Cates v. Chiang

• Decision Date: 15 May 2013
• Docket Number: D060570
• Citation: 153 Cal.Rptr.3d 285,213 Cal.App.4th 791
• Court: California Court of Appeals Court of Appeals
• Parties: Candace CATES, Plaintiff and Respondent, v. John CHIANG, as State Controller, etc., et al., Defendants and Appellants.

213 Cal.App.4th 791

153 Cal.Rptr.3d 285

Candace CATES, Plaintiff and Respondent,

v.John CHIANG, as State Controller, etc., et al., Defendants and Appellants.

D060570

Court of Appeal, Fourth District, Division 1, California.

Filed February 7, 2013

Review Denied May 15, 2013

Affirmed in part, reversed in part, and remanded with directions.

See 7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, §§ 256 et seq., 316 et seq.

APPEAL from orders of the Superior Court of San Diego County, David B. Oberholtzer, William S. Dato, Judges. Affirmed in part, reversed in part, and remanded with directions. (Super.Ct. No. GIC821775)

Law Offices of Martin N. Buchanan, Martin N. Buchanan; Legion Counsel, Mark A. Bush; Thomas E. Sharkey, James E. Chodzko and Manuel Corrales, Jr., San Diego, for Plaintiff and Respondent.

Kamala D. Harris, Attorney General; Sara J. Drake, Assistant Attorney General, T. Michelle Laird, Deputy Attorney General, for Defendants and Appellants.

HALLER, Acting P.J.

In 2003, Candace Cates brought a taxpayer action against several defendants, including the California Gambling Control Commission (Commission) and the California State Controller (Controller), alleging these entities had failed to discharge their mandatory statutory duties to collect money derived from gambling owed to the state by various Indian tribes. After Cates engaged in independent investigation and discovery and the court ruled on numerous motions, the trial court granted summary judgment in defendants' favor.

In 2007, this court reversed the summary judgment, finding defendants did not show they complied with their mandatory duties to collect the portion of gambling revenue owed to the state. ( Cates v. California Gambling Control Com. (2007) 154 Cal.App.4th 1302, 65 Cal.Rptr.3d 513 ( Cates I ).) In reaching our conclusions, we found “troubling” the Commissioners' testimony showing the Commission was not conducting the necessary oversight to determine whether delinquencies existed under the applicable standards. ( Id. at p. 1311, 65 Cal.Rptr.3d 513.) We stated that it “appears from the evidence” the Commission is “simply verifying the accuracy of [the tribes'] mathematical calculations,” rather than complying with its legal duty to confirm that the tribes are paying the required amounts. ( Ibid.)

After the case was remanded to the trial court, the Commission completed audits of all the affected tribes and determined the tribes had underpaid the state by about $12.8 million, and the Commission collected at least $11.5 million of this amount. Based on the Commission's audits and its collection of the delinquent funds, Cates was satisfied the Commission was complying with its mandatory duties and dismissed her substantive causes of action. As part of the dismissal, the parties stipulated the court would decide issues pertaining to Cates's entitlement to attorney fees and the reasonable amount of any such fees in bifurcated proceedings.

In the entitlement phase, Cates sought attorney fees under Code of Civil Procedure section 1021.5 (section 1021.5), arguing her lawsuit was a “catalyst” that caused a change in defendants' conduct and vindicated an important public interest. (See Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 21 Cal.Rptr.3d 331, 101 P.3d 140 ( Graham ).) Specifically, Cates asserted that her lawsuit prompted the Commission to enforce proper standards for calculating amounts owed by the tribes and to identify and collect millions of dollars in gambling revenues owed by the tribes. After examining the parties' extensive written submissions and conducting a lengthy hearing, the court (Judge David Oberholtzer) ruled that Cates met her burden to show the elements necessary to recover against the Commission and the Controller on a section 1021.5 catalyst theory, including that her lawsuit was a substantial factor in causing these entities to properly enforce and collect the tribes' substantial delinquencies.

The matter was then reassigned to Judge William Dato for the second phase of the litigation pertaining to the amount of recoverable attorney fees incurred in the six-year litigation. After examining the submitted documentation and legal memoranda, and conducting a hearing, the court awarded $2,011,844, which reflected a lodestar of $1,087,483 (2,398 attorney hours at a $451 blended hourly rate, plus paralegal hours) and a 1.85 positive multiplier. This amount was substantially less than the fees requested by Cates, and was substantially more than that advocated by defendants.

