Equifax by gKBl2HMI


									Filed 5/27/99


                           SECOND APPELLATE DISTRICT

                                    DIVISION THREE

                                                     (Super. Ct. No. BC140906)
        Plaintiff and Respondent,



         Defendant, Cross-Complainant
         and Appellant;

et al.,

       Cross-Defendants and Respondents.

        APPEAL from judgments and an order of the Superior Court of Los Angeles
County. David Workman, Judge. Affirmed
        David Drexler, in pro. per., for Defendant, Cross-Complainant and Appellant.
        Hart & Waters as Amicus Curiae on behalf of Defendant and Appellant.
        Horvitz & Levy, Barry R. Levy, Daniel J. Gonzalez and Jon B. Eisenberg; Carole

* Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified
for publication with the exception of part II, 4, 5, 6, 7 and 8.
Runcie Sherman as Amicus Curiae on behalf of Corporate Law Departments Section of
the Los Angeles County Bar Association, for Defendant and Appellant.
       Shand S. Stephens and Laurie J. Falik for Plaintiff and Respondent PLCM Group,
Inc. and Cross-Defendants and Respondents Dearborn Insurance Co. and Anglo-
American Insurance, Ltd.
       Wilson, Elser, Moskowitz, Edelman & Dicker, Patrick M. Kelly, Martin K.
Deniston and Jonathan C. Balfus for Cross-Defendant and Respondent Assicurazioni
Generali, S.P.A.
       Benjamin Sybesma and Joel H. Levinson as Amicus Curiae on behalf of California
Correctional Peace Officers Association, for Plaintiff and Respondent.
       Eric B. Simon as Amicus Curiae on behalf of California International Chemical
Company, Inc., for Plaintiff and Respondent.
       James R. Edwards, Steven Alan Bennett and Susan J. Hackett as Amicus Curiae on
behalf of American Corporate Counsel Association, for Respondents.


       In this appeal, we find that under Civil Code section 1717, corporate in-house
counsel who have actively participated in the litigation are entitled to recover reasonable
attorneys fees. We further find that the attorneys fees should be calculated by using the
prevailing market rate in the legal community.
       In the unpublished portion of this opinion we consider Drexler’s remaining

       In April 1990, defendant, cross-complainant and appellant, David Drexler,
purchased a professional malpractice insurance policy through the Los Angeles County
Bar Association (policy). The liability carriers were Dearborn Insurance Co., Anglo-
American Insurance, Ltd, and Generali Spa London Branch (collectively the insurers).
The policy included a $20,000 deductible per claim on both indemnity and expense
payments. Professional Liability Claims Managers (PLCM) was retained to administer
the bar association’s professional liability program and to process claims.
       In January 1991, Drexler was sued by a former client for malpractice, and tendered
the claim to PLCM. On behalf of the insurers, PLCM hired the law firm of Haight,
Brown and Bonesteel (Haight, Brown), Drexler’s choice, to defend Drexler in the
litigation. In November 1991, the lawsuit was settled and was dismissed with prejudice.
By that date, Drexler had paid $9,680.38 to Haight, Brown for services rendered through
August 1991. Drexler failed to pay Haight, Brown’s remaining bills and owed the law
firm $10,319.62 on his deductible.
       A dispute over payment of the outstanding fees remained unresolved. For three
months, Haight, Brown wrote Drexler and demanded payment. In March 1992, Drexler
first advised PLCM that he was attempting to resolve the dispute with the law firm. For a
year PLCM received no further information about the status of the unpaid bills from
Drexler. In April 1993 and June 1993, Haight, Brown sent PLCM outstanding billing
statements and copies of letters to Drexler. PLCM heard nothing from Drexler about
efforts to resolve his billing concerns. The bills had remained unpaid since October 1991.
       In October 1993, PLCM invoked section V-C of the policy and directly paid
Haight, Brown the outstanding $10,319.62 bill.1 PLCM wrote Drexler about the payment

1      Section V-C of the policy provides, in relevant part:

and stated that he was to pay the $10,319.62 directly to PLCM or the administrator would
send the matter to collection. Drexler reiterated to PLCM his refusal to pay any portion
of the outstanding portion of the deductible. He claimed, in relevant part: “Your
payment to Haight, Brown & Bonesteel’s office was voluntary and unauthorized by me.
It is clear that the payment was made as an attempt to prejudice and undercut my rights to
dispute Haight, Brown & Bonesteel’s entitlement to the claimed fee. [¶] . . . [¶] It is
apparent to me that Haight, Brown & Bonesteel’s office has concealed from you my
objections to their bill and their failure to respond to my continuous attempts to resolve
this dispute.”
       In February 1994, PLCM assigned and referred the matter of Drexler’s non-
payment to Robinson & Associates for collection.
       On April 3, 1995, Robinson & Associates filed a complaint for monies against
Drexler and alleged he breached the insurance contract by failing to pay $10,319.62
remaining on his deductible. Drexler answered. On June 25, 1996, Drexler filed a first
amended cross-complaint and alleged against the insurers and PLCM causes of action for
breach of contract, insurance bad faith, and intentional infliction of emotional distress.
The only basis for all three claims was the insurers’ decision, acting through PLCM, to
pay the delinquent deductible amount owed to Haight, Brown, and to seek reimbursement
from him. The premise of Drexler’s argument was that the payment was made without
his consent and usurped and violated his rights to arbitrate or contest the bill.
       The insurers and PLCM filed motions for summary judgment on the cross-
complaint, which the trial court granted. The trial court, however, denied Drexler’s

       “The deductible . . . shall be paid by the Named Insured . . . upon demand by the
Company [the insurance companies] to the persons or entities designated by the
Company. The Company shall have the right, but not the obligation, to advance sums on
behalf of the Named Insured within the applicable deductible. If the Insured fails, after
demand, to reimburse the Company for any amounts within the deductible which the
Company has advanced, the Company may bring suit to recover such amounts and shall
also be entitled to recover interest from the date of demand, and attorneys’ fees and costs
incurred in bringing the action.”

