Firm Represented by ‘Of Counsel’ Colleagues Can’t Get Fees Under Prevailing Party Clause

By Joan C. Rogers  


A law firm that prevailed in arbitration of a fee dispute with a client cannot recover fees under a prevailing party clause in their retainer agreement because the firm was represented by lawyers who are “of counsel” to it, the California Court of Appeals, Second District, held Oct. 10 (Sands & Associates v. Juknavorian, Cal. Ct. App. 2d Dist., No. B232686, 10/10/12).

The court applied California precedent on pro se litigants' recovery of fees, and on the nexus between a firm and lawyers of counsel to it, in concluding that the firm was self-represented in the dispute with the client and thus was not entitled to collect fees incurred in arbitrating the fee dispute.

Lawyers who are publicly held out as being of counsel to a firm must be regarded as part of the firm for purposes of determining whether the firm is entitled to recover fees as litigation costs, the court decided in an opinion by Justice Robert M. Mallano.

Double Fee Spat.

The case involved Sands & Associates, a Beverly Hills, Cal., firm whose principal is family law attorney Ada P. Sands, and two lawyers denominated as of counsel to the firm, Leonard A. Sands and Heleni E. Suydam.

When a fee dispute arose between the Sands firm and one of its clients, Martin Juknavorian, the firm asked Suydam and Leonard Sands to handle the matter. The matter went to arbitration, resulting in an award of $24,250.95 to the firm.

After Juknavorian unsuccessfully sued the Sands firm for malpractice and lost his appellate challenge to the arbitration award, the Sands firm moved for attorneys' fees under a prevailing party clause in its retainer agreement with him. The trial court awarded the firm attorneys' fees of $25,235 for the services of Suydam and Sands.

The appellate court threw out the award, concluding that the firm represented itself in the dispute with Juknavorian and thus could not recover attorneys' fees for litigating the fee dispute.

No Fees for Self-Representation.

The court relied partly on Trope v. Katz, 45 Cal. Rptr.2d 241 (Cal. 1995), which held that lawyers suing to collect fees from former clients cannot recover attorneys' fees for their own collection efforts even if the retainer contract provides for such fees. The California statute that deals with contractual fee-shifting requires that the party seeking fees must incur an obligation to pay for the attorney's services, Trope pointed out.

Mallano reviewed a number of decisions applying Trope to various situations. (See box.) In doing so, he quoted portions of these opinions considering whether the party requesting fees has an attorney-client relationship with the lawyer who provides services, whether the lawyer's interests are distinct from the party seeking fees, and whether the party actually has liability for the fees.

Cases Applying Trope Standard

The court in Sands & Associates v. Juknavorian reviewed these opinions applying Trope v. Katz:

• PLCM Group v. Drexler, 997 P.2d 511, 16 Law. Man. Prof. Conduct 194 (Cal. 2000): a corporate entity represented by in-house counsel may recover statutory attorneys' fees;

• Mix v. Tumanjan Dev. Corp., 126 Cal. Rptr.2d 267, 18 Law. Man. Prof. Conduct 663 (Cal. Ct. App. 2002): a lawyer who represented himself and prevailed in a landlord-tenant dispute may recover reasonable attorneys' fees, as provided for in the lease, for the legal assistance he received from another attorney, even though the colleague did not appear as attorney of record in the action;

• Ramona Unified Sch. Dist. v. Tsiknas, 37 Cal. Rptr.3d 381 (Cal. Ct. App. 2005): litigants who filed a successful motion to strike could be awarded fees for their attorney's services even though one of the defendants was a lawyer and assisted the attorney;

• Witte v. Kaufman, 46 Cal. Rptr.3d 845 (Cal. Ct. App. 2006): a self-represented attorney who had prevailed on a special motion to strike was not entitled to attorneys' fees due to the lack of an attorney-client relationship; and

• Musaelian v. Adams, 198 P.3d 560, 25 Law. Man. Prof. Conduct 51 (Cal. 2009): a lawyer who defends himself against a frivolous lawsuit cannot collect attorneys' fees awarded as a sanction under California's statutory equivalent of Fed. R. Civ. P. 11.

The court found that in light of the close link between the Sands firm and the two of counsel lawyers who represented it: (1) the firm did not incur any obligation for attorneys' fees to the lawyers; (2) the firm and the lawyers constituted a single, de facto firm, such that an attorney-client relationship did not exist between them; and (3) the firm and the lawyers had the same interests in recovering unpaid fees from the client, so that the lawyers did not provide the firm with the judgment of an independent third party.

Of Counsel Relationship.

The court also grounded its decision on People ex rel. Dep't of Corps. v. SpeeDee Oil Change Sys. Inc., 980 P.2d 371, 15 Law. Man. Prof. Conduct 356 (Cal. 1999), which held that an of counsel attorney is considered to be affiliated with a law firm for purposes of imputing the attorney's conflicts of interest to the firm.

Taken together, Trope and SpeeDee Oil mean that “a law firm cannot recover attorney fees under a prevailing party clause when, as a successful litigant, it is represented by 'of counsel,'” Mallano wrote.

Although the Sands firm tried to portray its link to the two lawyers who represented it as not being sufficiently close to qualify as an of counsel relationship, the court pointed out that the firm publicly characterized the lawyers in letterhead and lawyer directories as being of counsel to it.

In SpeeDee Oil, Mallano noted, the supreme court adopted a bright-line rule that where a lawyer is held out to the public as of counsel to a law firm, the relationship between the two must necessarily be close, personal, regular, and continuous, and therefore the lawyers must be considered to be associated with the firm for purposes of imputing their conflicts of interest to each other.

The court embraced that bright-line approach and applied it here. “We follow the high court's example and adopt a bright-line rule regarding attorney fees: When a law firm holds an attorney out to the public as 'of counsel,' the firm cannot recover attorney fees under a prevailing party clause when, as a successful litigant, it is represented by 'of counsel.”

The court distinguished Dzonwonski v. Spinella, 133 Cal. Rptr.3d 274 (Cal. Ct. App. 2011), which concluded that a sole practitioner was entitled to recover fees from a former client for representation provided by another sole practitioner in a fee dispute, even though the attorneys described their professional relationship as of counsel.

In that case, Mallano said, the lawyer who provided the services was not held out to the public as of counsel to the lawyer seeking fees, and there was no evidence that their relationship was close, personal, continuous, and regular. In addition, the lawyer seeking fees actually incurred an obligation to pay fees to the other lawyer, an attorney-client relationship existed between them, and their interests were distinct, the court added.

Heleni E. Suydam, Huntington Beach, Cal., represented Sands & Associates. Victor Jacobovitz, Law Office of Victor Jacobovitz, Los Angeles, represented Juknavorian.

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