Etcheson v. FCA US LLC, D072793

• Decision Date: 06 December 2018
• Docket Number: D072793
• Citation: 242 Cal.Rptr.3d 35,30 Cal.App.5th 831
• Court: California Court of Appeals Court of Appeals
• Parties: Jamie L. ETCHESON et al., Plaintiffs and Appellants, v. FCA US LLC, Defendant and Respondent.

30 Cal.App.5th 831

242 Cal.Rptr.3d 35

Jamie L. ETCHESON et al., Plaintiffs and Appellants,

v.FCA US LLC, Defendant and Respondent.

D072793

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

Filed December 6, 2018

Rosner, Barry & Babbit and Hallen D. Rosner, Arlyn L. Escalante, San Diego, Shaghayegh Dinata-Hanson for Plaintiffs and Appellants.

Nixon Peabody and David Henry Tennant, Scott S. Shepardson, San Francisco, for Defendant and Respondent.

O'ROURKE, J.

Plaintiffs and appellants Jamie L. Etcheson and Kelly M. Etcheson brought an action under the Song-Beverly Consumer Warranty Act ( Civ. Code,¹ § 1790 et seq., commonly known as the "lemon law," hereafter the Act) against defendant and respondent FCA US LLC (FCA) after experiencing problems with a vehicle they had purchased new for about $40,000. After admitting the vehicle qualified for repurchase under the Act, FCA made two offers to compromise under Code of Civil Procedure section 998 ( section 998 ): one in March 2015, to which plaintiffs objected and the trial court found was impermissibly vague, and a second in June 2016, offering to pay plaintiffs $65,000 in exchange for the vehicle's return. Following the second offer, the parties negotiated a settlement in which FCA agreed to pay plaintiffs $76,000 and deem them the prevailing parties for purposes of seeking an award of attorney fees.

Plaintiffs moved for an award of $89,445 in lodestar attorney fees with a 1.5 enhancement of $44,722.50 for a total of $134,167.50 in fees, plus $5,059.05 in costs. Finding the hourly rates and amount of counsels’ time spent on services on plaintiffs’ behalf to be reasonable, the trial court tentatively ruled plaintiffs were entitled to recover $81,745 in attorney fees and $5,059.05 in costs. However, in its final order the court substantially reduced its award, concluding plaintiffs should not have continued to litigate the matter at all after FCA's March 2015 section 998 offer. It found their sought-after attorney fees after the March 2015 offer were not "reasonably incurred," and cut off fees from that point, awarding plaintiffs a total of $2,636.90 in attorney fees and costs.

Plaintiffs appeal from the postjudgment order. Pointing out their ultimate recovery was double the estimated value of FCA's invalid March 2015 section 998 offer, which they had no duty to counter or accept, they contend the trial court abused its discretion by cutting off all attorney fees and costs incurred after that offer. We agree. We reverse the order and remand to the court with directions to award plaintiffs reasonable attorney fees for their counsels’ services, including those performed after FCA's March 2015 offer, as well as reasonable fees for services in pursuing their motion for fees and costs.

FACTUAL AND PROCEDURAL BACKGROUND

In November 2010, plaintiffs purchased a new 2010 Chrysler Town & Country for $40,040.69, including sales tax and fees. After one year and about 15,000 miles of usage, the car began to exhibit abnormal engine noises and irregular shifting problems. These problems persisted for the next several years, leading plaintiffs in August 2014 to request that FCA repurchase the vehicle. FCA advised plaintiffs they could not do anything for them because plaintiffs had put more than 40,000 miles on the vehicle.

In early February 2015, plaintiffs sued FCA and the vehicle's seller, Peck Jeep Eagle, Inc., for damages, civil penalties and attorney fees under the Act, attaching their retail installment sale contract as an exhibit to the complaint. About two weeks later, FCA informally offered "to make restitution of the actual price paid or payable, including any incidental or consequential expenses incurred" for the vehicle, less offsets permitted by statute, plus reasonable attorney fees, expenses, and costs, in exchange for the vehicle's return. FCA asked plaintiffs to provide a copy of the sales contract, current registration, payment history and a 30-day payoff so it could calculate the amount of restitution. It also asked plaintiffs to sign a release. FCA specifically stated that the offer "should not be construed as an admission of liability." Plaintiffs responded several days later, declining to accept the offer.²

FCA answered the complaint in early March 2015 and acknowledged the vehicle "now qualifies for repurchase under the [Act]." FCA otherwise denied each allegation of the original complaint, including those that would entitle plaintiffs to a civil penalty.³ It also filed a cross-complaint against plaintiffs seeking a judicial declaration that it did not willfully violate the Act and that plaintiffs were not entitled to any civil penalty. FCA asked the court in advance to cut off plaintiffs’ entitlement to attorney fees incurred after FCA's February 2015 informal offer.

