CALIFORNIA ATTORNEY'S FEES

Ethics, Liens For Attorney Fees: Attorney’s Lien Had Superiority Over Surety’s Later Assignment Of Claims, Gaining Almost $1.39 Million From Settlement Proceeds

Lower Court Did Not Err In Adjudicating Lien Claim In The Underlying Action Because The Parties Stipulated To The Procedure.

               Plaintiff’s attorney in USS Cal Builders, Inc. v. San Francisco Bay Area Rapid Transit Dist., Case No. A168102 (1^st Dist., Div. 5 Sept. 20, 2024) (unpublished) had a lien on settlement proceeds which was way earlier in time than plaintiff’s assignment of claims to its surety, which intervened in the case.  Plaintiff and BART reached a $1.6 million settlement, with the parties stipulating that the lower court could adjudicate who had superiority to the settlement proceeds.  Plaintiff won that battle, being awarded almost $1.339 million. 

               Surety appealed, but it was unsuccessful.  Surety first argued that the lower court had no jurisdiction to adjudge the lien claim in the underlying action, which is the general rule but subject to an exception that the trial judge can if the parties allow him/her to—which happened based on the stipulation.  The attorney’s lien did have superiority over the general assignment, with surety even recognizing that in a pledge agreement indicating surety’s rights were subject to attorney lien claims.  An equitable subrogation argument was rejected because the attorney did no wrongdoing and was entitled to the settlement proceeds based on his lien/work on the case.  Surety argued that it had been a former client of the attorney so that there was a conflict of interest, but attorney had obtained a waiver from surety previously. 

Ethics, Retainer Agreements: Attorneys Could Not Keep Unearned Portion Of Fees In Flat Fee Retainer, While Client Could Not Force Disgorgement Of Pre-Withdrawal Fees Earned By Discharged Attorneys

Rules Of Professional Conduct And Wording Of Retainer Agreement Guided The Result.

               Both ex-attorneys and ex-client took draconian positions in a case involving what fees were owed by ex-client under a flat fee retainer agreement involving criminal and divorce proceedings.  Attorneys claimed they were entitled to the whole $350,000 retainer even though they did not complete all specified work under the retainer agreement before withdrawal from representation.  On the other side, ex-client claimed the whole $350,000 was subject to disgorgement based on $425,000 in fees he paid to replacement attorneys.  Neither side got what they wished for in Noell v. Kenner & Greenfield, Case No. B316818 (2d Dist., Div. 1 Mar. 22, 2024) (unpublished).

               The retainer agreement contained a flat fee provision, a statement of Attorneys’ hourly rates, a specification of the work to be performed by Attorneys, and a clause indicating that the agreement allowed Attorneys to receive all fees, costs and expenses for services rendered up to and including the date of dismissal.  The lower court, in a bench trial, found that ex-client had overpaid $52,750 because certain tasks were not completed by ex-attorneys, but rejected disgorgement of the entire $350,000 retainer.  However, the trial judge did not accept ex-attorneys’ claim that they could keep the entire flat retainer, reasoning that the retainer agreement allowed for payment of fees and other items rendered through the date of dismissal.  Both sides appealed.

               The 2/1 DCA affirmed, especially given the lack of a reporter’s transcript of the bench trial testimony.  Rule 1.16 of the State Bar Rules of Professional Conduct provides that upon termination for any reason, a lawyer shall refund any part of a fee or expense paid in advance that the lawyer did not earn or incur—which resolved ex-attorneys’ appeal.  On ex-client’s cross-appeal, the appellate court decided the retainer agreement allowed ex-attorneys to charge for fees and expenses before termination or dismissal and further did not make ex-attorneys responsible for future relationships with new attorneys. 

Ethics, Referral Agreements: Joint Venture Agreement Between Two Firms, Where One Firm Failed To Register As A Professional Law Corporation, Was Not Unenforceable As Against Public Policy

No Clients Were Harmed, So Enforcing The Agreement Was Fine Under The Circumstances.

               In Liberty Law Office, Inc. v. The Bloom Firm, Case Nos. A165269 et al. (1^st Dist., Div. 1 Mar. 20, 2024) (unpublished; opn. modified and rehearing denied), arbitrators, the lower court, and the appellate court all agreed that a Joint Venture Agreement (JVA) between two firms, even though The Bloom Firm did not properly register as a professional law corporation as required by statutes, was not unenforceable as against public policy.  Except in the unlicensed contractor area, not all contracts entered into by unlicensed entities are automatically void.  Here, registration was really for tax and personal liability protection for the firm, and the record showed no clients were harmed under the JVA—so there was no justification to declare the contract unenforceable under the operative facts.

Ethics, Lodestar, Multipliers: Snoeck Opinion Now Published

Message Is That Incivility Can Lead To A Negative Multiplier To A Fees Request, On Top Of Other Reductions.

            On October 3, 2023, we posted on Snoeck v. ExakTime Innovations, Case No. B321566 (2d Dist., Div. 3 Oct. 2, 2023 unpublished), but it was certified for publication on October 25, 2023.  The main lesson from this case is that appellate courts will have no trouble affirming a lodestar request reduction, aside from other deductions, separate for the incivility of the party requesting a fee award where the record supports such a reduction for incivility.

Ethics, Lodestar, Multipliers: Lower Court Properly Applied A .4 Negative Multiplier To A FEHA Fee Request Based On Plaintiff’s Counsel’s Incivility Throughout The Litigation

2/3 DCA Agreed With The Reasoning In Karton.

            More and more, we are seeing appellate opinions, whether published or not, stressing the need for civility among attorneys in litigation cases.  In fact, there are proposals being considered which would require that California attorneys, annually, have to reaffirm their oath and to confirm they will act with civility.  In Karton v. Ari Design & Construction, Inc., 61 Cal.App.5^th 734, 747 (2021), the 2/8 DCA held that incivility can allow a lower court to reduce a fee request, with it being an “incentive for counsel in fee-shifting cases to know their own low blows may return to bite them in their pocketbook.”

            Karton was followed and endorsed by the 2/3 DCA in Snoeck v. ExakTime Innovations, Case No. B321566 (2d Dist., Div. 3 Oct. 2, 2023) (unpublished).

            There, a FEHA disability discrimination plaintiff won $130,080 in damages on one out of six causes of action for defendant’s failure to engage in an interactive process.  The lower court took the lodestar request and initially made a 20% reduction for overstaffing, duplicative, and vague entries but increased the fee request by a 1.2 positive multiplier, decisions not challenged on appeal.  The lower court then applied a .40 negative multiplier to the adjusted lodestar of $1,144,659.36 based on plaintiff’s counsel’s incivility through the litigation, attacking defense counsel and belittling the court.  That resulted in an ultimate fee award of $686,795.62.  The appellate court found the reduction to be no abuse of discretion, determining that an “incivility reduction” was completely proper when the record shows (as it did to the reviewing court) that counsel engaged in incivility.  To us bloggers, this stresses an important theme in fee requests—the requesting attorney’s credibility is paramount, difficult to restore when unreasonable fee requests are presented for resolution or litigation counsel went out of bounds in his or her conduct before the lower court.

Ethics, Retainer Agreement, Special Fee Shifting Provisions: Although Fee Award Against HOA Belongs To Attorney, Attorney Had To Offset For Contingency Fee Already Received

Attorney Was Liable For Substantial Elder Abuse Fees To Prevailing Elderly Client Based On Failing To Properly Offset And Return Money To Client.

            Koehler v. Prinz, Case No. C095229 (3d Dist. Sept. 25, 2023) (unpublished) is a case which shows that attorneys need to be careful when they receive a fee award which belongs to them, discussing the fee award with the client and then agreeing on an offset for contingency fees already received.

            In this one, attorney represented an elderly client and later her son in an HOA water intrusion case, receiving a compensatory settlement from HOA/property manager from which he took an agreed contingency fee of $109,374.  Attorney successfully defeated HOA’s cross-complaint which resulted in a Davis-Stirling Act fee/costs award of $412,075.94, which he retained and used to pay personal expenses.  That brought a dispute between attorney and clients on who owned the fee award and whether a credit should have been made for the $109,374 contingency fee previously received by attorney.  The lower court agreed that the fee award belonged to the attorney, but clients were entitled to an offset for the prior contingency received by attorney.  Elderly client won her financial elder abuse claim against attorney based on these facts, with the lower court awarding her about $167,500 in fees and costs under the financial elder abuse fee-shifting provision.

