Laleh v. Johnson

1 Opinions of the Colorado Supreme Court are available to the
2 public and can be accessed through the Judicial Branch’s homepage at
3 http://www.courts.state.co.us. Opinions are also posted on the
4 Colorado Bar Association’s homepage at http://www.cobar.org.
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6 ADVANCE SHEET HEADNOTE
7 October 2, 2017
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9 2017 CO 930
1 No. 16SC134, Laleh v. Johnson—Contracts—Fees and Costs.
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3 The supreme court reviews the court of appeals’ opinion affirming a trial court’s
4 order requiring a pair of litigants to pay a court-appointed accounting expert’s post-
5 settlement collection costs. The trial court appointed the expert to help resolve the
6 litigants’ complex accounting claims, and the litigants signed an engagement agreement
7 with the expert setting forth the scope of his services and payment. After the expert
8 commenced work, the litigants settled the case and the trial court dismissed the suit.
9 The expert then informed the trial court that the litigants refused to pay both his
0 outstanding fees and his costs incurred post-settlement in attempting to collect the
1 outstanding fees. Relying on a provision in the engagement agreement stating that the
2 litigants were responsible for payment of “all fees and expenses” to the expert, the trial
3 court held that the expert was entitled to the post-settlement costs he incurred while
4 trying to collect his outstanding fees. The court of appeals disagreed with the trial
5 court’s interpretation of the engagement agreement, holding that the agreement was
6 silent as to the expert’s post-settlement collection costs, but it nevertheless affirmed the
1 trial court’s award of the expert’s post-settlement collection costs on the ground that the
2 trial court had inherent authority to require the litigants to pay such costs.
3 The supreme court holds that a separate provision of the engagement agreement
4 not previously considered by the trial court or the court of appeals authorized the trial
5 court’s award of the disputed post-settlement collection costs. The supreme court
6 therefore affirms the award of these costs to the expert, albeit on different grounds.
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3 The Supreme Court of the State of Colorado
4 2 East 14th Avenue • Denver, Colorado 80203
5 2017 CO 936 Supreme Court Case No. 16SC134
7 Certiorari to the Colorado Court of Appeals
8 Court of Appeals Case No. 14CA2033
9 Petitioners:
0 Khalil Laleh and Ali Laleh,
1 v.
2 Respondents:
3 Gary C. Johnson and Gary C. Johnson and Associates, LLC.
4 Judgment Affirmed
5 en banc
6 October 2, 2017
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8 Attorneys for Petitioner Khalil Laleh:
9 Evans Case, LLP
0 Larry Jacobs
1 Denver, Colorado
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3 Kimball & Nespor, P.C.
4 Charles J. Kimball
5 Arvada, Colorado
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7 Attorneys for Petitioner Ali Laleh:
8 Worstell & Associates
9 David Worstell
0 Denver, Colorado
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1 Attorneys for Respondents:
2 Evans & McFarland, LLC
3 Scott S. Evans
4 Greenwood Village, Colorado
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6 TNS & Associates, P.C.
7 Michael J. Norton
8 Katelyn B. Ridenour
9 Denver, Colorado
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3 JUSTICE MÁRQUEZ delivered the Opinion of the Court.
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¶1 This case concerns a fee dispute between a pair of litigants and a court-appointed
expert. In 2012, Khalil Laleh brought a forcible entry and detainer action against his
brother, Ali Laleh. The litigation later grew so unwieldy that the trial court appointed
Gary Johnson as an accounting expert (and later as a special master) to resolve the
feuding brothers’ complex accounting claims.
¶2 The Laleh brothers signed an engagement agreement with Gary C. Johnson and
Associates, LLC, setting forth the scope of Johnson’s services and payment. Johnson
commenced work, but before he completed his accounting reports for the trial court, the
brothers settled their case and the court dismissed the suit. Johnson later informed the
trial court that Khalil and Ali refused to pay both his outstanding fees and his costs
incurred post-settlement in attempting to collect the outstanding fees. Following a
hearing, the trial court issued an order ruling that Johnson’s fees were reasonable, and
that he was entitled to the post-settlement costs he incurred in trying to collect his
outstanding fees. In reaching the latter conclusion, the trial court relied on language in
the engagement agreement stating that the Lalehs “are jointly and severally responsible
for the timely and complete payment of all fees and expenses” to Johnson. (Emphasis
added.)
¶3 In a published, split opinion, the court of appeals affirmed the trial court’s order
ruling that the brothers were jointly and severally liable for Johnson’s fees and costs.
