CALIFORNIA ATTORNEY'S FEES

Minors: General Reasonableness Factors, Not 25% Superseded Local Rule Formula, Governed Minor’s Compromise Attorney’s Fees Proceeding

 

Appellate Court Not Bound By MICRA “Caps” and Remanded, With a Reminder That Courts Will Protect Minors.

     Here is an interesting decision in a minor’s compromise fee dispute brought by the minor’s attorney claiming that he should be awarded more fees.

     In a thoughtful decision by Presiding Justice Mallano on behalf of the Second District, Division 1, the fee award was reversed in Gonzalez v. Chen, Case No. B227444 (2d Dist., Div. 1 July 21, 2011) (certified for publication), but with a good reminder to all practitioners that appellate (as well as trial) courts do believe they have a duty to protect minors in these types of disputes.

     Minor’s attorney basically appealed a fee award in a minor’s compromise settlement in a medical malpractice action. The settlement was for $200,000, involving a 2 (or younger) minor that had a shoulder injury that was going to be chronic in nature. Attorney apparently was mad because he was only awarded $50,000 in fees rather than $61,666 in fees. Attorney wanted the full contingency amount owed under his agreement and MICRA, while the trial court applied a local court rule allowing 25% of the settlement recovery ($50,000 rather than the $61,666 contingency recovery).

     The appellate court did reverse and remand because CRC 7.955(d) mandated a more nuanced “reasonable fee” approach, gauging numerous factors rather than a formulaic 25% approach. However, Justice Mallano and his colleagues rejected the MICRA argument, determining it put a cap on fees but did not contain any guarantee to the successful contingency attorney.

     The appellate court did indicate that because fees in minor compromise cases come out of the minor’s recovery, courts must be especially vigilant to look out for the minor. It was concerned that there was a conflict of interest here, because the attorney wanting more fees may not having explained the appeal to the minor’s guardian before the appeal was undertaken by the attorney.

     Although no outcome was presaged, the matter was remanded to apply the CRC 7.955 factors--although we would surmise that the conflict issue and judicial watchdog concerns might an interesting remand make.

Judgment Enforcement/Minors: Defense Costs From Minor Dismissing Case Should Not Be Imposed Against Guardian Ad Litem

Court of Appeal Issued Mandate Quashing Judgment Debtor Exam Proceeding Against Guardian.

     In Beasley v. Superior Court, Case No. D057308 (4th Dist., Div. 1 Dec. 10, 2010) (unpublished), a minor, through a grandmother who was appointed as guardian ad litem, had costs assessed against her in a case after it was voluntarily dismissed. The defense then sought to take a judgment debtor examination of guardian, personally, in order to see if there were assets to satisfy the $12,120.60 costs award.

     The Court of Appeal issued mandate, finding that the judgment debtor exam should be quashed. Reason? Guardian ad litem only serves in a representative capacity, and should not be liable for costs unless guardian was guilty of mismanagement or fraud--circumstances not even remotely in play.

Attorney’s Liens In Minor Compromise Cases And Attorney Withdrawal: First District, Division 1 Tackles Some Interesting Issues

Finds Attorney’s Lien Dispute Can Be Resolved in Minor Compromise Case and Analyzes Permissive Withdrawal Circumstances That Will or Will Not Give Rise to Quantum Meruit Recovery.

     Here is an unpublished decision that faced some gnarly issues regarding jurisdictional and quantum meruit recovery issues in an attorney’s lien situation where an attorney obtained a mandatory withdrawal in a contingency case. Interestingly enough, the appellate court disagreed with the trial court’s assessment, finding the withdrawal was permissive and was not of a species that should allow for quantum meruit recovery—reversing a lower court’s order requiring satisfaction of the lien out of settlement proceeds.

     In Noskevich v. Eden Medical Center, Case No. A125152 (1^st Dist., Div. 1 Mar. 3, 2010) (unpublished), the lower court granted a lien to plaintiff minor’s (represented by her mother/guardian ad litem’s) former attorneys in the amount of $23,061.77, payable out of the minor compromise settlement proceeds. The Court of Appeal reversed the orders enforcing payment of the lien.

Minors/Disabled Adult’s Compromise: Settlement During Appeal Has Its Own Settlement Procedures

Recent Fourth District, Division Two Decision Shows How California Rule of Court 8.244(d) Works In Practice.

            California Rules of Court, rule 8.244(d) provides:  “If a guardian or conservator seeks approval of a proposed compromise of a pending appeal, the Court of Appeal may, before ruling on the compromise, direct the trial court to determine whether the compromise is in the minor’s or the conservatee’s best interests and to report its findings.”  The next case we discuss illustrates the operation of this provision in “real time” and also demonstrates that cases can be settled even though the cause has been submitted to the appellate court for a ruling.