motion for summary judgment on the complaint, and the matter proceeded to trial against
       Trial began on January 31, 1997. During the four-day trial, Drexler defended his
nonpayment of the remaining legal fees. He presented testimony, exhibits and
correspondence with Haight, Brown and PLCM to show that he believed representations
made by Haight, Brown about the settlement of his malpractice action would reduce his
bill by $10,000. The jury returned a verdict in favor of PLCM on the complaint, and
against Drexler, in the amount of $10,319.62.
       On March 3, 1997, the trial court entered the judgment after the jury verdict and
the judgment on the cross complaint.
       Drexler timely filed a notice of appeal from the judgments.
       Following entry of judgment, PLCM, and Dearborn represented by in-house
counsel, filed a memorandum of costs and moved for a fee award of $61,050 under the
attorney fee provision in the policy. The requested amount included fees for both the trial
and the defense of the cross-complaint on summary judgment. Drexler moved to tax
costs, and filed supporting declarations. He opposed PLCM and Dearborn’s motion on
the grounds, inter alia, that (1) PLCM and Dearborn could not recover attorney fees
because they had been represented by in-house counsel; and (2) the policy only permitted
PLCM and Dearborn to recover fees expended at trial to collect the money. After a
hearing, the trial court granted PLCM and Dearborn’s motion and awarded “reasonable
attorney fees” in the requested amount of $61,050.
       Drexler timely filed a notice of appeal from the order awarding attorney fees.

2      Robinson & Associates re-assigned its claim against Drexler to PLCM. On
August 22, 1996, the parties stipulated that PLCM would be substituted as plaintiff in
place of Robinson & Associates, who would no longer be a party to the action.


         Drexler contends the trial court abused its discretion by (1) awarding attorney fees
for legal services performed by PLCM’s in-house counsel, and (2) calculating the fees by
using the prevailing market rate method.
         We find that under Civil Code section 1717, PLCM is entitled to recover the
reasonable value of legal services performed by in-house counsel on both the summary
judgment motions and the trial. We further find that the trial court properly used the
prevailing market rate in the legal community to calculate the fees.
         1. Corporate In-House Counsel Who Have Actively Participated in the Litigation
Are Entitled to Recover Reasonable Attorney Fees Under Civil Code Section 1717.
                a. Standard of Review
         Where the appellate court must determine the legal basis of the award, de novo
review is the standard. (Honey Baked Hams, Inc. v. Dickens (1995) 37 Cal.App.4th 421,
425, disapproved on other grounds in Santisas v. Goodin (1998) 17 Cal.4th 599, 614
fn. 8.) If the challenge is to the amount of the fees awarded, the “abuse of discretion”
standard is applied. (Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145,
                b. Fees for In-House Counsel
         Drexler first argues that our Supreme Court’s decision in Trope v. Katz (1995) 11
Cal.4th 274 prevents a prevailing party from recovering attorney fees for in-house counsel
because the party did not “incur” those fees. However, as we shall discuss, the Trope
court expressly declined to decide the issue of in-house counsel attorney fees because the
Trope appeal did not require a ruling on this issue. This appeal, however, squarely
presents the issue of whether a prevailing party may recover in-house counsel fees.
         Civil Code section 1717, subdivision (a), states, in relevant part, that “[i]n any
action on a contract, where the contract specifically provides that attorney’s fees and

costs, which are incurred to enforce that contract, shall be awarded either to one of the
parties or to the prevailing party, then the party who is determined to be the party
prevailing on the contract, whether he or she is the party specified in the contract or not,
shall be entitled to reasonable attorney’s fees in addition to other costs.” (Italics added.)
       Section V-C of the insurance contract provides, in relevant part, that “[i]f the
Insured fails, after demand, to reimburse the Company [insurers] for any amounts within
the deductible which the Company has advanced, the Company may bring suit to recover
such amounts and shall also be entitled to recover interest from the date of demand, and
attorneys’ fees and costs incurred in bringing the action.”
       In a case of first impression, this district, in Garfield Bank v. Folb (1994) 25
Cal.App.4th 1804 (overruled in part by Trope v. Katz, supra, 11 Cal.4th at p. 292),
allowed the recovery of attorney fees for in-house counsel. The court’s ruling was based
on several considerations.
       The court determined that the purpose of Civil Code section 1717 is 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. [Citations.]’ [Citations.]” (Garfield Bank v. Folb, supra, 25
Cal.App.4th at p. 1808.)
       The court relied on Beverly Hills Properties v. Marcolino (1990) 221 Cal.App.3d
Supp. 7, where the prevailing party was permitted to recover legal fees when represented
by nonprofit legal counsel (Garfield Bank v. Folb, supra, 25 Cal.App.4th at p. 1807), and
Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1409), where the prevailing party
recovered fees although an insurance carrier paid for his defense. The court also relied
on the reasoning in a significant body of federal and other non-California case law that
permitted prevailing parties to collect fees when they were represented by nonprofit
counsel, government-employed attorneys, and for-profit in-house counsel. (Garfield
Bank, supra, at pp. 1808-1809.)