Laleh v. Johnson, 2016 COA 4, ¶ 58, ___ P.3d ___. The panel majority disagreed with
the trial court’s interpretation of the agreement and instead concluded that the
agreement was silent as to collection costs incurred after the case was dismissed. Id. at
3
¶¶ 27–28. The majority nevertheless concluded that the trial court did not abuse its
discretion in awarding Johnson’s post-settlement collection costs, reasoning that the
trial court had the inherent authority to require the brothers to pay such costs. Id. at
¶ 28. Judge Webb dissented on this point, arguing that an appellate court may not
invoke the doctrine of inherent authority for the first time on appeal. Id. at ¶ 59 (Webb,
J., concurring in part and dissenting in part).
¶4 We granted Khalil’s and Ali’s petitions for certiorari review.1 Because we
conclude that a separate provision of the engagement agreement authorized the award
of the disputed post-settlement collection costs, we affirm the award of these costs to
Johnson, albeit on different grounds.
I. Facts and Procedural History
¶5 Brothers Khalil Laleh and Ali Laleh each own multiple small businesses—
primarily convenience stores and gas stations. For years, the brothers commingled
hundreds of thousands of dollars between themselves and their businesses and kept
few financial records of these dealings. In 2012, Khalil brought an action against Ali in
county court for forcible entry and detainer alleging that Ali failed to pay rent on a
leased commercial space. After Ali responded with counterclaims that sought sums
1 We granted certiorari to review the following reframed issue:
Whether the court of appeals erred in affirming the trial court’s order
directing the parties to pay for collection-related costs and fees incurred
by a court appointed expert and special master after the case was
dismissed.
4
exceeding the county court jurisdictional limit, the case was removed to the Jefferson
County District Court (“the trial court”).
¶6 By the time the court barred the parties from filing further claims, the
contentious case had expanded to involve at least thirteen claims, nine parties, and six
attorneys. Seven of these claims concerned the brothers’ commingled funds. The trial
court issued several orders to organize the parties’ claims and to preclude further “sue
first, ask questions later” claims.2 After requesting suggested names from the parties,
the trial court appointed Gary Johnson as an accounting expert “to untangle the parties’
finances” and ordered that Khalil and Ali each pay one-half of Johnson’s fees.
¶7 Each brother signed an engagement agreement with Gary C. Johnson and
Associates, LLC, setting forth the scope of Johnson’s services and the brothers’
obligation for payment. Relevant here, the agreement provided that Johnson would
“continue as expeditiously as possible until [Johnson] completed [his] services, or [has]
been instructed by [the brothers] to discontinue.” Next, the brothers agreed they were
“jointly and severally responsible for the timely and complete payment of all fees and
expenses of [Johnson]” (the “Fees” provision). (Emphasis added.) The brothers also
agreed to pay Johnson’s “reasonable out-of-pocket expenses.” The agreement provided
2 The trial court expressed its frustration with this litigation in several of its orders,
noting that “the manner in which the parties have conducted this litigation . . . will
result in a modern day Jarndyce v. Jarndyce in which the court system itself will be
subject to embarrassment and ridicule”; that the case had “rapidly spun out of control”
and the pleadings were “impossible to follow”; and that, “never, in the hundreds of
civil cases which this court has handled over its years on the bench, has the court found
it necessary to draft orders such as these.”
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that periodic invoices would be issued to the brothers, and that the brothers were
required to communicate any disagreement with an invoice in writing within thirty
days of the invoice date. Finally, under the paragraph titled “Governing Law and
Jurisdiction,” the agreement provided that, “[t]he prevailing party in any dispute is
entitled to an award of reasonable attorney fees, costs and expenses.”3
¶8 Soon after Johnson began work in late September 2013, he had difficulty
obtaining requested information from the brothers’ former counsel. In December 2013,
without objection from the brothers, the court appointed Johnson as a special master
under C.R.C.P. 53 to authorize him to obtain the requested information.
¶9 Johnson continued to encounter significant resistance from the brothers, their
counsel, and other witnesses. He ultimately retained his own counsel to assist his
investigatory efforts and informed the brothers’ counsel that he had done so. The
brothers did not object. Johnson began billing the brothers for the cost of his counsel in
January 2014, and the brothers paid subsequent invoices without protest.
¶10 On February 7, 2014, the brothers settled the case and directed Johnson to stop
his work. The court granted the brothers’ joint request to dismiss all claims on February
24, 2014. When Johnson ceased his work in early February, he had reviewed more than
12,000 pages of material and his report was 120 pages long. The trial court later noted
that it was clear that the resolution of the brothers’ claims “was attributable to the work
3Neither the parties nor the courts below noted this provision, as we discuss in the
analysis below.
