Opinion
H039451
03-20-2018
CARL A. LINDSTROM et al., Cross-Complainants and Respondents, v. NASTEHO AHMED, Cross-Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 1-10-CV-164582)
Cross-complainants Carl A. Lindstrom and James A. Otto were cross-defendant Nasteho Ahmed's attorneys in her employment discrimination lawsuit against a hospital. After settling with the hospital, Ahmed refused to honor the contingent attorney's fee agreement she had entered into with Lindstrom. The hospital filed an interpleader action to resolve the dispute. Lindstrom and Otto cross-complained against Ahmed for breach of the contingency agreement, and prevailed following a bench trial. Lindstrom was awarded contractual attorney's fees (Civ. Code, § 1717) to pay Otto for representing him in the breach of contract case. Ahmed appeals the trial court's order granting attorney's fees, arguing based on Trope v. Katz (1995) 11 Cal.4th 274 (Trope) that Lindstrom's and Otto's status as Ahmed's prior co-counsel precludes them from recovering Civil Code section 1717 attorney's fees. For the reasons stated here, we will affirm the trial court's order after judgment.
I. TRIAL COURT PROCEEDINGS
The following is derived from the trial court's statement of decision in the breach of contract action against Ahmed, as well as exhibits admitted at the trial of that action.
A. CONTINGENT FEE AGREEMENT
Ahmed was terminated by Stanford Hospital and Clinics and Lucile Packard Children's Hospital (Stanford). Ahmed retained Lindstrom by entering a contingent fee agreement which provided that he would represent her "in all proceedings relating to Discrimination, Harassment and Retaliation at the workplace." Lindstrom was to receive between 40 and 50 percent (depending on timing) of any gross recovery he secured for Ahmed. The agreement also provided for Civil Code section 1717 fees: "Client agrees to pay attorney the reasonable attorney fees and court costs incurred in collecting or recovering any sums of money due to attorney under the terms of this agreement." (Capitalization omitted.)
B. WRONGFUL TERMINATION ARBITRATION AND LAWSUIT
Ahmed filed a grievance challenging her termination, which resulted in arbitration regarding whether Stanford had just cause to terminate Ahmed. The arbitrator concluded in a written decision that "there was just cause to terminate Ms. Ahmed" because of her failure to "improve upon her unacceptable behavior and substandard performance, although she had been given ample warning of the need to do so." While the arbitration was pending, Lindstrom filed a complaint on Ahmed's behalf alleging wrongful termination based on discrimination and harassment, among other causes of action.
While Lindstrom was representing Ahmed, they engaged in a consensual sexual relationship. Their attorney-client relationship was adversely affected by the personal relationship, with Lindstrom filing multiple requests to be relieved as counsel that he would later rescind. Multiple years into the lawsuit, Lindstrom filed a Code of Civil Procedure section 998 offer to compromise for $85,000 on Ahmed's behalf. Lindstrom and Ahmed later signed an association of counsel agreement to bring Otto into the case as lead counsel, with Lindstrom remaining as supporting counsel. The trial court rejected Ahmed's argument that her signature on the association of counsel had been forged. Stanford ultimately accepted the offer in order to resolve the lawsuit.
C. INTERPLEADER ACTION AND BREACH OF CONTRACT CROSS-COMPLAINT
After Stanford accepted the offer, a dispute arose regarding the parties' entitlement to the settlement funds. Stanford filed a complaint in interpleader against Ahmed, Lindstrom, and Otto; Stanford deposited the $85,000 settlement with the court and asked the court to resolve the matter. Lindstrom and Otto filed a joint cross-complaint against Ahmed in the interpleader action, alleging breach of contract and fraud. Ahmed's answer to the cross-complaint asserted several affirmative defenses, including allegations that Lindstrom and Otto violated the Rules of Professional Conduct (most were related to the effect of the consensual sexual relationship on Lindstrom's ability to effectively represent Ahmed). After a bench trial in which Ahmed was represented by new counsel, the trial court determined that Ahmed had breached the contingent fee contract by refusing to authorize Stanford to pay Lindstrom and Otto the amount they were owed under the agreement.
D. CONTRACTUAL ATTORNEY'S FEES MOTION (CIV. CODE , § 1717)
Otto, acting as counsel for Lindstrom, moved for attorney's fees under Civil Code section 1717 to pay for Otto's legal work in the breach of contract action. The fee motion sought $197,575 for Otto's legal work, and was accompanied by bills itemizing the time Otto spent on the case. Lindstrom did not request attorney's fees for his work on Otto's behalf in the breach of contract case. Ahmed (still represented by counsel other than Lindstrom or Otto) opposed the fee motion, arguing that the amount of fees requested was unreasonable. Ahmed did not argue that Otto was legally precluded from recovering attorney's fees; she argued only that the requested fees were excessive. The trial court awarded Lindstrom $167,938.75 in Civil Code section 1717 attorney's fees to pay for Otto's services.
