A California Court of Appeal has affirmed the concept that a successful defendant who is entitled to an attorney fee award can seek an award which is greater than the fees actually billed by the insurance appointed defense counsel who represented the defendant.

In Syers Properties III, Inc. v. Ann Rankin et. al., 226 Cal.App.4th 69 (2014), defendants successfully obtained a judgment of nonsuit in a legal malpractice action. Defendants were entitled to attorney fees by reason of their fee agreement with the plaintiff which entitled the prevailing party to attorney fees. Defense counsel sought and successfully obtained an award of attorney fees which were not tied to the rates actually charged for the representation by presenting evidence to the trial court that a reasonable rate for the representation was actually higher than the rates charged. The court noted that the benchmark for a fee award is reasonableness and there is no requirement that the reasonable market rate mirror the actual rate billed. In concluding that a reasonable rate could exceed the actual rate billed, the court acknowledged that attorneys who do work for insurance companies often work at what are arguably below market rates (in part because of the volume of work). Thus, because counsel was able to convince the trial court that the skill, expertise and experience necessary to successfully litigate the case would reasonably have been charged at higher rates, the court of appeal concluded that the trial court was within its discretion in concluding that a higher rate was reasonable and justified.

The case is significant in that it runs counter to a general line of thinking which is of the view that only contingent fee or special circumstance cases justified reasonable rates varying from actual rates. Instead, the market rate is the significant factor, meaning that if a party can convince a court that the market place for the specific services provided warrants a higher rate, the party may be successful in obtaining the higher rate.

The decision should be read and understood with a couple of caveats:

  • The key factor is the marketplace. The court determined that although insurance rates were charged, the marketplace which the trial court believed should have governed the evaluation of services was a more commercial marketplace with higher rates. The Court of Appeal noted that had the trial court concluded that the proper marketplace was one in which insurance rates should have been charged, such a determination would have been appropriate as well.
  • The case is significant and valuable only where attorney fees can be awarded. Generally these derive from contract. Where a contractual provision does not exist between plaintiff and defendant, an award of attorney fees generally will not possible. (Exceptions to this general rule exist and statutes may authorize attorney fees in various instances or for various claims.)
  • Assuming that attorney fees are at issue, the decision may provide all parties with different degrees of leverage when settlement is being considered. From a defense perspective, a defendant who has a reasonable chance of success can present a bigger downside to the plaintiff such that the plaintiff may accept less to settle the case now (although this may depend upon whether the plaintiff is financially able to respond to an attorney fee award). A plaintiff may also have additional leverage. Plaintiff’s counsel will likewise be able to point to the “marketplace” as the determinator of reasonableness and may be able to spike the potential attorney fee award above the rates actually being charged.