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of Mr. Johnson, who no doubt was able to make sense . . . of the parties’ financial
dealings.”
¶11 Several weeks after the brothers had reached a settlement, Johnson notified the
trial court that the brothers were refusing to pay Johnson approximately $74,000 in
outstanding fees. The trial court issued an order to show cause why judgment should
not enter against the brothers for Johnson’s unpaid fees. For the first time, the brothers
objected to Johnson’s fees and itemized expenses as unreasonable.
¶12 Following an evidentiary hearing on the reasonableness of Johnson’s fees, the
trial court issued an order dated September 2, 2014, directing the brothers to pay all of
Johnson’s fees. The court rejected the brothers’ challenge to fees incurred after February
7, when they reached a settlement. It reasoned that Johnson’s post-settlement fees
represented the costs of collecting his past-due fees from the brothers and the costs of
preparing for the evidentiary hearing. The trial court concluded that these post-
settlement fees were encompassed in the “all fees and expenses” language in the Fees
provision of the agreement. The trial court also rejected the brothers’ objection to
paying for Johnson’s legal fees, reasoning that “it was necessary for Mr. Johnson to
retain counsel to complete the task required of him” and that his legal fees were thus
also encompassed in the Fees provision of the agreement. Finally, the trial court
rejected the brothers’ contention that Johnson’s subsequent appointment as special
master changed his contractual relationship with them. After requesting a final billing
from Johnson, the trial court entered judgment in favor of Johnson on September 16,
2014, in the amount of $114,411.14, jointly and severally against Khalil and Ali.
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¶13 The brothers appealed the trial court’s judgment granting all fees and costs to
Johnson. At oral argument before the court of appeals, the brothers conceded that the
pre-settlement fees—approximately $74,000 due at the time of their settlement—
remained unpaid.
¶14 In a published decision, the court of appeals affirmed in relevant part.4 Laleh v.
Johnson, 2016 COA 4, ___ P.3d ___. The panel held unanimously that the brothers
waived any objection to Johnson’s attorney fees for pre-settlement work performed by
his counsel, reasoning that the brothers “did not timely challenge Johnson’s hiring of a
lawyer” and previously paid at least some invoices that included items for Johnson’s
attorney fees. Id. at ¶¶ 19–21.
¶15 Turning to the trial court’s award of post-settlement fees and costs, the panel
majority disagreed with the trial court that the “all fees and expenses” language in the
Fees provision of the agreement applied to costs that Johnson incurred post-settlement
in attempting to collect his past-due fees. Id. at ¶¶ 24–25. The majority concluded that
the agreement was silent with respect to collection costs. Id. at ¶¶ 25, 27. The majority
nonetheless concluded that the trial court acted within its inherent authority to award
such costs. Id. at ¶¶ 28–33. The majority acknowledged that it had found no case in
4 The court of appeals also concluded that the trial court violated C.R.C.P. 121, § 1-16,
when it granted Johnson’s proposed order on fees and costs on September 16, only
three days after the proposed order was filed and served on the brothers. Laleh, ¶¶ 9–
11; see C.R.C.P. 121, § 1-16 (granting a party seven days to object to a proposed order).
The court of appeals therefore vacated the trial court’s September 16 order and
remanded for consideration of the brothers’ objections to Johnson’s proposed order.
Laleh, ¶ 11. This aspect of the court of appeals’ ruling is not before this court.
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Colorado that explicitly allows a court, “as a valid exercise of its inherent powers, to
award costs incurred in the collection of fees of a court-appointed expert or special
master.” Id. at ¶ 31. The majority nevertheless reasoned that the trial court’s award of
post-settlement collection costs was “an order which serve[d] to give effect to the trial
court’s earlier order that the fees be paid” and was thus “within the trial court’s
inherent authority to administer justice and to make its actions effective.” Id.
¶16 Judge Webb dissented on this point, arguing that the inherent authority doctrine
should not be applied for the first time on appeal to affirm the trial court’s order that
the brothers pay Johnson’s post-settlement costs. Id. at ¶ 59 (Webb, J., concurring in
part and dissenting in part). Judge Webb observed that “the exercise of inherent power
is a matter of discretion,” id. at ¶ 70, and noted that the trial court did not mention the
doctrine, nor did Johnson rely on it below, id. at ¶ 69. Judge Webb reasoned that it was
not possible to know whether the trial court would have exercised its inherent authority
had it concluded that the agreement did not address collection costs. Id. at ¶ 70.