            The Third District affirmed.  Based on the retainer fee language and conduct of the parties, the appellate court concluded the HOA fee award did belong to the attorney, citing analogous cases in the FEHA, private attorney general, Labor Code, and trade secrets areas.  However, it also agreed that attorney had to make a reimbursement of the prior contingency fee award already paid—which was not done, constituting an ethical violation and financial elder abuse given work on the complaint and cross-complaint were inextricably intertwined.  The wrongful retention of the entire fee award supported the financial elder abuse fee award.

Ethics: Trial Judge Properly Excluded Expert Testimony On Ethic Legal Conclusions

Application Of Law To Facts Is Not One For Experts To Opine On.

            In Timed Out LLC v. Prisma Entertainment LLC, Case No. B309791 (2d Dist., Div. 3 Mar. 16, 2023) (unpublished), a litigant opposing a fee request proffered attorney declarations opining that no fees should be awarded because the prevailing party’s attorneys violated various California ethical provisions.  The lower court sustained objections that the testimony offered legal conclusions which was the province of the lower court to decide.  The appellate court agreed.  Legal conclusions in the guise of expert opinion testimony are most always improper.  (Summer v. A.L. Gilbert Co., 69 Cal.App.4^th 1155, 1179 (1999).)

Bankruptcy Efforts, Costs, Ethics: Ninth Circuit Reiterates That Costs Associated With Attorney Disciplinary Proceedings Are Nondischargeable In A Chapter 7 Case

$61,122.27 Was The Tab.

            In Kassas v. State Bar of California, No. 21-55900 (9^th Cir. Aug. 1, 2022) (published), the Ninth Circuit reiterated that, in line with In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with a Chapter 7 debtor attorney’s disciplinary proceedings were nondischargeable under § 523(a)(7).

Ethics, Reasonableness Of Fees: 2/8 DCA Justice Wiley Suggests That Ethical Games And Unprofessionalism Will Justify A Fee Recovery Denial Or Reduction

Case Did Not Involve Fees, But His Lesson Should Be Paid Attention To.

            Although the opinion in Field v. U.S. Bank National Association, Case No. B309111 (2d Dist., Div. 8 June 9, 2022) (published) is not an attorney’s fees decision per se, an observation early on in the opinion, authored by Justice Wiley, should be paid attention to.  He notes that ethical gamesmanship and unprofessionalism can give rise to denial of an attorney’s fees request or a reduction.  He cites Karton v. Ari Design & Construction Inc., 61 Cal.App.5^th 734, 747 (2021) [discussed in our March 10, 2021 post] for that proposition, an opinion he also authored and which does support that point.

Ethics: Simultaneous Representation Of Corporation And Major Shareholder For Common Goal Not Related To Corporate Mgmt./Control May Not Be A Conflict, But A Dispute Over Corporate Mgmt. Can Create A Conflict Between The Corporation And Major Shareholder

Discussion Occurred When Corporate Attorney Sought To Collect Unpaid Fees.

            When a trial court granted and disallowed some unpaid fees by a corporate attorney representing the corporation and major shareholder, separately and together at times, the Fifth District in Cyril Lawrence, Inc. v. K.S. Aviation, Inc., Case No. F079662 (5^th Dist. Oct. 26, 2021) (unpublished) reminded us that there may not be a conflict between representing a corporation and a major shareholder, depending on the circumstances.  Where the corporation, major shareholder, and other shareholders are unified in interest in opposing a third party claim not implicating management issues, simultaneous representation of the corporation and a major shareholder will not pose a problem.  However, where there is a dispute about corporate management or control, it would be a conflict to represent both the corporation and major shareholder as against other shareholders.  (Buehler v. Sbardellati, 34 Cal.App.4^th 1527, 1540 (1995).) 

Ethics: 4/3 DCA Justice Fybel Provides Tips For Judges To Avoid Ethical Issues

OCBA ZOOM Meeting On August 5, 2021 Provides Some Nice Guidance.

            On August 5, 2021, Justice Richard Fybel provided a symposium for lawyers and judges on how California judges (and lawyers, for the matter) should ethically guide themselves, both in court and out of court, under the California Code/Canon of Ethics.  Here are the highlights:

• • • The Code of Ethics are disciplinary, not aspirational, so they are mandatory in nature for judges, with the Commission on Judicial Performance having ultimate authority on most issues with respect to judges.
    • California has not adopted the ABA Model Code on ethics, so it is not dispositive but might be persuasive in some areas.
    • Justice Fybel held up the “California Judicial Conduct Handbook,” which should be consulted by all judges as far as conduct and performance are concerned.
    • He indicated what he considered mandatory and ancillary rules on judicial decision-making—honesty and integrity in decision-making; follow the rule of law; explain an opinion with detailed reasoning (not saying “we disagree” without specifying why); and judges/justices having accountability for their decisions.
    • Here are tips for both trial and appellate attorneys:  do not engage in ex parte communications, because cases should be decided on the record; avoid social media interactions; do not accept gifts by a party or a counsel to a party with very limited exceptions; judges can endorse or oppose judicial races, but not non-judicial races; if a judge’s decision is contested, that judge can respond in a way so as to not affect the ultimate outcome (“fair administration of the case”), but a defense is now allowed—judges can prudently respond; and judges have discretion to report attorneys to the State Bar or criticize them, less than reporting to the Bar. 

Ethics, Interest, Reasonableness Of Fees, Retainer Agreements: Where Fee Agreement Is Compliant/Enforceable Under B&P § 6148, Unconscionability Factor Guides Contractual Fees Charged And Reasonableness Governs Atty. Performance Under Retainer Agreement

Attorney Obtained Substantial Pretrial Attachment, But He Did Not Obtain Substantial Interest On Delinquent Fees Because No Interest Provision Was Present In The Retainer Agreement.

            Pech v. Morgan, Case No. B300524 (2d Dist., Div. 3 Mar. 11, 2021) (published) is an instructive decision indicating how enforceable, compliant fee agreements are dealt with in pretrial attachment/merit situations and also providing some tips on some provisions to include in retainer agreements.

            This case involved an attorney suing clients for a pretty large attorney’s fees receivable where there was a retainer agreement compliant under B&P § 6148 (the provision which sets forth what needs to be contained in non-contingency retainer agreements) and work on the same basis for some other matters on the same terms.  The retainer agreement did contain a provision requesting the clients to object to any invoices, which clients did selectively to only four statements over a number of years.  The retainer agreement did not contain a provision indicating the attorney could charge interest. 

            The attorney sued based on the retainer agreement and an implied-in-fact agreement that further work was encompassed within the retainer terms (the latter theory permissible under section 6148(d)(2)).  Attorney sought a pretrial attachment against certain assets of clients, seeking $821,000 in fees and accrued interest in excess of $298,000.  Clients opposed on the basis that the fees being claimed were not reasonable under a lodestar analysis (despite the existence of a retainer contract with specified rates).  The trial judge, after rejecting the clients’ expert analysis on the reasonableness of the work effort, granted the delinquent fee request but did not award interest based on the lack of an interest provision in the retainer agreement.

            The 2/3 DCA affirmed.

            After observing there was an analytical gap on the measure of recovery for B&P noncompliant agreements (quantum meruit) versus enforceable fee agreements (one would presume contractual, but with no published decisions addressing), the Court of Appeal—giving deference to a 1993 advisory by the State Bar’s Committee on Mandatory Fee Arbitration—decided that enforceable, compliant fee agreements should be enforced by their terms, not quantum meruit, as long as the fees were not unconscionable under Rules of Professional Conduct Rule 1.5.  So, in essence, the contractual terms prevailed unless the fees were unconscionable, which was not the case.  This made sense because lodestar analysis is really aimed at what an opponent would pay to a prevailing party such that different reasonableness concerns enter into the picture.  With respect to the attorney’s performance under the retainer agreement, that was governed by a reasonableness standard—but nothing showed that the attorney did subpar work.  The pretrial attachment order was affirmed.

