Source: https://www.calattorneysfees.com/cases-ethics/
Timestamp: 2019-04-25 16:34:22+00:00

Document:
Ex-Clients Were Not Entitled To Rescind Settlement Agreement For Purported Ethical Violations.
The First District, Division 1, in Property California SCJLW One Corp. v. Leamy, Case No. A152959 (1st Dist., Div. 1 Aug. 9, 2018) (published), had to confront whether ex-clients entering into a settlement agreement over a fee dispute with their former attorneys could rescind the settlement based on allegedly nondisclosed legal malpractice claims against their attorneys. The appellate court answered “no,” reasoning that (1) punishment for California Rules of Professional Conduct ethical violations was a matter within the purview of the State Bar; and (2) ex-clients “do not cite to any authority holding that failure to comply with the ethical rules entitles a client to rescind a settlement agreement for attorney fees” (Slip Op., pp. 16-17).
Disqualification Order Did Not Prevent Some Work By DQ-ed Counsel.
Yuba County Courthouse. 1933. Library of Congress.
Western Water Co v. Yuba County Water Agency, Case No. C072058 (3d Dist. Sept. 16, 2016) (unpublished) involved a fight over the scope of a water easement between plaintiff successor and the Agency. Plaintiff sued for multi-millions of dollars, claiming Agency took subsurface water without paying for it. Agency prevailed, with the lower court awarding fees against plaintiff and in favor of Agency.
Plaintiff appealed $112,777.40 in fees awarded to Agency for work by a prior disqualified counsel. The appellate court found that the disqualification cases relied on by plaintiff only applied in a client-attorney dispute over fees, not a prevailing party situation. It further determined that the disqualification order did allow for some limited consultation between disqualified counsel and Agency’s trial attorneys, such that the fees were properly allowed.
Attorney Intentionally Breaching A Fiduciary To Non-Client Can Be Held Liable For Fees As Consequential Damages.
Although our focus is on California cases, we thought it would be instructive to report on the New Jersey Supreme Court’s recent decision in Innes v. Marzano-Lesnevich, No. 074291 (N.J. Supreme Ct. Apr. 26, 2016) (published).
There, a divided 3-2 state high court decided that there is an exception to the “American Rule” (parties generally bear their own costs unless a contract or statute dictates otherwise, which was not in play) for attorneys who intentionally breach a fiduciary duty, even to a nonclient. In those situations, attorney’s fees may be awarded as consequential damages for intentional fiduciary relationship breaches. No out-of-state authorities were cited, with New Jersey precedents being cited on both the majority and dissenting justices.
Justice LaVecchia dissented, joined by Judge Cuff, temporarily assigned. The dissent argues essentially that the theoretical underpinning to the majority opinion is incoherent (see footnote 2 of the dissent). If the theoretical underpinning lies in the attorney-client/fiduciary relationship found in malpractice cases, there is no attorney-client relationship here with the plaintiff, meaning that the case extends existing law. If the theoretical underpinning is that consequential damages result from a breach of fiduciary duty, then fees as damages are extended to a new frontier, and the American Rule is further diluted.
Fourth District, Division 3 Decides Conflict Unwaivable and Disqualification Order Sustained Under Inherent Authority Of Trial Court.
This next one, Abedi v. Sheikhpour, Case Nos. G050361/G050362 (4th Dist., Div. 3 Dec. 16, 2015) (unpublished), is a wild case producing an interesting 3-0 decision by Acting Presiding Justice Bedsworth.
The appellate court sustained an attorney disqualification by a trial judge based on CCP § 128(a)(5), the section allowing inherent authority to the trial judge to control the conduct of attorneys in a courtroom. (The opinion makes it clear that the affirmance was not based on any ethics violations.) The 4/3 DCA held that a current client cannot waive a conflict (even with the advice of independent counsel) for purposes of allowing an attorney to sue that client while representing the client in a pending matter. It found the conflict unwaivable, citing New Jersey, Nevada, and California decisions in the process.
$55 Cash Payment Under Claims Procedure Was Consideration, With Class Counsel Obtaining $6.5 Million In Fees And Expenses.
