Khalil Laleh and Leila Tabrizi, Third Party Defendants-Appellants,
Gary C. Johnson and Gary C. Johnson and Associates, LLC, Appellees. and Ali Laleh, Defendant-Appellant,
Jefferson County District Court No. 12CV2477 Honorable Dennis Hall, Judge.
Evans Case, LLP, Larry Jacobs, Denver, Colorado; Kimball and Nespor, P.C., Charles J. Kimball, Arvada, Colorado, for Third Party Defendant-Appellant Khalil Laleh.
Leonard Berenato, Douglas Fogler, Denver, Colorado, for Third Party Defendant-Appellant Leila Tabrizi.
Wortsell and Associates Law Offices, David L. Worstell, Thomas Connell, Denver, Colorado, for Defendant-Appellant Ali Laleh.
Evans & McFarland, LLC, Scott C. Evans, Denver, Colorado, for Appellees.
¶ 1 After several family business deals soured, Ali Laleh, Khalil Laleh, and Leila Tabrizi became involved in contentious litigation. They now appeal a judgment granting all of court-appointed expert and special master Gary C. Johnson's fees and costs. We affirm the judgment in part, reverse in part, and vacate in part, and remand with directions.
¶ 2 Ali Laleh and his brother Khalil Laleh (collectively, the brothers) each own various small businesses. Leila Tabrizi is married to Ali and owns related business entities. The litigation started from a forcible entry and detainer (FED) action and an accounting dispute between the brothers about various business dealings. For years the brothers commingled hundreds of thousands of dollars between themselves and their entities.
¶ 3 Because of how the case was litigated, the trial court found it necessary to exercise extensive supervision. The trial court issued orders to help organize the parties, their claims, and eventually restricting further frivolous filings. When it became apparent that the parties' business dealings and finances were difficult to decipher, the trial court appointed Gary Johnson, MBA, CPA, CFF, initially pursuant to Colorado Rule of Evidence 706, as the court's expert to help sort out the various entities' financial and business affairs. The brothers each signed an engagement agreement with Gary C. Johnson and Associates, LLC, outlining the scope of Johnson's work and payment.
¶ 4 The trial court later appointed Johnson as special master pursuant to Colorado Rule of Civil Procedure 53 to enable Johnson to obtain information regarding the lease(s) prepared by an attorney, relevant to the FED claims, where the attorney had refused to provide despite valid waivers of attorney-client privilege.
¶ 5 Johnson first incurred attorney fees in connection with his court-appointed duties in December 2013 when the brothers' former attorney refused to honor a court-issued subpoena. Johnson's attorney accompanied him when sworn statements were given and was copied on Johnson's correspondence with the parties. Beginning with Johnson's January 2014 invoice to the brothers and continuing at least through Johnson's May 2014 invoice to the brothers, Johnson's itemized invoices included a line item under "expenses" specifying amounts billed to Johnson by Johnson's attorney. The brothers paid portions of these invoices before they settled the underlying case in February 2014. The brothers raised no objection to the content of Johnson's billings or to the itemization of attorney fees billed to Johnson by Johnson's attorney until Khalil Laleh sent Mr. Johnson a letter dated March 9, 2014. The letter expressed concern about the inclusion of Johnson's attorney fees in his billings.
¶ 6 After the settlement, the trial court granted the parties' stipulated motions to dismiss and dismissed the case with prejudice on February 24, 2014. At that time, Johnson had significant unpaid billings and reported to the trial court that he had not been paid. The court issued an order to show cause why Johnson's invoices had not been paid and held a hearing to determine the reasonableness of Johnson's fees. The record indicates that the brothers did not lodge an objection to Johnson's itemized expenses with the court before their March 20, 2014, responses to the trial court's show cause order. After the hearing, the trial court issued a September 2, 2014, order finding, among other things, that the fees charged were reasonable and ruling that, pursuant to the engagement agreements, the brothers were jointly and severally responsible for Johnson's fees. The trial court then ordered Johnson to submit a proposed order "in the form which would best enable Mr. Johnson to collect these sums from the parties should the parties fail to pay." Johnson submitted a proposed order on September 13, 2014, and the trial court adopted Johnson's proposed order on September 16, 2014.
