R.J. Reynolds Tobacco Company (Reynolds) challenges trial court orders issued after remand in the last appeal in this matter, which award the People of the State of California $2,943,920.63 in contractual attorney fees as the prevailing parties in an action to enforce a consent decree and final judgment (Consent Decree) entered on a master settlement agreement (MSA). Reynolds contends the court erred in its prevailing party determination because the People did not achieve "greater relief" on the contract as required by Civil Code section 1717 (section 1717), subdivision (b)(1)). Alternatively, Reynolds contends the court erred by applying market rates for San Francisco Bay Area attorneys when determining the lodestar amount of fees, instead of local San Diego market rate and by not further reducing the lodestar amount in consideration of the People's partial success. We affirm the orders.
In November 1998 Reynolds and several other tobacco manufacturers entered into the MSA with most states, including California, to resolve government claims pertaining to public health concerns about smoking and the marketing of tobacco products to minors. In December 1998 the State of California (State) and Reynolds signed the Consent Decree, under which the San Diego County Superior Court approved the MSA and retained exclusive jurisdiction over its implementation and enforcement.
One aspect of the Consent Decree permanently enjoins participating tobacco manufacturers from "using or causing to be used" any "cartoon" in the advertising, promoting, labeling or packaging of tobacco products. The Consent Decree incorporates the MSA's definition of "cartoon," which is "any drawing or other depiction of an object, person, animal, creature or any similar caricature that satisfies any of the following criteria: [¶] (1) the use of comically exaggerated features; [¶] (2) the attribution of human characteristics to animals, plants or other objects, or the similar use of anthropomorphic technique; or [¶] (3) the attribution of unnatural or extrahuman abilities, such as imperviousness to pain or injury, X-ray vision, tunneling at very high speeds or transformation."
In December 2007 the People moved to enforce the Consent Decree, which embodies the MSA. The People sought injunctive relief, a declaration Reynolds violated the cartoon ban "thousands of times in 2006 and 2007 as part of its Farm Rocks campaign advertisements of Camel cigarettes," and sanctions based on the number of violations. The People's theory was that Reynolds violated the cartoon ban in two ways, by including cartoons in its own advertising, and by having its gatefold advertisement in Rolling Stone adjacent to the magazine's editorial pages, which were covered with cartoons (adjacency issue). Pending resolution of the action, Reynolds voluntarily suspended the Farm Rocks campaign and instituted "new [media] insertion guidelines to avoid future adjacency of its ads to cartoons."
Trial began in January 2009, and during opening statement Reynolds represented to the court that it had permanently ceased the Farm Rocks advertising campaign, and thus injunctive relief was unwarranted. After a lengthy trial, the court agreed with that assessment. The court issued a declaration that "a relatively small portion" of Reynolds's images in the Farm Rocks campaign violated the cartoon prohibition. The objectionable images included "jet-powered tractors which fly," "radios flying by means of attached helicopter rotors," "televisions that grow on plant stems," and tractors "with wheels made of film reels able to defy gravity." The court rejected the People's theory on the adjacency issue. The court determined the Consent Decree gave it jurisdiction to assess sanctions against Reynolds but it declined to do so because its violation of the cartoon ban was unintentional and a relatively small part of the advertisements, the State stipulated there was no proof of the amount of actual damage on which to base a sanctions award, and it would be difficult to quantify the number of persons exposed to the Farm Rocks campaign. In the first appeal in this matter, we affirmed the court's order on the merits. (In re Tobacco Cases I, supra, 186 Cal.App.4th at pp. 44, 48-52.)
Reynolds appealed, and we reversed the order. We agreed with Reynolds that section 1717 is applicable to the Consent Decree. We directed the court to determine on remand whether the People were the prevailing parties under section 1717, meaning they obtained the "greater relief" on the contract. (§ 1717, subd. (b)(1).) (In re Tobacco Cases I, supra, 193 Cal.App.4th at p. 1598.)
