California Appellate Court Denies Increase In Plaintiff’s Medical Malpractice Attorney Fee Due To Fraud

162017_132140396847214_292624_nIn its unpublished decision filed on February 28, 2017, the Court of Appeals of the State of California Second Appellate District Division Five (“Appellate Court”) affirmed the trial court’s voiding an amended client retainer agreement entered into by the medical malpractice plaintiff, her original medical malpractice attorney, and an additional medical malpractice attorney brought into the case two weeks before the California medical malpractice trial, finding that there was substantial evidence that fraud induced the plaintiff to sign the amended client retainer and therefore the plaintiff had the right to rescind her consent. (Civ. Code, § 1689, subd. (b)(1).)

The plaintiff’s original medical malpractice attorney initially represented the plaintiff in litigation against a hospital and its parent corporation for claims of medical malpractice. Pursuant to the client retainer agreement, the plaintiff agreed to pay her original medical malpractice attorney 40% of any recovery. After several years of litigation, and shortly prior to trial, the plaintiff’s original medical malpractice attorney sought the assistance of an additional medical malpractice attorney to help represent the plaintiff at trial (“additional medical malpractice attorney”).

The parties signed an amended client retainer which increased the contingency fee to 50% percent of the recovery, to be divided as follows: 40% to the original medical malpractice attorney, 40% to the additional medical malpractice attorney, and 20% to “[r]eferring [a]ttorneys.”

The plaintiff prevailed in her underlying medical malpractice case and was awarded compensatory and punitive damages as well as statutory attorney fees. She subsequently settled all of her claims with the medical malpractice defendants for a total of $8 million (the California medical malpractice jury had awarded the plaintiff $2,359,753 in compensatory damages and $65 million in punitive damages, which the trial court later reduced the punitive damages amount to $5 million and awarded $1,500,512.50 in statutory attorney fees).

While the parties’ appeals with regard to the underlying California medical malpractice case were pending, the plaintiff and her medical malpractice attorneys executed an amended referral attorney authorization that provided that the contractual attorney fees arising from the plaintiff’s claims against the medical malpractice defendants would be divided as follows: 50% each to the original medical malpractice attorney and to the additional medical malpractice attorney, with no mention of a referring attorney.

The plaintiff then sued for declaratory relief against her original medical malpractice attorney and her additional medical malpractice attorney, arguing that the increase in the contingency fee was improper and that the amended client retainer was voidable. The plaintiff alleged, inter alia, that her medical malpractice attorneys misrepresented the existence of a referring attorney in the amended client retainer and violated the California Rules of Professional Conduct.

As the result of a trial, the court found in favor of the plaintiff and against her medical malpractice attorneys on all of her causes of action, including four violations of the California Rules of Professional Conduct. The trial court ruled that the amended client retainer was void, that the defendants were entitled to a 40% contingency fee to be shared equally, and that the defendants were not allowed to collect statutory attorney fees. The defendants appealed.

The Appellate Court affirmed the trial court’s findings and determinations because (a) there is substantial evidence that fraud induced plaintiff to sign the amended client agreement, and (b) the settlement agreement extinguished any right to statutory attorney fees.

The Appellate Court affirmed that the plaintiff signed the amended client retainer agreement under duress and without informed consent: she did not have any realistic option other than to agree to the amended client retainer agreement (the amended client retainer agreement was signed two weeks prior to trial; the original medical malpractice attorney advised the plaintiff she needed to bring in the additional medical malpractice attorney in order to succeed at trial; in reality, the original medical malpractice attorney needed the additional medical malpractice attorney because she could no longer fund the case; the plaintiff relied on her original medical malpractice attorney and was not a sophisticated client; the plaintiff was not in a position to bargain over the increased contingency fee; and, the additional medical malpractice attorney stood firm on his demand for a 50% contingency fee).

The Appellate Court held that the plaintiff’s medical malpractice attorneys violated Rule 2-200(A)(1) because the fee-splitting provision regarding a referral attorney was not true (the reference to a referring attorney was not true). The amended client retainer agreement falsely indicated the reason for increasing the contingency fee was “due to the nature and complexity” of the underlying case but the actual reason was that the original medical malpractice attorney needed the additional medical malpractice attorney to “help fund the case.” The amended client retainer agreement also violated Rule 2-200(A)(2) because the increase in the contingency fee was to comply with the additional medical malpractice attorney’s demanded rate.

The Appellate Court further agreed with the trial court’s findings that the original medical malpractice attorney did not advise the plaintiff that the amended client retainer agreement would create a circumstance in which the original medical malpractice attorney would have an adverse pecuniary interest to the plaintiff, and that the original medical malpractice attorney failed to advise the plaintiff in writing to seek an independent lawyer’s advice prior to signing the amended client retainer agreement.

The Appellate Court held that because the amended client retainer agreement was prepared in violation of four Rules of Professional Conduct, it was illegal, and that the amended client retainer agreement was procedurally and substantively unconscionable. The Appellate Court held that the trial court properly voided the amended client retainer agreement because there was substantial evidence that fraud induced the plaintiff to sign the amended client retainer agreement and the plaintiff had the right to rescind her consent.

Source Rosenberg v. Gallagher, B268944.

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This entry was posted on Monday, March 13th, 2017 at 5:15 am. Both comments and pings are currently closed.

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