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Court of Appeal:
Lawyer Improperly Pocketed Entirety of Attorney-Fee Award
Award Was Made in Connection With Defense Work on Cross-Action; Opinion Says Attorney Was Obliged to Pay Clients $109,374, the Amount He Received by Way of Contingency Fee for Representation in Their Action
By a MetNews Staff Writer
The Third District Court of Appeal has held that a trial judge, in holding that an attorney converted funds belonging to his clients by pocketing the entirety of a statutory award of attorney fees, did not run afoul of the California Supreme Court’s 2001 pronouncement that, unless the parties have agreed to the contrary, such fees “belong to the attorneys who labored to earn them.”
That’s because, Justice Peter A. Krause said in an unpublished opinion filed Monday, the attorney had already collected $109,374 as a contingency fee in representing his clients in their action against a homeowners’ association (“HOA)” based on mold damage. That amount, Krause declared, had to be deducted from the $412,075.94 paid by the HOA based on the clients, Drew and Elizabeth Prinz, having been prevailing parties in the HOA’s cross-action against them.
Fees were payable by the HOA in the cross-action pursuant to Civil Code §5975(c) which says that “[i]n an action to enforce the governing documents” of a HOA, “the prevailing party shall be awarded reasonable attorney’s fees and costs.”
The opinion affirms Sacramento Superior Court Judge David De Alba’s declaratory judgment in favor of the plaintiff, attorney Robert F. Koehler Jr. of the Sacramento firm of Hibbitt, Tarbell & Koehle, to the extent that he did have entitlement to the fee award—but only after $109,374 was deducted.
It also affirms the judgment on the cross-complaint against the Prinzes insofar as they contended their contingency-fee agreement contemplated that Koehler would receive only a percentage of any fee-award in the cross-action, but affirms judgment in their favor for conversion, breach of fiduciary duty, and negligence, as well as judgment in favor of Elizabeth Prinz for financial elder abuse.
Both sides appealed.
Attorney’s Contentions
Koehler argued that under the California Supreme Court’s 2001 decision in Flannery v. Prentice, the attorney fees were his property, alone, and he properly withdrew them from his attorney-client trust account. He argued further that the contingency fee was an irrelevancy because it was awarded in connection with his representation of the Prinzes in their capacity as plaintiffs while the fees awarded to them as the prevailing parties, pursuant to a statute, related to his representation of them as defendants, for which he had not otherwise been compensated.
The lawyer protested that there was, accordingly, no basis for De Alba’s determination that he had committed financial elder abuse as to Elizabeth Prinz, resulting in an award to her of $160,970.63 in attorney fees and $6,454.21 in costs.
In his opening brief on appeal, Koehler maintained that “it is owing to Koehler’s efforts that the HOA relieved the Prinzes of their obligation to pay Koehler reasonable hourly attorneys fees” for his services in defending them in the cross-action, adding:
“[S]adly in alignment with the adage ‘No good deed goes unpunished,’ the Prinzes still believe themselves entitled to six years of Koehler’s successful labors for free.”
Krause concluded that, contrary to the Prinzes’ position, the parties’ agreement did not contemplate that a contingency fee would cover services in connection with a cross-action because no such counter-offensive was contemplated at the time the agreement was formed and that the parties’ subsequent conduct evidenced no such expectation.
Addressing Flannery, he said it does not preclude an affirmance. That decision says that an award of statutory attorney fees “exceeding fees the client already has paid” belong to the attorney.
Krause wrote:
“The question before us is whether the $109,374 qualifies as ‘fees already paid’ under Flannery.”
His answer was that it does qualify, noting that a 2018 declaration under penalty of perjury by Koehler set forth that his work on the action and cross-action were “intertwined and interdependent.”
He declared:
“Because the contingency fee depended on the outcome of the Prinzes’ complaint, and because defeat of the HOA’s cross-complaint was essential to their recovery on the complaint, we believe it was within the trial court’s discretion to treat the services underlying the contingency fee as “inextricably intertwined” with Koehler’s services defending against the cross-complaint.”
Judgment for Conversion
Substantial evidence supported the judgment for conversion, Krause said, explaining:
“Here, the evidence shows that Koehler improperly withdrew a specific, identifiable sum of money ($412,075.94) from his trust account, without his clients’ knowledge or consent. Koehler then used the funds, including the part of the Fee Award that belonged to Elizabeth, to pay personal obligations. The Prinzes proved at trial a specific, identifiable sum of money that Koehler wrongfully took from them ($109,374). Thus, the trial court properly found Koehler liable for conversion.” The lawyer contended that the scienter element was missing because he thought he had entitlement to the entirety of the funds. There is no such element, Krause responded, setting forth:
“Because conversion does not contain any element of wrongful motive or intent, it is immaterial whether Koehler knew or should have known that he committed a wrongful act.”
He also said that substantial evidence supports De Alba’s determination “that Koehler wrongfully took/retained the entire Fee Award and that he knew or should have known at least part of that Fee Award belonged to Elizabeth. Although Koehler denied having knowledge of Flannery before this litigation was filed, it is reasonable to infer from the evidence that Koehler knew (or should have known) that Elizabeth was entitled to at least part of the Fee Award.”
The Prinzes argued that because Koehler used the money to make mortgage payments, a constructive trust should be imposed on his home. De Alba declined to grant such an order and Krause’s opinion affirms, saying:
“The trial court here concluded that the Prinzes’ ‘conclusory arguments” below failed to establish the necessary elements to impose a constructive trust on Koehler’s house. The record supports this finding. The Prinzes’ argument was limited to a few sentences suggesting that because Koehler used the misappropriated funds to pay off his mortgages, Koehler’s house should be placed in a constructive trust until the money is repaid. The Prinzes did not explain what conditions are required to impose a trust on Koehler’s residence or how the evidence adduced at trial satisfies those conditions.”
The case is Koehler v. Prinz, C095229.
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