            In Sulzmann v. Colton Joint Unified Sch. Dist., Case No. E040853 (4^th Dist., Div. 2 Sept. 16, 2008) (unpublished), a disabled high school student, through her guardian ad litem, sued School District defendants for negligence in failing to perform certain life-saving measures after she collapsed on campus.  As a result, disabled adult suffered brain damage and lived in a vegetative state.  The trial court granted summary judgment to all defendants, and plaintiff appealed.  The Fourth District, Division Two issued a tentative appellate decision, prior to argument, affirming as to some defendants and reversing as to others—with the tentative reversal encompassing the School District.  (The Fourth District, Division Two is the only appellate division in the state to actually issue tentative decisions to the parties before argument.)  After issuance of the tentative opinion, the parties reached a settlement and asked that the appeal be dismissed. 

            The Court of Appeal, on its own motion, directed the superior court to conduct a hearing and make findings that the settlement was in the best interests of the plaintiff under rule 8.244(d).  The superior court found the settlement to be fair, and the appellate panel agreed.  The School District agreed to pay $1.3 million.  From that amount, there were deductions of $184,825 in unpaid medical charges/liens and $411,220 in unpaid attorney’s fees/expenses, leaving a remainder of $703,955—which would be used to purchase a $500,000 annuity, pay for future additional expenditures, and set up a $141,203 special needs trust. 

            Based on the fairness of the settlement, the Court of Appeal reversed the judgment under Code of Civil Procedure section 128(a)(8) as to School District and dismissed the appeal as to the remaining defendants.

            In our August 8, 2008 post, we discussed minor’s compromises and certain fee award guidelines.  This case illustrates that fees exceeding 25% of the gross settlement proceeds will be approved in certain situations.   The fee awarded in Sulzmann was about 31.6%, reflecting the hard fought nature of the overall litigation and plaintiff’s pending appellate win against a governmental entity.   

Conflicting Attorneys’ Claims In Minor’s Compromise Proceedings: Appellate Split Of Opinion On Whether Trial Court Can Determine in Probate Code Section 3601 Proceeding Or Recourse Must Be Had In A Separate Action

Part 2 of 2—Fourth District Divisions Are Split on the Issue.

            In Part 1 of 2 of our discussion on minor’s compromise (see August 10, 2008 post), we explored the statutory grant in Probate Code section 3601 regarding approval of attorney’s fees in minor’s compromise proceedings, augmented by a look at certain superior court local rules and unpublished appellate decisions construing some of the local rules.  Now, we explore the second topic flagged in our August 10, 2008 post.

            Frequently in minor’s compromise cases, there are successive or multiple attorneys involved depending on the progress of reaching a resolution or the difficulty of the personal injury issues.  Once a settlement is reached, there can be disagreements between the attorneys and minor’s guardian ad litem about what percentage of fees should be recovered by each attorney.  Can these disputes be resolved in the Probate Code section 3601 proceeding or must an independent action be commenced to break the impasse?  We explore the jurisprudence on this particular question, although the reality is that there is a split of appellate thinking on the answer to the inquiry.

            In Goldberg v. Superior Court, 23 Cal.App.4^th 1378, 1382 (1994), the Fourth District, Division One issued mandate vacating a lower court’s determination about the reasonable value of a chiropractor’s fees in a minor’s compromise case in a section 3601 proceeding.  Division One interpreted section 3601 as allowing the trial court to determine and authorize payment of reasonable expenses to the chiropractor, but that the court did not have jurisdiction to determine the reasonable value of the practitioner’s services—this had to be determined in a separate action. 

            Goldberg was followed one year later in Law Offices of Stanley J. Bell v. Shine, Browne & Diamond, 36 Cal.App.4^th 1011, 1020-1021 (1995).  Bell did involve a dispute between successive attorneys and client over how their respective fees would be divided from the ultimate settlement fund.  The Court of Appeal found that a probate court in a section 3601 proceeding did not have jurisdiction over any fee dispute between two attorneys quarreling over the division of the fee or over any dispute between guardian ad litem and an attorney about what fees were reasonably awarded. 

