City of Newport Beach v. Sasse

• Decision Date: 21 July 1970
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF NEWPORT BEACH, etc., Plaintiff and Respondent, v. Frederick Hugh SASSE, Defendant and Appellant. Civ. 9611.

Page 476

88 Cal.Rptr. 476

9 Cal.App.3d 803

CITY OF NEWPORT BEACH, etc., Plaintiff and Respondent, v. Frederick Hugh SASSE, Defendant and Appellant.

Civ. 9611.

Court of Appeal, Fourth District, Division 2, California.

July 21, 1970.

Hearing Denied Sept. 24, 1970.

[9 Cal.App.3d 806] Kirtland & Packard, by Austin C. Smith, Jr., Los Angeles, for defendant and appellant.

Tully H. Seymour, City Atty. of the City of Newport Beach, and Thomas L. Woodruff, Asst. City Atty., for plaintiff and respondent.

OPINION

TAMURA, Acting Presiding Justice.

This is an action on an insurance policy issued by Underwriters of Lloyds (defendant, sometimes referred to as Underwriters) to recover attorneys' fees and costs expended by plaintiff (City) in defense of an action for false arrest and false imprisonment brought against the City and certain of its police officers. Defendant appeals from a judgment for the City.

The following is a background of the present action:

The City and the police officers were sued on a complaint alleging two causes of action, the first for false arrest and false imprisonment and the second for unreasonable delay in taking the plaintiff (Gill) before a magistrate. ¹ The City and the officers were insured by defendant against liability for false arrest, false imprisonment and malicious prosecution. A primary certificate provided coverage up to $10,000 (with a $250 deductible) for any one arrest and an excess certificate provided coverage up to $40,000 for any one arrest. The primary certificate contained the following pertinent provisions:

'2. Underwriters also agree to reimburse the assured for the amount of any expenses (which expression shall include all investigations, adjustment and legal expenses) incurred by the assured in the investigation, adjustment and defense of any claims, suits or proceedings which may be brought against the assured.

'* * *s o

'5. In the event of a claim occurring likely to involve the Underwriters hereunder, the assured shall not make any payment, assume any liability or incur any expense without the consent of the Underwriters being first obtained. Underwriters shall be entitled, if they so desire, to take over the conduct in the name of the assured of the defense of any claim, or to prosecute in his name for their own benefit any claim for indemnity or damages or otherwise against any third party, and shall have full discretion in the handling of any claim, and the assured shall give all information and assistance as the Underwriters may reasonably require.'

At the Underwriter's request, plaintiff's city attorney defended the action. Trial resulted in a verdict and judgment in favor of Mr. Gill. On motion of defendants the court ordered a new trial on the issue of damages only. Mr. Gill appealed and the matter ultimately reached the state Supreme Court which affirmed the order granting a new trial. (Gill v. Epstein, 62 Cal.2d 611, 44 Cal.Rptr. 45, 401 P.2d 397.) At the retrial, the Underwriter's retained counsel undertook the defense. Retrial resulted in a judgment for Mr. Gill for a lesser amount than was previously awarded. The City paid $350 directly to Mr. Gill ($250 deductible under the policy on the first cause of action, plus $100 awarded Mr. Gill on his second cause of action).

The City and the Underwriter were unable to agree upon the amount of legal expenses and costs incurred by the City in defending the Gill action and the present action ensued. The evidence may be summarized as follows:

Walter Charamza, now a municipal court judge, was plaintiff's city attorney at the time the Gill action was instituted. He handled the defense of the suit from its inception and until the Supreme Court granted a hearing. Judge Charamza testified that he initially submitted a bill to defendant for legal expenses based upon the reasonable value of his services but, upon defendant's insistence that it was only obligated to reimburse for actual expenditures he recomputed the bill on the basis of actual cost to the City for the time he spent on the case. ² He determined the hourly cost to the City for his services in the following manner: He deducted from the city attorney's budget the salary of the assistant city attorney who did not work on the case and divided the adjusted budget by the number of working hours in a fiscal year based upon an 8-hour day and a 5-day week. He then made a conservative estimate of the time spent on the Gill case which he determined to be 326 hours. On the foregoing basis he testified he submitted an oral demand for a 'total figure (of) * * * $8,021.92.'

