PLCM GROUP v. Drexler

• Decision Date: 08 May 2000
• Docket Number: No. S080201.,S080201.
• Citation: 22 Cal.4th 1084,95 Cal.Rptr.2d 198,997 P.2d 511
• Court: California Supreme Court
• Parties: PLCM GROUP, Inc., Plaintiff and Respondent, v. David DREXLER, Defendant, Cross-complainant and Appellant; Dearborn Insurance Company et al., Cross-defendants and Respondents.

95 Cal.Rptr.2d 198

22 Cal.4th 1084

997 P.2d 511

PLCM GROUP, Inc., Plaintiff and Respondent, v. David DREXLER, Defendant, Cross-complainant and Appellant;

Dearborn Insurance Company et al., Cross-defendants and Respondents.

No. S080201.

Supreme Court of California.

May 8, 2000.

As Modified June 2, 2000.

David Drexler, in pro. per.; Hart & Watters and Thomas L. Watters for Defendant, Cross-complainant and Appellant.

Shand S. Stephens and Laurie J. Falik, San Francisco, for Plaintiff and Respondent and for Cross-defendants and Respondents Dearborn Insurance Company and Anglo-American Insurance, Ltd.

Wilson, Elser, Moskovitz, Edelman & Dicker, Patrick M. Kelly, Martin K. Deniston and Jonathan C. Balfus, Los Angeles, for Cross-defendant and Respondent Assicurazioni Generali, S.P.A.

Benjamin C. Sybesma and Joel H. Levinson, West Sacramento, for California Correctional Peace Officers Association as Amicus Curiae on behalf of Plaintiff and Respondent.

Eric B. Simon, Santa Rosa, for California International Chemical Company, Inc., as Amicus Curiae on behalf of Plaintiff and Respondent.

James R. Edwards, Aurora, IL, Steven Alan Bennett, Columbus, OH, John H. McGuckin, Jr., San Francisco, and Susan J. Hackett, Washington, DC, for American Corporate Counsel Association as Amicus Curiae on behalf of Plaintiff and Respondent and Cross-defendants and Respondents.

Richard A. Rothschild and Lauren Saunders, Los Angeles, for Western Center on Law and Poverty and Bet Tzedek Legal Services as Amici Curiae.

Horvitz & Levy, Barry R. Levy, Daniel J. Gonzalez, Encino, Jon B. Eisenberg, Oakland; and Carole Runcie Sherman, Calabasas, for the Los Angeles County Bar Association as Amicus Curiae.

MOSK, J.

We granted review in this matter to address the question whether an entity that is represented by in-house counsel may recover attorney fees under Civil Code section 1717. As will appear, the answer is yes. Like private counsel, in-house counsel stand in an attorney-client relationship with the corporation and provide comparable legal services. In the case of such representation, the trial court retains broad discretion under Civil Code section 1717 to fix an award of attorney fees in a reasonable amount. Accordingly, we affirm the judgment of the Court of Appeal.

I

Defendant David Drexler, an attorney, was insured under a professional malpractice insurance policy through the Los Angeles County Bar Association. The liability carriers were Dearborn Insurance Company, Anglo-American Insurance, Ltd., and Generali S.P.A. London Branch (hereafter the insurers). PLCM Group, Inc. (hereafter PLCM), administered the insurance program and processed the claims. The policy provided for a deductible of $20,000 per claim for both indemnity and expense payments. It contained a deductible-reimbursement and attorney fee provision (hereafter the reimbursement provision) as follows. "The deductible shall be paid by the Named Insured upon demand by the [insurance companies] to the persons or entities designated by the [insurance companies]. The [insurance companies] shall have the right ... to advance sums on behalf of the Named Insured within the applicable deductible. If the Insured fails, after demand, to reimburse the [insurance companies] for any amounts within the deductible which the [insurance companies have] advanced, the [insurance companies] may bring suit to recover such amounts and shall also be entitled to recover interest from the date of demand, and attorneys' fees and costs incurred in bringing the action."

In January 1991, Drexler was sued for professional malpractice. He tendered his claim to PLCM, which retained the law firm he selected, Haight, Brown & Bonesteel (hereafter Haight, Brown) to defend him. PLCM reviewed the bills from the law firm and found them to be appropriate. By the time the lawsuit was settled in November 1991, Drexler had paid $9,680 in defense fees. In December 1991, Haight, Brown sent him a bill for the balance of fees in the amount of $10,319.62. Drexler did not pay any portion of the bill.