The People cross-appealed, contending the court erred by denying them prevailing market rates on the ground the Consent Decree provides for an award of fees "incurred" by the People, rather than for an award of reasonable fees. For the court's convenience on remand, we addressed the contention, explaining that when section 1717 applies, as here, the prevailing party is entitled to "reasonable" fees (§ 1717, subd. (a)), meaning the rates prevailing in the community for similar work. (In re Tobacco Cases I, supra, 193 Cal.App.4th at p. 1596.)
On remand, both parties moved for designation as the prevailing party under section 1717. In an October 5, 2011 order, the court found in favor of the People. The order explains that while the People "did not achieve a simple, unqualified win, it is the prevailing party since it achieved its main litigation objective of stopping said campaign [Farm Rocks] in California. Before this action was instituted, [Reynolds] had been engaging in a multistate advertising campaign which involved the use of certain cartoons that this Court found to be prohibited by the MSA." The order also granted the People's request for an award of $32,673.02 in litigation costs. The People then moved for attorney fees, and in a March 22, 2012 order the court awarded $2,943,920.63 in fees based on Bay Area market rates, as their attorneys were from Oakland. These consolidated appeals of the orders followed.
Reynolds contends the trial court abused its discretion by finding the People were the prevailing party under section 1717. Reynolds asserts that given the People's limited success, the court should have found that either Reynolds prevailed or no party prevailed. We are unpersuaded.
"If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees." (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109 [86 Cal.Rptr.2d 614, 979 P.2d 974]; see § 1717, subd. (b)(1).) "[I]n deciding whether there is a `party prevailing on the contract,' the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by `a comparison of the extent to which each party [had] succeeded and failed to succeed in its contentions.'" (Hsu v. Abbara, supra, 9 Cal.4th at p. 876.)
"[I]n determining litigation success, courts should respect substance rather than form, and to this extent should be guided by `equitable considerations.' For example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective." (Hsu v. Abbara, supra, 9 Cal.4th at p. 877, italics omitted.) The court may "examin[e] the results of the action in relative terms: the general term `greater' includes `[l]arger in size than others of the same kind' as well as `principal' and `[s]uperior in quality.'" (Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1151 [70 Cal.Rptr.2d 769].)
Reynolds asserts the People did not obtain greater relief within the meaning of section 1717, subdivision (b)(1), because the court denied them injunctive relief and sanctions, and only issued a declaration that "a relatively small portion" of images in the Farm Rocks advertising campaign violated the MSA's cartoon ban. Reynolds submits, as unassailable fact, that success on the adjacency issue was the People's main litigation objective and their position on Reynolds's own use of cartoons in the Farm Rocks campaign was merely incidental.
On this record, however, we cannot say the trial judge, Ronald Prager, who has handled this litigation from its commencement, abused his broad discretion. As he explained in rejecting Reynolds's argument as to the primacy of the adjacency issue, "I was here. I sat through all the motions. I heard all the arguments."
