Opinion ID: 751754
Heading Depth: 2
Heading Rank: 2

Heading: Fees for Coudert's Representation

Text: 18 Kodak argues that because the district court found that Coudert had breached its duty of undivided loyalty to Kodak by representing both Kodak's division and Image Tech, Kodak was not required to pay the $400,000 in fees to Image Tech for Coudert's representation before the firm's disqualification. We review de novo the legal question whether Kodak was required to pay fees for Coudert's work. United States ex rel. Virani v. Jerry M. Lewis Truck Parts & Equip., Inc., 89 F.3d 574, 576 (9th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 945, 136 L.Ed.2d 834 (1997). California law controls whether an ethical violation occurred. See N.D. Cal. Local Rule 110-3 (standards of professional conduct in the Northern District are those of California Rules of Professional Conduct). 19 Section 4 of the Clayton Act provides that a person injured by an antitrust violation shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. 15 U.S.C. § 15; see id § 26 (plaintiff who prevails in action for injunctive relief under antitrust laws also entitled to reasonable attorneys' fee). The fee award is mandatory, Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1314 (9th Cir.1982), and the purpose of such an award in antitrust cases is threefold: 1) to encourage private enforcement of the antitrust laws, 2) to insulate the treble damages award from the costs of obtaining recovery, and 3) to deter violations of the antitrust laws by requiring the payment of that fee by a losing defendant as part of his penalty for having violated the antitrust laws. Perkins v. Standard Oil, 474 F.2d 549, 554 (9th Cir.1973); Ohio-Sealy Mattress Mfg. Co. v. Sealy Inc., 776 F.2d 646, 661 (7th Cir.1985). 20 Any fee award in an antitrust case goes to the successful plaintiff, not to plaintiff's counsel. [T]he court's award goes first to the plaintiff as part of his recovery in accordance with the language of section 4. If he chooses to pass that money on to his attorneys, that is his business. Farmington Dowel Prods. Co. v. Forster Mfg. Co., 421 F.2d 61, 88 (1st Cir.1970). This is consistent with the goal of deterrence, which regards the fee award as part of the penalty for the defendant's violation of the antitrust laws. For example, when the contingent fee agreement between the plaintiff and its attorney would generate little in the way of fees because the damages award is small, a reasonable attorneys' fee still may be awarded even if the contract between the plaintiff and the attorney would result in a smaller amount. Id. 21 [T]he imposition of this penalty was [not] meant to turn in any way on the nature or amount of the plaintiff's fee arrangement, a fortuity wholly unrelated to defendant's illegal conduct..... The ultimate question in every inquiry into the fee award is what contribution the defendant should make toward the fees of plaintiff's counsel. 22 Perkins, 474 F.2d at 553 (quoting Farmington Dowel, 421 F.2d at 90). 23 Image Tech thus urges us to treat Kodak like any other antitrust defendant, and to evaluate the award of fees as just one part of the penalty for Kodak's antitrust violations, closing our eyes to the eventual disposition of the $400,000. But courts have been uneasy with such an absolutist approach, qualifying statements that it is his business what an antitrust plaintiff does with a fee award by adding that courts need not be willfully blind. The fact that section 4 is concerned with awarding a fee which is reasonable for defendant to pay plaintiff does not preclude the court from concerning itself with what is excessive for plaintiff to pay his attorney. Farmington Dowel, 421 F.2d at 87. The mere fact that the plaintiff is entitled to receive the attorneys' fees does not prevent the court from deviating from the general rule where exceptional circumstances exist. The determination under the antitrust statute of what contribution the defendant should make toward the fees of plaintiff's counsel is complicated in this case, because defendant Kodak is not merely an antitrust violator, but is also the victim of an ethical violation by plaintiff's counsel Coudert. Simultaneous representation of clients with conflicting interests (and without written informed consent) is an automatic ethics violation in California and grounds for disqualification. Flatt v. Superior Ct., 9 Cal.4th 275, 36 Cal.Rptr.2d 537, 542-43, 885 P.2d 950, 955 (1994). An attorney cannot recover fees for such conflicting representation, Blecher & Collins v. Northwest Airlines, Inc., 858 F.Supp. 1442, 1457 (C.D.Cal.1994), because payment is not due for services not properly performed. Cal Pak Delivery, Inc. v. United Parcel Serv., 52 Cal.App.4th 1, 60 Cal.Rptr.2d 207, 215 n. 2 (1997) (quotation omitted). This applies even where, as here, the matters in which the firm represents the clients with conflicting interests are unrelated. Jeffry v. Pounds, 67 Cal.App.3d 6, 136 Cal.Rptr. 373, 376 (1977). An attorney may claim fees only for services provided before the conflict arose and the ethical breach occurred. Id. at 377. 