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RECOVERING FEES AND COURT COSTS: THE "MEMORANDUM OF COSTS"
Introduction: Once a party wins a case they are normally awarded a legally enforceable judgment but, additionally, they are often allowed to recover specified costs incurred in bringing the action. See our article on American Litigation. Depending on the type of action, costs can range from the filing fees and costs of service of process and deposition reporters all the way to recovery of attorneys fees, expert fees, etc. Additionally, legal interest on the unpaid portion of the judgment at ten percent simple interest per annum is usually allowed in California. However, the process to have these various costs reduced to an enforceable judgment and adding the additional sums due as time passes after the judgment can be time consuming and complex. It is well worth the effort. This article shall provide the basics of both computing and adding the costs onto the judgment and updating the interest and additional costs incurred after the initial judgment is entered.
The Basic Law: In addition to damages awarded, the prevailing party in an action is entitled to recover their costs under California Code of Civil Procedure (“CCP”) §1032(b). Costs are divided between prejudgment and post-judgment costs, the latter also known as the costs of enforcing judgment. A key component of these costs may be attorneys’ fees (“fees”). Fees authorized by contract or by statute are allowable costs [CCP §1033.5(a)(10)(A), (B)]. Absent statute or contract terms so providing, attorney fees are normally not awarded to the prevailing party in California. See our article The Acid Test Clause. See also our article Debt Collection-The Tools Available for Enforcement of Judgment. In order to collect expert’s fees, a 998 Offer may be required prior to trial. To recover either prejudgment or post-judgment costs, a memorandum of costs must be filed and served on the debtor. When attorneys’ fees are fixed by contract or statute without necessity of a court determination, they may be entered on the memorandum of costs. Otherwise, a noticed motion is required to have the court determine and award attorneys fees and, again, such an award is predicated on contract terms or statute only.
Prejudgment Costs: Prejudgment costs typically include filing fees, law and motion fees, deposition reporter costs, exhibit preparation, and fees for the jury, witnesses, and court reporter. Assuming the correct steps were taken at trial in terms of statutory offers, they may also include expert’s fees. Allowable prejudgment costs are detailed at CCP §1033.5(a). As stated above, attorneys’ fees may be fixed by contract or by statute, but they may also be fixed per local court rule. In most cases in the United States, attorney fees are not awarded as a matter of costs absent statute or a contract clause so allowing. To obtain costs, the prevailing party must file and serve a memorandum of costs within 15 days from:
whichever is first. CRC Rule 3.1700(a)(1). The Judicial Council of California has approved Forms MC-010 (Summary) and MC-011 (Worksheet) for use. If, however, a party seeks a default hearing and judgment, costs must be claimed on the Request for Entry of Default at the time of application for the judgment. CRC Rule 3.1700(a)(2). A separate memorandum of costs is not filed.
Post-judgment Costs: After judgment is entered, the prevailing party must actually takes steps to recover their damages. While often a defendant will make arrangements for payment, one can encounter defendants who ignore the judgment and refuse to pay. If the losing party appeals, the judgment can still be enforced unless the losing party obtains a stay of execution and that normally requires the losing party to post a bond. Absent a stay, the winning party can enforce the judgment whether or not an appeal is threatened or pending. The enforcement of a judgment, or recovery, often incurs additional expense to the prevailing party. These costs may be recovered by filing a memorandum of costs enforcing judgment. The Judicial Council of California Form MC-012 must be used. It must be served before judgment is fully satisfied but no later than 2 years after costs have been incurred [CCP §685.070(b)]. Post-judgment costs may include fees incurred for preparing and issuing an abstract of judgment, or recording and indexing of same, filing notices of liens or issuing writs of execution. As with prejudgment costs, attorneys’ fees may be claimed, but only if allowed by CCP §685.040 (attorneys’ fees to enforce judgment allowed as costs only if underlying judgment includes an award of fees as authorized by contract).
While the recovery of prejudgment costs is different on a default judgment, there is no separate procedure for recovery of post-judgment costs on a default judgment.
Unlike prejudgment costs, the memorandum of costs after judgment allows the prevailing party to claim accrued interest on the judgment. The form is not strictly a memorandum of costs; it is also an acknowledgment of credit and declaration of accrued interest as described below.
Interest on Damages:
Generally, the prevailing party entitled to recover damages certain (or capable of being made certain) by calculation as of a particular day is also entitled to recover interest on those damages as of that same day. When damages are for a breach of contract or tort claim, prejudgment interest may also be awarded (see CCP §3287(a) and Marine Terminals Corp. v. Paceco, Inc. (1983) 145 Cal. App. 3d 991, 995). Note that the prejudgment interest is part of the award for damages, but not claimed as a cost of suit on the memorandum of costs, Form MC-010.
The legal rate of interest is 10% unless judgment is against a public entity in which case is reduced (7%). All monetary awards must bear interest at the legal rate starting on the date judgment is rendered, through the entry of judgment, and continuing until judgment is satisfied. Compound interest generally is not allowable. However, it is established by case law that a judgment bears interest on the whole amount even though that amount is itself comprised of principal and interest. As a result, compound interest may in effect be recovered since the combined principal and interest transforms into a new principal [Big Bear Properties, Inc. v. Gherman (1979) 95 Cal. App. 3d 908, 913].
When Interest Ceases to Accrue: If a money judgment is payable in installments, unless otherwise provided in the judgment, interest continues to accrue on each installment on the date the installment becomes due. If a money judgment is satisfied in full pursuant to a writ of execution being obtained and successfully executed, interest ceases to accrue on the date of levy if the proceeds of collection are paid in a lump sum [CCP §685.030(a)(1)]. See CCP §706.024 or §706.028 for discussion relating to garnishment of wages. In any other case, accrual of interest ceases:
Conclusion: It is important to realize the economic significance of obtaining costs and interest on an existing judgment. These can be substantial amounts. In a typical commercial litigation case, the out of pocket costs for discovery, filing fees and service fees can easily exceed thirty thousand dollars. If expert’s fees are added in, that sum can easily double. As for interest, at ten percent the amount of the judgment will double every seven years. Perhaps five years ago our office obtained collection of a judgment (via recorded Abstract of Judgment) that was, itself, nine years old. By then, the judgment had more than doubled in size to the horror of the judgment debtor who had moved to a new state, invested in new commercial property, and had no idea of the time bomb waiting for him when he tried to sell his new property. Do not ignore these powerful tools.
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