Law firms seeking to recover attorney’s fees as the prevailing party in fee dispute litigation with their former client should hire outside counsel in order to avoid waiving any entitlement to such fees. Evaluating any potential exposure for a professional negligence claim or cross-claim before filing suit should also be considered. In Soni v. Wellmike Enterprise Company, Ltd., et al., No. B242288 (filed March 26, 2014) the California Court of Appeal for the Second District held that a law firm, represented by its own employees and associates, was not entitled to recover attorney fees as the prevailing party, pursuant to the attorney’s fee provision in the retainer agreement. The Soni decision is the latest addition to the general prohibition enunciated by Trope v. Katz (1995) 11 Cal.4th 274 (“Trope”) and its progeny that law firms are precluded from recovering attorney’s fees for self-representation.
In Soni, the law firm obtained a $28,384 judgment for delinquent legal fees against a former client. The firm then filed a motion for attorney’s fees, seeking $120,912 as the fees it incurred as the prevailing party under the retainer agreement. The trial court denied the motion based on the general rule set forth in the Trope line of cases that fees are not recoverable where the firm is represented by attorneys employed by the firm, despite the presence in the applicable retainer agreement of a clause notifying the client that fees the law firm would seek if it prevailed would include those for its in-house personnel.
The Court of Appeal in Soni began its analysis by providing a thorough overview of Trope and a series of cases which followed. Under that authority, there is no recovery of attorney fees by pro se attorney litigants. Nor is recovery permitted when a law firm and its partners are represented by a firm associate in a matter involving the interests of their firm. Corporate litigants represented by employed, in-house counsel, however, may recover attorney’s fees. And an attorney litigant who is represented by other members of his or her firm in a matter involving the attorney’s personal interests may recover fees. Thus, where an attorney is sued in his or her individual capacity and obtains representation from other members of his or her firm, those members have no personal stake in the matter and the value of their services can be sought if the firm prevails.
The Soni court rejected the appellant’s argument that he was merely a sole practitioner doing business under a fictitious name and that the “associates” were really independent contractors. The court held that it would not re-evaluate the substantial evidence presented to the trial court on this point. It therefore upheld the trial court’s finding that the lawyer’s associates had worked to recover some $28,000 in attorney’s fees for legal services that the firm had rendered to the former client. Thus, in working to recover those fees, the associates performed services on behalf of the law firm that employed them, thereby triggering the Trope doctrine.
Soni confirms that attorneys seeking to prosecute on behalf of their law firm a fee collection action which does not invoke the personal interests of one of its members, will have to hire outside counsel if they expect to recover attorney’s fees as the prevailing party under such a fee provision in a retainer agreement. Outside counsel can serve other valuable functions. The statute of limitations for actions against an attorney arising from a client representation is one year; thus, consideration should also be given to waiting at least one year from the end of the parties’ attorney-client relationship before suing to collect unpaid legal fees. Evaluation of the subject-matter of the representation in terms of potential professional negligence exposure may also be warranted, depending upon the circumstances. A further consideration regarding suits for unpaid legal fees commenced less than one year after representation of the client ceases is that a number of professional liability insurers will not cover a malpractice claim if it arises in response to the insured attorney’s claim against the client for unpaid legal fees.
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