Hanna v. Mercedes-Benz USA, LLC

36 Cal.App.5th 493

248 Cal.Rptr.3d 654

Mary HANNA, Plaintiff and Appellant,

v.MERCEDES-BENZ USA, LLC, Defendant and Respondent.

B283776

Court of Appeal, Second District, Division 7, California.

Filed June 18, 2019

Rosner, Barry & Babbitt, Hallen D. Rosner and Arlyn L. Escalante, San Diego, for Plaintiff and Appellant.

Universal & Shannon, Jon D. Universal and James P. Mayo for Defendant and Respondent.

PERLUSS, P. J.

To settle Mary Hanna's lawsuit under the Song-Beverly Consumer Warranty Act ( Civ. Code, § 1790 et seq. ), Mercedes-Benz USA, LLC agreed on January 27, 2017 to pay Hanna $ 60,000 plus a sum equal to her costs and expenses in pursuing the action, "including attorney's fees based on actual time reasonably incurred ... pursuant to Civil Code Section 1794(d), to be determined by court motion if the parties cannot agree." After failing to reach agreement with Mercedes-Benz, Hanna moved for an award of $ 259,068.75 in attorney fees using the lodestar method¹ —a $ 172,712.50 base amount with a 1.5 multiplier—and costs of $ 15,547.07. The trial court awarded only $ 60,869 in fees, limiting Hanna's recovery for fees incurred after January 21, 2016 to $ 15,000 based on the court's interpretation of a percentage-based contingency fee provision in the retainer agreement between Hanna and her counsel. The court awarded all costs sought by Hanna except for $ 2,137.86 paid to her initial expert.

On appeal Hanna contends the court abused its discretion in failing to apply the lodestar method to determine attorney fees for the period after January 21, 2016 and by disallowing the fee paid to her first expert as a recoverable cost. We agree the court used, in part, an improper method to determine reasonable attorney fees and remand for it to recalculate Hanna's fee award. We affirm the court's cost award.

FACTUAL AND PROCEDURAL BACKGROUND

1. Circumstances Leading to the Filing of Hanna's Complaint

On August 12, 2007 Hanna purchased a new vehicle from Mercedes-Benz for $ 52,948.54, including sales tax, license fees and other charges. The car immediately exhibited a problem with its rear seatbelt, which failed to retract, requiring Mercedes-Benz to install new seatbelt components. Additional concerns surfaced within the first 18 months, and during the next several years Mercedes-Benz made warranty repair attempts on at least 20 occasions for a variety of problems.

On May 9, 2014 Hanna requested Mercedes-Benz repurchase the vehicle. Mercedes-Benz denied the request. On July 17, 2014 Hanna sued Mercedes-Benz for violation of the refund-or-replace provisions of the Song-Beverly Act.² Her complaint sought an award of actual damages, a civil penalty of two times actual damages³ and attorney fees and costs.

2. Mercedes-Benz's Offers To Compromise

After Hanna filed her lawsuit, Mercedes-Benz served a series of offers to compromise pursuant to Code of Civil Procedure section 998 ( section 998 ). The first section 998 offer on October 8, 2014 provided for a judgment against Mercedes-Benz in the amount of $ 5,000, plus reasonably incurred attorney fees and costs to be determined by the court if the parties could not agree. Hanna did not accept the offer.

In May 2015 Hanna's vehicle was involved in an accident and deemed a total loss by her insurer. Hanna did not notify Mercedes-Benz that she no longer owned the car.

Mercedes-Benz's second section 998 offer to compromise, dated January 20, 2016,⁴ required Hanna to surrender the vehicle and dismiss her action with prejudice; in return Mercedes-Benz would "make restitution pursuant to Civil Code section 1793.2(d)(2)(B) in an amount equal to the actual price paid for the vehicle, including any charges for the transportation and manufacturer-installed options, but excluding nonmanufacturer items installed by a dealer or the buyer, and including any collateral charges such as sales tax, license fees, and registration fees and other official fees, plus any incidental and consequential damages to which the buyer is entitled under Civil Code Sections 1794, including, but not limited to, reasonable repair, towing, and rental car costs actually incurred by the buyer, less a reasonable mileage offset in accordance with Civil Code Section 1793.2(d)(2)(C), all to be determined by court motion if the parties cannot agree." The offer provided Mercedes-Benz would pay Hanna's reasonable attorney fees and costs and required her to execute a general release.

In February 2016 Hanna served written objections to the second offer, asserting it was vague, ambiguous and uncertain as to the damages or recovery being offered. She also objected to the requirement she return the vehicle on the ground of impossibility, explaining the car had been declared a total loss following an accident and was no longer in her possession. She further objected to the requirement she enter into a general release because the terms of the proposed release were not made known to her.