Judge Charamza left the city attorney's office in September 1964 to accept his judicial appointment. His successor, Mr. Seymour, testified that after he took office as city attorney he devoted 37 hours to the Gill case.

Defendant introduced into evidence two letters from Mr. Seymour to counsel for defendant offering to settle the City's claim; one letter was dated June 22, 1965, and the other July 26, 1966. In his June 22 letter Mr. Seymour stated in part:

'In addition, I am sending you a cost statement setting forth the City's actual disbursements in defending the case. With regard to the question of attorney's fees, I have recomputed the fees on the following basis: To arrive at an hourly rate I took the total operating budget of the City Attorney's office for each of the four fiscal years we have worked on the case. From the yearly budget totals I subtracted the Assistant City Attorney's salary. I then took 50% Of the net yearly budget and divided that figure by the number of working hours in a year (minus holidays and vacation) * * *.'

The letter gave the figures used in the computations and stated that based thereon, the attorneys' fees would be $2,753.13 and out-of-pocket expenses plus attorneys' fees would total $5,895.83. The letter concluded with the statement: 'I hope that these new figures will give you a basis for settlement of the City's claim.'

The letter of July 26 stated that the City had incurred additional costs of $309.47 and had paid $100 to Mr. Gill in satisfaction of the judgment on the second cause of action, bringing the City's total claim to $6,305.30. The letter concluded with the following paragraph:

'I should also point out that the basis on which we calculated the hourly rate for time expended on the case and the resulting figure for attorney's fees was was very conservative (see my letter of June 22, 1965). These figures were arrived at in an effort to reach a compromise. In the event that it is necessary to litigate this matter, we will certainly revise our calculations.'

The court accepted Judge Charamza's testimony as being the best evidence of the actual cost to the City of the legal services provided by the city attorney, found that the City was entitled to reimbursement of $8,021.92 attorney's fees and $3,428.29 costs, and entered judgment in favor of the City for $11,450.21.

Defendant attacks the judgment on the following grounds: (1) The City had a statutory duty to defend the action against the police officer at City expense and, hence, defendant was not obligated to reimburse the City; (2) cost and expenses should be shared equally by the parties because the policy covered only the first cause of action and not the cause of action for unreasonable delay in taking Mr. Gill before a magistrate; (3) Mr. Seymour's letters contained admissions concerning the actual costs and expenses incurred by the City and the trial court should have found in accordance with those admissions; (4) inasmuch as defendant's liability under the primary certificate was limited to $10,000 the total costs and expenditures to which the City was entitled could not exceed an amount, which when added to the amount of the judgment in the Gill case, would exceed $10,000; (5) the trial court misconstrued the evidence by erroneously assuming that Judge Charamza's 'total figure of $8,021.92' represented attorney's fees only when, in actuality, it included 'out-of-pocket' expenses.

I

Defendant asserts that by virtue of City's statutory obligation under former section 2001 of the Government Code to provide legal defense for the police officers at City expense, defendant is not required to reimburse the City. Defendant may not thus avoid its contractual obligation.

Former section 2001 of the Government Code (Stats.1961, c. 1962, § 2, p. 3669, effective September 15, 1961 ³), in effect at the time the Gill action was filed, provided in relevant part: 'Unless provision has been made by the public entity for the employment of other counsel in connection therewith, the attorney for the public entity, upon request of the employee, shall act as counsel in the defense of any action or proceeding brought against an employee of the public entity, in his official or individual capacity, or both * * *

'* * *ant

'The attorney's fees, costs and expenses of defending the action or proceeding pursuant to this section are a lawful charge against the public entity.' (Emphasis added.)

Former section 1956 of the Government Code (Stats.1961, c. 444, § 1, p. 1517, effective September 15, 1961), also in effect at the time of the Gill action, provided in relevant part: '* * * a * * * city * * * May insure its officers, deputies, assistants, agents, and employees against any liability * * * For injuries or damages resulting from false arrest or false imprisonment, either by self-insurance or In any insurer authorized to transact such insurance in the state. * * *' (Emphasis added.)

Under the policy issued by defendant, it reserved the right to decide whether it would provide defense of an action or permit the insured to do so. In the latter event it contracted to reimburse the insured for costs and legal expenses incurred. Section 2001 and section 1956 expressly authorized it. Defendant's contention is without substance.

II

Defendant's contention that the costs and expenses should be shared...