BIRBROWER MONTALBANO CONDON FRANK v. ESQ BUSINESS SERVICES INC

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Court of Appeal, Sixth District, California.

BIRBROWER, MONTALBANO, CONDON & FRANK, P.C. et al., Petitioners, v. The SUPERIOR COURT of Santa Clara County, Respondent; ESQ BUSINESS SERVICES, INC., Real Party in Interest.

No. H014880.

Decided: September 25, 1996

William J. Elfving,Hoge, Fenton, Jones & Appel, San Jose, for Petitioners. No Appearance for Respondent. Robert W. Ricketson, Hopkins & Carley, San Jose, for Real Party in Interest.

ESQ Business Services, Inc. (ESQ), a California corporation, brought an action against the New York law firm of Birbrower, Montalbano, Condon & Frank, P.C. (the Birbrower firm), for legal malpractice.   The Birbrower firm removed the case to federal court and there filed a counterclaim, California's equivalent of a cross-complaint, seeking its attorney fees under an attorney fee agreement entered into in New York.   After the case was remanded to the state court, ESQ brought a motion for summary judgment or summary adjudication of issues on those causes of action in its complaint and in the Birbrower firm's counterclaim regarding the validity of the attorney fee agreements.   The trial court granted ESQ's motion for summary adjudication of issues, determining that the attorney fee agreements were unenforceable because the Birbrower firm had engaged in the unauthorized practice of law in California.

The Birbrower firm petitioned this court, pursuant to Code of Civil Procedure section 437c, subdivision (l ), for a writ of mandate directing the trial court to vacate its summary adjudication order.   We stayed the trial court proceedings and issued an alternative writ to permit further consideration of the issues raised in the petition, i.e., whether out-of-state attorneys who perform legal services in California, but are not licensed to practice in California, can enforce attorney fee agreements that include the California services.   As will appear, we conclude that they may not.   Accordingly, we shall deny the Birbrower firm's petition for writ of mandate.

FACTS

With respect to the unauthorized practice of law issue,1 ESQ set forth the following facts, which the Birbrower firm agreed were undisputed:  “Defendant Birbrower, Montalbano, Condon & Frank, P. C., is a professional law corporation incorporated in the State of New York with its principal place of business in New City, New York.  [¶] 2. Defendant Kevin Hobbs (‘Hobbs') is an attorney employed by the Birbrower firm.  [¶] 3. Defendant Thomas A. Condon (‘Condon’) is an attorney employed by the Birbrower firm.  [¶] 4. Hobbs has never been licensed to practice law in California.  [¶] 5. Condon has never been licensed to practice law in California.  [¶] 6. No attorney affiliated with the Birbrower [firm] during 1990–1993 was licensed to practice law in California.  [¶] 7. ESQ Business Services, Inc. (‘ESQ’), was and is a California corporation with its principal place of business in Santa Clara County California.  [¶] 8. In or about July 1992, ESQ and the Birbrower firm entered into a ‘Retainer Agreement’ whereby the Birbrower firm agreed to provide certain legal services to ESQ.  [¶] 9. The Retainer Agreement called for the Birbrower firm to provide legal services including ‘All matters pertaining to the investigation of and prosecution of all claims and causes of action against Tandem Computers Incorporated․’  [¶] 10.   The ‘claims and causes of action against Tandem’ related to a contract entitled ‘Software Development and Marketing Agreement’ dated March 16, 1990 (the ‘Tandem Agreement’).  [¶] 11.   Tandem Computers, Incorporated (‘Tandem’) was and is a Delaware corporation with its principal place of business in Santa Clara County California.  [¶] 12.   The Tandem Agreement provided that it was to be governed by and interpreted under California law.  [¶] 13.   In the course of representing ESQ against Tandem pursuant to the Retainer Agreement, the Birbrower firm, through Hobbs and/or Condon, did all of the following:  [¶] a. The Birbrower firm filed a demand for arbitration on behalf of ESQ against Tandem with the San Francisco, California offices of The American Arbitration Association.  [¶] b. In or about August 1992, Hobbs and Condon traveled to California for a series of meetings with ESQ, ESQ's accountants, and Tandem's representatives.  [¶] c. During the course of the August 1992 meetings in California, Hobbs and/or Condon discussed with ESQ and ESQ's accountants various matters regarding the substance of the Tandem dispute and strategy for resolving the dispute.  [¶] d. During the course of the August 1992 meetings in California, Hobbs and/or Condon made recommendations and gave advice concerning strategy for resolving the Tandem dispute.  [¶] e. During the course of the August 1992 meetings in California Hobbs and Condon met with Tandem representatives four or five times over a two-day period.  [¶] f. During the course of the August 1992 meetings in California with Tandem representatives, Hobbs and Condon spoke on ESQ's behalf, setting forth ESQ's positions.  [¶] g. During the course of the August 1992 meetings in California with Tandem's representatives, Hobbs made a demand for payment by Tandem to ESQ in the amount of $15 million and Condon communicated to Tandem his belief that if the matter were litigated, damages could exceed $15 million.  [¶] h. In or about March or April of 1993, Hobbs, Condon, and one other Birbrower firm attorney visited California for the purpose of interviewing potential arbitrators and meeting with ESQ and its accountants.  [¶] i. During the March or April 1993 trip to California, Hobbs met with ESQ and discussed, among other things, various business plans of ESQ and the potential impact of those plans on the dispute with Tandem.  [¶] j. On or about August 30, 1993, Hobbs traveled to California for the stated purpose of assisting ESQ in reaching a settlement agreement with Tandem.  [¶] k. On or about August 30, 1993, and August 31, 1993, while in California, Hobbs met with ESQ and ESQ's accountants to discuss the proposed settlement agreement, met with Tandem's representatives to propose and discuss changes to the proposed settlement agreement, and reviewed and commented on multiple revised drafts of the proposed settlement agreement.  [¶] l. While in California, on or about August 30 and 31, 1993, Hobbs gave ESQ legal advice, including, but not limited to, an opinion that ESQ should not settle the dispute with Tandem on the terms proposed.  [¶] 14.   At no point in the course of the representation under the Retainer Agreement did the Birbrower firm retain or associate any co-counsel.”

