CALIFORNIA ATTORNEY'S FEES

Family Law, Retainer Agreements, Sanctions: CCP § 128.7 Sanctions Award Reversed Because Litigant Not Given Safe Harbor Notice/OSC Notice That The Sanctions Response Was Sanctionable

Also, We Learn New Things All The Time—Contingency Agreements In Family Law Proceedings Are Against Public Policy.

               Wright v. Wright, Case No. B330901 (2d Dist., Div. 1 Aug. 23, 2024) (unpublished) is interesting on two points:  (1) it reversed a CCP § 128.7 sanctions order against a litigant based on litigant’s response to a sanctions motion because no separate safe harbor or OSC notice targeted that response; and (2) Rules of Professional Conduct, rule 1.5(c)(1) provides that contingency agreements in family law proceedings are void against public policy because they incentivize attorneys to discourage reconciliation between the family law litigants, although the panel did not have to apply this provision because the subject retainer arrangement was not a contingency arrangement.

Retainer Agreements: Client Funds With Law Firm Not Immune From Judgment Creditor Third-Party Level Where Law Firm Did Not Perform Any Services To Earn Compensation Under A Flat Fee Agreement

Good Discussion Of Professional Responsibility Rule Requirements For Flat Fee Agreement Arrangements.

               In Dickson v. Mann, Case No. D081851 (4^th Dist., Div. 1 July 16, 2024) (published), an appellate court has a discussion on who owns and how to handle client funds under a flat fee agreement.  There, it agreed with a lower court’s assessment that a judgment debtor client’s deposit of fees with a law firm were not immune from third-party levy because law firm had yet to earn any compensations for services under the flat fee agreement.  The opinion has a good discussion on using law firm operating accounts versus trust account with respect to a deposit of client funds under a flat fee agreement.

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. 

Retainer Agreements: Retainer Agreement Provision Did Allow For An Attorney To Recover Fees Against A Client For Prevailing In A Fee Dispute

We Quote The Successful Language Below.

            In Leung v. Alivandivafa, Case No. B323416 (2d Dist., Div. 2 Sept. 26, 2023) (unpublished), attorney won a fee dispute with a client after a lower court determined that the governing contingency agreement was valid.  The lower court then awarded prevailing attorney $98,250 in fees, reducing the requested hourly rate from $600 to $500 based on experience and the nature of the dispute.  The appellate court affirmed.  Here is the fee clause in the retainer agreement which justified the fee award: “ATTORNEY has a lien for his fees and legal costs upon the CASE, any judgment obtained thereon, or the proceeds of any settlement or recovery.  ATTORNEY will also be eligible for fees and legal costs associated with recovery of any and all monies owed by CLIENT.”

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.

Retainer Agreements: Whether Credit Card Processing Charges In California Can Be Passed On To Client Through Retainer Agreement Is An Open Question

Most Prudent Course Is To Treat It As a Non-reimbursable “Overhead” Expense.

            We commend practitioners to read Nicole Nuzzo’s article “The Credit Card Conundrum:  Passing Credit Card Processing Fees On To Client,” published in the December 2022 issue of Orange County Lawyer at pages 56-59.  In this article, she concludes it is an open issue in California whether credit card processing fees for client payments can be passed on to the client under a retainer agreement.  Citing to ABA Formal Opinion 93-375, she suggests that the critical distinction may be whether the charges are “overhead costs” or “direct costs”—the former generally not reimbursable and the latter usually reimbursable.  Other states come to conflict conclusions on the issue.  However, we believe she suggests that the less riskiest approach is to not seek reimbursement of such charges, especially with respect to unsophisticated clients.  In any event, the client needs to agree in advance to reimburse these credit card processing fees to client’s attorneys to make these charges potentially subject to recapture.

Deadlines, Retainer Agreements: Notwithstanding Whether Retainer Agreements Are Avoided, Quantum Meruit Statute Of Limitations Runs From Discharge

Appellate Court Follows Fracasse.

            The Law Firm of Kallis & Associates v. Padgett, Case No. H046063 (6^th Dist. Nov. 21, 2022) (unpublished) confirmed that, notwithstanding when a fee agreement is voided by the client, an attorney’s quantum meruit claim generally runs from the time that the law firm was discharged by the client, which was consistent with the retainer agreement in this case.  (Fracasse v. Brent, 6 Cal.3d 784,790, 792 (1972); Leighton v. Forster, 8 Cal.App.5^th 467, 480, 487 (2017).)

Equity, Retainer Agreements: Attorney Security Agreements For Fees Can Take Precedence Over Charging Orders

Matter Remanded To Determine Scope Of Security Agreement.

            We commend that all attorneys, with respect to collection of fees, read Rice v. Downs, Case No. B307780 (2d Dist., Div. 1 Dec. 27, 2021) (partially published) where the Court of Appeal, with some remand limited instructions, did seem to validate a security agreement/ UCC-1 filing for fee compensation as against a later charging order.  Lien priorities did govern here, but the opinion is good reading on how to perfect and obtain priority for purposes of fee recovery against competing creditors.

Arbitration, Retainer Agreements: $192,000 Arbitration Award To Ex-Attorney Affirmed On Appeal

After MFAA Arbitration, Ex-Attorney Rightly Went To Contractual Arbitration; Argument That Block Billing Violates B&P Section 6148 Is Rejected Although Retainer Said Attorney Could Block Bill.

            In Kling v. Horn, Case No. B305967 (2d Dist., Div. 7 Dec. 14, 2021) (unpublished), defendant ex-attorney, after engaging in a Mandatory Fee Arbitration Act (FAA) under which ex-client obtained partial relief from paying delinquent fee bills and after rejecting the award, won a contractual arbitration award of $192,000—with ex-client, in a bad move, not participating in the subsequent arbitration.  Among other arguments, ex-client argued that ex-attorney did not comply with the MFAA procedures and that a provision in the retainer agreement allowing ex-attorney the option to block bill violated B&P § 6148(b) [“Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”].

            The trial court confirmed the award and denied a petition to vacate it, determinations affirmed on appeal.  Ex-attorney did comply with the MFAA by participating in the MFAA arbitration and then demanding contractual arbitration, as allowed under Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP, 203 Cal.App.4^th 688, 693-694 (2012).  With respect to block billing, the appellate court concluded that (a) ex-client did not cite authority indicating it violated section 6148 (which does not require disclosing the date of services or specifically describing the services rendered, although indicating that block billing can require a discount of a fee request), and (b) the block billing provision was severable even if was considered to be illegal in nature.

Equity, Retainer Agreements: Voiding A Contingency Agreement Under Business & Professions Code Section 6147(b) Does Not Extend To Reasonable Litigation Costs

Contingency Agreement Provided Client Would Pay For All Costs, With Quantum Meruit Equitable Principles Bolstering The Conclusion.