About a week later, FCA served an offer to compromise and to repurchase the vehicle under section 998. In an accompanying letter, FCA stated it did "not have the information necessary to compute the appropriate amount of restitution ... or the amount of attorney fees and other costs," but committed "to pay the full amounts owed pursuant to the relevant code sections." Accordingly, FCA offered to make restitution in an amount equal to the actual price paid for the vehicle (including charges for the transportation and manufacturer-installed options as well as collateral charges such as sales tax, license fees, and registration fees, but excluding nonmanufacturer items installed by a dealer or the buyer) less an offset for plaintiffs’ personal use, plus reasonable costs, expenses, and attorney fees.⁴ Plaintiffs objected to the offer, stating in part: (1) its terms were vague, ambiguous, uncertain, and incomplete; (2) section 1793.2, subdivision (d)(2)(B) required restitution in an amount equal to the actual price "paid or payable" rather than "paid" as indicated in the offer; (3) it did not specify a dollar amount of restitution; (4) it did not indicate the mileage to be used in the offset calculation; (5) it was silent as to specific incidental and consequential damages; (6) it failed to specify if and when the vehicle was to be returned or the date plaintiffs would be paid; (7) it was unclear as to whether plaintiffs would be required to sign a release; (8) it limited the recovery of fees by cutting off attorney fees from the date of the offer, contradicting the Act; and (9) it was silent as to prejudgment interest.

Following the March 2015 section 998 offer, the matter proceeded with a demurrer to FCA's cross-complaint, discovery and other litigation over the next fifteen months in anticipation of the July 29, 2016 trial date.

On June 27, 2016, FCA served an amended section 998 offer proposing to pay plaintiffs $65,000 in exchange for dismissal of the action and the vehicle's return. FCA offered to pay reasonable costs, expenses and attorney fees under section 1794, subdivision (d) based on actual attorney time expended up to the date of the offer either stipulated by the parties or by motion. By mid-July 2016, the parties had negotiated a settlement in which FCA agreed to pay plaintiffs $76,000 plus attorney fees, costs and expenses, and agreed plaintiffs were the prevailing parties.

Unable to reach an agreement with FCA for the amount of attorney fees, costs, and expenses, plaintiffs moved for $139,227 in costs and fees, comprised of lodestar fees of $89,445, a 1.5 multiplier on the fees of $44,723, and costs of $5,059.05. In the motion, they summarized the litigation and efforts of their counsel, O'Connor & Mikhov, LLP, who took the matter on a contingent fee basis. They also submitted declarations from attorneys and staff, including partners Mark O'Connor⁵ and Steve Mikhov. Both detailed the hourly rates of attorneys and staff from their firm in the matter and described attorney fee awards in other lemon law matters. Attorney Mikhov further detailed the bases for their multiplier request, namely the risks associated with contingent fee arrangements and the results achieved. Additionally, Mikhov stated it is "not uncommon for attorney's fees and costs to exceed the client's damages ... which is the reason behind the fee shifting provision of the [Act]." According to Mikhov, his firm's clients (including plaintiffs) realize cost savings due to the experience his firm has with lemon law cases because relevant work product from one case may be used similarly in others.

FCA opposed the motion. Asserting plaintiffs’ attorneys incurred the "maximum amount of attorneys’ fees possible before resolving the matter," it argued the requested fees were excessive and unreasonable. FCA argued plaintiffs’ attorneys ignored or objected to its settlement offers as too vague and unspecific, despite FCA's "straightforward and concise" offers to pay the "full amount of restitution according to the statute's formula, and to pay reasonable costs, expenses, and fees incurred." Further, FCA argued plaintiffs’ counsel had all the information needed to make "[a] simple calculation" to estimate the total dollar amount of FCA's offers. According to FCA, these refusals preceded "aggressive discovery outside the bounds of what the value of the case warrant[ed]" on a case they described as a basic Song-Beverly action without any novel legal or unique technical knowledge required. FCA asserted that plaintiffs’ counsel created the risk of nonpayment by failing to accept or respond to FCA's offers, and were solely responsible for the delays in the case. FCA argued that the Act should not permit plaintiffs to recover attorney fees incurred solely in pursuit of a civil remedy or more fees; it asserted plaintiffs’ counsel's sole objective was to prolong the litigation so as to incur substantial attorney fees before settling the action. FCA did not, however, establish with legal authority or otherwise what hours and rates would be considered reasonable for a case with a favorable result for the plaintiffs.

In reply, plaintiffs argued...