Reviewing the Hsu v. Abbara, supra, 9 Cal.4th at pp. 876-877 factors, we reject the notion the court's ruling contravenes uncontradicted evidence. In December 2007 the People applied for an order to show cause "why [Reynolds] should not be immediately restrained from using cartoons in its advertising in Rolling Stone, its web site or any other venue." The application stated: "A central provision of the Consent Decree and the MSA, intended to further the MSA's goals of reducing underage tobacco use and promoting public health, is the prohibition against taking any action, either directly or indirectly, to target youth in the advertising of tobacco products. Cartoons in
In February 2008 the People filed an amended motion to enforce the Consent Decree, which alleged: "Reynolds has used cartoons as defined in and prohibited by the Consent Decree thousands of times in 2006 and 2007 as part of its Farm Rocks campaign advertisements of Camel cigarettes." The motion went on to describe Reynolds's own Farm Rocks images, including "flying tractors with movie reels for wheels, flying radios, [and] stereo speakers growing from plant stalks out of the ground," and to complain that Reynolds used the images "in California on the Reynolds-sponsored Farm Rocks web site, in newspaper and magazine advertisements, in mailings and on other items distributed by mail or at various Reynolds sponsored musical events, or projected on walls at these events. Reynolds also advertised Camels in a nine-page advertising spread in the 40th edition, November 15, 2007, issue of the Rolling Stone magazine, which contains hundreds of prohibited cartoon images." Both the application and the motion allege Reynolds's own use of cartoons in its advertising, not only in the Rolling Stone, but also in other media. Neither the application nor the motion expressly refers to the adjacency issue. The pleadings refer only opaquely to the adjacency issue by citing a nine-page advertisement in Rolling Stone, when Reynolds's own advertisement was four pages,
The People's trial brief devoted roughly nine pages to the issue of Reynolds's own images in various media and roughly three pages to the adjacency issue. Further, in opening statement, the People's counsel spent somewhat more time on the issue of Reynolds's own cartoons than on the adjacency issue.
Reynolds asserts that during the lengthy trial, Judge Prager "repeatedly observed" that the adjacency issue "was the central merits issue." Reynolds, however, gives only two supporting citations to the reporter's transcript. During the People's opening statement, Judge Prager questioned whether they
Reynolds also points out that in his final statement of decision, Judge Prager wrote that the People's enforcement action was "based not only on the contents of the [Rolling Stone] ad itself but especially based on the fact that it was adjacent to and intertwined with cartoons contained in the Rolling Stone editorial." Reynolds seizes on the word "especially."
Judge Prager's limited comments, however, are an insufficient ground for us to second-guess his own unequivocal finding that the People's main litigation objective was stopping Reynolds's use of its own cartoons in advertising in California in a variety of venues and by achieving that objective they were the prevailing parties. As Judge Prager noted, the People argued the definition of "cartoons" in the MSA was not "the popular definition of cartoons," and the People "pushed the envelope on that and they won on that." He found the People believe in the importance of the MSA, and insisted on a construction of the term "cartoon" "according to the strict letter of the law."
Indeed, as we observed in In re Tobacco Cases I, supra, 186 Cal.App.4th at page 50, the Farm Rocks "campaign's fanciful imagery would appeal to youth," and "Reynolds and other tobacco companies have a history of targeting youth in their advertising while professing ignorance of wrongdoing." (Citing U.S. v. Philip Morris USA, Inc. (D.D.C. 2006) 449 F.Supp.2d 1, affd. in relevant part in U.S. v. Philip Morris USA, Inc. (D.C.Cir. 2009) 386 U.S. App.D.C. 49 [566 F.3d 1095, 1106].) The litigation advanced the State's significant interest in protecting youth from the perils of smoking, a principal purpose of the MSA.
Further, Judge Prager expressly rejected Reynolds's argument that the lack of injunctive relief or sanctions precluded him from designating the People as prevailing parties. The People sought injunctive relief "to restrain Reynolds from using cartoons in this [Farm Rocks] campaign or in any other campaign in the future." Judge Prager withheld injunctive relief because during opening statement at trial, Reynolds's counsel represented it had decided to permanently cease the campaign, "[s]o there's nothing to really enjoin." Likewise, Judge Prager denied sanctions, in part, to essentially reward Reynolds for voluntarily ceasing the campaign. From the case's inception, and continuing throughout trial, Reynolds vigorously denied that any of its own images were
In In re Tobacco Cases I, supra, 193 Cal.App.4th 1591, 1604-1605, we held that if the trial court determined on remand that the People prevailed under section 1717, they were entitled to attorney fees measured by market rates rather than the governmental rates of in-house counsel actually incurred. The People, who were represented principally by two assistant attorneys general from the Oakland office of the State's Tobacco Litigation and Enforcement Section (Tobacco Section), requested and were awarded market rates for the San Francisco Bay Area of between $500 and $625 per hour. Reynolds contends that even assuming the People prevailed under section 1717, the court erred by not calculating the lodestar amount with local San Diego market rates. Again, we disagree.
