First District, Division Four Affirms Fee/Costs Award on Appeal.
In our category “Cases: Settlement,” we have reviewed past decisions where parties have won substantial fee/costs awards after reserving the issue for future determination as part of a settlement in an underlying case. The next opinion is one arising from the settlement of a lawsuit after an attorney had lost a mandatory fee arbitration. The subsequent fee award was substantial in amount, an award sustained on appeal.
Montgomery v. Brazzi Butterworth & Corell International, Case No. A118710 (1st Dist., Div. 4 Jan. 6, 2009) (unpublished) involved a discharged attorney who sued his former “clients” for precondemnation legal advice, even though his contingency fee retention was only with a relocation consultant business promising to pay attorney if another business collected in the condemnation action (condemnee).
Attorney lost a nonbinding mandatory fee arbitration proceeding in which he attempted to collect fees of around $320,000 when condemnee (client of the relocation consultants) was paid $800,000 plus interest and costs as part of the settlement in the condemnation action that was handled by other counsel after attorney’s discharge. Relocation consultants were not involved in the arbitration. The arbitrators decided that Attorney only had a fee agreement with the relocation business such that condemnee was not liable for fees. Attorney then filed a subsequent lawsuit against both claimed former clients (relocation consultants and condemnee), reaching a settlement under which condemnee reserved its right to seek recovery of attorney’s fees and costs. Attorney was only paid $15,000 by his actual client (the relocation consultants), dismissing his lawsuit and agreeing that the other “client” (condemnee) could seek fees and costs later. Condemnee did so move, with the trial court awarding it fees of $120,000 and costs of $7,097.99.
Attorney launched a multi-pronged attack on appeal, but the fee/costs award was affirmed (with winning condemnee also awarded costs on appeal—which means there will likely be another fee award against attorney for winner’s appellate fees and routine costs).
Business and Professions Code section 6204(d) conferred the trial court with discretion to award fees and costs to condemnee because attorney did not obtain a judgment more favorable than the arbitration award. Given this language, attorney conceded that abuse of discretion was the standard of review upon appeal.
Attorney first argued that the fee award was unjustified because subsequent counsel did not intend to collect fees from condemnee in the absence of the award by the trial court. Wrong on the merits, said the First District, Division 4. Numerous cases sustain fee awards where attorneys provide services on a partial pro bono basis or where in-house counsel provide services in lieu of outside counsel charging on a traditional hourly basis. See, e.g., Lolley v. Campbell, 28 Cal.4th 367, 374-375 (2002) [publicly funded legal services]; Rosenaur v. Scherer, 88 Cal.App.4th 260, 283-285 (2001) [anti-SLAPP; partial pro bono services]; Macias v. Hartwell, 55 Cal.App.4th 669, 675-676 (1997) [union representation]; PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1091-1094 (2000) [one of our Leading Cases; in-house counsel compensable under Civil Code section 1717].
Attorney then tried to argue that, because the fees were actually going to replacement counsel (who he initially sued but was let out on summary judgment), fees were in actuality going to a self-represented party. Wrong again, said the appellate panel. Attorney sued condemnee as a former client, which obtained a fee award, such that reliance on the self-representation principle had no sting.
Attorney next contended that condemnee waived any attorney’s fee claim by failing to include a prayer for fees in its answer to attorney’s third amended complaint—a judicial estoppel by omission argument. Not persuasive: “[Attorney] points to no statute, rule of court, or case authority holding that a defendant’s failure to include a prayer for statutory attorney fees in its answer waives it right to be awarded fees to which it is otherwise entitled. In fact, the law is to the contrary,” citing T.E.D. Bearing Co. v. Walter E. Heller & Co., 38 Cal.App.3d 59, 64 (1974), superseded by statute on other grounds. (Slip Opn., at p. 8.)
Attorney then countered that his recovery of $15,000 from the relocation business meant that the condemnee (the one winning the fee award) was not the prevailing party under section 6204(d). Inconsistent with the facial meaning of the fee-shifting statute, said the Court of Appeal. Attorney recovered nothing against the condemnee in the lawsuit or the arbitration “and we do not consider his recovery against [the relocation consultancy business], which was not a party to the arbitration …” (Slip Opn., at p. 9.)
Attorney finally argued, by analogy to National Union Fire Ins. Co. v. Stites Prof. Law Corp., 235 Cal.App.3d 1718 (1991), that the mandatory fee arbitration proceeding was a nullity because it can only take place and bind attorney and client. The main flaw with this argument is that attorney claimed condemnee in the mandatory arbitration proceeding was his client, a proposition that he lost. Also, Stites’ “holding does not apply here, where the fee dispute is between the attorney and the party for whose benefit the attorney’s legal services were rendered. It is entirely consistent with both the language and the legislative intent of the mandatory fee arbitration statutes to treat such a party as the attorney’s client.” (Slip Opn., at p. 12.) Beyond that, nothing in section 6204(d) required that the parties to litigation challenging a mandatory fee arbitration award had to be in an attorney-client relationship in order for the court to award attorney’s fees to the prevailing party in the ensuing litigation.
BLOG OBSERVATION—This result shows the importance in carefully defining who the “client” is in the fee retainer as well as demonstrating that an attorney taking advantage of mandatory fee arbitration likely cannot back away from positions he took against the adversary in the arbitration proceeding (e.g., that the adversary was a “client,” but then trying to argue otherwise before a reviewing court on appeal).