            The Fourth District, Division Two, in Curtis v. Fagan, 82 Cal.App.4^th 270, 276-280 (2000), parted company from the approach adopted in Goldberg and Bell.  In a comprehensive survey of section 3601 and earlier decisions, Acting Presiding Justice Hollenhorst (on behalf of a 3-0 panel) determined the earlier decisions had ignored the unambiguous language of section 3601, a provision that allowed expressly for the determination of competing liens for reimbursement of expenses, costs or fees.  “When presented with claims by more than one attorney in [a section 3601] action, each contending that he or she provided services at the direction of the minor’s guardian, the trial court must decide the validity of each claim.  In doing so, it may consider the evidence presented and determine a reasonable amount to be paid to each attorney.  The attorneys are not required to file an independent action against the minor’s guardian in order to obtain such determination.  To require the filing of such independent action misinterprets the language in section 3601, subdivision (a), and leads to an absurd result.  That is precisely what Goldberg and Bell did, and why we decline to follow those opinions.”  (Id. at 279.)

            The Fourth District, Division Three weighed in on this appellate split, a little more than a year later, in Padilla v. McClellan, 93 Cal.App.4^th 1100 (2001).  There, a second attorney who helped consummate the settlement in a minor’s compromise proceeding was disappointed when the trial court awarded second attorney 30% of the fees versus 70% of the fees to the first attorney saddled with a substantial amount of early work and discovery in the litigation that eventually produced the settlement.  Second attorney appealed as an objector, arguing the lower court lacked jurisdiction under section 3601 to make the rulings that it did.  Confronting the split in thinking on the issue between Curtis and the Goldberg/Bell line of cases, Justice Rylaarsdam—the author for a 3-0 panel of Division 3—concurred with the holding in Curtis, “finding it well-reasoned and more persuasive thanBell and its antecedents.  For that reason, we decline to follow those earlier decisions.  The court had jurisdiction to determine the allocation of fees between claimant [first attorney] and objector [second attorney].”  (Id. at 1106.)  The trial court in Padilla had conducted an evidentiary hearing, and Division 3 found it was unnecessary to conduct a full-blown trial given that lower courts determine the reasonableness of fees every day by ruling on motions.  “On the other hand, filing a separate action potentially engages the minor and the guardian in another lawsuit, delays resolution of the issue, and wastes everyone’s resources.”  (Id. at 1107.) 

            BLOG BONUS COVERAGE—The Curtis court, however, did reverse the fee award because the claiming attorney did not apportion his work between a fellow car passenger and the injured minor. The appellate court remanded for an apportionment of the joint work to each client.  (Curtis, supra, 82 Cal.App.4^th at 280.)  This result is in harmony with Fresno County Superior Court Local Rule 2.8.4.D, which requires that injured parents claiming reimbursement of medical and other expenses must pay their proportionate share of attorney’s fees (separate from the minor) except in cases of hardship. 

Award Of Attorney’s Fee In Minor’s Compromises—Probate Code Section 3601 Is The Standard, But Know Your Own Local Superior Court Rule

Trial Courts Possess Discretion to Raise or Lower 25% Fee Award Benchmark; Local Rules Determine Whether Awards Are Based on Gross or Net Settlement Proceeds.

            The nice aspect to blogging is receiving reader questions about fee award issues in different practice areas.  Recently, we received one about award of fees in minor’s compromise proceedings.  That question has inspired a two-part post.  Part 1, which follows, concerns the general standards governing fee awards in minor’s compromises.  Part 2, which will follow on another day, explores whether the issue of reasonableness of attorney’s fees (or, for that matter, expenses by outsiders like physicians) is determined in the section 3601 proceeding or needs to be litigated in a separate action.

            For now, here is Part 1 on the general standards governing fee awards in this practice area.

            Under the American Rule, one usually looks for a contract or statute on which to base fee entitlement.  In this area, a statute is involved.  Probate Code section 3601(a) is the operative one, providing the trial court “shall make a further order authorizing and directing that reasonable expenses, medical or otherwise and including reimbursement to a parent, guardian, or conservator, costs, and attorney’s fees, as the court shall approve and allow therein, shall be paid from the money or other property to be paid or delivered for the benefit of the minor ….”  California Rules of Court, rule 7.955 states that the lower court must use a reasonable fee standard in section 3601 proceedings and has discretion to approve as well as allow fees under a contingency fee agreement if the arrangement is made in accordance with law (e.g., Bus & Prof. Code sec. 6146; Fam. Code sec. 6602) and is reasonable “under all the facts and circumstances.”

