Attorney fees belong to attorneys, California court rules.

Court-awarded attorney fees belong to "the attorneys who labored to earn them," even if there is no written fee agreement as the Rules of Professional Conduct require, the California Supreme Court concluded in a case of first impression. The decision reversed a First District Court of Appeal ruling that attorney fees in discrimination cases go to "the prevailing party," which that court defined as the plaintiff. (Flannery v. Prentice, No. S080150 (Cal. Aug. 13, 2001).)

Leslie Flannery sued her former employer, the California Highway Patrol, alleging sex discrimination in violation of the state's Fair Employment and Housing Act (FEHA). The act provides for reasonable attorney fees and costs, including expert witness fees. The jury awarded $250,000 in damages, and the trial court awarded over $900,000 in attorney fees and costs.

Flannery believed she was entitled to the entire statutory fee and sued her attorneys, John Prentice and John Scott of San Francisco, for declaratory relief, breach of fiduciary duties, legal malpractice, and constructive fraud. She said she and the attorneys had an oral agreement that entitled them to only 40 percent of the net settlement or net jury award. She alleged that they did not advise her of the terms and conditions of their representation and failed to get her informed consent to a fee agreement.

The attorneys counterclaimed that the contingency agreement with Flannery provided that they would receive either "40 percent of the amount recovered from a jury verdict or the entirety of statutory fees that might be awarded."

The trial court granted the attorneys summary judgment, concluding that Flannery was not entitled to the attorney fee award and that there had been no malpractice. The court of appeals reversed, reasoning that attorney fees awarded under FEHA [section] 12965(b) belong "to the prevailing party," in this case, Flannery.

The state supreme court reversed. In a majority opinion written by Judge Kathryn Mickle Werdegar, it concluded that "party" commonly refers to either the actual litigant or the litigant's attorney. The court found that state precedent awarded proceeds of statutory awards, "absent a contractual agreement validly disposing of them," to the attorneys who did the work.

This conclusion, Werdegar wrote, is consistent with the legislative intent of the statute, which was meant to encourage lawyers to take cases of public significance without potential for large damage awards.

"Attorneys considering whether to undertake cases that vindicate fundamental public policies may require statutory assurance that, if they obtain a favorable result for their client, they will actually receive the reasonable attorney fees provided for by the legislature and computed by the court," she wrote.

At the time the statutory language was enacted, "California courts, including this court, had determined that courts awarding attorney fees, including statutory fees, could pay them directly to the prevailing litigant's attorney," she wrote. In a 1982 case, the state supreme court had established that "awards are properly made to plaintiffs' attorneys rather than to plaintiffs themselves." In enacting and amending FEHA, the legislature "has not repudiated these precedents," said Werdegar.

She also noted that interpreting the statute to mean that attorneys are to receive attorney fees will "advance important public policies." She said that the court's interpretation will

* encourage representation of legitimate FEHA claimants and discourage non-meritorious suits

* avoid unjustified windfalls, in which a victorious litigant gets to keep the proceeds of a fee award as well as a damages award

* ensure fairness (for example, if statutory fees went to litigants instead of attorneys, it would transform the award "into a kind of punitive damages" for the entity paying it)

* address ethical concerns (for example, allowing litigants to keep attorney awards could be viewed as improper sharing of legal fees by nonlawyers)

* encourage written fee agreements.

Dissenting Judge Joyce Kennard argued that the majority ignored the plain meaning of the act. "According to the majority, however, the statute does not mean what it says," she wrote. "`Prevailing party' does not mean prevailing party but prevailing lawyer."

She also faulted the majority for disregarding precedents set by several federal cases. The majority opinion asserted that federal court decisions and statutes were not relevant.

Defendant Prentice said the decision means, "Thousands if not tens of thousands of people in the future will be able to find attorneys to take their cases."

Flannery's attorney, Lawrence Hensley of Sacramento, said the whole thing could have been avoided if Prentice and Scott had explained how legal fees work at the outset.

The supreme court remanded the case to the trial judge to resolve the dispute over details of the oral agreement.