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Court of Appeal Rejects Novel Fee-Shifting Argument
Bedsworth Says Former Clients Cannot Recoup Fees They Paid Their Lawyers in an Action Against Them By Former Counsel Who Wanted Their Share of a $39 Million Settlement; ‘Tort of Another’ Theory Fails
By Kimber Cooley, Staff Writer
Div. Three of the Fourth District Court of Appeal has held that former clients cannot recover, under a “tort of another” theory, attorney fees they incurred in defending against an action by lawyers who previously represented them and sued for their share of a settlement.
The funds had been pocketed by the now-bankrupt firm Eagan Avenatti LLP (“EA”) of which Michael Avenatti—convicted in December 2022 of embezzling nearly $11 million from four clients—was a principal partner.
The unpublished opinion, filed Wednesday, was written by Acting Presiding Justice William W. Bedsworth. It affirms a judgment of dismissal that followed Orange Superior Court Judge Walter P. Schwarm’s sustaining of a demurrer without leave to amend to cross-complaint filed by William Parrish and E. Timothy Fitzgibbons against the Los Angeles law firm of Stoll, Nussbaum & Polakov (SNP”).
Justices Eileen C. Moore and Thomas M. Goethals joined in the opinion.
Breakdown of Relationship
The breakdown in the attorney-client relationship began after Parrish and Fitzgibbons received a $39 million settlement, including $15.4 million in attorney fees, in a malicious prosecution suit against their former employer, thermal imaging systems manufacturer FLIR Systems.
FLIR deposited the amount into the account of EA, one of the law firms representing Parrish and Fitzgibbons. Pursuant to a fee-sharing agreement with the other attorneys handing the case, SNP was entitled to 35 percent of the attorney-fee portion of the settlement.
EA failed to transfer anything to SNP, which—along with partner Robert Stoll Jr.—sued Parrish and Fitzgibbons alleging that they assisted EA and Avanatti in stealing SNP’s share of the fees. Parrish and Fitzgibbons filed a cross-complaint alleging breach of fiduciary duty and negligence, claiming that Stoll and SNP were negligent in failing to object to the fees being deposited in EA’s account and claiming as damages any judgment issued against them and the attorney fees involved in litigating the matter.
Fees as Damages
Bedsworth noted the general rule that a client must pay his own attorney fees and such fees are not recoverable as damages against the other party in litigation. Although exceptions exist, the jurist explained, attorney fees qua attorney fees—fees attributable to the bringing of the action—are not an element of damages.
In the present case, he said, “plaintiffs feel they were harmed by having to incur fees, costs, and expenses investigating and uncovering the malfeasance or malpractice of EA, Avenatti, Stoll, and SNP.”
The justice continued:
“The fact appellants circumlocute around, however, is that these expenses were incurred in this very same lawsuit, as a direct result of being sued by SNP and Stoll. To put it differently, appellants were not harmed at all by Stoll and SNP’s conduct until they were sued by them. And the harm only takes the form of having to conduct the work any litigant would have to undertake to defend themselves in litigation. Because the fees incurred in conducting this work are not recoverable damages absent a statutory or contractual fee-shifting provision, there are no damages at all.”
Distinguishing the cases cited by the plaintiffs invoking the tort-of-another damages exception allowing for the recovery of attorneys fees, Bedsworth opined:
“In each of these cases, the fees were incurred for something other than litigating the action, or they were incurred in litigating claims against someone other than the person against whom fees are sought….Appellants can point to no similar other objective or other person against whom they were forced to litigate by dint of SNP’s conduct.”
Assertion Found Irrelevant
The justice dismissed as irrelevant the assertion by Parrish and Fitzgibbons that attorney fees as damages have been found to be recoverable under the tort-of-another doctrine within the same lawsuit in which the fees were incurred. He answered the assertion, saying:
“They are correct, but this point is irrelevant, because…the procedural posture of the case is not dispositive. It is the nature of the fees sought and why they were incurred. This is the missing element in appellant’s case.”
Bedsworth declared that the Parrish and Fitzgibbons suffered no injury and said:
“Appellants contend the malpractice occurred when Stoll failed to tell them he disagreed with the procedure given in the settlement agreement for deposit of the funds, and failed to tell them he would sue them if he did not get paid. Even if these actions fell below the standard of care, how were the appellants damaged? The only damage they can point to is that they were put to the task of investigating and defending/prosecuting cross-complaints in this action. There is nothing more. There are no recoverable damages.”
On June 9, 2022, Schwarm entered defaults against Avenatti and his firm in the underlying case for the unpaid fee and, on June 22, 2022, an Orange County jury found in favor of Parrish and Fitzgibbons, returning a verdict in less than two hours.
On Sept. 6, 2022, Schwarm, having determined that the jury found that Avenatti committed conversion as to the fees, entered default judgment in the amount of $5,367,489.20 against the Avenatti parties.
The case is Parrish v. Stoll, Nussbaum & Polakov, G062005.
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