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January 17, 2008

Sheller v. Superior Court (Farmers New World Life Insurance) (2008) 158 Cal.App.4th 1697

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The Second District holds that trial courts cannot impose attorneys’ fees as a sanction for unethical behavior outside of the statutory scheme.  A trial court cannot reprimand an attorney because disciplinary authority resides solely with the Supreme Court and the State Bar.  A trial court can, however, revoke an out-of-state attorney’s pro hac vice status, under the trial court’s inherent authority to disqualify attorneys in particular cases.

Scott Marks filed a class action lawsuit against Farmers concerning life insurance policies.  The class representative, Pauline Fairbanks, was both a Farmers insured and a Farmers agent.  Texas attorney David Sheller was granted pro hac vice status to be lead counsel in the action.  Because he was concerned that Fairbanks might not be the appropriate class representative he sent policyholders a flyer soliciting a class representative.  The flyer stated that a class representative would be “paid … in an amount set by the judge.” Farmers sought to restrain Sheller from sending further pre-class certification flyers or alternatively to do so only with prior court approval.  Farmers submitted an expert declaration that the flyer violated the California Rules of Professional Conduct.

The trial court expressed concern over the statement concerning payment of the class representative, especially given that a loss could make the representative liable for costs.  Sheller stated in open court that he does disclose this risk to his clients in his retainer agreements, causing the court to remark that he appeared to engage in a “bait and switch” tactic.  Sheller was precluded from further contact absent prior court approval.  The court then set an order to show cause why Sheller’s pro hac vice status should not be revoked.

Farmers submitted further declarations from California and Texas ethics experts to the effect that the flyer violated both states’ ethical codes.  Sheller conceded that the statement concerning payment of the class representative was oversimplified and incorrect.  He explained that he inadvertently overlooked the error and offered to send a corrective statement.  Sheller submitted a declaration of an ethics expert opining that there was no material misrepresentation in the flyer.  To address the court’s “bait and switch” comment, Sheller submitted further evidence, in contrast to his prior statement in open court, that the potential class representative did not face the specter of court costs because he had contractually obligated himself to cover such liability.  The court questioned whether it was ethical for an attorney to agree to indemnify his client for costs that might be imposed against the client; the ethics experts had opposing views on the issue.

The trial court found that the statement the class representatives would be paid for their time was untrue and that Sheller was unethical when he stated in open court that his retainer agreement required plaintiffs be liable for costs in the event the case is lost when he had agreed to reimburse Fairbanks for any costs incurred in the case.  The court exercised its discretion to not revoke Sheller’s pro hac vice status, but imposed a large attorney fee sanction on him.  The court also formally reprimanded Sheller for his conduct.

The Court of Appeal reversed the order for attorneys’ fees and the reprimand.  All courts possess inherent supervisory or administrative powers to enable them to carry out their duties.  Prior to the State Bar Act, attorney discipline was administered by the courts under their inherent judicial power.  Eventually the Act was amended to exclude superior and appellate courts from exercising disciplinary jurisdiction over attorneys, leaving the Supreme Court as the sole judicial entity with jurisdiction over attorney discipline.

The trial court does possess the power to conduct contempt proceedings, dismiss sham actions, admonish counsel in open court, strike sham pleadings, and report misconduct to the State Bar.  A trial court may disqualify an attorney in an action before it.

In contrast to Federal law, under California law, trial courts cannot use fee awards as sanctions apart from those situations authorized by statute.  The power of contempt to sanction attorney conduct guarantees the attorney procedural safeguards and thus due process.  California has a statutory process to impose the sanction of attorney’s fees under certain circumstances which has a precise procedure set forth in the statute.

Although the court did not revoke Sheller’s pro hac vice status, he challenged the court’s authority to do so.  The Court of Appeal noted that in ruling on a pro hac vice application a court should be cognizant of an individual’s right to counsel of choice.  An attorney appearing pro hac vice in California is subject to the jurisdiction of the State Bar and the trial court as it pertains to attorney conduct.

Although the issue has not been decided in California, other jurisdictions have determined that trial courts have the power to revoke pro hac vice status.  Some jurisdictions do so by statute or rule, some on the basis of the inherent power of the court to control admission to its bar and discipline attorneys, and others base the rule on a trial court’s inherent power to regulate practice before it and protect the integrity of its proceedings.

Jurisdictions also differ on conduct that will warrant revocation of pro hac vice status.  Some jurisdictions will do so for any conduct which adversely impacts the administration of justice.  In some jurisdictions, violation of an established disciplinary standard justifies revocation of pro hac vice status.  Other jurisdictions require bad faith of the pro hac vice attorney.  Still other jurisdictions grant trial courts a very broad discretion, which permits revocation of pro hac vice status for reasons which do not amount to misconduct.

The Court concluded that California trial courts’ authority to regulate practice before them and protect the integrity of their proceedings encompasses the authority to revoke an attorney’s pro hac vice status.  The court rule governing pro hac vice status states that the attorney is subject to the jurisdiction of the state courts governing attorney conduct.  A trial court has authority to disqualify an attorney, which, the Court reasoned, is analogous to revocation of pro hac vice status.

The Court of Appeal remanded the case advising that the trial court could consider whether to revoke Sheller’s pro hac vice status.  The Court also suggested that a report to the State Bar might be warranted.

Comment: Sheller appeared to have won the battle but lost the war, as the sanction of revocation of his pro hac vice status is a more severe consequence than the sanction of attorneys’ fees and the trial court’s reprimand.


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