In Tait v. BSH Home Appliances Corp., Case No. 8:10-cv-00711 (C.D. Cal. July 27, 2015), U.S. District Judge David O. Carter approved a $6.5 million payment of fees/expenses to class counsel in a case involving allegations that washing machines were susceptible to mold. Under the settlement which was approved, class members get a $55 cash payment under a 120-day claims process and counsel obtains a separate payment from defendant of the $6.5 million in fees/expenses under a clear sailing provision in the settlement agreement. District Judge Carter ruled that the fees/expenses were proper under the circumstances.
Virginia Ethics Committee Issues Helpful Guidance To Chapter 7 Bankruptcy Attorneys.
On July 23, 2015, the Virginia Standing Committee on Legal Ethics issued an opinion (LEO 1883) indicating that it was proper for Chapter 7 bankruptcy attorneys to take in the entirety of fixed fees for work in a Chapter 7 case before filing it as long as the disclosure is made in the bankruptcy papers. Given that most of the work for a Chapter 7 debtor is done upfront (except for the 341A meeting of creditors), most of the services have already been earned. However, as long it is structured as a fixed fee and taken in pre-petition, the Standing Committee opined this arrangement was acceptable even for future post-petition work. Keep in mind that this opinion involved Virginia law, but it did have some nice reasoning applicable to Chapter 7 bankruptcy work in general based on interviews with bankruptcy lawyers in this area of practice.
Conservatee’s Daughter’s Appeals Sadly End Contentious Conservatorship Fee Proceedings.
In a bitterly contested conservatorship proceeding, Conservatorship of Gdowski, Case Nos. G043583 & G044070 (4th Dist., Div. 3 July 7, 2011) (both unpublished), two appeals resolved awards of attorney’s fees to the lawyers for both conservatee and conservator resulting from conservatee’s daughter’s objections to the way the conservatorship was being handled with respect to her mother.
Daughter’s principal contention was both attorneys had conflicts of interest of a nature requiring a forfeiture of fees. Although a serious violation of an attorney’s responsibilities can give rise to a forfeiture of fees, Pringle v. La Chapelle, 73 Cal.App.4th 1000, 1006 (1999), the appellate court found no such egregious conflict of interest for the involved lawyers.
Orders awarding fees to attorneys for either conservatee or conservator are expressly appealable. (Prob. Code, § 1300(e).) Also, daughter was found to have standing so the appeal could be considered on the merits, although the awards were found to be proper.
Quantum Meruit Recovery Denied to Attorney.
Now, the First District, Division 2 has published a 38-page decision, Fair v. Bakhtiari, Case No. A126844 (1st Dist., Div. 2 May 24, 2011) (certified for publication), that is must reading in the area of ethics. Even though attorney and client entered into a successful business venture, the attorney’s violation of rule 3-300 and section 16004(c) not only resulted in a voiding of the business agreements but also resulted in a loss of quantum meruit recovery by the attorney for the reasonable value of the services he provided to the clients. Pretty harsh result, but one squarely within these important ethical constraints.
BLOG UNDERVIEW--Co-contributor Marc recently went to a UCLA School of Law reunion. Among others that he caught up with was James I. Ham, who co-contributor Mike knows from growing up in the Central Valley (Mike went to Bullard High; Jim went to Clovis High) and USC undergrad days. Jim has developed a specialty in legal ethical issues and is a partner with South Pasadena-based Pansky Markle Ham LLP. His co-partner, Ellen Pansky, is well known for lecturing, writing, and providing advice on legal ethical issues too. Our hello goes out to Jim.
March 2011 Article in The Advocate Magazine Explores Central Fee Issues.
For readers wanting a recent primer on key issues in attorney’s fees litigation, we commend for reading Joseph P. Wohrle’s article “Identifying Key Issues in Attorney’s Fees Litigation” which is published in the March 2011 edition of Advocate Magazine.
*Theories of recovery of attorney’s fees.
