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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


California Legal Ethics

1.5   Rule 1.5 Fees

1.5:100   Comparative Analysis of CA Rule

Primary California References: CRPC 4-200, 2-200, B&PC §§ 6147, 6148
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary:

1.5:101      Model Rule Comparison

MR 1.5(a)’s requirement that fees are “reasonable” is similar to CRPC 4-200(A)’s prohibition on charging, entering into an agreement for, or collecting “unconscionable” fees. See MR 1.5(a), CRPC 4-200(B) (both list the ability of the performing lawyer, amount involved, results obtained and required time and labor as relevant factors in reviewing fees). As opposed to the MR’s eight factors, CRPC 4-200 contains eleven factors to be used in considering the reasonableness of a fee. MR 1.5(a)(1) appears in the California rule as two different factors. See CRPC 4-200(B)(3)&(10). MR 1.5(a)(3) is not present in the CRPC (i.e., the fee customarily charged in the community for legal services).

Further, the California rule considers the following enumerated factors not in MR 1.5: (1) the amount of the fee in proportion to the value of the services; (2) the relative sophistication of the attorney and client; and (11) the client’s informed consent. See CRPC 4-200(B)(1), (2), & (11). CRPC 4-200 uses the term “unconscionable” rather than the MR’s “unreasonable” fees.

According to MR 1.5(b), a lawyer must communicate fee rates to irregular clients, preferably in writing. B&PC § 6148(a)’s writing requirements apply to non-contingency-fee engagements where it is “reasonably foreseeable,” that the client’s total expenses will exceed one thousand dollars. [See 1.5:500 Communication Regarding Fees, infra]. Also, attorneys must comply with B&PC § 6148(b)’s content and procedural requirements for client bills. [See 1.5:500 Communication Regarding Fees, infra].

MR 1.5(c) and B&PC § 6147 heighten format requirements for contingency fee agreements in similar fashion. [See 1.5:600 Contingent Fees, infra]. MR 1.5(c) provides that agreements must be written and state the method of determining fees. B&PC § 6147 also requires agreements to be written, state the fee rate and describe how disbursements and costs will affect the fee and recovery, and describe the extent the client must pay fees for related matters. The CRPC’s reference to informed consent tracks B&PC §§ 6147 and § 6148, which require contingent fees (B&PC § 6147) and engagements for which total expenses are expected to exceed one thousand dollars (B&PC § 6148) to be in writing. This is at variance from MR 1.5. MR 1.5(c) requires contingent fee agreements to be in writing, but MR 1.5(b) prefers but does not require writing. It merely requires that the basis of the fee be communicated to the client.

The B&PC also has provisions requiring a lawyer to notify a client of the client’s right to mandatory fee dispute arbitration before the lawyer may sue the client for fees (B&PC §§ 6299 et seq.). The MR have no such requirement.

MR 1.5(d) does not allow lawyers to enter contingency fee agreements in certain domestic relations matters or in representing criminal defendants. Although there are certain limitations that may apply, California does not prohibit the use of contingency fee agreements in any context. [See 1.5:600 Contingent Fees, infra].

Finally, MR 1.5(e) and CRPC 2-200(A) regulate fee splitting with attorneys who are not in the same firm in similar fashion (i.e., both indicate concerns about the total fee charged and the client’s consent to the division). See MR 1.5(e) and CRPC 2-200(A). One difference is that MR 1.5(e) requires that either fees are split proportionately as to the services performed, or that each lawyer assumes joint responsibility for the representation, whereas, CRPC 2-200(A) does not mention proportionality at all. [See also 1.5:800 Fee Splitting (Referral Fees), infra]. MR 1.5(e), concerning splitting fees among lawyers from different firms, varies materially from CRPC 2-200. MR 1.5 takes the more traditional view, requiring that the second lawyer may not receive a fee without it being either proportional to that attorney’s participation or, where, with client consent, that attorney undertakes “joint responsibility” for the case. The CRPC allows referral fees but it must be an unexpected gift or gratuity and not an arrangement. CRPC 2-200 has been interpreted to allow payments to contract attorneys.

1.5:102      Model Code Comparison

DR 2-106, which forbids agreeing to, collecting or charging “clearly excessive” or “illegal” fees, is substantially similar to CRPC 4-200. See DR 2-106, CRPC 4-200. The relevant factors in determining whether a fee is “clearly excessive” under DR 2-106, are nearly identical to CRPC 4-200(B)’s unconscionability factors. DR 2-106(C) prohibits contingency agreements in representing criminal defendants and EC 2-20 states that contingency agreements in domestic relation matters are “rarely justified.” Although there are certain limitations that may apply, California does not prohibit the use of contingency fee agreements in any context. [See 1.5:600 Contingent Fees, infra].

DR 2-107(A), which regulates fee splitting between lawyers not practicing in the same law firm, is similar to CRPC 2-200(A) because it requires client consent and a reasonable total fee. However, DR 2-107(A) requires that the fee is split proportionately to work performed, while CRPC 2-200(A) is silent as to proportion. Also, DR 2-107(B) specifically allows payment to a former partner or associate under a separation or retirement agreement, whereas, CRPC 2-200 does not. [See 1.5:800 Fee Splitting (Referral Fees), infra].

1.5:200   A Lawyer's Claim to Compensation

Primary California References: CRPC 2-200, 4-200, B&PC §§ 6148, 6068, 6147, Civ. Proc. Code § 1021
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA § 41:101, ALI-LGL §§ 50-54, Wolfram §§ 9.1-9.6, 4 Witkin, Cal. Procedure (4th ed. 1996) Attorneys §§ 184, 221, 190, 229, 231

The measure and mode of compensation of attorneys is left to the express or implied agreement of the parties, unless the fees are fixed by statute. See Civ. Proc. Code § 1021.

A lawyer may base a claim of compensation on (1) an express contract for a fixed fee, a contingent fee, or reasonable value of services, see Preston v. Herminghus (1930) 211 Cal. 1, 5, 292 P. 953, (2) an implied in fact contract or quasi-contractual right to the reasonable value of services, see Batcheller v. Wittier (2nd Dist. 1909) 12 Cal.App. 262, 266-267, 107 P. 141, or (3) a statutory award in an amount or percentage fixed by statute, or allowance in an amount determined by the court, see 4 Witkin, Cal. Procedure (4th ed. 1996) Attorneys, § 184, p. 240.

1.5:210      Client-Lawyer Fee Agreements

A fee contract, other than a contingent fee contract, must be in writing if “it is reasonably foreseeable that total expense to a client, including attorney fees, will exceed one thousand dollars. . . .” B&PC § 6148(a). A duplicate of the contract, signed by both attorney and client must be given to the client at the time the contract is entered into. B&PC § 6148(a). Further, “a written fee contract is a confidential communication” under B&PC § 6068(e) and Evid. Code § 9512. See B&PC § 6149.

The agreement must contain:

(1) [a]ny basis of compensation, including, but not limited to, hourly rates, statutory fees or flat fees, and other standard rates, fees, and charges applicable to the case[;] (2) [t]he general nature of the legal services to be provided to the client[;] (3) [t]he respective responsibilities of the attorney and the client as to the performance of the contract.

B&PC § 6148(a).

Under B&PC § 6148(a)(4), if the attorney does not meet any of the following criteria, the agreement must contain a statement disclosing that fact: (1) “[m]aintains errors and omissions insurance coverage”; (2) has filed with the State Bar an executed copy of a written agreement guaranteeing payment of all claims established by clients for errors or omissions by the attorney in the amount specified by Rule IV(B)(1)(c) of the Law Corporation Rules; (3) if a law corporation has filed with the State Bar a copy of the written agreement required under Rule IV(B)(1)(a), (b) or (c) of the Law Corporation Rules, see B&PC § 6147(a)(6). These insurance coverage and claim payment disclosures in the current law are omitted from versions of B&PC § 6147 an 6148 which will be effective January 1, 2000.

Failure to comply with B&PC § 6148 “renders the agreement voidable at the option of the client, and the attorney shall, upon the agreement being voided, be entitled to collect a reasonable fee.” B&PC § 6148(c). However, B&PC § 6148 does not apply if: (1) services are “rendered in an emergency to avoid foreseeable prejudice to the rights or interests of the client or where a writing is otherwise impractical”[;] (2) the fee arrangement is “implied by the fact that the attorney’s services are of the same general kind as previously rendered to and paid for by the client”[;] (3) the “client knowingly states in writing, after full disclosure of this section, that a writing concerning fees is not required”[;] or (4) the client is a corporation. B&PC § 6148(d).

A fee agreement must be reasonable certain in order to be enforced. Goldberg v. City of Santa Clara (1st Dist. 1971) 21 Cal.App.3d 857, 861, 98 Cal.Rptr. 862. Courts construe ambiguities in fee agreements in favor of the client. See, e.g., Severson, Werson, Berke & Melchior v. Bolinger (1st Dist. 1991) 235 Cal.App.3d 1569, 1573, 1 Cal.Rptr.2d 531 (agreement term `regular hourly rates,’ did not allow law firm to unilaterally increase billing rate). In Ramirez v. Sturdevant, the court stated that “unconscionability, duress or the like,” are the only grounds for challenging attorney-favorable terms in fee agreements. (1st Dist. 1994) 21 Cal.App.4th 904, 913, 26 Cal.Rptr.2d 554. However, the court held that agreements that allow attorneys to negotiate attorney fees separately from the client’s settlement create an inherent conflict of interest because of the temptation to maximize personal recovery at the client’s expense. (1st Dist. 1994) 21 Cal.App.4th 904, 918 26 Cal.Rptr.2d 554; see also Todd-AO Corp. v. United Parcel Service (1st Dist. 1996) 56 Cal.Rptr.2d 7, 59 Cal.Rptr.2d 356, 927 P.2d 713 (attorney’s offer to opposing party to forego client’s claim in return for direct payment of fees creates conflict of interest).

B&PC § 6149 provides that written fee contracts are confidential communications under the duty of confidentiality and the attorney-client privilege.

Any contract secured through the services of a runner and capper is void. B&PC § 6154.

The following comments on B&PC § 6148 are taken from Karpman & Margolis pages 249-251 with certain conforming changes:

This statute mandates the contents of the agreement, but no particular form. Accordingly, an engagement letter, memorandum, or a simple or complex formal contract may be used. The lawyer’s choice of format should depend upon the circumstances. Whatever form is used, the lawyer should draft an agreement that the client can understand.

Practice Tip: The State Bar of California has a packet of sample fee agreements available to lawyers to assist them in complying with this statute. The packet has two short forms for litigation and non-litigation, two long forms for complex litigation and non-litigation matters and a fixed fee agreement, in addition to instructions for all five forms. These forms may be obtained by sending a check or money order for $3.50 to 251 Michelle Court, South San Francisco, California 94080.

Until the decision in Franklin v. Appel (2nd Dist. 1992) 8 Cal.App.4th 875, 10 Cal.Rptr.2d 759, it was believed that all fee agreements fell within the purview of either B&PC § 6147 or B&PC § 6148. The court in this case stated that B&PC § 6147 applies to “plaintiffs in litigation matters, rather than to all contingency fee agreements,” and that certain fee agreements fall outside both B&PC § 6147 and B&PC § 6148.

Types of Retainer Agreements

True Retainer: See Baranowski v. State Bar (1979) 24 Cal.3d 153, 154 Cal.Rptr. 752, 593 P.2d 613. A retainer is a sum of money tendered to a lawyer solely to secure his or her availability. The “true retainer” payment is earned upon receipt.

Fees Advanced: See Baranowski v. State Bar (1979) 24 Cal.3d 153, 154 Cal.Rptr. 752, 593 P.2d 613. The lawyer requires the payment prior to performance of work on a matter. It is payment for performance, and is not “earned” until performance is complete. The A.B.A. maintains that these fees should be kept in the client trust account. However, at this time California law is not in accord.