            Henry M. Lee Law Corp. v. Chang, Case No. B288895 (2d Dist., Div. 3 Nov. 29, 2021) (unpublished) was quite an odyssey.  Law firm agreed to represent client in a wage/hour case under a 50% contingency agreement under which client agreed to reimburse all costs advanced by the firm.  There also was a severability clause in the retainer agreement.  Unfortunately, the retainer agreement did not have “negotiability” language required under Business and Professions Code section 6147(c).  Plaintiff client received a jury verdict of $62,000 plus an award of attorney’s fees in the amount of $300,000 under Labor Code sections 226(e) and 1194(a), with the fees ultimately held to go to the law firm rather than the client.  [BLOG NOTE—This shows how many wage/hour cases can result in substantial fees where the compensatory recovery is much less.]  But there was more bad news to come—the appellate court reversed the jury compensatory verdict and fee award in a subsequent opinion. 

            So, the battle turned to litigation costs advanced by law firm in representing the ex-client who terminated the firm along the way.  Client properly voided the fee agreement under section 6147(c), such that quantum meruit was the basis for fee recovery, which was a moot issue given the earlier appellate reversal.  A jury awarded law firm $28,250 in a collection suit against ex-client to collect the advanced litigation costs.  The issue presented in the appeal was whether section 6147(c) invalidated attorney’s attempt to recoup advanced litigation costs from client.

            The appellate court found that the section only applied to fee recovery and did not impact recovery of litigation costs which were to be borne by the client ultimately.  Nothing in the statutory provision applied to litigation costs, and quantum meruit equitable principles demonstrated it would be unfair to deny those expenses to client’s law firm. 

Retainer Agreements: Termination Provision Applicable To Client Responsibility For Expenses And Fees Did Not Become Unenforceable After Client Terminated The Attorney

Termination Provisions Set Fee Recovery With Reasonable Hourly Rates.

            In David Allen, APLC v. Gentry, Case No. A160180 (1^st Dist., Div. 5 Oct. 15, 2021) (unpublished), client terminated an attorney where the Retainer contained a provision stating, “I agree this Agreement may be terminated by either Attorney or me. In the event of termination, I realize I will be responsible for the expenses incurred and for the value of the services provided. I agree the services will be valued at $275 per hour for attorneys, $150 per hour for legal assistants and paralegals and $50 per hour for all other persons who work on my case.”  Attorney then sought to collect $74,350 per the costs/fee arrangement in the termination provision, obtaining summary judgment on a quantum meruit claim.  On appeal, client claimed that the termination of the agreement rendered the termination provision unenforceable.  No way, said the appellate court.  In this situation, the attorney sought to recover via the termination formula under quantum meruit, unlike other cases where counsel sought to be piggish and obtain greater compensation than that set under the agreement. 

            BLOG COMMENT—The result in this case was, in large part to us, based on the reasonableness of the termination provision, which only made client response for expenses and reasonable hourly rate compensation. 

Allocation, Landlord/Tenant, Retainer Agreements: $910,752.50 Fee Award Under San Francisco Rent Ordinance Fee-Shifting Clause Affirmed On Appeal

Trial Judge Did Reduce Requested Lodestar By More Than $70,000—About 60% Of The Request, Although Refusing To Award A Positive 1.5 Multiplier.

            Landlords in Duncan v. Kihagi, Case No. A154678 (1^st Dist., Div. 1 Oct. 6, 2021) (unpublished), were not pleased when a trial judge awarded $910,752.50 in fees in favor of the winning tenants where there was a fee-shifting provision in a San Francisco Rent Ordinance (a common feature of many municipal rent ordinances), although reducing the lodestar request by over $70,000 and declining to award a 1.5 positive multiplier.  The appellate court affirmed.  The fee claimants did not have to apportion a lot of the work because it was interrelated to the success under the Rent Ordinance, even though some claims were abandoned in order to streamline the trial.  Streamlining was not deserving of punishment.  Isolated challenges to some billing entries did not change things, given the lodestar reduction by the lower court.  The hourly rates for a 20+ year attorney ($425) and for a more senior founding partner ($525) were not excessive for Bay Area practitioners in such a case.  The contingency retainer agreement did not have to be introduced into evidence because the contractual terms do not compel any particular fee award.  (Vella v. Hudgins, 151 Cal.App.3d 515, 520-521 (1984).)  Finally, the financial impact of the fee award on landlords was not a mandatory factor to consider.  (Garcia v. Santana, 174 Cal.App.4^th 464, 467 (2009).) 

Retainer Agreements, SLAPP: Self-Represented Plaintiff’s Attempt To Obtain A Refund Of A $1,500 Retainer Fee Evolved Into Two Adverse Costs Awards Totaling $2,111.40 And A $15,600 Adverse Attorney Fees Award

Plaintiff’s Initial Non-Binding Arbitration Win Of $1,325 Was Vacated In Superior Court, So Plaintiff Hired A Paralegal Years Later To Help Draft A Complaint That Ultimately Invited A Motion To Strike.

            Corey v. Mudgett, Case No. D077532 (4^th Dist., Div. 1 June 22, 2021) (unpublished) does not directly involve the appeal of an attorney fees issue, but began with a $1,500 attorney fees dispute, and we discuss as it serves as a cautionary tale about the pitfalls of self-representation in complex legal issues. 

            Plaintiff had paid attorney defendant $1,500 to file her bankruptcy petition, but discharged defendant before he filed the petition, and hired a different attorney.  When plaintiff requested a refund of the $1,500, defendant refused – claiming that, pursuant to his fee agreement, the $1,500 was a “true retainer earned upon signing this agreement.”  Plaintiff then initiated and won non-binding arbitration – resulting in a $1,325 award in her favor.  However, defendant successfully filed a superior court action to have the arbitration award vacated for lack of jurisdiction – asserting only the bankruptcy trustee for plaintiff’s bankruptcy case could pursue plaintiff’s claim – and was awarded $701 in costs.  This was paid four years later by plaintiff’s mother when defendant’s abstract of judgment recorded against plaintiff was somehow holding up mother’s refinance loan – presumably because plaintiff previously shared in ownership of her mother’s home.  Defendant accepted the original $701 – waiving interest and postjudgment costs – but it did not end there.

