In Dickson v. Mann, No. D081851 (Cal. Ct. App. July 16, 2024), the California Court of Appeal addressed the ownership of funds in a client trust account and whether they were subject to a creditor’s lien. The law firm Higgs Fletcher & Mack LLP (HFM) agreed to represent a client, Jack Mann, on a flat fee basis, placing a substantial sum, $585,000, in the firm’s client trust account. Thereafter, one of Mann’s creditors sought to levy the funds he had paid into the law firm’s trust account. After hearing arguments, the trial court concluded that the money in question was Mann’s and therefore subject to the creditor’s lien, despite HFM’s contention that it was their property based on the flat fee agreement. The Court of Appeal affirmed the lower court’s decision.

True Retainers and Flat Fee Agreements

In Dickson, the Court of Appeal ruled that 1) a flat fee for legal services paid in advance is not earned until the services are rendered; and 2) funds in a client trust account are de facto presumed to belong to the client unless the lawyer or law firm can prove otherwise.

The decision notes a difference between a “true retainer”—a fee paid to ensure the lawyer’s availability during a certain period—and funds advanced for legal services yet to be rendered. HFM argued the $585,000 in the client trust account had been earned because it was paid in conjunction with a flat fee agreement for legal services, which provided that the funds were to be “deemed earned by [HFM]when received.” Thus, HFM claimed the $585,000 flat fee was paid for services and costs for representation in four matters.

However, because the $585,000 was not a true retainer, under the Rules of Professional Conduct, HFM did not actually earn the funds until the contemplated legal services had been provided. Thus, in response to Dickinson’s levy, HFM bore the burden of establishing that it had provided the contemplated legal services to have a viable claim to the money. Because HFM could not show it had provided any legal services, HFM fell short in establishing its superior claim to the money held in trust.  Accordingly, the funds in the client trust account remained the legal property of Mann.

The Rules of Professional Conduct allow flat fees for specified legal services. However, Rule 1.5(d) states that flat fees cannot be designated as “earned on receipt” or labeled non-refundable unless they fit the criteria of a “true retainer,” and the client has agreed to this in writing after full disclosure.

The Rules of Professional Conduct also say flat fees may be paid “in whole or in part in advance of the lawyer providing those services.” But any unearned portion of the fees must be returned to the client in the event “the representation is terminated or the services for which the fee has been paid are not completed.”  

Best Practices for Flat Fees and Client Trust Accounts

The case brings to the forefront several critical lessons for fee agreements between law firms and clients:

Be Wary of Clients with Outstanding Judgments

Law firms face serious risks when representing clients with outstanding judgments, financial issues, and even criminal exposure. As Dickinson reflects, simply denoting a large deposit as a flat fee is not enough to protect the law firm from third party creditors. To this end, while the Court of Appeal found it unnecessary to analyze the issue, trial court in Dickinson, on its own, expressed its concern that the fee flat fee arrangement violated the Uniform Voidable Transactions Act by impairing Mann’s efforts to enforce his judgment. When the prospective client has a judgment or is accused of engaging in conduct rendering their funds “dirty”, the law firm should carefully consider the risk of levy or claw back. Solutions may include having a third party pay with “clean” money or passing on the representation.

True Retainer Clarification

The distinction between a true retainer and a flat fee agreement must be clear and understood by the client, ensuring non-refundable fees are properly categorized and disclosed. A true retainer, as defined by the Rules of Professional Conduct 1.5(d), is a fee “a client pays to a lawyer to ensure the lawyer’s availability to the client during a specified period or on a specified matter, but not to any extent as compensation for legal services performed or to be performed.”

Ownership of Trust Account Funds

Though the presence of funds in a client trust fund does not establish definitively, in all cases, that the funds belong to a client, the Dickson decision reinforces the idea that only funds earned by fulfilling the agreed-upon legal services can be considered the property of the law firm. Until then, funds held in attorney trust accounts remain the property of the client. This means they are subject to levy in the event of a judgment or other creditor action.