            But there are two additional takeaways from this opinion.  First, retainer agreements should contain a provision requesting the client to object to any invoices—this one here had no time limits and there were some objections which apparently were resolved, which aided the courts at both levels in determining that the attorney’s conduct was reasonable.  Second, if you want interest (and keep in mind attorney here “lost” about $300,000 in potential interest), make sure you have a retainer provision indicating interest will be charged (see State Bar’s Standing Comm. on Professional Responsibility and Conduct Formal Opn. No. 1980-53). 

Ethics, POOF!, SLAPP!: Attorney Fees And Costs Awarded To Successfully SLAPPing Defendants Goes POOF! With Reversal Of Trial Court’s Partial Grant Of Defendants’ SLAPP Motion

Defendants’ Internet And Twitter Statements Against Plaintiffs Consisted Mainly Of "Vulgar And/Or Adolescent Personal Insults, Misogynistic, Racist, And Xenophobic Comments, And Other Slurs Having Nothing To Do With Any Reasoned Discussion Of Trustworthiness, Competence, Or Any Other 'Public Issue Or An Issue Of Public Interest.'”

            In Block v. Bramzon, Case Nos. B292129/B297198 (2d Dist., Div. 4 January 22, 2021) (unpublished), plaintiffs (an attorney handling landlord-tenant matters and representing landlords in unlawful detainers, two associate attorneys from his law firm, and the firm’s office manager) sued for libel and other related claims after defendants (a law firm that defends tenants against eviction, its founding attorney, and a former client of defending firm/founding attorney who also apparently worked for firm/founding attorney) embarked on a malicious and defamatory campaign that targeted plaintiff attorney’s business, practice and employees.  Plaintiffs claimed the campaign involved the creation of a website, named after and impersonating plaintiff attorney, that directed potential clients to contact a landlord-tenant law firm other than plaintiff’s firm.  Additionally, the campaign involved a Twitter account that used plaintiff attorney’s name and was allegedly used to make statements that suggested (1) plaintiff attorney is a greedy thief and criminal, unethical and immoral, racist, sexist, misogynistic, incompetent, an abuser of drugs, and is unfaithful and promiscuous; (2) one of the plaintiff associate attorneys is promiscuous, immoral, and incompetent; and (3) the other plaintiff associate attorney engages in unlawful acts of animal cruelty.  The Twitter account also posted plaintiff attorney’s personal cell phone number, home address, and photos of plaintiffs and some of their family members.

            Defendant law firm and its founding attorney SLAPPed back – claiming plaintiff attorney had made himself a public issue and the Twitter account was intended to warn consumers about plaintiff attorney’s trustworthiness.  The trial court, finding defendants’ speech and conduct was a protected activity involving “a consumer watchdog type of situation,” struck plaintiff’s negligent infliction of emotional distress and intentional interference with prospective economic advantage causes of action, concluding plaintiffs did not establish a reasonable probability of prevailing on those claims.  The trial court also granted defendant law firm and defendant attorney’s motion for fees for partially prevailing on their SLAPP motion.  Plaintiffs then voluntarily dismissed the same two causes of action against third defendant, and he unsuccessfully filed his own SLAPP motion on the remaining claims. 

            Everyone appealed.  Plaintiffs challenged the trial court’s SLAPP ruling on the two stricken causes of action.  Defendant law firm and defendant attorney challenged the order on their SLAPP motion to the extent it denied the motion, and third defendant appealed the order denying his SLAPP motion in its entirety.

            The 2/4 DCA, in a 3-0 opinion authored by Justice Currey, reversed the portion of the SLAPP order that struck two of plaintiff’s causes of action along with the fees and costs awarded to defendant law firm and defendant attorney, and affirmed the remainder of the trial court’s orders.  The appellate panel found defendants’ speech and conduct did not involve a public issue or issue of public interest pursuant to the principles held in FilmOn.com Inc. v. DoubleVerify Inc., 7 Cal.5th 133 (2019).  In fact, in contrast to defendants’ claims that their speech and conduct were protected activities because plaintiff attorney was a public figure and his trustworthiness was an issue of public interest, the majority of defendants’ statements consisted "of vulgar and/or adolescent personal insults, misogynistic, racist, and xenophobic comments, and other slurs having nothing to do with any reasoned discussion of trustworthiness, competence, or any other 'public issue or an issue of public interest.'” (§ 425.16(e)(4).)

            Finally, the appellate panel asked the parties to file supplemental briefs addressing whether the alleged participation of defendant attorney in the alleged conduct would violate any State Bar disciplinary rule(s) and whether the appellate or superior court had authority to take remedial action or impose sanctions.  Ultimately, because the facts of the case and defendant attorney’s participation were undetermined at that stage of the litigation, the panel directed the trial court “on remand to make such inquiries, order, and/or referrals to the State Bar as it deems appropriate.”

Ethics, Quantum Meruit: Illinois Appellate Court Affirms Award Of Zero Fees To Contingency Attorneys Obtaining $25 Million Award For Clients Based On Failure To Substantiate Fees And On Certain Fiduciary Breaches To Client

However, Clients Had To Reimburse Certain Hard Costs To Attorneys.

            Although we generally do not post on out-of-state cases, Vandenberg v. RQM, LLC, No. 10 L 003188, 2020 Ill. App. (1^st) 190544 (Ill. App. June 26, 2020) is a sobering reminder of what contingency attorneys must do to obtain substantial fees where a settlement is obtained under suspicious circumstances and the lawyers then fail to support a quantum meruit recovery with substantiating evidence.

            Boiled down to essential facts, plaintiffs sued a deep pocket defendant, with plaintiffs’ counsel doing so under a contingency agreement.  Before a jury verdict was obtained during trial, the defense offered a $25 million settlement, but there were suspicious circumstances showing the plaintiff’s main attorney obtained “insider” information from a court clerk that a defense verdict might be upcoming so as to prompt an acceptance of the offer.  After a lot of adversarial hearings and an appeal, the settlement stood.  However, a lower court eventually awarded zero dollars to plaintiffs’ counsel under a quantum meruit theory, although the appellate court did allow recovery of some hard litigation expenses. 

            The “zero dollars” award was affirmed.  The overriding issue was that plaintiff’s counsel relied solely on the contingency arrangement and provided no support for its work effort under a quantum meruit recovery.  Huge, huge mistake—this lack of evidence cemented the lower court’s decision to award nada.  Consistent with the California case of Sheppard, Mullin et al. v. J-M Manufacturing Co., Inc., 6 Cal.5^th 59 (2018), Illinois case law authority does not prevent quantum meruit recovery for attorneys engaging in ethical violations unless they are so egregious as to require forfeiture.  However, the nature of the ethical breaches here was a factor to weigh in deciding if zero dollars was the proper remedy.  But the failure to substantiate the fees was the real dagger in fee recovery in this particular case—a bitter pill for plaintiffs’ counsel to swallow, as they had to.

Ethics: Orange County Bar Association Civility Guidelines Will Be Made A Part Of Local Rules

However, They Are Only Guidelines And Not An Independent Basis For Sanctions, Discipline, Or More Litigation—But They Are Salutary In Nature And Should Be Followed.

Tut Jackson (left) and Jack Johnson shaking hands prior to their bout for the World’s Heavyweight Championship, W.E. Palmer, photographer, 1922. Library of Congress.

            Co-contributor Marc was given a “heads up” that the Orange County Bar Association Civility Guidelines will be made a part of the O.C. Superior Court Local Rules (approved December 21, 2016), although they are guidelines and not intended as an independent basis for sanctions, discipline, or more litigation.  Here is a synopsis of the guidelines:

            1.  Counsel shall show civility to other counsel and self-represented litigants—communicate professionally; respond to communications within a reasonable time; provide redlines/note significant changes when exchanging drafts; avoid personal attacks, demeaning comments, and misleading characterization of positions; act civilly toward opposing counsel’s staff members; extend professional courtesies, such as extensions which do not prejudice a client/violate court orders, and honor commitments; advise clients about the need for civility.

            2.  Counsel shall show civility during discovery—work together to make discovery self-executing; meet and confer in good faith to resolve disputes without the necessity for court intervention; provide written discovery in electronic format and agree on search terms for e-discovery; respond forthrightly and timely to non-objectionable requests; schedule depositions reasonably, accommodating the schedules of other parties, counsel, and witnesses; delay or cancel depositions only with good cause and sufficient advance notice; behave professionally at depositions, avoiding abusive/rude behavior and avoiding extension of a deposition for another day when at all practicable.

