Business Law

Mai v. HKT Cal Inc., 66 Cal. App. 5th 504 (2021)

The following is a case update by Kit James Gardner of the Law Offices of Kit J. Gardner analyzing a recent case of interest:

Summary

In Mai v. HKT Cal Inc., 66 Cal. App. 5th 504 (2021), the California Court of Appeal provided guidance on how litigants must offer proof of attorneys’ fees as damages in California courts, as distinguished from attorneys’ fees as costs.  To read the full published decision, click here.

Facts

This case had its genesis in the strange attempt by Ms. Mai’s real estate agent to effectuate a sale of an apartment building that Mai owned by forging Mai’s signature on real estate sale documents.  The upside for the real estate agent’s fraud was, apparently, a sizeable commission.  When the sale ultimately did not materialize (since Mai did not know about it and had no intention to sell at that time), the person who thought he was purchasing Mai’s property sued Mai for specific performance.  Mai cross-complained against her former real estate agent and the agent’s broker.  Eventually, the purchaser realized that Mai was a victim of the real estate agent’s scheme, and he dismissed his complaint against Mai.  This phase of the civil proceedings will be referred to as Phase I.

In Phase II of the civil proceedings, Mai continued to prosecute her cross-complaint against her former real estate agent and broker for emotional distress and to recover the legal fees she incurred in Phase I under the “tort of another” doctrine.  That doctrine allows a person to recover—as damages—the expenses incurred in defending oneself against a tort that was committed by somebody else.  On the eve of trial, the cross-defendants contended that Mai’s “tort of another” claim suffered from evidentiary obstacles.  The trial court agreed, granting a motion in limine barring Mai from submitting redacted billing statements as evidence of Mai’s damages, since Mai’s attorney had refused to produce them in discovery.  Also, since Mai’s attorney had not listed himself as a witness during discovery or otherwise, he was not allowed to testify at trial either.

Furthermore, the trial court prevented Mai from testifying personally regarding the legal fees that she incurred during Phase I.  In doing so, the trial court believed it was constrained by Copenbarger v. Morris Cerullo World Evangelism, Inc., 29 Cal. App. 5th 1 (2018).  Copenbarger determined, among other things, that: (1) because invoices are hearsay, a client receiving them cannot testify about the work or services reflected in them (absent personal knowledge), and is not competent to establish the business records exception to the hearsay rule; and (2) it was improper for the trial court in that case to take judicial notice of the court’s file as evidence of the work performed by the attorneys.

Copenbarger held that attorneys’ fees must be proven as damages either by providing a proper foundation to admit the invoices as business records or by having the attorneys who performed the work testify about their hourly rates, the work performed, and the amount of time spent on various tasks.  According to Copenbarger, “Such evidence is required when a prevailing party requests attorney fees by motion. No less is required when attorney fees are sought as damages.”

Because Mai, like the plaintiff in Copenbarger, could not do any of these things through her own testimony, the trial court reluctantly declined to award her any damages on account of the attorneys’ fees that she incurred in Phase I.  The Court of Appeal reversed and remanded for a retrial on the narrow issue of attorney’s fees and damages.  

Reasoning

The Court of Appeal believed that Copenbarger should be given a narrow reading “that harmonizes it with other case authority,” concluding that Copenbarger erroneously equated the evidentiary burden for obtaining attorneys’ fees as costs in a post-judgment motion with that of obtaining attorneys’ fees as damages at trial.  In determining a claim for attorneys’ fees as damages at trial, which is what was at issue in Mai, the Court of Appeal found it more helpful to look at general principles governing a plaintiff’s burden of production to establish compensatory damages, such as medical expenses in a personal injury case.

Using that standard as a guide, the Court of Appeal said “[a] prima facie case as to the costs incurred and their reasonableness can be established by the plaintiff’s testimony that bills for the services were paid.”  Of course, should the defense challenge those costs, the plaintiff would likely need additional evidence such as testimony from the plaintiff’s attorney, which is specifically permitted by California Rule of Professional Conduct 3.7(a)(2).

The Court of Appeal also noted that Copenbarger’s determination that invoices are always hearsay was dicta and, more importantly, overlooked the “hearsay exception for invoices” established more than 50 years ago by the California Supreme Court.  This is not so much an exception to the hearsay rule as an acknowledgment that invoices may be introduced for a non-hearsay purpose, such as to corroborate testimony that a party incurred the liability, or to show that the charges were reasonable, but not to prove the truth of the content recited in the invoices.  See Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 43 (1968).

Finally, to the extent that Copenbarger holds that judicial notice may never be taken of documents in the court’s file as evidence of work performed by attorneys, the Court of Appealdisagreed, citing prior precedence.  Under this analysis, the documents are not judicially noticed for their contents, but rather as evidence of the work performed by an attorney on behalf of the litigant (albeit not necessarily evidence of the full billed amount of the work).

Author’s Commentary

The Mai and Copenbarger opinions agree that in order to prove attorneys’ fees as damages in California courts—as opposed to costs of suit after a successful trial—evidence of the fees incurred must be properly presented during trial, rather than via a post-trial motion.  However, Mai and Copenbarger differ in their approaches to the types and quantum of evidence that must be presented.  Although the Court of Appeal in Mai emphasized that its opinion “harmonizes” Copenbarger with prior precedents, litigants may still feel in a quandary as to which opinion to follow since there is no horizontal stare decisis in the California Court of Appeal.  See Sarti v. Salt Creek Ltd., 167 Cal. App. 4th 1187, 1193 (2008).  The easy solution may be to satisfy the higher and potentially more burdensome bar set forth in Copenbarger i.e., ensure that an attorney who can authenticate and lay a foundation for the billing statements as business records will testify at trial as well as discuss the work performed.  However, to the extent that is not desirable nor practical, Mai offers litigants the possibility of admitting evidence of attorneys’ fees via client testimony (albeit subject to challenge by the other side) and/or judicial notice (though not necessarily for the full amount billed).

These materials were written by Kit James Gardner of the Law Offices of Kit J. Gardner in San Diego (kgardner@gardnerlegal.com).  Editorial contributions were provided by Aaron E de Leest of Danning, Gill, Israel & Krasnoff, LLP (adeleest@danninggill.com).


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