In re Tobacco Cases I

Decision Date26 April 2013
Docket NumberD061077, D061676
Citation156 Cal.Rptr.3d 755,216 Cal.App.4th 570
CourtCalifornia Court of Appeals Court of Appeals
Parties IN RE TOBACCO CASES I

Wright & L'Estrange, Robert C. Wright, San Diego; Jones Day, Irvine, Noel J. Francisco, for Defendant and Appellant R.J. Reynolds Tobacco Company.

Kamala D. Harris, Attorney General, Karen Leaf, Assistant Attorney General, and Jeanne Finberg, Deputy Attorney General, for Plaintiff and Respondent State of California.

McCONNELL, P. J.

R.J. Reynolds Tobacco Company (Reynolds) challenges trial court orders issued after remand in the last appeal in this matter, which award the People of the State of California $2,943,920.63 in contractual attorney fees as the prevailing parties in an action to enforce a consent decree and final judgment (Consent Decree) entered on a master settlement agreement (MSA). Reynolds contends the court erred in its prevailing party determination because the People did not achieve "greater relief" on the contract as required by Civil Code section 1717 ( section 1717, subdivision (b)(1) ). Alternatively, Reynolds contends the court erred by applying market rates for San Francisco Bay Area attorneys when determining the lodestar amount of fees, instead of local San Diego market rates, and by not further reducing the lodestar amount in consideration of the People's partial success. We affirm the orders.

FACTUAL AND PROCEDURAL BACKGROUND1

In November 1998 Reynolds and several other tobacco manufacturers entered into the MSA with most states, including California, to resolve government claims pertaining to public health concerns about smoking and the marketing of tobacco products to minors. In December 1998 the State and Reynolds signed the Consent Decree, under which the San Diego County Superior Court approved the MSA and retained exclusive jurisdiction over its implementation and enforcement.

One aspect of the Consent Decree permanently enjoins participating tobacco manufacturers from "using or causing to be used" any "cartoon" in the advertising, promoting, labeling or packaging of tobacco products. The Consent Decree incorporates the MSA's definition of "cartoon," which is "any drawing or other depiction of an object, person, animal, creature or any similar caricature that satisfies any of the following criteria: [¶] (1) the use of comically exaggerated features; [¶] (2) the attribution of human characteristics to animals, plants or other objects, or the similar use of anthropomorphic technique; or [¶] (3) the attribution of unnatural or extrahuman abilities, such as imperviousness to pain or injury, X-ray vision, tunneling at very high speeds or transformation."

In 2006 Reynolds launched an advertising campaign called "Farm Rocks" to promote the sale of Camel cigarettes to adult smokers who enjoy rock music performed by artists on independent labels.2 Reynolds used the campaign in various media, including special advertisements in publications, a promotional compact disc and a Web site. As part of the campaign, Reynolds placed a four-page "gatefold" advertisement in the November 15, 2007 Rolling Stone magazine, which was its 40th anniversary edition. The gatefold advertisement consisted of photographic collages, or photomontages, of various fanciful objects. It was placed adjacent to five pages of the magazine's editorial content, which indisputably included cartoons under any definition of the term.

In December 2007 the People moved to enforce the Consent Decree, which embodies the MSA. The People sought injunctive relief, a declaration Reynolds violated the cartoon ban "thousands of times in 2006 and 2007 as part of its Farm Rocks campaign advertisements of Camel cigarettes," and sanctions based on the number of violations. The People's theory was that Reynolds violated the cartoon ban in two ways, by including cartoons in its own advertising, and by having its gatefold advertisement in Rolling Stone adjacent to the magazine's editorial pages, which were covered with cartoons (adjacency issue). Pending resolution of the action, Reynolds voluntarily suspended the Farm Rocks campaign and instituted "new [media] insertion guidelines to avoid future adjacency of its ads to cartoons."

