FARMERS INSURANCE EXCHANGE, AN INTER-INSURANCE EXCHANGE, PLAINTIFF, v. LAW OFFICES OF CONRADO JOE SAYAS, JR., ESQ.; QUISENBERRY & KABATECK, LLP, DEFENDANTS-APPELLEES, NARENDRA DESAI, AN INDIVIDUAL; BELA DESAI, AN INDIVIDUAL, DEFENDANTS-CROSS-DEFENDANTS-APPELLANTS, AND TAYLOR MILLER & AMES; UNITED STATES SMALL BUSINESS ADMINISTRATION; CITY OF SANTA MONICA; DOES, I-X, INCLUSIVE, DEFENDANTS.
No. 99-56844
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Argued and Submitted April 5, 2001. Filed May 7, 2001
250 F.3d 1234
John N. Quisenberry, Brian S. Kabateck, and Heather M. Mason, Quisenberry & Kabateck Llp, and Conrado Joe Sayas, Law Offices of Conrado Joe Sayas, Jr., Los Angeles, California, for the defendants/appellees.
Appeal from the United States District Court for the Central District of California Carlos R. Moreno, District Judge, Presiding D.C. No. CV-98-09872-CRM
Before: Procter Hug, Jr., John M. Duhe, Jr.,* and Richard C. Tallman, Circuit Judges.
OPINION
Tallman, Circuit Judge
Narendra and Bela Desai appeal the district court‘s decision to award attorneys’ fees to their former attorneys, The Law Offices of Conrado Joe Sayas, Jr. (“Sayas“) and Quisenberry & Barbanel, LLP (“Q&B“).1 Sayas and Q&B jointly represented the Desais in an insurance bad faith action. The Desais were unhappy with the outcome and discharged the two law firms. The firms then hired each other to litigate against the Desais in order to recover the contingent fee due under the initial client retainer agreement. The district court awarded each firm attorneys’ fees to cover the costs of litigating the underlying fee disputе against the Desais. We have jurisdiction pursuant to
I. FACTS AND PRIOR PROCEEDINGS.
Narendra and Bela Desai owned rental property in Santa Monica, California, that was partially insured by Farmers Insurance Exchange. The property was damaged by fire during the Northridge Earthquake of 1994. The Desais received disaster loans from the United States Small Business Administration (“SBA“) and the City of Santa Moniсa. They also filed a claim with Farmers for the insured portions of the property.
While the claim with Farmers was pending, a dispute arose regarding the scope of insurance benefits due under the contract. The Desais hired Sayas to represent them in an insurance bad faith action against Farmers. Sayas, in turn, hired Q&B as co-counsel in the action. The client retainer agreement signed by the parties provided that Sayas and Q&B would receive 40% of the net settlement after deducting costs plus $30,000 for the Desais. The retainer agreement also contained the following clause: “In any dispute between Lawyers and Client, the prevailing party will be entitled to reasonable attorney fees.”
With the assistance of Sayas and Q&B, thе Desais eventually settled the case with Farmers. After the settlement, however, the Desais became dissatisfied with the quality of representation they had received from Sayas and Q&B. They believed that Sayas and Q&B improperly failed to advise them that the SBA and the City would be entitled to immediate repayment of the disaster loans, which would drastically reduce the settlement payment that the Desais would ultimately receive. Because they believed they had received bad legal advice in settling, the Desais hired new counsel and moved in California superior court to vacate the dismissal of their bad faith claim against Farmers so that they could rescind the settlement agreement. While the motion to vacate was рending, Sayas and Q&B filed an ex parte application against the Desais to recover the fees and costs due to them under the retainer agreement. The motion to vacate was ultimately denied, but the fee dispute between the Desais and Sayas and Q&B remained.
As a result of the dispute over the distribution of the insurance proceeds, Farmers brought an interpleader action in California superior court, naming as defendants the Desais, Sayas, Q&B, the SBA, and the City. The SBA removed the interpleader action to federal district court. After the Desais settled with the SBA and the City, Sayas and Q&B moved for, and were granted, summary judgment on the underlying fee dispute. The district court found that Sayas and Q&B were entitled to a total of $333,266.94 in attorneys’ fees and costs under the retainer agreement for representing the Desais in the bad faith action and settlement.