Flat or Fixed Fees: A maximum fee to be paid to a lawyer for the performance of a specified act earned when the matter is finished. Issues of unconscionability can arise where a large sum is agreed and the matter is quickly resolved with minimal work.

Practice Tip: Under Civ. Code § 1632, where the negotiations of a fee contract are conducted in Spanish, the lawyer must furnish a Spanish translation of the document for execution. Failure to comply allows the client to rescind the agreement. Although the statute only specifies Spanish, where the client lacks fluency in English, the better practice is to have the fee agreement translated into the client’s native language to avoid problems involving mutual assent.

Installment Payments. If the fee agreement specifies installment payments coupled with finance charges, compliance with the Unruh Act (Civ. Code § 1801 et seq.) in addition to the Truth in Lending Act (15 USC Sections 1601 et seq.) may be mandated. Counsel should consult these regulations.

Failure to comply with the requirements of B&PC § 6148 permits the client to void the agreement. However, a client has a common law duty to pay for the reasonable value of the services rendered. For a discussion of recovery for services rendered, under a quantum meruit theory, see B&PC § 6147(b).

Cases

Where there is a fixed fee agreement, the lawyer cannot unilaterally take fees over the agreed amount. Even if the anticipated performance increases tremendously and becomes onerous, client consent to renegotiation of the agreement is required. Grossman v. State Bar (1st Dist. 1983) 34 Cal.3d 73, 192 Cal.Rptr. 397, 664 P.2d 542.

Unilateral determination of fees and withdrawal of that amount from funds held in trust for the client is prohibited, absent the client’s knowledge and consent. Most v. State Bar (1967) 67 Cal.2d 589, 63 Cal.Rptr. 265, 432 P.2d 953. See also Trafton v. Youngblood (1968) 69 Cal.2d 17, 69 Cal.Rptr. 568, 441 P.2d 648.

“Although attorneys are ethically prohibited from charging an unreasonable or unconscionable fee, courts normally do not inquire into reasonableness in the absence of an objection by the client.” Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 10 Cal.Rptr.2d 230.

After specific hourly rates have been agreed upon, unilateral changes in rates are prohibited absent notice to the client. Severson, Werson, Berke & Melchior v. Bolinger (1st Dist. 1991) 235 Cal.App.3d 1569, 1 Cal.Rptr.2d 531.

Fee agreements are construed, evaluated, and interpreted at the time of their making. They must be fully explained to the client in addition to being fair and reasonable. Alderman v. Hamilton (2nd Dist. 1988) 205 Cal.App.3d 1033, 252 Cal.Rptr. 845.

Factors considered justifying high fees include, but are not limited to, a lawyer’s position or reputation in the community and his or her status in the law firm. Glendora Community Redevelopment Agency v. Demeter (2nd Dist. 1984) 155 Cal.App.3d 465, 202 Cal.Rptr. 389.

In determining the validity, promptness, and appropriateness of an accounting regarding advanced fees, the State Bar Court may consider this statute, even when a violation of the statute was not charged in the case. In the Matter of Fonte (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752.

The written fee agreement not only protects clients and helps ensure that a fair and understandable fee agreement is reached for specified services, it can also aid the lawyer in proving the terms of engagement. In the Matter of Hanson (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 703.

References

B&PC § 6149 (written fee contract as confidential communication, within the meaning of B&PC § 6068(e)); B&PC § 6203 (State Bar may administratively suspend license of lawyer who does not pay fee arbitration award).

CRPC 2-200 (fee splitting); CRPC 3-310(F) (fees paid by someone other than client); CRPC 3-700(D) (refund of unearned fees); CRPC 4-100 (duties for trust accounts); CRPC 4-200 (illegal or unconscionable fees).

2 Cal. Lawyer No. 7, p. 29. 1982. Ethics advisory; Charging your clients “interest”: Attorneys may impose finance charges, but must comply with applicable credit laws.

66 ALR4th 256. Personal liability of an attorney resulting from expenses incurred in performing services for client.

59 ALR3d 152. Compensation for attorney fees in domestic relations matters.

57 ALR3d 584. Implied in fact fee agreements to pay for reasonable value of services rendered.

1.5:220      A Lawyer's Fee in Absence of Agreement

In the absence of an express agreement, an attorney may be able to recover the reasonable value of services provided under implied contract theory. See Spires v. American Bus Lines (1st Dist. 1984) 158 Cal.App.3d 211, 216-217, 204 Cal.Rptr. 531. The test is whether or not the client has requested the attorney’s assistance under circumstances in which the attorney could expect to be compensated. See, e.g., Spires v. American Bus Lines (1st Dist. 1984) 158 Cal.App.3d 211, 217, 204 Cal.Rptr. 531 (client’s request that attorney `try her case,’ is sufficient basis for recovery); compare Trimble v. Steinfeldt (2nd Dist. 1986) 178 Cal.App.3d 646, 651, 224 Cal.Rptr. 195 (client’s authorization of lead attorney to retain associate attorney did not give associate attorney basis to recover from client). In the absence of any contrary provision, “a client is bound to repay an attorney for all outlays made by him in the payment of the expenses of carrying on the litigation, and an attorney is bound to bear his own personal and traveling expenses.” Cooley v. Miller & Lux (1909) 156 Cal. 510, 526, 105 P. 981. Also, an attorney has no implied authority to hire attorneys or assistants at the client’s expense. Porter v. Elizalde (1899) 125 Cal. 204, 207 57 P. 899.

A statute may also provide a basis for fee recovery. See, e.g., Pen. Code § 987(b) (providing fees at public expense for defense counsel in capital murder cases).

1.5:230      Fees on Termination [see also 1.16:600]

In cases where the attorney’s contemplated performance has become impossible or is otherwise excused without fault of client or attorney, the attorney is entitled to the reasonable value of services provided up to the time of the impossibility or other excuse occurred. 4 Witkin, Cal. Procedure (4th ed. 1996) Attorneys, § 221, p. 281.

A lawyer’s right to recover fees upon termination may depend upon whether the attorney-client relationship was severed through attorney withdrawal or client discharge. In withdrawal cases, the general rule is that the withdrawal must be ethically motivated, or the right to recover fees is forfeited. See Hensel v. Cohen (2nd Dist. 1984) 155 Cal.App.3d 563, 568, 202 Cal.Rptr. 85 (distinguishing between procedurally proper withdrawal and ethically justified withdrawal); but see Joseph E. Di Loreto, Inc. v. O’Neill (2nd Dist. 1991) 1 Cal.App.4th 149, 158, 1 Cal.Rptr.2d 636 (where performance is completed prior to withdrawal, lack of ethical justification is not a defense to a fee action). The case law is unsettled as to whether withdrawal prior to completion of employment must be ethically mandated or merely ethically permissible in order to preserve fee recovery. See Pearlmutter v. Alexander (Cal. Super. 1979) 97 Cal.App.3d Supp 16, 20, 158 Cal.Rptr. 762, 764 (withdrawal need only be ethically permissible in order to preserve fee rights); but see Estate of Falco (2nd. Dist. 1987) 188 Cal.App.3d 1004, 1016, 233 Cal.Rptr. 807 (acknowledging the “possibility” that fee rights could be retained through exercising permissive withdrawal, but holding that as a general matter an attorney must establish that withdrawal was ethically mandated).

In discharge cases, the general rule is that an attorney is limited to quantum meruit recovery for services provided prior to discharge. See Fracasse v. Brent (1972) 6 Cal.3d 784, 789-790, 100 Cal.Rptr. 385, 494 P.2d 9 (disallowing contract damages enables clients to exercise their discharge rights freely); but see, e.g., Franklin v. Appel (2nd Dist. 1992) 8 Cal.App.4th 875, 894, 10 Cal.Rptr.2d 759 (where performance is complete prior to discharge, an attorney may recover contract damages); Chyten v. Lawrence & Howell Investments (2nd Dist. 1993) 23 Cal.App.4th 607, 613, 46 Cal.Rptr.2d 459 (allowing in-house attorney discharged without cause to recover contract damages since the client/employer and attorney were of equal bargaining power and sophistication).

Finally, there are some potentially negative consequences to a client for terminating his or her attorney. Although clients have the unilateral right to sever the professional relationship for any reason, see General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1173, 32 Cal.Rptr.2d 1, 876 P.2d 487, the client’s potential liability for wrongful discharge is uncertain. In a case involving the discharge of an attorney by a personal injury client, the California Supreme Court held that a client could not be held liable for breach of contract for exercising the discharge right. See Fracasse v. Brent (1972) 6 Cal.3d 784, 789-790, 100 Cal.Rptr. 385, 494 P.2d 9. Fracasse was subsequently limited by a California Supreme Court decision. See General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1173, 32 Cal.Rptr.2d 1, 876 P.2d 487 (holding that the personal injury client’s right to discharge counsel without consequence does not permit “all clients to terminate the attorney-client relationship under all circumstances without consequence . . .” (emphasis in original).

The issue before the court in General Dynamics concerned whether an in-house attorney could bring a wrongful discharge claim against his or her client/employer. See General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1173, 32 Cal.Rptr.2d 1, 876 P.2d 487. The court held that such claims could be brought where: (1) the in-house attorney alleges that the discharge was motivated by the attorney’s adherence to a mandatory ethical obligation or, (2) where non-attorney employees would be permitted to pursue a claim and the duty of attorney confidentiality does not apply. See General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1173, 32 Cal.Rptr.2d 1, 876 P.2d 487.

The court reasoned that because in-house attorneys are economically dependent upon their employers, they should be allowed a wrongful termination cause of action (like any other employee). See General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 32 Cal.Rptr.2d 1, 876 P.2d 487. Further, the court did not want to give attorneys an incentive to make unethical choices. Attorneys may be faced with and discharged for adhering to ethical decisions that conflict with their employer’s interests. If an attorney had no legal recourse should he or she be terminated for remaining ethical, the attorney would be given incentive to act unethically. For this reason, the court stated that in-house counsel have an “even more powerful claim to judicial protection than their non-professional colleagues.” See General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 32 Cal.Rptr.2d 1, 876 P.2d 487 (emphasis in original).

1.5:240      Fee Collection Procedures

Attorneys seeking to recover fees should consider filing suit or pursuing arbitration or mediation [see 1.5:250 Fee Arbitration, infra] rather than self-help. See, e.g., In the Matter of Harney (Rev. Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266, 280 (attorney’s retention of illegal portion of fee was unethical despite his good faith belief of entitlement); [see also Rule 1.15 Safekeeping Property, infra]. In instituting a fee action, attorneys should comply with B&PC § 6201(a), which provides, in relevant part, that failing to give the client notice of the right to arbitration “shall be a ground for dismissal of the action.” See also Richards, Watson and Gershon v. King (2nd Dist. 1995) 39 Cal.App.4th 1176, 1179-80, 46 Cal.Rptr.2d 169 (failure to give proper notice under B&PC § 6201(a) does not mandate dismissal of fee action).