In March 1992, PLCM sent a letter to Drexler reviewing the amount owing to Haight, Brown and quoting the policy language regarding his obligation to satisfy the deductible. Drexler responded that he was in the process of discussing his "concern over the matter" with Haight, Brown. In April and June 1993, Haight, Brown firm sent outstanding bill statements to PLCM reporting that the deductible had not been paid.

In October 1993, PLCM invoked the reimbursement provision, paid Haight, Brown the outstanding amount, and demanded reimbursement from Drexler. Drexler responded that he did not "owe anything" to PLCM or to Haight, Brown, and cautioned PLCM against taking any action against him. In a second letter to PLCM, he reiterated his refusal, stating that the payment to Haight, Brown "was voluntary and unauthorized" and was "made as an attempt to prejudice and undercut my rights to dispute [the law firm's] entitlement to the claimed fee."

In February 1994, PLCM assigned the claims to a collection firm, which filed an action for breach of contract in municipal court. Drexler cross-complained against PLCM and the insurers, alleging breach of contract, insurance bad faith, and intentional infliction of emotional distress. Drexler's cross-complaint sought damages, including general, special, and punitive damages, exceeding the jurisdictional limit of the municipal court; he moved to transfer the case to the superior court. After his motion to transfer the case was granted, the claim was reassigned to PLCM, which was substituted in as plaintiff. Drexler engaged in extensive discovery and motion practice and refused all attempts at settlement. PLCM and the insurers successfully moved for summary judgment on the cross-complaint. In response to an offer by PLCM to accept judgment pursuant to Code of Civil Procedure section 998, Drexler stated that he was "not interested"; he was "willing to spend whatever amount of time and money it takes to see this matter through to conclusion" and threatened "[u]pon the successful defense of this matter, [to] sue you and your principals for malicious prosecution."

Trial commenced in January 1997. Drexler appeared in propria persona; PLCM was represented by in-house counsel employed by its parent company, Aon Corporation. PLCM is charged annually, on a prospective basis, by Aon Corporation for a proportional share of the expenses of operating the law division, the functional equivalent of a retainer: the charge is not based on the actual costs of representation in any particular matter. The jury returned a verdict in favor of PLCM for the full amount of $10,319.62. PLCM and the insurers sought a fee award of $61,050 under the reimbursement provision, based on the total attorney hours expended at the prevailing market rate of $185 per hour for attorneys of comparable experience. The fee motion included a detailed reconstruction by in-house counsel of time records for all activities performed. Drexler moved to tax costs, on the ground, inter alia, that attorney fees for in-house counsel could not be recovered. The superior court entered judgment including an award of attorney fees to PLCM in the requested amount.

Drexler, in propria persona, appealed the order awarding attorney fees. He contended that under Trope v. Katz (1995) 11 Cal.4th 274, 45 Cal.Rptr.2d 241, 902 P.2d 259, PLCM was entitled to no attorney fees for the work of in-house counsel, or, at most, to fees in an amount not exceeding in-house counsel's actual salary. Rejecting the claim, the Court of Appeal affirmed. It held that Civil Code section 1717 permits an award of attorney fees for in-house counsel. It also concluded that the fee award was properly calculated with reference to the prevailing market rate in the community for similar work and was supported by substantial evidence. It rejected a salary plus cost approach on the basis that it could lead to complicated, collateral litigation and determined that a reasonable fee should be based on an objective standard of reasonableness, i.e., the market value of services rendered, "not on some notion of `cost' incurred...."

We granted review; we now affirm.

II

Civil Code section 1717, subdivision (a), provides in relevant part as follows: "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs. [¶] ... [¶] Reasonable attorney's fees shall be fixed by the court, and shall be an element of the costs of suit."

Civil Code section 1717 was originally enacted to establish mutuality of remedy when a contract makes recovery of attorney fees available only for one party and to prevent the oppressive use of one-sided attorney fees provisions. (Hsu v. Abbara (1995) 9 Cal.4th 863, 870, 39 Cal.Rptr.2d 824, 891 P.2d 804.) Under its provisions, "equitable considerations must prevail over both the bargaining power of the parties and the technical rules of contractual construction." (International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 224, 145 Cal.Rptr. 691, 577 P.2d 1031.) The provision was "designed to enable consumers and others who may be in a disadvantageous contractual bargaining position to protect their rights through the judicial process by permitting recovery of attorney's fees incurred in litigation in the event they prevail." (Coast Bank v. Holmes (1971) 19 Cal.App.3d 581, 597, fn. 3, 97 Cal.Rptr. 30; see also Legis. Counsel, Enrolled Bill Mem. on Assem. Bill No. 563 (1968 Reg. Sess.) prepared for Governor Reagan (June 5, 1968) p. 1 ["The bill is intended to protect persons of limited...