Sayas and Q&B then moved for attorneys’ fees under
II. DISCUSSION.
A. Standard of Review.
Because this case is based on diversity jurisdiction, we are obligated to apply California state law regarding attorneys’ fees. See Kabatoff v. Safeco Ins. Co. of America, 627 F.2d 207, 210 (9th Cir. 1980). “The task of a federal court in a diversity action is to approximate state law as closely as possible in order to make sure that the vindication of the state right is without discrimination beсause of the federal forum.” Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir. 1980).
The district court‘s construction of the law of the state in which it sits is entitled to substantial deference. Kabatoff, 627 F.2d at 209. Our review of the district court‘s decision is therefore restricted. We will not reverse the district court on issues of the construction of state law unless the construction is clearly wrong. Id.; Gee, 615 F.2d at 861.
B. Attorneys’ Fees.
California law ordinarily does not allow for rеcovery of attorneys’ fees. Trope v. Katz, 45 Cal. Rptr. 2d 241, 244 (Cal. 1995). One exception is where the parties contractually obligate themselves to pay attorneys’ fees. Id. at 245. These contractual provisions are governed by
In any action on a contract, where the contract specifically provides that attorney‘s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney‘s fees in addition to other costs.
The Desais admit that, had Sayas or Q&B hired other counsel to litigate the underlying fee dispute, they would be obligated under the contract and
In Trope, the court held that an attorney representing himself, in propria persona, is not entitled under
The court concluded that the purpose of
In this case, the district court rejected the Desais’ argument that the Trope rule should be applied, reasoning that: (1) Trope‘s overriding concern about the disparate treatment of non-attorney pro se litigants was not present in this case; (2) to hold that Trope applied would be to deny a party the benefit of retaining an attornеy who is already familiar with the case; and (3) in Arizona, which has a rule nearly identical to the Trope rule, a court nonetheless held that an attorney, who was a general partner in a partnership where the other general partner was a trust for which he was the trustee (and from which he could distribute the corpus to himself upon the death of the beneficiaries), could recover fees for his representation of the partnership. See Hunt Investment Co. v. Eliot, 742 P.2d 858 (Ariz. Ct. App. 1987). We conclude that the district court was not clearly wrong in interpreting California law to allow for recovery of attorneys’ fees in this case.
California courts have indicated that the rule in Trope restricting in propria persona attorneys from recovering fees under
In both of these cases, the courts focused solely on whether the fees were “incurred” within the meaning of
California courts have also indicated that the meaning of the term “incur” is fairly broad. For example, in PLCM Group, the court allowed the corporation to recover fees based on an hourly market rate for attorneys, rather than the actual costs to the corporation in paying the in-house counsel‘s salary. See PLCM Group, 95 Cal. Rptr. 2d at 207. See also Rosenaur v. Scherer, 105 Cal. Rptr. 2d 674, 689-90 (Cal. Ct. App. 2001) (holding that an attorney was entitled to recover his fees even though he had waived payment from the client but not if the payment came from another source, such as an insurance company).
Because of the broad scope of the term “incur” and the narrow scope of the Trope rule, we conclude that the district court wаs correct in deciding that a California court, faced with the instant case, would allow Sayas and Q&B to recover their fees. Under California law, recovery is permissible provided the fees were incurred, which is evidenced by an obligation by the client to pay attorneys’ fees, the existence of an attorney-client relationship, and distinct interests between the attorney and the client. All of these factors are present in this case. The district court found that an attorney-client relationship existed between Sayas and Q&B and between Q&B and Sayas3 and that each firm had become liable to the other firm for a specific amount of fees incurred in recovering the contingent fee in the underlying action. The Desais scoff at the notion that Sayas and Q&B actually represented each other, but they have offered no substantive evidence for us to conclude that the district court‘s findings in that regard were clearly erroneous.