II. DISCUSSION
Ahmed, proceeding in propria persona, argues for the first time on appeal that Otto and Lindstrom are legally precluded from recovering attorney's fees under Civil Code section 1717 (hereafter section 1717). Ahmed relies on Trope, supra, 11 Cal.4th 274, where the Supreme Court determined that an attorney who proceeds in propria persona to enforce a contractual attorney's fees provision may not recover section 1717 fees as a prevailing party. (Trope, at p. 292.) Lindstrom and Otto respond that Ahmed forfeited that argument by failing to raise it in the trial court. But when, as here, "an appeal raises a question of law on undisputed facts, the issue has not been forfeited." (Winchester Mystery House, LLC v. Global Asylum, Inc. (2012) 210 Cal.App.4th 579, 594.) Whether a party is legally entitled to attorney's fees is a question of law we review de novo. (Dzwonkowski v. Spinella (2011) 200 Cal.App.4th 930, 934 (Dzwonkowski).)
A. TROPE V. KATZ
Katz hired Trope's law firm to represent him in a marital dissolution case. (Trope, supra, 11 Cal.4th at p. 277.) The Trope firm later withdrew as counsel and a dispute arose over unpaid attorney's fees. The Trope firm, representing itself, sued Katz for breach of contract and obtained a jury verdict in its favor. The firm then moved for section 1717 attorney's fees, based on a clause in its agreement with Katz. The trial court denied the fee motion, reasoning that the firm was barred from recovering those fees because it had represented itself. (Trope, at p. 278.)
The Supreme Court began by quoting section 1717: " 'In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.' " (Trope, supra, 11 Cal.4th at p. 279, quoting § 1717, subd. (a).) Interpreting that language, the court noted that section 1717 only applies when attorney's fees are actually " 'incurred to enforce that contract,' " whereas "an attorney litigating in propria persona cannot be said to 'incur' compensation for his time and his lost business opportunities." (Trope, at p. 280.) It interpreted the phrase "attorney's fees" in section 1717 to mean "the consideration that a litigant actually pays or becomes liable to pay in exchange for legal representation," and noted that an "attorney litigating in propria persona pays no such compensation." (Trope, at p. 280.) The court explained that section 1717 was "designed to establish mutuality of remedy when a contractual provision makes recovery of attorney fees available to only one party, and to prevent the oppressive use of one-sided attorney fee provisions." (Trope, at p. 285.) It reasoned that if an attorney who prevails in an action to enforce a contract with an attorney's fees provision can recover section 1717 fees despite litigating in propria persona, "but a nonattorney pro se litigant cannot do so regardless of the personal and economic value of such time simply because he has chosen to pursue a different occupation, every such contract would be oppressive and one-sided." (Trope, at pp. 285-286.) The court therefore concluded that an attorney who litigates in propria persona cannot recover section 1717 attorney's fees. (Trope, at p. 292.)
B. LATER INTERPRETATIONS OF SECTION 1717 AND TROPE
Courts have been reluctant to extend Trope beyond its facts. Courts have applied Trope's reasoning to deny section 1717 attorney's fees only in situations where the attorney who is a party to the contract with the section 1717 fee provision and the attorney who is retained to enforce the contract share such a close business relationship that they are effectively part of the same firm. (See Sands & Associates v. Juknavorian (2012) 209 Cal.App.4th 1269, 1298 (Sands) [adopting "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.' "]; Soni v. Wellmike Enterprise Co. Ltd. (2014) 224 Cal.App.4th 1477, 1490 [fees denied where associates of the attorney-plaintiff's law firm "represented the interests of the firm for which they worked, as opposed to the personal interests of a member of the firm"].) By contrast, in two cases with facts similar to those at issue here courts have approved the award of section 1717 fees. (Farmers Ins. Exchange v. Law Offices of Conrado Joe Sayas, Jr. (9th Cir. 2001) 250 F.3d 1234 (Farmers); Dzwonkowski, supra, 200 Cal.App.4th 930.)
