General Practice, Solo & Small Firm DivisionMagazine
LEGAL ETHICS: CUSTOMS, CASES, AND CONFUSION
by Martin Paskind
© American Bar Association. All rights reserved.
Martin Paskind is a lawyer in Albuquerque, New Mexico. His practice focuses on the representation of small businesses and their owners.
Trips to the bank please lawyers, and the larger the deposit the greater the pleasure. Good feelings rarely survive broken fee agreements. Often, clients break such agreements, because they can't or don't want to pay.
But some fee agreements are shot down by courts. Take, for example, the travail of New York's Birbrower, Montalbano, Condon & Frank, when it agreed to handle a California arbitration. The Birbrower firm learned that unauthorized practice of law is bad for collections.
Kamal Sandhu was president of ESQ Business Services, Inc., a New York corporation. The Birbrower firm represented Kamal Sandhu, his family, and his business ventures beginning in 1986. That representation in 1990 included review of an agreement for software development and marketing with Tandem Computers.
Not long after, the Sandhu family created a second corporation, ESQ Business Services, Inc., in California. Kamal's brother Iqbal was president. In 1991 the California firm consulted Birbrower about the Tandem Computer contract. The following year, the two ESQ firms jointly hired Birbrower to resolve a dispute with Tandem. The clients empowered the New York lawyers to investigate and prosecute ESQs' claims.
Birbrower lawyers visited California several times. They met with officers of the New York and California ESQ companies. They talked with Tandem representatives, interviewed prospective arbitrators, and negotiated toward settlement. Birbrower did not, however, associate counsel admitted in California.
Then, in February 1993, Birbrower initiated a claim by filing with the San Francisco office of the American Arbitration Association. The claim settled before hearing in arbitration.
Fast forward to January 1994, when the California version of ESQ Business Services and Iqbal Sadhu sued Birbrower for malpractice. The New York ESQ came in on an amended complaint. Birbrower counterclaimed for its fees.
The original agreement between Birbrower and the ESQ companies called for a one-third contingent fee. That agreement, however, changed before settlement. A second agreement was for a fixed fee of more than $1 million.
Active Members Only
California's statute on unauthorized practice of law can be found in the Business and Professions Code § 6125. It says, "No person shall practice law in California unless the person is an active member of the State Bar." The trial judge in California's Santa Clara County Superior Court took a look at the statute, and another at a bunch of New York lawyers. The court threw Birbrower's claim out on summary judgment and adjudication. You weren't California lawyers, said the judge, so you're not going to collect your contractual fee. Never-theless, said the judge, the Birbrower firm can attempt recovery on an equitable theory, such as quantum meruit.
The law firm, to no one's great surprise, took the case up to the California appellate court, which upheld the trial judge's ruling. Up went the case to the California supreme court. California's justices found that Birbrower indeed performed legal services, gave advice, and worked on contracts and legal instruments. By doing so, the New York firm practiced law, but neither the statute nor California case law defined "in California."
Clear Legal Representations
"In our view," said the supreme court justices, "the practice of law 'in California' entails sufficient contact with the California client to render the nature of the legal service a clear legal representation. In addition to a quantitative analysis, we must consider the nature of the unlicensed lawyer's activities in the state. Mere fortuitous or attenuated contacts will not sustain a finding that the unlicensed lawyer practiced law 'in California.'"
The justices mentioned in passing that their interpretation of § 6125 acknowledged the tension that exists "between interjurisdictional practice and the need to have a state-regulated bar." The court went on to say, "However, the demands of business and the mobility of our society pose distinct problems in the regulation of the practice of law by the states. In furtherance of the public interest, the legal profession should discourage regulation that unreasonably imposes territorial limitations upon the right of a lawyer to handle the legal affairs of his client or upon the opportunity of a client to obtain the services of a lawyer of his choice."
From Birbrower's standpoint, the recovery of a big fee ran afoul of unauthorized practice of law. For society as a whole, including all of us as lawyers, the problem, larger by far than the law firm's, is that as our clients' companies become interstate and international, the profession lags. This situation probably will get a lot worse before it gets any better.
Perhaps thinking this less than completely clear, the justices added, "The primary inquiry is whether the unlicensed lawyer engaged in sufficient activities in the state, or created a continuing relationship with the California client that included legal duties and obligations."
