. The court approved the trial court’s ruling granting fees at approximately $400 per hour despite the fact that the firm was paid fees at the rate of between $100 to $215 per hour. The ruling was based on prior California cases which allowed fee awards above what was “actually incurred.”

The procedural record of the case was lengthy and complex. The plaintiff (lawyer #1) retained a law firm to represent him in a fee dispute against a former client. The matter resulted in a favorable verdict for lawyer #1. However, the award was offset by a significant judgment on a counter‑claim. The lawyer was ordered to pay $380,000 in attorney fees to the former client.

Lawyer #1 alleged that his attorney improperly handled the lawsuit (i.e. lawyer #2). Lawyer #1 tendered a demand to arbitrate the controversy. In response, lawyer #2 filed a counter‑claim for unpaid fees and costs. The arbitrator concluded that lawyer #2 was entitled to nearly $300,000 in attorney fees, and denied any right of offset to lawyer #1.

Lawyer #1 then attempted to collaterally attack the judgment. He alleged improper undisclosed relationships between lawyer #2 and the arbitrator who decided the case. Lawyer #2 and the arbitrator were members of the same local county bar association’s executive committee. On that basis, lawyer #1 filed papers seeking to overturn the arbitration award. The trial court entered judgment in favor of lawyer #2.

The court of appeal affirmed the decision of the trial court. The court of appeal held: 

"the reasonable market value of the attorney’s services is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorneys claiming fees charge nothing for their services, charge at below‑market or discounted rates, represent the client on a straight contingent fee basis, or are in‑house counsel.”

This is not the first time a court has awarded above‑market rates to a fee applicant. A case in point is PLCM Group, Inc. v. Drexler, 22 Cal. 4th 1084 (2000). In that case, the California Supreme Court utilized augmented rates on behalf of a company represented by in‑house counsel. That court ruled that a fee award may be based on market value, not the actual cost to the company. Based on these rulings, there is likely to be many more fee cases filed with requests for awards for more than what was actually incurred.