¶ 7 The parties did not pay Johnson's fees and Johnson's request for contempt citations were stayed by this appeal. In accordance with the September 16 order, the parties and Tabrizi, who had been dismissed from the litigation in a February 24, 2014, order, provided financial information required in the event of the brothers' nonpayment. They also filed this appeal primarily challenging the trial court's September 2 and September 16 orders.
II. Khalil Laleh's and Ali Laleh's Shared Claims
A. Due Process Claim
¶ 8 The brothers contend that the trial court violated their rights to due process when it entered Johnson's proposed order three days after it was filed. We generally do not address unpreserved civil issues. Berra v. Springer & Steinberg, P.C., 251 P.3d 567, 570 (Colo.App. 2010); Yeiser v. Ferrellgas, Inc., 214 P.3d 458, 461 (Colo.App. 2008), rev'd on other grounds, 247 P.3d 1022 (Colo. 2011). Here, because the brothers' due process claim did not arise until after the trial court entered the challenged order, we review the order. Bailey v. Airgas-Intermountain, Inc., 250 P.3d 746, 752 (Colo.App. 2010).
¶ 9 We need not determine whether the entry of the order violated the brothers' rights to due process because the entry of the order violated the procedural rule that governs such orders.
¶ 10 The trial court entered Johnson's proposed order three days after Johnson served it on the brothers. C.R.C.P. 121, section 1-16 allows a party seven days from the time of service to object to the form of a proposed order. Therefore, the trial court erred when it issued the proposed order before allowing the brothers seven days to object as mandated by C.R.C.P. 121.
¶ 11 We therefore vacate the judgment as it pertains to the portion of the September 16 order that relates to the brothers and, because some of the brothers' objections require factual determinations best addressed to the trial court in the first instance, we remand for the trial court to consider the brothers' timely filed objections and re-enter an appropriate order. Regardless of what order may be entered on remand, we expect at least some of the remaining legal issues raised in this appeal to persist, given that we are not disturbing the September 2 order. Accordingly, we address those issues here.
B. Johnson's Attorney Fees and Post-Settlement Fees
¶ 12 The brothers argue that the trial court erred in (1) ordering that they pay Johnson's attorney fees incurred without express court approval as a part of Johnson's service as a court-appointed expert and special master and during Johnson's attempt to collect his past-due billings; and (2) awarding Johnson's fees incurred after the parties to the underlying litigation settled their claims. We disagree with both contentions.
1. Trial Court's Appointment of Experts and Special Masters
¶ 13 This case comes to us in a unique posture because it concerns the scope of the court's authority in appointing an expert and a special master. Judges are charged with administering the "just, speedy, and inexpensive determination" of every action. See C.R.C.P. 1; Fed.R.Civ.P. 1. There is very little established law in Colorado regarding expenses and fees of court-appointed experts and special masters. CRE 706(b) speaks to compensation of a court-appointed expert, but does not specifically address fees incurred by experts in carrying out their duties. C.R.C.P. 53 is similarly silent about expenses, although it does authorize expert compensation more generally. However, federal courts have addressed the question of fees and costs in similar circumstances and because the Colorado rules are based on, and are very similar to, the federal rules, we will look to the federal cases for guidance. Garcia v. Schneider Energy Servs., Inc., 2012 CO 62, ¶ 7.
¶ 14 It is fundamental that trial courts are vested with certain inherent powers necessary for courts to act efficiently. Peña v. Dist. Court, 681 P.2d 953, 956 (Colo. 1984). These inherent powers include all powers reasonably necessary to allow the court to efficiently perform its judicial functions and to make its lawful actions effective. Id.
