Excellent Lawyers Deserve Higher Fees and Excellent Lawyers are Civil: A new CA Court of Appeal Case Lowers Attorney Fees by a Landslide for Bad Lawyer Behavior

“Seasoning a disagreement with avoidable irritants can turn a minor conflict in a costly and protracted war. All of those human hours, which could have been put to socially productive uses, instead are devoted to the unnecessary war and are lost forever. All sides lose, as does the justice system, which must supervise these hostilities.” -Justice Wiley, Karton v. Ari Design & Construction, Inc. (2021)

 Most of us have heard the saving “Civility costs nothing, and buys everything”, but in the case of Karon v. Ari, Karon’s lack of civility cost him quite a bit. In this case decided just as of March 2021, the CA Court of Appeal used its discretion to lower Karon’s attorney’s fees by $210,000, causing him to lose any sort of reimbursement for the countless hours he spent accumulating these fees on his own case.

The background of the case goes like this. Karton, Petitioner, hired a contractor who was unlicensed and uninsured. In CA, when a contractor fails to prove he has a license and insurance, CA will not protect that contractor if that contractor gets later sued in court. Meaning, if the contractor breaches their contract for not completing their work, they don’t only have to pay back for the work they did not complete, they have to pay back everything. Even if they completed most of the work and purchased all the supplies. This is public policy to discourage unlicensed contractors from entering into agreements.

Here, the dispute was originally over $23,000. An important note here is that Karton represented himself in this case as a lawyer (probably his first mistake). Karton claimed Ari, the Contractor Defendant owed him $23,000 for work not completed. Ari said he only owed $13,000. The trial court found that Ari was not licensed and awarded Karton for the FULL contract price of $90,000 plus an additional $10,000 in penalties, even though almost $60,000 worth of work was already completed by Ari. This is due to the law in CA explained above, that states they will not reward an unlicensed contractor for work already completed in a breach of contract case, to discourage contractors from working without a license. This is not a discretionary rule by the way. It is mandatory. Thus, Karton received a windfall. But Karton was not done. He then appealed and tried to get attorney fees awarded. The court found that Karton was very personally enraged by the matter (because it was his own case) and that he over-litigated it. He tried to get almost $300,000 in attorney fees, and the court only gave him $90,000. Causing $210,000 worth of Karton’s work to go uncompensated. The Court of Appeal affirmed.

The CA Court of Appeal, led by Justice Wiley’s Opinion, then broke down the two methods of defining “reasonable fees” before it explained the five factors they considered when deciding whether or not $300,000 was an appropriate total for the legal work done in this case.

TWO METHODS IN CALCULATING FEES:

The benchmark in determining attorney fees is reasonableness. Courts have developed two ways to define reasonable fees. The first method is the lodestar approach. This approach is the multiplicand of a reasonable hourly rate and reasonable number of hours. The Court may adjust on several different factors. Germane factors include nature, difficulty, extent of litigation, skill it required, the attention given, and the success or failure of the enterprise, as well as other factors, including whether the lawyer worked on contingency. A trial court is NOT required to state each charge it finds reasonable or unreasonable. A reduced award may be fully justified on a general observation that an attorney over-litigated a case.

The second method is the percentage of recovery approach. This approach arose during the context of class actions but still shares the lodestar method’s fundamental goal of defining reasonableness. According to Justice Wiley, the lodestar method works better for the amount of work done, while the percentage approach more accurately reflects the results achieved. The CA Supreme Court has concluded that trial courts have discretion to start with the percentage approach and then use the lodestar approach to cross-check the reasonableness of the percentage.

FIVE FACTORS DETERMINING REASONABLENESS

In Karton v. Ari, the Court listed five reasons for approving the lower award, which are paraphrased below:

1. First, the trial court rightly found the questions in this case were relatively simple. Difficult issues require more attorney hours. (Ketchum) Simpler questions require fewer. In the realm of civil litigation in CA, this case was relatively straightforward. (whether or not a contractor was licensed and insured)

2. Second, the court had ample basis to conclude the Karton’s over-litigated the matter. The dispute was over $23K. They recouped all of these losses. In fact, they were awarded 90K + 10K in penalties. They received a windfall. (p. 13)

3. Third, trial court fairly attributed some of the over-litigation to Karton’s personal embroilment on the matter. Karton is an experienced lawyer. He brought this suit about his own home. Karton stated “I was substantially involved in this case because I was cheated. So yes, I was involved” The court observed Karton’s demeanor at hearings and saw he was “agitated about the case”. The court had reason to conclude embroilment undermined objectivity about the appropriate scale of litigation.”

4. Fourth, the trial court rightly sought an appropriate relationship between the result achieved and the size of the fee. Weighing costs and benefits, the trial court found that a fee three times the judgment is not reasonable. This was logical: rational investors or buyers would not spend $3 to get something worth $1.

5. Fifth, the court correctly noted the incivility in Karton’s briefing. Excellent lawyers deserve higher fees, and excellent lawyers are civil. Sound logic and bitter experience support these points. Civility is an ethical component of professionalism. Civility is desirable in litigation, not only because is it ethically required for its own sake but also because it socially advantageous: It lowers the cost of dispute resolution. “The American legal profession exists to help people resolve disputes cheaply, swiftly, fairly and justly. Incivility can rankle relations and thereby increase the friction, extent and cost of litigation. Calling opposing counsel a liar, for instance, can invite destructive reciprocity and generate needless controversies. Seasoning a disagreement with avoidable irritants can turn a minor conflict in a costly and protracted war. All of those human hours, which could have been put to socially productive uses, instead are devoted to the unnecessary war and are lost forever. All sides lose, as does the justice system, which must supervise these hostilities.”

In sum, these five grounds were sound bases for reducing the requested attorney fee from $300,000 to $90,000.

So, what can we learn from all of this? I believe there is both a lesson here for attorneys and client’s alike: Don’t be a jerk. Don’t submit over 400 pages of exhibits when a Judge specifically limited you to 10 pages. Also – don’t be greedy. Karton already received a windfall and came back for more. As another author put it very eloquently: “pigs get fat, whereas hogs get slaughtered — and uncivil hogs even more so.”