BEDSWORTH, Acting P. J.
When an attorney sued his client for fees while still representing him, the Supreme Court of Nevada called the conduct "egregious." (Clark v. State (1992) 108 Nev. 324, 325.) And that was a case where the fees might have been incurred in an unrelated matter. How much more egregious is it when the suit is for accumulated fees in the very case in which the attorney is still representing the client?
That is this case. But here's the twist: The client has expressly, and in writing, consented to the continued representation by an attorney in the law firm that sued him. The client is also willing to testify he got independent counsel before making the waiver. Does that mean the trial judge's order disqualifying the attorney was an abuse of discretion?
We think not. California law is quite explicit in specifically giving a trial judge broad discretion, in the "furtherance of justice," to control the conduct of attorneys in her courtroom. (See Code Civ. Proc., § 128, subd. (a)(5);
This litigation began in December 2009, when Joseph Rajabi and Ali Sadiri sued Frydoun Sheikhpour for fraud. Essentially, they claimed each of them had invested substantial sums (Rajabi, $400,000, Sadiri, $215,000) to become part owners, along with Sheikhpour, in a gas station near Disneyland.
The complaint alleged that back in 2007 Shiekhpour had a gas station empire of 12 stations, and sought out investors to expand his empire to include a new, 13th, station near Disneyland, complete with a sandwich franchise, a taco location, a lotto station, and a Western Union station. The two investors allege that Sheikhpour took their money and used it either for his own personal investments or for his other stations. Causes of action included a claim for intentional fraud.
By April 2010, Sheikhpour was being represented by a Beverly Hills attorney. But in August 2010, the Beverly Hills attorney was substituted out, and the law firm of Bleau Fox (Thomas P. Bleau and Martin R. Fox) was substituted in as Sheikhpour's counsel. In turn, Bleau Fox directed Samuel T. Rees, officially "of counsel" to the firm, to work on the case. The case got more complicated as a former Sheikhpour partner, Hedayat Abedi,
In October 2012, a "fee dispute" — and the record is not more clear than that — arose between Bleau Fox and Sheikhpour. Most or all of the disputed fees, as tacitly acknowledged in the opening brief, were for work done by Rees. As a result, in November Sheikhpour substituted himself in as his own lawyer, and Rees ceased to represent Sheikhpour. In December, Bleau Fox sued Sheikhpour for its unpaid fees in Los Angeles Superior Court. About nine months later, in September 2013, the firm obtained a judgment for about $300,000. Though the record is not explicit, it appears it was a default judgment. Also in September 2013, the firm of Bleau Fox sought to intervene on its own behalf in the case before us to protect its fee claim. In that motion to intervene, Rees, no longer representing Sheikhpour, now represented Bleau Fox. The intervention motion was denied, and Sheikhpour continued on in propria persona.
However, in February 2014, Bleau Fox again sued Sheikhpour. This time the suit was for Sheikhpour's fraudulently conveying his house to his wife. Apparently Bleau Fox's theory was that the transfer was intended to hinder Bleau Fox's ability to collect the judgment it had just obtained against Sheikhpour.
Two months later, in April 2014, Rees substituted into the combined Rajabi-Abedi actions, again as Sheikhpour's attorney, with Sheikhpour waiving any conflict arising out of Rees' relationship to the Bleau Fox firm. Upon his substitution (back) into the case, the trial judge, on her own motion, set an order to show cause as to why Rees, given his relationship to Bleau Fox, shouldn't be disqualified. The Rees-Sheikhpour opposition papers contained a clear statement that Sheikhpour was willing to waive any conflict of interest between him and Rees. The papers were predicated on Rees' being independent of Bleau Fox, despite Rees'"of counsel" status. They did not contain a statement that Sheikhpour had sought out and obtained wholly independent counsel on the matter of the advisability of making that waiver. However, at the hearing on the disqualification motion in May, Rees made it clear that Sheikhpour was willing to take the stand and testify he did have such independent counsel.
The trial judge refused the offer, and disqualified Rees. Now both he and Sheikhpour, each ostensibly in propria persona, have jointly filed this appeal.
Preliminarily, we dispense with any notion that Rees'"of counsel" relationship with Bleau Fox represents a sufficiently existential separation between Rees and Bleau Fox to make him a functionally separate lawyer from Bleau Fox. Rees' of counsel status most certainly does not obviate his identification with Bleau Fox. Sands & Associates v. Juknavorian (2012) 209 Cal.App.4th 1269 (Sands) held it was irrelevant that lawyers who were "Of Counsel" to a law firm were the attorneys for the firm in its attempt to obtain attorney fees as a prevailing party in litigation against one of the law firm's clients (another "fee dispute"). The Sands court left no doubt about the connection between a lawyer who is "of counsel" to a firm and the firm itself: "[W]e conclude that, in recovering the unpaid attorney fees from Juknavorian, Of Counsel were pursuing the interests of the Sands firm and their own personal interests; the firm and Of Counsel had the same interests." (Id. at pp. 1273 & 1296.)
The "Of Counsel" arrangement could not circumvent the rule of Trope v. Katz (1995) 11 Cal.4th 274, which held that in order to collect fees as a prevailing party, a party must actually incur those fees; the party can't get fees for its own legal work. (See Sands, supra, 209 Cal.App.4th at p. 1281.) The Sands court reiterated the fundamental identification between "of counsel" and the law firm in even plainer terms: "[B]ecause the relationship between a law firm and `of counsel' is close, personal, regular, and continuous, we conclude that a law firm and `of counsel' constitute a single, de facto firm, and thus a law firm cannot recover attorney fees under a prevailing party clause when, as a successful litigant, it is represented by "of counsel." (Sands, supra, 209 Cal.App.4th at p. 1273, italics added; accord, SpeeDee Oil, supra, 20 Cal.4th at p. 1153.)
Therefore, for purposes of evaluating the disqualification motion, we must conclude Rees was effectively a member of Bleau Fox. That presents a situation where, in effect, a law firm has sued its own client for accumulated fees in the very case in which it continues to try to represent the client.
Cases involving lawyers who have sued current clients are reassuringly sparse. (See In re Simon (N.J. 2011) 206 N.J. 306, 312 [noting "dearth" of case law on the issue].) The parties have cited none.
In In re Simon, an attorney represented a client in a criminal case, who was referred to the attorney by the client's brother. The attorney thought the brother was good for the fees, which, after the client was indicted, quickly reached $50,000. (Id. at p. 308.) But the brother could only raise $10,000 from a refinancing of his home and even after he sold his home and paid another $10,000 he was still $50,000 short on a bill that now amounted to $70,000. (Ibid.) When the brother told the attorney he was tapped out, the attorney decided his client should "`take a plea.'" (Ibid.) He also wrote the brother to say he was going to seek to be relieved of counsel if suitable payment arrangements were not forthcoming, and was also going to sue for it. The attorney was true to his word — he sought to be relieved of counsel — but the trial judge denied the motion. The attorney then appealed the denial of the motion to be relieved, and also filed suit against his client for the balance of his fees — now up to $75,000 — against the brother, the client, and the client's mother. Shades of the present case, the client's own family transferred their home to another family member (presumably to avoid a judgment for the attorney fees), but when the judge learned of the suit for fees, he changed his prior order and relieved the attorney. (Id. at pp. 309-310.) As an added bonus, the judge referred the whole matter to the state's attorney ethics authority. The attorney obtained an arbitration award for $55,000 against the brother and the client's mother — which apparently was never paid — and the matter of the suit for fees soon reached an ethics committee panel, which concluded he had violated the state's rules against current conflicts of interest rule by suing a "present client." It recommended a six-month suspension (a review board reduced his discipline to a reprimand). (Id. at pp. 312-313.)
The matter was taken to the state Supreme Court. It held the attorney had clearly placed himself in an adversarial relationship with his client, thus jeopardizing his ability to represent that client with the "`utmost zeal'" and dividing his loyalty. (In re Simon, supra, 206 N.J. at p. 318.) His conduct could not "be tolerated." (Id. at p. 321.) Nor could the suit be excused as a mere procedural device to get out of the case by "creating a conflict." (Id. at p. 319.) So the high court affirmed the reprimand recommendation. (Id. at p. 321.)
Interestingly enough, one justice dissented, noting the "Hobson's choice" faced by attorneys: "[a]lready in a financial hole, they are forced to hopelessly continue to dig themselves into a yet deeper and potentially bottomless financial abyss." (In re Simon, supra, 206 N.J. at p. 321-323, conc. & dis. opn. of Rivera-Soto.) The dissenting justice thought the attorney still guilty of an "infraction" of the state's rules of professional conduct, but he felt that infraction was not worthy of formal discipline. (Id. at p. 321.)
The consequences of suing a current client were somewhat greater than a mere reprimand in Clark v. State, supra, 108 Nev. 324. There, a client engaged an attorney to defend him in a murder case, agreeing the fees would come out of a personal injury settlement coming the client's way. But a medical lien on that settlement was overlooked. When the clinic sued to enforce its lien, the attorney cross-complained against the client and his wife to collect his fees, and obtained a default judgment against them. The opinion is unclear as to whether the judgment was for accumulated fees in the criminal defense or for work in the personal injury case.
In post-conviction proceedings the client alleged his attorney's suit against him rendered the attorney's representation ineffective, and the Nevada Supreme Court agreed. (Clark v. State, supra, 108 Nev. at pp. 325.) The high court found the notion of suing a current client for fees to amount to "an egregious conflict of interest." (Id. at p. 325.) In fact it went so far as to hold "the appearance of impropriety and potential for adverse consequences were so great here" that prejudice was to be conclusively presumed requiring the conviction itself to be vacated. (Id. at pp. 327-328.)
We need not belabor the potential for raw conflict that inheres in the case before us. Trying to represent someone at the same time you're suing them seems to present obstacles so obvious and numerous as to defy full delineation. We could go on for paragraphs if the existence of the conflict were the issue. But this case is different in that Sheikhpour is willing to waive the conflict, thus it distills to the issue of whether the obvious and, under Clark v. State," egregious" conflict, is waivable.
