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INSURANCE NOTES

Attorney-Litigants’ Recovery Of Own Fees Is Limited

06.08.2011

This month, two courts addressed the ability of an attorney-litigant to recover its legal fees from another party. In Carpenter and Zuckerman v. Cohen, 2011 WL 1759152 (2011), the Second Appellate District held that a law firm could not recover the costs of its associate as “prevailing party costs” under Code of Civil Procedure § 425.16 (the anti-SLAPP statute). In Richards v. Sequoia Insurance Company, 195 Cal.App.4th 431 (2011), the First Appellate District held that an insurer was not obligated to pay for the time the insureds spent on their own defense. Although the factual settings were different, both courts relied largely on California Supreme Court’s decision in Trope v. Katz, 11 Cal.4th 274 (1995) and its progeny.

In Trope, individual partners of the Trope law firm, acting in pro per, successfully sued the Trope firm’s client to recover unpaid fees. Trope moved for an award of attorneys’ fees under the attorneys’ fees provision of their retainer agreement. The trial court denied the motion on the ground that the firm had represented itself, and the Court of Appeals affirmed. The Supreme Court agreed, finding that an attorney “who chooses to litigate in propria persona and therefore does not pay or become liable to pay consideration in exchange for legal representation cannot recover ‘reasonable fees’ under [Civil Code] § 1717 as compensation for the time and effort he expends on his own behalf or for the professional business opportunities he foregoes as a result of his decision.” The Supreme Court held that to allow pro se attorney-litigants to be paid attorneys’ fees would result in unequal treatment of pro se litigants and such a result was impermissible.
 
After the Trope decision, the Supreme Court in PLCM Group v. Drexler, 22 Cal.4th 1084 (2000) permitted a corporation to recover fees of its in-house counsel. Thereafter, the Court of Appeal in Gilbert v. The Master Washer and Stamping Co., Inc., 87 Cal.App.4th 212 (2001) held that when a partner in a law firm is sued in a matter involving his “personal interests” and is represented by his partner in the law firm, the attorney-litigant may recover attorneys’ fees for services performed by the partner, because the attorney-litigant was not acting in pro per. The Gilbert Court reasoned that a partner in a firm who is represented by others in his firm also incurs “fees” because he will receive reduced income.
 
Following this line of cases, the Carpenter Court held that the law firm was not entitled to recover its fees because the work was done by an associate, a law firm employee, who was “representing the interests of the law firm for which she worked.” There was no evidence that the associate was specifically hired to represent the interests of the law firm clients or to handle that particular matter for the firm. Nor was there evidence that the associate had represented the individuals’ interests, separate from the law firm’s interests. In affirming the reduced the award, the Court stated that “in order to recover attorneys’ fees for work done on behalf of individual attorneys in a law firm, there must be a showing that the fees sought to be recovered are not attributable to representation of the law firm.”

In Richards, the Richards were attorneys who owned a lodge insured by Sequoia. Suit was filed against them and the lodge alleging that negligent service of alcohol contributed to a fatal injury. During the three weeks between tender and Sequoia’s acceptance of tender, they retained a lawyer who agreed to represent them without a retainer, with the understanding that the Richards would do most of work.

Sequoia paid all the fees of the lawyer retained by the Richards and the fees of the attorneys appointed by Sequoia. It also settled the suit. The Richards demanded payment of their own fees as damages from Sequoia’s “denial of coverage and indemnity.” In the ensuing suit, the trial court granted summary judgment to Sequoia on the basis that the insureds could not recover for their own time and that Sequoia had acted expeditiously.
 
The Court of Appeal affirmed, reasoning that the measure of damages for breach of duty to defend is the “costs and attorneys’ fees expended by the insured defending the underlying action,” and relying on Trope vs. Katz, that the Richards’ self-representation was not payment of attorneys’ fees “expended by the insured.”  Citing Sequoia’s “voluntary payments” provision, the Court also noted that Sequoia had not consented to compensating the insureds for their pro per activities.
 
Demands are often made to insurers for payment of an insured-litigant’s own attorneys’ fees incurred during the short period in which the insurer is considering the tender or, in some cases, when an insured intends to self-defend but later recognizes that the claim should be submitted to the insurer. These cases provide support for declining payment for such claims.
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