Flat Fee Agreements

The court’s ruling may have implications for flat fee agreements and their terms of payment. Because fees may only be transferred out of the client trust account once the fees are earned, a flat fee might be considered unearned—and thus not the property of the law firm—until after the full resolution of the matter for which the firm has been hired. To avoid problems with this issue, the engagement agreement should include payment terms for the flat fee that define when parts of the flat fee will be considered as having been earned (e.g., by periods of time or stages of the case, for example).

Diligent Fund Management

Attorneys are mandated to manage client funds in trust accounts diligently by only claiming funds that are earned and moving them out of trust accounts promptly, as per the ethical guidelines.

The Dickson v. Mann case highlights the pitfalls of flat fee agreements. It underscores the importance of proper handling of client trust accounts and employing precise, client-centric practices in law firm fee agreements and retainers. Law firms are well-advised to stay abreast of these regulations to ensure compliance and uphold the highest standards of professional conduct.

We are thrilled to announce that Alexandra (“Ally”) Borghi has joined the Maloney Firm APC, bringing with her a diverse background and a dynamic presence that is sure to drive our business litigation practice to new heights.

A skilled civil litigator, Ally’s understanding of legal concepts is well beyond her four years in practice. Her successful track record is highlighted by her recent role as second chair in a multimillion-dollar trial, where her courtroom dexterity truly shone through. With a background in torts, business law, contracts, construction, real estate, and insurance litigation, Ally brings a unique international perspective to our firm. Having spent significant time in Italy, Ally is fluent in Italian and conversant in Spanish and French; she’s able to serve an array of clients and navigate the complexities of cross-border legal issues.

Academically, Ally is a standout alumna of the University of San Diego School of Law, where she not only earned the prestigious CALI Award of Excellence but also led as the president of the Entertainment and Sports Law Society. Her undergraduate degree in Political Science from the University of Michigan laid the groundwork for her legal accomplishments.

Away from the courthouse, Ally is passionate about health and fitness, engaging in activities like Pilates, surfing, snowboarding, and long-distance running. She’s not just any hobbyist; she’s fiercely competitive, participating in races from 5ks to half marathons. Ally is also devoted to her community, volunteering at Wags & Walks dog rescue, and showing strong support for her alma mater’s football and basketball teams.

We are excited to have Ally on board at the Maloney Firm, and are confident her talents will bolster client service and provide value to our clients.

The Maloney Firm APC is pleased to announce that Greg Smith has been recognized in the 2025 edition of The Best Lawyers in America®.

 

Best Lawyers in America 2025 Edition

• Gregory M. Smith

Since it was first published in 1983, Best Lawyers has come to be regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 94,000 industry-leading lawyers are eligible to vote (from around the world), and Best Lawyers has received over 11 million evaluations on the legal abilities of other lawyers based on their specific practice areas worldwide. Lawyers are not required or allowed to pay a fee to be listed; therefore, inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

 

Congratulations to Greg Smith on his inclusion in this year’s edition!

We’re thrilled to announce that Susan Freedman has joined The Maloney Firm APC as a senior associate attorney. With extensive courtroom experience, Susan’s practice focuses on business and real estate litigation.

 

Susan is skilled in representing entity and individual clients in the full range of general commercial matters in state court from inception through trial. Her practice includes representation of commercial and residential property owners in a wide variety of litigation, such as breach of lease/contract and wrongful foreclosure, as well as actions involving fraud, partnership and business tort disputes, breach of fiduciary duty, partition actions, and corporate governance and management issues. Susan has experience in obtaining and defending against writs of attachment, temporary restraining orders, and injunctive relief orders.

 

After graduating from Loyola Law School, Susan served as a law clerk to a United States Bankruptcy Judge, Hon. Samuel L. Bufford, Central District of California, and thereafter represented secured and unsecured creditors in bankruptcy, particularly governmental taxing authorities. Susan has represented the Counties of Los Angeles, Santa Barbara, Sonoma, Orange, Riverside, and San Bernardino in the enforcement of property taxes in U.S. Bankruptcy Court. She has participated in dozens of complex commercial cases to verdict and has vast and multifaceted experience.

 

When she’s not practicing law, you can find Susan cooking, strength training, or traveling with her family.