We conclude it is not. There is a per se rule against waivability when it comes to actual, as distinct from merely potential, conflicts. The underlying premise is that the client can never really waive the conflict, because the client will never be fully informed about its ramifications. As the court said in Klemm: "As a matter of law a purported consent to dual representation of litigants with adverse interests at a contested hearing would be neither intelligent nor informed. Such representation would be per se inconsistent with the adversary position of an attorney in litigation, and common sense dictates that it would be unthinkable to permit an attorney to assume a position at a trial or hearing where he could not advocate the interests of one client without adversely injuring those of the other." (Klemm, supra, 75 Cal.App.3d at p. 898.) The advice of outside counsel cannot be relied upon to cure the problem because outside counsel cannot know the case as well as the attorney who has nurtured it for years and cannot be relied upon to possess the clairvoyance necessary to anticipate the twists and turns it will take in the future.
Here, Bleau Fox was — literally — Rees' client when Bleau Fox sought to intervene in this action, then turned around and purported to resume representing Sheikhpour. There can be no doubt Bleau Fox and Sheikhpour have actual adverse interests vis-à-vis each other: Bleau Fox wants to collect on its judgment (which, to repeat, is based mostly on Rees' own work), and Sheikhpour may be assumed to want to keep as many assets as he possibly can so as to be able to one day settle with Rajabi and Sadiri, and maybe Bleau Fox as well. In that regard, it must be noted that Rajabi and Sadiri's claims against Sheikhpour are based on fraud, and thus not dischargeable in bankruptcy. By contrast Bleau Fox's claims are based in contract and are dischargeable.
So we also consider the asymmetry of the respective claims of Bleau Fox on the one hand and Rajabi and Sadiri on the other. Normally, attorneys do not sue clients for fees until after the case is over, and only then if they are extremely sure of the quality of their work or extremely foolhardy. That puts attorneys at a natural disadvantage vis-à-vis competing creditors of their client in cases where the client faces the likelihood of losing big to the creditors and doesn't have the assets to pay both the attorneys and the creditors. Assuming an unwillingness on the client's part to keep the attorneys' bills absolutely current, the attorneys face an end game in which they are likely to have to write off all or a portion of what they think the client owes them. Justice Rivera-Soto thus had a valid point in his dissent in In re Simon: Attorneys can often find themselves digging into a financial hole with little hope of emerging with their fees paid.
Moreover, it is also likely that attorneys in a situation like Bleau Fox (or the attorney in In re Simon) have insider information about the client's assets. And so the temptation becomes great to launch a preemptive strike in the form of a suit against the client for accumulated unpaid fees, so as to grab as many of the client's assets as might remain before the claimants can get hold of them — particularly if the client is unable to pay for subsequent counsel to stave off that lawsuit. It appears that Bleau Fox succumbed to that temptation, including striking before Sheikhpour could find alternative counsel to defend the firm's fee claim against him. Beyond that, there is an inference that in suing Sheikhpour, Bleau Fox hoped to levy on assets based on a claim that bankruptcy law would make dischargeable before Rajabi and Sadiri could levy on them based on claims that are not dischargeable. The upshot is that Bleau Fox injected their own, private and collateral, claims into the normal administration of justice in an effort to obtain an inequitable bankruptcy "preference" by which they are favored over other creditors.
The attempt really is, as Klemm said, "unthinkable." The trial judge's decision to disqualify Rees was thus reasonable even if Sheikhpour had had independent counsel prior to waiving the conflict with Rees.
We hasten to add we ground our decision strictly in the statute that gives courts inherent power to control the officers of the court (i.e., attorneys) who appear in their courtrooms. Section 128, subdivision (a)(5) gives courts authority to control the officers who appear before them in the "furtherance of justice" as regards "every matter pertaining thereto." Disqualifying attorneys who purport to represent clients they are currently suing for fees in the very matter before the courts in order to further justice certainly comes within the ambit of that statutory authority.
The appeal in G050362 is dismissed as moot. The disqualification order that is the subject of the appeal in G050361 is affirmed. In light of that affirmance, we need not discuss Rees and Sheikhpour's ancillary request that we vacate all the work of the trial court after the disqualification order.
Respondents shall recover their costs on appeal. One final word: We affirm the trial court's decision based on section 128, subdivision (a)(5), and not pursuant to any violation of the Rules of Professional Responsibility, e.g., rule 3-310 [basic rule against attorney conflicts] or the ethics opinions of any local bar association. In light of Sheikhpour's waiver and offer to testify he had independent counsel, our decision does not address the issue of whether Bleau Fox or Rees violated any ethical rules applying to the legal profession. Any violation of ethical rules is for another day and another tribunal. It is enough to say the trial judge acted reasonably pursuant to her statutory authority to control the attorneys in her court.
FYBEL, J. and IKOLA, J., concurs.
Nevertheless, Klemm also had something to say about the nature of unwaivable conflicts which we will quote below.
