Wietsma v. Foremost Ins. Co. of Grand Rapids, Mich.

• Docket Number: C097885
• Decision Date: 30 May 2024
• Parties: KIMBERLY WIETSMA et al., Plaintiffs and Respondents, v. FOREMOST INSURANCE COMPANY OF GRAND RAPIDS, MICHIGAN, Defendant and Appellant.
• Court: California Court of Appeals

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KIMBERLY WIETSMA et al., Plaintiffs and Respondents, v. FOREMOST INSURANCE COMPANY OF GRAND RAPIDS, MICHIGAN, Defendant and Appellant.

C097885

California Court of Appeals, Third District, Sacramento

May 30, 2024

NOT TO BE PUBLISHED

Super Ct.No. 34201700223969CUBTGDS

MESIWALA, J.

In this insurance bad faith case, defendantForemost Insurance Company of Grand Rapids, Michigan (Foremost) challenges a trial court's award of attorney fees to prevailing plaintiffsKimberly Wietsma, Renee Bradford, and Cindy Nugent under Brandt v. Superior Court(1985)37 Cal.3d 813(Brandt).Foremost contends the trial court erred (1) by failing to apply two principles generally applicable to damage claims; (2) by concluding Foremost lacked standing to challenge the conscionability of plaintiffs' fee agreement; and (3) by not rejecting plaintiffs' fee agreement as a manipulation of fees under Brandt.

We disagree and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs purchased an insurance policy from Foremost to cover losses at their rental property.They filed a claim for $84,000 asserting that the property was damaged by unauthorized tenant alterations.Foremost paid plaintiffs an undisputed amount but otherwise denied their claim.

Plaintiffs hired counsel, executing a fee agreement in May 2017(the 2017 Agreement).The 2017 Agreement specified that counsel would be compensated only if recovery was obtained and, in that event, plaintiffs would pay one of two amounts: (1) 40 percent of the gross recovery if the case was settled before a jury was sworn or (2) 50 percent of the gross recovery after a jury was sworn.The 2017 Agreement also entitled counsel to an attorney fee lien against any potential recovery and to any monetary and" 'cost of proof'" sanctions recovered under various Code of Civil Procedure provisions.

In December 2017, plaintiffs filed a complaint against Foremost for insurance bad faith, seeking general, special, economic and consequential damages, as well as attorney fees required to recover policy benefits.Plaintiffs disclosed the 2017 Agreement to Foremost during discovery.Over 18 months into the case, Foremost filed a motion for summary adjudication and judgment, which the trial court denied.Then, over one year later, the trial date was continued to September 20 2021.The month before the new trial date, the presiding judge heard Foremost's motion to bifurcate the trial into a bench trial on certain affirmative defenses followed by a jury trial on the bad faith claim.The presiding judge denied the motion without prejudice to reassertion before the trial judge, finding the trial judge to be in the best position to determine the order of issues.

On September 1, 2021, plaintiffs executed a new fee agreement with counsel that superseded the 2017 Agreement (the 2021 Agreement).The 2021 Agreement still provided fees were contingent on recovery.It also retained counsel entitlement to a lien, to monetary and "cost of proof" sanctions, and to the 40 percent fee for settlement prior to the swearing of a jury.But the 2021 Agreement added a provision requiring payment of an hourly rate if a jury panel was sworn.Plaintiffs' counsel produced the 2021 Agreement to Foremost within two days of its execution.

On September 28, 2021, the trial court heard Foremost's renewed motion to bifurcate the trial.The court granted the motion and issued a briefing schedule for a bench trial on two of Foremost's affirmative defenses.Following the bench trial, the court ruled in plaintiffs' favor in March 2022.

A few months later, the matter proceeded to a jury trial on the bad faith claim.The jury found for plaintiffs and awarded them $131,201.92 in damages, $55,223.64 of which was awarded for policy benefits that Foremost unreasonably failed to pay.

Plaintiffs moved to recover attorney fees and costs pursuant to Brandt and their stipulation to resolve any Brandtfee request by way of posttrial motion.Plaintiffs claimed that counsel billed over 1,900 hours since May 2017 at rates of $400 or $700 per hour, as provided in the 2021 Agreement, resulting in total fees of $916,250.They sought $606,278 of those fees under Brandt.As relevant here, Foremost opposed the motion on the grounds that (1) the 2021 Agreement was an impermissible attempt to manipulate fee recovery under Brandt; (2) the 2021 Agreement was unconscionable; and (3)plaintiffs failed to mitigate their damages.As to unconscionability, Foremost argued that plaintiffs would still owe counsel over $100,000 after Brandt fees were paid and questioned whether counsel would enforce that debt.According to Foremost, this meant that the 2021 Agreement was a sham and the legal fees under the Agreement were not incurred because plaintiffs were not legally obligated to pay them.

