September 2010 | Earn one hour of MCLE Credit in Legal Ethics
ETHICS AND THE LAWYER’S WALLET
Four new cases on attorney’s fees could put more money
in lawyers’ pockets without harm to the client
©2010. All rights reserved.
Meryl Terpitude peered sheepishly around California Joan’s office door. “Got time for a few questions affecting a lawyer’s wallet?” Meryl asked hopefully.
“You always pose some interesting challenges in attorney ethics, Meryl.” Cali grinned at her partner as he sat down and began to pour out his current troubles.
“You remember the Firm and I got sued for legal malpractice and breach of contract by Clara Client more than a year ago,” Meryl began. “The Firm has been defending itself and me. Successfully, too! The case was dismissed after we brought the fifth demurrer on Clara’s failure to file her complaint within the statute of limitations.”
Meryl looked pleased momentarily and added, “The judgment of dismissal was just filed.” Meryl cleared his throat. “The Firm wants to bring a motion for attorney’s fees for representing me. However, in Trope v. Katz (1995) 11 Cal.4th 274, 278, the California Supreme Court held that a lawyer litigant who proceeds in propria persona rather than retaining another attorney may not recover reasonable attorney’s fees under Civil Code § 1717 if the lawyer prevails in a dispute with a former client. Are we precluded from recovery by Trope?”
“Meryl, we need to go into the analysis a bit more,” Cali said. “Since 1872, California has adopted the ‘American rule’ providing that in a legal action, win or lose, each party will generally pay its own attorney fees. See Code of Civil Procedure § 1021, which provides:
‘Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties. . . .’
“However, Trope recognized that parties can contract ‘out’ of the American rule when there is any agreement, express or implied, of the parties ‘that allocates attorney fees’ subject to the restrictions and conditions of § 1717.” (Id. at p. 279)
Section 1717 provides:
(a) In any action on a contract, where the contract specifically provides that attorney’s fees and costs which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.
Trope’s retainer agreement with the former client provided:
In the event it becomes necessary to file an action to recover the fees and costs set forth in this agreement, the Court may award reasonable attorney’s fees for the recovery of said fees and costs.
“The Court observed that a litigant must incur or become liable for attorney’s fees in order to recover them under this exception and that a lawyer appearing in propria persona could not recover such fees since the lawyer did not pay or become liable to pay consideration in exchange for legal representation.” (Id., pp. 280-281)
Cali continued: “Second, the purpose of § 1717 was to establish mutuality of remedy when contractual provision makes recovery of attorney fees available only to one party and to prevent oppressive use of one-sided attorney fee provisions. Since a non-lawyer cannot recover attorney’s fees for self-representation because of the non-lawyer status, mutuality of remedy requires that a lawyer engaging in self-representation cannot recover attorney’s fees. This rule also applies to a firm.” (Id., pp. 285-286, 289-292)
Meryl said, “The Firm’s fee contract is different and provides:
‘The prevailing party in any action or proceeding to enforce any provision of this agreement will be awarded attorney’s fees and costs incurred in that action or proceeding, including, without limitation, the value of the time spent by the Firm’s attorneys to prosecute or defend such an action (calculated at the hourly rate(s) normally charged by the Firm to clients which it represents on an hourly basis) . . .’
“However, I was not a signatory to this fee contract between the Firm and Clara Client. Does that also bar my recovery under § 1717?” Meryl asked.
“In the very recent case of Lockton v. O’Rourke (2010) 184 Cal.App.4th 1051, reh. den. 5/13/10, rev. filed 6/29/10, the Court observed that a lawyer member of a firm, sued on a fee contract to which the lawyer was not a signatory, is entitled to recover attorney’s fees as if the lawyer were a party to it, when the former client would also be entitled to attorney’s fees if that client had prevailed,” Cali responded.
“Well, then, I should get reimbursed for the legal fees that I incurred in the Firm’s representation of me in the legal malpractice action,” Meryl hooted.
“Meryl, under § 1717, fees are not authorized to the prevailing party in a legal malpractice action since the cause of action is a tort rather than a contract. (Loube v. Loube (1998) 64 Cal.App.4th 421) In the Lockton case, the Court concluded that Loube does not apply when the Firm’s defense of its lawyer on contract causes of action was inextricably intertwined with a legal malpractice defense.
