Retainer Agreement Prohibiting Settlement Without Attorney Consent Violates Public Policy

Posted on July 27, 2011 by David J. McMahon

 

In Lemmer v. Charney, 2011 DJDAR 6494 (2011), the California Court of Appeal for the Second District invalidated a retainer agreement entered into between a client and his attorney on the ground that the contract violated fundamental notions of public policy. 

The dispute between the attorney and the client was based on the lawyer’s assertion that the attorney was fraudulently induced to change the terms of his compensation from the payment of an hourly fee to a contingency fee arrangement based on the client’s false promise that he intended to take the case to trial or through settlement.

The lawyer (“Lawyer”) represented the client (“Client”) in an employment lawsuit. Before filing suit, Client signed a retainer agreement, stating he would pay Lawyer an hourly rate for services. 

Several months after filing suit, the parties entered into a new arrangement, with Lawyer being compensated on a contingency fee basis. The new agreement was allegedly based on Client’s promise to take the case to trial or settlement. Less than a month before trial, Client called Lawyer, stating he did not wish to pursue the case further. He instructed Lawyer to settle the matter immediately. Lawyer objected, and told Client he had a strong case, but initiated settlement discussions at Client’s insistence.

After some negotiations, the employer offered a walk away settlement where both sides received nothing.  Client instructed Lawyer to accept the settlement and Lawyer followed those instructions. After Client failed to pay Lawyer any attorney fees, Lawyer filed suit against Client, alleging conspiracy to defraud. The trial court dismissed the complaint for failure to state a cause of action.

The Lawyer appealed and the Court of Appeal affirmed. The Court of Appeal stated that a provision in a lawyer’s retainer agreement prohibiting the client from settling his lawsuit, without counsel’s consent, is void as against public policy. This court found that there was no difference between a promise not to settle without an attorney’s consent and a promise “to proceed with the case to either settlement or trial.”

 

Pro Per Plaintiffs Who are Attorneys are Not Eligible for Fee Award

Posted on July 26, 2011 by David J. McMahon

In Richards v. Sequoia Insurance Co., 2011 DJDAR 6729 (2011), the California First District Court of Appeal reaffirmed the well established rule that a plaintiff who cannot show payment of legal expenses in defense of a claim cannot recover contractual damages for attorney fees against an insurance carrier. 

The court did specifically note that the plaintiffs did not make a claim for Brandt attorney fees to compel the payment of  insurance benefits in the case. Under the California Brandt fees doctrine, a litigant who sues an insurance carrier to compel payment of policy benefits is entitled to recover fees which can be fairly allocated to that portion of the case.

The attorney plaintiffs owned a lodge insured by Sequoia Insurance Company (“Sequoia”). An action was brought against the plaintiffs and they tendered defense to Sequoia. Sequoia responded to the tender and authorized the plaintiffs to retain counsel at their expense, subject to Sequoia’s possible reimbursement of reasonable fees and costs incurred.

Thereafter, the plaintiffs, who were licensed attorneys, demanded full defense and indemnity from the insurer. Sequoia accepted the tender of defense. 

Sequoia paid fees and costs relating to the lawsuit and ultimate settlement. The plaintiffs offered to compromise their claims against Sequoia for $30,000 for time spent in working on the lawsuit. Sequoia ignored the plaintiffs’ offer. The plaintiffs then sued for breach of contract. Sequoia moved for summary judgment, which was granted by the trial court. The court found that the plaintiffs were not entitled to recover for time they expended for their own defense.

The Court of Appeal affirmed the trial court’s decision. 

The court noted that attorneys who represent themselves in disputes involving contracts, which provide for attorney fees, cannot recover reasonable attorney fees for time spent on defending their own case. 

This is consistent with the established rule that a plaintiff who cannot show payment of legal expenses in defense of a claim, cannot show contract damages due to an insurer’s delay in assuming responsibility. The plaintiffs, as attorneys litigating in propria persona, cannot be said to “incur” compensation for their time and lost business opportunities in defending their own case.

 

Trial Court Abuses Its Discretion in Applying Negative Multiplier To Set Attorney Fees

Posted on July 22, 2011 by David J. McMahon

In Rogel v. Lynwood Redevelopment Agency, 2011 DJDAR 6173 (2011), the Second District California Court of Appeal concluded that the trial court abused its discretion in utilizing a negative attorney fee multiplier on behalf of a losing government entity.

The litigation arose from a plan by a city redevelopment agency to modify an existing mobile home park into townhouses. The residents of the park sued the redevelopment agency, alleging that the plan was improper as it would result in the loss of low‑income housing. After lengthy and contentious litigation, the parties entered into a settlement. The agreement provided that the plaintiffs would not be precluded from seeking attorney fees and that the redevelopment agency could raise its financial condition in response to plaintiff’s petition for attorney fees.

The plaintiffs moved for attorney fees, asking the trial court to apply a multiplier of 1.2 to the lodestar. The fee request totaled approximately $2.7 million. The judge ruled that he would quantify the attorney fees award by applying a negative multiplier of 0.2 to the lodestar requested by the plaintiffs. The court concluded that the settlement agreement authorized it to consider the redevelopment agency’s financial condition. Thus, the award was reduced from $2.7 million to $540,000. On appeal, the plaintiffs argued that the court improperly used a negative multiplier.