            3.  Counsel shall show civility to the courts—respect the court’s time by narrowing issues or avoiding unnecessary/losing issues; have witnesses available on time, consider on-call agreements; notify the court expeditiously when a matter informally resolves; avoid personal attacks, disrespectful familiarity, the appearance of impropriety, and improper ex parte communications; be punctual and prepared for every appearance; let others speak without interruption; do not blame subordinates for handling of a case; show civility to all bench officers, arbitrators, mediators, other ADR providers, and their staffs. 

           

Ethics, Retainer Agreements: December 2020 Article In The Orange County Lawyer Has Nine Practical Tips To Increase Collections And Avoid Costly Fee Disputes

Local Orange County Attorney Michael S. LeBoff Provides The Nine Tips.

            In the December 2020 edition of the Orange County Lawyer magazine, Michael S. LeBoff, a partner at Klein & Wilson, in Newport Beach, California, has authored an article entitled “Increase Collections and Avoid Costly Fee Disputes:  Nine Practical Tips.”  We now summarize some of his suggestions on how to avoid collection disputes with respect to attorney’s fees and costs:

            1.  Sign and return your fee agreement—provide a fully signed duplicate copy of the retainer agreement to the client.

            2.  Be wary of conflict waivers—tailor conflict waivers to specific situations; a lack of an adequate waiver can result in a fee compensation denial (at worst) or a quantum meruit recovery (even if the waiver is not found to be non-egregious in nature).

            3.  Know what is in your fee agreement—review agreements over time; follow it as far as billing practices; fix any ambiguities before any dispute arises.

            4.  Avoid surprises by proper budgeting and communication—avoid client surprises; prepare a comprehensive budget upfront and update the budget; get client approval in writing for expensive or extraordinary projects.

            5.  Do not overpromise or underdeliver—manage client expectations; explain risks such as a potential losing case; explain risks along the course of a case.

            6.  Address problems early—“Unlike scotch, billing issues do not get better with age”; have a frank talk with a client who gets behind, understanding why and trying to resolve, if possible.

            7.  Separate from problem clients—clients on third or fourth attorneys (for example) are a red flag; refusal to make a retainer deposit is a warning sign.

            8.  Invoices should be clear and concise:  detail is better; invoices must contain separation as far as fees and costs; invoices must set forth the amount, billing rate, and work descriptions for entries.

            9.  If you sue, don’t forget the Mandatory Fee Arbitration Act (MFAA) Notice—a collection action will likely be dismissed if the attorney does not send the required MFFA notice; clearly state the amount due in the MFAA Notice.

Class Action, Ethics: One Counsel’s Failure To Disclose A Lack Of Professional Liability Insurance Invalidated Class Action Fee Division Agreement

However, Matter Was Remanded For Trial Judge To Consider Quantum Meruit Recovery.

            Hance v. Super Store Industries, Case No. F075852 (5^th Dist. Jan. 23, 2020) (published) is a very scholarly opinion exploring an ethics issue.  Briefly told, a plaintiff’s class action attorney was an experienced labor attorney, but he referred the matter to class action specialists under a fee division agreement.  At the end of the day, the case settled and $4.3 million was awarded to class counsel, with the lower court honoring a fee division agreement for the referring attorneys and other class attorneys.  On appeal, the fee division agreement was challenged as unenforceable on numerous grounds.

            The Fifth District agreed that it was unenforceable based on one ground.  Referring attorney had failed to disclose that he had no professional liability insurance, an ethics violation which did invalidate the fee division agreement.  (Rule of Professional Conduct, former Rule 3-410, now Rule 1.4.2).  However, not all was lost.  The matter was remanded for the trial judge to consider if quantum meruit recovery was allowable to the referring attorney, given that the record showed there was value in his referral services during the case.  The appellate court also agreed that the QM recovery was not necessarily limited to the lodestar hours billed by the referring attorney. 

Ethics, Off Topic: Default Vacated By 4/3 DCA Panel In Stark Reminder That Law Is A Profession, Not A Business Only—Civility And Professional Courtesies Are Still Virtues

A Stirring Ethical Opinion, Which Every Attorney Should Read.

            We acknowledge that this post on Lasalle v. Vogel, Case No. G055381 (4^th Dist., Div. 3 June 11, 2019) (published) is not related to attorney’s fees, but it is worthy of a post and a reminder to all California attorneys that we are both officers of the court and have an ethical responsibility to act with civility.

            The facts are not complicated.  A quick default was taken, and a set-aside motion was denied.  The appellate court reversed the result based on the particular circumstances. 

            But that was not the end of the matter.  The 4/3 DCA, in an eloquent opinion, stressed that the law is still a profession, not a business only.  Scorched earth, feet-to-the-fire attitudes should not be condoned (especially in litigation).  Rather, attorneys need to provide advance warnings of draconian default maneuvers and follow the simple mandate of CCP §583/130, where parties are to cooperate with each other in bringing an action to resolution in reasonably diligent fashion. 

            We thank Acting Presiding Justice Bedsworth for this very salient opinion, authored on behalf of the 4/3 DCA panel.

Arbitration, Ethics: Ethics Lapse Not Violating Any Rules Of Professional Conduct Did Not Disqualify Law Firm From Collecting Unpaid Receivable

However, Arbitrator’s Decision Not To Award Almost $1 Million In Arbitration Fees Based On Trope Prohibition Was Nonreviewable “Arbitrator Judgment Call.”

            In eGumball, Inc. v. Call & Jensen, et al., Case Nos. G055852 and G055989 (4^th Dist., Div. 3 May 17, 2019) (unpublished), a well-known Orange County law firm initiated arbitration to collect unpaid fees from a client, with the client’s subsequent malpractice suit also ordered to arbitration.  After a lengthy arbitration in which the law firm used internal attorneys and expended close to $1 million in seeking to recoup fees, the arbitrator found that one attorney’s failure to advise the client he might be a witness based on an “advice of counsel” defense, albeit below the standard care, was not egregious enough to impede collection of fees.  However, he denied the firm’s request for about $1 million in arbitration fees and expert witness fees, prompting appeals by both firm and ex-client.

            Everything was affirmed on appeal, in a 3-0 decision authored by Justice Fybel.

            Using the analytical framework set forth in Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., 6 Cal.5^th 59 (2018), client could not show a violation of any Rules of Professional Conduct such that fee forfeiture was not appropriate.  With respect to the denial of arbitration attorney’s fees to the law firm, the appellate court did not believe it could review the merits of the arbitrator’s conclusions that fee recovery butted up against the Trope prohibition (collecting attorneys who litigate fee recovery cannot obtain fees for collection efforts) and that the retainer letter did not have an applicable Lockton v. O’Rourke, 184 Cal.App.4^th 1051 (2010) waiver (in essence, a Trope waiver).  The reason is that questions of contract interpretation by an arbitrator, on the merits, are not subject to general review.  Finally, on the denial of expert witness fees, nothing in the arbitration agreement or JAMS rules required such an award, meaning that the denial, too, was unreviewable. 

Employment, Ethics: Fourth District, Division 3, Affirms Award Of No Attorney’s Fees In Employment Case

And In The Published Part, An Attorney Is Reported To The State Bar For Misconduct.

        We blog about the next case a) because it involves attorney’s fees in its unpublished portion; b) because it addresses attorney misconduct in its published portion; and c) because Mike and Marc represented Defendants in their successful response to Plaintiff/Appellant’s appeal. Martinez v. O’Hara, et al., G054840 (4^th Dist. Div. 3 February 28, 2019) (published in part). Justice Fybel, Acting. P.J., authored the opinion, joined by Justices Ikola and Thompson.

Attorney’s Fees.

       In the trial court, Plaintiff sought $500,000 in damages for various claims, including waiting time penalties, harassment, and fraud. After years of litigation and a five-day jury trial, Plaintiff received a jury award of $1,080 in economic damages and $7,000 in noneconomic damages – an amount well below the ceiling of limited civil jurisdiction ($25,000). Plaintiff requested attorney’s fees based on a calculation of approximately $414,407 in fees, and asked the trial court for 1/3^rd of that amount plus costs.