*Recovery of attorney’s fees under Civil Code section 1717 (broken down, in turn, to look at these subtopics: substantive aspects of Civil Code section 1717; bilateral application of contractual fees clauses as a matter of law; was the claim upon which fees are being sought “on the contract”?; “prevailing party” determination; calculating the amount of the award: the “lodestar”; and procedural aspects of Civil Code section 1717).
Second District, Division 4 Faces Issues of First Impression Under § 6147.
Justice Manella, speaking for a 3-0 panel of the Second District, Divison 4, faced some first impression legal issues with respect to the reach of Business and Professions Code section 6147’s requirements over certain hybrid contingency agreements. In particular, the appellate court zeroed in on the section 6147 requirement that contingency agreements are voidable by the client unless there is a statement that a success fee was not set by law but negotiable between client and attorney.
The Court of Appeal issued a writ, finding that clients’ challenges were indeed correct.
First, the appellate court determined that legislative amendments to section 6147--replacing prior language “plaintiff” with the current “client” verbiage--clearly demonstrated that 6147 applies to both litigation and transactional work by an attorney.
Second, section 6147 was held to apply to “hybrid” contingency agreements like the one involved in the case being decided.
Professional Courtesies Stressed Greatly in This Sobering Opinion.
We knew that this next case would be interesting when it led off with this quote from Charles E. Clark’s article entitled History, Systems and Functions of Pleading, published at 11 Va. L. Rev. 517, 542 (1925): Procedure “is a means to an end, not an end in itself--the ‘handmaid rather than the mistress’ of justice.” What we did not know is that the decision also would be a primer and have great quotes on the professional courtesies that attorneys should extend to their colleagues on the opposite side of a matter. With that said, read this with interest, all you members of any Bar.
In Ahanchian v. Xenon Pictures, Inc., Case Nos. 08-56667/08-56906 (9th Cir Nov. 3, 2010) (for publication), a California Central District judge granted summary judgment in favor of defendants after denying plaintiff’s counsel’s request for a one-week extension to file a SJM opposition because counsel had a prior out-of-state commitment, there was an intervening holiday, and voluminous exhibits needed to be prepared as part of the SJM opposition. (Until this point, apparently, defense counsel had extended professional courtesies, but vehemently opposed the SJM opposition extension requested by plaintiff’s counsel.) Nonetheless, plaintiff was still able to file the SJM opposition, albeit 3 days late. (There is an anomaly here--C.D. Cal. Local Rules generally allow 7 days for a SJM opposition while other California federal district courts allow for a longer 14 days, twice the C.D. Cal. time to oppose.) The district judge denied plaintiff’s request to file the late-filed SJM opposition and “add[ing] injury to insult” awarded defense counsel $247,171.32 in attorney’s fees!
Bad facts, you bet. Plaintiff’s appeal was vindicated in a reversal by the Ninth Circuit, in a 3-0 panel decision authored by Circuit Judge Wardlaw.
Federal Rule of Civil Procedure 6(b)(1) has a liberal “good cause” extension escape valve which was easily satisfied here--especially given the out-of-state conflict, the intervening holiday, and the need to file a substantial SJM opposition. The district judge also erred in applying an incorrect standard in evaluating the late-filed request under FRCP 60(b), all the more so given that the late filing was only 3 days after the very short 7 day deadline under C.D. Cal. Local Rules.
August 31 was a day in which two decisions were issued by Courts of Appeal, both demonstrating the deference that trial and appellate courts will give to arbitration attorney’s fees awards.
Miller v. Lifestyles Senior Housing Managers, Case No. C059843 (3d Dist. Aug. 31, 2010) (Unpublished).
In the first one, plaintiff lost on four claims but won on two claims for retaliation/wrongful termination in an arbitration involving mixed tort/Labor Code violation claims. Plaintiff obtained a compensatory award of $39,030 ($10,000 being Labor Code penalties). Plaintiff then sought to recover $414,720 in attorney’s fees under Labor Code section 2699(g)(1), a mandatory fee-shifting provision. The arbitrator denied fee recovery based on the fact that Labor Code section 2699(a) specifies a penalty (which was awarded to Plaintiff) but had no provision allowing for attorney’s fees. The arbitrator also believed that Plaintiff had not clearly made the request for such exorbitant fees during the arbitration, presenting a due process problem.
