The opinion of the court was delivered by: Louis L. Stanton, United States District Judge
In an opinion issued July 15, 2002, this Court found that defendant
General Security Insurance Company ("General Security") owed plaintiff
Ultra Coachbuilders, Inc. ("Ultra"), the duty of defending Ultra in an
action brought by the Ford Motor Company in a federal district court in
California ("the Ford action").*fn1 Ultra now moves for partial summary
judgment against General Security, awarding Ultra $149,658.07 in
attorneys' fees and other costs it had incurred defending the Ford
action, with pre-judgment interest thereon at the annual rate of 10
percent, from the date of each invoice until the date of judgment.
As assignee of Ultra, Knobbe retained the law firm of Gauntlett &
Associates for the purpose of securing and obtaining from General
Security the policy benefits of defense of the Ford action. (Decl. Tarzi
In opposition to the instant motion, General Security argues that Ultra
is not entitled to recover pre-judgment interest on still-unpaid defense
costs, because Ultra has enjoyed the use of the money it would have paid
for those costs. For the costs that Ultra has paid, General Security
argues that pre-judgment interest should run from the date of payment,
rather than from the date of invoice.
General Security also claims certain defense costs should not be
recoverable because they were unreasonable or unnecessary. It objects to
paying for late fees assessed for unpaid defense costs, for the assertion
of counterclaims on Ultra's behalf, and for paralegal work and computer
research. It also claims that Knobbe's excessive billing rates and
duplicative work warrant a 50% reduction in attorneys' fees.
State of California v. Pacific Indemnity Co.,
1548-49 (1998) (internal quotations and citation omitted, ellipsis in the
original). Here, General Security has not carried its burden of proving
that the claimed attorneys' fees and costs were unreasonable or
unnecessary for Ultra's defense. Ultra is entitled to recover its defense
costs, as well as pre-judgment interest on those costs running from the
date of each invoice, regardless of its present delinquency in payments.
Although the time in which Knobbe defended the Ford suit was only about
eight months (May through December 2000), the attorneys performed a
significant amount of work which was essential to the defense of the
action. The Knobbe firm successfully opposed Ford's motion for a
preliminary injunction, and defended Ford's appeal from that order to the
Ninth Circuit, which summarily affirmed. Knobbe also filed and drafted an
answer interposing three affirmative counterclaims and opposed Ford's
motion to dismiss those counterclaims.
The defense required, not only the usual deposition and interrogatory
discovery practice, but vigorous and prompt opposition to Ford's motion
for a preliminary injunction which (according to the uncontradicted
Zadra-Symes declaration in support of plaintiff's reply, ¶ 10),
. . . would have required Ultra to strip Ford marks
from the motors, windows, hubcaps, outer body,
grille, trunk, dashboard, floor mats, steering
column and carpet of each Ultra limousine.
The costs of complying with that would likely have required Ultra to
lay off employees or permanently close its business (Id. ¶ 11).
The issues involved the degree of trademark protection to be given nine
items: "Ford," "Lincoln," the Ford "script in oval" logo, the Lincoln
"star" logo, "Town Car," "Navigator," "Excursion," the front grille on
Lincoln cars, and "QVM."
Ford's motion had been filed before Knobbe was retained, so time was
short. Two days before the scheduled hearing date, Knobbe obtained a
17-day adjournment, and filed its opposition papers a week later, and its
response to Ford's reply four days before the hearing. Any litigator
knows this required hard work and long hours. The motion was argued on
June 5, 2000.
On July 11 the court rendered its decision, ruling in favor of Ultra on
all points save two. It held that Ford's factual presentation and legal
authorities were insufficient to show the necessary probability that Ford
would succeed on the issue of likelihood of confusion, or that the
Lincoln grille or "QVM" were entitled to trademark protection. The
decision was adverse to Ultra only in requiring it to cease placing
"Ultra" so close to the "Navigator" badge as to appear an "Ultra
Navigator" badge, and to refrain from advertising itself as the world's
largest manufacturer of Navigators and Excursions. See Ford Motor Co. v.
Ultra Coachbuilders, Inc., 57 U.S.P.Q.2d 1356, 2000 WL 33256536 (C.D.
Cal. 2000). Ford appealed.
The papers on appeal were submitted on September 11, and the Ninth
Circuit unanimously affirmed by unpublished memorandum on September 26,
2000. 238 F.3d 428 (9th Cir. 2000) (table).
Thus, the services were rendered under exigent circumstances, involved
the factual and legal complexities of trademark cases, were performed
with skill and dispatch, and resulted in a substantial victory,
successfully defended on appeal and of great importance to the client.
Billings for all partners averaged $324.06 per hour, and billings for
all associates averaged $204.60 per hour. (Decl. Tarzi ¶¶ 11, 12.)
