A recent The Recorder story by Alaina Lancaster, “Appeals Court Rules on ‘Curious Gap’ in State Law Over Attorney Fees,” reports that a California appeals court ruling underlined “a curious gap” in the state law over the recoverability of unpaid fees when attorneys sue clients for breach of contract.  A decision from California’s Second District Court of appeal noted that in 1993, a state bar committee raised the issue of how Business and Professions Code Section 6148 clarifies that an attorney may recover a reasonable fee for services absent a valid fee agreement, but fails to set a standard for fees when clients breach a fee agreement.  Nearly a decade later, the appeals court said it was unable to find a clear standard in the statutory or case law.

In an opinion authored by Associate Justice Anne Egerton, the court held that the terms of the fee agreement control the amount of recoverable fees when an attorney sues a client for a breach of a valid and enforceable contract—even if it exceeds what a lodestar analysis, which measures the number of hours expended multiplied by the hourly rate, would consider a reasonable fee.

“The trial court correctly held a lodestar determination is not required in a breach of contract action where an attorney’s hourly rate is specified in a fee agreement,” wrote Egerton on behalf of Associate Justice Halim Dhanidina and Presiding Justice Lee Smalley Edmon.  “To hold otherwise would ignore the statutorily recognized difference between instances where the attorney has entered into a valid fee agreement with his or her client, and those where the attorney has failed to do so and is limited to a ‘reasonable fee’ under Section 6148.”

In the underlying case, Santa Monica, California, attorney Richard Pech sued owners of a mobile home park to recover more than $1 million in attorney fees and interest he claimed he was owed for representing them in several matters. Los Angeles Superior Court Justice Mary Strobel granted Pech’s applications for attachment of defendants’ assets on the grounds that the attorney had established the probable validity of his breach of contract claims.

The owners of the mobile home park contended that the fees were excessive and unreasonable and that the trial court should have considered the lodestar determination to determine the reasonableness of the fees.  Instead, the court decided to turn to the standard adopted by the 1993 bar committee, which was applied to mandatory fee arbitration, to address “this apparent gap in our law.”  The standard mandates that a fee agreement is not enforceable if it is unconscionable; the attorney’s performance must be consistent with the implied covenant of good faith and fair dealing; and a court must determine if the attorney used “reasonable care, skill, and diligence” in responding to the contract.

The ruling determines that the bar standard is consistent with Section 6148’s “implicit recognition” that an attorney and client can agree to a fee that might not be considered “reasonable,” as long as the rate and legal services are disclosed in the contract.  “The standard articulated in Advisory 1993-02 sensibly balances the competing interests that arise when a client breaches a fee agreement by refusing to pay an agreed upon fee,” the opinion states.

Joshua Furman of Joshua Furman Law, which represented the mobile home park owners, said, “While we are gratified that the Court of Appeal recognized the gap in the law concerning standards for attorney fee claims against former clients under written fee agreements, and largely adopted the position we argued—that the standards established by State Bar arbitration advisories should apply—we remain concerned that the standard as articulated by the court is both unclear and too low to effect the public policy of client protection.  Under the standards articulated in this decision, an attorney could bill any number of hours and obtain an attachment order against the former client’s assets without significant scrutiny as long as the hourly rate matched the rate in the fee agreement.  This unfairly disadvantages the client, who may be unable to defend against the attorney’s lawsuit while the client’s assets are subject to attachment.  We remain concerned that the court’s decision does not protect consumers from unscrupulous billing practices by attorneys and continue to evaluate our options moving forward.”