       The Garfield Bank court also considered contemporary case law that permitted
“[a]ttorneys who litigate their own claims [to be] entitled to recover attorney fees under
Civil Code section 1717. [Citations.]” (25 Cal.App.4th at p. 1807.) The court reasoned
that “[a]llowing a party ‘to escape [their] obligation to pay the attorney’s fees required
under the contract simply because the attorney chose to rely on her own professional skill
rather than hire another attorney would create a windfall for the [losing party] at the
tangible expense of the prevailing party [].’ [Citation.] The utilization of an attorney’s
time in prosecuting or defending a case represents lost opportunities to utilize that time in
another productive manner. [Citations.]”3 (Id. at p. 1808.)
       After consideration of all these factors, the Garfield Bank court permitted
defendant’s in-house counsel to recover fees and stated: “Because disallowing fees for
in-house counsel would provide a windfall for appellant, we can see no reason to
distinguish the lost opportunities from actual expenditures on outside counsel.” (Garfield
Bank v. Folb, supra, 25 Cal.App.4th at pp. 1809-1810.)
       In Trope v. Katz, supra, 11 Cal.4th 274, our Supreme Court disapproved the
statements in Garfield Bank that pro se attorneys could recover attorney fees under Civil
Code section 1717. The Trope court held that “an attorney who chooses to litigate in
propria persona and therefore does not pay or become liable to pay consideration in
exchange for legal representation cannot recover ‘reasonable attorney’s fees’ under [Civil
Code] section 1717 as compensation for the time and effort he expends on his own behalf
or for the professional business opportunities he foregoes as a result of his decision.” (11
Cal.4th at p. 292.)
       Trope disapproved several appellate cases that approved of fee awards for pro se
attorneys, including Garfield Bank. (Trope v. Katz, supra, 11 Cal.4th at p. 292.) Trope,
however, did not address any other aspects of Garfield Bank’s reasoning or holding,

3      This portion of the Garfield opinion was overruled by our Supreme Court in Trope
v. Katz, supra, 11 Cal.4th 274, as we discuss, infra.

particularly the conclusion that in-house counsel could recover reasonable attorney fees
under Civil Code section 1717. (11 Cal.4th at p. 292.) In fact, the Trope opinion
observed: “[Trope & Trope] reasons that if we hold that a litigant cannot recover attorney
fees unless he actually paid or became liable to pay consideration in exchange for legal
representation, it would mean that a litigant represented by in-house counsel could not
recover such fees because it paid its attorney a salary rather than a fee. The conclusion
does not necessarily follow, because an argument can be made that in such circumstances
the salary is the functional equivalent of the fee. Resolution of that question, however,
must await another day: we have no occasion in this case to decide whether a litigant
represented by in-house counsel can or cannot recover ‘reasonable attorney’s fees’ under
section 1717, and nothing in our opinion should be read as endorsing or precluding such
an award.” (Id. at p. 291.) Thus, Trope left the issue of attorney fees for in-house
counsel unresolved.
       Trope noted the underlying rationale of the U.S. Supreme Court’s decision in Kay
v. Ehrler (1991) 499 U.S. 432 denying attorney fee awards to prevailing attorneys
electing to appear in propria persona under the Civil Rights Attorney’s Fees Awards Act
of 1976. (42 U.S.C. § 1988; Trope, supra, 11 Cal.4th at p. 292.) Kay said that the word
“attorney” assumes an agency relationship and that Congress likely “contemplated an
attorney-client relationship as the predicate for an award under [42 U.S.C.] § 1988.” (Kay
v. Ehrler supra, 499 U.S. at p. 436.) Kay rejected the petitioner’s argument that because
Congress intended organizations to receive an attorney fee award even when they
represented themselves, an individual attorney should be permitted to receive an attorney
fee award when he represented himself. The court said that “an organization is not
comparable to a pro se litigant because the organization is always represented by counsel,
whether in-house or pro bono, and thus, there is always an attorney-client relationship.”
(Id. at p. 436, fn. 7.)
       The Trope court stated that the “issue presented by this case is whether an attorney
who chooses to represent himself--and therefore does not pay or become liable to pay any

sum out of pocket for such representation--can nevertheless recover ‘reasonable
attorney’s fees’ under section 1717 as compensation for the time and effort expended and
the professional business opportunities lost as a result.” (Trope v. Katz, supra, 11 Cal.4th
at p. 279.)
       The Trope court explained the meaning of the phrase contained in Civil Code
section 1717 which provides: “In any action on a contract, where the contract specifically
provides that attorney’s fees and costs, which are incurred to enforce that contract . . . .”
(Italics added.) The court thus focused on two specific elements of section 1717--
“attorneys fees” and “incurred.”
       With regard to the concept of “incur,” the court stated that to “incur” a fee is to
“ ‘become liable’ ” for it, that is, to become obligated to pay it. Trope therefore
concluded that an “attorney litigating in propria persona cannot be said to ‘incur’
compensation for his time and his lost business opportunities.” (Trope v. Katz, supra, 11
Cal.4th at p. 280.)
       With regard to the words “attorneys fees,” the court found that the usual and
ordinary meaning of these words was “the consideration that a litigant actually pays or
becomes liable to pay in exchange for legal representation. An attorney litigating in
propria persona pays no such compensation.” (Trope v. Katz, supra, 11 Cal.4th at
p. 280.)
       Thus, under our Supreme Court’s definition of “incurred” and “attorneys fees,”
expenses for work in-house legal counsel performs are recoverable as attorney fees under
Civil Code section 1717 to the extent they constitute consideration that the litigant
became liable to pay in exchange for counsel’s representation.
       In our case, PLCM and Dearborn Insurance Company (Dearborn) are subsidiaries
of the parent corporation, Aon Corporation. They are represented in litigation by the San
Francisco office of the Aon Corporation Law Division. The costs of the corporate law
division (including salaries) are charged to each corporate subsidiary each year in
proportion to the number and complexity of the subsidiary’s files. PLCM and Dearborn

