Attorneys’ Fees Award Cannot Be Reduced In Order For A Government Agency To Be Left With More Money To Run Operations

In Esperanza Rogel et al. v. Lynwood Redevelopment Agency, (— Cal.Rptr.3d —-, Cal.App. 2 Dist., May 2, 2011), the court of appeal considered whether the application of a negative multiplier was appropriate when determining attorneys’ fees based on the factor that it would be better to leave the government agency with more money to run operations. The court of appeal held this was not an appropriate factor to use to reduce attorneys’ fees.

Facts

Esperanza Rogel and additional residents of a mobile home park (“Residents”) filed a complaint and verified petition for writ of mandate against the City of Lynwood, the City Council of the City of Lynwood, and the Lynwood Redevelopment Agency (“LRDA”) alleging that a proposed plan to “change the mobile home park into townhomes would result in the loss of low income rental housing units and would force [Residents] out of the City because it otherwise lacked housing they could afford.” Residents argued that the LRDA violated statutes requiring the building of affordable units, relocation assistance, and setting aside money to assist affordable housing goals. Residents thus requested injunctive and declaratory relief against the LRDA urging the City to adopt a “housing component into the City’s general plan compliant with statutorily mandated elements.” The trial court denied Residents’ petition for writ of mandate against the City and City Council and the case proceeded against the LRDA.

The parties ultimately settled the lawsuit and the trial court entered a stipulation and order that incorporated the parties’ settlement agreement. The settlement agreement provided that Residents “shall not be precluded from seeking to recover reasonable attorneys’ fees and costs . . . for the prosecution of this action.” However, the agreement also provided that nothing “shall preclude the [LRDA] from raising its financial condition (including the financial obligations assumed by the [LRDA] in connection with this Settlement Agreement) in response to any such effort to recover [reasonable attorneys’ fees and costs], nor shall anything in this Settlement Agreement preclude [Residents] from responding to any such argument by the [LRDA].”

Residents filed a motion requesting an award for attorneys’ fees and costs and requested a lodestar figure based on the number of hours worked and hourly rates totaling $2.7 million. Residents further requested the trial court apply a multiplier of 1.2 to the lodestar due to the complexity of the issues in the case, the skill in litigating the case, the importance of the case and results obtained, and the risk taken by Residents’ lawyers in pursuing the case. The LRDA opposed Residents’ motion arguing that a negative multiplier should be imposed because (1) it could pay only a maximum of $160,000, (2) Residents’ attorneys inflated the lodestar, (3) LRDA incurred less fees, (4) the case involved “straightforward statutory issues” and Residents’ had only “limited success.”

In determining the appropriate award of fees, the trial court ruled “it would measure the amount of attorneys’ fees by applying a negative multiplier of 0.2 to the lodestar.” The trial court’s reasoning for its ruling was because the settlement agreement allowed the court to “factor in” the LRDA’s financial status and “the requested attorneys’ fees would significantly reduce the amount that the [LRDA] has to provide additional low-income housing.” The trial court further adopted LRDA’s argument regarding overbilling but the trial court did not calculate and deduct the excessive fees. The trial court also considered the pro bono nature of the attorneys’ work when applying a negative multiplier. As a result, the attorneys’ fees award was reduced from $2.7 million to $540,000.

Decision

The court of appeal provided that when assessing attorneys’ fees, governing California law requires a trial court to “determine whether the litigation before it involved elements ‘justifying augmentation [or diminution] of the unadorned lodestar in order to approximate the fair market value for such services.’” (Emphasis omitted.) If no reasonable connection exists between the lodestar figure and the awarded fee, the fee does not meet the objectives established in Serrano v. Priest (1977) 20 Cal.3d 25, 49, and cannot be upheld.

The appellate court held that the trial court erred when deviating from the lodestar figure in this case. Although there is case law supporting the argument that a court is allowed to apply a negative multiplier, the court of appeal found that this same case law also teaches “that some identified, legally justifiable circumstance must exist in support of a decision to diverge from the lodestar.” Even though California courts have affirmed attorneys’ fees awards against governmental entities based on positive and negative multipliers, the court of appeal points out that “no case cited in the parties’ briefs has affirmed a negative multiplier attorneys’ fees award against a governmental agency which was based on the express factor that it would be ‘better’ for a governmental entity not to pay the lodestar so that the entity’s ability to fund its ongoing operations are not affected.” The appellate court thus found that the funding of the governmental agency’s operations is not relevant to the fair market value of attorneys’ fees for attorneys representing a prevailing party in a lawsuit against a governmental agency. In other words, “a trial court is not permitted to use a public entity’s status to negate a lodestar that would otherwise be appropriate.” The appellate court further held that the Residents’ attorneys “pro bono” status does not justify the application of a negative multiplier.

The court of appeal declined to address the reasonableness of the attorneys’ fees because it was premature to make findings on this issue until the trial court has determined what portions of Residents’ claim for attorneys’ fees are excessive.

Lastly, although the court of appeal agreed with LRDA’s interpretation of the settlement agreement which allowed the trial court to consider its financial status, it did not agree with the trial court’s order because it failed to make express findings on its financial status. Thus, on remand, the appellate court ordered that “if the court determines the LRDA’s financial condition, as shown by evidence of its actual finances, precludes the LRDA from paying a lodestar attorneys’ fees award, then the court may consider that as one of the several factors in fixing the amount of fees.” The appellate court concluded that the trial court cannot cut the fee award, however, based on a concern that it would be “better” for the LRDA to keep money instead of awarding it to Residents’ attorneys.

The court of appeal reversed the order of the trial court awarding attorneys’ fees and remanded with directions to reconsider the appropriate amount of attorneys’ fees to be awarded to Residents based on their lodestar.

Questions

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