Tuesday, November 23, 2010
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Court Applies Contingent-Fee Disclosure Requirement to Transactional Work
By KENNETH OFGANG, Staff Writer
A fee charged by a tax lawyer, calculated based on a percentage of the savings to the client, is subject to a statute governing the contents of contingent-free agreements, the Court of Appeal for this district ruled yesterday.
Div. Four granted a writ of mandate ordering summary adjudication in favor of Dawn Arnall, Ameriquest Mortgage Company, and RoDa Drilling, L.P. The ruling limits attorney Alan D. Liker to a quantum meruit recovery in lieu of “success fees” contained in his retainer agreements.
Arnall and Ameriquest retained Liker in 2005 for advice on how to minimize “the adverse economic impact” of certain taxable transactions. The clients agreed to pay the attorney $20,000 per month for nine months, plus a success fee of two percent; the agreement was later modified to extend Liker’s services through December 2009, with the $20,000 monthly payments to terminate when the success fee reached $2 million.
In 2007, Arnall and RoDa agreed to pay Liker $20,000 per month through the end of 2009 plus a one percent success fee in connection with a separate matter.
In June 2009, the clients terminated Liker’s services. Refusing to pay the success fees, they insisted that the agreements were void under Business and Professions Code Sec. 6147. The statute provides in part that a lawyer who charges a contingency fee, other than in a medical malpractice case, must advise the client in writing that such fees are “not set by law but are negotiable between attorney and client.”
Liker filed suit earlier this year, seeking damages for breach of contract and bad faith, along with recovery in quantum meruit and declaratory relief. The defendants moved for summary adjudication on all claims other than for quantum meruit, based on Sec. 6147.
Los Angeles Superior Court Judge Yvette Palazuelos denied the motion, citing Franklin v. Appel (1992) 8 Cal.App.4th 875, holding the statute inapplicable to a fee for matters outside of actual or prospective litigation. The court said in that case that if the Legislature wanted to apply the statute to other matters, it could amend it by referring to the person retaining the lawyer as a “client” or “person,” rather than as a “plaintiff.”
Justice Nora Manella, writing yesterday for the Court of Appeal, noted that the Legislature accepted the Franklin court’s suggestion by adopting a 1994 amendment, replaced “plaintiff” to “client” in several places in Sec. 6147. The amendment clearly makes the disclosure requirement applicable to the agreements between Liker and the defendants, Manella said.
The justice rejected Liker’s argument that while “client” was substituted for “plaintiff” in several places, there was no change in Sec. 6147(b), which still states that a noncompliant agreement is “voidable at the option of the plaintiff.”
It would be absurd, Manella said, to conclude that the Legislature changed the other references but intended to deny non-litigation clients the right to void a noncompliant agreement. Given the clear intent to the contrary, she said, the lack of a change in Sec. 6147(b) “appears to be an oversight or drafting error.”
The jurist also rejected the argument that the agreements in question, combining a flat fee with a percentage of the amount by which the client benefits, are “hybrid” arrangements to which the statute does not apply. Earlier cases, she noted, have treated fixed-fee-plus-percentage or hourly fee-plus-percentage arrangements as contingency fee contracts for other purposes, including the limitation on contingency fees in medical malpractice cases.
The case was argued in the Court of Appeal by Margaret M. Grignon of Reed Smith for the petitioners and Peter W. James of Baker & Hostetler for Liker.
The case is Arnall v. Superior Court, B225264.
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