Plaintiff sought to vacate the fee denial under Code of Civil Procedure section 1286.2(a)(4), but the trial court confirmed the award. The Third District, too, sustained the fee denial.
Basis? Arbitrators have the power to not award fees even under mandatory fee-shifting provisions. (Moshonov v. Walsh, 22 Cal.4th 771, 778 (2002); Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665, 680 (2010) [distinguished between an untimely arbitration proceeding and an incorrect legal construction of a statute, with the latter not being a ground for vacating an award].) Plaintiff then tried to rely on good reasoning for her position in DiMarco v. Chaney, 31 Cal.App.4th 1809, 1815 (1995), but the Third District found that DiMarco had repeatedly been questioned and never followed (listing numerous citations to support this conclusion).
Cotchett, Pitre & McCarthy v. Universal Paragon Corp., Case No. A126149 (1st Dist., Div. 5 Aug. 31, 2010) (Certified for Publication).
The fee award was affirmed on appeal. Aside from the fact that deference is given to an arbitrator’s factual and legal rulings (as in Miller), the appellate court found that the contingency fee arrangement was not unconscionable. It applied standard unconscionability analysis under Civil Code section 1670.5 to the prohibition against unconscionable fees set forth in Rule 4-200(B) of the Rules of Professional Conduct. The fee award was not substantively unconscionable because the ultimate award was only about 30% of the total settlement value. Beyond that, the litigation was complex and required a high degree of skill in bringing home a favorable settlement for the client.
The contingency arrangement also reflected an attempt by equally sophisticated parties to share the risk of complicated litigation.
Finds Attorney’s Lien Dispute Can Be Resolved in Minor Compromise Case and Analyzes Permissive Withdrawal Circumstances That Will or Will Not Give Rise to Quantum Meruit Recovery.
Here is an unpublished decision that faced some gnarly issues regarding jurisdictional and quantum meruit recovery issues in an attorney’s lien situation where an attorney obtained a mandatory withdrawal in a contingency case. Interestingly enough, the appellate court disagreed with the trial court’s assessment, finding the withdrawal was permissive and was not of a species that should allow for quantum meruit recovery—reversing a lower court’s order requiring satisfaction of the lien out of settlement proceeds.
In Noskevich v. Eden Medical Center, Case No. A125152 (1st Dist., Div. 1 Mar. 3, 2010) (unpublished), the lower court granted a lien to plaintiff minor’s (represented by her mother/guardian ad litem’s) former attorneys in the amount of $23,061.77, payable out of the minor compromise settlement proceeds. The Court of Appeal reversed the orders enforcing payment of the lien.
Nonconflicted Attorneys Get Award of Fees; Conflicted Attorneys Do Receive Reimbursement of Over $1.2 Million in Expenses.
Judge Real did award substantial fees to nonconflicted attorneys representing the class, although reducing the lodestar by 10% in order to account for excessive fees and noncompensable work (and denying the multiplier requests). He also awarded $8,125 respective fees to two of objectors’ attorneys.
It has been reported that McGuireWoods LLP (counsel awarded nothing) have asked Judge Real to reconsider his ruling.
State Bar’s Standing Committee Issues Formal Opinion Confirming Propriety of these Settlements.
Formal Opinion No. 2009-176 of the State Bar’s Standing Committee on Professional Responsibility and Conduct has concluded that (a) a lawyer does not violate any ethical obligation by recommending or conveying a fee-waiver settlement offer in a given case, and (2) a lawyer does not violate any ethical obligation by recommending or conveying fee-waiver settlement offers in cases generally. However, a plaintiff’s lawyer must inform the client of a fee-waiver settlement offer and consummate the settlement in accordance with the client’s desires even if it reduces the likelihood of recovering some or all of his/her fees.
Ninth Circuit Requires Reexamination of Fee Denial to Objector’s Counsel and Fee Award to Class Counsel.