            Alleging mother had paid the $701 under “duress, coercion and manipulation” to obtain a release of “the fraudulent lien,” plaintiff and her mother then hired a paralegal to assist in drafting a complaint against defendant.  All of the claims in the complaint were inextricably related to the protected activity of the fee arbitration proceedings and invited a motion to strike.  Defendant successfully obliged, and was awarded $1,410.40 in costs and $15,600 in attorney’s fees under Code Civ. Proc. § 425.16(c)(1) (fee-shifting provision entitling prevailing SLAPP defendant to fees and costs recovery).  During the hearing on fees, plaintiff admitted to the trial court that she had failed to file an opposition to Defendant’s motion to strike because she did not know she could do so, or that such opposition should be submitted in writing (although the trial court considered her late filed opposition and allowed her oral argument at the anti-SLAPP hearing).  Again, plaintiff did not appeal the judgment re defendant’s anti-SLAPP motion or attorney’s fees award.  However, plaintiff did unsuccessfully appeal the trial court’s denial of her postjudgment motions to have the judgment vacated and for leave to file an amended complaint.  

            In a 3-0 opinion, authored by Justice Dato, the 4/1 DCA had this to say, “Nonlawyers who represent themselves in a civil case involving complicated legal principles are usually at a considerable disadvantage, as would be anyone attempting to perform a complex task without the necessary training, education, and experience.  This case sadly illustrates these perils in the anti-SLAPP context.”

Fee Clause Interpretation, Retainer Agreements, Section 1717: Postjudgment Order Awarding Attorney $1,232,735 In § 1717 Fees And Costs Incurred Defending Against Former Client’s Tort And Contractual Claims And Cross-Claim For Unpaid Fees Affirmed

Retainer Agreement’s Broadly-Worded Fee Provision Allowed For Recovery Of Fees For Attorney’s Defense Of All Claims By Former Client, Including Tort Claims – The Defense Of Which Were Necessary To Defeat The Contractual Claim.

            In Singh v. Molnar, Case No. B303366 (2d Dist., Div. 7 April 30, 2021) (unpublished), defendant attorney was awarded $1,232,735 in Civ. Code § 1717 fees and costs in a postjudgment order after prevailing against former client’s numerous contractual and tort claims and in his cross-claim against former client for unpaid fees.  Former client’s tort claims were based on attorney taking possession of a 10-year-old Mercedes (offered to former client as part of a settlement of another case) as an offset for fees owed by former client. 

            On appeal, former client argued that attorney improperly sought fees for attorneys who worked at his own firm defending against the tort claims, and that fees incurred in defense of the tort claims were not “on a contract” as required by § 1717.

            The 2/7 DCA affirmed. 

            Although tort and noncontract claims are generally not subject to § 1717 and its reciprocity principles, it does not prevent parties from contracting to allow for recovery of fees in tort actions.  Therefore, the question before the panel was not whether former client’s tort claims were “on the contract,” but whether the fees incurred in defending against those claims were covered by the retainer agreement.  The appellate panel found that former client’s tort claims fell within the scope of the broadly-worded fee provision because he sought a declaration of whether he owed money under the retainer agreement, or whether attorney owed money after taking the offset for the fees owed.  Agreeing with the trial court, the panel concluded that attorney’s defense of the tort claims was necessary to succeed on the breach of contract claim – and that the parties’ communications about the Mercedes/offset underscored that their disagreement was directly related to their dispute about contractual payment obligations under the retainer agreement.

Retainer Agreements: If Your Retainer Provides For A Deed Of Trust, Make Sure It Is B&P Section 6148 Compliant

Contractual Breach/Quantum Meruit Claims Did Not Succeed On Behalf Of Noncompliant Attorney Seeking Deed Of Trust Recovery.

            In Bishop v. Middleton, Case No. B299145 (2d Dist., Div. 5 Apr. 20, 2021) (unpublished), attorney sought to recover attorney’s fees under breach of contract and quantum meruit theories against a client on the theory that a deed of trust was granted against client’s property for payment of fees under an alleged retainer agreement.  Attorney was requesting $240,000 in fees.  Attorney could not produce a signed retainer agreement, leading the lower court to conclude that the agreement was voidable under Business and Professions Code section 6148 (requiring a written agreement) such that no fees were recoverable under Attorney’s pled theories.  The 2/5 DCA agreed with the result:  because the retainer agreement was voidable, the deed of trust was similarly extinguished and any quantum meruit could not be secured given the extinguishment of the deed of trust.  

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). 

Retainer Agreements: 4/2 DCA Unpublished Decision Holds That B&P § 6147 Voiding Of Contingency Agreement Is Subject To One-Year Legal Malpractice Statute Of Limitations

No Direct Authority On Point, But Reasoning From One Decision Drove The Conclusion.

            Lee v. Newman, Case No. E073745 (4^th Dist., Div. 2 Mar. 4, 2021) (unpublished), a messy attorney-client retainer agreement/conversion dispute, is noteworthy for one issue which we found to be of interest.  There, a client argued that an attorney’s contingency agreement was void because it failed to include magic language that the contingency agreement was negotiable—a solid argument.  However, client sued after the one-year statute of limitations governing legal malpractice claims with respect to voiding the agreement.  (Code Civ. Proc., §340.6(a).)  Although neither party cited, nor could the appellate court locate, any authority that directly addressed the issue, the 4/2 DCA agreed that the voidable claim was governed by the 1-year SOL because it arose from a breach of an attorney’s professional duties—adopting analogous reasoning from Foxen v. Carpenter, 6 Cal.App.5^th 284, 288, 291-292 (2016) in the process.

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.

Retainer Agreements, Trade Secrets: In The Absence Of An Express Retainer Agreement Otherwise, Fees Earned Under Uniform Trade Secrets Act Belong To The Attorney, Not The Client

Third District Applied Analogous Reasoning From Flannery Decision.

            Many times, “ownership” of an attorney’s fees award can be critical—does it belong to the attorney or the client, especially after disputes fester?  The Third District in Aerotek, Inc. v. Johnson Group Staffing Co., Inc., Case No. C078435 (3d Dist. Sept. 15, 2020) (published) decided where ownership should lie for a fee award under California’s Uniform Trade Secret Act, Civ. Code, § 3426.4, after a trial judge decided the attorneys were entitled to fees of $827,938.17 plus interest following representation of a client resulting in a zero award by the other side.

            The Third District, drawing from analogous reasoning in Flannery v. Prentice, 26 Cal.4^th 572 in the FEHA context, decided that a trade secret fee award belongs to the attorney, not the client, unless there was an express fee agreement dictating otherwise.  Here, the facts appeared to be solidly on the law firm’s side for purposes of reaching this conclusion:  its client defendant was behind in its receivable, the law firm agreed to substantially write down a receivable with the ability to collect the write-off through a fee award on a “modified pro bono” basis (except the client had to reimburse routine or expert costs), and nothing indicated in the written fee agreement where surplus fees over the write-off would go.  The parties’ fee agreement did not dictate otherwise, because it did not address the ownership issue on fees award over the written-off amount. 

            Client argued that its attorneys needed to provide a notice of right to arbitrate under the Mandatory Fee Arbitration Act, but that did not apply to fee disputes determined pursuant to statute as it was here.  Client also contended that the trial judge should have allowed a jury trial on the ownership issue, but the appellate court disagreed by finding that the gist of the dispute was equitable in nature. 