24 The district court awarded fees because Coudert's disqualification was prospective only. But Coudert's ineligibility to recover fees was not prospective. Under California law the bar to compensation extended back to the beginning of Coudert's representation. Coudert represented Kodak throughout its representation of Image Tech, so there was never a time when the representation was conflict-free. 25 The district court also disavowed any responsibility for determining whether Coudert would receive any of the $400,000 awarded, concluding that the issue remained between Image Tech and Coudert. Yet when an attorney's ethical violation is in question, the district court retains some power to look beyond an award of fees to a party to determine whether an attorney will receive compensation for a breach of ethical rules. As the Second Circuit stated in Litton Sys., Inc. v. AT & T, 700 F.2d 785, 827 (2d Cir.1983), 26 The payment of attorneys' fees is a part of the penalty for violating the antitrust laws. At the same time there is no doubt that attorneys as officers of the court must operate on an honor system, and must be appropriately disciplined to provide both specific and general deterrence. 27 Our recent opinion in Virani articulates a similar dilemma in the context of evaluating a fee award under the False Claims Act, 31 U.S.C. § 3729-3732. Like the antitrust law, the FCA provides that successful plaintiffs shall receive reasonable attorneys' fees from defendants. Id. at § 3730(d)(1). Such language 28 [o]n its face seems to say that the plaintiff can recover the attorneys' fee for himself. What then of the attorney? Are not the fees for his services and should not he, if anyone receive them? It is usually assumed that the answer to the latter question is Yes, of course, how could it be otherwise. That assumption simply tends to be in the background of decision making about fees. Yet there are times when someone will ask that a usually unacknowledged part of the background be brought to the forefront and perused before it recedes again into relative obscurity. 29 Virani, 89 F.3d at 577. While in general, statutes bestow fees upon parties, not upon attorneys ... weighty authority demonstrates that the client himself is not entitled to keep the fees which are measured by and paid on account of the attorney's services. Id.; see Heston v. Secretary of HHS, No. 90-3318V, 1997 WL 702561 (Fed.Cl. Oct. 3, 1997) (discussing case law under a variety of fee-shifting statutes); Earth Island Inst. v. Christopher, 942 F.Supp. 597, 607 (Ct. Int'l Trade 1996) (noting dilemma and quoting Virani ). 30 Virani concluded that under the FCA the client's right to a reasonable fee was actually a power to demand such a fee, and after the client exercised that power the attorney had a right to the fees. 89 F.3d at 578. The opinion notes in dictum that the appropriate fee under California law would be zero when an attorney represents clients with conflicting interests. Id. at 579. 31 A separate concurrence adheres to reasoning closer to that found in antitrust fees cases: absent a contractual assignment to the attorney, the False Claims Act requires payment of the attorneys' fee award to the party, with the ultimate disposition of the award dependent upon the contract between the attorney and client. Id. at 580 (Thomas, J., concurring). The fee award may bear no relation to the actual fee paid by the prevailing party to his or her attorney. Id. at 581. The concurrence does not address the situation in which there has been an ethical violation by the attorney. 32 While court intervention in [antitrust] fee dispositions is bound to be confined to exceptional circumstances, International Travel Arrangers, Inc., v. Western Airlines, Inc., 623 F.2d 1255, 1278 n. 27 (8th Cir.1980), the circumstances in this case are exceptional: a law firm representing the antitrust plaintiffs simultaneously represented the antitrust defendant, a clear violation of the applicable ethical rules. Image Tech is under no obligation to pay any fees to the law firm, Coudert, for its conflicted representation. Absent some representation that Image Tech, the party requesting fees, will not retain the $400,000, it stands to receive a sizable windfall. And if Image Tech does not retain the $400,000 and pays Coudert, Coudert will receive compensation which California law says it cannot recover. 33 If Coudert had breached a duty of loyalty to Image Tech only, there would be a better argument for allowing Image Tech to recover and retain the fees. The $400,000 would not be so much a windfall as recompense for conflicted representation. Here, however, it compounds injustice to allow Image Tech to receive $400,000 from Kodak, the party injured by the ethical violation. Moreover, it is less of a concern that Kodak, as the defendant potentially liable for the fees, will receive a windfall if it is not ordered to pay Image Tech the fees, because Kodak is the client injured by Coudert's breach of its duty of loyalty when it simultaneously represented Kodak and Image Tech. 34 Image Tech warns of dire consequences if it is denied a fee award, arguing that defendants will strategically delay disqualification motions to avoid paying the largest possible amount of fees. The district court found that no strategic delay occurred in this case, however, so we are not faced with that situation. 35 We reverse the district court. In these exceptional circumstances Kodak need not pay Image Tech the $400,000 fee for Coudert's services. 36 REVERSED.