In Farmers, property owners hired Sayas to represent them in an insurance bad faith action against their property insurance company. (Farmers, supra, 250 F.3d at p. 1235.) Sayas then hired another firm (Q & B) as co-counsel. The property owners signed a retainer agreement that stated Sayas and Q & B would receive a percentage of any settlement; it also contained a section 1717 attorney's fee clause. (Farmers, at pp. 1235-1236.) After settling with the insurance company, the property owners fired Sayas and Q & B. The insurance company filed an interpleader action in superior court against the property owners, Sayas, Q & B, and others. The case was removed to federal court, where Sayas and Q & B successfully moved for summary judgment regarding the underlying fee dispute. The district court awarded Sayas section 1717 fees for representing Q & B, and awarded Q & B section 1717 fees for representing Sayas. (Farmers, at p. 1236.)
On appeal, the property owners contended the attorneys were not entitled to section 1717 fees because they had represented themselves in the fee dispute. (Farmers, supra, 250 F.3d at p. 1237.) The Farmers court affirmed the fee award because there was evidence of "an obligation by the client to pay attorneys' fees, the existence of an attorney-client relationship, and distinct interests between the attorney and the client." (Id. at p. 1238.) The court noted that the property owners "scoff[ed] at the notion that Sayas and Q & B actually represented each other, but they have offered no substantive evidence for us to conclude that the district court's findings in that regard were clearly erroneous." (Id. at p. 1239.) The court reasoned that as "attorneys for one another, Sayas and Q & B owed each other a fiduciary duty and a duty of attorney-client confidentiality." And though the firms "appeared to have identical interests in the underlying fee dispute—collecting the contingent fee—some of their interests could have ended up being different," such as if a dispute arose over which firm was entitled to a "greater share of the contingent fee for performing more work on the litigation to recover the contingent fee." (Ibid.)
Similarly in Dzwonkowski, Spinella retained Dzwonkowski to represent him in a probate matter. (Dzwonkowski, supra, 200 Cal.App.4th at p. 932.) Another attorney, Boltz, took over the matter for Dzwonkowski when it proceeded to litigation. (Ibid.) When a fee dispute arose between Spinella and Dzwonkowski, the matter was referred to mandatory arbitration. Dzwonkowski prevailed and, represented by Boltz, petitioned the trial court to confirm the arbitration award. (Id. at pp. 933-934.) After the trial court confirmed the award, Dzwonkowski filed a motion for section 1717 attorney's fees, supported by a declaration from Boltz describing the fee agreement between Dzwonkowski and Boltz and documenting the time Boltz had spent on the case. (Ibid.)
On appeal from the trial court's order granting section 1717 fees, the Court of Appeal explained that whether "fees are incurred is evidenced by an obligation to pay attorney fees, the existence of an attorney-client relationship, and distinct interests between the attorney and the client." (Dzwonkowski, supra, 200 Cal.App.4th at p. 935.) The court noted Dzwonkowski had agreed to give Boltz a certain percentage of the underlying judgment for his work on the section 1717 fee motion. The court found that substantial evidence supported the trial court's finding that Dzwonkowski and Boltz had an attorney-client relationship based on Boltz's declaration, in which he stated he was Dzwonkowski's attorney and "explained the work he had undertaken to fulfill his fiduciary duty to his client, Dzwonkowski." (Dzwonkowski, at p. 935.) The court rejected Spinella's argument that Boltz should be precluded from receiving attorney's fees because he referred to himself as having of counsel status with Dzwonkowski's firm, reasoning that the evidence showed Boltz and Dzwonkowski were each sole practitioners with separate offices located in different cities. (Id. at pp. 935-936.) Finally, the court determined that the attorneys' interests were not identical because their agreement called for Boltz to receive a fixed hourly fee, meaning that had "Dzwonkowski not prevailed in the fee arbitration, or not reduced the arbitration award to judgment, Boltz would still have been entitled to recover his hourly rate from Dzwonkowski, or a dispute would have emerged between the two of them." (Id. at p. 936.)
C. THE TRIAL COURT PROPERLY AWARDED ATTORNEY'S FEES
Ahmed's primary argument is that "the pre-existing co-counsel relationship between [Lindstrom and Otto] meant they could not have a true attorney-client relationship adverse to [Ahmed], and therefore [Lindstrom] was constructively self-represented." But Ahmed's argument that there was no attorney-client relationship between Lindstrom and Otto is contradicted by undisputed evidence in the record. Lindstrom and Otto had separate offices; Lindstrom's office was in San Jose while Otto's office was in Northridge. The statement of decision resolving the cross-complaint states that Otto appeared for Lindstrom, and that Lindstrom appeared for Otto. In Otto's declaration in support of the section 1717 fee motion, he states: "I represented the legal interests of Lindstrom to collect the attorney fees owed to him by Ahmed." (Capitalization omitted.) Lindstrom's declaration accompanying the reply in support of the fee motion states he "was the trial attorney for James Otto." (Capitalization omitted.) The reporter's transcript shows that Lindstrom was the attorney who asked Otto questions during his examination in the breach of contract bench trial, and vice versa. And the association of counsel agreement for the original lawsuit against Stanford stated that Otto would share equally in Lindstrom's portion of any settlement under the original contingent fee agreement. Had Otto and Lindstrom been part of the same firm, an explicit fee-sharing arrangement would have been unnecessary. On this record, the undisputed evidence demonstrates that Otto and Lindstrom were separate sole practitioners with no ongoing joint legal practice, and that they had reciprocal attorney-client relationships with one another in prosecuting the cross-complaint.