Retainer Agreements: Trial Court Erred In Narrow Interpretation Of Retainer Agreement That Did Not Hold Client Responsible For Unpaid Fees/Costs

Pursuant To Statutory Rules Of Contract Interpretation, Contracts Should Be Construed As A Whole So As To Interpret The Mutual Intention Of The Parties.

            In Lerner & Veit v. Power, Case No. A158322 (1^st Dist., Div. 5 August 31, 2020) (unpublished), plaintiff law firm and defendant client entered into a written retainer agreement  wherein defendant would be responsible for paying the firm’s fees, costs and expenses.  Because defendant’s cousin, who was not a party to the underlying action, verbally agreed to pay defendant’s fees, the retainer agreement contained a “Payment by Other Party” clause that allowed the firm to invoice and collect from cousin, and held defendant responsible for any fees/costs not paid by cousin.

            Cousin paid $30,000 to plaintiff law firm – leaving a balance of $84,047.25, which defendant client refused to pay.  Seeking payment of the unpaid fees/costs, plaintiff first filed an action against cousin.  When that case settled and was dismissed with prejudice, plaintiff filed an action against defendant for payment of the $84,047.25 in unpaid fees/costs.  Plaintiff demurred – claiming plaintiff’s action was barred under the doctrine of res judicata.   The trial court granted demurrer without leave to amend – concluding that the retainer agreement required defendant to pay only fees/costs owed by cousin but not paid, and that because the action against cousin was dismissed, cousin owed no fees and, therefore, defendant owed no fees.  Plaintiff appealed.

            The 1/5 DCA reversed – finding that the trial court erred in its narrow interpretation of the retainer agreement.  Rather, when interpreting contracts, the mutual intention of the parties at the time the contract is formed governs interpretation.  (Civ. Code § 1636.)  Therefore, the trial court should have construed the contract as a whole so as to interpret the mutual intention of the parties.  By focusing on only the one clause related to cousin’s payments, the trial court interpreted that defendant client was not responsible for plaintiff law firm’s unpaid fees/costs, when the mutual intention of the parties was that defendant would be responsible for the fees/costs and pay any fees/costs not paid by cousin. 

.

Reasonableness Of Fees, Retainer Agreements: Lower Court Properly Denied Attorney’s Fees And Costs For Winning $7,580 Against Ex-Client In Fee Collection Case

Reason Was That Matter Should Have Been Brought As Limited Civil Case Rather Than An Unlimited One.

            Code of Civil Procedure section 1033 grants a trial court discretion to deny, in whole or in part, a plaintiff’s recovery of litigation costs, including attorney’s fees, where the plaintiff brought the action as an unlimited civil case but obtains a judgment for money damages in an amount that could have been recovered in a limited civil case. 

            In U.S. Construction Law v. Kinder, Case No. D074911 (4^th Dist., Div. 1 May 12, 2020) (unpublished), plaintiff law firm sued to recover over $68,000 in fees from ex-client for representing her in a cabin repair case alleging $75,000 in damages, a case where the causes of action which could have given ex-client fee recovery, if successful, were ejected through a summary judgment motion—which prompted law firm to withdraw.  Ex-client cross-complained for breach of fiduciary duty and negligence in the handling of the action from which law firm sought to collect the $68,000-plus in fees.  The jury only awarded law firm $7,580 in damages out of the requested $68,000-plus.  Law firm then sought attorney’s fees as the prevailing party under a contractual fees clause in the retainer agreement.  The trial judge denied the request in entirety based on the view that the cabin repair suit should not have been brought in the first place (but certainly not as an unlimited case) and the fees sought for the work were unreasonable.

            The 4/1 DCA affirmed, finding the fee/costs denial to be no abuse of discretion.  The cabin repair suit was not well-founded, and the law firm did not show good judgment in filing it as an unlimited case.  Although the trial court even expressed that a denial is an unusual ruling, that ruling was justified under the circumstances. 

Retainer Agreements: Third District Rebuffs B&P 6147(b) Challenge To “Related Matters” Retention Language In Contingency Agreement

The Language In The Contingency Agreement, Sustained On Appeal, Offers Some Drafting Tips To Attorneys In Fashioning Their Retainer Agreements.

            Some drafting tips for retainer agreements are presented through the result affirmed in Meagher v. Robinson Bradford LP, Case No. C087478 (3d Dist. Apr. 21, 2020) (unpublished), where attorneys fought back several challenges to both their retention agreement and handling of matters for an ex-client.

            Appellant claimed that the attorneys’ contingency agreement was voidable under Business & Professions Code section 6147 because it failed to adequately define the scope of legal services for which fees could be charged with respect to “related matters” arising out of the attorney-client relationship not covered by the contingency agreement.  The Third District disagreed:

“We find that the fee agreement contains the required related matters statement.  In paragraph 2, [the law firm] expressly agreed to represent [ex-client] and her company in the unlawful detainer and civil action. The agreement further provides in paragraph 10 that [the law firm’s] representation does not include ‘any other legal matters’ and paragraph 2 states that representation in any other matter ‘will require a separate written agreement.’ We find this language meets the requirements of section 6147, subdivision (a)(3), and therefore conclude that the agreement was not voidable under section 6147, subdivision (b).”

Deadlines, Retainer Agreements, Section 1717: 4/1 DCA Affirms $108,848.50 Attorney Fees Award To Prevailing Plaintiff Attorney For Work In Seeking Unpaid Fees And In Defending Against Former Client’s Cross-Complaint

Balance Of Unpaid Fees And Costs Were $31,147.17 When Former Client Stopped Making Agreed-Upon Monthly Installment Payments Of $200.

            In Delisi v. Wagner, Case Nos. D074728 and D075506 (4^th Dist., Div. 1 January 27, 2020) (unpublished), an attorney sued his former client for unpaid fees and costs when Former Client stopped making monthly installment payments of $200 agreed upon by the parties in an addendum to their retainer agreement.   

            Former Client owed $31,147.17 when he stopped making the $200 monthly installment payments.  When Attorney sued for the unpaid fees, Former Client filed a cross-complaint for general negligence alleging damages as a result of Attorney’s representation in Former Client’s divorce case, and seeking damages of $88,275.  The trial court found the cross-complaint was time-barred pursuant to the one-year statute of limitations set forth by Code Civ. Proc. section 340.6, and granted Attorney’s motion for summary judgment.  Later, the trial court also granted Attorney’s motion for summary judgment on his complaint for unpaid fees and costs – awarding $12,000 for 60 missed installment payments, plus interest from the date each installment payment became due.

