A Law Firm Cannot Recover Legal Fees As A Prevailing Party When It Is Represented By Attorneys Who Are “Of Counsel” To It

Sands & Associates v. Juknavorian
(Cal. Ct. of App., 2d Dist.), filed October 10, 2012

KEY FACTS

Martin Juknavorian retained the law firm of Sands & Associates in a marital dispute.  The retainer agreement recited that any dispute concerning billing, the agreement, or the representation of Juknavorian would be submitted to binding arbitration.  The agreement informed Juknavorian of his right under the Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code sections 6200-6206) to require that an attorney fee dispute be arbitrated in accordance with a program established by a local bar association.  The agreement also provided:  “The arbitrator(s) shall have the discretion to order that . . . reasonable attorney’s fees shall be borne by the losing party.”

A dispute arose between the Sands firm and Juknavorian over attorney fees.  Juknavorian invoked his right to arbitration under the MFAA.  The Sands firm had Leonard Sands and Heleni Suydam, who were “of counsel” to it, handle the matter. The Sands firm prevailed.

Juknavorian then filed a legal malpractice action against the firm.  The firm filed a demurrer, contending the action was barred by the statute of limitations.  The superior court concluded the action was time-barred and dismissed it.  This was affirmed on appeal.

The Sands firm petitioned to confirm the arbitration award.  The trial court granted the petition.  This, too, was affirmed on appeal.

The Sands firm, represented by its “of counsel”, filed a motion for attorney fees pursuant to the prevailing party clause in the retainer agreement.  In his opposition papers, Juknavorian argued that “of counsel” were actually members of the Sands firm and that because the firm was self-represented in the litigation, it could not recover attorney fees.  The trial court granted the motion and awarded fees to the firm.

In the ensuing appeal, the Court of Appeal framed the issue as whether a law firm can recover attorney fees under a “prevailing party” clause when the firm is a successful litigant represented by “of counsel.”

In ruling that it could not, the court stated:

Our analysis is based on two well-settled principles.  First, 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 attorney fees even though the litigation is based on a contract with a prevailing party clause.

Second, the relationship between a law firm and “of counsel” is “‘close, personal, continuous, and regular.’”  “‘[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].’”

Similarly, 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 attorney fees under a prevailing party clause when, as a successful litigant, it is represented by “of counsel.”

ANALYSIS

This decision essentially applies the rule that a law firm that represents itself cannot recover “prevailing party” attorneys’ fees to an “of counsel” arrangement.