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Court of Appeal:
Fee Waiver in Agreement Didn’t Have Prospective Effect
Opinion Says Once Defendant Breached Duty to Pay Pursuant to Settlement, Duty to Pay Attorney Fees, Pursuant to Labor Code Provision, Kicked Back Into Place As to Further Work in Trial Preparation
By a MetNews Staff Writer
Div. Three of the Fourth District Court of Appeal held yesterday that a settlement agreement specifying that each side would bear its own attorney fees and costs did not preclude an award of fees that were incurred after the defendant breached the agreement by failing to pay.
But, the panel specified, fees may only be obtained for lawyers’ services in connection with their resumed preparation for trial, not the work they did, contemporaneously, in seeking enforcement of the agreement.
The opinion, which was not certified for publication, comes in a case in which five men sued a contractor, Bishop Inc., for underpayment of wages. The employer voluntarily made back-payments in 2018 totaling $112,000 and, in 2019, agreed to pay “new money” in the amount of $225,000, but didn’t.
It argued that the parties had merely agreed to agree but had not finalized a long-form settlement contract.
Prior Appellate Proceedings
The plaintiffs brought a motion to enforce the agreement and also readied for trial. Orange Superior Court Judge Theodore R. Howard initially held that no meeting of the minds had occurred; the plaintiffs sought a writ; the Court of Appeal denied it peremptorily; the California Supreme Court directed that an alternative writ be granted; it was, and Howard then held that $113,000 was owed—$225,000 minus the sum already paid.
Reversal came in a Nov. 8, 2021 Court of Appeal opinion by then-Justice David A. Thompson, now retired, who said the full $225,000 was due. He wrote:
“New money means new money, not old money. The earlier payment was explicitly no strings attached. It was not part of a settlement agreement; it was simply Bishop’s calculation of what it owed the plaintiffs.”
Labor Code Provision
On remand, the Superior Court entered a judgment in conformity with the Court of Appeal opinion. The plaintiffs contended they were entitled to an award of attorney fees, citing Labor Code §1194 which provides:
“Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.”
Orange Superior Court Judge Melissa R. McCormick ruled that no attorney fees were payable because the settlement agreement provides:
“Unless otherwise stated herein, each party will bear its own attorneys’ fees and court costs.”
Sanchez’s Opinion
Justice Maurice Sanchez said in yesterday’s opinion that in light of that provision, plaintiffs clearly cannot recover attorney fees incurred before they entered into the settlement agreement,” but that “they did not try to recover those fees.”
Sanchez wrote:
“The key issue is whether they also forfeited any right to fees incurred after the settlement agreement.”
He concluded that the plaintiffs were entitled to fees incurred in trial preparation undertaken after Bishop failed to pay the $225,000 by the due date, notwithstanding the waiver of fees in the agreement, explaining:
“While the parties’ settlement agreement indicated the parties would bear their own attorney fees and costs, it was silent as to any fees incurred after the settlement agreement to either continue litigating the action to trial or to enforce the agreement. As such, any fees plaintiffs incurred to continue litigating the action are recoverable under section 1194. Those post-settlement attorney fees are not expressly barred by the settlement agreement.”
Theory Rejected
Bishop argued that fees were not awardable under §1194 because the plaintiffs never established that Labor Code violations had occurred but only prevailed on the contract theory that an enforceable settlement had been reached. That contention, Sanchez responded, “is not without some facial appeal,” but he rejected it.
“[S]ection 1194 does not require a finding of liability to recover attorney fees. It only states that an employee is entitled “to recover in a civil action” the full amount of unpaid minimum wages or overtime compensation, including attorney fees,” he wrote. “…A ‘recovery’ of wages ‘in a civil action’ under section 1194 includes recovery by settlement.”
The jurist remarked:
“If a ‘recovery’ under section 1194 does not include money obtained via settlement, employees would be disincentivized to settle these claims because they would forfeit their statutory right to attorney fees.”
Bulk of Fees
However, the bulk of fees sought by the plaintiffs—those incurred in the appellate courts and the trial court in gaining enforcement of the settlement agreement—are not compensable, he declared.
“Under the American rule codified in Code of Civil Procedure section 1021, attorney fees incurred to enforce the settlement agreement are not recoverable because they are not expressly authorized by the terms of that agreement,” Sanchez pointed out.
He elaborated:
“To the extent plaintiffs engaged in litigation to enforce the settlement agreement, those efforts were contractual in nature. In other words, plaintiffs prevailed on their interpretation of the settlement agreement, and their right to those attorney fees is governed by contract, not section 1194….Here, the settlement agreement indicates the parties would bear their own attorney fees and costs, and the agreement is otherwise silent as to any future fees incurred to enforce the agreement. Because the settlement agreement does not explicitly authorize attorney fees for any efforts to enforce the agreement or for a breach of the agreement, plaintiffs are not entitled to recover those attorney fees. As Bishop notes, this is simply the reality in any breach of contract dispute where the contract does not provide for fees. A plaintiff in a breach of contract case will always incur fees, but they cannot recover those fees absent a provision providing for fees.”
The case is Lorta v. Bishop, G062166.
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