February 16th, 12-1pm
Client Trust Accounts – New Reporting and Management Requirements
This presentation will provide guidance to attorneys regarding proper trust account procedures which the California State Bar enacted beginning January 2023.
This presentation has been approved by the State Bar of California for 1.0 hour of Participatory MCLE Credit, including 1.0 hour of Legal Ethics credit.
Maloney Firm attorneys Patrick Maloney and Carl Mueller represented Cen Xu, Ph.D. in defense of claims that she breached her fiduciary duties as a corporate officer and director of a biopharma startup company when she decided to end her affiliation with the entity. The Plaintiff, GCX Innovation, Inc., claimed that as a result of Dr. Xu’s departure, it lost $10,000,000 in venture capital funding. GCX sought $10,000,000 in damages, claiming Dr. Xu’s departure caused loss of value to its business.
After three weeks of testimony, the jury deliberated for less than an hour before unanimously finding that Dr. Xu was not liable because she had not breached any fiduciary duty to GCX.
Maloney Firm founder Patrick Maloney commented “we are pleased to have secured a favorable outcome for Dr. Xu, and we are honored she had the faith in our firm to vindicate her interests at trial.”
By Carl I.S. Mueller, Esq. and Patrick M. Maloney, Esq.
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Download a PDF version of this article here
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In its recent Interim Formal Opinion, No. 20-0005 (the “Opinion”), the State Bar of California Standing Committee on Professional Responsibility and Conduct (the “Committee”) considered the ethical implications of conversion clauses within contingency fee agreements. “[A] conversion clause is a contractual provision that, if triggered, converts the fee due to a lawyer from that contingent fee to an alternate fee arrangement.” In its interim status, the Opinion is not yet binding and subject to the standard review and approval process. However, a wise practitioner will avoid a conversion clause, if at all possible, after reading the Committee’s repeated warnings about ethical limits on them:
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Conversion clauses are ethically permissible only where they do not interfere with the client’s right to discharge the lawyer or the client’s right to determine whether to settle, and where they would not result in an unconscionable fee.
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The Committee considered what fees a lawyer could seek via a conversion clause without running afoul of Cal. Rules of Professional Conduct (“CRPC”) 1.5’s limit on unconscionable fees. A contingent fee agreement often anticipates that attorneys may obtain a windfall if they are successful, and they are allowed to do so based on the risk they undertake in the contingent fee arrangement. As such, a conversion clause should not entitle an attorney to more than the contingent fee. Furthermore, it is likely unethical to allow an attorney to seek more than the reasonable value of the attorneys’ services when they are reallocating the risk back to the client:
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[I]t is the view of the committee that any conversion clause which purports to entitle a discharged contingent-fee attorney to more than quantum meruit is likely to be ethically prohibited, and the circumstances in which such a conversion would be ethically permissible are rare. Further, it is the view of the committee that a conversion clause which seeks to entitle a contingent-fee lawyer to any fee in circumstances under which that contingent-fee lawyer would otherwise be legally disentitled to recover a fee in quantum meruit, is ethically prohibited.
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Further, many clients who seek contingent fee representation lack the financial means to pay for hourly representation. As such, a large attorneys’ lien on a case resulting from a conversion clause may effectively bar a client from finding alternative contingent fee representation.
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[A] conversion clause triggered by the termination of the lawyer (whether initiated by the lawyer or the client) which purports to entitle the lawyer to a noncontingent fee regardless of whether the contingency actually occurs or in what amount, is likely to be ethically prohibited for improperly burdening a client’s right to discharge their lawyer.
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Similarly, when conversion clauses are triggered by a client’s refusal to accept settlements at certain values, the Committee found that the conversion clause likely violates CRPC 1.2’s edict that attorneys must allow clients to determine whether and how to resolve their cases.
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It is the view of the committee that the requirement imposed by rule 1.2(a), that “a lawyer shall abide by a client’s decision whether to settle a matter,” is clear and unwaivable, and its elimination by contract is simply not permitted under rule 1.2(b). [Citation omitted]. Conversion clauses keyed to the acceptance or rejection of settlement offers are ethically prohibited, except in rare and narrow circumstances.
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While the Opinion states that a conversion clause is “not ethically prohibited per se” and might be allowable in “rare and narrow” circumstances, the Committee unfortunately failed to illuminate any circumstances where a conversion clause was appropriate. Instead, the Committee provided five hypothetical scenarios, each describing improper conversion clauses.
