Thursday, June 12, 2014

When Veil Piercing Backfires ...

Hill v. Degery, No. H038874 (D6 June 6, 2014)

In a (second) appeal of an attorney fee award to a prevailing defendant, the court rejects several arguments that the award must be reduced. The trial court found the primary defendant, an LLC, liable for breaching a contract with the plaintiff. But Degery, the defendant here, was sued only in his capacity as a member of the LLC. At trial, represented by the same counsel as the LLC, Degery successfully established his immunity under Corporations Code § 17101, which limits the liability an LLC’s members for the LLC’s debts and judgments. (That is, after all, what it means to be a limited liability company.) A prior, unpublished, appeal established that Degery was entitled to a fee award under Civil Code § 1717.  This appeal deals only with objections to the amount of the award—about $330,000.

First, the court holds that the court did not need to apportion the award to carve out common work done for both Degery and the principal defendant. So long as the work done was necessary to Degery’s defense, the fees for it are recoverable. As the court notes, Degery could readily recover these fees had he been represented by separate counsel. The efficiencies should not inure to the losing plaintiff’s benefit. Second, and similarly, there was no reason to reduce the lodestar amount because Degery rode on the principal defendant’s coattails or because the award would result in a “windfall” to the principal defendant. And third, Degery did not fail to mitigate his fees by declining to move for summary judgment on the limited liability issue. At trial, the court denied Degery’s nonsuit motion addressed to the issue, which suggests that a summary judgment motion wouldn’t have had any traction with the trial judge. Under the circumstances, the trial court didn’t abuse its discretion in approving Degery’s fee application.


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