Ethics In Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Can a Law Firm Recover Attorneys’ Fees Under a “Prevailing Party” Clause When the Firm is Represented by “Of Counsel?”

Can a law firm recover attorneys’ fees under a “prevailing party” clause when the firm is a successful litigant represented by “of counsel?”  This question was recently answered in the negative by the October, 2012 decision in Sands & Associates v. Juknavorian (2012) 209 Cal.App.4th 1269.

In Sands, two attorneys who were “of counsel” to a law firm represented the law firm in connection with a fee dispute with one of law firm’s clients.  (Id. at 1273-1274.)  After prevailing, the law firm, through “of counsel”, filed a motion for attorneys’ fees pursuant to the prevailing party clause in the retainer agreement.  (Id. at 1276.)  The trial court found that the law firm was not self-represented even though it litigated the case through “of counsel.”  The trial court held that the “of counsel” did not represent their own interest but represented the interest of her employer.  Attorneys’ fees were awarded, and the losing side appealed.  (Id. at 1278.)

The California Supreme Court in Trope v. Katz (1995) 11 Cal.4th 274 concluded that an attorney litigant representing him or herself in pro se cannot recover attorney’s fees under Civil Code Section 1717 as compensation for the time and effort expended and the professional business opportunities lost as a result.  (Id. at 277.)  Trope provided:
Were we to construe the statute otherwise, we would in effect create two separate classes of pro se litigants – those who are attorneys and those who are not – and grant different rights and remedies to each.  We find no support for such disparate treatment either in the language of [Civil Code] section 1717, in the legislative policy underlying it, or in fairness and logic.

The Sands court considered Trope and its progeny when deciding whether the law firm could recover attorneys’ fees when represented by the law firm’s “of counsel.”  It noted that “when a law firm is the prevailing party in a lawsuit and is represented by one of its partners, members, or associates, it cannot recover attorneys’ fees even though the litigation is based on a contract with a prevailing party clause. (See Carpenter & Zuckerman, LLP v. Cohen (2011) 195 Cal.App.4th 373, 37; see also Trope v. Katz (1995) 11 Cal.4th 274, 277.)”  (Id. at 1272.)

Sands then considered the “of counsel” relationship for purposes of conflict of interest analysis.  Citing People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1153, Sands noted that the “relationship between a law firm and ‘of counsel’ is ‘close, personal, continuous, and regular.’”  (Sands at 1272.)  “’[T]o the extent the relationship between [an attorney] or law firm and another [attorney] or law firm is sufficiently ‘close, personal, regular and continuous,’ such that one is held out to the public as ‘of counsel’ for the other, the… relationship must be considered a single, de facto firm for purposes of [avoiding the representation of adverse interests].”  (SpeeDee Oil at 1154, citing State Bar Standing Com. on Professional Responsibility & Conduct, Formal Opinion No. 1993-129.)  In point of fact, “if a law firm ‘communicates’ that one or more of its attorneys are ‘of counsel,’ and the relationship between the law firm and those attorneys is not close, personal, continuous or regular, the firm has violated the Rules of Professional Conduct by making a false or deceptive communication.”  (Sands at 1292.)

After analyzing these principles and reviewing the relationship between the law firm and “of counsel” at issue in Sands, the Sands court reversed the trial award of attorneys’ fees, holding that “because the relationship between a law firm and ‘of counsel’ is close, personal, regular, and continuous, we conclude that a law firm and ‘of counsel’ constitute a single, de facto firm, and thus a law firm cannot recover attorneys’ fees under a prevailing party clause when, as a successful litigant, it is represented by ‘of counsel.’”  (Sands at 1273.)

Given the close, personal relationship between the law firm and the “of counsel,” the court concluded that in recovering attorneys’ fees, the firm and “of counsel” had the same interests, and the court could not say that “of counsel” provided independent, third party judgment.  (Id. at 1296-1297.)  “The firm could not recover additional attorneys’ fees under the prevailing party clause in the retainer agreement because it was self-represented.”  (Id. at 1299.)

-- Frank Tobin

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**