Section 1717/Settlement: Couple Releasing Former Law Firm In Settlement Agreement Hit With Fee Recovery Of $230,803 In Favor Of Former Law Firm

 

Contractual Clauses in Retainer and Settlement Agreements Conferred Fee Entitlement Upon Former Law Firm.

     This next case demonstrates a couple of things—first, be careful how you draft settlement releases (because they may release inadvertent parties and give rise to fee recovery), and second, subjective intent evidence is generally not probative in parol evidence cases (although we will allow you to ferret this out if you are interested—but a great discussion of contractual ambiguity/parol evidence admissibility rules).

     What happened in Kim v. Lim, Ruger & Kim, Case Nos. B240378/B243162 (2d Dist., Div. 4 Feb. 6, 2014) (unpublished) was that husband and wife lost a malpractice action against former attorneys who were disqualified earlier because the former attorneys’ firm also represented a bank suing husband/wife on guaranties. Eventually, bank and husband/wife guarantors reached a settlement, which had broad releases also literally encompassing bank’s attorneys (namely, former attorneys against whom husband/wife had potential malpractice claims). The lower court found the releases did cover former attorneys, dismissing the malpractice action and awarding former attorneys fees of $230,803 as the prevailing parties.

     Husband/wife’s appeal did not succeed.

     The reviewing court found two bases for fee entitlement: (1) the retainer agreement between husband/wife and former attorneys because husband/wife alleged it contained a fees clause, but former attorneys defeated that it even existed; and (2) the fees clause in the guaranty action settlement because the prevailing party language in the husband/wife-bank settlement was not limited to just the named parties but also encompassed the related releasees (which included attorneys).

     The fees were reasonable, as substantiated by a detailed attorney declaration plus redacted billing records.

     BLOG EXTRA—In the parol evidence area, the reviewing court did note that the mediation negotiations were inadmissible and could not be introduced to explain the meaning of terms agreed to during the mediation. “Under [the mediation privilege], the parties cannot present extrinsic evidence concerning discussions or negotiations regarding the intent of the parties about the terms of the release clause of the agreement.” (Slip Opn., p. 11.)