Tuesday, October 25, 2016

Risky Move Does Not Pay Off

City of San Diego v. San Diegans for Open Govt, No. D068939 (on rehearing, Oct. 17, 2016)

San Diegans for Open Government—somewhat of a gadfly litigant in local matters down there—won an attorney fee award against the city in a validation action brought under Code of Civil Procedure § 861.1.

A validation action is basically an invitation for anyone who intends to challenge the legality of the government action to be validated to intervene and object. Failure to do so settles any right to raise further challenges (with certain exceptions). The process to do so entails filing an answer. See Code Civ. Proc. § 862. Successful intervenors can recover their fees under the private attorney general doctrine. See Civ. Code § 1021.5.

SDOG filed a verified answer—effectively a complaint in intervention. At the time it did so, however, its corporate status had been suspended for failure to pay franchise taxes.
SDOG and its attorney were clearly aware of the suspended stats when the answer was filed, but did not inform the court. SDOG did, however, fix the tax issue and revive its status between filing its answer and winning the case. And it—along with another individual who filed an answer of his own—ultimately prevailed and moved for recovery of their fees.

City contested the award and moved to strike
SDOG’s answer and to otherwise deny the fee motion on account of the suspension. Although the trial court was displeased that SDOG and its attorneys were litigating while aware of the suspension, it ultimately awarded substantial fees to SDOG. It did, however, refuse recovery for any of the legal work done during the period in which SDOG was suspended. City appeals.

The Court of Appeal reverses. Although a revival of corporate status generally retrospectively validates prior actions taken while suspended, the Court isn’t having it here. It is particularly piqued by the fact that the
SDOG’s attorney was apparently fully aware of its suspended status at the time SDOG filed its answer. And the firm apparently filed five other lawsuits on behalf of SDOG during the time of its suspension. 

The court notes that it is “perplexed” by the actions of SDOG and its counsel. It adds that for an attorney to knowingly litigate on behalf of a suspended client is “unethical and perhaps criminal.” Under the circumstances, it expects an adequate explanation why they did what they did, particularly since another interested citizen had filed an answer of his own, so there was little concern that the validation would go unconstested. The court is also annoyed by the fact that the lawyers blamed the city for failing to discovery their client’s status earlier in the case.

In any event, a revival retroactively fixes procedural defects. But it does not fix substantive ones or toll the statute of limitations. Under the facts of the case, the statute of limitations to file an answer ran after SDOG filed its answer but before it r
evived its status. Since filing while suspended is a nullity, that does not accrue the claim. A revival isn’t work nunc pro tunc to the original filing. Finding that defect substantive, the Court holds that SDOG didn’t have a valid claim of its own, and thus could not recover fees under the private attorney general doctrine. 

Moreover, as an equitable matter, the court holds that “attorney fees cannot be awarded to a party whose attorney violates the law to appear in the action and offers no justification whatsoever for his or her conduct. To require taxpayers to compensate a party or a law firm for unethical, unprofessional, or even illegal conduct, under the guise that the litigant is protecting the public interest, would turn the private attorney general statute on its head.


On rehearing, the Court amends the opinion to slightly tone down the language about the potential criminality” of counsels actions, but the gist of the opinion stands.

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