SUING CLIENTS FOR FEES PURSUANT TO WRITTEN AGREEMENTS
Suing a former client for unpaid fees is an unfortunate but occasionally necessary part of the practice of law. Pech v. Morgan (2021) 61 Cal.App.5th 841 clarifies the standard for such suits when a valid and enforceable fee agreement exists as contrasted when the attorney’s services have been performed pursuant to an oral understanding.
Pech observes that the existing legal standard in Bus. and Prof. Code sec. 6148 for collecting unpaid legal fees applies only when there is no written contract between the attorney and client. (At *9.) In that circumstance, “Failure to comply with any provision of this section renders the agreement voidable at the option of the client, and the attorney shall, upon the agreement being voided, be entitled to collect a reasonable fee.” (Subd. (c).) Pech fills the legal void when a written agreement exists, holding that “the amount of recoverable fees must be determined under the terms of the fee agreement, even if the agreed upon fee exceeds what otherwise would constitute a reasonable fee under the familiar lodestar analysis. … (Furthermore) To be enforceable, the fee agreement cannot be unconscionable. And, as with every contract, the attorney’s performance under the fee agreement must be consistent with the implied covenant of good faith and fair dealing. This requires a court adjudicating a fee dispute to determine, among other things, whether the attorney used reasonable care, skill, and diligence in performing his or her contractual obligations.” (Id. at pp. 846-847; emphasis in the original.)
Richard Pech, the attorney in the matter, sued his former clients for breach of contract in his representation of them in four matters, two of which were memorialized in written agreements and the other two based upon an implied-in-fact contract, which existed because of Pech’s “long history” of providing legal services to the former clients. The trial court granted Pech’s applications for attachment of the clients’ assets, concluding that he had established the probable validity of his attachment claim against the clients, as supported by his declaration, retainer, billing records and correspondence. In opposing the attachment, the clients offered the declaration of a legal billings expert who opined, inter alia, that Pech had not used judgment care in the submission of the invoices and that the invoices were overstated by at least twenty percent. The trial court granted the attachment, finding that the two agreements were not unconscionable and the fees neither excessive nor unreasonable.
The Appellate Court affirmed the attachment orders and rejected the clients’ argument that the trial court should have considered the lodestar determination of reasonableness and necessity as a matter of law because “a lodestar determination is not required in a breach of contract action where an attorney’s hourly rate is specified in a fee agreement.” ¶ The only question, where an attorney has a valid fee agreement with a client, “is whether, under the reasonableness standard … substantial evidence supports the trial court’s finding that Pech’s contract claims have probable validity.” (Id. at p. 854.)
The Appellate Court was guided by the California State Bar standard under the Mandatory Fee Arbitration Act (MFAA) for deciding fee disputes, when a fee agreement complies with section 6148, which is that an Arbitrator shall first ensure that the agreed upon fee is not unconscionable under Rule of Professional Conduct 1.5 and then shall review the attorney’s performance under the terms of the agreement, which must account for the covenant of good faith and fair dealing. (Id. at pp. 852-853.) “Finally, and critically, the standard recognizes, consistent with the attorney’s fiduciary duty and the implied covenant of good faith and fair dealing, that the attorney has a contractual obligation to render performance in good faith and in a professional manner, and that the attorney’s performance must be reviewed under a reasonableness standard that accounts for this obligation. … We conclude this is the appropriate standard for adjudicating an attorney’s claim against a client for breach of a valid fee agreement. (Id. at p. 953.)
In affirming the trial court’s attachment orders, the Appellate Court found that Pech had made a prima facie showing that he had reasonably performed his obligations under the written fee agreements with respect to the unpaid invoices and, further, that the clients’ expert’s opinion is not required to establish that an attorney complied with ethical rules since the “value of legal services performed in a case is a matter in which the trial court has its own expertise … (and) may make its own determination of the value of the services contrary to, or without the necessity for, expert testimony.” (Id. at p. 856.)
MDM’s observation: Out of an abundance of caution, attorneys should have a new written fee agreement for every subsequent obligation with long-standing clients rather than rely upon the original agreement, unless that agreement specifically provides that the terms of the original agreement shall apply to all additional work by the attorney.
Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
Copyright Michael D. Marcus, March 2021
Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available at the articles link on the website.