“Ethics is a club they beat you with…”
Former President of the Association of Professional Responsibility Lawyers
Brawerman v. Loeb & Loeb, Second App. Dist., Div 8, case no. B305802, filed 8/3/22.
The plaintiffs hired the defendant law firm to advise him in a financial transaction. The fee agreement contained an arbitration clause. Defendant law firm had an associate who was licensed in New York but not California work on the matter, contributing 382 hours to the total of 928 billed by the firm. The relationship went south and plaintiffs filed this action against the law firm and the unlicensed-in-California associate for professional negligence and breach of fiduciary duty. Defendants moved to compel arbitration. Before arbitration, plaintiffs discovered the licensing status of the associate and moved to remand the matter to the trial court, arguing that the unlicensed status of the associate meant the entire fee agreement, including the arbitration was clause was void due the fraud. The arbitrator denied the motion, finding the arbitration clause severable. The decision after arbitration found the firm and the associate liable but concluded that the plaintiffs suffered no damages. The award ordered disgorgement of $138,075 in fees paid for the unlicensed associate’s services and $94,933 for the plaintiff’s fees incurred in the arbitration in connection with litigating that issue. The trial court confirmed the arbitration and the inevitable appeal followed.
On appeal plaintiffs again argued that entire fee agreement was tainted with fraud due the associate’s lack of California licensing and the law firm’s ethical misconduct in having the unlicensed associate work on the case. Citing one of the most significant California Supreme Court cases of the recent past, Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59, 72, they contended the ethical misconduct meant the arbitration award must be voided and the matter remanded to the trial court because “the arbitration has been undertaken to enforce a contract that is ‘illegal and against the public policy of the state.” (Sheppard, supra, 6 Cal.5th at p. 73.)
Defendants based their argument on another heavyweight pronouncement from the California Supreme Court, this one from the last century, Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119. Birbrower held that an unlicensed attorney’s illegal practice of law pursuant to the retainer agreement does not render the entire retainer agreement illegal.
In this Clash of the Ethics Titans, the Court of Appeal found Birbrower persuasive and Sheppard distinguishable. They upheld the trial court’s confirmation of the arbitration award. Along the way, they chastised plaintiff’s counsel for not even discussing Birbrower until page 79 of their reply brief and remanded counsel that Rule of Professional Conduct 3.3(a)(2) requires counsel to disclose authority known to be adverse to their position (see Rule 3.3: Another Shot Across the Bow.)
The Court of Appeal demurred on directly addressing the ethics issues involved in the firm’s assignment of an unlicensed associate to provide legal services to a California client in California, despite plaintiffs’ invocation of yet another heavyweight California Supreme Court case In Re Rose (2000) 22 Cal.4th 430. “We are reviewing a lower court’s order confirming an arbitration award, not conducting attorney discipline proceedings. And our jurisdiction has been invoked by appeal, not through any original petition. In re Rose has no application here.” So the question of whether lawyers of the defendant law firm might have violated former Rule of Professional Conduct 1-300(A) (current Rule 5.5(a)(2)) will have to be answered in another forum, if it is to be answered at all.
While it doesn’t exactly fit the mould, Brawerman reconfirms a truth about legal ethics captured in the pithy quote cited above from a former president of the Association of Professional Responsibility Lawyers (APRL). In the civil arena, legal ethics are largely invoked in arguments about money, usually to justify non-payment of money. Here they were invoked in an unsuccessful effort to get another shot at proving up a claim of damages in front of a jury, a jury presumable less lawyer friendly than the arbitrator. It seems unlikely that this case will wind up in the pantheon of Supreme Court Titans, so the plaintiffs will likely have to be content with the disgorgement of fees.