Failure To Satisfy Statutory Criteria Voids Contingency Fee Agreement

Posted on December 21, 2010 by David J. McMahon

In Arnall v. Superior Court (Liker), 2010 DJDAR 17619 (2010), the California Court of Appeal, Second District decided an important case involving the statutory requirements for contingency fee agreements. The bottom line is: unless a contingency fee agreement satisfies the statutory criteria, including a statement that the fee is subject to negotiation, it is voidable.

Alan Liker (“Liker”) entered into an agreement with Dawn Arnall (“Arnall”) and Ameriquest Mortgage Co. (“Ameriquest”) to provide advisory services. Under the agreement, Liker was to receive $20,000 per month for nine months, and potentially a success fee under certain conditions.

Subsequently Arnall and Ameriquest terminated the service agreement on the basis that they were void under Business and Professions Code Section 6147 which requires an explicit statement to be contained in contingency contracts that the success fee is not set by law but is subject to negotiation. Liker sued, and Arnall, Ameriquest and the defendants petitioned for summary adjudication. The trial court denied summary adjudication, and the parties sought review.

The Court of Appeal granted the petition noting that under Business and Professions Code Section 6147, an attorney who contracts to represent a client on a contingency fee basis must ensure that the contract is in writing and contains a statement that the fee is not set by law but is negotiable. The failure to comply with Section 6147 renders an agreement voidable.

Because the agreement lacked the statutory language regarding negotiability of the contingent fee, the Court of Appeal reversed the denial of the motion for summary adjudication.

Attorney Fee Award is Appropriate Based on Successful Forum Non Conveniens Motion

Posted on December 15, 2010 by David J. McMahon

 

The California Court of Appeal for the Fourth District recently decided a novel fee question. In PNEC Corp. v. Meyer, 2010 DJDAR 17387 (2010), the trial court awarded attorney fees to the Defendant after a successful motion to dismiss on the grounds of inconvenient forum (CCP § 418.10(a)(2).

The plaintiff, PNEC Corp., sued the Defendant for breach of guaranty. Plaintiff alleged that it provided Defendant with products and that she failed to pay for them. Plaintiff based its fee claim on a written guaranty of payment signed by Defendant, stating that the customer will be required to pay attorney fees if the account is referred to an attorney for collection.

Plaintiff filed suit and Defendant’s counsel moved alternatively to quash service of process due to lack of personal jurisdiction, or to dismiss the action due to inconvenient forum. Defendant proved that she lived in Washington. She submitted additional proof that she had never worked or initiated a lawsuit in California.

The trial court granted the motion to dismiss. The court also awarded Defendant $21,667.25 in attorney fees as the prevailing party. Plaintiff claimed that the attorney fee award was improper as a litigant is never entitled to a fee award based on dismissal of an action on forum non conveniens grounds.

The court of appeal affirmed, noting that under Civil Code Section 1717(a), in any action on a contract that provides for attorney fees, the party determined to be the prevailing party on the contract is entitled to attorney fees. 

The court held that if the action on a contract is dismissed based on forum non conveniens, the trial court may award attorney fees to the moving party where the contract has a fee clause. Because the lawsuit was based on the collection efforts, it triggered the attorney fee provision. For these reasons, the trial court award of fees to the Defendant was proper.

 

Fee Award is Overturned Where Trial Court Failed to Consider the Question of Settlement Effort

Posted on December 13, 2010 by David J. McMahon

In Environmental Protection Information Center v. California Dept. of Forestry and Fire Protection, 2010 DJDAR 17530 (2010), the First District Court of Appeal decided a novel question pertaining to the proper interpretation of California Code of Civil Procedure § 1021.5, the private attorney general doctrine.

The case arises from a long‑running legal dispute surrounding the administrative approval of logging plans issued to Pacific Lumber by California’s Department of Forestry and Fire Protection (“CDF”).

The Environmental Protection Information Center (“EPIC”) prevailed at trial in litigation filed against the CDF and the Department of Fish and Game (“DFG”) (collectively, the Agencies). The suit pertained to the approval of Timber Harvesting Plans (“THPs”). 

The trial court awarded EPIC attorney fees pursuant to CCP § 1021.5. The court ruled that EPIC was the prevailing party and that the actions of the group conferred a significant benefit on the general public.

The decision was reviewed by the intermediate appellate court and California Supreme Court. The appellate court reversed the trial court’s judgment, and the Supreme Court affirmed most of the rulings of the court of appeal. This included the dismissal of nearly all of EPIC’s environmental positions. The court did reverse on procedural issues relating to the approval of timber harvest plans. The Agencies then argued that in light of the outcome of the appeals, EPIC was no longer entitled to attorney fees.

The court of appeal reversed and remanded the decision of the trial court. 

The court noted that the “significant benefit” that justifies an attorney fee award need not always represent a “concrete gain.” The Agencies argued that the litigation did not result in any significant benefit because nearly all of the environmental protection aspects of EPIC’s lawsuits were reversed by the court of appeal.

The appellate court disagreed with the Agencies. 

The appellate court took a strained view of the record and concluded EPIC’s work may have enhanced effective public review of future logging, resulting in a “significant benefit.” The court did conclude, however, that the trial court failed to consider the question of settlement efforts in determining whether attorney fees were justified. For that reason, the case was remanded back to the trial court for further consideration.

 

California Civil Code § 1717 is a Proper Basis for an Award of Attorney Fees Pursuant to a Performance Bond

Posted on December 10, 2010 by David J. McMahon

In Mepco Services Inc. v. Saddleback Valley ("Mepco" and "Saddleback"), 2010 DJDAR 16749 (2010), the California Court of Appeal for the Fourth Appellate District decided a novel attorney fee case arising from a school modernization project. 

Mepco bid on the project based on architectural plans that Saddleback had prepared by an architect. During the course of construction, Mepco encountered problems and was forced to do additional work at significantly more cost than was originally contemplated.

Mepco performed the additional work according to directions by Saddleback representatives, but the parties disagreed as to whether Mepco was entitled to be paid for the additional work. Mepco then sued for breach of contract.

Mepco was required to furnish a surety bond to cover 100 percent of the contract price. The agreement to perform the work did not contain an attorney fee provision and was silent on whether the performance bond was required to have a fee clause. Mepco arranged to purchase a performance bond that did include an attorney fee provision. It provided for a fee award for enforcement of the bond.

Saddleback filed a counterclaim for liquidated damages alleging Mepco delayed completing the project, and sought attorney fees under the performance bond. The jury found in favor of Mepco, finding Saddleback materially breached the contract. Mepco then moved for attorney fees under the performance bond, and the lower court granted a fee award.

The appellate court affirmed, noting that California Civil Code Section 1717 provides for a fee award to the prevailing party on a contract that contains a fee clause. 

Here, Saddleback sought enforcement of the bond by way of its counterclaim against Mepco and lost on that claim. Saddleback alleged a cause of action for breach of the performance bond. The performance bond that Mepco obtained provided for attorney fees. 

Because Mepco prevailed, the court concluded it was entitled to a fee award.