Although General Security argues that the retention of a top-tier
intellectual property law firm was extravagant, the rates charged by
Knobbe were below the median rates charged by intellectual property
partners and associates*fn2
in California, according to a survey of
private practice law firms conducted by the American Intellectual Property
Law Association. (Decl. Tarzi Ex. 16, "AIPLA Report of Economic Survey
2001, Table 16b: Average Hourly Billing Rate by Type of Practice and
Location of Primary Place of Work.") The mix of partner and associate
hours expended*fn3 in defense of the Ford case actually averaged $300.65
per hour, which lies closer to the median for all private intellectual
property practitioners ($275) than to the 75th percentile ($350) rates.
Thus, Knobbe's rates were not excessive compared to other California
intellectual property lawyers. General Security has not particularized
any specific excessive charge or expenditure of time.
Under the circumstances Knobbe's rates and time charges were entirely
Ultra is entitled to prejudgment interest on recoverable costs, running
from the date of each invoice. California Civil Code section 3287
§ 3287. Interest on damages; right to recover; time
from which interest runs.
(a) Every person who is entitled to recover damages
certain, or capable of being made certain by
calculation, and the right of recovery which is
vested in him on a particular day, is entitled
also to recover interest thereon from that day
Cal. Civ. Code § 3287(a) (West 2000).
The interest rate in this case is 10 percent per year. California Civil
Code section 3289 provides:
§ 3289. Rate of interest chargeable after breach
(a) Any legal rate of interest stipulated by contract
remains chargeable after a breach thereof, as
before, until the contract is superseded by a
verdict or other new obligation.
(b) If a contract entered into after January 1, 1986,
does not stipulate a legal rate of interest, the
obligation shall bear interest at a rate of 10
percent per annum after a breach.
Cal. Civ. Code § 3289 (West 2000). Knobbe's retainer agreement with
Ultra also provides that Knobbe will assess a "late fee" at a rate of 10%
per annum on sums left unpaid 30 days after each invoice. (Decl.
Zadra-Symes Exs. 2-8.)
General Security argues that Ultra is not entitled to pre-judgment
interest because (1) interest on claims against a bankrupt (like Knobbe's
against Ultra) stops running when the petition in bankruptcy is filed,
and (2) since Ultra has not fully paid for its defense, to the extent
that it has not been deprived of the use of funds, it does not need
interest to make it whole.
The short answer to the first point is that this claim is by Ultra
against its insurer: there is no such bar on claims by, rather than
against, the bankrupt.
As to the second point, the statute (§ 3289(a), supra) does not
require that the claimant be out-of-pocket in order to recover interest
on the unpaid debt. (Indeed, here Knobbe, the ultimate creditor of
General Security, has lost the interest upon its unpaid fees.)
The pre-judgment interest will run from the date of each invoice. See
Copart, 1999 WL 977948, at *8 ("Interest began to accrue on the date
Copart incurred its obligations (i.e., the billing dates)"); Overholtzer
Counties Title Ins. Co., 116 Cal.App.2d 113, 127 (1953)
("Obviously, the amount [of litigation expenses] thereof became fixed,
for interest purposes, when liability therefore was incurred by the
With respect to Knobbe's charges for "late fees," it would be
unreasonable to permit Ultra a double recovery of interest on unpaid fees
and costs. The 10% pre-judgment interest on all unpaid defense costs
fully compensates Ultra for the delay in payment of defense costs. The
late fees referred to in the Knobbe retainer agreement, regarding a 10%
"late fee" on a portion of the same costs, therefore are disallowed as
General Security also argues that the fees incurred in asserting (and
opposing a motion to dismiss) three counterclaims, which it contends are
not covered by the policy, are not recoverable defense costs. (Def.'s
Mem. of Law at 9.)
In fact the counterclaims, alleging unfair competition and interference
with competitive advantage, were used to argue (albeit unsuccessfully)
that the injunction application was barred by the doctrine of unclean
hands, see Ford Motor Co. v. Ultra Coachbuilders, Inc., 57 U.S.P.Q.2d
1356, 2000 WL 33256536, at *10 (C.D. Cal. 2000), and were thus
"inextricably intertwined with the defense of [defendant's] claims and
necessary to the defense of the litigation as a strategic matter."
Safeguard Scientifics, Inc. v. Liberty Mut. Ins. Co., 766 F. Supp. 324
(E.D. Pa. 1991).
General Security has not shown that the costs of clerical file work
billed by paralegals and document specialists, or billings for computer
legal research, were unreasonable or unnecessary to the defense of the
Ford action. On the contrary, the billings show that Knobbe economized by
using less expensive labor for clerical work and by using time-saving
computer research. See e.g. Haroco v. American Nat. Bank & Trust,
38 F.3d 1429, 1440 (7th Cir. 1994) (Computer research costs "are indeed
to be considered attorney's fees. The added cost of computerized research
is normally matched with a corresponding reduction in the amount of time
an attorney must spend researching.")
Ultra is entitled to partial summary judgment awarding it
$145,667.70*fn5 for the fees and costs incurred in the
Ford action, together with pre-judgment interest on those
fees and costs, at 10% per annum, from the date of each invoice until
the date of the judgment.