Padgett v. City of Monte Sereno, 5:04-cv-03946

Background

In 2004 Padgett sued multiple defendants under § 1983; at trial he prevailed only on a First Amendment retaliation claim and recovered nominal and reduced punitive damages.
McManis Faulkner withdrew in 2006; Padgett was pro se until Kallis & Bustamante became counsel in Sept. 2008 and represented him until relieved in July 2013.
Padgett signed a hybrid fee agreement with Kallis & Bustamante providing for a modified contingency (20% of award), lodestar entitlement for trial work, and a contractual lien on any recovery.
The district court (2015) awarded $471,056.64 in attorneys’ fees and $100,000 in costs directly to Kallis & Bustamante; Padgett appealed only the allocation of fees to counsel.
The Ninth Circuit vacated and remanded, instructing the district court to determine whether contractual provisions or an attorney lien justified paying fees to counsel rather than to the plaintiff.
This court held the fee agreement was voidable (not void) under Cal. Bus. & Prof. Code § 6147 but remained in effect on the March 31, 2015 award date (Padgett voided it in Jan. 2017), so the contractual assignment justified awarding fees directly to the firms; the 2015 award was reinstated.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether attorney fees awarded by the district court could be paid directly to counsel rather than to Padgett	Padgett argued fees belong to the plaintiff under federal law and the award to counsel was improper	Kallis & Bustamante argued the fee agreement and contractual lien assigned fees to counsel, authorizing direct payment	Held: Contract was effective on the award date, so the contractual assignment justified paying fees to counsel
Whether a state-court judgment declaring the contract void precludes this court from deciding the contract issue (res judicata)	Padgett relied on the state-court ruling that later found the agreement void	Firms argued the state-court judgment was not final for res judicata because it was on appeal	Held: California law treats a trial-court judgment as non-final while appeal is pending; no claim-preclusion effect here
Whether the hybrid fee agreement complied with Cal. Bus. & Prof. Code § 6147 (valid vs. void)	Padgett argued noncompliance with § 6147 rendered the agreement void and unenforceable	Firms acknowledged § 6147 noncompliance but argued noncompliance makes the agreement voidable, not void, so enforceable until client voids	Held: § 6147 noncompliance made the contract voidable; Padgett did not void it until Jan. 24, 2017, so it was enforceable in Mar. 2015
Whether the fee award constituted lodestar/award category covered by the contract	Padgett did not challenge the reasonableness of the award, only the payee	Firms argued the award was a lodestar allotment and within the contract’s scope	Held: The court’s 2015 lodestar award falls within the contract’s terms; fees properly awarded to counsel

Key Cases Cited

Pony v. County of Los Angeles, 433 F.3d 1138 (9th Cir.) (prevailing party, not attorney, holds statutory right to seek § 1988 fees)
United States v. $186,416.00 in U.S. Currency, 642 F.3d 753 (9th Cir.) (absent contract or lien, fee awards go to the prevailing party)
Gilbrook v. City of Westminster, 177 F.3d 839 (9th Cir.) (§ 1988 requires fee awards be made to prevailing party absent contractual assignment)
Padgett v. Loventhal, 706 F.3d 1205 (9th Cir.) (vacating district court order for inadequate explanation of fee award)
Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (U.S.) (federal courts apply state claim-preclusion law to state-court judgments)
Yvanova v. New Century Mortgage Corp., 365 P.3d 845 (Cal.) (distinction between void and voidable contracts)