      The trial court did not award attorney’s fees, spelling out its reasoning in a detailed minute order. The trial court found Chavez v. City of Los Angeles, 47 Cal.4^th 970 (2010) to be dispositive on FEHA-based claims for an over-litigated case. The trial court also found the amount of fees being sought to be based on very unreliable information, including after-the-fact reconstruction of records, block billing, 25-hour and 15-hour workdays that strained the court’s credulity, and a declaration lacking specificity. The case did not result in broad public impact or in significant benefit to anyone other than Plaintiff. The trial judge described “fruitless litigation” that was “spectacularly unsuccessful.” The Court of Appeal concluded that the trial court acted within its discretion and reasonably by deciding against an award of fees.

       The Court of Appeal also concluded that the trial court did not prejudicially err by denying the motion for attorney fees under Labor Code section 218.5. This statutory provision allows the employee to obtain fees for prevailing on a wage claim. Plaintiff, who recovered some waiting time penalties, argued the trial court erred by concluding he was not eligible as a prevailing party to recover fees because the waiting-time penalties do not constitute “wages”.

       The Court of Appeal did not address this legal argument, concluding that even if the trial court so erred, on this record, any such error was harmless. The trial court found the billing records unreliable, the Plaintiff failed to explain how much of the fees were attributed to the “wage claim”, and the overall recovery was well below the amount recoverable in a limited civil case.

       This part of the opinion was unpublished, evidently because it was unremarkable.

Attorney Misconduct.

        The conduct of Plaintiff’s attorney, however, resulted in publication: “The notice of appeal signed by Mr. Pavone on behalf of plaintiff referred to the ruling of the female judicial officer as ‘succubustic.’ A succubus is defined as a demon assuming female form which has sexual intercourse with men in their sleep. We publish this portion of the opinion to make the point that gender bias by an attorney appearing before us will not be tolerated, period. ¶ We also report Mr. Pavone to the State Bar for the statement in the notice of appeal suggesting the trial court attempted to thwart service of the signed judgment on plaintiff in an effort to evade appellate review and statements in the appellate briefs he signed on behalf of plaintiff accusing the judicial officer who ruled on the motion for attorney fees of intentionally refusing to follow the law. None of these serious charges is supported by any evidence.”

        COMMENT. The published part of the opinion serves as a reminder that attorneys have a duty to maintain the respect due to the courts of justice and judicial officers. Business and Professions Code section 6068(b). Also, Canon 3B(6) of the California Code of Judicial Ethics provides that lawyers in proceedings before the judge must refrain from manifesting, by words or conduct, bias, prejudice, or harassment based upon race, sex, gender, and a number of other categories. Canon 3D(2) of the California Code of Judicial Ethics imposes on judges mandatory reporting requirements to the State Bar regarding lawyer misconduct. While these requirements might sound imposing, Mike and Marc observe that in our combined 75 years of practice, we have not seen attorneys who exercise civility and common sense land themselves in this ethical quagmire.

        Finally, a shout-out goes to San Diego attorney Grant Teeple, who handled this case in the trial court, establishing a good record for his client on appeal.

    UPDATE: Martinez v. O’Hara is also the subject of a post on Kevin Underhill’s Lowering the Bar blog.

 

Ethics, Retainer Agreements: On Remand, Trial Court Properly Found Equitable Estoppel Did Not Alter The Rule Invalidating Fee Sharing Among Attorneys

Equitable Estoppel Theory Was Not Supported By The Evidence.

            On December 19, 2012, we posted on Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler, 212 Cal.App.4^th 172 (2012) [discussed in our December 19, 2012 post], which held that a party may be equitably estopped from enforcing the rule which prohibits attorney fee splitting where one party prevented the other from obtaining the necessary written consent from a client. The matter was remanded for a trial on this narrow issue. We can now report the trial judge, on remand, found no proof supported the equitable estoppel exception. The 4/3 DCA, in Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler, Case No. G053966 (4^th Dist., Div. 3 Jan. 31, 2019) (unpublished), affirmed the trial court’s determination, because the evidence did not support that the class representative was swapped out for improper purposes (the basis for equitable estoppel) and the proof actually showed that the party claiming estoppel was the one preventing the required disclosure. Justice Ikola authored the 3-0 opinion.

Ethics, Retainer Agreements: California Supreme Court Decides That Undisclosed Conflict Of Interest Rendered Retention Agreement And Arbitration Award Unenforceable, But Remands For Trial Court To Consider If Quantum Meruit Recovery Was Permissible

Lots of Questions Remain, Given This Was Not An FAA Case; However, Boilerplate Conflict Waivers Do Not Do The Trick.

            The California Supreme Court has just come out with a widely-watched opinion in Sheppard, Mullin, Richter & Hampton v. J-M Manufacturing Company, Inc., Case No. S232946 (Cal. Supreme Court August 30, 2018) (published), although it drew majority and concurring/dissenting opinions of well over 70 pages, with the majority decision written by Justice Kruger.

            The law firm granted review in the case did have an undisclosed conflict of interest, obtaining a boilerplate conflict waiver from the challenging party. That challenging party obtained an intermediate appellate court decision reversing confirmation of an arbitration award, with the appellate court finding no fees were allowable under the retainer agreement.

            The California Supreme Court agreed that contractual fee recovery was not allowable to law firm under the retention agreement based on the undisclosed conflict of interest. That meant the retainer agreement was unenforceable as a matter of public policy, which required no contractual fee recovery. The boilerplate conflict waiver was found ineffective in nature.

            However, the majority then remanded to the trial court to determine the equities—whether the conflict of interest was egregious and intentional enough to preclude quantum meruit recovery. The dissenting justices would have held that fee recovery was totally precluded. Justice Kruger authored the majority decision.

            Co-contributor Marc also has posted on this decision in his August 31, 2018 post at calmediation.org.

Ethics, Settlement: Attorneys, Under Settlement Agreement Of Fee Dispute With Ex-Clients, Did Not Have To Reveal Potential Legal Malpractice Claims For Purposes Of Entering Into Valid Settlement Agreement Over Fees Dispute

Ex-Clients Were Not Entitled To Rescind Settlement Agreement For Purported Ethical Violations.

            The First District, Division 1, in Property California SCJLW One Corp. v. Leamy, Case No. A152959 (1^st Dist., Div. 1 Aug. 9, 2018) (published), had to confront whether ex-clients entering into a settlement agreement over a fee dispute with their former attorneys could rescind the settlement based on allegedly nondisclosed legal malpractice claims against their attorneys. The appellate court answered “no,” reasoning that (1) punishment for California Rules of Professional Conduct ethical violations was a matter within the purview of the State Bar; and (2) ex-clients “do not cite to any authority holding that failure to comply with the ethical rules entitles a client to rescind a settlement agreement for attorney fees” (Slip Op., pp. 16-17).

Ethics/Section 998: Litigant’s Counsel Alleged Fraudulent Activities In Relation To CCP § 998 Offer Did Not Justify Disqualification

Court Of Appeal Reversed, But On A 2-1 Vote.

            In one of our likely last posts for 2017, we enter into the area of ethics as far as disqualification of an attorney in an action relating to a CCP § 998 offer.

            Miralda v. Heng Sheng, Inc., Case No B282158 (2d Dist., Div. 1 Dec. 29, 2017) (unpublished) involved a situation where a former employee sued her ex-employer for wage/hour and unfair business practices violations.  After some interesting email exchanges about employee’s immigration status, employee served a 998 offer for $45,000, with employer returning it but interlineating it to accept the offer after changing the $45,000 number to $4,500.  Of course, plaintiff former employee’s counsel balked and filed a motion to disqualify employer’s counsel based on the “fraudulent” section 998 conduct.  The trial judge granted the disqualification, based on ethical violations by employer’s counsel.

            The disqualification was reversed in a 2-1 decision.  The majority found that plaintiff suffered no cognizable harm based on employer attorney’s conduct, meaning that no disqualification was in order.  Presiding Justice Rothschild authored the majority decision.  However, in dissent, Justice Chaney found no abuse of discretion because employer counsel’s conduct undermined and would continue to undermine the judicial process in her opinion.

MCLE/Ethics: Ensure That Your Clients Pay Your Fees

Professional Responsibility Article Covers Basics Of Proper Retainer Letter And Attorney Billing Practices.