            As the prevailing party, and pursuant to the attorney fees provision in the parties’ retainer agreement, Attorney then successfully moved for two awards of attorney fees and costs under Civ. Code section 1717 – receiving an award of $108,848.50, with $88,495.50 awarded for the fees/costs incurred in prosecuting his complaint, and $20,353 awarded for the fees/costs incurred in defending against the cross-complaint.  Attorney's motions for fees and costs were considered unopposed by the trial court due to the late filing of Former Client's opposition.

            Former Client unsuccessfully appealed the judgment and post-judgment awards of fees/costs – with the 4/1 DCA finding he failed to meet his burden of proving reversible error on both procedural and substantive grounds.  With regard to the summary judgment, Former Client – who had represented himself at both the trial and appellate court levels – had forfeited arguments on appeal by failing to support them with sufficient facts, citations to the record, and/or failing to raise them in the trial court.  As to the attorney fees orders, Former Client had forfeited appellate review by failing to timely oppose Attorney’s motions in the trial court.

Arbitration, Nonsignatories, Quantum Meruit, Retainer Agreements: Judgment Confirming Arbitration Award Of $1,273,765.91 In Fees Owed To Two Law Firms Plus Another $508,678.82 For Fees And Costs Incurred In The Arbitration Affirmed

Arbitration Was Properly Ordered Because The Claims Between Client And The Two Law Firms Arose Out Of The Underlying Retainer And Arbitration Agreements Client Signed With The First Law Firm.

            Client retained a law firm to represent her in an ongoing dissolution action – signing a Retainer Agreement and a binding Arbitration Agreement.  During the next 15 months, the law firm billed Client more than $4.5 million in fees and costs, which included fees/costs incurred for the first 23 days of trial (with an estimated 45 additional trial days to follow).  Around this time, the trial court denied the law firm’s request for an award of $1 million in interim attorneys’ fees to continue representing Client.  That same day, an attorney from the law firm notified Client that the law firm had dissolved and that he was forming a new law firm where the same staff would be available to continue working on her case.  He requested Client sign an acknowledgment that the new firm would represent her under the same terms as the Retainer and Arbitration Agreements from the first firm.  She refused to sign, but requested the new firm represent her.  The new firm and Client did not sign a retainer agreement.

            About a week-and-a-half later, the attorney filed a motion to withdraw as Client informed him she would not make additional payments until completion of the trial.  Client opposed the motion – stating she had “no irreconcilable differences with [the attorney]” and only disputed his demand for additional fees.  A year after the motion to withdraw was granted, the attorney, dissolved firm, and the new firm collectively filed a lawsuit against Client for breach of contract – among other causes of action – resulting from the unpaid fees.  On the same day, Client filed a lawsuit against the attorney and firms alleging breach of fiduciary duty, breach of contract, and legal malpractice – based on representations Client alleged were made to her when she agreed to retain the now dissolved law firm.

            The trial court related the two lawsuits, and attorney/firms successfully moved to compel arbitration of all claims raised in both lawsuits based on the Arbitration Agreement signed between Client and the now dissolved firm.  Several months after completion of the multi-day arbitration, the arbitrator issued written award in favor of the firms – awarding the now dissolved firm $1,037,719.16 in unpaid fees and costs, plus interest, under breach of contract; awarding the second law firm $236,046.75 for the reasonable value of its services, under the theory of quantum meruit, using the same billing rates outlined in the Retainer Agreement signed with the now dissolved firm; and awarding an additional $508,678.82 to the “prevailing party” attorney/firms for fees/costs incurred in the arbitration.  After the trial court confirmed the arbitration award, Client filed a motion for a new trial – arguing the trial court erred in granting the petition to confirm the arbitration award.  Upon denial of that motion, Client appealed.

            On appeal, Client argued that none of the claims concerning the new law firm arose out of the obligations created by the Retainer Agreement and Arbitration Agreement signed with the now dissolved firm, and that she never signed such agreements with the new firm.  The 2/3 DCA in Kolodny v. Wondries, Case No. B293985 (2d Dist., Div. 3 November 25, 2019) (unpublished) disagreed. 

            Citing Strasbourger Pearson Tulcin Wolff Ins. v. Wiz Technology, Inc. (1999) 69 Cal.App.4^th 1399, 1404, the 2/3 DCA found “an attorney-client relationship can be created by an express or implied agreement; the terms of an implied agreement ‘are manifested by conduct’.”  Here, although Client refused to sign anything with the new law firm, she requested that the attorney continue representing her through the new firm.  She never proposed different terms, nor did she ask to negotiate a different retainer agreement, when she requested the continued representation.  Further, Client pursued claims against the new law firm based on obligations originating out of the Retainer Agreement signed with the now dissolved firm.  Therefore, the trial court was correct in determining that the original Retainer and Arbitration Agreements were the source of the attorney-client relationship between Client and new firm, and that the disputes between the law firms and Client arose from those original agreements.

Liens For Attorney Fees, Retainer Agreements: Broad Retainer Lien Language Relating To A Lien For General Representation Did Allow For Attorney’s Lien Claim Work

Also, Lien Claim Work Can Encompass Unrelated Work To A Specific Litigation Case.

            In Callahan & Blaine v. Vogeler, Case No. G055912 (4^th Dist., Div. 3 July 24, 2019) (unpublished), attorney-defendant in pro per balked at a contractual breach lawsuit brought by Callahan & Blaine—a well-known Orange County law firm—based on broad attorney lien language in the retention agreement:  a lien on the client’s future recoveries, even if not representing the client, and with the lien reaching “general representation and litigation” which included the action at issue where a settlement was reached.  Appellant’s technical arguments on why the attorney’s lien did not attach were dismissed because (1) the broad language did give C&B a claim to general representation work, and (2) an attorney’s lien asserted in an action need not be limited only to fees or costs related to that action (Bluxome Street Associates v. Fireman’s Fund Ins. Co., 206 Cal.App.3d 1149, 1152-1154 (1988)).  Beyond that, C&B gave a discount on their lien in a settlement agreement releasing certain items, so equity did not favor appellant’s technical arguments to the contrary.  Acting Presiding Justice Moore was the author of the 3-0 opinion.

Liens For Attorney Fees, Retainer Agreements: ABA’s Formal Opinion 487 Clarifies Successor Counsel Duties In Contingency Case To Notify Client About Potential Repercussions With Respect To Original Counsel

Successor Counsel Has At Least A Warning Duty, And Successor Counsel May Have More Obligations If That Counsel Tries To Resolve Dispute With Prior Counsel.

            We can report that the American Bar Association’s Standing Committee on Ethics and Professional Responsibility recently released Formal Opinion 487, for which we provide a hyperlink.  It deals with successor counsel obligations, in a contingency matter, to notify the client about potential obligations the client has to prior counsel—a sequential representation situation, clarifying the very different responsibilities that apply to simultaneous, true fee-splitting situations.  We summarize it below.