“Also, the lawyer was never counsel of record for himself or the firm on the case,” Cali continued. “Therefore, since you were not counsel of record and since your defense on the legal malpractice and contract causes of action were also intertwined, the new Lockton case may not apply because there was no contract cause of action.”
“Can the Firm recover the cost of its own defense?” Meryl asked.
“In Lockton, the Court held that the law firm that was represented in litigation by members of the firm on intertwined contract and legal malpractice causes of action was not entitled to recover the cost of its attorney’s fees under § 1717 under Trope, supra, and subsequent cases,” Cali explained.
“The law firm argued that the fee clause in its retainer agreement was broader than the fee clauses in Loube, Trope and their progeny and it therefore could recover its fees under that agreement, pursuant to Code of Civil Procedure § 1021. The Lockton court agreed. It held that § 1021 permitted attorney’s fees to the prevailing party if the fee agreement is phrased broadly. The contract must demonstrate that the parties intended to authorize the prevailing party in any litigation between them to be awarded attorney’s fees for self-representation regardless of contract or tort claims,” Cali concluded. (Id., p. 1076)
“So the Firm can recover its fees for self-representation on the legal malpractice action if the fee clause is broad enough under § 1021 but not under § 1717?” Meryl asked.
“Possibly,” Cali replied. “The fee provision in the Lockton case was exactly the same as yours and therefore it may support recovery of attorney’s fees. However, the issue still may be open, since the Supreme Court has not yet determined whether to accept review. If review is denied or if the Supreme Court affirms the decision, the Lockton case will, in similar circumstances, permit a law firm to recover legal fees for self-representation by its own lawyers.”
“I guess the Firm should continue to use that fee provision in its fee agreements so that, as a prevailing party, it may seek awards of attorney’s fees for Firm members’ representation of the Firm consistent with § 1021 and Lockton,” Meryl said.
“I would suggest making a few additions to this provision to provide broader prevailing party fee awards in additional circumstances,” Cali said:
‘First, to ensure that a Firm’s representation of individual Firm members in tort causes of action is subject to fee award under § 1021, the provision should be clarified to include prosecution or defense of individual firm members.
‘Second, the current language is limited to “any action or proceeding to enforce any provision of this agreement.” Additionally, it should include any action or proceeding arising from the attorney-client relationship created by this agreement.’”
“Thanks, Cali,” Meryl said as he dashed off to ask the Firm lawyers to file a motion for a fee award.
Cali’s phone rang and she was delighted to find Corey Consumerlawyer greeting her. “Cali!” said Corey. “I know that the California Supreme Court case of Fletcher v. Davis (2004) 33 Cal.4th 61, 71-72 held that ‘an attorney who secures payment of hourly fees by acquiring a charging lien against a client’s future judgment or recovery has acquired an interest that is adverse to the client, and so must comply with the requirements of rule 3-300’ of the California Rules of Professional Conduct. Fletcher expressly did not decide whether rule 3-300 applies to a contingency fee arrangement coupled with a lien on the client’s prospective recovery in the same proceeding. (Id., p. 72, fn. 4)
“I also know that the State Bar Standing Committee on Professional Responsibility & Conduct concluded in Formal Opinion No. 2006-170, p. 7, that the inclusion of a charging lien in the initial contingency fee agreement does not create an ‘adverse interest’ to the client within the meaning of rule 3-300,” Corey continued. “I have some very big recoveries coming in some of my personal injury contingency fee cases and my charging liens do not comply with rule 3-300 consistent with Fletcher and the ethics opinion. Both of my clients are going to contest my fee and I want to be sure that I can withhold my claimed lien amounts until the fee disputes are resolved. Are my liens unenforceable for noncompliance with rule 3-300?
“Corey, I have good news,” Cali said. “A new case, Plummer v. Day/Eisenberg, LLP (2010) 184 Cal.App.4th 38, 48-49 [mod. on den. reh. 5/10/2010, rev. den.7/28/2010], held that an attorney is not required to comply with rule 3-300 to create a valid enforceable lien in a contingency fee contract signed by a client. It also approved the result in Formal Opinion 2006–170.
“Moreover, in another federal case in California, Plummer was cited in holding a contingency fee lien valid without compliance with rule 3-300.” (Schroeder v. San Diego Unified School District (S.D.Cal. May 12, 2010) __F.Supp.4th__[2010 WL 1948235], slip op. at p. 4)
“Perfect!” Corey breathed a sigh of relief.