were represented by private retained counsel before the establishment of the corporate
law division.
       Using Trope’s analysis, we find that since PLCM and Dearborn became liable to
pay consideration to the corporate law division in exchange for legal representation, they
may recover reasonable attorney fees under Civil Code section 1717.
       2. Attorneys Fees for In-House Counsel Should Be Based on Prevailing Market
Rates in the Legal Community.
       Drexler again relies on the incurred language of Civil Code section 1717 to
challenge the amount of the attorney fee award. Drexler argues that the fee was not
incurred because there is no evidence that PLCM paid $61,050 in attorney fees. Drexler
argues that the trial court should have considered the salary received by in-house counsel,
plus the relevant and related costs, in determining the attorney fees. PLCM argues the
trial court properly calculated the fees using the market rate of comparable legal services.
We agree with PLCM and find that the court should use a prevailing market rate approach
rather than a salary plus cost approach in determining the awarded fee.
       The incurred language in the contract at issue here and in Civil Code section 1717
does not purport to define the amount of attorney fees. That language merely means the
prevailing party has become liable for attorney fees. In addition, the holding of Trope is
not that Civil Code section 1717 requires a fee award to equal the exact amount of dollars
paid by a litigant; rather it is that to be eligible for a fee award, a litigant must become
liable to pay some consideration for legal representation, and attorneys appearing in
propria persona do not meet that test. Trope does not discuss how to measure attorney
fee awards for in-house counsel. Civil Code section 1717, subdivision (a), provides in
part that “[r]easonable attorney’s fees shall be fixed by the court . . . .” For several
reasons, we find those fees should be calculated by using the prevailing market rate in the
legal community.
       In California, “ ‘Any fee-setting inquiry begins with the “lodestar”: the number of
hours reasonably expended multiplied by a reasonable rate.’ ” (Margolin v. Regional

Planning Com. (1982) 134 Cal.App.3d 999, 1004, citing Copeland v. Marshall (D.C. Cir.
1980) 641 F.2d 880, 892.) “ ‘The reasonable hourly rate is that prevailing in the
community for similar work. . . . [A] reasonable hourly rate is the product of a
multiplicity of factors . . . the level of skill necessary, time limitations, the amount to be
obtained in the litigation, the attorney’s reputation, and the undesirability of the case.”
(Margolin v. Regional Planning Com., supra, 134 Cal.App.3d at p. 1004, citing Copeland
v. Marshall, supra, 641 F.2d at p. 892.) “California courts have consistently held that a
computation of time spent on a case and the reasonable value of that time is fundamental
to a determination of an appropriate attorneys’ fee award. [Citations.]” (Margolin v.
Regional Planning Com., supra, 134 Cal.App. 3d at pp. 1004-1005.)
       Various courts have relied on the market value approach to determine attorney fee
awards and have rejected the salary plus cost approach. They have generally rejected the
salary plus cost approach because it would lead to complicated, collateral litigation.
       In Copeland v. Marshall, supra, 641 F.2d 880, the court en banc reviewed “an
order of the District Court awarding an attorney’s fee of $160,000 for the successful
prosecution of a gender-discrimination class suit against the United States Department of
Labor.” (Id. at p. 883.)
       The court determined that there were difficulties in trying to calculate the
reasonable hourly rate according to a “ ‘cost-plus’ ” approach. Under that approach the
fee would be based on “ ‘the sums paid out to [the] attorneys as personal income and to
defray overhead costs attributable to the maintenance of the attorneys in the firm,’ plus a
‘reasonable and controllable margin for profit.’ ” (Copeland v. Marshall, supra, 641 F.2d
at p. 896.)
       The court observed that “[t]he ‘lodestar,’ or ‘market value,’ method of fee setting
has the virtue of being relatively easy to administer. . . . We fear that the proposed ‘cost-
plus’ method of calculating fees would indeed become the inquiry of ‘massive
proportions’ that we strive to avoid. The problems associated with administering a ‘cost-
plus’ calculus are multifarious. How might a firm allocate its overhead costs to a

particular piece of litigation? In what manner does one calculate the costs associated with
the ‘imputed salaries’ of firm partners? What is a ‘reasonable’ profit to be awarded? The
necessity, under ‘cost-plus,’ of answering these and other questions creates the specter of
a monumental inquiry on an issue wholly ancillary to the substance of the lawsuit. [¶] To
address questions like these, considerable discovery would be necessary to obtain
documentary evidence. A law firm’s financial structure is highly relevant to a ‘cost-plus’
inquiry, so the firm’s financial records would be discoverable. Third-party and expert
testimony would have to be proffered. Because time spent litigating the fee request is
itself compensable, the depth of the inquiry ironically might lead to an increase, rather
than a diminution, in fee awards.” (Copeland v. Marshall, supra, 641 F.2d at p. 896, fns.
and italics omitted.)
       The court further determined that its rejection of the “cost-plus” system does “not
depend on administrative inconvenience alone. We think . . . [a] fee should be based on
the market value of services rendered, not on some notion of ‘cost’ incurred by the law
firm.” (Copeland v. Marshall, supra, 641 F.2d at p. 897.)
       The Copeland court further observed that “the vast majority of courts that have
considered this issue agrees with us that attorney’s fees should not be based on the costs
of the successful party. Instead, fees should be based on the market value of the legal
services rendered.” (Copeland v. Marshall, supra, 641 F.2d at pp. 899-900.)
       In Serrano v. Unruh (1982) 32 Cal.3d 621, the court was faced with the similar
issue of setting reasonable attorney fees. The trial court refused to permit defendants to
discover the salaries of plaintiffs’ counsel and related overhead costs. (Id. at p. 640.)
Defendants contended on appeal “that costs are pertinent to setting the reasonable hourly
compensation of plaintiffs’ attorneys.” (Ibid.) The Serrano court disagreed.
       The court explained that a prior opinion (Serrano III [Serrano v. Priest (1977) 20
Cal.3d 25]) “expressly approved Judge Jefferson’s 1975 use of prevailing hourly rates as
the basis for the reasonable market value of lawyers’ services in the underlying school-
finance litigation. [Citation.]” (Serrano v. Unruh (1982) 32 Cal.3d at p. 640.) The court

also recognized the danger of a cost based determination of attorney fees. “Inquiries as to
cost could also be cumbersome.” (Id. at p. 642.) Furthermore, “ ‘[t]he “lodestar”, or
“market value”, method of fee setting has the virtue of being relatively easy to administer.
We do not want “a [trial] court, in setting an attorney’s fee, [to] become enmeshed in a
meticulous analysis of every detailed facet of the professional representation. It . . . is not
our intention that the inquiry into the inadequacy of the fee assume massive proportions,
perhaps dwarfing the case in chief.’ [Citation.]’ ” (Ibid.)
       State of Ill. v. Sangamo Const. Co. (7th Cir. 1981) 657 F.2d 855, also measured
attorney fees by prevailing market rates. In Sangamo, the State of Illinois successfully
litigated a Clayton Act (15 U.S.C. § 15) violation and was entitled to attorney fees under
section 4 of the Act. (657 F.2d at p. 857.) The Sangamo court disagreed with
defendants’ argument that “if a state represented by its Attorney General is entitled to
attorneys’ fees, then the award of attorneys’ fees should be limited to the actual costs
incurred by the state, i.e., the salaries of the state lawyers.” (Id. at p. 858.) The court
determined that “the use of generally prevailing market rates for attorneys of comparable
skill, experience, and reputation is proper.” (Id. at p. 861.) The court explained, in
relevant part: “[R]eliance on generally prevailing market rates for attorneys with
comparable skill, experience, and reputation simplifies the already difficult task district
courts face in awarding reasonable attorneys’ fees. Defendants’ approach would require
courts to investigate the overhead and incidental expenses incurred by a state in
connection with the prosecution of an antitrust suit. Such an inquiry would be a
cumbersome means for arriving at a tentative figure of reasonableness. It is far better to
rely upon generally prevailing market rates, which take into consideration factors such as
overhead and support personnel. The initial use of an objective standard of
reasonableness, i.e., generally prevailing market rates, is far preferable to extensive
judicial scrutiny of private fee arrangements or of the internal economics of the Attorney
General’s office . . . .” (Id. at pp. 861-862.)

       In Shaffer v. Superior Court (1995) 33 Cal.App.4th 993, this division explained
why an inquiry into the costs of providing legal services was irrelevant and cumbersome
to determining attorney fee rates: “[I]f a law firm’s profit margin were relevant to the
analysis of the conscionability of its fees, a veritable pandora’s box of questions and
problems would be opened. For example, how are we to define ‘profit margin.’ Is it
gross revenues minus total costs? If so, are those numbers measured on an accrual basis,
a cost basis, or some other basis? Are they to be evaluated in absolute dollar terms or in
terms of a percentage of its costs[?] Is every single item of cost incurred by a firm (e.g.,
both capital expenditures and costs of operations) to be part of the calculation? What
special rules must be adopted in order to avoid punishing law firm efficiency or a firm’s
skill or luck in negotiating favorable leases or vendor contracts? Is every single item of
revenue received by a firm to be included in the calculation (e.g., what about investment
income)? How will the quality of the legal services be incorporated into the analysis?
What about other intangibles, like professional reputation and goodwill? Will the firm be
forced to disclose the compensation it pays to every lawyer and staff member? Will it be
forced to disclose the amounts it pays for office space, equipment, supplies, furniture or
utilities? Will it be forced to disclose the individuals or entities to whom it makes these
payments? What portion of the attorney’s overall costs of doing business should be
allocated to the particular case in which the fee dispute arises? ” (Id. at p. 1001.)
       Shaffer concluded that “[a] determination of a ‘reasonable’ attorney fee based on
costs is neither appropriate or practical. [¶] . . . [Examination of profits] would place
courts in the position of supervising attorney fees on the basis of individual profit margins
instead of the going market [rate] for given services. This would be an unwarranted
burden and bad public policy.” (Shaffer v. Superior Court, supra, 33 Cal.App.4th at
p. 1003.)
       These same problems of cumbersome and ancillary litigation would arise if a court
tried to determine costs for in-house counsel. In addition, there could be disputes over

how to allocate items used in common by both the in-house counsel operation and the
non-legal operation, i.e., computer system, phone system, physical plant.
       The prevailing market rate method relieves the court and the litigants from the
specter of wasteful and prolonged litigation over a matter ancillary to the primary case.
Courts have extensive experience in awarding attorney fees based on the local market
rate for similarly situated lawyers. Based upon these considerations, we find the
prevailing market rate is the most reasonable, equitable, and predictable method of
calculating reasonable attorney fees for in-house counsel.4
       3. The Trial Court Did Not Abuse Its Discretion in Awarding Attorney Fees.
       The trial court has the discretion to determine the reasonable amount of the
attorney fee award. Our opinion in no way reduces that responsibility. “The ‘experienced
trial judge is the best judge of the value of professional services rendered in his court, and
while his judgment is of course subject to review, it will not be disturbed unless the
appellate court is convinced that it is clearly wrong.’ [Citations.]” (Serrano v. Priest
(1977) 20 Cal.3d 25, 49.)
       In determining the reasonableness of the requested fees, the court considers such
factors as the nature of the litigation, the difficulty of the litigation, the amount of money
involved, the level of skill required and employed in the handling of the litigation, the
attention given to the issues, the success of the attorney’s efforts, and time consumed.
(Clayton Development Co. v. Falvey (1988) 206 Cal.App.3d 438, 447.)
       The record reflects that PLCM and Dearborn requested attorney fees in the amount
of $61,050. In support of the fee award, PLCM and Dearborn provided the trial court
reconstructed contemporaneous records of billing times based on electronic and paper
files. Counsel also provided a declaration that stated, in relevant part:

4     San Dieguito Partnership v. San Dieguito River Valley Regional Etc. Authority
(1998) 61 Cal.App.4th 910 is not contrary to our opinion because in that case the parties
had apparently agreed in advance to a below market billing rate.

         “9. I graduated from the University of California Los Angeles School of Law in
1992 and practiced in the San Francisco office of a large California law firm until April
1994. For the past three years I have performed intensive litigation and advisory work, as
in this case. Most of the matters I handle have amounts at stake ranging from $100,000 to
$4 million, as this case did during the pendency of the cross-complaint. At least one-third
of my case load at any given time is venued in Los Angeles County.
         “10. When I left my old law firm three years ago, my time was billed out at
$145.00 per hour. Based on my review of bills from outside counsel doing work for Aon
companies, a reasonable rate for an attorney of my current experience in this community
is $185.00 per hour. That rate would almost certainly be somewhat higher in Los
         “11. At the rate of $185.00 per hour, the 330 hours expended on this matter merit
an award of $61,050 as reasonable attorney’s fees.”
         In another supporting declaration, the financial manager of the Aon Corporation
law division stated, in relevant part: “Based on my review of bills from outside counsel
doing work for Aon companies in similar matters, the hourly rate for attorneys in the
Los Angels area with sufficient skill and experience to handle this matter from inception
through summary judgment and/or trial would have ranged from $160.00 to $215.00 per
         In opposition to PLCM and Dearborn’s motion, Drexler provided his own
declaration and that of a collection attorney to prove the excessiveness of PLCM and
Dearborn’s requested fees. PLCM and Dearborn’s objections to this evidence were
sustained by the trial court. Drexler presents no argument on appeal regarding the
striking of his opposing evidence, and has waived the issue on appeal. (In Re Marriage
of Ananeh-Firemprong (1990) 219 Cal.App.3d 272, 278.)
         We find the trial court used the correct standard to calculate the fee and there was
sufficient evidence to support the award.

       We further find that while the fee may seem “excessive” for a $10,000 breach of
contract action case, Drexler transferred this municipal court collection action into the
superior court and then increased the stakes by adding tort claims for bad faith and
intentional infliction of emotional distress and causing the litigation to go on for 17
months. As long as the fees are reasonable on the record, and supported by the evidence,
it is irrelevant that the requested fees exceed the amount of the jury verdict. (Clayton
Development Co. v. Falvey, supra, 206 Cal.App.3d at p. 447.)
       The trial court did not abuse its discretion.
              4. The Summary Judgment on the Cross-Complaint

                     a. The Trial Court Properly Granted Summary Judgment
                        in favor of the Insurers and PLCM.

       Summary judgment is granted when a moving party establishes the right to the
entry of judgment as a matter of law. (Code Civ. Proc. § 437c, subd. (c); Hunter v.
Pacific Mechanical Corp. (1995) 37 Cal.App.4th 1282, 1285.) “Review of summary
judgment . . . ‘involves pure matters of law,’ which we review independently.
[Citations.]” (Radovich v. Locke-Paddon (1995) 35 Cal.App.4th 946, 953.) In
conducting this de novo review, “we will consider only the facts properly before the trial
court at the time it ruled on the motion. [Citation.]” (Brantley v. Pisaro (1996) 42
Cal.App.4th 1591, 1601.)
       “Under the current version of the summary judgment statute, a moving defendant
need not support his [or her] motion with affirmative evidence negating an essential
element of the responding party’s case. Instead, the moving defendant may (through
factually vague discovery responses or otherwise) point to the absence of evidence to
support the plaintiff’s case. When that is done, the burden shifts to the plaintiff to present
evidence showing there is a triable issue of material fact. If the plaintiff is unable to meet
[his or] her burden of proof regarding an essential element of [his or] her case, all other

facts are rendered immaterial. [Citations.]” (Leslie G. v. Perry & Associates (1996) 43
Cal.App.4th 472, 482; italics in original.)
       The causes of action Drexler alleges in his cross-complaint for breach of contract,
bad faith and intentional infliction of emotional distress are premised on the insurers’
decision, acting through PLCM, to pay the delinquent deductible amount that Drexler
owed to Haight, Brown, and to seek reimbursement from him. The insurers and PLCM
presented declarations and evidence, in support of their statements of undisputed facts,
that Drexler failed to show, in support of his claims, which policy benefits he did not
receive. The burden shifted to Drexler to create a triable issue of fact as to lost benefits.
       In opposition to the separate statements, Drexler presented no competent evidence
but filed only boiler-plate objections to the evidence the insurers and PLCM’s used to
support their undisputed facts.5 The trial court struck Drexler’s statements and deemed as
admitted all of the moving parties’ facts. Drexler failed to present evidence to establish
any triable issue of material fact. On appeal, Drexler did not present argument or address
the trial court’s ruling striking his objections and admitting the facts as undisputed. The
issue is waived. (In Re Marriage of Ananeh-Firemprong, supra, 219 Cal.App.3d at
p. 278.) While we need not discuss the issues any further, even if we address Drexler’s
arguments, we find they have no merit.
              b. Breach of Contract Cause of Action
                     (1) The Insurers
       An insurance contract existed between Drexler and the insurers. A cause of action
for damages for breach of this contract requires that some breach be shown. (Careau &
Co. v. Security Pacific Business Credit., Inc. (1990) 222 Cal.App.3d 1371, 1388.) The
undisputed facts demonstrate that the insurers complied with all terms of the policy.
When Drexler submitted his malpractice claim, the insurers offered him a selection of

5     Drexler’s dispute as to two facts were supported by conclusory statements in his
own declaration.

defense counsel, and appointed the one he chose. Defense counsel obtained a dismissal
of the claim against Drexler in exchange for a waiver of costs and a mutual release, and
no settlement payment. The defense costs and fees totaled $22,500 and the insurers paid
all amounts over the deductible.
       Drexler argues that the insurers (through PLCM) should have obtained his consent
before paying Haight, Brown and abrogating his right to arbitrate or dispute the amount
due the law firm. We disagree. The terms of the policy only required the insured’s
consent for settlement (Section I-B). The insurers were not contractually required to
obtain his consent to pay Haight, Brown. Drexler admits in his opening brief that the
insurers (through PLCM) “had the right to advance monies to counsel appointed by the
insurers to represent an insured, and to file an action against an insured to recover any
amounts so advanced which the insured fails to reimburse to the insurers.” But Drexler’s
real argument, and his basis for the breach of contract, is that the insurers’ contractual
right to advance the monies usurped his rights to dispute the bill or arbitrate the dispute.
This is the benefit he was allegedly denied. However, Drexler fails to explain how his
alleged rights were usurped or why he did not cross-complain against Haight, Brown as to
the disputed amount of the bill. Drexler also fails to provide any competent evidence or
citation to the record to show that he requested arbitration. He fails to provide any legal
authority for his position that his right to arbitrate was denied to him by the payment to
Haight, Brown.
       The undisputed facts establish that Drexler cannot show what benefits he was
denied under the policy or how the insurers breached the policy. As a matter of law, the
insurers did not breach the insurance contract.

                      (2) PLCM
       PLCM is a claims administrator retained by the insurers to manage the malpractice
insurance program and process the claims. A cause of action for damages for breach of
contract requires, as a threshold element, that the parties to be charged be parties to the
contract. (Careau & Co. v. Security Pacific Business Credit., Inc., supra, 222 Cal.App.3d
at p. 1388.) That element is not present. Drexler admits in his opening brief that PLCM
was not a party to the insurance policy. As a matter of law, PLCM did not breach the
insurance contract.
              c. Bad Faith Cause of Action
                      (1) Insurers
       A cause of action for bad faith cannot be maintained in the absence of an
underlying breach of the insurance contract. Drexler cannot show that there were any
policy benefits due to him that the insurers did not provide. His bad faith claim fails as a
matter of law.
       A covenant of good faith and fair dealing is implied in every insurance contract,
which obligates the insurer to avoid actions that would deprive the insured of the benefit
for which he or she bargained in purchasing the insurance. (Egan v. Mutual of Omaha
Ins. Co. (1979) 24 Cal.3d 809, 819.) Accordingly, to state a cause of action for breach of
the implied covenant of good faith and fair dealing, the insured must show that a benefit
was due under the policy and that the insurer withheld the benefit unreasonably and
without proper cause. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 35.)
Absent the withholding of a benefit due under the express terms of the contract, “the . . .
implied covenant has nothing upon which to act as a supplement, and should not be
endowed with an existence independent of its contractual underpinnings.” (Love v. Fire
Ins. Exchange, Inc. (1990) 221 Cal.App.3d 1136, 1153, as cited in Waller v. Truck Ins.
Exchange, Inc., supra, 11 Cal.4th at p. 36.)

       As previously explained, the insurers provided Drexler with every benefit due
under the insurance contract. The insurers’ payment (through PLCM) of the delinquent
amount Drexler owed Haight, Brown was specifically authorized under section V-C of
the policy, and Drexler admitted the insurers have this payment right. Drexler argues,
however, that the insurers’ right under section V-C carries with it an implied covenant
that payment would be made only if payment was right and fair to do so, and did not
adversely affect the rights of the insured. The record reflects that PLCM investigated
Drexler’s allegations and determined they were unsupported by any evidence. PLCM
waited three years while Drexler was “disputing” his bills before paying defense counsel.
As previously explained, Drexler fails to explain how his rights were adversely affected
or why he did not cross-complain against Haight, Brown. He fails to provide legal
authority to support his position that the payment cut off his rights to dispute the bill.
       As a matter of law, Drexler is unable to maintain a cause of action for bad faith
against the insurers.
                        (2) PLCM
       PLCM is not a party to the insurance contract. As a nonparty, it is not subject to
any implied duty of good faith and fair dealing. (Gruenberg v. Aetna Ins. Co. (1973) 9
Cal.3d 566, 576.) Agency status will not confer liability on nonparty claims
administrators. (Ibid.; Younan v. Equifax, Inc. (1980) 111 Cal.App.3d 498, 510-511.)
Therefore, Drexler’s argument on appeal that there is a triable issue of fact as to agency,
is irrelevant.
       As a matter of law, Drexler is unable to maintain a cause of action for bad faith
against PLCM.
                 d. Intentional Infliction of Emotional Distress Cause of Action
       The trial court determined that the insurers’ contractual right to pay Haight, Brown
the debt owed by Drexler, and PLCM’s administration of that right, did not constitute
outrageous conduct to support a claim for intentional infliction of emotional distress.

(Cummings v. Fire Ins. Exchange (1988) 202 Cal.App.3d 1407, 1423; Fletcher v.
Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 394.)
       On appeal, Drexler fails to address the intentional infliction of emotional distress
claim. Any argument on this issue or challenge to the trial court’s ruling is waived. (In
re Marriage of Ananeh-Firempong, supra, 219 Cal.App.3d at p. 278.)
       5. The Trial on the Complaint
              a. Substantial Evidence Supports the Judgment in Favor of PLCM.
       The jury found in favor of PLCM on its collection action.
       Drexler contends that this appeal is also from the judgment entered after trial in
favor of PLCM. However, his opening and reply briefs are devoid of any arguments or
claims of error related to the jury verdict. There are no citations to any portions of the
400 pages of the reporter’s transcript. An appellant’s mere indication in a brief that this
appeal is from the judgment after trial, without more, will not obligate this court, under
the prescribed legal standard of review, to review the entire record and determine claims
of error.
       “ ‘In a challenge to a judgment, it is incumbent upon an appellant to present
argument and authority on each point made. Arguments not presented will generally not
receive consideration.’ [Citation.]” (In re Marriage of Ananeh-Firempong, supra, 219
Cal.App.3d at p. 278.) Drexler has waived his arguments as to the judgment entered after
trial. Furthermore, judgments come to this court with a presumption they are correct.
(Walling v. Kimball (1941) 17 Cal.2d 364, 373; In re Marriage of Ananeh-Firempong,
supra, 219 Cal.App.3d at p. 278.) Since Drexler has failed to make any affirmative
showing of error on this record, all issues of sufficiency of the evidence supporting the
judgment are resolved in favor of PLCM.
       6. Civil Code Section 1717 Does Not Require the Apportionment of Attorney Fees
and Costs.

