Karton v. Dougherty

• Decision Date: 14 November 2014
• Docket Number: B244231
• Citation: 180 Cal.Rptr.3d 55,231 Cal.App.4th 600
• Court: California Court of Appeals Court of Appeals
• Parties: DAVID S. KARTON, A LAW CORPORATION, Plaintiff, Appellant, and Respondent, v. William Russell DOUGHERTY, Defendant, Appellant, and Respondent.

231 Cal.App.4th 600

180 Cal.Rptr.3d 55

DAVID S. KARTON, A LAW CORPORATION, Plaintiff, Appellant, and Respondent,

v.William Russell DOUGHERTY, Defendant, Appellant, and Respondent.

B244231

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

Filed November 14, 2014

As Modified on Denial of Rehearing December 12, 2014

The David Firm, Henry S. David, Dana J. Emmer ; Greines Martin Stein & Richland, Robert A. Olson, and Edward L. Xanders for Plaintiff, Appellant, and Respondent.

Law Offices of James T. Duff, James T. Duff ; Musick, Peeler & Garrett, and Cheryl A. Orr for Defendant, Appellant, and Respondent.

ROTHSCHILD, P.J.

David S. Karton, A Law Corporation (Karton), sued its former client, William Russell Dougherty, for unpaid fees and costs. In 1999, Karton obtained a default judgment against Dougherty in the amount of $86,676.88, including an award of attorney fees pursuant to the parties' retainer agreement. Karton thereafter pursued enforcement of the judgment and obtained awards of the attorney fees incurred in those enforcement efforts.

On appeal from the denial of Dougherty's motion to vacate a 2007 attorney fee award, we directed the superior court to vacate that award and held that the 1999 default judgment was void on the face of the record because it granted relief that exceeded what was demanded in Karton's complaint. ( David S. Karton, A Law Corp. v. Dougherty (2009) 171 Cal.App.4th 133, 136, 89 Cal.Rptr.3d 506 ( Karton ).) We directed the superior court to vacate the judgment nunc pro tunc, and we remanded for further proceedings.

On remand, after vacating the default judgment as directed, the court granted Dougherty's motion to vacate the default. The matter proceeded to arbitration pursuant to Business and Professions Code section 6201, and the arbitrators determined that Dougherty had already repaid his entire contractual debt to Karton, including interest, before the arbitration took place. Karton sought and obtained trial de novo, and the superior court reached the same conclusion as the arbitrators: The debt was paid in full, including interest, no later than March 2008. The court accordingly entered judgment awarding Karton no relief on any of its claims.

On the parties' cross-motions to be determined the prevailing party, however, the court ruled that Karton was the prevailing party for purposes of both costs and contractual attorney fees. The court awarded Karton more than $1 million in attorney fees on that basis.

Dougherty timely appealed, and we reverse. As a matter of law, Dougherty is the prevailing party for purposes of both costs and contractual attorney fees.

BACKGROUND

The history of this long-running dispute is set forth in detail in our opinion in Karton. In very brief summary: In 1996, Dougherty retained Karton to represent him in a marital dissolution action. The retainer agreement contained the following attorney fee provision: "In the event legal services are commenced in connection with the enforcement of this agreement or the collection of the fees and/or the costs, whether in the form of a demand, a court action, or an arbitration proceeding, the prevailing party (to the extent permitted by law) shall be entitled to legal fees for services, as well as court and/or arbitration costs." ( Karton, supra, 171 Cal.App.4th at p. 136, 89 Cal.Rptr.3d 506.)

In 1999, Karton filed suit against Dougherty, seeking to recover $65,246.63 in unpaid fees and costs, plus interest. On August 11, 1999, the trial court entered a default judgment against Dougherty for a total of $86,676.88, including accrued prejudgment interest, attorney fees, and costs. ( Karton, supra, 171 Cal.App.4th at pp. 138–139, 89 Cal.Rptr.3d 506.)

By October 4, 1999, Karton had collected approximately $56,000 in partial satisfaction of the judgment. ( Karton, supra, 171 Cal.App.4th at p. 139, 89 Cal.Rptr.3d 506.) Thereafter, Karton pursued further collection efforts against Dougherty in California, Pennsylvania, and Tennessee, and Dougherty resisted those efforts. In addition, Karton twice returned to the superior court to request awards of the attorney fees incurred in enforcing the judgment. Both times, Karton failed to give Dougherty notice that it was seeking such relief, and both times the requests were granted in their entirety. The second such award, entered in February 2007, increased the principal amount of the judgment to more than $1.1 million. ( Id. at pp. 135-136, 141-144, 89 Cal.Rptr.3d 506.) After learning of the order granting the February 2007 fee award, Dougherty filed a motion for relief from that order and then, after the motion was denied, appealed from the denial of his motion.