Recognizing that the case ordinarily should be remanded under such circumstances for
the trial court to exercise its discretion, id. at ¶ 71, Judge Webb nevertheless concluded
that remand here would be futile because he agreed with the panel majority that the
agreement did not authorize collection costs. Id. at ¶¶ 72–74. He therefore would have
reversed the trial court’s order as “an unlawful modification of a valid contract.” Id. at
¶ 75.
¶17 Khalil and Ali both petitioned for certiorari review.
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II. Standard of Review
¶18 The decision to award an expert witness’s or a master’s costs is within the trial
court’s sound discretion. See CRE 706(a); Am. Water Dev., Inc. v. City of Alamosa, 874
P.2d 352, 389 (Colo. 1994) (holding that the trial court did not abuse its discretion by
awarding expert witness fees); C.R.C.P. 53(a); Rasheed v. Mubarak, 695 P.2d 754, 759
(Colo. App. 1984) (“With respect to . . . the trial court’s assessment of masters’ costs, we
find no abuse of discretion.”). A trial court’s award of costs for an expert or a master
will not be disturbed on appeal absent clear abuse of discretion. See Trinity Universal
Ins. Co. v. Streza, 8 P.3d 613, 619 (Colo. App. 2000). The interpretation of a contract,
however, is a question of law we review de novo. Fed. Deposit Ins. Corp. v. Fisher,
2013 CO 5, ¶ 9, 292 P.3d 934, 937.
III. Analysis
A. Experts and Special Masters
¶19 CRE 706(a) permits a trial court to appoint expert witnesses “agreed upon by the
parties” or “of its own selection.” Court-appointed expert witnesses are “entitled to
reasonable compensation in whatever sum the court may allow,” and in civil actions,
“the compensation shall be paid by the parties in such proportion and at such time as
the court directs.” CRE 706(b).
¶20 C.R.C.P. 53(a) authorizes a trial court to appoint a special master. A master has
broad authority to “regulate all proceedings in every hearing before the master and to
do all acts and take all measures necessary or proper for the efficient performance” of
his duties, including requiring the production of evidence and calling and examining
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witnesses and the parties under oath. C.R.C.P. 53(c). The master’s compensation “shall
be fixed by the court, and may be charged upon such of the parties.” C.R.C.P. 53(a).
B. The Inherent Authority Doctrine
¶21 Courts have certain inherent powers to carry out their duties, including:
[A]ll powers reasonably required to enable a court to perform efficiently
its judicial functions, to protect its dignity, independence, and integrity,
and to make its lawful actions effective. These powers are inherent in the
sense that they exist because the court exists; the court is, therefore it has
the powers reasonably required to act as an efficient court.
Pena v. Dist. Court, 681 P.2d 953, 956 (Colo. 1984) (emphasis in original) (quoting Jim
Carrigan, Inherent Powers and Finance, Trial, Nov.–Dec. 1971, at 22); see also Kort v.
Hufnagel, 729 P.2d 370, 373 (Colo. 1986). However, the inherent power of courts is not
unlimited, and courts must proceed “cautiously” when invoking the inherent authority
doctrine. Pena, 681 P.2d at 957. “The need which causes a court to invoke such powers
must be reasonably necessary for its proper functioning, and this determination is
subject to appellate review.” Id.
¶22 Khalil argues that the inherent authority doctrine does not authorize an award of
post-settlement collection fees for a court-appointed expert or special master. He
contends that a court’s inherent authority is limited to protecting the court’s “core
functions” and asserts that Johnson’s “collection fees and costs implicate . . . none of [a
court’s] core functions.” Khalil also argues that once a case has been dismissed, a
court’s inherent authority is limited to imposing sanctions for bad-faith behavior, which
he contends is not at issue here. Alternatively, Khalil adopts Judge Webb’s argument
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that the panel majority erred in invoking the inherent authority doctrine for the first
time on appeal.5
¶23 Ali joins in Khalil’s arguments, and further contends that the contract’s Fees
provision “expressly disallows” Johnson’s award of post-settlement collection costs. He
argues that the meaning of “fees” is limited by what the contract defines as “services”
and that Johnson’s “services” ended when the brothers notified him of their settlement
agreement on February 7, 2014.