An attorney may not bring an action for fees in the client’s underlying action unless permitted by statute. See Law Offices of Stanley J. Bell v. Shine, Browne & Diamond (1st Dist. 1995) 36 Cal.App.4th 1011, 1019-20, 43 Cal.Rptr.2d 717; Valenta v. Regents of University of California (4th Dist. 1991) 231 Cal.App.3d 1465, 1469-70, 282 Cal.Rptr. 812 (attorney may file notice of lien in underlying action, but an independent action is necessary for recovery). The California Supreme Court recognized an exception to the independent action requirement. See Meadow v. Superior Court (1963) 59 Cal.2d 610, 30 Cal.Rptr. 824, 381 P.2d 648 (holding that California’s intervention statute (Civ. Proc. Code § 387) allows relief in an underlying action where an employment agreement gives an attorney a specific interest in the subject matter of the litigation.). The case law indicates that this exception is narrow. See, e.g., Meadow v. Superior Court (1963) 59 Cal.2d 610, 30 Cal.Rptr. 824, 381 P.2d 648; Marshank v. Superior Court (2nd Dist. 1960) 180 Cal.App.2d 602, 605, 4 Cal.Rptr. 593 (wife’s attorney in divorce action does not have interest warranting intervention); Bandy v. Mt. Diablo Unified Sch. Dist. (1st Dist. 1976) 56 Cal.App.3d 230, 235, 126 Cal.Rptr. 890 (contingency fee agreement providing lien upon client’s anticipated recovery does not give attorney interest warranting intervention).

An action for fees does not usually accrue until the attorney completes performance. See, e.g., E.O.C. Ord, Inc., v. Kovakovich (5th Dist. 1988) 200 Cal.App.3d 1194, 1203, 246 Cal.Rptr. 456 (fee action for attorney assisting client in tax litigation with government did not ripen until I.R.S. returned tax computations); In re Roberts Farms (9th Cir. 1992) 980 F.2d 1248, 1253 (law firm’s cause of action accrued on last date of assistance provided to client as indicated by accounting records). With respect to contingency agreements, fee actions do not ripen until the client recovers. See Fracasse v. Brent (1972) 6 Cal.3d 784, 792, 100 Cal.Rptr. 385, 494 P.2d 9; see also Kroff v. Larson (6th Dist. 1985) 167 Cal.App.3d 857, 861, 213 Cal.Rptr. 526 (cause of action for recovery of costs advanced pursuant to contingency fee agreement does not accrue until occurrence of stated contingency).

1.5:250      Fee Arbitration

Arbitration and mediation are permitted alternatives to filing an action for fees. The following tracks the provisions and corresponding case law of B&PC §§ 6200-06 (“Article 13”), California’s statutory scheme for the arbitration and mediation of fee disputes.

One court observed that Article 13 was intended to balance the bargaining power between attorneys and clients in fee disputes. See Richards, Watson, and Gershon v. King, (2nd Dist. 1995) 39 Cal.App.4th 1176, 1180, 46 Cal.Rptr.2d 169. Arbitrators and mediators have the same immunity that attaches in judicial proceedings. B&PC § 6200(f).

Article 13 contemplates fee and cost disputes stemming from attorney services. See B&PC § 6205; but see National Union Fire Ins. Co. v. Stites Prof. Law Corp. (2nd Dist. 1991) 235 Cal.App.3d 1718, 1727-1728, 1 Cal.Rptr.2d 570 (holding that Article 13 only applies to disputes between attorneys and clients).

Article 13 does not apply to the four following situations: (1) disputes with an attorney who is admitted to practice both in California and in another jurisdiction, or who is admitted to practice only in another jurisdiction, and who maintains no office in California, when “no material portion of the services” were rendered in California, see B&PC § 6200(b)(1); (2) claims for affirmative relief “for damages or otherwise based upon alleged malpractice or professional misconduct,” except as provided in B&PC § 6203(a), see B&PC § 6200(b)(2); (3) disputes concerning fees or costs determined under statute or court order, see B&PC § 6200(b)(3); and (4) arbitration sought when the time for filing a civil action requesting the same relief would be barred by the statute of limitations, unless the attorney has already filed a civil action, see B&PC § 6206.

Arbitration of attorney-client fee disputes has been suggested as a preferable alternative to actions for the recovery of fees. Fee disputes are a proper subject of arbitration, and a written contract to arbitrate a present or future fee controversy is valid and enforceable. See Civ. Proc. Code § 1280 & Civ. Proc. Code 1281.

An attorney’s fee action may be dismissed for failing to give notice of the client’s arbitration rights in accordance with B&PC § 6201(a). See also Richards Watson and Gershon v. King (2nd Dist. 1995) 39 Cal.App.4th 1176, 1179-1180, 46 Cal.Rptr.2d 169 (failing to provide B&PC § 6201(a) notice does not mandate dismissal). Mediation is voluntary for both attorney and client. See B&PC § 6200(h). However, a client may unilaterally mandate arbitration by a proper invocation of the arbitration right. See B&PC § 6200(c). See also B&PC § 6200(h) (mediation settlement discussions are confidential and may not be discussed in any subsequent arbitration or proceeding) and B&PC § 6202 (providing for disclosure of certain “relevant” privileged matters in connection with arbitration).

Arbitration is mandatory when requested by clients. See B&PC § 6206 et seq. B&PC § 6200(c) provides for arbitration of fee disputes that “shall be voluntary for a client and . . . mandatory for an attorney if commenced by a client.” The law applies to “disputes concerning fees, costs, or both, charged for professional services.” B&PC § 6205. The statute covers services of members of the California State Bar and of other bars. See B&PC § 6200(a).

The right to arbitration may be lost through either one of two kinds of client waiver. First, B&PC § 6201 provides, in pertinent part, that the client’s arbitration right will be lost if after receiving notice, the client either fails to request to arbitrate within thirty days, see B&PC § 6201(a), or fails to request arbitration prior to filing an answer to a fee action, see B&PC § 6201(b). Second, B&PC § 6201(d) provides, in pertinent part, that if the client commences an action that seeks either: (1) resolution of a fee dispute to which Article 13 applies, or (2) affirmative relief against the attorney, then the right to arbitrate the matter is forfeited. Some courts have been hostile to clients who invoke both arbitration and judicial proceedings. See, e.g., Juodakis v. Wolfrum (4th Dist. 1986) 177 Cal.App.3d 587, 592, 223 Cal.Rptr. 95 (holding that client forfeited right to arbitration award by filing malpractice claim against attorney after initially requesting arbitration); Manatt, Phelps, Rothenberg & Tunney v. Lawrence (2nd Dist. 1984) 151 Cal.App.3d 1165, 1171, 1173, 199 Cal.Rptr. 246 (claims of arbitration waiver asserted by the party originally compelling arbitration are closely scrutinized; client’s malpractice claim against attorney brought after requesting arbitration did not constitute waiver).

Under B&PC § 6201(c), a client’s request for arbitration stays an attorney’s fee action, however the stay may be vacated in whole or in part where a matter is not “appropriate for arbitration.” See, e.g., Loeb and Loeb v. Beverly Glen Music, Inc. (2nd. Dist. 1985) 166 Cal.App.3d 1110, 1118, 212 Cal.Rptr. 830 (court properly vacated stay of attachment action since attachment seeks insurance of judgment payment and thus is not a subversion of arbitration procedure); see also B&PC § 6206 (the time for filing an action subject to arbitration tolls from the initiation of arbitration until either (a) thirty days after receipt of an arbitration award or (b) notice of arbitration termination).

Finally, the parties may agree to binding arbitration pursuant to B&PC § 6204. However, even in the absence of agreement, B&PC § 6203 provides that arbitration becomes binding unless either party seeks a trial pursuant to B&PC § 6204 within thirty days of the mailing of the award notice. See B&PC § 6204(b) (defining the procedure for obtaining trial where there is an action pending); B&PC § 6204(c) (defining the procedure for obtaining trial where there is not an action pending); see, e.g., Shiver, McGrane & Martin v. Littell (1st Dist. 1990) 217 Cal.App.3d 1041, 1045, 266 Cal.Rptr. 298 (filing post-award malpractice action did not allow client to litigate fee dispute pursuant to B&PC § 6204(c) principally because it did not provide notice as to challenge of arbitration award).

Attorneys who fail to comply with an arbitration award may be placed on involuntary inactive status pursuant to B&PC § 6203(d)(1).

1.5:260      Forfeiture of Lawyer's Compensation

In certain circumstances, a lawyer’s right to compensation may be forfeited by withdrawal. [See 1.5:230 Fees on Termination, supra]. Conflict of interest violations may result in forfeiture as well. [See 1.7:260 Sanctions and Remedies for Conflicts of Interest].

1.5:270      Remedies and Burden of Persuasion in Fee Disputes

For a discussion of remedies in fee actions, [see 1.5:200 A Lawyer’s Claim to Compensation, supra]. Attorneys may also be entitled to equitable remedies such as a lien on the client’s ultimate recovery, see, e.g., Law Offices of Stanley J. Bell v. Shine, Browne & Diamond (1st Dist. 1995) 36 Cal.App.4th 1011, 1019-20, 43 Cal.Rptr.2d 717, or an attachment of the client’s assets, see, e.g., Loeb and Loeb v. Beverly Glen Music, Inc. (2nd. Dist. 1985) 166 Cal.App.3d 1110, 1114, 212 Cal.Rptr. 830. As to the burden of persuasion in fee disputes, one court observed that attorneys must establish the nature and value of services provided to the client in such detail as to provide adequate basis for granting relief. See Asbestos Claims Facility v. Berry & Berry (1st Dist. 1990) 219 Cal.App.3d 9, 24-25, 267 Cal.Rptr. 896.

In the absence of an abuse of discretion and a grossly excessive fee award, verdicts and judgments for the reasonable value of attorneys’ services are usually upheld. Libby v. Kipp (3rd Dist. 1927) 87 Cal.App. 538, 548, 262 P. 68.

1.5:300   Attorney-Fee Awards (Fee Shifting)

Primary California References: CRPC 4-210, Civ. Proc. Code § 1021
Background References: ABA Model Rule 1.5, Other Jurisdictions
Commentary: ABA/BNA § 41:301, Wolfram § 16.6, Richard M. Pearl, California Attorney Fee Awards (2d ed. 1994)

1.5:310      Paying for Litigation: The American Rule

California follows the American rule, which requires each party to a law suit to provide its own attorney fees. See Trope v. Katz (1995) 11 Cal.4th 274, 278, 45 Cal.Rptr.2d 241, 902 P.2d 259. The American Rule is codified at Civ. Proc. Code § 1021, which provides, in relevant part, that in the absence of an applicable statute, attorneys fees are determined by the parties’ agreements.

1.5:320      Common-Law Fee Shifting

There are four major bases for a successful litigant to shift attorney fees under California’s common law: (1) the private attorney general doctrine, (2) the common fund doctrine, (3) the substantial benefit doctrine and (4) the torts-of-another doctrine. See Richard M. Pearl, California Attorney Fee Awards § 4.5 (2d ed. 1994)

(1) Private Attorney General Doctrine

The rationale of private attorney general fee shifting is to encourage private suits that enforce important societal interests by awarding attorney fees where an individual’s interest in bringing suit may be disproportionately outweighed by litigation costs. See Satrap v. Pacific Gas & Electric Co. (1st Dist. 1996) 42 Cal.App.4th 72, 77, 49 Cal.Rptr.2d 348; see also, Beasely v. Wells Fargo Bank (1st Dist. 1991) 235 Cal.App.3d 1407, 1421-1422, 1 Cal.Rptr.2d 459 (allowing private attorney general theory awards for expert witness fees and other non-recoverable expenses ordinarily billed to the client and not included in overhead charges).

Private attorney general awards may be granted under a court’s equitable powers or under Civ. Proc. Code § 1021.5. See Civ. Proc. Code § 1021.5 (allowing courts to make fee awards in an “action” satisfying the statutory criteria); see also Trope v. Katz (1995) 11 Cal.4th 274, 45 Cal.Rptr.2d 241, 245, 902 P.2d 259 (referring to both the equitable and statutory authority to grant private attorney general awards); Best v. California Apprenticeship Council (4th Dist. 1987) 193 Cal.App.3d 1448, 1462 n.12, 240 Cal.Rptr. 1 (courts have equitable authority to make private attorney general awards at least as to the vindication of constitutionally based rights).