     Under the heading “Ensure That Your Clients Pay Your Fees”, attorney Lorraine M. Walsh of Walnut Creek has written an ethics/professional responsibility article that appears in the November 4, 2016 on-line edition of the Los Angeles Daily Journal.  Ms. Walsh covers basic rules for fee contracts in California, rules for bills, common improper billing practices to avoid, and unenforceability of a dispute waiver provision.  Plus, California State Bar members can then click to an MCLE test that they can take for MCLE credit.

Ethics: Agency Prevailing In Easement Battle Properly Allowed $112,777.40 In Fee Recovery For Work By Disqualified Counsel

 

Disqualification Order Did Not Prevent Some Work By DQ-ed Counsel.

    Yuba County Courthouse.  1933.  Library of Congress.

     Western Water Co v. Yuba County Water Agency, Case No. C072058 (3d Dist. Sept. 16, 2016) (unpublished) involved a fight over the scope of a water easement between plaintiff successor and the Agency.  Plaintiff sued for multi-millions of dollars, claiming Agency took subsurface water without paying for it.  Agency prevailed, with the lower court awarding fees against plaintiff and in favor of Agency.

    Plaintiff appealed $112,777.40 in fees awarded to Agency for work by a prior disqualified counsel.  The appellate court found that the disqualification cases relied on by plaintiff only applied in a client-attorney dispute over fees, not a prevailing party situation.  It further determined that the disqualification order did allow for some limited consultation between disqualified counsel and Agency’s trial attorneys, such that the fees were properly allowed. 

Ethics: New Jersey Supreme Court Carves Out Another Exception To The American Rule On Fee Recovery

 

Attorney Intentionally Breaching A Fiduciary To Non-Client Can Be Held Liable For Fees As Consequential Damages.

     Although our focus is on California cases, we thought it would be instructive to report on the New Jersey Supreme Court’s recent decision in Innes v. Marzano-Lesnevich, No. 074291 (N.J. Supreme Ct. Apr. 26, 2016) (published).

     There, a divided 3-2 state high court decided that there is an exception to the “American Rule” (parties generally bear their own costs unless a contract or statute dictates otherwise, which was not in play) for attorneys who intentionally breach a fiduciary duty, even to a nonclient. In those situations, attorney’s fees may be awarded as consequential damages for intentional fiduciary relationship breaches. No out-of-state authorities were cited, with New Jersey precedents being cited on both the majority and dissenting justices.

         Justice LaVecchia dissented, joined  by Judge Cuff, temporarily assigned.  The dissent argues essentially that the theoretical underpinning to the majority opinion is incoherent (see footnote 2 of the dissent).  If the theoretical underpinning lies in the attorney-client/fiduciary relationship found in malpractice cases, there is no attorney-client relationship here with the plaintiff, meaning that the case extends existing law.  If the theoretical underpinning is that consequential damages result from a breach of fiduciary duty, then fees as damages are extended to a new frontier, and the American Rule is further diluted.

Arbitration/Ethics/POOF!: $1.3 Million Judgment Based On Arbitration Award Goes Away Because Former Attorneys Violated CRPC Rule 3-310

 

Trial Court Approved Arbitration Award Involving Contract Against Public Policy, So Remanded To Determine When Actual Conflict Arose.

     Everyone thinks that there is little hope of appealing arbitration awards. However, that is not true where the underlying claim rests on a contract which is illegal or against public policy.

     A client’s former attorneys in Sheppard, Mullin v. J-M Mfg. Co., Inc., Case No. B256314 (2d Dist., Div. 4 Jan. 29, 2016) (published) learned that this exception can and will result in a brutal reversal.

     There, former attorneys had an actual conflict—simultaneous representation—resulting in a disqualification. Former client refused to pay claimed fees of $1.3 million, resulting in an arbitration where a three arbitrator panel awarded about $1.12 million in compensatory damages for unpaid fees plus interest which got the total award to about $1.3 million. The trial court confirmed the arbitration award, only to see all of this get reversed on appeal by the 2/4 DCA.

     The appellate court found that California Rules of Professional Conduct Rule 3-310 was a fundamental public policy such that it showed former client was challenging the entire representation contract with Sheppard, Mullin as being tainted due to the conflict. The trial judge, not the arbitrators, should have determined illegality when the entire contract was under challenge. The reviewing court found that S, M was not entitled to fees during the conflict as a matter of law under Rule 3-310, but remanded for a determination of when the actual conflict arose. But, that did mean that a $1.3 million award went POOF! and it is unlikely any subsequent proceeding will result in an award anywhere close to the prior number.

     California Mediation and Arbitration also posts about this case on January 31, 2016.

Ethics: Attorneys Cannot Sue Current Client For Collection Of Fees Even If Client Waives Conflict With Advice From Independent Counsel

 

Fourth District, Division 3 Decides Conflict Unwaivable and Disqualification Order Sustained Under Inherent Authority Of Trial Court.

    This next one, Abedi v. Sheikhpour, Case Nos. G050361/G050362 (4th Dist., Div. 3 Dec. 16, 2015) (unpublished), is a wild case producing an interesting 3-0 decision by Acting Presiding Justice Bedsworth.

    The appellate court sustained an attorney disqualification by a trial judge based on CCP § 128(a)(5), the section allowing inherent authority to the trial judge to control the conduct of attorneys in a courtroom.  (The opinion makes it clear that the affirmance was not based on any ethics violations.)  The 4/3 DCA held that a current client cannot waive a conflict (even with the advice of independent counsel) for purposes of allowing an attorney to sue that client while representing the client in a pending matter.  It found the conflict unwaivable, citing New Jersey, Nevada, and California decisions in the process.

In The News . . . . Class Counsel In BSH Home Appliances Moldy Washer Case Get $6.5 Million In Fees/Expenses Approved And Virginia Standing Committee On Legal Ethics Issues Opinion Helpful To Chapter 7 Bankruptcy Attorneys Getting Paid For Debtor Services

 

$55 Cash Payment Under Claims Procedure Was Consideration, With Class Counsel Obtaining $6.5 Million In Fees And Expenses.

    In Tait v. BSH Home Appliances Corp., Case No. 8:10-cv-00711 (C.D. Cal. July 27, 2015), U.S. District Judge David O. Carter approved a $6.5 million payment of fees/expenses to class counsel in a case involving allegations that washing machines were susceptible to mold.  Under the settlement which was approved, class members get a $55 cash payment under a 120-day claims process and counsel obtains a separate payment from defendant of the $6.5 million in fees/expenses under a clear sailing provision in the settlement agreement.  District Judge Carter ruled that the fees/expenses were proper under the circumstances.

Virginia Ethics Committee Issues Helpful Guidance To Chapter 7 Bankruptcy Attorneys.

    On July 23, 2015, the Virginia Standing Committee on Legal Ethics issued an opinion (LEO 1883) indicating that it was proper for Chapter 7 bankruptcy attorneys to take in the entirety of fixed fees for work in a Chapter 7 case before filing it as long as the disclosure is made in the bankruptcy papers.  Given that most of the work for a Chapter 7 debtor is done upfront (except for the 341A meeting of creditors), most of the services have already been earned.  However, as long it is structured as a fixed fee and taken in pre-petition, the Standing Committee opined this arrangement was acceptable even for future post-petition work.  Keep in mind that this opinion involved Virginia law, but it did have some nice reasoning applicable to Chapter 7 bankruptcy work in general based on interviews with bankruptcy lawyers in this area of practice.

Ethics/Probate: Attorney’s Fees Awards To Conservatee”s And Conservator’s Lawyers Affirmed On Appeal

 

Conservatee’s Daughter’s Appeals Sadly End Contentious Conservatorship Fee Proceedings.

     In a bitterly contested conservatorship proceeding, Conservatorship of Gdowski, Case Nos. G043583 & G044070 (4th Dist., Div. 3 July 7, 2011) (both unpublished), two appeals resolved awards of attorney’s fees to the lawyers for both conservatee and conservator resulting from conservatee’s daughter’s objections to the way the conservatorship was being handled with respect to her mother.