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Contingency fee clients can become extremely dissatisfied with their representation when, at the conclusion of a case, they find out that they will receive a very small or no net recovery due to high costs and attorneys’ fees. In those instances, clients are more likely to make bar complaints or seek other redress against their attorneys. Unsurprisingly, lawyers may be tempted to utilize a conversion clause in these same situations. A wise practitioner will simply take their lumps, knowing that the financial gain of a conversion clause is not worth the increased risk.
About the Author:
Patrick M. Maloney represents clients in business disputes. Mr. Maloney has served as lead trial counsel in bench and jury trials in state and federal courts and in arbitration. If you have questions regarding this article contact Patrick Maloney at pmaloney@maloneyfirm.com.
Carl I.S. Mueller is a business litigation attorney that represents clients in all phases of civil litigation. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.
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The Maloney Firm is pleased to welcome Betzy Bras-Gonzalez to our Litigation Department.
Prior to joining the Maloney Firm, she worked at a boutique law firm as a litigation associate working on, inter alia, employment and landlord-tenant disputes. Betzy has experience in all facets of litigation, including but not limited to: discovery, motion practice, and trial.
Learn more about Betzy’s practice here.
By Carl I.S. Mueller, Esq., The Maloney Firm, APC
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Download a PDF version of this article here
As many small business owners are aware, there has been a rash of cases filed in California suing business owners for violations of the Federal American with Disabilities Act (“ADA”) and California’s Unruh Civil Rights Act (the “Unruh Act”), arising from alleged barriers to access by those with disabilities. These lawsuits oftentimes force defendants to pay settlements to frequent-filer plaintiffs over, often-times, extremely technical violations of the statutes. The ADA and Unruh Act both apply to a business’ physical location as well as its website.
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Following several Federal Circuit Courts, the California Court of Appeal ruled in Martinez v. Cot’n Wash, Inc., that the ADA and Unruh Act only apply to websites that maintain a “connection to a physical space,” i.e., websites for brick-and-mortar businesses. The ADA and Unruh Act regulate places of “public accommodation,” requiring that they are equally accessible to those with disabilities. However, after substantial legal analysis, the Court of Appeal concluded that a website that does not correlate to a brick-and-mortar business is not a public accommodation. Thus, unless a website for an online-only retailer is intentionally discriminatory, its operator cannot be sued in California for failing to provide adequate accessibility for disabled.
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Defendant Cot’n Wash is an online retailer of cleaning products. Cot’n Wash does not “offer any products and services at any physical location, or in any manner other than through its website.” Plaintiff Abelardo Martinez, Jr. (who is now deceased) was a blind man who allegedly attempted to utilize Cot’n Wash’s website but could not do so due to his disability. Pacific Trial Lawyers is a law firm that files many ADA and Unruh act cases, and they represented Martinez in this case alleging that Cot’n Wash’s website lacked programming to make it compatible with Martinez’ screen reader software. Martinez alleged that this constituted a “policy and practice to deny blind users […] equal enjoyment of and access to the website.”
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Cot’n Wash challenged Martinez’ First Amended Complaint via demurrer, asserting that Martinez failed to state a claim because Cot’N wash lacked a brick-and-mortar location. The trial court agreed with Cot’n Wash, sustaining the demurrer without leave to amend.
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The Court of Appeal affirmed the ruling on demurrer. As a matter of law, the effects of a facially neutral policy, such as a website that is not intentionally programmed to deny accessibility to blind users, cannot be the basis of a violation of the Unruh Act. Therefore, the only pathway to liability for Martinez was a finding that Cot’n Wash’s website was a public accommodation.
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However, following the Third, Sixth, Ninth, and Eleventh Federal Circuit Courts, the Cal. Court of Appeal held that “websites are not public accommodations under the ADA, but a denial of equal access to a website can support an ADA claim if the denial has prevented or impeded a disabled plaintiff from equal access to, or enjoyment of, the goods and services offered at the defendant’s physical facilities.” While this decision does not settle the split between the Federal Circuit Courts (the First, Second, and Seventh Circuits hold that websites are public accommodations), it does resolve the issues in California’s state courts. In California, online-only retailers are free from liability under the ADA and Unruh Act for failing to make their websites accessible.
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Overall, all business owners, including online-only businesses, should continue to strive for accessible physical and online facilities. It is good business, as a more accessible business allows for more customers. Further, businesses in California with a brick-and-mortar presence must avoid ADA and Unruh Act liability. Sadly, the highly technical requirements of the ADA and Unruh Act means most business will be unable to ensure they are incompliance without the aid of outside professionals. However, Certified Access Specialists (“CASp”) and various web design professional exist to offer inspection, design, and compliance services to help business owners comply with the requirements of the ADA and Unruh Act.