            First, a successor counsel in a contingency case must notify the client, in writing, that some portion of fee may be due to or claimed by the first counsel even if the exact parameters of the claim are not known, especially given attorney’s liens likely possessed by the first counsel.  The successor counsel must only “provide written notice that a portion of the fee may be claimed by the predecessor counsel.” 

            Second, if the successor lawyer takes on or needs to negotiate fees with the prior attorney on client’s behalf, successor counsel needs to advise and obtain an appropriate personal conflict of interest waiver from the client in taking on such retentions.

            Third, if a dispute arises between allocation of proceeds by a prior counsel, the successor counsel must hold the dispute portion of the funds in a client trust account.  (We would assume that an interpleader would also be an option here.)

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.

Retainer Agreements: Los Angeles County Superior Court Invalidates Oral Entertainment “Handshake” Fee Contingency Deals Not In Writing

Case Involved Johnny Depp, And May Send Some Ripples Through Entertainment Industry.

            This next case, although only at a state superior court level, may send some shock waves on how entertainment agreements are structured between actors and their lawyers.

            What happened here is that Johnny Depp challenged millions of dollars paid out to attorney Jake Bloom over 18 years based on the fact they only had an oral “handshake” arrangement to represent the actor based on a percentage of the actor’s earnings. After Messrs. Depp and Bloom entangled into a dispute, Mr. Depp sought to recoup the fees based on the fact that it was an oral continency arrangement that needed to be in writing.

            Los Angeles County Superior Court Judge Terry Green agreed with Mr. Depp, finding it was a contingency arrangement which needed to be in writing.

           “There’s not a special rule for entertainment people,” Judge Green said Tuesday, August 28, 2018. “Why isn’t it in writing? Why not have something that memorializes the agreement so we don’t end up in court fighting like this?” Attorney Mr. Bloom’s attorney argued that the outcome was uncertain, could fluctuate wildly, and was based an equity interest in future movies.

However, Judge Green repeatedly stated that his relatives work in the entertainment business, so he has no particular hostility to it. But, he argued, the business should be bound by the same rules as everybody else. “I grew up in a showbiz family,” Judge Green said. “I am aware that showbiz people think they live in a different universe, but they don’t. They’re not a different universe.” Judge Green argued that the ups and downs of Depp’s career underscore the speculative nature of a fee arrangement based on his income.

“I don’t follow showbiz,” he said. “I rarely go to movies. I know who the plaintiff is. I can’t tell you a whole lot about him, except he’s had ups and downs in his career. Who would have known, 18 years ago, how high the highs are and how low the lows.”

We think there is likely to be an appeal on the ruling in this case, at some stage.

Retainer Agreements: ABA Section Of Litigation Post Offers Some Nice Tips On How To Avoid Risks For Retainer Agreements

The Woman Advocate Post Gives Some Nice Tips.

            Shari L. Klevens and Alanna Clair, in a March 2, 2017 post on the The Woman Advocate (which was republished in a recent post by the ABA Section of Litigation), entitled “Engagement Letters: Four Key Terms to Reduce Risks,” do offer some nice guidance tips on retainer agreement terms that law firms should consider in their engagement letters to reduce overall risk. Here are the tips:

• Define the Client. For example, specify that the attorney specifies that he/she is representing the officer of a corporation but not the corporation itself (or its shareholders.) In fact, it might be prudent to include this language: “No duties have been undertaken or assumed for any person or entity that has not been specifically identified as a client.”
• Confirm the Scope and Duration of Representation. The authors note that legal malpractice claims have been dismissed where the engagement letter was clear as far as scope and duration of representation. For example, the authors suggest making clear that a representation is for the trial but not the appeal. With respect to a limitation on duration, specifying the event may prevent any application of a longer tail for work to notify a client about a renewal of a security filing or changes in the law. They also suggest a “file-closing letter” upon the terminating event, confirming the end of the relationship.
• Confirm the Fee. This means specifying that the representation is hourly, a contingency fee, or an alternative/mixed fee arrangement. One also needs to make clear the expenses for which the client is responsible, independent of the fee arrangement.
• Include Nonassignability Language. This relates to legal malpractice exposure, because some jurisdictions hold these claims are nonassignable by the client (the majority do) but some are not so clear. The authors recommend that attorneys include nonassignability language to help insure exposure is only limited to the unique attorney-client relationship.

Retainer Agreement, Section 1717: Law Firm Suing For Breach Of Oral Agreement To Provide Legal Services, Based On Continued Applicability Of Retainer Agreement, Resulted In Law Firm Exposure Under Retainer Fees Clause

Ex-Clients Won $38,841 In Section 1717 Fees After Prevailing On A Summary Judgment Motion.

            Many California retainer agreements between lawyers and clients have attorney’s fees provisions and provisions indicating that any further requested work, even if oral, will proceed under the terms of the written retainer agreements. When both of these features are present, the next case shows that law firms can face exposure for losing under these terms, even under an oral breach of contract theory for continued work, based on the written retainer fees clause and Civil Code section 1717.

            What happened in Kinkle, Rodiger & Spriggs v. Graffam, Case No. E067370 (4^th Dist., Div. 2 June 27, 2018) (unpublished) is that the law firm represented defendants in multiple litigation cases under a retainer agreement with the corporate defendant having a fees clause and a provision that any requested further oral services would proceed under the written retainer agreement terms—very standard provisions in many retainers. Although defendants thought they had satisfied any receivable with the firm, 14 months later they received an invoice for asserted fees. When it was not paid, law firm sued, asserting breach of oral contract and common counts. The trial judge, based on a summary judgment filed by defendants, decided the individual defendant had no retainer agreement with law firm and that the corporate defendant had satisfied any outstanding receivables through payments or other arrangements.

Defendants moved to recover $42,883 in fees based on the retainer fees clause, with the lower court granting them $38,841.

            Law firm appealed the fee award, not contesting the summary judgment on the merits. However, the appellate court decided that law firm was relying on the retainer agreement based on it binding both sides as far as any future services provided even without the signing of a new written agreement. Given that law firm would have recovered had they won on this theory, section 1717 also entitled defendants to fees as the prevailing parties.

            BLOG OBSERVATION—This result may make some firms reconsider whether a fees clause is a good idea in retainer agreements. There are pros and cons on both sides, but the fees clause here did give rise to exposure.

Retention Agreements: Riverside County Bar Association Fee Arbitrators Find Enforceable A Hybrid Retention Agreement Providing For A Contingency To Attorney If Successful, Plus A Feature That Attorney’s Fees And Costs Awarded For The Success Are Kept

$304,570.00 Was Fee Award To Attorney, Plus $35,000 More For Post-Trial Work On A Quantum Meruit Basis.