Professionalism and civility are increasingly being recognized as essential components of legal proceedings. Two recent California Court of Appeal cases, Medallion Film LLC et al. v. Loeb & Loeb (2024) 100 Cal.App.5^th 1272 (“Medallion”) and Masimo Corp v. Vanderpool Law Firm, Inc., G061829 (Cal. Ct. App. May 2, 2024) (“Masimo”) join a growing archive of higher court cases in which judges openly criticize the erosion of professionalism in legal proceedings. From pre-litigation communications to the discovery process, these cases demonstrate the detrimental effects of incivility on attorney discipline and financial outcomes. Whether incivility accompanies the loss of motions, sanctions, or even the reduction of an award, recent California Court of Appeal rulings suggest a growing intolerance of poor behavior in litigation. Increasingly, the higher courts are emphasizing that civility is not just a moral obligation, but a professional one that carries significant penalties for failure to comply.

Incivility and Prelitigation Communications

In 2014, the Medallion plaintiffs entered into an agreement with William Sadleir of Clarius Capital Group to assist in obtaining funding for film projects, receiving a fee from the funds raised through their contacts. Clarius agreed not to interact independently with these contacts. When Sadleir allegedly created another entity with the assistance of Loeb & Loeb to secure funding from BlackRock (a Clarius contact), the plaintiffs objected. The plaintiffs emailed BlackRock directly seeking payment of the consulting fee, and Loeb & Loeb responded, denying all legal ties between Clarius and the new entity. The assertions in the Loeb & Loeb letter later proved to be false, prompting the plaintiffs to sue Loeb & Loeb. Loeb & Loeb cited the litigation privilege, among other defenses, to the Anti-SLAPP motion. Initially, the trial court sided with Loeb & Loeb, but the Court of Appeal reversed this decision, finding the plaintiffs had shown a likelihood of success at trial as the claims were not protected under the litigation privilege.

Among other issues, Masimo underscores the ramifications of poor prelitigation communications. Litigation communications must be factual and made in good faith, and Loeb & Loeb’s defense was unsuccessful in part due to the lack of credible, upfront communications. The justices cited the Loeb & Loeb partner’s “bombastic and disproportionate response to an email not even directed to his client” in their decision, claiming the letter was not “made in good faith and serious contemplation but an attempt to dissuade the plaintiffs from making any further inquiries.” The inclusion of this in the published opinion indicates the court believes civility and honesty are not just about good manners, but also crucial to maintaining the integrity and efficiency of legal proceedings.

Challenges to Civility in the Discovery Process

Masimo v. Vanderpool concerns a discovery dispute and the failure to comply with document production requests. During litigation, the Masimo plaintiffs encountered significant and repeated resistance to the discovery process with defendants and their attorneys, the Vanderpool Law Firm (“Vanderpool”). Vanderpool objected on behalf of their clients to Masimo’s discovery requests based on various grounds (i.e., lack of standing, pending criminal matters, and violation of constitutional rights). Despite an agreement reached on behalf of a discovery referee to provide more comprehensive responses, Vanderpool continued to object without substantiation. Shortly after serving supplemental discovery requests, Vanderpool filed forms to withdraw as counsel for the defendants in the underlying case. Masimo then renewed its motion to compel and requested sanctions against all three initial defendants, as well as the Vanderpool Law Firm.

Vanderpool mounted a defense by arguing they had substituted out from the case and could therefore not be found liable for the lack of discovery response. The court rejected this argument, noting that “Vanderpool indisputably advised defendants to stonewall Masimo’s discovery efforts not once but twice, the second time after promising to provide substantive answers.” The court also rejected Vanderpool’s claim that Masimo did not meet and confer before filing their motion to compel discovery, adding that Vanderpool was the one to refuse to meet and confer: “After dodging letters and emails, Vanderpool finally made its refusal to meet and confer explicitly in an email: ‘Your remedy is elsewhere, and an attorney with your billing rate should know that. We are not here to educate you.”

Much of the court’s decision centers on the lack of courtesy in Vanderpool’s discovery communications. Immediately after citing Vanderpool’s snarky email, the court laments that it has “in the past had occasion to deplore the lack of civility that has flourished in the legal profession in recent decades,” and cited several other recent decisions that trace “the deterioration in the way attorneys now address and behave toward each other” (See Lasalle v. Vogel (2019) 36 Cal.App.5th 127; Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 293).