The equitable and statutory bases for private attorney general awards appear to be substantively identical with two possible exceptions relating to awards for services rendered in administrative proceedings and the type of right or interest that must be vindicated in order to qualify for an award. See Richard M. Pearl, California Attorney Fee Awards § 4.5 (2d ed. 1994). First, the courts have construed the term “action” in Civ. Proc. Code § 1021.5 to refer to judicial proceedings so that services rendered in administrative proceedings must meet additional criteria to qualify for a fee award. See, e.g., Ciani v. San Diego Trust & Savings Bank (4th Dist. 1994) 25 Cal.App.4th 563, 576, 30 Cal.Rptr.2d 581 (administrative proceedings must be necessary, useful and make a direct contribution to an interest vindicated in judicial proceedings); Hospital Systems, Inc. v. Office of Statewide Health Planning and Development (3rd Dist. 1994) 25 Cal.App.4th 1686, 1691, 30 Cal.Rptr.2d 922 (Section 1021.5 claims must be made in conjunction with pending court litigation). In contrast, dictum in Best v. California Apprenticeship Council, suggests that an administrative agency’s equitable authority allows it to grant awards for disputes resolved exclusively through administrative proceedings. See Best v. California Apprenticeship Council (4th Dist. 1987) 193 Cal.App.3d at 1448, 1462 n.12, 240 Cal.Rptr. 1; see also Hospital Systems, Inc. v. Office of Statewide Health Planning and Development (3rd Dist. 1994) 25 Cal.App.4th 1686, 1695, 30 Cal.Rptr. 2d 922 (since plaintiff relied exclusively on Civ. Proc. Code § 1021.5, court did not consider whether equitable private attorney general theory allows awards for exclusively administrative activities).

The second possible difference between the statutory and equitable private attorney general authorities developed from the California Supreme Court’s decision Woodland Hills Residents Assn., Inc. v. City Council of Los Angeles (1979) 23 Cal.3d 917, 925, 154 Cal.Rptr. 503, 593 P.2d 200. In that case, the court interpreted Civ. Proc. Code § 1021.5 to encompass the vindication of important rights of any source, but did not indicate whether if at all, the equitable authority applies beyond constitutionally based rights. See Woodland Hills Residents Assn., Inc. v. City Council of Los Angeles (1979) 23 Cal.3d 917, 925, 154 Cal.Rptr. 503, 593 P.2d 200; Best v. California Apprenticeship Council (4th Dist. 1987) 193 Cal.App.3d 1448, 1462, n.12, 240 Cal.Rptr. 1 (citing Woodland Hills Residents Assn.).

The general test for private attorney general awards is whether: “1) the action has resulted in the enforcement of an important right affecting the public interest, 2) a significant benefit, whether pecuniary or non-pecuniary has been conferred on the general public or a large class of persons, and 3) the necessity and financial burden of private enforcement make the award appropriate.” See Family Planning Specialists Medical Group, Inc. v. Powers (1st Dist. 1995) 39 Cal.App.4th 1561, 1566, 46 Cal.Rptr.2d 667 (quoting Planned Parenthood v. Aakus (1993) 14 Cal.App.4th 162, 169-170, 17 Cal.Rptr.2d 510). Although Civ. Proc. Code § 1021.5(c) calls for a court to consider whether the “interest of justice” dictates that fees should be paid out of the litigation proceeds, this criterion is rarely discussed. See, e.g., Beasely v. Wells Fargo Bank (1st Dist. 1991) 235 Cal.App.3d 1407, 1417, 1 Cal.Rptr.2d 459 (stating that the interest of justice criterion of Civ. Proc. Code § 1021.5(c) is dependent upon the financial burden inquiry); but see Rider v. County of San Diego (4th Dist. 1992) 11 Cal.App.4th 1410, 1421, 14 Cal.Rptr.2d 885 (since both government and challengers of sales tax acted to uphold public interest in litigating a doctrinally unclear issue, Civ. Proc. Code § 1021.5(c) interest of justice requires that challengers’ attorney fees are paid out of recovery).

The cases interpreting the important right criterion are not easily classified. See, e.g., Olsen v. Breeze, Inc. (3rd Dist. 1996) 48 Cal.App.4th 608, 628, 55 Cal.Rptr.2d 818 (plaintiff’s suit alleging that ski shop violated consumer and unfair competition laws did not warrant fee award because skiing is not a matter of public interest). See also Family Planning Specialists Medical Group, Inc. v. Powers, (1st Dist. 1995) 39 Cal.App.4th 1561, 46 Cal.Rptr. 667 (defense of libel suit that did not threaten “legitimate” free speech rights does not satisfy important interest criterion); but see, e.g., City of Fresno v. Press Communications, Inc. (5th Dist. 1994) 31 Cal.App.4th 32, 44, 36 Cal.Rptr.2d 456 (litigation which enforces constitutional rights necessarily affects the public interest; publisher’s defense of government’s suit to enforce speech regulation is within Civ. Proc. Code § 1021.5’s purview). Some courts seem to consider the plaintiff’s motivation for bringing suit in determining whether the important right component is satisfied. See, e.g., Boquilon v. Beckwith (1st Dist. 1996) 49 Cal.App.4th 1697, 1722, 57 Cal.Rptr.2d 503 (no public interest involved in plaintiffs’ suit under Home Equity Sales Contracts Act; rather, plaintiffs brought the action to vindicate their own interests); but see Satrap v. Pacific Gas & Electric Co. (1st Dist. 1996) 42 Cal.App.4th 72, 49 Cal.Rptr.2d 348 (subjective motivation is not a controlling factor in determining Civ. Proc. Code § 1021.5 awards).

The second criterion of the test calls for the courts to assess the impact of the claimant’s litigation on society. See, e.g., Family Planning Specialists Medical Group, Inc. v. Powers (1st Dist. 1995) 39 Cal.App.4th 1561, 46 Cal.Rptr.2d 667 (abortion protestor’s defense of libel action did not confer a significant societal benefit because it did not further the rights of others to engage in the same or similar conduct); but see City of Fresno v. Press Communications, Inc. (5th Dist. 1994) 31 Cal.App.4th 32, 36 Cal.Rptr.2d 456 (litigation which enforces constitutional rights necessarily confers a significant societal benefit).

Courts tend to separate the final criterion of the private attorney general test into two inquiries: the financial burden of the litigation and the necessity of the litigation. See Richard M. Pearl, California Attorney Fee Awards § 4.31 (2d ed. 1994). The financial burden inquiry is whether the cost of litigation transcends the plaintiff’s personal interest. See, e.g., California Coastal Comm’n v. Adams (2nd Dist. 1995) 46 Cal.Rptr.2d 545, 549, order pub. vacated (12/07/95) (Civ. Proc. Code § 1021.5 award not warranted since property owners did not establish that costs of defending action to mandate property restoration exceeded the value of maintaining status quo of property); see also Satrap v. Pacific Gas & Electric Co. (1st Dist. 1996) 42 Cal.App.4th 72, 77, 49 Cal.Rptr.2d 348 (the test is whether the plaintiff’s interests are “so disproportionate” to litigation costs at the time of vital litigation decisions; claimant not entitled to relief for $1.2 million attorney fees because he sought both a multi-million dollar verdict and settlement).

The necessity inquiry is whether the claimant has (1) advanced theories adopted by the court that were not duplicative of a government agency’s theories, and (2) provided evidence that makes a significant contribution to the judgment. See, e.g., Ciani v. San Diego Trust & Savings Bank (4th Dist. 1994) 25 Cal.App.4th 563, 576, 30 Cal.Rptr.2d 581 (claimant’s participation in action with attorney general was not necessary since claimant advanced the same theory as attorney general and did not contribute any significant evidence).

(2) Common Fund Doctrine

The common fund doctrine allows a litigant who creates a fund in which passive third party beneficiaries are entitled to share, to recover attorney fees from the fund or from said passive beneficiaries. See City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 111, 48 Cal Rptr.2d 42, 906 P.2d 1196. This basis of fee recovery may also be referred to as the doctrine of equitable apportionment. See Kavanaugh v. City of Sunnyvale (6th Dist. 1991) 233 Cal.App.3d 903, 908, 284 Cal.Rptr. 698. The doctrine is based on the fairness of requiring passive beneficiaries to contribute litigation costs and encouraging attorneys to accept and prosecute fund recovery cases through insuring compensation. See, e.g., City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 111, 48 Cal Rptr.2d 42, 906 P.2d 1196 since plaintiff’s suit did not create creditor’s interest in plaintiff’s judgment, common fund doctrine does not require creditor to contribute attorney fees); Rider v. County of San Diego (4th Dist. 1992) 11 Cal.App.4th 1410, 1423, 14 Cal.Rptr.2d 885 (successful challengers of sales tax may recover attorney fees out of invalidly collected taxes).

A common issue in these cases is whether a party is a passive beneficiary, see, e.g., Crampton v. Takegoshi (3rd. Dist. 1993) 17 Cal.App.4th 308, 317, 21 Cal.Rptr.2d 284 (Lab. Code § 3856 incorporates the common fund doctrine; defendant holding a lien on plaintiff’s recovery against defendant is a passive beneficiary to plaintiff’s suit because defendant received the benefit of offsetting plaintiff’s judgment); Baker v. Pratt (2nd Dist. 1986) 176 Cal.App.3d 370, 379, 222 Cal.Rptr. 253 (plaintiff, one of two corporate shareholders, may not recover attorney fees for suit against corporation for lack of passive beneficiaries); Steinberg v. Allstate Ins. (2nd Dist. 1990) 226 Cal.App.3d 216, 223, 277 Cal Rptr. 32 (since insurance company played minimal role in creating settlement it was a passive beneficiary).

(3) Substantial Benefits Doctrine

In dictum, the California Supreme Court described the substantial benefits doctrine as a “limited extension” of the common fund doctrine that may require fee contribution from defendants receiving substantial benefits in class actions or corporate derivative actions. See City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 48 Cal.Rptr.2d 42, 906 P.2d 1196 (quoting D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 25, 112 Cal.Rptr. 786, 520 P.2d 10); D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 25, 112 Cal.Rptr. 786, 520 P.2d 10 (substantial benefit rule does not apply to suit to compel medical board to alter licensing practices because no benefits were conferred on defendants). This articulation of the substantial benefits doctrine does not comply with some statements in earlier appellate court decisions. See Braude v. Automobile Club of Southern California (5th Dist. 1986) 178 Cal.App.3d 994, 1005, 223 Cal.Rptr. 914 (doctrine may apply where benefits are conferred to an ascertainable class); Rider v. County of San Diego (4th Dist. 1992) 11 Cal.App.4th 1410, 1426-1427, 14 Cal.Rptr.2d 885 (doctrine may apply where benefits are conferred on a represented class); Baker v. Pratt (2nd Dist. 1986) 176 Cal.App.3d 370, 222 Cal.Rptr. 253 (doctrine is not limited to class actions or corporate derivative suits).

(4) Torts-of-Another Doctrine

The torts-of-another or “third party tort” doctrine allows a litigant to recover attorney fees as damages from a third party who tortiously causes the litigant to initiate or defend a suit. See Lubner v. City of Los Angeles (2nd Dist. 1996) 45 Cal.App.4th 525, 534, 53 Cal.Rptr.2d 24; see, e.g., Heckert v. MacDonald (1st Dist. 1989) 208 Cal.App.3d 832, 838, 256 Cal.Rptr. 369 (broker is liable to seller for attorney fees since seller was forced to defend buyer’s suit because of broker’s tortious misrepresentation); Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 507, 198 Cal.Rptr. 551, 674 P.2d 253 (broker is liable to buyer for attorney fees since broker’s tortious misrepresentation necessitated buyer’s suit against seller); Lubner v. City of Los Angeles (2nd Dist. 1996) 45 Cal.App.4th 525, 534, 53 Cal.Rptr.2d 24 (city’s failure to redress plaintiff’s harm was not tortious, therefore, city is not liable for fees plaintiff incurred in suing insurance company for redress).