Trial began in January 2009, and during opening statement Reynolds represented to the court that it had permanently ceased the Farm Rocks advertising campaign, and thus injunctive relief was unwarranted. After a lengthy trial, the court agreed with that assessment. The court issued a declaration that "a relatively small portion" of Reynolds's images in the Farm Rocks campaign violated the cartoon prohibition. The objectionable images included "jet-powered tractors which fly," "radios flying by means of attached helicopter rotors," "televisions that grow on plant stems," and tractors "with wheels made of film reels able to defy gravity." The court rejected the People's theory on the adjacency issue. The court determined the Consent Decree gives it jurisdiction to assess sanctions against Reynolds, but it declined to do so because its violation of the cartoon ban was unintentional and a relatively small part of the advertisements, the State stipulated there was no proof of the amount of actual damage on which to base a sanctions award, and it would be difficult to quantify the number of persons exposed to the Farm Rocks campaign. In the first appeal in this matter, we affirmed the court's order on the merits. ( In re Tobacco Cases I, supra, 186 Cal.App.4th at pp. 44, 48–52, 111 Cal.Rptr.3d 313.)

In a subsequent proceeding, the trial court awarded the People $707,882.50 in attorney fees, and $32,673 in other costs, under a provision in the Consent Decree. The court rejected Reynolds's argument that section 1717 applies to the Consent Decree, and alternatively determined that even if the statute is applicable, the People prevailed because they won on the "significant issue" of whether Reynolds violated the Consent Decree by using banned cartoons in its Farm Rocks campaign. The court denied Reynolds's request to apportion fees based on the People's lack of success on the adjacency issue on the ground the People had already reduced their fee request by 15 percent.

Reynolds appealed, and we reversed the order. We agreed with Reynolds that section 1717 is applicable to the Consent Decree. We directed the court to determine on remand whether the People were the prevailing parties under section 1717, meaning they obtained the "greater relief" on the contract. ( § 1717, subd. (b)(1).) ( In re Tobacco Cases I, supra, 193 Cal.App.4th at p. 1598, 124 Cal.Rptr.3d 352.)

The People cross-appealed, contending the court erred by denying them prevailing market rates on the ground the Consent Decree provides for an award of fees "incurred" by the People, rather than for an award of reasonable fees. For the court's convenience on remand, we addressed the contention, explaining that when section 1717 applies, as here, the prevailing party is entitled to "reasonable" fees ( § 1717, subd. (a) ), meaning the rates prevailing in the community for similar work. ( In re Tobacco Cases I, supra, 193 Cal.App.4th at p. 1596, 124 Cal.Rptr.3d 352.)

On remand, both parties moved for designation as the prevailing party under section 1717. In an October 5, 2011 order, the court found in favor of the People. The order explains that while the People "did not achieve a simple, unqualified win, it is the prevailing party since it achieved its main litigation objective of stopping said campaign [Farm Rocks] in California. Before this action was instituted, [Reynolds] had been engaging in a multistate advertising campaign which involved the use of certain cartoons that this Court found to be prohibited by the MSA." The order also granted the People's request for an award of $32,673.02 in litigation costs. The People then moved for attorney fees, and in a March 22, 2012 order the court awarded $2,943,920.63 in fees based on Bay Area market rates, as their attorneys were from Oakland. These consolidated appeals of the orders followed.

DISCUSSION
IPrevailing Party Determination
A

Reynolds contends the trial court abused its discretion by finding the People were the prevailing parties under section 1717. Reynolds asserts that given the People's limited success, the court should have found that either Reynolds prevailed or no party prevailed. We are unpersuaded.

Section 1717, subdivision (a) provides for an award of attorney fees to "the party prevailing on the contract." Under section 1717, subdivision (b)(1), the prevailing party is the party "who recovered a greater relief in the action on the contract." (Italics added.) Section 1717 allows "those parties whose litigation success is not fairly disputable to claim attorney fees as a matter of right." ( Hsu v. Abbara (1995) 9 Cal.4th 863, 876, 39 Cal.Rptr.2d 824, 891 P.2d 804.)

"If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees." ( Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109, 86 Cal.Rptr.2d 614, 979 P.2d 974 ; § 1717, subd. (b)(1).) "[I]n deciding whether there is a party prevailing on the contract,’ the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by ‘a comparison of the extent to which each party [had] succeeded and failed to succeed in its contentions.’ " ( Hsu v. Abbara, supra, 9 Cal.4th at p. 876, 39 Cal.Rptr.2d 824, 891 P.2d 804.)

"[I]n determining litigation success, courts should respect substance rather...

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