In re Tobacco Cases I.

193 Cal.App.4th 1591

124 Cal.Rptr.3d 352

11 Cal. Daily Op. Serv. 4090

2011 Daily Journal D.A.R. 4896

In re TOBACCO CASES I.

No. D056589.

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

April 5, 2011.

Edmund G. Brown, Jr., and Kamala D. Harris, Attorneys General, Dennis Eckart, Assistant Attorney General, and Jeanne Finberg, Deputy Attorney General, for Plaintiff and Appellant The People.

Wright & L'Estrange, San Diego, Robert C. Wright, Joseph T. Ergastolo, Alexander T. Gruft; Jones Day and Noel J. Francisco for Defendant and Appellant R.J. Reynolds Tobacco Company.

McCONNELL, P.J.

In In re Tobacco Cases I (2010) 186 Cal.App.4th 42, 111 Cal.Rptr.3d 313, this court affirmed an order in which the trial court granted the People of the State of California relief on their action against R.J. Reynolds Tobacco Company (Reynolds) to enforce a consent decree and final judgment (Consent Decree) entered on a master settlement agreement (MSA). We agreed that certain images Reynolds used in an advertising campaign for Camel cigarettes violated the cartoon ban in the MSA, which was incorporated into the Consent Decree.

In this companion appeal, Reynolds challenges an order awarding attorney fees to the People. Reynolds contends (1) the court erred by finding Civil Code section 1717 (section 1717), which governs attorney fees in contract actions, inapplicable to the unilateral attorney fees clause in favor of the state in the Consent Decree; and (2) the court applied the wrong legal standard in its alternative finding that even if section 1717 applies, the People prevailed for purposes of attorney fees because they won on a “significant issue” in the litigation. Under section 1717, the prevailing party is the party who recovers “greater relief” in the litigation. (§ 1717, subd. (b)(1).) Reynolds asserts that under the correct standard, it prevailed or neither party prevailed, given the People's limited success. We agree that section 1717 applies to the Consent Decree and the court used an incorrect legal standard in determining the prevailing party. We reverse the order awarding fees, and remand the matter to the court for its reconsideration under the correct standard.

The People also appeal the order, contending the court erred by denying them prevailing market rates on the ground the attorney fees provision in the Consent Decree provides for an award of fees “incurred” by the state, rather than for an award of reasonable fees. For the court's convenience on remand, we address this issue. The court's ruling was based on its erroneous finding that section 1717 is inapplicable. When section 1717 applies, the prevailing party is entitled to “reasonable” fees (§ 1717, subd. (a)), meaning the rates prevailing in the community for similar work.

FACTUAL AND PROCEDURAL BACKGROUND

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 People 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.

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 attributionof 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 “ Camel Farm” or “Farm Rocks” to promote the sale of Camel cigarettes to adult smokers who enjoy rock music performed by artists on independent labels. 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 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 for an order to enforce the MSA and the Consent Decree. In February 2008 the People filed an amended motion to enforce only the Consent Decree, which embodies the MSA. The People sought an order declaring 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 magazine adjacent to the magazine's editorial pages, which contained cartoons.

The court issued a declaration that “a relatively small portion” of the images in the Camel Farm or 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 that Reynolds was responsible for the placement of its advertisement in Rolling Stone magazine near cartoons the magazine provided.

The court declined to issue further declaratory relief, or any injunctive relief, because the MSA and the Consent Decree already prohibited the use of cartoons in advertising, and Reynolds had terminated the Camel Farm campaign and taken steps to avoid the future adjacency of its advertising to cartoons provided by others. The court determined it had jurisdiction under the Consent Decree 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 People 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 Camel Farm campaign.

We affirmed the court's order. (In re Tobacco Cases I, supra, 186 Cal.App.4th at p. 44, 111 Cal.Rptr.3d 313.) We declined to address Reynolds's contention the trial court erred by finding it had jurisdiction to award civil sanctions under the Consent Decree since the matter was moot. ( Id. at pp. 52–54, 111 Cal.Rptr.3d 313.)

In the meantime, the People pursued attorney fees from Reynolds under the following unilateral provision in the Consent Decree: “In any proceeding which results in a finding that a Participating Manufacturer violated this Consent Decree and Final Judgment, the Participating Manufacturer or Participating Manufacturers found to be in violation shall pay the State's costs and attorneys' fees incurred by the State of California in such a proceeding.”

The court designated the People as the prevailing parties entitled to attorney fees. The court rejected Reynolds's argument the action was “on a contract” for purposes of section 1717. (§ 1717, subd. (a).) Alternatively, the court found that even if section 1717 applies, the People were the prevailing parties entitled to fees because they prevailed on the “significant issue” of whether Reynolds violated the cartoon ban in its own advertising. The court rejected the People's argument they are entitled to attorney fees at prevailing market rates, on the ground the Consent Decree's attorney fees clause “does not provide for reasonable attorney fees but instead requires the payment of attorney fees ‘incurred.’ ” The court denied Reynolds's request to apportion fees based on the People's limited success, on the ground they voluntarily reduced the number of attorney hours spent by 15 percent. On November 5, 2009, the court issued an order granting the People $707,882.50 in attorney fees and other costs of $32,673.

DISCUSSION

IPrevailing Party Determination

ASection 1717 Applies to the Consent Decree

Reynolds contends the court erred by finding the People's action for enforcement of the Consent Decree is not an action “on a contract” for purposes of section 1717. (§ 1717, subd. (a).) We agree.

The interpretation of a statute presents a legal question we review independently. ( Travis v. Board of Trustees of California State University (2008) 161 Cal.App.4th 335, 340, 73 Cal.Rptr.3d 854.) “In construing a statute, a court's objective is to ascertain and effectuate legislative intent. [Citation.] To determine legislative intent, a court begins with the words of the statute, because they generally provide the most reliable indicator of legislative intent.” ( Hsu v. Abbara (1995) 9 Cal.4th 863, 871, 39 Cal.Rptr.2d 824, 891 P.2d 804.)

Section 1717 “was enacted to establish mutuality of remedy where contractual provision makes recovery of attorney's fees available for only one party [citations], and to prevent oppressive use of one-sided attorney's fees provisions.” ( Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128, 158 Cal.Rptr. 1, 599 P.2d 83.)Subdivision (a) of section 1717 provides in part: “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce...