by Robert M. Dato
Lawyers often complain that the world seems out to get them. And there may be some support for this sentiment. For example, in disputes pitting a (usually former) client against a lawyer, often the client gets the benefit of the doubt. See, e.g., Brand v. 20th Century Ins. Co., 124 Cal. App. 4th 594, 606-07 (2004) (finding if a lawyer could have exchanged confidences, “courts will conclusively presume they were exchanged”). But the client does not always win, as a recent California Court of Appeal opinion makes clear. There are two important lessons to be gleaned from this recent opinion, Mancini & Assocs. v. Schwetz, 39 Cal. App. 5th 656 (2019): (1) a former client can’t conspire with her former adversary to settle a matter without the attorney’s knowledge and deprive the attorney of the fees and costs to which he is contractually entitled; and (2) the former adversary cannot use the litigation privilege to protect communications concerning that settlement.
The Facts of the Mancini Case
The author of the Mancini decision is Presiding Justice Arthur Gilbert of the Second Appellate District, Division Six. Presiding Justice Gilbert is famous for the opening lines to his opinions, and this one is no exception: “Of course, on occasion, a client may not fully appreciate the excellent result achieved by her or his attorney. Such an occasion provides the background from which this case arises.” Mancini, 39 Cal. App. 5th at 656.
The “background” of this case is typical. Up to a point.
In 2005, the law firm of Mancini & Associates (“Mancini”) agreed in writing that Mancini would represent Gina Rodriguez in an employment lawsuit against her former employer (NADT) and its principal, Jason Schwetz. As the opinion recounts: “The retainer agreement provided that Mancini’s attorney fees would be 50% of any recovery obtained plus all attorney fees awarded by the trial court. In addition, the agreement provided that court costs would be repaid from any recovery and specifically provided for a lien for Mancini’s fees and costs.” Id. at 658.
(We interrupt our regularly scheduled column for a word (or several) about contingency fee agreements. Such agreements are governed in California by Business and Professions Code section 6147. A contingency fee agreement must be in writing and must contain a statement of the contingency fee rate. However, section 6147 “does not specify the rate an attorney may charge in most cases. Generally, if there is not a specific statutory limitation, the attorney is free to charge whatever contingency rate the attorney and client can agree on, as long as that rate is not unconscionable.” Eugen C. Andres and Jim Moore, Requirements for Client Retainer Agreements, Orange County Lawyer (Dec. 2013). As Messrs. Andres and Moore point out, the contingency fee a lawyer may charge in certain classes of cases is capped by statute. “For example, caps apply to cases on behalf of minors and federal tort claims. There is also a separate code section that sets out a fee limit schedule for medical negligence cases (section 6146).” Id. But none of those exceptions apply to an employment lawsuit like Rodriguez’s, so Mancini’s agreement was presumably valid. In any event, that issue was not discussed in the opinion, perhaps because Rodriguez was not a party to the appeal. We now return to our regularly scheduled column.)
Pursuant to his valid contingency fee agreement, Mancini filed suit against NADT and Schwetz for breach of contract and sexual battery, among other causes of action. In 2008, a jury awarded $68,650 in damages against Schwetz on the breach of contract claim and no damages against NADT. The trial court later awarded over $12,000 in costs and over $136,000 in attorney fees to Rodriguez. Mancini, 39 Cal. App. 5th at 658-59. The total judgment was thus in excess of $216,000.
Despite success at trial, Mancini and its collection attorneys were unable to collect on the judgment on behalf of Rodriguez. Schwetz only offered “nuisance value” settlements. Id. at 659.
At this point, the “typical” facts end.
In January 2014—over five years after the judgment was entered—“Rodriguez contacted Schwetz on Facebook, expressing interest in his well-being and asking if he continued in business. Schwetz responded that he no longer had his tanning salon business and suggested they have lunch. Rodriguez responded that she was ‘single as usual’ and agreed to meet Schwetz for lunch. Following their conversation and lunch, the two resumed their friendship.” Id. at 659.
Cue the foreboding music.
In 2015, one of Mancini’s collection attorneys (Berke) contacted Schwetz by telephone and subpoenaed his bank records. Schwetz called Rodriguez and asked if she had hired Berke to collect the judgment against him. Rodriguez replied she had never heard of Berke.
(We interrupt our column one last time. This case potentially raises the ethical issue of whether an attorney can attempt to collect on a judgment where the client does not want the judgment enforced. But as mentioned above, Rodriguez was not a party to the appeal, and she would be the one to raise that issue, not Schwetz. Mancini’s interests potentially conflicted with those of Rodriguez, but that issue was not before the court. So, once again, back to the column.)
The opinion then recounts: “Schwetz and Rodriguez prepared a document entitled ‘Memorandum of Settlement and Mutual Release’ (Memorandum). The Memorandum refers to the underlying lawsuit and judgment and releases the parties, and their agents and attorneys ‘from all judgments, [etc.] arising out of the Action.’” Id. at 659 (emphasis added). Schwetz then sent a copy of the signed Memorandum to Berke, who forwarded it to Mancini.