       Drexler further contends that under the attorney fee provision in the insurance
contract, PLCM and the insurers could only recover attorney fees incurred in litigating the
collection action and not fees incurred in defending the cross-complaint. We disagree.
       The attorney fee clause of the insurance contract provides that “the Company may
bring suit to recover such amounts [the insured failed to reimburse the Company] and
shall also be entitled to recover interest from the date of demand, and attorneys’ fees and
costs incurred in bringing the action.”
       “Civil Code section 1717 limits recovery to attorneys fees ‘incurred to enforce the
provisions of [the] contract’ which provides for attorney fees. ‘Where a cause of action
based on the contract providing for attorney’s fees is joined with other causes of action
beyond the contract, the prevailing party may recover attorney’s fees under section 1717
only as they relate to the contract action. [Citations.]’ (Reynolds Metals Co. v. Alperson
(1979) 25 Cal.3d 124, 129 [].)
       “ ‘ “An award of attorney fees is a matter within the sound discretion of the trial
court and absent a manifest abuse of discretion the determination of the trial court will not
be disturbed. [Citation.]” [Citation.]’ ” (Nazemi v. Tseng (1992) 5 Cal.App.4th 1633,
       PLCM was the prevailing party on the collection action against Drexler for breach
of the insurance agreement, as well as the cross-complaint. “[T]he pivotal point in the
analysis whether a prevailing party is entitled to recover contractual attorney fees for
defending against a competing noncontractual claim (when the language of the contract
does not encompass noncontractual claims or is ambiguous) is not whether the fees can be
apportioned between the theories[,] but whether a defense against the noncontractual
claim is necessary to succeed on the contractual claim.” (Siligo v. Castellucci (1994) 21
Cal.App.4th 873, 879.)
       In IMO Development Corp. v. Dow Corning Corp. (1982) 135 Cal.App.3d 451,
IMO’s breach of contract action was based on Dow Corning’s alleged repudiation of a
loan commitment, and IMO also sought a declaration as to the validity of a waiver clause

in a property sales agreement. (Id. at pp. 456-458.) Dow Corning cross-complained to
recover $250,000 on a promissory note plaintiff executed with the sales agreement. (Id.
at p. 456.) The court ruled that Dow Corning was entitled to recover attorney fees
incurred in connection with the collection of the note on the cross-complaint and its
defense of the validity of the waiver clause. (Id. at pp. 463-465.) The court reasoned:
“In our view, the cost of litigating the issue raised by IMO’s defense constituted part of
the cost of collection, . . . . The fact that the waiver issue was raised by the declaratory
relief cause of action is of no legal significance. IMO argued to the trial court that it was
not necessary for Dow Corning to attempt to enforce the waiver provision of the sales
agreement in order to collect the note. The short answer to [each] contention is that Dow
Corning was required to litigate the enforceability of IMO’s waiver because IMO alleged
the invalidity of that waiver as an affirmative defense to the cross-complaint. Both causes
of action therefore were inextricably intertwined, as were the documents from which they
arose.” (Id. at p. 463.)
       By its breach of contract complaint, PLCM brought an action to recover the
remainder of the deductible Drexler owed the insurers. Drexler’s cross-complaint
constituted an action to prevent enforcement of the insurance contract and collection of
the outstanding deductible. The essence of Drexler’s cross-complaint was identical to his
defense of the complaint: that the insurers and PLCM breached the insurance contract by
paying legal fees owed by him to his defense counsel, which interfered with his rights to
dispute the bills. In order for PLCM to prevail on its collection efforts, PLCM and the
insurers had to show that they had not committed a material breach as alleged in Drexler’s
cross-complaint, and that they had the contractual right to pay the amount owed by
Drexler to Haight, Brown. Thus, both actions were interrelated.
       The fact that PLCM was forced to defend against Drexler’s claims does not lessen
PLCM’s entitlement to attorney fees. In Wagner v. Benson (1980) 101 Cal.App.3d 27, 37
the court stated that “the Bank’s collection efforts were interrelated with its defense
against the Wagner’s fraud allegations. Defense of the charge of fraud was necessary in

the Bank’s efforts to collect the notes . . . . Attorney’s fees incurred by the Bank in
defending against the fraud action are compensable under the attorney fees provision of
the promissory notes [citations].”
       We find that the cost of litigating the issues raised by Drexler constituted part of
the cost of enforcing the insurance contract and collecting the amount owed by Drexler.
The trial court was not required to apportion “its award of attorney fees between the
offensive and defensive aspects of this case.” (Siligo v. Castellucci, supra, 21
Cal.App.4th at p. 880.) The fee award came within the scope of the insurance contract
provision. The trial court did not abuse its discretion.
       7. The Memorandum of Costs Was Timely Filed.
       Drexler spends an inordinate amount of time arguing the untimeliness of PLCM’s
cost motion. California Rules of Court, rule 870 requires that a memorandum of costs be
filed within 15 days after the mailing or service of a notice of entry of judgment.
       The record reflects the judgment on the summary judgments and the judgment
after trial were both entered on March 3, 1997. PLCM served its memorandum of costs
on March 6, 1997 and filed the pleading on March 7, 1997. It was timely.
       8. Sanctions
       PLCM has requested sanctions on appeal. PLCM is correct, the appeal from the
grant of summary judgment and the jury verdict is frivolous. However, we consolidated
that appeal with the attorney fees appeal and the second appeal does raise legitimate
issues re: attorney fees.
       The order granting PLCM and Dearborn attorney fees is affirmed.
       The summary judgments entered in favor of PLCM and the insurers are affirmed.
       The judgment after jury verdict entered in favor of PLCM is affirmed.
       PLCM and Dearborn are awarded costs on appeal.
       PLCM and the insurers’ request for sanctions is denied.


                                         KITCHING, J.

We concur:

             CROSKEY, Acting P.J.

             ALDRICH, J.


To top