The trial court rejected Foremost's arguments and awarded $384,825 in Brandt fees.In its tentative ruling, the court found that the "timing and terms of the 2021 Agreement [were] suspect" but concluded Foremost lacked standing to challenge the conscionability of the agreement.At oral argument, Foremost questioned the tentative ruling, insisting that the 2021 Agreement was an impermissible manipulation of Brandt fees and that it had standing to question the 2021 Agreement's conscionability.Making a "couple of other points," Foremost added that the damages under the 2021 Agreement were speculative because it wasn't clear whether the fees would be enforced against plaintiffs given that counsel might not actually enforce the fees or plaintiffs might contest them as unfair.

Before taking the matter under submission, the court indicated its inclination to reject Foremost's fee manipulation argument, remarking that plaintiffs' fee agreement was changed before trial when "there were a lot of contingencies" and "nobody knew what was going to happen."In affirming its tentative ruling, the court reiterated its concern regarding the terms and conditions of the 2021 Agreement, particularly the potential that the terms could place plaintiffs in a worse position than before the litigation commenced.But the court concluded there was no authority allowing Foremost to challenge the agreement or allowing the court to invade the attorney-client relationship and its governing agreement.The court also found no evidence that the 2021 Agreement was drafted as a means to negatively impact Foremost and rejected "any argument that the [2021 Agreement] occurred as an improper attempt to manipulate the Brandt fees."

Foremost timely appealed.It contends the court erred in four ways: (1) in awarding speculative damages; (2) in failing to disregard the 2021 Agreement because it violates plaintiffs' obligation to mitigate their damages; (3) in concluding Foremost did not have standing to challenge the conscionability of the 2021 Agreement; and (4) in failing to disregard the 2021 Agreement as a manipulation of Brandt fees.

DISCUSSION

IBrandt Fees Generally

Normally each party to a civil action must bear his or her own legal fees.(Code Civ. Proc., § 1021.)But in limited circumstances, a plaintiff may recover attorney fees as damages.(Mai v. HKT Cal., Inc.(2021)66 Cal.App.5th 504, 512.)One such circumstance applies under the doctrine of" 'tort of another.'"(Gray v. Don Miller &Associates, Inc.(1984)35 Cal.3d 498, 505.)Under this doctrine," '[a] person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the . . . attorney's fees . . . thereby suffered or incurred.'"(Heckert v. MacDonald(1989)208 Cal.App.3d 832, 837.)" 'The attorney fees recoverable as damages in such cases are described as "reasonable compensation for attorney's fees incurred." '"(Ibid.)

In Brandt, the "tort of another" doctrine was extended to permit recovery of attorney fees resulting from an insurer's tortious conduct.(Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC(2005)127 Cal.App.4th 1311, 1325;seeBrandt, supra, 37 Cal.3d at p. 817[likening the case to the "third party tort situation"].)Specifically, Brandt allows an insured to recover attorney fees expended to enforce a policy when the insurer has withheld policy benefits in bad faith.(Pulte Home Corp. v. American Safety Indemnity Co.(2017)14 Cal.App.5th 1086, 1127(Pulte Home).)The insured's recovery under Brandt is limited to the legal fees attributable to obtaining the contract recovery.(Howard v. American National Fire Ins. Co.(2010)187 Cal.App.4th 498, 534.)Fees incurred in prosecuting the tort cause of action are not recoverable.(Ibid.)The recoverable fees are commonly referred to as Brandt fees and are considered an economic loss proximately caused by the insurer's breach of its duty to deal in good faith.(Essex Ins. Co. v. Five Star Dye House, Inc.(2006)38 Cal.4th 1252, 1255;Brandt,at p. 817.)

To recover Brandt fees, the insured must prove the following: (1) the amount to which he or she was entitled under the policy, (2) that the insurer withheld payment or performance unreasonably, requiring retention of a lawyer to recover benefits due under the policy; (3) the amount the insured paid or incurred in legal fees and expenses in establishing the insured's right to contract benefits and (4) the reasonableness of the fees and expenses so incurred.(Jordan v. Allstate Ins. Co.(2007)148 Cal.App.4th 1062, 1079;seeCACI 2350.)Since the fees are recoverable as damages, the determination of recoverable fees must be made by the trier of fact who must apportion the fees to ensure the insured receives fees for the portion of work devoted only to contract recovery.(Brandt, sup...