The court has the discretion to make an exception, however, when the prevailing party shows it was impracticable to use local counsel. As explained in Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 399 [33 Cal.Rptr.3d 664] (Horsford), the California Supreme Court "has never hinted that, in the unusual circumstance that local counsel is unavailable, the trial court is limited to the use of local hourly rates." The court may use out-of-area "rates either in calculating the initial lodestar figure or in evaluating whether to award a multiplier to a lodestar initially based on local hourly rates." (Environmental Protection Information Center v. Department of Forestry & Fire Protection (2010) 190 Cal.App.4th 217, 248 [118 Cal.Rptr.3d 352] (EPIC).) Horsford, supra, at page 399, explains, "we doubt a plaintiff needs to make anything more than `a good-faith effort to find local counsel' [citation] in order to justify the fees of out-of-town counsel...." (Accord, Center for Biological Diversity, supra, 188 Cal.App.4th at p. 603.)
Reynolds asserts the People failed to establish it was impracticable to use assistant attorneys general from the Tobacco Section's San Diego office. The evidence, however, amply supports the court's finding to the contrary. The People submitted the declaration of Dennis Eckhart, a former senior assistant attorney general who was head of the Tobacco Section when this litigation began in 2007. The declaration states Eckhart assigned and supervised Jeanne Finberg and Shari Posner, from the Tobacco Section in Oakland. The declaration describes Finberg as "a very experienced litigator," and states she "had the most knowledge of Reynolds's then-current advertising campaigns... and she was immediately available to seek an order to show cause on an expedited basis to halt the ... Farm Rocks campaign." It also states Posner is "also an experienced litigator, whose skills ... would complement... Finberg's."
Additionally, the declaration states there were only two attorneys in the Tobacco Section's San Diego office when the litigation began, they "were the least experienced litigators in the section, and both were heavily committed to other cases." Further, in past litigation under the MSA the State had assigned Sacramento or Oakland attorneys.
According to Reynolds, the People did not need experienced litigators from the Tobacco Section's Oakland office who were more familiar with the MSA and Consent Decree than the attorneys with the San Diego office, because in In re Tobacco Cases I, supra, 186 Cal.App.4th 42, this court held as a matter of law that the MSA's definition of "cartoon" is unambiguous. Reynolds submits that given our finding of lack of ambiguity, the case was not complex and the People's attorneys "required no expertise about the MSA." According to Reynolds, the People are not entitled to rates higher than Reynolds paid its local law firm, Wright & L'Estrange.
This theory strikes us as absurd. In addition to retaining Wright & L'Estrange, Reynolds assembled a team of attorneys from the Jones Day law offices in Washington, D.C., and Ohio, who, according to the trial court, "had the laboring oar," and from the national law firm of Womble Carlyle Sandridge & Rice, LLP.
Reynolds then engaged in the type of litigation tactics pejoratively referred to as "scorched earth," presumably to cause delay and increase the People's (and the trial court's) financial burden. Instead of responding in good faith to the merits, Reynolds raised a variety of unmeritorious procedural roadblocks under various provisions of the MSA and Consent Decree. In its final statement of decision, Judge Prager determined "there is no procedural bar to this action because of the State's alleged failure to give good faith consideration to whether [Reynolds] had taken appropriate and reasonable steps to cause the claimed [cartoon] violation to be cured because of the futility of further discussions in light of Reynolds' categorical denial its ads violated the cartoon prohibition in the MSA/Consent Decree and because Reynolds has been accused many times of violating the cartoon prohibition of the MSA/Consent Decree and has been held responsible for many violations of the public health provisions of the MSA regarding advertising." In the attorney fee proceedings, Judge Prager observed the People "had to defend,
Moreover, Reynolds vigorously argued the definition of "cartoon" in the MSA was ambiguous, and thus its meaning was subject to proof by parol evidence, and the term must be narrowly construed to protect its First Amendment free speech rights. Judge Prager noted, "Even the definition of cartoon ... was very hard fought in this case."