As attorneys for one another, Sayas and Q&B owed each other a fiduciary duty and a duty of attorney-client confidentiality. Although they appeared to havе identical interests in the underlying fee dispute--collecting the contingent fee--some of their interests could have ended up being different. For example, had they lost the underlying fee dispute, they may have incurred disparate liabilities to the Desais for their respective roles in the settlement with Farmers that spawned the fee dispute. Had attorneys’ fees not been awarded, the two firms may have ended up in a dispute over whether one firm was entitled to a greater share of the contingent fee for performing more work on the litigation to recover the contingent fee.
One may question the wisdom of these firms hiring each other, given the conflicts of interest that could easily have arisеn between them. But questionable judgment should not preclude them from recovering fees that they were entitled to recover under the express terms of the retainer agreement with the Desais. Accordingly, the judgment of the district court is AFFIRMED.
HUG, Circuit Judge, Dissenting:
I respectfully dissent. The two firms involved jointly undertook the representation of the Desais and were joint parties to the retainer agreement with the Desais. The two firms were to receive a contingent fee and, thus, as joint parties to the initial contingent fee agreement they jointly sued the Desais to recover their contingent fee. Having won on that suit, they now seek to recover the attorneys’ fees that were occasioned in their suit to collect thеir contingent fee. (California law precludes them from recovering such fees if each represented its own interest. See Trope v. Katz, 45 Cal. Rptr. 2d 241 (Cal. 1995). Trope prevents disparate treatment of pro se litigants that would result from allowing attorneys to recover their own fees when self-represented but no similar award to other litigants who choose to represent themselves. Id. at 252. The fact that each law firm now claims to have been engaged to represent the other is a device that should not overcome the policy of Trope. It is significant that there is no difference here in the legal position of either firm in their litigation concerning the contingent fee because the entire fee would be recovered jointly and the proceeds shared equally.
The pleadings from the proceedings below that are part of our record on appeal show that both firms filed papers jointly: one complaint or one motion always served to represent both firms’ interests and representation. All allegations, demands and causes of action wеre represented in a single presentation, showing clearly that the legal position of the two firms was identical. There appears no justification that each had different bills for their alleged representation of the other and no justification for Quisenberry having expended over $45,000 to represent Sayas while Sayas allegedly spent around $16,000 to represent Quisenberry. Indeed, Quisenberry‘s own billing statement submitted as proof of hours billed to represent Sayas, shows Quisenberry -- not Sayas -- as the client‘s name on the statement.1-1
Under the circumstances here, Quisenberry‘s billing statement strongly suggests that any fees “incurred” were for its own self-representation. Allowing recovery of such fees where the two law firms’ efforts obviously were for a joint recovery would permit the firms to circumvent the policy of Trope on a technicality. While the California supreme court has narrowed Trope by allowing a corporation to recover attorneys’ fees for representation by in-house counsel in PLCM Group, Inc. v. Drexler, 95 Cal. Rptr. 2d 198 (Cal. 2000), Trope and its policy still stand and control the facts here. An attorney billing timе to the corporation for work done is distinct from one firm apparently representing itself to recover its own fees in a joint effort with another firm that represented the same client in the same matter to recover a contingent fee to be shared. The former is billing for an attorney‘s time spent representing another entity while the latter is the very self-representation for which recovery is precluded under Trope.
The PLCM court noted that the in-house counsel was not representing his own personal interest in the litigation for which fee recovery was sought. Id. at 198. Similarly, Gilbert v. Master Washer & Stamping Co., 104 Cal. Rptr. 2d 461 (Cal. Ct. App. 2001), allowed recovery of attorneys’ fees to a lawyer sued in his personal capacity seeking contractual attorneys’ fеes for the representation provided to him by other members of his law firm. Id. at 468. Gilbert noted that the attorney was permitted recovery of fees for work done by others on his behalf where his colleagues represented his personal interest which was separate and distinct from their own or even that of the firm. Id. Here, the two firms had a joint interest in a joint recovery of their attorneys’ fees for their joint representation of the Desais. There is no evidence that either represented a separate and distinct interest of the other. Accordingly, I would reverse the district court‘s award of these fees.