Appellate Court Also Reversed and Remanded Fee Award Against Attorney in Light of Disgorgement Reversal.
This next case, Fleischman v. Stanton, Case No. B216898 (2d Dist., Div. 8 Nov. 19, 2013) (unpublished), is a wild one involving an ex-attorney whose retainer agreement was voided as well as having the trial judge ordering him to disgorge $400,755.00 to ex-client with interest in the amount of $318,043.97, plus an attorney fee award based on a contractual fees clause in favor of ex-client and against attorney to the the tune of $688,624. If our math is correct, ex-attorney faced a whopping $1.4 million (actually, a little more) in exposure.
Ex-attorney likely was thankful for the appeals process. Hang on and we will tell you why, but first we do discuss some retainer agreement provisions which the reviewing court agreed were unlawful in nature--although they did not figure in the ultimate decision, because ex-attorney was not attempting to enforce them in the appellate court’s opinion.
The first offensive provision specified that if client terminated attorney, then attorney’s discounted hourly rate was history such that the normal hourly rate before discharge was the measuring stick for a contractually-based fee award. The second infirm provision in a hybrid/contingency fee arrangement indicated that if client chose not to settle, then client had to pay hourly fees, but with an important exception--a bad faith termination of services to avoid paying the contingent fee resulted in attorney’s entitlement to the greater of the hourly rate payable under the agreement or compensation for services rendered at two times the attorney’s hourly rates. The appellate court agreed these provisions were unenforceable, but did not have to directly confront the issue because attorney did not try to give bite to these clauses.
However, the Fleischman court was bothered by the disgorgement, a forfeiture which it did not believe should taint the hourly fees ex-attorney collected especially given he was not attempting to enforce the unlawful provisions. In essence, it found “the penalty was too harsh for the offense.” (Don’t comment on this, sports fans!)
Well, once the disgorgement reversal occurred, it was not hard to understand that the factual underpinnings of the trial judge’s prevailing party decision in favor of ex-client had to be revisited. And, that is actually what happened--a remand to relook at the issue and determine if anyone prevailed, given that client lost some malpractice/fiduciary breach claims. However, $1.4 million went POOF!, some of it--$720,000--forever, and the remainder--$688,624 in fees--remanded for a later look-see.