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September 30, 2014

Hernandez v. Siegel (2014) 230 Cal.App.4th 165

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The First District holds attorneys representing a plaintiff in a successful employment discrimination lawsuit are entitled to interest accrued on fees and costs awarded by the court. 

Nimachia Hernandez retained attorneys Dan Siegel and Ann Weills to represent her in an employment discrimination lawsuit.  The fee agreement provided attorneys would be paid the greater of attorneys’ fees specifically awarded by court through settlement, or forty percent of the net recovery (including attorneys’ fees awarded by the court or through settlement), after payment of the costs.

The court awarded Hernandez attorney’s fees and costs after she prevailed .  Siegel deposited the fee award plus accrued interest in the firm’s client trust account.  Hernandez demanded she receive all fees and costs, and sued for breach of fiduciary duty and breach of contract.  The trial court concluded the attorneys were entitled to the interest paid and the costs.

The Court of Appeal held nothing in the law or fee agreement supported Hernandez’s claim that interest belongs to the client instead of the client.  The purpose of post-judgment interest is to compensate for the time value of the money pending payment.  It would make little sense to pay interest to anyone other than to the attorney whose labor remains uncompensated.  Hernandez’s interpretation would make it challenging for a FEHA plaintiff to find competent counsel.  Unless an agreement provides otherwise, interest belongs to the attorney who owns the fee judgment.

Cost awards for costs advanced by the attorney also belong to the attorney.  The California Rules of Professional Conduct allow an attorney to advance the costs of prosecuting a claim, with repayment contingent on the outcome .

Comment:  This dispute may be avoided by detailed discussions with prospective clients about client rights and obligations, and by careful drafting of retainer agreements.

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