Padgett et al v. City of Monte Sereno et al

Filing 1201

ORDER Granting Award of Fees and Costs to Law Firms Kallis & Associates P.C. and Bustamante & Gagliasso P.C. Signed by Judge Edward J. Davila on October 7, 2019. (ejdlc2S, COURT STAFF) (Filed on 10/7/2019)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6

SAN JOSE DIVISION

7
8

JOSEPH PADGETT, et al.,
Plaintiffs,

9

v.

10

United States District Court
Northern District of California

11

BRIAN LOVENTHAL, et al.,
Defendants.

12

Case No. 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES
AND COSTS TO LAW FIRMS KALLIS
& ASSOCIATES P.C. AND
BUSTAMANTE & GAGLIASSO P.C.
Re: Dkt. No. 1173

In 2015, this Court approved Plaintiffs’ attorneys’ fees request for services provided by

13
14

Kallis & Associates, P.C. (“Kallis”) and Bustamante & Gagliasso, P.C. (“Bustamante”). See

15

Order Granting in Part and Denying in Part Plaintiffs’ Motion for Attorney’s Fees and Costs

16

(“Order Atty. Fees”), Dkt. 1087. The Ninth Circuit vacated and remanded this ruling because “the

17

district court potentially erred by allowing [Kallis] and [Bustamante] to seek attorneys’ fees after

18

they no longer represented Padgett.” Padgett v. City of Monte Sereno, 722 F. App’x 608, 610 (9th

19

Cir. 2018). Thus, this Court must determine, in the first instance, if “contractual provisions or an

20

attorney lien justified the award of fees to counsel rather than to the plaintiff.” Id.

21
22

I.

BACKGROUND
A. Factual Background

23

In 2004, Joseph Padgett (“Padgett”) initiated an action against eight defendants, which

24

stemmed from a fence height ordinance, arguing his civil rights were violated. Over the years,

25

substantial litigation fees were incurred. The case went to trial and the jury found for Padgett on

26

his First Amendment claim. Padgett received $1 in nominal damages and $200,000 in punitive

27

damages, which the court reduced to $10,000. The other Section 1983 claims were dismissed.

28

Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
1

1

Thus, ultimately, Padgett only prevailed on one claim: retaliation under the First Amendment.
The Law Firm McManis Faulkner originally represented Padgett but, on September 20,

2
3

2006, withdrew as counsel. Order Granting Motion to Withdraw as Attorney, Dkt. 275. Padgett

4

was pro se until September 2008, when Kallis and Bustamante became the counsel of record. See

5

Dkt. 552. From September 2008 to July 28, 2013, Kallis and Bustamante served as Padgett’s

6

counsel. See Law Firms’ Brief Supporting Motion for Attorneys’ Fees and Costs (“Mot.”) at 6,

7

Dkt. 1173. Padgett entered into a fee agreement with Kallis and Bustamante. See Declaration of

8

Robert Gagliasso in Support of Law Firms’ Brief (“Gagliasso Decl.”),1 Ex. D, Dkt. 1174. The fee

9

agreement states:

10

5. Attorney’s Fees. Client agrees that Lawyers will receive the
following in payment for legal services:

United States District Court
Northern District of California

11

(B) If this section is initialed2 by both parties the case will be handled
as a modified Contingency fee case. In a Modified Contingency Fee
Case the CLIENT(S) agrees to pay the Lawyers as follows:

12
13

Should the case go to trial, Lawyers get their respective attorney
fees, any load star [sic] and multiplier (McMannis [sic] & previous
representation’s bills still go to Clients). Attorneys also get 20% of
the award as a contingency. Clients get the Taxable expenses.

14
15
16

Ex. D at 3 (emphasis added).

17

It also states:

18

9. Termination of This Agreement. . . . If terminated, Lawyers shall
have a lien as set forth in this paragraph on, but limited to, any
recovery in the litigation for the reasonable hourly value of their
services. . . . In all cases Client agrees that the lawyer(s) will have a
contractual lien for either the contractual fees and costs due, or in a
contingency fees cases [sic] the reasonable value of the services and
costs provided. Client agrees that said lien shall be enforceable
against any eventual client recovery and is enforceable against any
real or financial assets of the client, irrespective of when acquired.

19
20
21
22
23

Id. at 4 (emphasis added).

24
25
26
27
28

1

Multiple other exhibits are submitted with Ex. D. Kallis and Bustamante ask this Court to
judicially notice 17 of those exhibits. See Request for Judicial Notice, Dkt. 1175. These exhibits,
already appear on the docket and most are orders from this Court or Judge Ware. Because these
exhibits “can be accurately and readily determined from sources whose accuracy cannot
reasonably be questioned,” these requests are granted. Fed. R. Evid. 201(b).
2
The section was initialed by all parties (Padgett, Kallis and Bustamante).
Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
2

1

At a Case Management Conference on October 11, 2013, this Court relieved Kallis and

2

Bustamante as counsel and instructed them to file a motion for attorneys’ fees and costs as real

3

parties in interest. See Dkt. 1039; Transcript of Proceedings, Dkt. 1079; Briefing Order, Dkt.

4

1040.

5
6
7
8
9

On January 24, 2017, Padgett voided this contract pursuant to California Business and
Professions Code Section 6147. See Gagliasso Decl., Ex. U.
B. Procedural Background
Judge Ware, the judge who had this case before he retired, first ruled on the issue of
attorneys’ fees in 2010. Order Denying Defendants Motion for Attorney Fees, Dkt. 995. Padgett
sought $3.2 million in fees: $810,777 for pretrial services performed by the McManis Faulkner

11
United States District Court
Northern District of California

10

law firm and $2,199,388.48 for pretrial and trial work performed by Kallis and Bustamante. Id.;

12

see also Motion for Attorney’s Fees filed by Joseph Padgett, Dkt. 945; Bill of Costs filed by

13

Joseph Padgett for Bustamante O’Hare & Gagliasso, Dkt. 943. Judge Ware awarded Plaintiff

14

$500,000 for attorneys’ fees and $100,000 for costs and ordered Defendant Wright, one of the

15

eight defendants, to pay the fees. Dkt. 995 at 8. Defendant Wright appealed this order. Notice of

16

Appeal, Dkt. 1000.

17

In 2013, the Ninth Circuit vacated and remanded the attorney’s fees award because Judge

18

Ware’s order did not provide an explanation of the fees. Padgett v. Loventhal, 706 F.3d 1205,

19

1208 (9th Cir. 2013). At this point, Judge Ware had retired and so this Court had the Parties re-

20

brief their attorneys’ fees motions so the Court could ascertain fees.

21

On March 31, 2015, this Court awarded attorneys’ fees of $471,056.64 and litigation costs

22

of $100,000 to Kallis and Bustamante. Order Atty. Fees at 14. On April 28, 2015, Padgett

23

appealed the order. Notice of Appeal, Dkt. 1090. He only contested this Court’s decision to grant

24

fees directly to Kallis and Bustamante, he did not challenge the reasonableness of the award.

25

Padgett, 722 F. App’x at 610. The Ninth Circuit vacated this Court’s 2015 order because, under

26

federal law, “attorney fees belong to the plaintiff absent contractual provisions to the contrary or

27

an attorney lien.” Padgett, 722 F. App’x at 610. The Motion before this Court thus concerns

28

Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
3

1

whether any “contractual provisions or an attorney lien justified the award of fees to counsel rather

2

than to the plaintiff.” Id.; see also Mot. at 7.

3

II.

LEGAL STANDARD
42 U.S.C. § 1988(b) provides for the award of attorney’s fees in a civil rights action

4
5

brought under Section 1983. “The Supreme Court has held that Section 1988 vests the right to

6

seek attorney’s fees in the prevailing party, but not her attorney, and that attorneys therefore lack

7

standing to pursue them.” Pony v. Cty. of L.A., 433 F.3d 1138, 1142 (9th Cir. 2006). Once the

8

prevailing party exercises their right to receive fees, the attorney’s right to collect them vests and

9

the attorney may then pursue them on their own. Id. However, even once the plaintiff exercises
their right to collect attorney fees, the fees should go directly to the plaintiff absent contrary

11
United States District Court
Northern District of California

10

contractual provisions or an attorney lien. United States v. $186,416.00 in U.S. Currency, 642

12

F.3d 753, 756 (9th Cir. 2011); Gilbrook v. City of Westminister, 177 F.3d 839, 875 (9th Cir. 1999)

13

(“In absence of a contractual assignment to counsel, § 1988 requires the attorney fee awards be

14

made directly to the prevailing party, with the ultimate disposition of the award dependent on the

15

contract between the lawyer and the client.”).

16
17

III.

DISCUSSION
This Court must determine if a valid fee arrangement existed on March 31, 2015, the date

18

this Court issued its order awarding Kallis and Bustamante attorney fees. If a valid agreement

19

existed, Kallis and Bustamante are entitled to the fees. Cf. Padgett, 722 F. App’x at 610 (“In a

20

civil rights case, by contrast, attorney fees belong to the plaintiff absent contractual provisions to

21

the contrary or an attorney lien.”).

22

A. Res Judicata

23

Kallis and Bustamante argue their fee agreement with Padgett creates a “contrary

24

contractual provision,” thus entitling them to attorneys’ fees. Mot. at 10. Padgett contends this

25

argument fails because res judicata applies and so this Court cannot consider this argument.

26

Opposition to “Motion” by Bustamante (“Opp.”) at 9, Dkt. 1180. While this case has been

27

pending in federal court, Kallis and Bustamante filed an action in California state court seeking a

28

Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
4

1

declaratory judgement that the contract is still3 valid. The state court held the contract was invalid

2

and void. See Opp., Ex. 2.