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About the Author:
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Carl I.S. Mueller is a business litigation attorney that represents clients in all phases of civil litigation. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.
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Co-authored by Carl I. S. Mueller, Esq. and Gustavo Silvestre Boldrini, Esq.
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Intervention can be a useful tool when your clients’ rights or interests may be affected by the outcome of a suit they were not named in. The importance of intervening correctly and being admitted to the suit prior to engaging in litigation were recently highlighted by a Second District appellate decision.
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The Second District Court of Appeal issued an appellate decision on Pierre Richard v. James A. Frieden and Denise Tukes (Super. Ct. L.A. County, 2020, No. 19STCV44270) affirming the trial court’s ruling that the plaintiff in a malicious prosecution case lacked standing because he had not been named or properly intervened in the underlying lawsuit. Accordingly, the Court held that plaintiff had no probability of prevailing and could not defeat an anti-SLAPP motion.
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Pierre Richard (the plaintiff) and Louise Clare were beneficiaries of the Bennett Trust. Denise Tukes is Louise’s daughter. The Bennett Trust and the Pitts Trust co-owned real property and agreed to its sale in 2006. However, over a decade passed with no progress on the sale. Initially to aid her mother and then based on a promise from the trustees, Tukes committed herself to finding a buyer for the property. Tukes dedicated herself full time, going as far as dropping out of college. Eventually, she succeeded in finding a buyer, and the property sold for $13 million. When Tukes asked the trustees for a finder’s fee, they declined.
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Tukes filed suit in 2018, naming the trustees of each trust only. Although he was not named in the suit, Richard filed an answer. As a beneficiary of the Bennett Trust, Richard sought to defend against the claims to protect his own interests in the trust. Richard did not seek leave of court to intervene in the case, nor did the other parties recognize him as a party to the suit. The trial court subsequently designated Richard as a “non-party.” In 2019, Tukes filed a request for dismissal as to the Bennett Trustee and “any claims against Richard.” The case was then moved to federal court where it eventually settled. Tukes filed a dismissal with prejudice as to the Pitts Trustee.
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In December of 2019, believing that the initial suit against the trustees by Tukes was frivolous—despite never having actually been sued by Tukes—Richard filed a malicious prosecution claim against Tukes and her attorney, Frieden. In response, Tukes and Frieden filed anti-SLAPP motions pursuant to Cal. Code of Civil procedure (“CCP”) § 425.16(b)(1). They argued that filing the Tukes action for a finder’s fee was protected petitioning activity, and, as a non-party therein, Richards lacked standing and thus could not show a probability of prevailing on a claim for malicious prosecution. The trial court agreed. The trial court granted Tukes and Frieden $49,071.50 and $26,905 in attorney fees, respectively. Richard appealed.
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The Court of Appeal upheld the trial court’s decision, finding that Richard was not a party to the underlying action and therefore lacked standing to bring a malicious prosecution claim. The Second District Court of Appeal stated that an individual not named may seek leave to intervene in a suit, but doing so requires the party wishing to join the suit to obtain the Court’s permission. Richard failed to do so.
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Alternatively, courts have excused an interested parties’ failure to ask for permission to join a suit where the other parties to the suit have accepted the intervention. In Traweek v. Draper, (1956) Cal.App2d 119, 122, the failure to comply with CCP § 387 was excused because the parties treated the complaint of a non-party as being valid. Similarly, in Tyrell v. Baldwin, (1885) 67 Cal. 1, individuals not named in the original complaint filed an answer and were acknowledged by the plaintiffs as being parties to the suit. When judgement was rendered against the new defendants, they challenged their status as parties. The appellate court in Tyrell rejected the challenge of the new defendants, stating that they had been successful in their intervention “… by tacit consent”. Id. No such facts exist here. Richard was not accepted into the suit by the parties and was deemed a “non-party” by the court.
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Proper intervention by an individual into a matter can be attained via CCP § 387 or, in certain circumstances, by the behavior of the parties. Failing to properly intervene in an action that concerns your rights or your client’s rights can have severe consequences down the road. As such, when faced with a case that matters to you, seek leave to intervene from the court.
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About the Authors:
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Carl I. S. Mueller is a business litigation attorney that represents clients in all phases of civil litigation. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.
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Gustavo Silvestre Boldrini is an associate in the firm’s business litigation group. He is experienced in all aspects of litigation, including early case strategy and evaluation, discovery, depositions, law and motion practice, mediations, and trial preparation.