Another issue that arises in torts-of- another cases is how one may be deemed a “third party” to the underlying litigation. See, e.g., Golden West Baseball Co. v. Talley (4th Dist. 1991) 232 Cal.App.3d 1294, 1302, 284 Cal.Rptr. 53 (city employee acting on behalf of city is not a third party to plaintiff’s suit against the city stemming from employee’s tort); Vacco Industries v. Van Den Berg (2nd Dist. 1992) 5 Cal.App.4th 34, 57, 6 Cal.Rptr.2d 602 (defendant is not a third party to plaintiff’s suit against defendant and his co-defendant); Heckert v. McDonald (1st Dist. 1989) 208 Cal.App.3d 832, 256 Cal.Rptr. 369 (defendant may recover from his co-defendant since co-defendant caused plaintiff to sue defendant).

The California Supreme Court extended the torts of another doctrine to certain “two party suits,” holding that an insurer who tortiously causes an insured to sue for benefits may be liable for the insured’s attorney fees. See Brandt v. Superior Court (1985) 37 Cal.3d 813, 817, 210 Cal.Rptr. 211, 693 P.2d 796; California Fair Plan Ass’n v. Politi (2nd Dist. 1990) 220 Cal.App.3d 1612, 270 Cal.Rptr. 243; but see California Fair Plan Ass’n v. Politi (2nd Dist. 1990) 220 Cal.App.3d 1612, 270 Cal.Rptr. 243 (Brandt does not allow insurer to recover attorney fees for insurer’s suit against insured for breach of policy agreement); Burnaby v. Standard Fire Ins. (2nd Dist. 1995) 40 Cal.App.4th 787, 793, 797, 47 Cal.Rptr.2d 326 (asking the California Supreme Court to reconsider Brandt (i.e., Brandt rule of allowing insured to recover attorney fees from insurer does not apply to services rendered on appeal)).

1.5:330      Statutory Fee Shifting

The private attorney general statute, Civ. Proc. Code § 1021.5 is just one of several California statutes that allow fee shifting in a given context. See, e.g., Civ. Code § 1717(a) (entitling prevailing parties in certain contract actions to fee awards); Fair Employment and Housing Act, Gov. Code § 12965(b); Unruh Civil Rights Act, Civ. Proc. Code § 52(a).

1.5:340      Financing Litigation [see also 1.8:600]

CRPC 4-210 allows a lawyer to advance reasonable litigation expenses, the repayment of which may be contingent on the matter’s outcome. See Ripley v. Pappadopoulos (3rd Dist. 1994) 23 Cal.App.4th 1616, 1626 n.17, 28 Cal.Rptr.2d 878. Attorneys representing personal injury plaintiffs routinely advance litigation costs. See Boccardo v. Commissioner of Internal Revenue (9th Cir. 1995) 56 F.3d 1016, 1018; see also Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 9, 10 Cal.Rptr.2d 230 (economics dictates that personal injury attorneys who advance litigation costs and make repayment contingent upon outcome, generally charge higher fees than attorneys who require that costs are paid as incurred); see also DeBlase v. Superior Court (2nd Dist. 1996) 41 Cal.App.4th 1279, 1284-1285, 49 Cal.Rptr.2d 229 (courts may consider the extent to which expenses are being advanced in determining whether to appoint a discovery referee so as to minimize an attorney’s expenses).

1.5:400   Reasonableness of a Fee Agreement

Primary California References: CRPC 4-200, B&PC §§ 6146, 6147
Background References: ABA Model Rule 1.5(a), Other Jurisdictions
Commentary: ABA/BNA § 41:301, ALI-LGL § 46, Wolfram § 9.3.1

In California, fee agreements must not be unconscionable or illegal [see 1.5:410 Excessive Fees, infra].

1.5:410      Excessive Fees

CRPC 4-200 prohibits lawyers from entering “unconscionable” or “illegal” fee agreements. The statute lists eleven considerations including the amount of the fee in proportion to the value of the services performed, the ability of the performing attorney, the amount involved and the results obtained. See CRPC 4-200(B). The courts tend to focus on the proportionality of the fee to the services performed. See, e.g., Ramirez v. Sturdevant (1st Dist. 1994) 21 Cal.App.4th 904, 913, 26 Cal.Rptr.2d 554 (test is whether fee is, `so exorbitant and wholly disproportionate to the services performed as to shock the conscience,’ quoting Tarver v. State Bar (1984) 37 Cal.3d 122, 134, 207 Cal.Rptr. 302, 688 P.2d 911; see Id. at 913 (contingency agreement is not unconscionable merely because it calculates the fee against gross recovery as opposed to the common practice of calculating the fee against net recovery); Shaffer v. Superior Court of Los Angeles County (2nd Dist. 1995) 33 Cal.App.4th 993, 1002, 39 Cal.Rptr.2d 506 (law firm’s profit margin is irrelevant to unconscionable issue; analysis should focus on the quality and necessity of services and comparison of fee with what other attorneys of similar abilities would charge).

Fees that exceed statutory limits are illegal. In the Matter of Harney (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266, 278, 284 (fee was not unconscionable, but it violated CRPC 4-200 nonetheless because it exceeded statute’s limits); Schultz v. Harney (2nd Dist. 1994) 27 Cal.App.4th 1611, 1621, 33 Cal.Rptr.2d 276 (fee charge that exceeded statute’s limits, may have constituted professional negligence).

The following comments are taken from Karpman & Margolis pages 82-85 with certain conforming changes:

The concepts of an “illegal” fee and an “unconscionable” fee are fundamentally different. “Illegal fees” are those charged in excess of statutory or case law limitations. “Unconscionable” fees are those that are grossly overcharged, and generally involve an element of fraud or overreaching by the lawyer.

Note that this rule prohibits not only the collection of an illegal or unconscionable fee, but the charging, or even the attempted charging of such a fee, even if the attempt is ultimately unsuccessful.

Illegal Fees

A lawyer took $10,000 in fees in a bankruptcy case without court approval. Barnum v. State Bar (1990) 52 Cal.3d 104, 276 Cal.Rptr. 147, 801 P.2d 390.

A contingency fee agreement between plaintiffs and a medical-legal consultant to assist plaintiff’s lawyer in medical malpractice case is not necessarily unethical or against public policy, but the consultant’s fees must be encompassed by MICRA limitations. The court must scrutinize the totality of lawyers and consultants fees to ensure that MICRA limits are not subverted, Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 10 Cal.Rptr.2d 230.

The total fees charged in a wrongful death action cannot be in excess of MICRA limits; the fee is based on the total recovery for the wrongful death, not on each heir’s share, Yates v. Law Offices of Samuel Shore (2nd Dist. 1991) 229 Cal.App.3d 583, 280 Cal.Rptr. 316 (in wrongful death action, lawyer improperly attempted to charge fees in excess of MICRA statute by assigning handling of the appeal to an associate lawyer, and charging the clients for the additional hourly fees of the associate.)

MICRA limits are applied at the time the fee contract is entered into, not when the settlement monies are received. Weinholz v. Kaiser Foundation Hospitals (1st Dist. 1989) 217 Cal.App.3d 1501, 1503, 267 Cal.Rptr. 1.

Where a lawyer withheld, through gross neglect, a sizable amount of funds due his disabled client, apparently due to his intense opposition to MICRA fee limits, six months actual suspension was warranted. In the Matter of Harney (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266.

Unconscionable Fees

There is nothing in CRPC 4-200 to suggest that defendant’s profit margin is in any way relevant to a determination of unconscionability; judicial evaluation of profit margin would open a Pandora’s Box of questions. Inquiry into profit margin would penalize efficient law firms and reward the inefficient, and constitutes a burden for the court and is bad public policy. Shaffer v. Superior Court of Los Angeles County (2nd Dist. 1995) 33 Cal.App.4th 993; 39 Cal.Rptr.2d 506.

In general the negotiation of a fee agreement is an arm’s-length transaction; a lawyer is entitled to negotiate the terms on which he or she would accept employment and absent duress, unconscionability or the like, the client cannot complain that the terms are favorable to the lawyer. A lawyer’s fee agreement was not unfair because it permitted the lawyer to calculate the contingency fee against gross recovery or because it permitted the lawyer a right to any fees payable apart from damages. Ramirez v. Sturdevant (1st Dist. 1994) 21 Cal.App.4th 904, 26 Cal.Rptr.2d 554.

Most cases warranting discipline for an unconscionable fee involve an element of fraud or overreaching by the lawyer, so that the fee charged, under the circumstances, constituted an appropriation of the client’s funds. Warner v. State Bar (1983) 34 Cal.3d 36, 43, 192 Cal.Rptr. 244, 664 P.2d 148.

Whether a fee is unconscionable is determined at the time the fee contract is entered into. Youngblood v. Higgins (2nd Dist. 1956) 146 Cal.App.2d 350, 352, 303 P.2d 637; Swanson v. Hempstead (2nd Dist. 1944) 64 Cal.App.2d 681, 688, 149 P.2d 404.

The right to practice law “is not a license to mulct the unfortunate.” The clients’ impecunious financial circumstances, the limited scope of the lawyer’s services in a simple domestic relations proceeding, and the fact that there was no documentation of legal services actually provided to substantiate the claim that the case was complex or involved, were factors taken into account in determining that the lawyer’s fee was unconscionable. Bushman v. State Bar (1974) 11 Cal.3d 558, 564-565, 113 Cal.Rptr 904, 552 P.2d 312.

A fee is not unconscionable simply because it is more than other lawyers might have charged for the same work. It must be so exorbitant and disproportionate to the services performed as to shock the conscience of other lawyers of ordinary prudence practicing in the same community. Champion v. Superior Court (1st Dist. 1988) 201 Cal.App.3d 777, 782, 247 Cal.Rptr. 624; Aronin v. State Bar (1990) 52 Cal.3d 276, 276 Cal.Rptr. 160, 801 P.2d 403 (a fee that is high is not the same as an unconscionable fee).

A lawyer claimed a $4,500 “nonrefundable” fee in civil case, but had no written retainer to that effect. The lawyer was discharged by the clients one month later. The lawyer did not refund the money or provide an accounting to substantiate his claim that he spent 200 hours on their case. After receiving the letter of discharge, the lawyer sent a letter to the clients purporting to set forth a fee agreement whereby he was to receive a contingent fee regardless of whether the litigation was successful or whether he was discharged. An attempt to charge an unconscionable fee was found. Dixon v. State Bar (1985) 39 Cal.3d 335, 216 Cal.Rptr. 432, 702 P.2d 590.

A written fee contract that purported to be a contingent fee agreement but which bound the clients to a minimum $600 legal fee if they discharged the lawyer, regardless of whether any work was done, was unconscionable. In the Matter of Scapa and Brown (Review Dept. 1993) 2 Cal. State Bar Rptr. 635.

A lawyer’s claim for fees in an amount almost twice that of the actual award of monetary damages to his client, and $35,000 more than the amount the District Court had awarded as reasonable fees for his services, was found to be unconscionable. Tarver v. State Bar (1984) 37 Cal.3d 122, 134, 207 Cal.Rptr. 302, 688 P.2d 911.

Wilful failure to return illegal fees in excess of MICRA limitations upon demand, despite Respondent’s good faith belief of entitlement to fees, is a violation. In the Matter of Harney (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266.