In a published opinion filed on February 17, 2009, we reversed. We concluded that the trial court had abused its discretion by denying Dougherty's motion for relief from the order granting the February 2007 fee award, because Dougherty was entitled to notice of Karton's application for that award. ( Karton, supra, 171 Cal.App.4th at p. 149, 89 Cal.Rptr.3d 506 ; see generally id. at pp. 145-149, 89 Cal.Rptr.3d 506.) We further concluded that the original default judgment was void on the face of the record because it awarded relief that exceeded the demand in Karton's then-operative first amended complaint.¹ ( Id. at pp. 149-151, 89 Cal.Rptr.3d 506.) We accordingly directed the trial court "to enter an order vacating and setting aside, nunc pro tunc, the default judgment entered on August 11, 1999." ( Id. at p. 152, 89 Cal.Rptr.3d 506.) We also noted that Dougherty had argued that "the default itself, and not merely the default judgment, is void because [Dougherty] timely requested arbitration before the default was entered." ( Id. at p. 151, fn. 17, 89 Cal.Rptr.3d 506.) We expressed no opinion on that issue, because "it involves factual issues that the trial court has never determined and that we cannot resolve as a matter of law on this appeal." ( Ibid. )

On remand, Dougherty moved to vacate the default. On August 3, 2009, the trial court granted the motion on the ground that Dougherty had timely requested arbitration. The matter proceeded to arbitration under Business and Professions Code section 6201 before the Los Angeles County Bar Association.

The arbitration panel mailed notice of its award on June 8, 2010. The panel determined that, as of the time of the arbitration, Dougherty had already paid Karton "an amount far in excess of the amounts owed for legal services plus interest on the amounts billed." The panel declined, however, to award a refund to Dougherty. The panel stated that Dougherty had paid the arbitration fee of $5,000, which should "be allocated equally to both parties," so the arbitration award directed Karton to pay Dougherty $2,500. The arbitration award did not provide for any other relief to either party.

Dougherty petitioned to confirm the arbitration award, and Karton petitioned to vacate it and requested trial de novo. The trial court denied Dougherty's petition and granted Karton's, so the parties proceeded to litigate the matter. Karton's now-operative fourth amended complaint alleges claims for breach of contract, indebtedness assumpsit, account stated, open book account, quantum meruit, tort of another, and declaratory relief. In his answer, Dougherty alleged, among other things, that he had already fully repaid his debt to Karton. Dougherty did not file a cross-complaint.

Karton's claims were tried to the court on February 1 through 8, 2012. In its statement of decision, the court found, based on the calculations of Karton's accounting expert, that "by March 10, 2008, [Karton], as a result of payments by [Dougherty] and garnishments, had collected funds sufficient to cover all principal and interest payments due on [Karton's] invoices under the [retainer agreement]." The court therefore concluded that "Dougherty's debt to [Karton] for the fees billed under the [retainer agreement] and interest on overdue amounts has been extinguished." Thus, Dougherty's contractual debt to Karton was repaid in full, including interest, nearly one year before we filed our opinion in Karton in February 2009. Karton does not challenge that factual finding.

The court also found that Karton's evidence showed that as of July 3, 2008, Karton "had collected $14,383.30 in excess of the amounts owed by [Dougherty] under [the retainer] agreement." The court further observed, however, that because Dougherty did not file a cross–complaint, he "is not entitled to a money judgment for any overpayment of amounts owed to [Karton]" but rather "is entitled to a credit" in the amount of the excess funds collected, which Dougherty "may apply to any other obligation he owes to [Karton]."

Although the court concluded that Dougherty's contractual debt to Karton was fully repaid (with interest) nearly four years before trial and that Karton was therefore not entitled to damages or any other remedy on the breach of contract claim, the court's statement of decision states that Karton "has established its breach of contract claim." (Underscoring omitted.) The court appears to have reasoned that because "[Karton] had to sue [Dougherty] to recover fees owed," Karton should be able to recover attorney fees incurred in this litigation, pursuant to the attorney fee provision of the retainer agreement. The court's statement of decision expressly contemplates an award of attorney fees to Karton on that basis.

The statement of decision analyzes and rejects Karton's remaining claims for damages. On the declaratory relief cause of action, the court awarded relief to the effect that Dougherty is entitled to a credit for the $14,383.30 that Karton collected in excess of the amount Dougherty owed.

The court entered judgment on August 3, 2012. The judgment states that "[b]efore trial, as a result of payments by defendant and garnishments, plaintiff mitigated its damages for defendant's breach but collected $14,383.30 in excess of the amount owed by defenda...