This language is a model of clarity. I can't understand how anyone would fail to interpret it properly. But what if you're sitting out in California, and your old Indiana law school buddy calls? "My biggest client," she says, "wants me to come out to California, play some golf, and talk with key people about current legal problems. Can I come?" The key people, as it turns out, are from Samoa, Italy, Califor-nia, and Florida.
"Hold everything," you reply. "I will fax you a copy of the ESQ case. You can play golf. But as an Indiana lawyer, that's all you can do unless you register as a 'foreign legal consultant.'" "Gee, you're a big help," says your Indiana friend. "I owe you one."
California's supreme court justices agreed that several exceptions permit in-state practice by out-of-state lawyers. The rules allow lawyers brief appearances when judges agree. Or they can come in pro hac vici, with associated California counsel and, again, with judicial approval. Section 6125 is a state statute. It does not regulate federal practice; for example, courts have upheld foreign lawyers' fees accrued in bankruptcy court. The state bar registers foreign legal consultants, who can advise in California about the law of the state where the "consultant" is admitted. Still, consultants can't represent clients in California's courts.
Birbrower thought the list of exceptions ought to be much longer. The New York lawyers said the case was only an arbitration. It wasn't a real trial. There should be, said the Birbrower firm, an exception for arbitrations.
Forget it, said the court. We have a strong public policy in favor of hanging guys like you out to dry. Then Birbrower argued that the Federal Arbitration Act preempted § 6125. Nope, said the high court. The federal law doesn't say anything about preemption, nor does it reflect congressional intent to take over the entire arbitration field.
But Your Honors, said Birbrower, this case had "unique circumstances." The justices didn't care. "We recognize the need to acknowledge and, in certain cases, accommodate the multistate nature of law practice." The state supreme court then threw out Birbrower's contractual claims for its fee.
That left the New Yorkers with two claims on remand. The justices said the trial court should consider work done by the firm in New York. And the supreme court justices told the court below to look at quantum meruit. Who knows? The case may settle or go to trial. It could go up on a second appeal. Birbrower's case could go on for years. Nevertheless, Birbrower still has a fighting chance.
Fighting for a License
Stephen Yagman, a California lawyer, is fighting for his license. The problem, however, began with Yagman's fees. Yagman represented several plaintiffs in a federal civil rights case. The lawsuit began when Los Angeles police officers shot four robbery suspects. The lawyer represented a surviving suspect and the heirs of three others, whom the cops killed. Plaintiffs sued under 42 U.S.C.A. 1983, a statute that penalizes deprivation of civil rights done under color of law. The section, in addition, provides for an award of attorney fees to prevailing plaintiffs.
Yagman, accordingly, applied for and re-ceived a $378,000 fee under the statute. How-ever, he also had a 45 percent contingent fee agreement with his clients. He applied that contingency to the $44,000 gross verdict, then deducted costs not elsewhere recovered from the remaining 55 percent.
The result: Each of Yagman's six clients got a check for $810. The clients, unsurprisingly, complained. Yagman asked the district court to hear the dispute.
For the first time, he told the judge that, besides the § 1983 award, he had an agreement for a contingent fee. Yagman pointed out that the agreement was clear. It said that any court-awarded attorney fees would be his property, without credit for fees awarded by the court.
Maybe so, said the judge. Still, said the court, if it had known of the contingent fee, it would have reduced the fee award proportionately. Yagman on his own returned $20,000 of his fee award to the city.
Illegal Agreement Violates Ethics Code
Ultimately, the case wound up in front of the California Bar Court's Review Department. There, the court first ruled that Yagman committed no per se ethical violation by collecting both statutory and contingent fees.
Nevertheless, said the Review Department, Yagman participated in an illegal fee agreement that violated the state's ethical code. He failed to comply with decisional law requiring a judicial determination of reasonableness when a lawyer seeks both contingent and statutory fees.
The tribunal ruled that Yagman wrote the contract to dodge case-law requirements. The Review Department recommended that Yagman be suspended for a year, to be followed by three years on probation.
Indiana's supreme court late last year reprimanded a lawyer who imposed a contingent fee both on client and subrogees. His clients, auto accident victims, were aware that the fee agreement applied to their recovery. They were not told that subrogated parties, which included State Farm and a union, also would pay a contingent fee. Where payment to counsel exceeds that set out in the fee agreement, the fee is "presumptively unreasonable," said the justices. CL