## Facts

- PLCM Group, Inc. administered a professional malpractice insurance program that covered attorney David Drexler.
- The malpractice policy included a $20,000 per-claim deductible applicable to both indemnity and defense costs.
- When Drexler was sued for malpractice, defense counsel was retained and its billing was reviewed and approved by PLCM.
- Drexler paid only part of the deductible and refused to pay the remaining defense costs.
- PLCM paid the unpaid defense costs under a deductible-reimbursement provision and demanded reimbursement from Drexler, who refused.
- PLCM sued Drexler for breach of contract to recover the unpaid deductible amounts.
- Drexler cross-complained against PLCM and the insurers for breach of contract, insurance bad faith, and intentional infliction of emotional distress; the trial court granted summary judgment against Drexler on the cross-complaint.
- PLCM prevailed at trial on its contract claim and then sought contractual attorney’s fees for work performed by in-house counsel (employed by PLCM’s corporate affiliate), calculated at prevailing market rates.
- Drexler moved to tax costs, arguing in-house counsel fees were not recoverable under Civil Code § 1717 or must be limited to actual internal costs; the trial court rejected the arguments and awarded market-rate fees.
- The Court of Appeal affirmed; the Supreme Court of California granted review on whether and how § 1717 applies to in-house counsel fee claims.

## Issues

1. Whether a party represented by in-house counsel may recover attorney’s fees under California Civil Code § 1717 pursuant to a contractual fee clause.
2. If recoverable, whether “reasonable” attorney’s fees for in-house counsel should be calculated using prevailing market rates (lodestar) or limited to actual costs (salary plus overhead).

## Decision

- The Supreme Court of California affirmed the fee award.
- A party represented by in-house counsel may recover attorney’s fees under Civil Code § 1717 when authorized by contract.
- Reasonable fees for in-house counsel are generally determined using the lodestar method (reasonable hours × prevailing market rate), subject to trial-court discretion.
- The Court rejected a mandatory cost-plus approach that would cap recovery at internal salary and overhead.
- The Court distinguished cases denying fees to self-represented attorneys because an entity and its in-house counsel are separate persons in an attorney–client relationship.
- A partial concurrence/dissent agreed fees are recoverable but would have preferred cost-plus to avoid awards exceeding actual internal costs.

## Legal Principles

- Civil Code § 1717 permits recovery of contractual attorney’s fees by parties represented by in-house counsel; such parties “incur” fees by allocating salaried legal resources to the litigation.
- A self-represented attorney is not treated the same as a client represented by in-house counsel because self-representation lacks an attorney–client relationship and does not involve liability to pay for legal services.
- The lodestar method—reasonable hours multiplied by the prevailing market rate for similar services in the community—is the standard starting point for determining “reasonable attorney’s fees” under § 1717.
- Trial courts have broad discretion to set a reasonable fee award for in-house counsel and to assess evidentiary support for hours and market rates; appellate review is for abuse of discretion.
- Internal cost information may be considered as part of the reasonableness analysis but does not, by itself, impose a statutory ceiling on recoverable fees.

## Conclusion

The court held that an entity represented by in-house counsel may recover contractual attorney’s fees under Civil Code § 1717, and that the reasonable amount is generally calculated using a market-rate lodestar rather than being limited to the entity’s actual internal costs.


PLCM Grp., Inc. v. Drexler, 22 Cal. 4th 1084 (Cal. 2000)