Reynolds called numerous witnesses to give their opinions on the meaning of the term "cartoon," including its own employees, representatives from its advertising agency, and a designated expert witness. Reynolds actually designated two expert witnesses, both of whom the People were required to depose. The People argued expert testimony on the interpretation of the Consent Decree was improper, to no avail. In In re Tobacco Cases I, supra, 186 Cal.App.4th at page 50, we found the MSA's definition of "cartoon" to be unambiguous as a matter of law, but hindsight does not affect the People's need for experienced litigators.
The People's expert on attorney fees, Richard M. Pearl, stated in a declaration that Reynolds is "one of the wealthiest, most intransigent and unrelenting defendants that any litigant can face," and Reynolds's "attorneys fought this case tooth and nail, contesting almost every issue." Given this climate, the People could not reasonably be expected to use the Tobacco Section's least experienced attorneys. As Eckhart stated in his declaration, "Looking back over the four-year course of this action, I believe the special knowledge about the MSA and Consent Decree possessed by Ms. Finberg, Ms. Posner and their Tobacco Section colleagues was essential to the State's success, both in the ultimate result and in several procedural rulings along the way." Reynolds's assertion that "if the State had limited its case to the winning claim concerning the [Farm Rocks] program, the case obviously would have been resolved quickly and cheaply," is ludicrous.
Lastly, Reynolds contends the trial court abused its discretion by not sufficiently reducing the lodestar amount of attorney fees under section 1717 to reflect the People's limited success. Reynolds asserts the People's voluntary reduction of fees by 15 percent was insufficient and the court should have reduced fees between 33 and 50 percent. We conclude Reynolds's position lacks merit.
In their fee request, the People argued the fees incurred on the two issues pertaining to the Consent Decree's cartoon ban — Reynolds's own use of cartoons in the Farm Rocks campaign and the adjacency issue — were largely inextricably intertwined, and thus no apportionment was warranted. The People nonetheless voluntarily reduced their fee request to reflect their lack of success on the adjacency issue.
The People submitted a declaration by Lead Attorney Finberg, which states: "Although most of the time in the case is not severable, the People have identified some time that can be attributed almost exclusively to the [adjacency issue] claim. These hours are primarily time spent preparing, attending and taking the depositions of Rolling Stone employees. Shari Posner identified this time on her billing records as time that was attributable to the [adjacency issue] claim, ... and we have completely excluded those hours from our fee claim." (Italics added.)
The Finberg declaration also explains, "Although other time was spent prosecuting this claim, it is not possible to tell from the billing records time that is specifically attributable to this claim. Consequently, the People have applied a percentage discount so as to exclude time spent solely on this claim. The People believe that 10 to 15% of the time is reasonably attributable to
The People also submitted a supplemental declaration by Finberg, which explains she arrived at the 15 percent figure by reviewing the parties' joint exhibit list for trial and identifying exhibits that (1) pertained either solely to the prevailing claim on Reynolds's own Farm Rocks images, or jointly to that issue and the adjacency issue, and (2) solely to the adjacency issue. Only four of the People's 150 exhibits that were admitted pertained solely to the adjacency issue. Finberg also determined that only one of the parties' 37 stipulations of fact pertained solely to the adjacency issue.
Additionally, the People presented a declaration by Posner, who was principally responsible for handling discovery. The declaration states that 88 percent of the People's discovery requests and 86 percent of Reynolds's discovery requests were related directly to or inextricably linked to Reynolds's own use of cartoons.