     Daughter’s principal contention was both attorneys had conflicts of interest of a nature requiring a forfeiture of fees. Although a serious violation of an attorney’s responsibilities can give rise to a forfeiture of fees, Pringle v. La Chapelle, 73 Cal.App.4th 1000, 1006 (1999), the appellate court found no such egregious conflict of interest for the involved lawyers.

     Orders awarding fees to attorneys for either conservatee or conservator are expressly appealable. (Prob. Code, § 1300(e).) Also, daughter was found to have standing so the appeal could be considered on the merits, although the awards were found to be proper.

     Justice O’Leary wrote both opinions, poignantly summarizing the appeals this way: “ . . . both appeals are utterly without merit [and] they appear to be misguided and bitterly motivated attempts to have the last say in the case by punishing those who dared to disagree with [daughter appellant].”

Ethics: Attorney’s Failure To Comply With Rule 3-300 Voided Successful Business Arrangement With Client

 

Quantum Meruit Recovery Denied to Attorney.

     California Rule of Professional Conduct 3-300 requires an attorney entering into a business transaction with a client to make the transaction fair in nature, put it in writing, advise the client in the writing to seek the advice of an independent lawyer, and then have the client consent in writing to the terms of the transaction. A corollary to this rule is Probate Code section 16004, which creates a presumption of undue influence when a trustee obtains an advantage from the beneficiary during the existence of a trust. Section 16004 has been applied to the fiduciary relationship between attorney and client. (BGJ Associates v. Wilson, 113 Cal.App.4th 1217, 1227-1228 (2003).)

     Now, the First District, Division 2 has published a 38-page decision, Fair v. Bakhtiari, Case No. A126844 (1st Dist., Div. 2 May 24, 2011) (certified for publication), that is must reading in the area of ethics. Even though attorney and client entered into a successful business venture, the attorney’s violation of rule 3-300 and section 16004(c) not only resulted in a voiding of the business agreements but also resulted in a loss of quantum meruit recovery by the attorney for the reasonable value of the services he provided to the clients. Pretty harsh result, but one squarely within these important ethical constraints.

     BLOG UNDERVIEW--Co-contributor Marc recently went to a UCLA School of Law reunion. Among others that he caught up with was James I. Ham, who co-contributor Mike knows from growing up in the Central Valley (Mike went to Bullard High; Jim went to Clovis High) and USC undergrad days. Jim has developed a specialty in legal ethical issues and is a partner with South Pasadena-based Pansky Markle Ham LLP. His co-partner, Ellen Pansky, is well known for lecturing, writing, and providing advice on legal ethical issues too. Our hello goes out to Jim.

Ethics/Section 1717: Joseph P. Wohrle Pens Recent Article “Identifying Key Issues In Attorney’s Fees Litigation”

March 2011 Article in The Advocate Magazine Explores Central Fee Issues.

     For readers wanting a recent primer on key issues in attorney’s fees litigation, we commend for reading Joseph P. Wohrle’s article “Identifying Key Issues in Attorney’s Fees Litigation” which is published in the March 2011 edition of Advocate Magazine.

     Mr. Wohrle, a partner in Santa Monica-based Allen + Wohrle, LLP and an adjunct professor of law at Loyola Law School, covers these topics:

*”Who gets a fee award?”

*Theories of recovery of attorney’s fees.

*Recovery of attorney’s fees under Civil Code section 1717 (broken down, in turn, to look at these subtopics: substantive aspects of Civil Code section 1717; bilateral application of contractual fees clauses as a matter of law; was the claim upon which fees are being sought “on the contract”?; “prevailing party” determination; calculating the amount of the award: the “lodestar”; and procedural aspects of Civil Code section 1717).

Retainer Agreements/Ethics: Business & Prof. Code, § 6147 Requirements Apply To Hybrid Contingency Agreements Involving Transactional Work

Second District, Division 4 Faces Issues of First Impression Under § 6147.

     Justice Manella, speaking for a 3-0 panel of the Second District, Divison 4, faced some first impression legal issues with respect to the reach of Business and Professions Code section 6147’s requirements over certain hybrid contingency agreements. In particular, the appellate court zeroed in on the section 6147 requirement that contingency agreements are voidable by the client unless there is a statement that a success fee was not set by law but negotiable between client and attorney.

     In Arnall v. Superior Court (Liker), Case No. B225264 (2d Dist., Div. 4 Nov. 22, 2010) (certified for publication), a tax attorney specialist contracted with clients under a contingency arrangement by which he would receive a set stipend fee for a defined number of months plus a “success fee” of either 1-2% of certain specified reductions if he was successful in getting some adjustments to taxable income treatment for the clients. However, his retainer agreement did not have the mandated contingency fee language referenced above under section 6147. Clients moved for summary adjudication on attorney’s contractual claims, arguing the contingency agreements were voidable and attorney was only entitled to seek quantum meruit recovery. The trial court denied the summary adjudication motions, determining that the contingency fee prohibition did not apply “outside the litigation context.”

     The Court of Appeal issued a writ, finding that clients’ challenges were indeed correct.

     First, the appellate court determined that legislative amendments to section 6147--replacing prior language “plaintiff” with the current “client” verbiage--clearly demonstrated that 6147 applies to both litigation and transactional work by an attorney.

     Second, section 6147 was held to apply to “hybrid” contingency agreements like the one involved in the case being decided.

Equity/Ethics: Ninth Circuit Reverses Substantial Fee Award To Defense Counsel Unyielding In Providing Short Extension To Plaintiff’s Counsel For Purposes Of Opposing Summary Judgment Motion

Professional Courtesies Stressed Greatly in This Sobering Opinion.

     We knew that this next case would be interesting when it led off with this quote from Charles E. Clark’s article entitled History, Systems and Functions of Pleading, published at 11 Va. L. Rev. 517, 542 (1925): Procedure “is a means to an end, not an end in itself--the ‘handmaid rather than the mistress’ of justice.” What we did not know is that the decision also would be a primer and have great quotes on the professional courtesies that attorneys should extend to their colleagues on the opposite side of a matter. With that said, read this with interest, all you members of any Bar.

     In Ahanchian v. Xenon Pictures, Inc., Case Nos. 08-56667/08-56906 (9th Cir Nov. 3, 2010) (for publication), a California Central District judge granted summary judgment in favor of defendants after denying plaintiff’s counsel’s request for a one-week extension to file a SJM opposition because counsel had a prior out-of-state commitment, there was an intervening holiday, and voluminous exhibits needed to be prepared as part of the SJM opposition. (Until this point, apparently, defense counsel had extended professional courtesies, but vehemently opposed the SJM opposition extension requested by plaintiff’s counsel.) Nonetheless, plaintiff was still able to file the SJM opposition, albeit 3 days late. (There is an anomaly here--C.D. Cal. Local Rules generally allow 7 days for a SJM opposition while other California federal district courts allow for a longer 14 days, twice the C.D. Cal. time to oppose.) The district judge denied plaintiff’s request to file the late-filed SJM opposition and “add[ing] injury to insult” awarded defense counsel $247,171.32 in attorney’s fees!

     Bad facts, you bet. Plaintiff’s appeal was vindicated in a reversal by the Ninth Circuit, in a 3-0 panel decision authored by Circuit Judge Wardlaw.

     Federal Rule of Civil Procedure 6(b)(1) has a liberal “good cause” extension escape valve which was easily satisfied here--especially given the out-of-state conflict, the intervening holiday, and the need to file a substantial SJM opposition. The district judge also erred in applying an incorrect standard in evaluating the late-filed request under FRCP 60(b), all the more so given that the late filing was only 3 days after the very short 7 day deadline under C.D. Cal. Local Rules.

     The Ninth Circuit also chided defense counsel for engaging in “hardball tactics” with respect to the extension request and not granting another professional courtesy under the circumstances. Here are two other quotes which are poignant and bound to be cited in other decisions and briefs in the future:

     *”Moreover, attorneys, like everyone else, have critical personal and familial obligations that are particularly acute during holidays. It is important to the health of the legal profession that attorneys strike a balance between these competing demands on their time.”

     *”Uncompromising behavior [by defense counsel] is not only inconsistent with general principles of professional conduct, but also undermines the truth-seeking function of our adversarial system.” (NOTE--This was the context of the quote, but we believe it was meant to apply to attorneys in any side of a case.)

