Fourth District, Division 3 Affirms Trial Court’s Quantum Meruit Award of $364,110 to Attorney Instead.
For attorneys entering into contingency fee arrangements with clients, it is essential to comply with Business and Professions Code section 6147, which requires that contingency fee agreements specify (1) the agreed-upon contingency fee rate, (2) the manner in which disbursements and costs will impact the contingency fee and the client’s recovery, (3) the manner in which the client would have to pay compensation for related matters not directly covered by the contingency arrangement, (4) the fee is not set by law but negotiable between attorney and client, and (5) the MICRA limits for health care provider cases. The penalty for noncompliance is that the client can void the contingency fee arrangement, which relegates the attorney to collecting a reasonable fee. (Bus. & Prof. Code, sec. 6147(b).) The next case illustrates how noncompliance can cause bitter resentment and financial setback for even a contingency attorney successfully representing the client in “long shot” litigation.
Mesa West, Inc. v. LaMoure, Case No. G038601 (4th Dist., Div. 3 Feb. 18, 2009) (unpublished) involved a contingency attorney who successfully obtained a $4.1 million settlement for Mesa West after a $9.76 million jury verdict in a “long shot” matter. Although potentially entitled to a $2 million contingency fee for winning, attorney was unhappy when the client elected to void the contingency agreement because it was not compliant with section 6147. Litigation ensued, with the trial court determining that $364,110 was a reasonable fee for attorney’s services under a quantum meruit measure of recovery (i.e., 1,499 hours at $240 per hour). Attorney appealed in a multi-pronged challenge.
Justice O’Leary, on behalf of a 3-0 panel of the Fourth District, Division 3, authored an unpublished opinion affirming the lower court’s determination.
Here are the high points from this appellate decision:
- Even though client Mesa West had dissolved, it still had standing to void the contingency fee agreement because the litigation concerned the winding up of its business (Corp. Code, sec. 2010; Penasquitos, Inc. v. Superior Court, 53 Cal.3d 1180, 1183-1184 (1991));
- The original contingency agreement’s incorporation of subsequent cost-splitting agreements did not dilute the applicability of section 6147;
- Even though the contingency fee agreement was entered into in 1999, the former versions of section 6147 made no difference, because the Legislature in 1994 broadened its provisions to apply to a “client” rather than just a “plaintiff”;
- Mesa West did expressly void the contingency fee agreement in a prior petition to arbitrate before the Orange County Bar Association;
- Failure to set forth the requirements of section 6147 in the contingency fee agreement is the focal concern, with its provisions not deemed to have been waived even if the client was sophisticated and knew about the information that was missing from the agreement (Fergus v. Songer, 150 Cal.App.4th 552, 571-572 (2007));
- Nothing in the Mandatory Fee Arbitration Act (MFAA), section 6200 et seq., precluded Mesa West from relitigating the arbitration claims or raising new damages claims during the trial;
- Mesa West’s release of independent counsel in a settlement agreement did not release attorney because attorney and independent counsel were not joint debtors;
- The trial court did not err in declining to award attorney a multiplier for admittedly fantastic work, because this would contradict the policies underlying section 6147 (Chambers v. Kay, 29 Cal.4th 142 (2002));
- The trial court did not err in basing the reasonable fee upon invoiced amounts by the attorney, rather than mere estimated attorney time that was not invoiced;
- The trial court properly awarded a reasonable fee, rather than the “reduced” contingency fee advocated by attorney (Fergus, supra, 150 Cal.App.4th at p. 573); and
- Fees already paid to the attorney and his professional must be jointly disgorged, because an individual attorney cannot hide behind a corporate veil to “cloak his own professional lapses” (Bernstein v. State Bar, 50 Cal.3d 221, 229-231 (1990)).