Understandably, Mancini was not happy with this turn of events. So Mancini sued Schwetz for interference with contract, among other causes of action. At trial, Schwetz “admitted that he knew there were continuing efforts to collect the judgment and intended the Memorandum to resolve all claims, including Mancini’s attorney fees, against him. Schwetz stated that he provided no consideration to Rodriguez for the settlement and release.” Id. at 660. The trial court found for Mancini and awarded over $400,000 in damages.
Schwetz’s primary argument on appeal was that Mancini’s claims were barred by the litigation privilege (Civil Code section 47, subdivision (b)) because they were based on his settlement communications with Rodriguez. The court of appeal noted that the litigation privilege applies to a “publication or broadcast” that is part of a “judicial proceeding” but does not apply to tortious conduct. According to the court, the “threshold issue” in determining whether the litigation privilege applies “is whether the defendant’s conduct was communicative or noncommunicative.” Id. at 661. Applying that test, the court held Schwetz’s overall course of conduct was not protected by the litigation privilege:
Here, although Schwetz’s act of executing the Memorandum was communicative, it was but one act in a course of tortious conduct to deprive Mancini of its attorney fees. Schwetz spoke with collections attorney Berke and learned that the judgment against him was again the subject of collection. Schwetz then contacted Rodriguez to learn if she had employed Berke. Rodriguez confirmed that she was not seeking to enforce the judgment, had not employed Berke, and did not know that Berke was seeking to collect the judgment. Schwetz was present during the underlying trial and admitted that he knew of the judgment against him. The judgment specifically awarded Rodriguez attorney fees as well as damages and costs. Schwetz’s noncommunicative conduct was not protected by the litigation privilege. Id. at 661.
The Mancini court’s holding is consistent with other cases that apply the distinction between communicative and noncommunicative conduct. One of the first cases to explain the dichotomy was Ribas v. Clark, 38 Cal. 3d 355 (1985). In Ribas, the plaintiff and his wife, who was not then represented by counsel, entered into a court-approved property settlement agreement in a dissolution case. The wife later learned about the adverse tax consequences of the settlement and asked her attorney to secretly listen on an extension telephone while she spoke to her husband. On the basis of information she obtained during the telephone call, the wife moved to set aside the dissolution decree, alleging that her husband had procured the settlement agreement by fraud. The wife’s attorney later testified that, while listening in on the call, she heard the husband state that he had prevented his wife from obtaining counsel during the dissolution proceedings. The husband then brought an action against the attorney for violation of Penal Code sections 631, subdivision (a), as well as common law invasion of privacy and related claims. The Ribas court drew a distinction between eavesdropping in violation of the privacy act and testifying during an arbitration hearing. Accordingly, the court held that the husband could sue the attorney for the statutory civil award authorized by Penal Code section 637.2 (eavesdropping), but that his action was barred insofar as it was based on “his common law right to privacy, because his alleged injury stems solely from [the attorney’s] testimony at the arbitration proceeding.” Ribas, 38 Cal. 3d at 364.
Ribas has been consistently applied since then. See LiMandri v. Judkins, 52 Cal. App. 4th 326, 345 (1997) (cause of action for intentional interference with contractual relations not barred because it was based on tortious course of conduct); Kupiec v. American Int’l Adjustment Co., 235 Cal. App. 3d 1326, 1333 (1991) (causes of action for concealment and misrepresentation of facts in the discovery process were based on communicative acts and thus barred by the litigation privilege).
Schwetz also argued that there was insufficient evidence to support a finding that he knew of the fee agreement between Mancini and Rodriguez. The Mancini court quickly disposed of that argument:
Sufficient evidence and all reasonable inferences therefrom establish that Schwetz knew that Mancini had a fee agreement with Rodriguez and that he intentionally and wrongfully interfered to avoid paying the attorney fees and costs. Schwetz was present during trial of the underlying litigation, received the judgment, and knew that the trial court separately awarded $136,050 attorney fees to Rodriguez. Schwetz also knew that Mancini represented Rodriguez throughout trial. Mancini, 39 Cal. App. 5th at 662.
The facts of the Mancini case are admittedly egregious. But the decision illustrates that courts will not tolerate situations where former adversaries conspire to deprive attorneys of legitimately earned fees and costs. Nor will they allow the litigation privilege to constitute a bar to an action to expose such wrongdoing.
Robert M. Dato is Of Counsel to Buchalter, A Professional Corporation. He is certified by the State Bar Board of Legal Specialization in Appellate Law and his practice focuses on business litigation as well as post-trial and appellate matters. He is a member of the OCBA Professionalism & Ethics Committee. The views expressed here are his own. He can be reached at rdato@buchalter.com.