¶ 15 Under the American Rule, attorney fees are generally borne by the parties incurring them, rather than by a losing party. See City of Holyoke v. Schlachter Farms R.L.L.P., 22 P.3d 960, 964 (Colo.App. 2001) (citing Bunnett v. Smallwood, 793 P.2d 157, 161 (Colo. 1990)); see also Allison v. Bank One-Denver, 289 F.3d 1223, 1244-45 (10th Cir. 2002). We do not challenge this basic premise of American law. But, the award of fees and expenses of an impartial court-appointed expert or special master are different than the ordinary application of the American Rule because the expert or master is not a party to the litigation precisely because he is appointed by the court, under the court's authority. The relationship between the court-appointed expert or special master and the litigants is not wholly or even primarily a contractual relationship governed by contract law. Instead, nonpayment of the court-appointed expert or master when the appointing court has ordered the litigants to pay the expert or master directly implicates the authority of the appointing court.
a. Trial Court's Award of Attorney Fees
i. Pre-Settlement Attorney Fees
¶ 16 The brothers challenge whether Johnson was authorized to hire a lawyer, as part of his court-appointed duties, without court approval. Johnson has not cited nor have we found any rule, statute, or Colorado case that authorized him to hire counsel (with the expectation that counsel's fees would be passed on to the litigants). But, it is not necessary for us to decide that question in this case.
¶ 17 Had the brothers raised any objection to Johnson's hiring (and their obligation to pay) counsel as soon as they learned of counsel's role, the trial court could have disallowed the hiring or established boundaries on Johnson's counsel (e.g., a limit on hours, amount billed, etc.) before Johnson incurred these expenses. To be sure, the preferred option would have been to set the boundaries of the court-appointed expert or special master's duties and authority to hire outside professional assistance in the court's order of appointment. See Bridgeport Guardians, Inc. v. Delmonte, 537 F.3d 214, 218 (2d Cir. 2008) (noting that a special master has broad power to take necessary measures to do his job); Reed v. Cleveland Bd. of Educ., 607 F.2d 737, 746 (6th Cir. 1979) (if master and outside consultants are deemed necessary, the better practice is to set the fees at the time of appointment); Acad. of Court Appointed Masters, Appointing Special Masters and Other Judicial Adjuncts: A Handbook for Judges and Lawyers (2d ed. 2009), http://perma.cc/V2XF-5NB6 (listing items to include in appointment orders).
¶ 18 Johnson's January 3, 2014, invoice for his services performed in December 2013 was the first invoice that included the line item for Johnson's attorney fees incurred by Johnson as expenses. The billing clearly showed a charge of $3932.50 from Evans & McFarland, LLC, Johnson's lawyers. Upon receipt of the invoice, the brothers raised no objection to the inclusion of the attorney fees on the itemized bill and indeed each of the brothers made payments on that invoice.
¶ 19 Similarly, Johnson's February 3, 2014, invoice included a line item for attorney fees - this time totaling $10, 042.50. The brothers did not object to the content of this invoice. And, before any invoicing, the court and the parties were aware of Johnson's attorney, as he appeared in court and out of court on Johnson's behalf.
¶ 20 The brothers did not challenge Johnson's appointment as a CRE 706 expert or as C.R.C.P. 53 special master. They did not timely challenge Johnson's hiring of a lawyer. The first time they objected to the content of any billing was when Khalil Laleh sent his personal letter to Johnson in mid-March. Under these circumstances, even if the brothers had a valid objection to paying Johnson's attorney fees, they waived it. See, e.g., Campbell v. Summit Plaza Assocs., 192 P.3d 465, 475 (Colo.App. 2008); see also In re Cmty. Bank of N. Va., 622 F.3d 275, 287 n.12 (3d Cir. 2010) (concluding that the challenge to appointment of the special master was waived and declining to address it on appeal); Fajarado Shopping Ctr., S.E. v. Sun All. Ins. Co. of P.R., Inc., 167 F.3d 1, 5-6 (1st Cir. 1999) (lack of timely objection to appointment of a special master amounts to consent); Adriana ...