The facts of this dispute were not in Vanderpool’s favor. However, it is impossible to ignore the lasting impression the tone of Vanderpool’s communications had upon the court. The decision cites the “condescending email [Vanderpool] sent to Masimo’s counsel,” the subject line of another email, which read “You are joking right,” and Vanderpool’s assertion that “In 30 years of practice this may be the stupidest thing I’ve ever seen. . . Quit sending us paper.” Of the 11-page decision, two and a half pages are devoted to the topic of civility. Incivility, the justices argue, is a form of bullying that gums up the work of the legal process and costs people money.

Promoting Civility in the Litigation Process

The Medallion and Masimo decisions underscore a broader call within the legal community for a return to more civil behavior. Measures such as the State Bar’s “Civility Toolbox,” and a requirement that new lawyers affirm to “dignified conduct” in their oaths have been implemented in recent years. Though incivility alone does not necessarily lead to attorney discipline (yet), higher court decisions continue to demonstrate the financial impact incivility can have, including a reduction of the prevailing party’s attorney’s fees award due to lack of civility (See Snoeck v. ExakTime Innovations, Inc. (2023) 96 Cal.App.5th 908).

Lawyers must bear in mind that their behavior not only reflects their own character but also serves as a reflection of the legal profession and the judicial system at large. The California Court of Appeal has consistently affirmed that professional courtesy is both an ethical and statutory obligation. Whether manifested through impolite prelitigation communications or discovery gamesmanship, the California courts emphasize the significance of civility in maintaining the effectiveness of the legal process. The key message for business litigation is evident: ethical and civil legal approaches represent the smoother path towards an efficient and fruitful litigation journey. Attorneys and litigants must resist the temptation of unnecessary confrontations, prioritizing professionalism for the benefit of their mental well-being and financial interests.

We are excited to announce that Patrick Maloney has been officially certified by the California State Bar as a Specialist in Legal Malpractice Law. This achievement reflects Patrick’s extensive experience in handling legal malpractice cases and his commitment to delivering top-notch legal services to our clients. This certification strengthens our firm’s dedication to upholding the highest standards in legal representation.

California State Bar Certified Specialists

The California State Bar’s Certified Specialist Program acknowledges attorneys who have exhibited exceptional dedication to a specific area of law and possess experience that surpasses standard licensing requirements. Established as the first program of its kind in the United States, the program seeks to improve public protection, promote attorney competence, and ensure clients receive high-quality legal representation in specialized fields.

Achieving certification as a legal malpractice specialist signifies a strong dedication to quality, competence, and extensive experience. To earn this esteemed recognition, Patrick Maloney successfully navigated a demanding evaluation process, which included examinations and peer reviews, to showcase his expertise in handling complex legal malpractice cases. This achievement places Mr. Maloney among an elite group of attorneys who have satisfied the State Bar’s stringent criteria, highlighting his expertise in this challenging area of law.

The Maloney Firm’s Commitment to Excellence

Patrick Maloney’s certification reflects our firm’s commitment to providing outstanding legal services that consistently meet and exceed our clients’ expectations. This recognition means enhanced expertise in legal malpractice claims, reassuring clients that their matters are handled by a State Bar-recognized professional. Mr. Maloney’s achievement also provides further evidence of The Maloney Firm’s efforts to deliver top-quality legal representation and maintain our clients’ trust in handling complex legal cases.

We are thrilled to announce the addition of Colby A. Meagle to The Maloney Firm’s team of experienced litigation attorneys. With her diverse legal background and artist’s sensibility, Colby will provide innovative solutions for our clients across various industries and practice areas.

 

Colby’s experience spans employment litigation, business law, intellectual property, and dispute resolution. She has represented fashion, entertainment, startup, and corporate clients in trademark, copyright, wage, business matters, and beyond. Her specialized knowledge of art law has seen her work on behalf of artists, galleries, collectors, and arts organizations.

 

When she’s not practicing law, Colby can be found exploring museums, spending time at the beach, or pursuing her own artistic interests. She is a graduate of Pepperdine University School of Law and Elon University, where she studied Fine Arts.