The Court of Appeal reversed the trial court’s decision on the amount of the fee award. 

The court noted that the lodestar approach is utilized to set a fee for comparable legal work, and may be adjusted to “fix a fee at the fair market value for the particular action.” 

The court also noted that under some circumstances, the court may decide to diverge from the lodestar. However, the court noted that a trial court is not permitted to use a litigant’s status to negate an appropriate lodestar. The trial court applied a negative multiplier based on the defendant’s status as a government entity. This was not an appropriate factor upon which to reduce otherwise documented attorney fees.

Supreme Court Allows Attorneys' Fees in Mixed Action; Defendants Entitled to Fees for the Friviolous Portion of the Suit

Posted on July 15, 2011 by Gary A. Bresee

Plaintiffs often file lawsuits which eventually contain frivolous as well as non-frivolous claims.  When the defendant prevails in a civil rights suit which contains both types of claims, what is the court to do when the defendant requests its attorneys' fees as the prevailing party? 

Generally, in certain civil rights cases the "prevailing party" may be entitled to "reasonable attorneys' fees" under 42 U.S.C. 1988.  Typically, the plaintiff is in the position of requesting it's fees, but when the defendant prevails courts have held defendants may be entitled to it's fees only when the claims are frivolous, unreasonable or without foundation.  Can the defendant in such a mixed case seek all of it's fees from the plaintiff?

The United States Supreme Court recently answered that question "no."  However, defendant may seek a portion of it's fees; but only those attributable solely to the frivolous portion of the suit.

In Fox v. Vice (June 6, 2011), ___ U.S. ___, 10-114, the newly elected police chief of Vinton, LA, claimed he was subjected to dirty tricks during his campaign, and filed suit against the incumbent chief based on state law claims (defamation) as well as federal civil rights violations under 42 U.S.C. 1983.  Once the defendant filed a motion for summary judgment, plaintiff admitted that his federal civil rights claims were not valid.  

The District Court then granted defendant his request for attorneys fees under Section 1988 based on all of the hours incurred in the suit, on the grounds that the federal claims were frivolous.  However, plaintiff's state law claims had yet to be determined, and therefore had not been determined to be frivolous.  No differentiation was made between the fees incurred for the state law vs. the federal claims.

The Supreme Court reversed, holding defendant would be entitled to only those costs defendant would not have incurred but for the frivolous claims.  Stated without the double negative, defendants may be entitled to fees in a case of both frivolous and non-frivolous claims, but the entitlement goes to those fees incurred for the frivolous claims only. 

The court reasoned since plaintiffs may be entitled to fees even though they do not prevail on every claim, so too should defendants be entitled to a portion of their fees if some of the claims are frivolous. 

The critical question, then, is one of allocation.  The Supreme Court provided us with some guidance on that process as well:

  • The fees attributable to non-frivolous claims are not recoverable;
  • The fees attributable exclusively to frivolous claims are recoverable;
  • The difficult questions, of course, arise from the fees for defense against non-frivolous and frivolous claims alike (such as depositions which involve both issues);
    • Defendants are entitled to the fees incurred because of, but only because of, the frivolous claims;
    • If the deposition, for example, would have taken the same amount of time regardless of the existence of the frivolous claims, then the fees incurred for that deposition should not be recovered;
    • If the frivolous claims created the right to remove to federal court, thereby increasing the litigation costs, then those fees may be recoverable; and
    • If the frivolous claims triggered a new area of the law, requiring specialized counsel, the increased marginal costs and fees of new counsel may be recoverable.

 

Minor Victories Do Not Support an Award of Fees Under California's Private Attorney General Doctrine

Posted on July 11, 2011 by David J. McMahon

In Center for Biological Diversity v. California Fish and Game Commission, 2011 DJDAR 6499 (2011), the California Court of Appeal for the First District rendered a decision clarifying an issue that comes up frequently under California’s so‑called “private attorney general doctrine.”

An environmental organization, the Center for Biological Diversity (the “Center”), filed suit challenging the California Fish and Game Commission's refusal to designate the American pika as eligible for endangered species protection under California’s version of the Endangered Species Act. 

The Center filed a petition for writ of administrative mandate. 

The trial court, after a contested hearing, granted the writ petition and ordered the Commission to reconsider the matter due to the potential that the trial court utilized an incorrect standard to review the Commission’s decision. 

Pursuant to the order, the Commission did reconsider its earlier ruling and reached the same decision. Upon application, the court awarded the Center significant fees and costs under Code of Civil Procedure Section 1021.5. The trial court awarded fees to the Center in the sum of $257,675 and $886.43 in costs.

The Court of Appeal reversed the decision of the lower court to award fees and costs. 

The appellate court noted that Section 1021.5 provides that a court may award attorney fees to a successful party in any action which has resulted in the enforcement of an “important right affecting the public interest.” 

The Court of Appeal noted, however, that the action must also result in significant benefits to the general public or a large class of persons. Minor revisions or rewordings are not sufficiently significant to support an award under Section 1021.5. The appellate court specifically noted that at best, the Center only achieved a minor victory which did not support the award of almost $258,000 in fees and costs.