On appeal, the Commission and Controller challenge the court's rulings on the entitlement and amount of attorney fees. On entitlement, they contend the court erred in granting attorney fees under the catalyst theory because there was insufficient evidence showing the lawsuit caused the public agencies to provide the primary relief sought in the lawsuit and because Cates did not make a reasonable attempt to settle the litigation before filing suit. We reject these arguments as to the Commission, but find there is insufficient evidence in the record to show the lawsuit was a catalyst as to the Controller.

On the amount issue, we conclude the court's lodestar determinations were within the court's discretion. We reject the Commission's evidentiary challenges to the reconstructed attorney time records. These challenges go to the weight of the evidence and not to its admissibility. The court had sufficient information to evaluate the reliability of the submitted records.

We further conclude the court acted within its discretion in applying the positive multiplier with respect to the attorney fees incurred to prove the merits of Cates's claims and to establish entitlement to the fees on a catalyst theory. Under the deferential review standard, the court's reliance on the contingent risk factor to enhance these fees was reasonable under the circumstances. However, we determine there was an insufficient basis for the court to award a multiplier on the attorney fees incurred to litigate the appropriate amount of the fee award. As explained, there was no contingent risk associated with this issue, except for the risk created by Cates's own attorneys. We thus remand for the court to strike this enhanced amount from the attorney fees award.

Accordingly, as to the Controller, we reverse the orders in their entirety. As to the Commission, we affirm the order determining that Cates proved she was entitled to attorney fees under a section 1021.5 catalyst theory, but reverse the order establishing the amount of the award with specific directions set forth in the Disposition section.

FACTUAL AND PROCEDURAL SUMMARY

A. Background ¹

In 1997, the Legislature created the Commission, an independent agency charged with regulating and setting gambling policy in California. (Bus. & Prof.Code, § 19800, et seq.) The Commission is governed by five members (Commissioners) appointed by the Governor subject to confirmation by the state senate. (Bus. & Prof.Code, § 19811.)

Two years later, the State of California and various California Indian tribes executed a Tribal–State Gaming Compact (Compact), permitting the tribes to operate public gambling casinos on their respective California reservations. ( Cates I, supra, 154 Cal.App.4th at p. 1305, 65 Cal.Rptr.3d 513.) The Compact requires the tribes to pay a percentage of their gambling revenues to a special state fund (Fund), and to submit quarterly contribution reports regarding the required payments. (See Gov.Code, § 12012.85.)

Under the Compact, tribes must contribute to the Fund a specified percentage of their average “net win,” which is a portion of gambling revenue derived from slot machines. ( Cates I, supra, 154 Cal.App.4th at p. 1305, 65 Cal.Rptr.3d 513.) The Compact states: “ ‘Net Win’ means ‘net win’ as defined by American Institute of Certified Public Accountants [AICPA].” (Compact, § 2.15.) The AICPA defines “net win” as the difference between gaming wins and losses before deducting costs and expenses.

The tribes' first quarterly reports and payments were due on October 30, 2002. Before that time, the Commission hired Dr. John Mills, an independent certified public accountant and accounting professor, to render an expert opinion on the “net win” definition used by the AICPA. Based on his opinion, on September 4, 2002, “the Commission adopted the ‘net win’ definition set forth in the AICPA Audit and Accounting Guide ... which uses the term synonymously with ‘win’ and ‘gross gaming revenue.’ ”

Thereafter many Indian tribes raised concerns about the application of the AICPA “ ‘net win’ ” definition. To resolve these concerns, in January 2003, the Commission again hired Dr. Mills to render an additional expert opinion regarding the “ ‘costs and expenses' that could appropriately be deducted under the AICPA's ‘net win’ definition.” Dr. Mills did not complete this task for more than one year.

The same month that the Commission hired Dr. Mills for the second time, in January 2003, former Governor Gray Davis issued Executive Order D–66–03 (2003 Executive Order) acknowledging that the tribes are required to make quarterly contributions to the Fund under the “net win” formula set forth in the Compact and submit certified quarterly reports to the state for such contributions. The order stated the Commission is the authorized state body that “shall” (1) collect and account for all contributions to the Fund; and (2) collect and analyze the certified quarterly reports submitted by the tribes.

B. The Lawsuit

In 2003, Cates was a law enforcement agent with the California Division of Gambling Control (Gambling Control Division), a separate agency from the Commission. The Gambling Control Division is a law enforcement unit within the California Department of Justice responsible for investigating violations of controlled gambling laws and enforcing those laws. (See Gov.Code, § 15000.1; Bus. & Prof.Code, §...