In complex litigation, oftentimes an insurer for a party litigant will pay some or all of the attorney's fees for that party. In cases where the party litigant's attorney's fees are paid for in their entirety by its insurer, very often it may be that that litigation fees are at a much lower hourly rate than the market would otherwise bear. This can become a significant issue when the party litigant prevails and is awarded attorney's fees.
In the case of Pasternack v. McCullough (2021) Westlaw 2633050 ("Pasternack fee case"), property owner Lawrence Pasternack and attorney Thomas McCullough and his law firm became embroiled in a malicious prosecution case arising from various disputes that Pasternack, the purchaser of a Palm Desert home at a cost of in excess of $7 million, had with the developer and general contractor of his property. Pasternack sued McCullough for malicious prosecution. McCullough Moved to Dismiss based upon a Special Motion to Strike under the Anti-Strategic Lawsuits Against Public Participation (Anti-SLAPP) statute, Code of Civil Procedure, § 425.16. The Court of Appeal, after the Trial Court had denied the Motion, reversed and dismissed the malicious prosecution case in favor of McCullough. The Court of Appeal also ruled that McCullough was entitled to attorney's fees as a Prevailing Defendant in a Special Motion to Strike. McCullough was represented by Lewis Brisbois Bisgaard & Smith, a well-known law firm that does a great does a great deal of insurance defense litigation. McCullough's attorney's then sought fees of $330,420, based upon over 500 hours at rates ranging between $300-$600 per hour.
Pasternack opposed McCullough's Fee Motion, arguing that Lewis Brisbois had agreed to be compensated at a rate as low as $140 per hour. The Trial Court substantially reduced the fee award sought by McCullough, but only to $146,010. The Trial Court determined that, while Lewis Brisbois may have accepted a lower rate, $140 per hour was not market rate, even if that is what the insurance company had paid, and that a rate of $250 per hour would be appropriate.
Pasternack, arguing that the attorney's fees should be based on what the insurer actually paid, with a rate as low as $140 per hour, went back to the Court of Appeal. This time, the Court of Appeal again ruled in favor of McCullough in the Pasternack fee case, finding that even if attorney's fees received by the insurer of McCullough, and paid to Lewis Brisbois, were as low as $140 per hour, that was not a market rate and Lewis Brisbois' work should be equated, on a Lodestar basis, $250 per hour.