On January 17, 2017 Mercedes-Benz served its third section 998 offer to compromise, which it titled "Amended Offer to Compromise." This offer included similar language regarding restitution as the second offer, but omitted the requirement that Hanna return the vehicle. Instead, the offer permitted Mercedes-Benz to deduct from the sum to be paid to Hanna the amount she had received from her insurer when her car had been declared a total loss. This offer no longer required execution of a release.

On January 23, 2017 Mercedes-Benz served a fourth section 998 offer, titled "Second Amended Offer to Compromise," and on January 27, 2017 its fifth section 998 offer, titled "Third Amended Offer to Compromise." The January 23, 2017 offer deleted the language regarding restitution (including the reference to deductions for a reasonable mileage offset and amounts received from the May 2015 accident) and instead provided for payment of $ 55,000 to Hanna. The January 27, 2017 offer, otherwise identical to the January 23, 2017 offer, proposed a payment to Hanna of $ 60,000.

Paragraph 2 of the January 27, 2017 offer stated, "In connection with the above offer to compromise, [Mercedes-Benz] will pay [Hanna] a sum equal to the aggregate amount of costs and expenses, including attorney's fees based on actual time reasonably incurred in connection with the commencement and prosecution of this action pursuant to Civil Code Section 1794(d), to be determined by court motion if the parties cannot agree." Hanna accepted the January 27, 2017 offer the same day.

3. Hanna's Motion for Attorney Fees and Costs

On March 30, 2017 Hanna moved for attorney fees and costs pursuant to Civil Code section 1794, subdivision (d). Hanna's motion was supported by the declarations of the attorneys and paralegals who had worked on the matter and included invoices billed to Hanna among its exhibits.

Hanna sought a total of $ 274,615.82 in fees and costs, which included a request her lodestar attorney fees of $ 172,712.50 be multiplied by 1.5. She argued the multiplier was justified, in part, by the fact the law firm of O'Connor & Mikhov LLP had taken the matter on a contingent basis.

The fees and costs request included $ 2,137.86 for a vehicle inspection performed on February 12, 2015. Mark O'Connor, Hanna's lead counsel, attached to his March 30, 2017 declaration an O'Connor & Mikhov cost invoice that included an entry dated February 24, 2015 stating the vehicle inspection charge was per "Thomas Lepper's Invoice (11.5 hrs.)." Hanna provided no explanation of Lepper's identity or role in the litigation or any other information to support the claimed cost.

4. Mercedes-Benz's Opposition

Mercedes-Benz filed its opposition to Hanna's attorney fee motion on April 12, 2017. Mercedes-Benz contended the Song-Beverly Act, which provides for recovery of reasonably incurred attorney fees, did not mandate use of the lodestar method and argued the trial court had discretion to determine what constituted reasonably incurred fees, including no fee at all. It argued the issue before the court was whether Hanna's attorney fees generated after its January 20, 2016 section 998 offer were reasonably incurred. Mercedes-Benz asserted the January 2016 offer would have provided Hanna the relief to which she was entitled under the Song-Beverly Act and that Hanna had an implied duty to negotiate with Mercedes-Benz following the offer in a good faith effort to settle the case. According to Mercedes-Benz, the trial court had discretion to deny fees after the January 2016 offer because of Hanna's failure to engage in good faith negotiations.

Mercedes-Benz also asserted Hanna had failed to meet her burden of establishing the reasonableness of the fees and costs requested because she had not submitted a copy of the retainer agreement with her counsel for the court's review. Mercedes-Benz stated it understood the fee agreement was not on a contingency basis and specified lower hourly billing rates than reflected on the invoices sent to Hanna and used to calculate her lodestar figure.⁵ It urged the court to award fees, if at all, on the basis of the fee agreement's lower rates.

In addition, Mercedes-Benz explained, although Hanna's fee agreement generally provided for payment of fees calculated on an hourly, not a percentage, basis (owed by "the manufacturer," not Hanna), it also required payment of additional attorney fees in the event Hanna's attorneys recovered a damage award exceeding her actual damages. Specifically, the fee agreement provided 40 percent of any amount recovered in excess of actual damages would be due from Hanna as additional attorney fees.

Mercedes-Benz contended Hanna's actual damages were $ 22,428.32: $ 52,590.54 (the price of the vehicle) less $ 14,998.02 (the amount Hanna had received from her insurer after the vehicle was declared a total loss) and $ 15,163.60 (the mileage offset). It asserted, therefore, that $ 37,571.68 of its $ 60,000 settlement payment was the excess amount subject to the 40 percent provision in...