Unilaterally withholding $2,500 per year in interest on a loan from a client as security for, or payment of, attorney’s fees, while at same time failing to perform services and failing to account for fees claimed, constituted the “charging” of an unconscionable fee, Warner v. State Bar (1983) 34 Cal.3d 36, 192 Cal.Rptr. 244, 644 P.2d 148.

A partnership agreement providing that the law firm would be entitled to receive almost all legal fees recovered after partner left firm, regardless of how much work actually performed by the remaining members of the firm, is contrary to public policy and violates prohibition against unconscionable fees.

References

Civ. Code § 1670.5 (unconscionable contract).

Some Statutory Limitations: Medical Injury Tort Claims. Covered by Medical Injury Compensation Reform Act (“MICRA”), see B&PC § 6146; Roa v. Lodi Medical Group, Inc. (1985) 37 Cal.3d 920, 211 Cal.Rptr. 77, 695 P.2d 164, appeal dismissed 474 U.S. 990, 106 S.Ct. 421 (Nov. 18, 1985) (constitutionality of MICRA statute upheld).

Fees in Professional Sports Service Contracts. B&PC § 6106.7.

Fees in Probate Matters. Prob. Code § 10810, et seq. Fees in Worker’s Compensation Matters. Lab. Code § 4903-4906; see also B&PC § 6147(c).

Any fee contract procured by runners and cappers is void. B&PC § 6154.

Attorney fees in marital dissolution proceedings. Fam. Code § 270, Fam. Code § 271, Fam. Code § 273, Fam Code § 2333, Fam. Code § 2334, Fam. Code § 2345, Fam. Code § 2347, Fam. Code § 3028, Fam. Code § 3651-3653, Fam. Code § 4001, Fam. Code § 4005, Fam. Code § 4007, Fam. Code § 4009, Fam. Code § 4011-4013, Fam. Code § 4100-4105.

Attorney fees in labor and employment proceedings. Lab. Code § 98.2, Lab. Code § 98.7, Lab. Code § 218.5, and Lab. Code § 432.7.

Fees in cases involving minors or incompetent persons. Court must approve payment of reasonable fees and costs, per Prob. Code § 3600, Prob. Code § 3601; in criminal proceedings, see Pen. Code § 987.2.

Fees for lawyers appointed to represent indigent clients. Civ. Proc. Code § 285.2, Civ. Proc. Code § 285.4.

Fees for Unemployment Compensation Appeals Board Hearings. Unemp. Ins. Code § 1957.

11 ALR4th 133. Attorney’s Charging Excessive Fee As Ground for Disciplinary Action.

Ethics Opinions

C.O.P.R.A.C. Op. 1994-136 (In a civil rights suit, assignment by client of statutory right to attorneys fees is not unconscionable).

C.O.P.R.A.C. Op. 1994-135 (Structured settlements where the lawyer receives his or her portion front-loaded).

1.5:420      "Retainer Fees:" Advance Payment, Engagement Fee, or Lump-Sum Fee

CRPC 4-100 allows an attorney to withdraw advanced payment from the client’s trust account so long as the withdrawal is not disputed by the client. See CRPC 4-100(A)(2); [see Rule 1.15 Safekeeping Property, infra]. Upon termination of employment, CRPC 3-700(D)(2) requires that unearned advanced payments must be returned to the client. See Read v. State Bar (1991) 53 Cal.3d 394, 427, 279 Cal.Rptr. 818, 807 P.2d 1047. CRPC 3-700(D)(2) does not require “true retainer fees,” defined as payment merely to insure the availability of an attorney, to be returned to the client. See also Read v. State Bar (1991) 53 Cal.3d 394, 410, 279 Cal.Rptr. 818, 807 P.2d 1047; advanced funds for expenses, unlike advanced unearned payment, do not have to be returned to the client upon termination).

1.5:430      Nonrefundable Fees

[See 1.5:420 "Retainer Fees:" Advance Payment, Engagement Fee, or Lump-Sum, supra].

1.5:500   Communication Regarding Fees

Primary California References: B&PC § 6148
Background References: ABA Model Rule 1.5(b), Other Jurisdictions
Commentary: ABA/BNA § 41:101, ALI-LGL § 50, Wolfram § 9.2.1

MR 1.5(b) requires that fee rates are communicated, preferably in writing, where a client is not regularly represented by an attorney. See MR 1.5(b). B&PC § 6148, which governs the format of non-contingency fee agreements, is more exacting than MR 1.5(b). See, e.g., In the Matter of Hanson (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 703, 715 (one of § 6148’s purposes is to provide evidence as to an attorney’s obligations in malpractice cases). Also, an attorney who negotiates for a fee agreement primarily in Spanish must deliver to the other party a Spanish translation of the contract before it is executed. See Civ. Proc. Code § 1632(a)(5). The remedy for failing to provide a Spanish translation is recision by the aggrieved party. See Civ. Proc. Code § 1632(g).

In relevant part, B&PC § 6148 requires an agreement to be in writing where it is “reasonably foreseeable,” that the total expense to the client will exceed one thousand dollars. See B&PC § 6148(a). B&PC § 6148 requires that the agreement must include the basis for compensation, the nature of the services provided, and the responsibilities of the attorney and client under the contract. See B&PC § 6148(a)(1)-(3). B&PC § 6148 also requires attorneys to disclose if they (1) do not maintain errors and omissions insurance coverage; (2) have not filed a written agreement with the State Bar guaranteeing payment of all claims established against the attorney for errors or omissions in compliance with minimum amounts established by Rule IV(B)(1)(c) of the Law Corporation Rules; or (3) for corporations, if it has not filed a written agreement with the State Bar in compliance with Law Corporation Rules IV(B)(1)(a)-(c). See B&PC § 6148(a)(4).

B&PC § 6148 also contains content and procedural requirements for client bills. Bills must “clearly state the basis thereof,” including the amount, rate and method of fee calculation, “or other method of determination of the attorney’s fees and costs,” along with any cost or expense charges. See B&PC § 6148(b); see, e.g., In the Matter of Fonte (Rev. Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752, 756-758 (bill that lacked specificity and organization breached B&PC § 6148(b)’s standards). B&PC § 6148(b) establishes a schedule for responding to client requests for bills. See also Severson, Werson, Berke & Melchior v. Bolinger (1st Dist. 1991) 235 Cal.App.3d 1569, 1573, 1 Cal.Rptr.2d 531 (attorneys have a professional responsibility to insure that billing rates and procedures are understandable; changing agreed upon billing rates without notification is a breach of professional responsibility).

B&PC § 6148 does not apply if: emergency services are provided to avoid “foreseeable prejudice” to the client; “or where a writing is otherwise impractical”; an arrangement is implied through the attorney’s previous services to the client; the client gives informed written consent; or, if the client is a corporation. See B&PC § 6148(d)(1)-(4). Agreements that violate B&PC § 6148 are voidable at the client’s option. See B&PC § 6148(c); see also In the Matter of Harney (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266, 278-280 (clients’ voiding power is one of the reasons why a B&PC § 6148 violation should not be an offense worthy of discipline).

If the client elects to void the agreement, the attorney is then entitled to collect a reasonable fee. B&PC § 6148(c).

1.5:600   Contingent Fees

Primary California References: CRPC 4-200, B&PC §§ 6146, 6147
Background References: ABA Model Rule 1.5(c), Other Jurisdictions
Commentary: ABA/BNA § 41:901, ALI-LGL §§ 46, 47, Wolfram § 9.4, 4 Witkin, Cal. Procedure (4th ed. 1996) Attorneys, §§ 203, 204

California does not prohibit the use of contingency agreements in a given context, however, contingency agreements that provide a financial incentive to further divorce are voidable as contrary to public policy. See Coons v. Kary (2nd Dist. 1968) 263 Cal.App.2d 650, 653-654, 69 Cal.Rptr. 712. The B&PC limits fee recovery pursuant to contingency agreements when representing clients seeking damages for professional negligence of health care providers, see B&PC § 6146 (establishing percentage limitations in suits relative to the total amount of client recovery), and in certain actions between merchants, see B&PC § 6146. [see 1.5:610 Special Requirements for Contingent Fees, infra].

B&PC § 6147 provides the general content and procedural requirements for contingency fee agreements. Because a prior version of B&PC § 6147 began, “An attorney who contracts to represent a plaintiff . . .,” one court held that B&PC § 6147 only applied to representations of plaintiffs in litigation matters, see Franklin v. Appel (2nd Dist. 1992) 8 Cal.App.4th 875, 889, 10 Cal.Rptr.2d 759. This aspect of Franklin seems to have been legislatively overruled because, after the Franklin decision, B&PC § 6147 was amended so that it now begins, “An attorney who contracts to represent a client. . . .”

A mere contingency agreement does not limit the client’s unilateral right to discharge his or her lawyer. In re Scott (1928) 205 Cal. 525, 527, 271 P. 906. A provision that prohibits the client from settling the case without the attorney’s consent may not be enforceable. Calvert v. Stoner (1948) 33 Cal.2d 97, 199 P.2d 297; cf., Weiner v. Van Winkle (2nd Dist. 1969) 273 Cal.App.2d 774, 784-785, 78 Cal.Rptr. 761 (rejecting argument that contingency agreement that required attorney to rely on discretion of court to determine fees should be deemed void as inhibitive of settlement).

1.5:610      Special Requirements Concerning Contingent Fees

B&PC § 6147 provides the general requirements for contingency fee contracts. Failure to comply with an applicable B&PC § 6147 provision renders an agreement voidable at the client’s option. See B&PC § 6147(b).

When an attorney contracts to represent a client on a contingent fee basis, the contract must be in writing, and a duplicate copy, signed by the attorney and the client, must be provided to the client at the time the contract is entered into. B&PC § 6147(a) In addition, the contract must include certain disclosures. See B&PC § 6147(a). The contract must include: (a) a statement disclosing the contingency fee rate, see B&PC § 6147(a)(1); (b) a statement as to how disbursements and costs will affect the contingent fee and the client’s recovery, see B&PC § 6147(a)(2); (c) a statement as to what extent the plaintiff could be required to pay the attorney any compensation for related matters not covered by the contract, see B&PC § 6147(a)(3); (d) with respect to claims not subject to the medical malpractice fee limits of B&PC § 6146, “a statement that the fee is not set by law but is negotiable between attorney and client,” see B&PC § 6147(a)(4); (e) if the claim is subject to the medical malpractice fee limits, a statement that the rates set forth in B&PC § 6146 “are the maximum limits for the contingency fee agreement, and that the attorney and client may negotiate a lower rate,” see B&PC § 6147(a)(5); (f) if the attorney does not meet any of the following criteria, a statement disclosing that fact: (1) “[m]aintains errors and omissions insurance coverage”; (2) has filed with the State Bar a copy of a written agreement guaranteeing payment of all claims established by clients for errors or omissions by the attorney in the amount specified by Rule IV(B)(1)(c) of the Law Corporation Rules; (3) if a law corporation has filed with the State Bar a copy of the written agreement required under Rule IV(B)(1)(a), (b) or (c) of the Law Corporation Rules, see B&PC § 6147(a)(6).

Neither the requirements of B&PC § 6147 nor B&PC § 6148 apply to:

contingency fee contracts for the recovery of claims between merchants as defined in Section 2104 of the Commercial Code, arising from the sale or lease of goods or services rendered, or money loaned for use, in the conduct of a business or profession if the merchant contracting for legal services employs 10 or more individuals.

B&PC § 6147.5. If, as allowed by B&PC § 6147.5(a), there is no written contract for legal services, the attorney is subject to contingency fee limits, as follows: (1) 20% of the first $300 collected; (2) 18% of the next $1,700 collected; (3) 13% of amounts collected in excess of $2,000. However, an attorney may charge the following minimums: $25 in collections of $75 to $ 125, and 33% in collections less than $75. See B&PC § 6147.5(b)(2).