 

Arbitration: Published And Unpublished Decisions Illustrate Deference Given To Arbitrator’s Final Awards Regarding Attorney’s Fees

 

     August 31 was a day in which two decisions were issued by Courts of Appeal, both demonstrating the deference that trial and appellate courts will give to arbitration attorney’s fees awards.

Miller v. Lifestyles Senior Housing Managers, Case No. C059843 (3d Dist. Aug. 31, 2010) (Unpublished).

     In the first one, plaintiff lost on four claims but won on two claims for retaliation/wrongful termination in an arbitration involving mixed tort/Labor Code violation claims. Plaintiff obtained a compensatory award of $39,030 ($10,000 being Labor Code penalties). Plaintiff then sought to recover $414,720 in attorney’s fees under Labor Code section 2699(g)(1), a mandatory fee-shifting provision. The arbitrator denied fee recovery based on the fact that Labor Code section 2699(a) specifies a penalty (which was awarded to Plaintiff) but had no provision allowing for attorney’s fees. The arbitrator also believed that Plaintiff had not clearly made the request for such exorbitant fees during the arbitration, presenting a due process problem.

     Plaintiff sought to vacate the fee denial under Code of Civil Procedure section 1286.2(a)(4), but the trial court confirmed the award. The Third District, too, sustained the fee denial.

     Basis? Arbitrators have the power to not award fees even under mandatory fee-shifting provisions. (Moshonov v. Walsh, 22 Cal.4^th 771, 778 (2002); Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4^th 665, 680 (2010) [distinguished between an untimely arbitration proceeding and an incorrect legal construction of a statute, with the latter not being a ground for vacating an award].) Plaintiff then tried to rely on good reasoning for her position in DiMarco v. Chaney, 31 Cal.App.4^th 1809, 1815 (1995), but the Third District found that DiMarco had repeatedly been questioned and never followed (listing numerous citations to support this conclusion).

Cotchett, Pitre & McCarthy v. Universal Paragon Corp., Case No. A126149 (1^st Dist., Div. 5 Aug. 31, 2010) (Certified for Publication).

     The second one involved a very complicated contingency agreement between a sophisticated corporate client and well-known Bay Area firm which based a contingency upon damage recovery and value of property received by corporation. The contingency agreement had been the subject of extensive negotiations and drafting between client and attorneys. An arbitrator awarded law firm $7,554,149.13 in attorney’s fees based upon the ultimate settlement recovery in litigation with a third party, but client challenged the amount as being unconscionable. (Attorneys initially had sent a demand requesting over $19 million in fees.)

     The fee award was affirmed on appeal. Aside from the fact that deference is given to an arbitrator’s factual and legal rulings (as in Miller), the appellate court found that the contingency fee arrangement was not unconscionable. It applied standard unconscionability analysis under Civil Code section 1670.5 to the prohibition against unconscionable fees set forth in Rule 4-200(B) of the Rules of Professional Conduct. The fee award was not substantively unconscionable because the ultimate award was only about 30% of the total settlement value. Beyond that, the litigation was complex and required a high degree of skill in bringing home a favorable settlement for the client.

     The contingency arrangement also reflected an attempt by equally sophisticated parties to share the risk of complicated litigation.

     Client argued that the fee was unconscionable because it effectively applied a multiplier of seven times the lodestar. This argument was rejected because it “would render unenforceable almost any contingency fee agreement in which the attorney procures an early settlement of a substantial claim.” (Slip Opn., p. 19.)

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.

In The News . . . . Lawyers Having Conflicts With Class Representatives Over Incentive Payments Denied Fees In Entirety in BAR/BRI Settlement

 

Nonconflicted Attorneys Get Award of Fees; Conflicted Attorneys Do Receive Reimbursement of Over $1.2 Million in Expenses.

     In our April 26, 2009 post, we reported on Rodriguez v. West Publishing Co., 563 F.3d 948 (9^th Cir. 2009), where class representative incentive agreements creating conflicts of interests required reconsideration of fee awards to both objectors and class counsel in the BAR/BRI bar review class action case. (The incentive arrangement provided that five named plaintiffs would get payments on a sliding scale basis—the amount went up depending on the ultimate settlement, but incentive payments were capped if the settlement figure reached $10 million. This arrangement had never been disclosed to the class or the district judge during the class certification stage of the case.)

     Now, U.S. District Judge Manuel L. Real has reconsidered the fee issues and determined that the conflicted lead class counsel was entitled to no fees at all, although awarding lead conflicted counsel over $1.2 million in reimbursable expenses. District Judge Real found that this ethical violation was serious enough, despite the fairness of the overall settlement, to result in the forfeiture of attorney’s fees altogether on both contractual and quantum meruit claims. (Image Technical Service, Inc. v. Eastman Kodak, 136 F.3d 1354 (9^th Cir. 1998); Huskinson & Brown, LLP v. Wolfe, 32 Cal.4^th 453 (2004).)

     Judge Real did award substantial fees to nonconflicted attorneys representing the class, although reducing the lodestar by 10% in order to account for excessive fees and noncompensable work (and denying the multiplier requests). He also awarded $8,125 respective fees to two of objectors’ attorneys.

     It has been reported that McGuireWoods LLP (counsel awarded nothing) have asked Judge Real to reconsider his ruling.

     Judge Real’s order was filed February 3, 2010 in Rodriguez, and can be found on-line (as well with other background on the case) at The Wall Street Journal website. See the February 12, 2010 article entitled “The Class Gets $49 Million, But the Lawyers Get Nothing.”

Ethics And Settlement Involving Fee Waivers: No Ethical Ramifications From Recommending Fee Waiver Settlements

State Bar’s Standing Committee Issues Formal Opinion Confirming Propriety of these Settlements.

     Formal Opinion No. 2009-176 of the State Bar’s Standing Committee on Professional Responsibility and Conduct has concluded that (a) a lawyer does not violate any ethical obligation by recommending or conveying a fee-waiver settlement offer in a given case, and (2) a lawyer does not violate any ethical obligation by recommending or conveying fee-waiver settlement offers in cases generally. However, a plaintiff’s lawyer must inform the client of a fee-waiver settlement offer and consummate the settlement in accordance with the client’s desires even if it reduces the likelihood of recovering some or all of his/her fees.

     We would like to thank Ellen R. Peck, a former State Bar Court judge and sole practitioner in Escondido, for making us aware of this opinion in her article “New State Bar Reporting Requirements,” published in the September 2009 issue of the California State Bar Journal. Ms. Peck also discusses new rules on conflicts of interest, Client Security Fund, Interest on Lawyer Trust Account, and e-mail address requirements for all members of the State Bar. (Remember: By February 1, 2010, all members must create an online profile through the bar’s secure membership system, which must include a valid e-mail address.)

Class Action: Class Representative Incentive Agreements That Created Conflicting Interests Required New Consideration Of Fee Award To Objectors And Class Counsel

Ninth Circuit Requires Reexamination of Fee Denial to Objector’s Counsel and Fee Award to Class Counsel.

     For the plaintiff class action practitioners out there which follow our blog, the next decision is must reading. Not only does it highlight the fiduciary and ethical duties involved in the process, but counsels that incentive agreements should not be structured in an attorney-client retainer agreement in such a way that they create conflicts between the class representatives and the rest of the class. That is what happened in the next case, with potentially wide-ranging repercussions. Fortunately, it did not tank the class action settlement. However, the situation did require reconsideration of the fee denial to objectors pointing out the issue and the fee award to class counsel caught up in the conflict.

     Rodriguez v. West Publishing, Case Nos. 07-56643 et al. (9^th Cir. Apr. 23, 2009) (for publication) involved the $49 million class action settlement between BAR/BRI class members and West Publishing/Kaplan Inc. Lawyers for the class were set to collect up to $12.25 million in fees (calculated on a lodestar, enhanced by a 1.75 multiplier, up to 25% of the settlement fund). (BLOG OBSERVATION—In the Ninth Circuit, class counsel can be awarded attorney’s fees under either a lodestar or straight percentage of settlement fund approach. Powers v. Eichen, 229 F.3d 1249, 1256 (9^th Cir. 2000).) However, several objectors challenged the settlement on various grounds. Their objections on the incentive agreements to 5 class representatives hit a receptive chord with the Ninth Circuit.