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May 20, 2010

Lockton v. O’Rourke (2010) 184 Cal.App.4th 1051

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The Second District holds that continuous representation ends when a client hires new counsel to represent the client and the attorney takes no further action on the subject matter.  The Court also holds that contractual attorneys’ fees may be awarded to a firm representing itself under a broadly worded prevailing party attorneys’ fee provision in a retainer agreement. 

David Lockton founded Interactive Network, Inc.  (Interactive.) Tele-Communications, Inc.  (TCI) became Interactive’s largest shareholder.  Lockton and Interactive’s board of directors retained Morrison & Foerster (“Morrison”) to fend off TCI’s attempted takeover of Interactive.

Lockton consulted with Michael O’Rourke of O’Rourke, McClosky & Moody, and Richard Schirtzer of Quinn Emmanuel about a proposed lawsuit against TCI and its directors.  Lockton told them that he saw Morrison as a prime defendant in the lawsuit.  O’Rourke and Schirtzer were reluctant to name Morrison.  It was agreed that the complaint would be drafted to preserve the right to sue Morrison through the use of Doe allegations.

O’Rourke’s and Schirtzer’s firms were retained pursuant to separate retainer agreements that listed entities and individuals against whom the firms would prosecute Lockton’s claims, but did not include the Morrison defendants.  Quinn Emmanuel filed the proposed action and it was actively litigated for several years until it settled.

Lockton retained a different attorney to sue the Morrison defendants in state court based on O’Rourke’s advice that he should retain separate counsel to do so.  This action was dismissed primarily on basis of the statute of limitations.

Continuous Representation

Over one year after the state court Morrison case was dismissed, Lockton sued O’Rourke, Schirtzer and their firms for malpractice alleging they failed to timely file a lawsuit against Morrison.  Lockton alleged O’Rourke and Schirtzer continued to represent him in the Morrison dispute even after the Morrison state court action was dismissed, and until within a year of filing the complaint against them.  After numerous demurrers, Lockton filed a fifth amended unverified complaint for constructive fraud, professional negligence, implied contract, and breach of fiduciary duty. The trial court sustained demurrers without leave to amend on the ground that Lockton’s claims were time-barred.

The Court of Appeal noted that the continuous representation rule, codified at California Code of Civil Procedure Section 340.6(a)(2), is a statutory exception that applies only so long as representation continues regarding the specific subject matter in which the alleged wrongful act or omission occurred.  The continuous representation test is objective.  Ordinarily continuous representation is on the same specific subject matter until the agreed tasks have been completed or events inherent in the representation have occurred.

In cases where the attorney unilaterally withdraws or abandons the client, the representation ends when the client actually has or reasonably should have no expectation that the attorney will provide further legal services This may occur upon the attorney’s express notification to the client that the attorney will perform no further services, or, if the attorney remains silent, may be inferred from the circumstances.

O’Rourke and Schirtzer informed Lockton that they did not want to sue Morrison, and that he should retain other counsel.  Approximately 18 months prior to filing suit against O’Rourke and Schirtzer, Lockton did so.  The Morrison complaint was dismissed 13 months prior to filing a complaint against O’Rourke and Schirtzer.  Lockton argued that the ongoing federal case, which contained allegations against the un-served Morrison defendants, established O’Rourke and Schirtzer’s continuous representation tolling the statute of limitations to within a year of filing suit against them.

The Court of Appeal concurred that the oral agreement that O’Rourke and Schirtzer would preserve the right to sue the Morrison defendants in the federal action was sufficient to establish they represented Lockton in the specific subject matter.

However, in earlier versions of the complaint, which the Court refused to disregard under the sham pleading rule, Lockton admitted facts that established that the representation ended more than a year prior to the filing of the claims against O’Rourke and Schirtzer.  Over two years prior to the filing of the complaint, O’Rourke and Schirtzer informed Lockton that they would not name the Morrison defendants in the federal action and that he should retain new counsel to pursue those claims in state court.  Lockton followed this advice, retained other counsel, and filed the state court Morrison complaint 18 months prior to filing suit against O’Rourke and Schirtzer.  After this occurred, O’Rourke and Schirtzer performed no further services related to Morrison.

Thus, the representation of O’Rourke & Schirtzer concerning the Morrison matter ended 18 months prior to Lockton filing a claim against them.  Retention of a new attorney to pursue claims arising from the subject matter in which the malpractice occurred is a factor in determining when continuous representation ends.  Another factor is that O’Rourke and Schirtzer performed no further activities on that subject matter.  The representation ended despite the fact that the federal action contained allegations against the Morrison de-fendants.

The Court of Appeal rejected Lockton’s argument that there would be a conflict if he were forced to sue his attorneys while they still represented him in an action that contained allegations against the Morrison defendants.  Lockton’s assertion that O’Rourke and Schirtzer would have purposefully lost the federal case to defend the malpractice claims against them was speculative.  In addition, Lockton could have utilized various tools, such as a voluntary tolling agreement or a court mandated stay, to avoid any disruption in the attorney-client relationship.  The court also took note that Lockton was himself an attorney and not a typical unwary client whom courts have been constrained to protect.

Attorneys’ Fees

The Court of Appeal also held that Schirtzer and his firm were entitled to fees.  California follows the American Rule which provides that each party to a lawsuit must ordinarily pay his own attorney fees.  Civil Code § 1717 codifies an exception where parties agree to shift fees based on who prevails.  In addition, Code of Civil Procedure § 1021 authorizes an award of fees where, completely apart from Civil Code § 1717, the parties have agreed that fees will be available in the action being litigated.

The Court of Appeal considered whether Quinn Emmanuel was entitled to fees for representing itself.  Although precedent had held that a law firm is not entitled to fees for representing itself because it does not actually incur the fees, the Court of Appeal agreed with Quinn Emmanuel’s argument that the language of its fee agreement, which included as fees time spent by its own attorneys at its prevailing rates, was broad enough to warrant an award of fees under Civil Code § 1021.

The Court of Appeal held that Quinn Emmanuel did not need to allocate between the defense of tort and contract claims.  The gravamen of Lockton’s causes of action was that Schirtzer and his firm agreed to represent him against the Morrison defendants and failed to file a timely action.  These claims raised claims common to both tort and contract causes of action.  It was impracticable, if not impossible, to separate the multitude of conjoined activities into compensable or non-compensable time units.  Since the claims were so intertwined, no allocation was required.

Schirtzer was an individual defendant in causes of action which were so intertwined with the contract causes of action that allocation or apportionment of fees was not required.  The fact that Schirtzer was not a signatory to the contract did not defeat his right to fees.  A defendant is entitled to fees when sued on a prevailing party contract as if he were a party to it, and when a plaintiff would clearly be entitled to attorneys’ fees should he prevail in enforcing the contractual obligation.

Comment: Although the attorneys prevailed on the continuous representation argument in this case, it is noteworthy that the court found they represented the plaintiff in a subject matter based on an oral agreement that differed from their written retention agreement.  This highlights the need to carefully describe the subject matter of the litigation with the client.  Secondly, the case demonstrates that the prevailing party attorney fee clauses in written fee contracts can be broadly worded to give attorneys the right to compensation for the services of their own law firms in the context of attorney-client disputes.


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