3

To determine the res judicata effect of a state court judgment, federal courts apply the law

4

of claim preclusion of the state in which they sit. See Semtek Int’l Inc. v. Lockheed Martin Corp.,

5

531 U.S. 497, 508–09 (2001). Thus, this Court must apply California claim preclusion law to

6

determine the effect of the Superior Court’s judgment. California and federal law differ with

7

respect to when a judgment rendered by a trial court becomes a “final judgment” for res judicata

8

purposes. Sosa v. DIRECTV, Inc., 437 F.3d 923, 928 (9th Cir. 2006). “Under California law . . . a

9

judgment is not final for purposes of res judicata during the pendency of and until the resolution of
an appeal.” Eichman v. Fotomat Corp., 759 F.2d 1434, 1439 (9th Cir. 1985). Kallis and

11
United States District Court
Northern District of California

10

Bustamante are currently appealing the superior court’s ruling and thus, the judgment has no claim

12

preclusion effect on this Court. Law Firm’s Reply Brief (“Reply”) at 3, Dkt. 1185.
B. Validity of Contractual Provision

13

Under California Business and Professions Code Section 6147, an attorney who contracts

14
15

to represent a client on a contingency basis must include a statement that “the fee is not set by law

16

but is negotiable between attorney and client.” Cal. Bus. & Prof. Code § 6147(a)(4). Failure to

17

comply with that requirement “renders the agreement voidable at the option of the [client], and the

18

attorney shall thereupon be entitled to collect a reasonable fee.” Id. § 6147(b). The requirements

19

of Business and Professions Code Section 6147 apply to hybrid agreements. Arnall v. Super. Ct.

20

of L.A. Cty., 118 Cal. Rptr. 3d 379, 387 (Cal. Ct. App. 2010).

21
22
23
24
25
26
27
28

3

To the extent res judicata applies, the decision (contrary to Padgett’s contentions) is largely
irrelevant to what this Court is considering—that is, whether on March 31, 2015, when this Court
ordered fees be paid to Kallis and Bustamante, there was a valid fee agreement between the parties
abrogating the requirement that the fees be paid directly to Padgett. The Superior Court was
resolving whether Kallis and Bustamante were owed fees in 2019 under the agreement. The
opinion hinged on Kallis and Bustamante conceding that the agreement was voided (at Padgett’s
option) on January 24, 2017 and thus no longer applicable in 2019. See Gagliasso Decl., Ex. U at
11 (“The undisputed evidence further demonstrates that [Padgett] elected to void the Fee
Agreement on January 24, 2017, and [Kallis and Bustamante] admitted that the Fee Agreement is
[now] void and unenforceable.”). The posture of the case at hand is thus markedly different
considering that this Court is only evaluating whether the agreement was effective in 2015. Cf.
Opp. at 5.
Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
5

1

The parties have a hybrid fee agreement; the attorneys charged both contingent and hourly

2

fees and thus Section 6147 applies. See Gagliasso Decl., Ex. D. The agreement does not have the

3

requisite language that the “fee is not set by law but is negotiable between attorney and client.”

4

See id.; see also Opp., Ex. 3 at 11. The lack of this language, however, rendered the contract

5

voidable, not void.

6

A void contract is without legal effect. It binds no one and is a mere
nullity. . . . A voidable transaction, in contrast, is one where one or
more parties have the power, by a manifestation of election to do so,
to avoid the legal relations created by the contract . . . . It may be
declared void but is not void in itself.

7
8
9
10

See Yvanova v. New Century Mortg. Corp., 365 P.3d 845, 852 (Cal. 2016) (quotation marks and
citations omitted) (emphasis added).
Here, Padgett did not void the contract until January 2017. Thus, when this Court issued

United States District Court
Northern District of California

11
12

its order granting attorneys’ fees and costs to Kallis and Bustamante on March 31, 2015, the

13

contract was still applicable and enforceable.4 The contract, therefore, controls the allocation of

14

attorney’s fees. Because there is a “contractual assignment to counsel, § 1988 requires that

15

attorney fee awards” be paid to counsel pursuant to the contract. See $186,416.00 in U.S.

16

Currency, 642 F.3d at 756. This fee agreement dictates that the disbursement of “any load star

17

[sic]” attorneys’ fees and litigation costs go to Kallis and Bustamante. See Gagliasso Decl., Ex. D.

18

This Court’s 2015 order directing attorneys’ fees was a lodestar allotment of attorneys’ fees and

19

thus fits within the contract. Order Atty. Fees at 5–12. Accordingly, this Court’s 2015 order

20

granting Kallis and Bustamante an attorneys’ fee award of $471,056.64 plus post-judgment

21

interest and litigation costs for $100,000 was within the Parties’ fee agreement.
IV.

22

Having considered the fee agreement, this Court holds that the award of fees to counsel

23
24

CONCLUSION

rather than to the plaintiff was justified. Kallis and Bustamante’s Attorneys’ Fees and Costs

25
26
27
28

4

To the extent the termination section of the fee agreement applies, this Court concludes it was
not at issue when this Court awarded attorneys’ fees because the award was for past services
rendered, i.e., those services rendered before Kallis and Bustamante were terminated. Therefore,
this section of the fee agreement is irrelevant.
Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
6

1
2
3
4
5

Award is reinstated.
IT IS SO ORDERED.
Dated: October 7, 2019
______________________________________
EDWARD J. DAVILA
United States District Judge

6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Case No.: 5:04-cv-03946-EJD
ORDER GRANTING AWARD OF FEES AND COSTS TO LAW FIRMS
7