For the plaintiff class action practitioners out there which follow our blog, the next decision is must reading. Not only does it highlight the fiduciary and ethical duties involved in the process, but counsels that incentive agreements should not be structured in an attorney-client retainer agreement in such a way that they create conflicts between the class representatives and the rest of the class. That is what happened in the next case, with potentially wide-ranging repercussions. Fortunately, it did not tank the class action settlement. However, the situation did require reconsideration of the fee denial to objectors pointing out the issue and the fee award to class counsel caught up in the conflict.
Rodriguez v. West Publishing, Case Nos. 07-56643 et al. (9th Cir. Apr. 23, 2009) (for publication) involved the $49 million class action settlement between BAR/BRI class members and West Publishing/Kaplan Inc. Lawyers for the class were set to collect up to $12.25 million in fees (calculated on a lodestar, enhanced by a 1.75 multiplier, up to 25% of the settlement fund). (BLOG OBSERVATION—In the Ninth Circuit, class counsel can be awarded attorney’s fees under either a lodestar or straight percentage of settlement fund approach. Powers v. Eichen, 229 F.3d 1249, 1256 (9th Cir. 2000).) However, several objectors challenged the settlement on various grounds. Their objections on the incentive agreements to 5 class representatives hit a receptive chord with the Ninth Circuit.
Holding Draws A Sharp Dissent; Opinion Also Discusses Lodestar and Sufficiency of Fee Substantiation.
The next case should spur the interest of non-California lawyers wishing to do limited consultation or limited co-counseling with California lawyers in California federal courts. Even if you are not licensed in California or do not obtain pro hac vice rights (the latter being the preferable route), can you get attorney’s fees recovery once a case is favorably concluded and there is a basis for fee recoupment? Answer: Maybe, under the right circumstances. Read this post for the Ninth Circuit’s recent view—and, yes—far from being unanimous as to the right circumstances that may countenance this result.
February 2009 Article by Carole Buckner Covers Many Ethical Issues.
In the February 2009 edition of the Orange County Lawyer, Carole J. Buckner writes an article, “Ethics Opinions Provide Guidance in Resolving Attorneys’ Fee Issues,” covering a wide-ranging array of ethical issues relating to attorney’s fees.
Third District Affirms Sanctions Order of $43,678.42 Against Attorney and Her Clients.
Our fellow blawg “The Complex Litigator” has an excellent November 25, 2008 post on Wallis v. PHL Associates, Inc., Case No. C056200 (3d Dist. Nov. 25, 2008) (certified for publication). We will not review the facts in-depth, because “The Complex Litigator” post is complete. In essence, both the trial and appellate courts frowned on conduct by an attorney and her clients by which they made sure confidentially-filed court documents with trade secrets were viewed by third parties and copied so as to make an attempt to defeat the opposing party’s claim that the information was protected trade secrets.
The sanctions order was made pursuant to Code of Civil Procedure section 128.5 because the action was filed before December 31, 1994. (Long-running litigation, to say the least.) Although substantial evidence supported the sanctions against both attorney and her clients, attorney made an interesting argument that her conduct was not frivolous and taken in bad faith given that she contacted the California State Bar’s ethics hotline for guidance on the ethical implications of the appearance of the confidential information in the public court file. Supposedly, the ethics hotline person told attorney that she had a “paramount duty” to do what she did with respect to the trade secrets in order to further her clients’ interests. The Court of Appeal did not find this argument persuasive.
First, attorney failed to disclose to the ethics hotline the nature of the protective order that might have led to different guidance. This omission bolstered the trial court’s finding of bad faith.
Second, the “ethics hotline” defense was weak in light of the hotline’s limited nature: the hotline is a “confidential research service,” not a source of legal advice. Besides, the order under review involved section 128.5 sanctions, not the ethical implications arising from attorney’s conduct. Wallis cautions that the “ethics hotline” defense may not shield an attorney from exposure to sanctions for certain conduct during the course of litigation, whether it is ethical or unethical in nature.

References: v. 
 v. 
 v. 
 v. 
 § 128
 v. 
 v. 
 § 1300
 v. 
 § 6147
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.