Here, the People's sole claim against Reynolds was contractual, to enforce the Consent Decree. While the People had two theories on how Reynolds violated the cartoon ban, no apportionment of fees between contract and noncontract claims is at issue. Acree v. General Motors Acceptance Corp. (2001) 92 Cal.App.4th 385 [112 Cal.Rptr.2d 99] (Acree) held the trial court properly exercised its discretion by not apportioning attorney fees under section 1717 when the plaintiff's successful and unsuccessful claims were all based on the same contract and the same contractual relationship. (Acree, supra, at p. 405, quoting Reynolds, supra, 25 Cal.3d at pp. 129-130.)
Here, likewise, the People's successful and unsuccessful contract theories are based on the Consent Decree and the same contractual relationship. To
"The amount of an attorney fee to be awarded is a matter within the sound discretion of the trial court. [Citation.] The trial court is the best judge of the value of professional services rendered in its court, and while its judgment is subject to our review, we will not disturb that determination unless we are convinced that it is clearly wrong. [Citations.] The only proper basis of reversal of the amount of an attorney fees award is if the amount awarded is so large or small that is shocks the conscience and suggests that passion and prejudice influenced the determination." (Akins v. Enterprise Rent-A-Car Co. (2000) 79 Cal.App.4th 1127, 1134 [94 Cal.Rptr.2d 448].)
Given the People's evidence, we cannot say the court abused its broad discretion under section 1717 by not further reducing the lodestar amount. While Reynolds disagrees with the People's showing on the 15 percent figure, by arguing, for example, that Finberg falsely claimed some of the trial exhibits were related to the People's successful claim on the cartoon issue, we are not at liberty to reweigh the evidence or reappraise witness credibility. (Tesoro del Valle Master Homeowners Assn. v. Griffin (2011) 200 Cal.App.4th 619, 634 [133 Cal.Rptr.3d 167].) Rather, "`"[a]ll intendments and presumptions are indulged to support [the judgment] on matters as to which the record is silent, and error must be affirmatively shown."'" (Ketchum v. Moses, supra, 24 Cal.4th at p. 1140.) Judge Prager noted, "[R]arely do I see records as complete as the [Attorney General] has submitted in this case."
Reynolds relies heavily on Hensley v. Eckerhart (1983) 461 U.S. 424 [76 L.Ed.2d 40, 103 S.Ct. 1933] (Hensley), in which the United States Supreme Court articulated a two-step standard governing an award of attorney fees to a prevailing party under a federal civil rights statute, 42 United States Code section 1988 (section 1988), in cases of limited success. (Hensley, supra, 461 U.S. at p. 426.) Hensley, however, does not affect our holding.
Reynolds cites the trial court's initial order on attorney fees, which states: "The second issue is whether the fees should be apportioned. In Hensley ..., the U.S. Supreme Court held that courts should deduct from a lodestar amount for an unsuccessful claim only if the claim is distinct in all respects. Here, the parties provided conflicting evidence regarding the amount of time
Reynolds asserts the italicized language shows the court refused or neglected to undertake the second step of Hensley, under which it could reduce the lodestar amount even if it found the People's two contract theories were related, based on the insignificance of the People's success in comparison to the overall litigation. The initial fee order, however, is not under review here. The subsequent fee order, which is under review, states, "As to Defendant's partial success argument, the Court reiterates its previous determination that the 15 percent deduction by the Plaintiff was sufficient." This order does not mention Hensley, it merely reapproved the People's 15 percent voluntary reduction. The court was not required to explain its rationale for the final fee award absent a request for a statement of decision (Ketchum v. Moses, supra, 24 Cal.4th at p. 1140; Maria P. v. Riles (1987) 43 Cal.3d 1281, 1294 [240 Cal.Rptr. 872, 743 P.2d 932]), which Reynolds did not make.
Thus, to any extent the particular two-step Hensley apportionment standard may be applicable to section 1717,
The orders are affirmed. The People are entitled to costs on appeal.
McIntyre, J., concurred, and Huffman, J., concurred in the result.