            _{We would like to thank Gregory M. Burke of CGA Ventures, Inc. for sharing with us the Findings and Award by the Riverside County Bar Association’s Fee Arbitration Program in a fee dispute with a former client.}

            _{Specifically, client (a small business owner) and attorney entered into a retention agreement by which attorney agreed to represent client based on a 40% contingency on any sums in a civil action against a lender, plus any attorney’s fees awarded by the court to the client on any contract in any action would be retained by attorney.  Attorney won a nice verdict in the civil case ($250,000 principal judgment) and attorney’s fees of $188,100.  Attorney also beat back post-trial motions and upheld the civil verdict/fee award on appeal.}

            _{However, client argued that the retainer agreement was unenforceable.  Three fee arbitrators disagreed and found that the arrangement was perfectly proper.  However, because there was no written agreement covering post-trial and appellate work, $35,000 was due attorney for that additional work based on a quantum meruit basis.}

            _{Again, we thank Mr. Burke for providing us this interesting decision in the hybrid retainer area.}

Retainer Agreements: Third Circuit Court Of Appeals, In Nonprecedential Decision, Holds That Binding Arbitration In Retainer Agreement Is Enforceable Under Federal Arbitration Act

Client’s Informed Consent On Arbitration Clause Was Determinative.

            In Smith v. Lindemann, No. 16-3357 (3d Cir. 2017) (non-precedential), an individual sued her former divorce attorney for malpractice even though the services agreements contained a standard arbitration clause saying that the parties “agree to submit such disagreements in binding arbitration.”  The lower court enforced the clause, but the client appealed to the Third Circuit claiming that the agreement should be invalidated under New Jersey law and the New Jersey Rules of Professional Conduct. 

            The Third Circuit did not disturb the result.  It concluded that the Federal Arbitration Act (FAA) “federalizes” arbitration law and generally controls unless there is a strong state law argument such as fraud, duress, or unconscionability.  The problem is that ex-client could not identify any New Jersey law invalidating arbitration for malpractice claims and had informed consent on the arbitration provision so as to negate any issue that state rules of professional conduct were contravened. 

            BLOG OBSERVATION—One important warning point on this issue is that an attorney must check with their malpractice insurer to see if arbitration clauses are proper.  Some insurers do not allow such clauses to retainer agreements—so check ahead of time!  We thank ABA’s Litigation News, in a February 5, 2018 post by Benjamin E. Long, for providing a discussion of this case and its implications. 

Retainer Agreements: North Carolina Court Of Appeals Rules That Small Firm Seeking Fees Cannot Represent Itself Where Firm Attorneys Were Necessary To Prove Existence Of Contract

Disqualification Would Not Have Happened If Just Amount Of Fees At Dispute.

            Although this is a case from outside of California, we post on it to show potential disqualification issues which might arise when a firm representing itself in a fee dispute must prove more than just the reasonableness of fees being requested.

            What happened in Harris & Hilton, P.A. v. Rassette, 798 S.W.2d 154 (N.C. Ct. App. 2017) is that a small law firm was representing itself in a fee dispute.  The problem was that some of the firm attorneys were witnesses on one of the key issues as to whether there was an existence of a fee contract.  Although ABA Model Rule 3.7 allows an attorney to be both an advocate and witness on an uncontested issue or nature/value of legal services (or unless the firm could show a substantial hardship), the trial judge disqualified the firm from representing itself given that the firm attorneys were witnesses on the issue of whether a contract existed—a determination affirmed on appeal, given the appellate court did not believe it could rewrite Rule 3.7.   The rationale for the rule is that it may cause confusion to a jury when a firm attorney is both advocate and witness in a case.

            BLOG OBSERVATION—Although ABA Model Rules are not binding, we would assume the same result might well come to pass in California in a jury trial setting.   Nonetheless, unless the collecting law firm wants to waive fees expended in collecting on the matter (which does sometime occur), another reason that this issue may not arise in California that frequently is that firm seeking to collect fees hire outside counsel so as to avoid the inability to recoup fees under Trope v. Katz decision [our Leading Case No. 12] should a firm decide to represent itself in a fee dispute. 

Liens For Attorney’s Fees/Judgment Enforcement/Retainer Agreements: Two Unpublished Decisions Discuss These Issues

Attorney’s Liens/Retainer Agreements—Primo Hospitality Group, Inc. v. The Americana At Brand, LLC, Case No. B271188 (2d Dist., Div. 5 Nov. 17, 2017) (Unpublished).

            In this case, which involved some interesting third-party creditor and offset issues of interest to judgment collection attorneys, the appellate court did agree that attorney’s liens do not have to comply with UCC perfection requirements in order to be valid.  It also determined that “gross recovery” under a contingency agreement will be determined by what recovery was effectively gained by a client after considering gains under a complaint and hits under a cross-complaint, with waiver of set-offs not making a difference as far as a recovery to attorneys.

Judgment Enforcement—Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Case No. H043762 (6^th Dist. Nov. 17, 2017) (Unpublished).

            This was one shows how judgment creditors with a foreign federal district court judgment need to strictly comply with California judgment enforcement procedures.  What happened here, in brief, was that attorney obtained a substantial award for attorney services against a former client in New York federal court, then liening client’s potential recovery in a case which was ultimately settled and dismissed (but only attached the New York federal court judgment, not registered in California).  The problem for attorneys was that they did not have an effective lien against the case which earlier settled such that moneys were disbursed.   The reason is very technical—they did not register the judgment in California, relying instead on the New York judgment which was ineffective for registration and lien purposes.  Ouch!  The interesting thing about this decision is whether it would have recognized a prior effective registration of the federal judgment in California as being valid without going through other obstacles—although we personally think a different result likely would have occurred if the judgment had been registered in California.  If you are out-of-state California attorneys seeking to enforce a judgment in this state, engage competent California judgment enforcement collection (and, vice versa, for California attorneys in other states).

Retainer Agreements: Contingent Attorney’s Failure To Define “Recovery” With Specificity Prevented Recovery For Work To Obtain Satisfaction Of Adverse Trademark Judgment Against Clients.

Recovery Only Applied To Money Received By Clients, Teaching That Ambiguous Retainer Agreement Language Will Be Construed Against The Drafting Attorney.

              Justice Fybel, the author of a 3-0 affirming opinion in Kadin v. ABS Power Brake Inc., Case No. G052734 (4^th Dist., Div. 3 July 21, 2017) (unpublished), reminds us practitioners, especially litigators, to specifically define key terms of a retainer agreement relating to compensation which is potentially recoverable for attorney work efforts.  Ambiguities will be construed against the attorney, as they were in this case.