“One other note on the Schroeder case, Corey,” Cali continued. “Counsel voluntarily withdrew from the case before Plaintiffs received any recovery. Counsel claimed they were required to withdraw from the case because one client refused to be truthful with them, creating a conflict between the clients’ interests and a potential for lack of candor to the Court. The Court noted that Estate of Falco v. Decker, (1987) 188 Cal.App.3d 1004, 1014, 1016 holds that a California attorney retained solely on the basis of a contingency fee agreement may not voluntarily withdraw from representing a client and later seek fees for the reasonable value of services rendered unless counsel demonstrates that (1) counsel’s withdrawal was mandatory, not merely permissive, under statute or State Bar rules; (2) the overwhelming and primary motivation for counsel’s withdrawal was the obligation to adhere to these ethical imperatives under statute or State Bar rules; (3) counsel commenced the action in good faith; (4) subsequent to counsel’s withdrawal, the client obtained recovery; and (5) counsel has demonstrated that his work contributed in some measurable degree towards the client’s ultimate recovery. (Id., slip. op. p. 5)
“The Court held that the lawyers’ withdrawal did not meet these standards; that they were not entitled to fees and struck their lien. The Court based its ruling upon (1) the failure of counsel to communicate that their withdrawal was due to a conflict of interest; that there was a potential conflict of interest or the need for separate counsel; and (2) the appearance that the withdrawal was really due to a personality clash leading to a breakdown in communications,” Cali concluded. (Id., slip op., pp. 5-6)
“One other recent case concerning the priority of liens should be mentioned,” Cali added. “Pou Chen Corp. v. MTS Corp. (2010) 183 Cal.App.4th 188, 193-194 held that an hourly rate attorney’s lien was subordinate to the rights of adverse parties to an offset of competing judgments obtained in the same action, where the two judgments concerned the same transaction. It also held that a lien in a contingency fee agreement for collection on judgment, occurring after the entry of the judgment, was subordinate to a judgment lien that a judgment debtor purchased.” (Id., p. 194)
As Corey rang off armed with the latest cases on contingency fee recovery, Meryl poked his head in Cali’s office, mumbling, “I’m ba-a-a-ack!”
“Cali, the Firm has been asked by the California City of Euforia to serve as co-counsel, on a contingency fee basis, with its city attorney in civil administrative proceedings to collect amounts due from online travel companies under the city’s transient occupancy tax. Are such fee agreements with a governmental entity legally or ethically barred?” Meryl asked.
“In Priceline.com v. City of Anaheim (2009) 180 Cal.App.4th 1130, 1144-1145, in a tax assessment proceeding, a court affirmed the trial court’s refusal to recuse a private law firm. First, even though the firm had been retained under a contingency fee agreement, it did not act as the city’s sole representative but was supervised by the city attorney. Second, the prohibition of contingency fees for private government counsel in criminal proceedings does not apply to civil tax assessment proceedings which require no notable balancing or weighing of public interests.
“Accordingly, as long as the Firm is co-counsel with the City of Euforia’s city attorney and the contingency fee agreement applies to civil administrative tax assessment proceedings, the Priceline.com case suggests that such an arrangement is permitted.”
“Governmental entities keep asking the Firm to take on nuisance prosecutions on a contingency fee basis. We keep declining contingency fee engagements because People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740 held that public entities are barred from compensating their private counsel by means of any contingent fee agreement, reasoning that all attorneys prosecuting public-nuisance actions must be ‘absolutely neutral,’ which they cannot be if they have a contingency fee interest. Is there any way we can accommodate public entities’ need to conserve their public funds by agreeing to a contingency fee?” Meryl asked.
“Meryl, the California Supreme Court recently decided County of Santa Clara v. Superior Court (Atlantic Richfield Co.) (2010) __ Cal.4th __ [(7/26/2010) 2010 WL 2890318] in which it held that public entities are not categorically barred from engaging private counsel under a contingent fee arrangement to assist in civil public nuisance actions against manufacturers of lead paint, where the remedy would not require enjoining ongoing business activity because manufacturing lead paint was already illegal, the statute of limitations for a criminal prosecution based on the challenged activity had already run, the remedy would not involve enjoining current or future speech, and the manufacturers were large corporations with access to abundant monetary and legal resources. We will have to evaluate the facts and circumstances of each proposed public engagement to determine if it meets the California Supreme Court’s new decision,” Cali concluded.
“Fair enough!” Meryl said as he waltzed down the halls whistling a happy tune.