However, many local superior court rules provide more quantitative and qualitative clarity to the decision making process.  Many rules, for example, indicate that the lower court should in ordinary cases use as a guideline an attorney’s fees award in the amount of 25% of the net settlement amount (with “net settlement” being defined various ways, but usually meaning deduction of (1) all costs from the gross settlement amount, or (2) reimbursable medical and legal costs).  According to many local rules, any award over 25% is considered extraordinary and must be supported by a strong showing of reasonableness or substantial justification.  Many of the local rules indicate the lower court should consider the factors stated in Niederer v. Ferreira, 189 Cal.App.3d 1485, 1507 (1989), which include the nature of the litigation and its difficulty; the amount of money involved; the skill required and employed in handling the litigation; the attention given to the case; the attorney’s success, learning, age and experience in the particular type of work demanded; the intricacy and importance of the litigation; the labor and necessity for skilled legal training and ability in trying the case; and the amount of time spent on the case.  Some rules also cite similar factors set out in 1 Witkin, Cal. Procedure, sec. 226, p. 286.  See, e.g., El Dorado County Local Rule 7.10.13; Marin County Local Rule 1.11.B; former Yolo County Local Rule 8.3(d).  Other local rules simply indicate reasonableness is in the trial court’s discretion, citing CRC, rule 7.955.  E.g., Fresno County Local Rule 2.8.4.D.   Many former rules having the 25% benchmark have been repealed.

Two unpublished cases are helpful in showing how section 3601 and local rules interact and are construed by appellate courts.

In Smart v. Andersson, 2003 WL 21977068 (2d Dist., Div. 6 Aug. 12, 2003) (unpublished), Attorney pursued a chiropractic malpractice action on behalf of a minor under a contingency agreement that adhered to the Medical Injury Compensation Reform Act (MICRA) sliding scale schedule in effect at the time (i.e., 40% of the first $50,000 of any recovery and 33 1/3% of the next $50,000).  Mother accepted a $100,000 settlement on daughter’s behalf and attorney filed a petition to approve the compromise under which he sought recovery of 25% of the minor’s recovery under a former local rule which provided that such fees should not exceed 25% of the settlement amount absent unusual circumstances. The trial court only approved a 15% fee award from the gross settlement amount.  The Second District, Division Six affirmed on appeal.  Attorney’s principal argument was that the 25% benchmark should have been followed.  This contention was rejected, with the appellate court observing:  “This limitation does not mean, as [Attorney] contends, that an attorney is presumptively entitled to a 25 percent fee without a showing of good cause.  Although the parties entered a contingency fee agreement providing that [Attorney] was entitled to more than 25 percent, the court was not bound by that agreement in determining the reasonable fees to be awarded.”  (2003 WL 21977068 at *3.)

            A challenge to a fee award under El Dorado County Local Rule 7.10.13—still in existence and fairly closely following the older rule under consideration in the decision next reviewed—was rebuffed in In re Hernandez, 2007 WL 842126 (3d Dist. Mar. 21, 2007) (unpublished).  Local Rule 7.10.13 has the 25% benchmark for ordinary cases, cited Niederer as setting forth factors to use in setting a fee award, indicated the “net settlement” amount meant amount remaining after all costs are deducted from the gross settlement amount, and indicated that a separate declaration needed to be filed demonstrating facts warranting an extraordinary fee request.  The local rule also reiterated that “[i]n all cases, the award of an attorney’s fees remains in the sole discretion of the Court.”  Attorney argued that the lower court, which followed the local rule, should not have deducted the minor’s medical bills before calculating the 25% interest to which he was entitled.  Attorney fine tuned his argument by contending the local rule was in conflict with section 3601.  The Third District did not find these arguments persuasive and affirmed the fee award below.  Because section 3601 only had general language, “[n]othing in this section indicates that a trial court cannot calculate attorney fees as a percentage of the net amount to be paid to the minor after deductions have been made for expenses and costs.”  (2007 WL 842126 at *2.)  Similarly, the appellate panel found that the local rule was consonant with governing law, because the Niederer factors were identical to the ones set out in PLCM Group, Inc. v. Drexler, 22 Cal.4^th 1084, 1096 (2000) for determining an award of reasonable attorney’s fees.  The local rule also did not mandate any particular amount; it merely indicated 25% was the benchmark in the ordinary case and that its “net settlement” definition was the general one to be used—however, it did state that the lower court possessed broad discretion in rendering the fee award, including a deviance from the benchmark and net settlement definition in the right circumstances.  Attorney in Hernandez failed to file a declaration justifying a higher fee, an omission that made it easy to find no abuse of discretion with respect to the fee award under review. 

            However, it does appear that trial courts usually have some general “rules of thumb” that they follow, with many fee requests over 25% needing to be justified by a declaration showing the case was extraordinary or difficult in nature (using the Niederer/PLCM factors as bases for a higher fee award.)