The party relationships in this case are almost identical to those in Farmers and Dzwonkowski. In all three cases, two attorneys from different firms who had previously acted as co-counsel for a client were forced to take legal action against that client for unpaid legal fees. (Farmers, supra, 250 F.3d at p. 1236; Dzwonkowski, supra, 200 Cal.App.4th at p. 933.) There was a mutuality of remedy in all three cases because the former clients were represented by new counsel and would have been entitled to attorney's fees incurred litigating the underlying fee disputes had they prevailed. And there is no evidence in the record of "double dipping" by Otto and Lindstrom since they sought compensation only for Otto's work; under the reasoning of Farmers it is possible that both attorneys could have recovered fees for their reciprocal representation.
Ahmed relies on Sands, supra, 209 Cal.App.4th 1269, in which the Sands law firm was retained by a client in a family law matter, and a fee dispute arose. (Sands, at p. 1273.) The Sands firm requested that two attorneys, who were of counsel to the Sands firm, represent the firm in the dispute. After prevailing in arbitration, the of counsel attorneys filed a petition to confirm the arbitration award, and later moved for and obtained section 1717 fees. (Sands, at pp. 1274, 1276-1277.) The Court of Appeal reversed, finding that the of counsel attorneys were part of the Sands firm based on evidence that they shared office space, were listed on the Sands firm letterhead as of counsel, and were listed in attorney directories as being affiliated with the Sands firm. (Id. at p. 1295.) The Sands court expressly noted its decision was consistent with Dzwonkowski because the attorneys in Dzwonkowski were separate sole practitioners with separate offices who did not hold themselves out to the public as being of counsel to one another. (Sands, at pp. 1298-1299.)
Ahmed argues Sands supports her contention that section 1717 fees should be denied "in cases involving named co-counsel in the underlying case because of [sic] the nature of the relationship between both former co-counsel in the underlying matter makes both attorneys self-interested parties." Sands does not support Ahmed's contention. Like Dzwonkowski and Farmers, Sands focused on the nature of the business relationship between the attorneys without regard to whether they had been co-counsel in the underlying fee dispute. Unlike in Sands, there is no evidence here that Otto and Lindstrom had a business relationship sufficient to deem them members of the same firm.
Ahmed argues that awarding fees in this case "serves to create two classes of litigants: those with close relationships with self-interested legally-trained co-counsel with substantial incentives to litigate regardless of whether they are paid or not, and those who must incur attorney fees to litigate." She suggests that Lindstrom and Otto did not have to risk incurring attorney's fees in the litigation. But Ahmed provides no evidence that Otto and Lindstrom did not actually incur attorney's fees in the litigation. And it is reasonable to place responsibility on Ahmed for any deficiency in the record related to the attorneys' legal relationship because Ahmed did not raise her objection based on Trope until this appeal. (See Ketchum v. Moses (2001) 24 Cal.4th 1122, 1140 [" ' "All intendments and presumptions are indulged to support [the judgment] on matters as to which the record is silent, and error must be affirmatively shown." ' "].) While Otto had an incentive to litigate the fee dispute because he was entitled to half of the Stanford settlement under the association of attorney agreement, that recovery (under $25,000) was far less than the amount of compensable time the trial court found Otto had reasonably spent litigating the cross-complaint ($167,938.75)—the reasonableness of which Ahmed litigated in the trial court but does not challenge on appeal.
Ahmed's final argument is that section 1717 fees should have been denied to serve the public policy of encouraging attorneys to maintain the duty of loyalty to former clients. Other than a citation to a case discussing the duty of loyalty generally, Ahmed cites no relevant authority to support her argument. The argument is therefore forfeited. (Tichinin v. City of Morgan Hill (2009) 177 Cal.App.4th 1049, 1084, fn. 16.)
III. DISPOSITION
The order after judgment granting Civil Code section 1717 attorney's fees is affirmed. Lindstrom and Otto are entitled to their costs on appeal.
/s/_________
Grover, J.
WE CONCUR:
/s/_________
Elia, Acting P. J. /s/_________
Premo, J.