Unreported / Non-Citable
Background
This case arose from the sale of the on-demand portion of plaintiff Catherine Kom's online fitness business to defendant SSOD Holdings, Inc. The transaction closed on June 29, 2023, with a Membership Interest Purchase Agreement requiring a $2,250,000 payment at closing and two Restated Promissory Notes: Note 1 for $382,500 at 4% interest payable in monthly installments beginning February 27, 2024, and Note 2 for $382,500 at 4% interest structured as a balloon payment due when SSOD's cumulative net profits exceeded $1,000,000. Both notes contained provisions for attorneys' fees and costs upon default.
Plaintiff alleged SSOD defaulted on its obligations under the Purchase Agreement and both notes. She filed suit on March 11, 2025, asserting eleven causes of action including breach of contract, specific performance, unjust enrichment, fraudulent misrepresentation, and concealment. Defendant Charles Smith Distelrath was added on March 18, 2025. After defendants failed to file a responsive pleading, plaintiff obtained entry of default against SSOD on June 10, 2025. Distelrath filed a bankruptcy notice on May 30, 2025, staying proceedings against him. On March 11, 2026, the court granted in part plaintiff's motion for default judgment, awarding $967,912.39 in actual damages but denying treble and punitive damages and denying attorneys' fees for insufficient documentation of hourly rates and billing statements. Plaintiff then filed the present amended motion for attorneys' fees on March 25, 2026.
The Court’s Holding
The court applied California Civil Code § 1717, which permits recovery of attorneys' fees by the prevailing party on a contract where the contract specifically provides for such fees. Because Note 1 and Note 2 expressly provided for reasonable attorneys' fees and expenses upon default, plaintiff was entitled to fees. The court employed the lodestar method, multiplying reasonable hours by reasonable hourly rates, and recognized its independent duty to scrutinize fee requests for reasonableness even in default judgment cases.
The court found plaintiff's counsel had sufficiently demonstrated that the requested hourly rates aligned with prevailing community rates for attorneys of comparable skill, experience, and reputation. Partner Brandon Neuman's rate of $550 (reduced from $795) was supported by a prior district court decision approving $595 in a similar breach of contract case. Senior associate Hannah Kays's rate of $350 (reduced from $540) was supported by her declaration of over a decade of complex business litigation experience. Partner Monica Hernandez's rate of $635 was supported by a recent district court decision approving partner rates ranging from $535.40 to $715.00. Paralegal rates of $275 for Angela Williams (20 years' experience) and Eliana Hughes (3 years' experience) were supported by a prior court approval of paralegal rates up to $290. The court awarded the full requested amounts: $39,985 for Neuman (72.7 hours), $1,206.50 for Hernandez (1.9 hours), $27,020 for Kays (77.2 hours), $2,612.50 for Williams (9.5 hours), $2,117.50 for Hughes (7.7 hours), and $1,080 in costs ($405 filing fees, $675 service fees).
Key Takeaways
- California Civil Code § 1717 allows prevailing parties to recover attorneys' fees in contract actions where the contract expressly provides for them, and promissory notes with fee-shifting provisions trigger this entitlement upon default.
- Courts have an independent duty to review fee petitions for reasonableness even in default judgment cases where no opposing party objects.
- The lodestar method requires multiplying reasonable hours by reasonable hourly rates, with rates determined by the prevailing market rate for similar work by attorneys of comparable skill, experience, and reputation.
- Declarations from counsel describing experience, reduced rates, and citations to prior court approvals of similar rates in the same district can establish a rebuttable presumption of reasonableness for hourly rates.
- Paralegal fees are recoverable at market rates when supported by evidence of experience and prior court approvals of comparable rates.
Why It Matters
This order illustrates the practical application of the lodestar method in a default judgment context, where the court must independently scrutinize fee requests without adversarial testing. The decision reinforces that fee-shifting provisions in promissory notes are enforceable under California law and that prevailing plaintiffs can recover fees for work performed by partners, associates, and paralegals when rates are properly justified. The court's reliance on prior district court rate approvals as benchmarks provides a useful reference for practitioners in the Southern District of California seeking to establish reasonable rates for similar commercial litigation matters.