¶24 We conclude that we need not address these arguments and, more generally, the
inherent authority doctrine. Rather, we affirm the trial court’s award of post-settlement
collection costs to Johnson on other grounds. See People v. Aarness, 150 P.3d 1271, 1277
(Colo. 2006) (this court may affirm the trial court’s judgment “on any ground supported
by the record, whether relied upon or even considered by the trial court.”); cf. Farmers
Grp., Inc. v. Williams, 805 P.2d 419, 428 (Colo. 1991) (trial court’s judgment may be
defended on any ground supported by the record, so long as the party’s rights are not
increased under the judgment).
5 Khalil also argues that the trial court intended for Khalil and Ali to each be responsible
for one-half of Johnson’s fees and costs and that the court of appeals erred in holding
that the trial court had discretion to impose joint and several liability on the brothers.
See Laleh, ¶¶ 44–45. We agree with Johnson that this issue is not properly before this
court. Neither Khalil nor Ali challenged the court’s imposition of joint and several
liability in their petitions for certiorari review, and we did not grant certiorari to review
the imposition of joint and several liability here. See Mercantile Adjustment Bureau,
L.L.C. v. Flood, 2012 CO 38, ¶ 27 n.8, 278 P.3d 348, 357 n.8 (“We did not grant certiorari
to review the reasonableness of the attorneys’ fees and statutory damages awarded by
the court to Flood. Therefore, it is not properly before us for consideration.”).
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¶25 We hold that the court of appeals erred in reaching the inherent authority
doctrine because it was not necessary to do so. See Laleh, ¶¶ 22–33. As we explain
next, a separate provision of the engagement agreement authorized the trial court’s
order requiring the Laleh brothers to pay Johnson’s disputed post-settlement collection
costs.
C. The Contract’s “Governing Law and Jurisdiction” Provision
¶26 Although the trial court based its order exclusively on the “all fees and expenses”
language in the Fees provision of the engagement agreement, we instead conclude that
the language in the “Governing Law and Jurisdiction” section of the agreement
authorized the trial court to order the brothers to pay the disputed post-settlement
collection costs.
¶27 Under the paragraph titled “Governing Law and Jurisdiction,” the agreement
provides that “[t]he prevailing party in any dispute [between Johnson and the brothers]
is entitled to an award of reasonable attorney fees, costs and expenses.” Johnson’s
recovery of his post-settlement collection costs satisfies each component of this
provision.
¶28 First, the issue here is undoubtedly a “dispute” between Johnson and the
brothers. Although the underlying litigation was between Khalil and Ali, the issue
before us arose when Johnson sought the trial court’s help in collecting his outstanding
fees and costs from the brothers. In response, the brothers challenged the
reasonableness of Johnson’s outstanding fees.
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¶29 Second, Johnson is the “prevailing party” in this dispute. In its September 2,
2014 order, the trial court ruled that the brothers were responsible for Johnson’s fees
and costs up to and including the evidentiary hearing and ordered the brothers to pay
those sums. The trial court found credible Johnson’s testimony that he was, “in large
part, responsible for the resolution of the parties’ claims against one another” and
concluded that Johnson “met his burden of establishing that his hourly rates and the
hours expended on the parties’ case were reasonable.” The court rejected all of the
brothers’ challenges to Johnson’s claims for his fees and costs.
¶30 Third, Johnson’s post-settlement fees and collection costs were “fees, costs and
expenses” covered by the language in the “Governing Law and Jurisdiction” provision
of the agreement. As the trial court explained, the fees and costs incurred after the
brothers settled their dispute “were incurred for the purpose of collecting the sums
which were due for work which had been performed prior to February 7.” It follows
that the time Johnson spent attempting to collect his outstanding fees, including
preparing for the evidentiary hearing, constituted “costs and expenses” incurred in
litigating his dispute with the brothers. Similarly, we conclude that Johnson’s legal fees
constituted “reasonable attorney fees, costs and expenses” incurred as a result of his
post-settlement dispute with the brothers. Therefore, Johnson’s post-settlement legal
fees were also encompassed by the “Governing Law and Jurisdiction” provision.
¶31 In sum, we hold that the language in the “Governing Law and Jurisdiction”
provision of the agreement authorized the trial court to order the brothers to pay the
disputed post-settlement collection costs at issue here.
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III. Conclusion
¶32 For the foregoing reasons, we conclude that the engagement agreement
authorized the trial court’s order requiring the Laleh brothers to pay Johnson’s disputed
post-settlement collection costs. We therefore affirm the judgment of the court of
appeals, albeit on different grounds, and remand the case to that court for further
proceedings consistent with this opinion.
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