Attorneys Successfully Sue Former Client For Collection Of Full Receivable Plus Attorney’s Fees In Collecting The Receivable

Recent Case Illustrates the Right Way to Handle A Dispute in Segments and Highlights Good Provisions to Have in Retainer Agreement

            In Fitzgerald Abbott & Beardsley LLP v. Miller, Case No. A118762 (1^st Dist., Div. 3 July 31, 2008) (unpublished), Former Client hired Attorneys to resolve a dispute with Client’s neighbors over the use of mosquito repellant and other toxins on their adjacent property. 

The first retainer agreement specified that it involved services only for pre-litigation services, with a separate agreement being needed if litigation became necessary.  The fax accompanying the first retainer provided an estimate for the first demand letter and initial settlement discussions, further indicating that as fees approached $6,000, both Client and Attorneys would meet to discuss the future of how the dispute would be handled.  The first retainer indicated that fees would be based on hourly rate charging, that invoice payments were due within 15 days of invoice receipt, that interest would be charged on accounts delinquent over 30 days, and that attorney’s fees and costs were recoverable by the prevailing party “in any action or proceeding to enforce any provision of this Agreement … [if] incurred in that action or proceeding or in efforts to negotiate the matter.”  A handwritten provision was added indicating that Attorney would consult Client before taking on any new legal task requiring more than 2 hours of work.  Attorneys helped broker a settlement agreement between Client and neighbors, which worked for a time until neighbors allegedly breached it in March 2004.

            Based on the belief that injunctive relief was necessary, Client and Attorney entered into a second retainer agreement in March 2004.  The second retainer had nearly identical terms as the first, but had these important differences:  (1) the services were expanded to include litigation activities; and (2) there was no handwritten amendment about consultation for work beyond a certain hour specification.  Furthermore, Attorney sent Client an email providing an estimate of $12,000 to prepare the TRO papers, but carefully indicating this estimate was “not a fixed fee or not-to-exceed amount” that could very well exceed the estimate based on revisions and changed circumstances.  Attorney also advised that a preliminary injunction hearing would be required and that cost of a trial could swell the cost to “in excess of $100,000.” 

            Client needed a lot of attention, and fees/costs swelled.  Attorneys at several times offered to obtain replacement counsel as fees/costs mounted.  The TRO and preliminary injunction were denied, and alternate counsel took over the case. 

            Client paid in 2003 and also paid the retainer under the March 2004 second agreement.  She made no further payments, and Former Attorneys sued her.  After a 7-day bench trial, Former Attorneys were awarded $52,741.09 fees/costs plus prejudgment interest (on the receivable) as well as $57,269 in fees/costs for using outside counsel to successfully prosecute collection of the receivable (breaking down as $51,520 in fees and $5,749 in costs).

            Client appealed in pro per, and lost on appeal in a 3-0 decision authored by Justice Jenkins for a First District, Division Three panel.

            Client initially argued that Former Attorneys had a duty to advise her before the retainer was spent.  Nothing in the retainer agreements contained such a duty (which is consistent with what we normally see in fee agreements), with the duty being upon Client to replenish any retainer upon request by Attorneys (another standard term of most retainer letters).

            Client’s argument that Attorney failed to seek consent to do work over 2 hours under the March 2004 agreement was rejected, because this second agreement did not have the handwritten amendment that applied only to pre-litigation work under the first retainer agreement.  The Court of Appeal similarly found that Former Attorneys did a good job of qualifying their “estimates” and that their work did not exceed the estimates provided to the Client.

            Because Client did not meet her obligations under the retainer agreements and routinely received monthly invoices with detailed breakdowns, her nonperformance was easily established at trial. 

            Client protested to the awarding of prejudgment interest, based on prohibitions contained in the Mandatory Fee Arbitration Act, Bus. & Prof. Code sec. 6200 et seq.  There was a fatal flaw with this argument, the appellate panel found:  she waived her right to arbitrate under MFAA by actually litigating the fee dispute with Former Attorneys. 

            Lastly, the award of fees/costs to Former Attorneys under the retainer fee clauses was found to be proper.  Former Attorneys’ outside counsel provided declarations with detailed invoices substantiating their services and resulting charges.  The appellate panel did not believe that $51,520 in fees was unreasonable for prosecuting the entire case through a 7-day bench trial, reinforced by the fact outside counsel only charged a “modest” $160 hourly rate for handling the case on behalf of Former Attorneys. 

            The nice lessons of this case can be summarized this way:

• Retainer agreements need to carefully define the scope of services, providing that subsequent agreements will be reached when more cost-intensive tasks are contemplated (which was done with the two agreements in this particular case);
• Monthly invoices with detailed breakdown of services and charges need to be sent (which was also done, in compliance with Business and Professions Code requirements);
• Retainer provisions in fee agreements should have no language stating that there is a duty to account to Client for use of retainers, although the duty should be imposed on Client to replenish retainers under penalty of withdrawal by the handling attorneys;
• Estimates need to be carefully made and modified as the representation evolves, especially in litigation matters (NOTE:  Some firms do not even give estimates, but many clients insist on them given the high costs of litigating these days; the key is to be realistic and be overly cautious in the estimation process, never capping any fees/costs unless it is carefully negotiated this way in the first place); and

If retainer letters have fee clauses (with some attorneys opting not to include them), the attorneys suing to collect a receivable need to hire outside attorneys who prosecute the case in order to avoid the prohibition of Trope v. Katz.