B&PC § 6147 does not apply to contingent fee contracts for the recovery of workers’ compensation benefits. See B&PC § 6147(c).

The following comments on B&PC § 6147 are taken from Karpman & Margolis pages 244-247, with certain conforming changes:

In a contingency fee agreement the lawyer is assuming the hazard of no compensation for services. Case law supports the view that the assumption of that risk can justify greater financial remuneration. However, contingency fee contracts may be unenforceable if unconscionable or illegal.

Because there is no pre-existing lawyer client relationship, or fiduciary duties owed, the parties may freely negotiate the terms of the agreement and this will not constitute a violation of CRPC 3-300 Avoiding Interests Adverse to the Client. However, if the lawyer, in obtaining payment or security for payment of fees, acquires an “ownership, possessory, security, or other pecuniary interest” (i.e. a mortgage) adverse to the client this rule will apply. See Hawk v. State Bar (1988) 45 Cal.3d 589, 247 Cal.Rptr. 599, 754 P.2d 1096.

Practice Tip: The State Bar of California has a packet of sample fee agreements available to lawyers to assist in compliance with this statute. The contingent fee packet includes a short form, for simple matters, and a long form, for complex matters, together with instructions. These forms may be obtained by sending a check or money order, in the amount of $3.50, labeled “CFA,” to 251 Michelle Court, South San Francisco, California 94080.

In addition to MICRA limitations(see B&PC § 6146) other areas of law have limitations that can affect contingency fee agreements. For example: federal tort claims Workers’ Compensation benefits; and recovery of unpaid Social Security benefits. Court approval of fees is required statutorily in certain circumstances (minors, wards, and conservatees). New legislation involving minors is operative on January 1, 1994, see Fam. Code § 6602. See also Prob. Code § 2644(a).

Practice Tip: Civ. Code § 1632 requires a Spanish translation where an agreement is negotiated in Spanish. Where the client lacks fluency in English, caution would suggest that the agreement be translated into the client’s native language or potential problems could arise involving mutual assent.

Cases

Greater compensation than what may be otherwise considered reasonable may appropriately be charged in contingent fee contracts. Rader v. Thrasher (1962) 57 Cal.2d 244, 18 Cal.Rptr. 736, 368 P.2d 360. See also Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 10 Cal.Rptr.2d 230 and Cazares v. Saenz (4th Dist. 1989) 208 Cal.App.3d 279, 256 Cal.Rptr. 209.

When a fee agreement specifically limits the scope of representation to the trial court level, the lawyer is entitled to recover his fees and may refuse to represent the client at the appellate level, absent the client’s consent to a new fee agreement. Joseph E. Di Loreto, Inc. v. O’Neill (2nd Dist. 1991) 1 Cal.App.4th 149, 1 Cal.Rptr.2d 636.

B&PC § 6147 regulates contingency fee agreements involving plaintiffs seeking recovery in personal injury litigation. It does not regulate all forms of contingent fee agreements. Although B&PC § 6148, regulating hourly fee agreements, professes to apply to “any case not coming within the meaning” of B&PC § 6147, that legislation is unclear. Franklin v. Appel (2nd Dist. 1992) 8 Cal.App.4th 875, 10 Cal.Rptr.2d 759. However, see Alderman v. Hamilton (2nd Dist. 1988) 205 Cal.App.3d 1033, 252 Cal.Rptr. 845, which maintains that all contingency fee agreements are encompassed within the terminology of the statute, with certain statutory exceptions.

“All other things being equal, we assume a lawyer willing to advance costs and accept only contingent repayment will have to charge a higher fee than one who requires the client to pay all costs as they are incurred.” Generally, a lawyer may charge a fee contingent on the success of the action and may calculate the fee as a percentage of the ultimate recovery, subject only to the general requirement that the fee not be “unconscionable” or “unreasonable.” Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 10 Cal.Rptr.2d 230.

Fee agreements are construed and considered at the time of their making. The terms must be fully explained to the client in addition to being fair and reasonable. The client has the power to void a fee agreement where the agreement fails to conform to the requirements of B&PC § 6147. Alderman v. Hamilton (2nd Dist. 1988) 205 Cal.App.3d 1033, 252 Cal.Rptr. 845.

Modification of a contingency fee agreement is permissible with the consent of the lawyer and the client at any time during the pendency of the matter. Vella v. Hudgins (2nd Dist. 1984) 151 Cal.App.3d 515, 198 Cal.Rptr. 725. [Note: However, if the modification results in a greater financial benefit for the lawyer, compliance with CRPC 3-300 is indicated.

A $1,000,000 minimum fee was deemed high, in a contingent fee contract; but not invalid or unconscionable. The court considered the status of both the law firm and client relevant. The client, a multi-million dollar corporation, sought the services of a competent and capable firm for the preparation of a petition for certiorari in a complex anti-trust matter. The firm’s reputation benefitted the client in providing the necessary leverage to discharge a counter claim judgment, saving the company from possible bankruptcy. Also, in negotiating the initial fee agreement, the corporation was represented by competent counsel and the corporation demanded a contingency fee agreement. Brobeck, Phleger, & Harrison v. Telex Corp. (9th Cir. 1979) 602 F.2d 866.

Quantum Meruit Recovery

Discharge for cause, entitles the attorney to quantum meruit recovery up to the time of discharge. Hulland v. State Bar (1972) 8 Cal.3d 440, 105 Cal.Rptr. 152, 503 P.2d 608.

A client has the absolute right to discharge counsel, with or without cause. However, where counsel is discharged without cause, “on the court house steps,” the reasonable value of the lawyer’s services may be the “expectation interest”: that is, the entire fee specified in the agreement. Fracasse v. Brent (1972) 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9.

Where a lawyer has completely performed services for which he or she was employed and is discharged, the recovery is not limited to quantum meruit. Franklin v. Appel (2nd Dist. 1992) 8 Cal.App.4th 875, 10 Cal.Rptr.2d 759.

A lawyer’s entitlement to fees after he withdraws from a contingent fee agreement depends on whether his withdrawal was justified. Estate of Falco (2nd Dist. 1987) 188 Cal.App.3d 1004, 233 Cal.Rptr. 807.

When a recovery is inadequate to satisfy quantum meruit claims of both current and prior counsel, the solution is to use an appropriate pro rata formula to distribute fees among all current and prior lawyers. The formula should consider the amount of time spent by each lawyer on the case. Spires v. American Bus Lines (1st Dist. 1984) 158 Cal.App.3d 211, 204 Cal.Rptr. 531.

The following formula may be used to compute the fee due to a lawyer who renders partial performance in a contingency situation: “To determine the extent of partial performance, the trial judge must calculate a fraction where the numerator is the value of the legal services rendered by the particular attorney or firm at issue and the denominator is the aggregate value of all the legal services rendered by any attorney in the case.” The lawyer is not limited to recovery of a mere hourly rate, but rather the pro rata contract price should control, resulting in an “enhanced” fee. Cazares v. Saenz (4th Dist. 1989) 208 Cal.App.3d 279, 256 Cal.Rptr. 209.

If during the performance of a contingency fee agreement, the lawyer dies having completed partial performance, the estate is not entitled to recovery until the contract is fulfilled or the contingency occurs. Estate of Linnick (2nd Dist. 1985) 171 Cal.App.3d 752, 217 Cal.Rptr. 552.

The respondent failed to satisfy the requirements of this statute; therefore, the agreement was voidable. The court maintained that the respondent was, therefore, entitled to the reasonable value of his services. In this matter, the value of his services exceeded the “oral” contingency fee agreement. The court maintained that the respondent was, therefore, entitled to the contingency fee amount. In the Matter of Cacioppo (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 128.

Dissolution Proceedings

Contingent fee agreements in dissolution proceedings have traditionally been considered void as being contrary to public policy. Public policy and the law discourages dissolution; a contingent fee agreement promotes dissolution. However, if the parties have truly irreconcilable differences and the marriage can be characterized as “moribund” then a contingent agreement is not absolutely prohibited. Krieger v. Bulpitt (1953) 40 Cal.2d 97, 251 P.2d 673. See Mahoney v. Sharff (1st Dist. 1961) 191 Cal.App.2d 191, 12 Cal.Rptr. 515 in which the court delineates the circumstances in which a plaintiff’s spouse may justifiably negotiate a contingent fee contract in a pending divorce action.

References

B&PC § 6149 (fee agreements confidential).

CRPC 3-300 (avoiding interests adverse to client); CRPC 4-200 (unconscionable fees).

C.O.P.R.A.C. Op. 1983-72. A contingency fee agreement, based on a percentage of property or support awarded to the client, is not improper per se, providing it does not violate public policy by promoting divorce or raise conflicts of interest issues.

9 ALR 4th 1991. Contingent fee agreements for defendants lawyers; including construction of such agreements, their validity, and public policy concerns.

13 ALR 3d 673. Compensation for services after judgment or on appeal, construction of contingent fee agreements.

57 So.Cal.L.R.503. (1984) Attorney’s fee recovery in bad faith cases.

28 Cal.L.Rev. 587. Unconscionable contingent fee agreements.

12 Bev Hills BJ 201. Contingent fees in the non-litigation context.

6 UCLA L.Rev. 315. Compensation issues where a lawyer is discharged for cause.

The following comments on B&PC § 6146 are taken from Karpman & Margolis pages 242-243:

The Medical Injury Compensation Reform Act (MICRA) limits the contingent fee a lawyer may charge for representing a client in an action based on the professional negligence of a health care provider. These limitations are strictly applied.

The charging of fees in excess of MICRA limitations may subject a lawyer to disciplinary action.

For a discussion of the scope of MICRA and the effect of hybrid actions on the recovery of fees, see Waters v. Bourhis (1985) 40 Cal.3d 424, 220 Cal.Rptr. 666, 709 P.2d 469, which contains an excellent discussion of what constitutes “professional negligence” falling within the scope of MICRA. The statute is inapplicable when the provider renders services in a capacity for which he or she is not licensed, for example, a psychologist performing heart surgery. The court discussed the potential conflict of interest involved in hybrid actions, and cautioned lawyers to fully inform their clients that their fee recovery would be greater than if only a MICRA action were pursued. The lawyer must clearly advise the client of the advantages and disadvantages of the alternative theories of litigation and the impact on fees.

In the past, violation of the fee agreement statutes was not pursued by the Office of Trial Counsel, because the statute contained the client’s non-disciplinary remedy, i.e. the agreement was void and the lawyer would be limited to quantum meruit. Prudent practitioners should always include their per hour charge in the fee agreement; this will establish the reasonable value of their service per hour should a fee dispute occur.

Recent cases clearly indicate that the State Bar Court is considering the fee statutes when imposing discipline. See, for example: In the Matter of Fonte (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752; In the Matter of Harney (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266.

Cases

A plaintiff brought a “hybrid” civil action against her psychiatrist for allegedly engaging in sexual activity with her while she was a patient. The claim involved professional negligence in addition to a tort claim. The court concluded that when a plaintiff knowingly chooses to proceed on both non-MICRA and MICRA causes of action, and obtains a recovery that may be based on a non-MICRA theory the limitations of B&PC § 6146 should not apply. Waters v. Bourhis (1985) 40 Cal.3d 424, 220 Cal.Rptr. 666, 709 P.2d 469.

The legislative limitations on fee recovery are not unconstitutional on their face. Roa v. Lodi Medical Group, Inc. (1985) 37 Cal.3d 920, 211 Cal.Rptr. 77, 695 P.2d 164, appeal dismissed 474 U.S. 990, 106 S.Ct. 421.