            Here, a retainer agreement stated that “[c]lient agrees to pay to Attorney a fee of 33-1/3 percent of any recovery.  If Attorney is unable to obtain money for Client in this case, then Attorney will receive no Attorney fee at all.”  Eventually, in settling a federal trademark lawsuit resulting in a $12.88 million judgment, clients did receive $1.1 million in cash and a satisfaction of the $12.88 million judgment.  Attorney claimed he was entitled to one-third of the $12.88 million (about $4.3 million), while clients said no—the one-third recovery language only applied to the $1.1 million “cash received” from the settlement.  Both the trial and appellate courts agreed that clients’ position was correct. 

            First of all, there was extensive parol evidence demonstrating an understanding that “recovery” was to encompass only “cash in hand.”  Beyond that, however, the Court of Appeal stressed that retainer agreement ambiguities are construed against the attorney (M’Guiness v. Johnson, 243 Cal.App.4^th 602, 617-618 (2015)) and that a contingency fee agreement must define the term “recovery” both broadly and specifically if it is intended to include particular forms of nonmonetary recovery (cf. Beard v. Goodrich, 110 Cal.App.4^th 1031, 10333, 1039 (2003)). 

Retainer Agreements: ABA Formal Opinion 475 Explains How To Treat Received Fees Where Different Attorneys Have Disparate Interests In The Funds

 

Opinion Was Issued On December 7, 2016.

     ABA Formal Opinion 475 addresses how to deal with received fees from a client when different attorneys provided services to the client. Actually, a two part process is involved: (1) the fees must be held by the receiving attorney separate from the lawyer’s own separate property (such as a trust account); and (2) the receiving lawyer in which another lawyer has an interest must promptly notify the other lawyer and render a full accounting if requested to do so. The segregated funds must be kept separate until any dispute between lawyers is resolved.

     More commentary on this Opinion can be gained by reading David L. Hudson Jr.’s article, “The Great Divide,” published in the March 2017 ABA Journal.

Deadlines/Equity/Retainer Agreements: Invalid Attorney-Client Retention Agreement Meant Attorney Collection Suit Was Subject To 2-Year Quantum Meruit Statute Of Limitations

Attorney Sued Too Late, With Account Stated Count Not Lengthening The 2-Year SOL.

 

    Leighton v. Forster, Case No. A145601 (1^st Dist., Div. 4 Feb. 9, 2017) (published), is an interesting case to show how a noncompliant engagement letter leaves the attorney to seek recovery of fees in quantum meruit, which is governed by a shorter two-year statute of limitations—and a limitations period which cannot be circumvented by using common counts with a longer SOL.

 

    In this one, attorney sued ex-client to recoup $114,000 in unpaid fees. The lower court found for client on a summary judgment motion, determining that the engagement letter was not signed as required under Business and Professions Code section 6148(a) such that attorney's recovery was limited to quantum meruit. However, attorney did not sue within the quantum meruit 2-year statute of limitations (CCP § 338(1)) and could not use the account stated claim to get around the failure to sue within 2 years.

 

    The appellate court affirmed, agreeing with the lower court's conclusions. Attorney argued that client did not formally void the engagement letter so as to force attorney to bringing suit based on quantum meruit, but the 1/4 DCA found that an answer to complaint can be such an election under the right circumstances. The 2-year statute of limitations runs from the last day of payment by the client for fees or on the last day that attorney performed services, with attorney failing to sue timely within 2 years from either of these triggers. Attorney then argued that a four-year SOL was apt given the pleading of an account stated claim. Like the lower court, the appellate court rejected this argument for two reasons: (1) attorney could not use a common count to get around the real quantum meruit claim which was at issue, and (2) the account stated count could not qualify as a writing given the invalidity of the overall retainer agreement from the outset.

Retainer Agreements: 15-Day Objection Clause Found Unenforceable By 4/3 DCA

 

Would Allow For Fraudulent Billing, But Appellate Court Did Not Say A Longer Period For Review Might Pass Muster.

    We have seen numerous attorney-client retainer agreements where there is a clause that says if a client does not dispute a billing entry within 10 or 15 days of receipt, all of the entries are acknowledged as being correct or accurate as between attorney and client.  Lawyers likely assume that these clauses are enforceable, but the 4/3 DCA in a 3-0 opinion by Justice Fybel, relying on precedent, recently disabused that notion.

    In Cannon & Nelms, APC v. St. Andrews Development Corp., Case No. G052813 (4th Dist., Div. 3 Nov. 23, 2016) (unpublished), a law firm used a 15-day “review or be damned” clause to obtain summary adjudication on a contract count against a client, obtaining a judgment of $394,155.87 in damages and $57,003.31 in prejudgment interest.

    All of that went away on appeal because the fees clause was found to be unenforceable based on the reasoning of Charnay v. Cobert, 145 Cal.App.4th 170, 182-183, which found that this would allow a lawyer to fraudulently bill and then be improperly immunized from liability based on the wording of the clause.

    However, the 4/3 DCA panel did hinge its result on the fact a 15-day period was too short to comport with fiduciary standards between attorney and client.  “We do not address whether a much lengthier period of time in which to dispute attorney invoices might be enforceable.”  (Slip Op. at 9-10.)  Also, the appellate court strongly suggested that an expert witness might be advisable on remand to assist the court in determining the amount of attorney fees.  (See Donahue v. Donahue, 182 Cal.App.4th 259, 276.)

    NOTE:  Retainer agreements are also the subject of yesterday’s post about the MCLE article, “Ensure that your clients pay your fees” – an article also discussing a dispute waiver provision and Charnay v. Colbert. 

Fee Clause Interpretation, Retainer Agreements: Broad Retainer Attorney’s Fees Clause Encompassing “Any Dispute” Allowed For Fee Recovery In Legal Malpractice Action

 

Action Sounded In Both Contract And Tort, So Recovery Allowed.

    In GoTek Energy, Inc. v. SoCal IP Law Group, LLP, Case No. B266681 (2d Dist., Div. 6 Oct. 12, 2016) (published), an initial law firm providing patent application work for a client beat back a legal malpractice action based on the governing statute of limitations and recovered $140,000 in attorney’s fees against the client based on a broad fees clause in the retention agreement allowing fee recovery for “any dispute between us relating to the [retention agreement]” to a prevailing party like the law firm. 

    The 2/6 DCA, in a 3-0 opinion authored by Acting Presiding Justice Yegan, affirmed the merits and fee decisions. 

    In this instance, the broad language “any dispute” allowed for recovery of fees whether the litigation sounded in tort or contract—with the parties being able to determine how fee entitlement is determined under their mutual bargained-for contract.  (Code Civ. Proc., § 1021.)  The result did not change even under Civil Code section 1717 analysis (providing only for recovery of actions “on the contract”), because a legal malpractice action sounds both in tort and contract.   (Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 180-181 (1971).)