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By Carl Mueller, Esq., The Maloney Firm, APC
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Potter Handy LLP (“Potter Handy”) has long been a scourge to Southern California small businesses. Using repeat “serial filers,” Potter Handy has filed thousands of lawsuits against small businesses under the Americans with Disabilities Act (“ADA”) and the California Unruh Civil Rights Act (“Unruh Act”). While ADA legislation applies nationwide, Potter Handy’s business model succeeds in California because violations of the Unruh Act result in $4000 civil penalties. According to a recent lawsuit, Potter Handy leverages the Unruh Act’s civil penalty—and a prevailing party attorney’s fees provision—to bully defendants into settling lawsuits, regardless of the lawsuits’ merit. Undoubtedly, the ADA and Unruh Act ensure necessary access for disabled Americans; however, Potter Handy’s abuse of their statutory schemes serves only themselves at the expense of small businesses.
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The California legislature has attempted to curb this abuse of the Unruh Act in the past, making it more difficult for serial filers to bring claims for construction-related barriers in California’s state courts. However, these procedural rules do not apply to claims filed in Federal Courts, which has led Potter Handy—and many other serial ADA/Unruh Act case filers—to relocate its construction-related cases to Federal Court.
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Ultimately, the California legislature has failed to protect the public from predatory law firms like Potter Handy. Because the legislature has not found an effective solution, the District Attorneys for the Counties of Los Angeles and San Francisco (together, the “DAs”) sued Potter Handy to stop its abusive practices. The lawsuit, styled as People of State of California v. Potter Handy LLP, et al, San Francisco Superior Court Case No. CGC-22-599079, alleges that Potter Handy violated Bus. & Prof. Code § 17200 in its repeated filings of ADA and Unruh Act claims in federal court. Specifically, the DAs allege that Potter Handy and its attorneys violated Bus. & Prof. Code § 6128(a)’s bar on deceiving the courts, as well as Cal. Rules of Professional Conduct 3.1 (requirement of bringing meritorious actions) and 3.3 (duty of candor to the court) by making false claims relating to standing under the ADA and Unruh Act. The DAs claim that Potter Handy’s repeated and intentional breaches of these laws and rules form the basis of the civil claim under Bus. & Prof. Code § 17200.
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This lawsuit presents hope and practical help to California’s business owners trying to avoid paying Potter Handy’s settlement demands. While the DAs may succeed in this lawsuit, it’s impossible to predict the outcome of any litigation. Rather, the real value of the complaint is the detailed legal and factual analysis of Potter Handy’s litigation weaknesses. The DAs’ complaint provides a veritable roadmap to defend against Potter Handy’s lawsuits. Even if the DAs’ lawsuit ultimately fails, the research and investigation shortcuts provided in the complaint makes defending against Potter Handy more cost effective for all litigants moving forward.
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However, the economics of the situation remain unchanged, and still heavily favor Potter Handy. As observed in the DAs’ complaint:
Because it regularly costs between $50,000 and $100,000 to defend against an ADA/Unruh lawsuit, small “mom and pop” businesses have little choice but to submit and pay Potter Handy to leave them alone.
While the DAs’ complaint can’t effectively stop Potter Handy right now (indeed, Potter Handy seems determined to defend the case, having already filed papers seeking to have the lawsuit dismissed), hopefully it will help a few businesses defend against Potter Handy in the short term. Over time, the DAs may prove the winner, simply by making it harder for Potter Handy to bully California’s small business owners into settling meritless claims.
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About the Author:
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Carl Mueller is a business litigation attorney that represents clients in all phases of civil litigation. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.
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Congratulations to our Founding Partner Patrick Maloney, who has been profiled in the LA Times’s 2022 Business of Law Magazine as a “Legal Visionary.” Read his full profile at this link.
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This month, Patrick and the Maloney Firm also celebrated the firm’s tenth anniversary, and firm attorneys Gregory Smith, Carl Mueller, and Elizabeth Schaus‘s selections to the 2022 Super Lawyers Rising Stars list.
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On July 1, 2022, minimum wages in several cities and localities across California are scheduled to increase. Employers should comply with local wage rates and update their minimum wage postings accordingly.*
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Learn more about minimum wage rates across California at:
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*With some exceptions, California Employees must be paid the minimum wage as required by state law. Many local entities in California (ie. cities and counties) have adopted ordinances establishing a higher minimum wage rate for employees working within their jurisdiction. When local minimum wage rates exceed the state minimum wage, employers are required to comply with the local wage rate.
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This June, we proudly celebrate The Maloney Firm’s 10th anniversary. We extend our sincere gratitude to the nearly 700 clients from across the globe who have entrusted us with their legal needs, and we look forward to many more years of success.
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