Considering the application of this statute with respect to costs incurred for the services of a medical-legal consulting service, the total amount of fees paid to the lawyer and medical-legal consulting service may not exceed the maximum allowable lawyer fees plus all allowable statutory “disbursements and costs” under B&PC § 6146. Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 10 Cal.Rptr.2d 230.

In a wrongful death action, the lawyer attempted to evade application of the statutory limitations by assigning the handling of an appeal to an associate lawyer, charging an additional hourly rate for the associate’s performance and characterizing it as a part of the “costs” which the clients had agreed to pay. Yates v. Law Offices of Samuel Shore (2nd Dist. 1991) 229 Cal.App.3d 583, 280 Cal.Rptr. 316.

Statutory fee limitations are applied at the time the fee agreement is entered into, not when settlement monies are received. This statute was originally enacted in 1975 and subsequently amended in 1987 (effective in 1988). In this case the settlement monies were received subsequent to the amendment, which increased the maximum allowable recovery. The amendment was held to have prospective application only. Wienholz v. Kaiser Foundation Hospitals (1st Dist. 1989) 217 Cal.App.3d 1501, 267 Cal.Rptr. 1.

In the calculation of fees under B&PC § 6146 in a case where periodic payments are awarded to the plaintiff, fees must be a percentage of the present value of the periodic payments, normally best represented by the cost of the annuity purchased to fund the payments. Schneider v. Kaiser Foundation Hospitals (4th Dist. 1989) 215 Cal.App.3d 1311, 264 Cal.Rptr. 227.

The statutory limitation on fees does not deprive clients of their right to counsel. The parties are not permitted to waive the statutory limitations of B&PC § 6146, by the execution of extrinsic agreements. Allowing parties to contradict the statute through mere collateral contracts would abrogate the legislative scheme. Fineberg v. Harney & Moore (2nd Dist. 1989) 207 Cal.App.3d 1049, 255 Cal.Rptr. 299.

The trial court may not award fees in excess of MICRA limitations. Hathaway v. Baldwin Park Community Hosp. (2nd Dist. 1986) 186 Cal.App.3d 1247, 231 Cal.Rptr. 334.

Determination that violation of the fee agreement statute and its disclosure requirement is not a disciplinable offense does not prohibit State Bar Court from using lack of compliance as an aggravating factor to increase discipline. Failure to disclose the statutory limitation on fees causes significant harm to clients. The statute was designed to further disclosure of this important information to the client in writing to avoid the very problems presented in this case. In the Matter of Harney (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 266.

Practice Tip: see CRPC 3-310. In the hybrid case situation, the better practice is to have the client execute an informed written consent that the MICRA limits do not apply.

References

CRPC 4-200.

Civ. Code § 3513 (Because MICRA limitations are a strong expression of public policy, they cannot be abrogated by the parties private agreements).

C.O.P.R.A.C. Op. 1984-79. Ethical issues are presented when recommending clients retain expert consulting firms on a contingency fee basis.

12 ALR 4th 23. Validity of statutorily established fee limitations in medical malpractice actions.

19 Loyola L.A. L.Rev. 623. Are limitations on attorneys recoverable fees effective.

22 UCD L.R. 499 Legislation on Medical malpractice: Further developments and a preliminary report card.

23 CTLA Forum (April 1993) Medical Malpractice update: Review of 1992 decisions.

1.5:700   Unlawful Fees

Primary California References:
Background References: ABA Model Rule 1.5(d), Other Jurisdictions
Commentary: ABA/BNA §§ 41:901, ALI-LGL § 48, Wolfram §§ 9.3.2; 9.4

[See 1.5:410 Excessive Fees, supra].

1.5:710      Contingent Fees in Criminal Cases

Contingent fee agreements in criminal cases are prohibited by the MR, see MR 1.5(d)(2), but the California rules do not overtly proscribe them. [See 1.5:600 Contingent Fees, supra].

1.5:720      Contingent Fees in Domestic Relations Matters

Contingent fee agreements in proceeding for dissolution of marriage are prohibited [See 1.5:600 Contingent Fees, supra].

1.5:730      Other Illegal Fees in CA

[See 1.5:410 Excessive Fees, supra].

1.5:800   Fee Splitting (Referral Fees)

Primary California References: CRPC 1-320, 2-200, 4-200
Background References: ABA Model Rule 1.5(e), Other Jurisdictions
Commentary: ABA/BNA § 41:701, ALI-LGL § 59, Wolfram § 9.24

The CRPC addresses both fee splitting among attorneys, see CRPC 2-200, and fee splitting with non-attorneys, see CRPC 1-320. In order for attorneys not in the same firm to share fees, the client must consent in writing after (1) a full written disclosure has been made, and (2) the total fee charged must not increase solely because of the division and must not be unconscionable under CRPC 4-200. See CRPC 2-200(A)(1), (A)(2); [see 1.5:410 Excessive Fees, supra, for a discussion of unconscionability]; see, e.g., Scolinos v. Kolts (2nd Dist. 1995) 37 Cal.App.4th 635, 680, 44 Cal.Rptr.2d 31 (fee splitting agreement was voidable for failure to disclose and obtain consent under CRPC 2-200(A)). The Jewel v. Boxer rule relating to fee distribution in dissolved law firms may constitute an exception to CRPC 2-200’s requirements for splitting fees with attorneys not in the same law firm. See Grossman v. Davis (1st Dist. 1994) 28 Cal.App.4th 1833, 1835, 34 Cal.Rptr.2d 355 (citing Jewel v. Boxer (1st Dist. 1984) 156 Cal.App.3d 171, 203 Cal.Rptr. 13; the Uniform Partnership Act may require fees generated during the wind up period of a dissolved law firm to be allocated to the former members in proportion to their interest in the firm, no matter who performs the post dissolution services). Also, giving a gift or gratuity to lawyer who has made a recommendation resulting in employment does not of itself violate the rule, provided that the gift or gratuity was not given in exchange for the recommendation or for future referrals. See CRPC 2-200(B).

With regard to client referrals, in relevant part, CRPC 2-200(B) prohibits a member from providing consideration to any attorney in exchange for a referral, except agreements meeting CRPC 2-200(A)’s criteria and sales of law practices complying with CRPC 2-300. An earlier version of CRPC 2-200 required fees to be split in proportion to the services performed or the responsibility assumed, prompting courts to hold that client referral fees were not permissible. See, e.g., Martinez v. Los Angeles County (2nd Dist. 1978) 87 Cal.App.3d 189, 194, 151 Cal.Rptr. 50, the legislature deleted the proportionate requirement, which one court interpreted as making referral fee agreements permissible, see Moran v. Harris (4th Dist. 1982) 131 Cal.App.3d 913, 916, 182 Cal.Rptr. 519 (allowing less capable attorneys to receive referral fees may help clients receive the best possible representation).

CRPC 1-320 prevents lawyers and law firms from sharing fees, directly or indirectly, with non-lawyers except: certain payments to a lawyer’s estate or successors upon the lawyer’s death, see CRPC 1-320(A)(1); fees to which a lawyer’s estate or successors are legally entitled, see CRPC 1-320(A)(2); certain compensation plans with non-member firm employees, see CRPC 1-320(A)(2); or participation fees paid to qualifying lawyer referral services, see CRPC 1-320(A)(4). See, e.g., In the Matter of Nelson (Review Dept. 1990) 1 Cal State Bar Ct. Rptr. 178, 188 (attorney impermissibly split fees with office “administrator”); see also Ojeda v. Sharp Cabrillo Hospital (4th Dist. 1992) 8 Cal.App.4th 1, 16, 10 Cal.Rptr.2d 230 (fee-splitting is regulated to preserve attorney autonomy, discourage solicitation and prevent high fees; attorney’s fee split with non-lawyer entity was permissible principally because non-lawyer entity did not solicit attorney).

The CRPC does not require a proportionate division of fees. See CRPC 2-200(A).

“The practice of paying a pure referral fee ... received early judicial sanction in California.” 4 Witkin, Cal. Procedure (4th ed. 1996) Attorneys, § 187, p. 244 (see cases cited therein). Moran v. Harris (4th Dist. 1982) 131 Cal.App.3d 913, 182 Cal.Rptr. 519 (“If the ultimate goal is to assure the best possible representation for a client, a forwarding fee is an economic incentive to less capable lawyers to seek out experienced specialists to handle a case. Thus, with marketplace forces at work, the specialist develops a continuing source of business, the client is benefited and the conscientious, but less experienced lawyer is subsidized to competently handle the cases he retains and to assure his continued search for referral of complex cases to the best lawyers in particular fields.”

The following comments on CRPC 2-200 are taken from Karpman & Margolis pages 26-27 with certain conforming changes:

Partnership dissolutions, apportionment of fees among successive lawyers, and lawyer referral fees are encompassed by this rule. Financial arrangements that are not violative of public policy (defined by conformance to the CRPC) are generally upheld. See Altschul v. Sayble (2nd Dist. 1978) 83 Cal.App.3d 153, 147 Cal.Rptr. 716.

Although not required by the rule, the better practice is to obtain the client’s consent to any fee-sharing arrangement at the outset of representation.

CRPC 2-200(A)

Former CRPC 2-108 (1975) prohibited fee splitting without the client’s consent in writing after full disclosure. Where the referred-to lawyer did not comply with the rule, an alleged referral fee agreement was unenforceable on public policy grounds. It would be absurd to allow a lawyer to enforce an unethical fee agreement by court action even though the lawyer is potentially subject to professional discipline. Scolinos v. Kolts (2nd Dist. 1995) 37 Cal.App.4th 635, 44 Cal.Rptr.2d 31, rev. den. Scolinos v. Kolts, (Aug. 24, 1995) 1995 Cal.App. LEXIS 825.

Splitting of a fee with another lawyer is valid, when there is a division of responsibility for the case, and the client is fully informed and consents to the fee split. Martinez v. Los Angeles County (2nd Dist. 1978) 87 Cal.App.3d 189, 151 Cal.Rptr. 50.

For cases involving fee-splitting upon dissolution of partnership, see Fraser v. Bogucki (2nd Dist. 1988) 203 Cal.App.3d 604, 250 Cal.Rptr. 41 (partner departing from law firm not entitled to compensation for “goodwill” upon dissolution of partnership because CRPC 2-200(A) prohibits payment for services to be rendered in the future when departing partner will have no responsibility for the provision of those services.)

CRPC 2-200(B)

For payment of a straight “referral fee” to the referring lawyer, see Moran v. Harris (4th Dist. 1982) 131 Cal.App.3d 913, 182 Cal.Rptr. 519 (supporting payment of referral fees, as leading to consumers finding the best representation possible); contra, Altschul v. Sayble (2nd Dist. 1978) 83 Cal.App.3d 153, 147 Cal.Rptr. 716 (criticizing payment of bare referral fee, arguing that fee received by a lawyer should bear some relationship to work performed). See also Miller v. Metzinger (2nd Dist. 1979) 91 Cal.App.3d 31, 40, 154 Cal.Rptr. 22 (referring lawyer may owe fiduciary duty to referred client even if no employment ultimately results); for a case involving liability for failure to use ordinary skill and care in evaluating the qualifications of the lawyer to whom the client is referred, see Tormo v. Yormark (D.N.J. 1975) 398 F.Supp. 1159, 1172-1173.

References

B&PC § 6147, B&PC § 6148 (disclosures required by written fee contracts).

CRPC 4-200 (unconscionable fee).

Ethics Opinions

C.O.P.R.A.C. Op. 1994-138 (Where a lawyer maintains supervision and control, yet pays an outside, contract, lawyer to perform services, this does not constitute a division of fees; also considers if this circumstance should be disclosed to the client).

C.O.P.R.A.C. Op. 1993-129 (Implications and requirements regarding of counsel relationships).

L.A. Op. 470 (Payment of year end bonus to of counsel prohibited absent satisfaction of this rule).