The Birbrower firm set forth the following additional relevant facts, which it contended were also undisputed:  that ESQ knew petitioner was not licensed to practice law in California and that the original retainer agreement was executed in New York.

Based on these undisputed facts, the trial court found that (1) the Birbrower firm was “not admitted to the practice of law in California,” (2) the Birbrower firm “did not associate California counsel,” (3) the Birbrower firm “provided legal services in this state,” and (4) “[t]he law is clear that no one may recover compensation for services as an attorney in this state unless he or she was a member of the state bar at the time the services were performed.”   Consequently, the court determined that ESQ was entitled to summary adjudication of the first through fourth causes of action in the Birbrower firm's “ ‘counterclaim’ ” and of the third and fourth causes of action of its second amended complaint, because the underlying attorney fee agreements were unenforceable.2

At the hearing on the motion, the court also noted:  “It seems to me that those are some of the issues that this Court has to struggle with, and then it becomes a question of if they aren't allowed to collect their attorney's fees here, I don't think that puts the attorneys in a position from being precluded from collecting all of their attorney's fees, only those fees probably that were generated by virtue of work that they performed in California and not that work that was performed in New York.”

The Birbrower firm petitioned this court for a writ of mandamus directing the trial court to vacate its summary adjudication order.   ESQ concurred with the Birbrower firm that immediate appellate review of this petition was appropriate;  however, it urged this court to deny the writ application on the merits.   We issued an alternative writ and requested additional briefing from both petitioner and real party in interest, ESQ.   We have considered their briefs and now conclude that the trial court's order was proper, for the reasons stated by the trial court.   Accordingly, we shall deny the Birbrower firm's petition.

DISCUSSION

Business and Professions Code section 6125 3 states that “[n]o person shall practice law in California unless the person is an active member of the State Bar.”   No one in the Birbrower firm was an active member of the State Bar of California or associated with counsel who was.   Thus, if the Birbrower firm “practice[d] law in California,” it did so in violation of section 6125.   This petition raises two questions:  (1) whether the Birbrower firm's activities in California constituted the practice of law, and (2) if so, whether the violation renders the attorney fee agreement unenforceable.

Although the term “practice of law” is not defined by statute, “the cases on illegal practice have given it a most comprehensive meaning.”  (1 Witkin, Cal. Procedure (3d ed.   1985) Attorneys, § 295, p. 331.)  “While courts have experienced difficulty in formulating a precise and all-embracing definition as to what constitutes the practice of law, the one generally accepted is that announced in Eley v. Miller, 7 Ind.App. 529, 535 [34 N.E. 836, 837], and adopted by our Supreme Court in People v. Merchants' Protective Corp. (1922) 189 Cal. 531, 535 [209 P. 363, 365], as follows:  ‘as the term is generally understood, the practice of law is the doing and performing services in a court of justice in any matter depending therein throughout its various stages and in conformity with the adopted rules of procedure.   But in a larger sense it includes legal advice and counsel and the preparation of legal instruments and contracts by which legal rights are secured although such matter may or may not be [ ] pending in court.’  (Emphasis added.)  [Citations.]”  (Agran v. Shapiro (1954) 127 Cal.App.2d Supp. 807, 812, 273 P.2d 619;  accord, Mickel v. Murphy (1957) 147 Cal.App.2d 718, 721, 305 P.2d 993;  People v. Sipper (1943) 61 Cal.App.2d Supp. 844, 846, 142 P.2d 960, overruled on another ground in Murgia v. Municipal Court (1975) 15 Cal.3d 286, 301, 124 Cal.Rptr. 204, 540 P.2d 44;  People v. Ring (1937) 26 Cal.App.2d Supp. 768, 771, 70 P.2d 281;  People v. California Protective Corp. (1926) 76 Cal.App. 354, 359, 244 P. 1089;  Smallberg v. The State Bar (1931) 212 Cal. 113, 119, 297 P. 916.)

 Even a single incident of giving of legal advice for a fee constitutes the practice of law within the meaning of section 6125.   (People v. Sipper, supra, 61 Cal.App.2d Supp. at p. 846, 142 P.2d 960;  People v. Ring, supra, 26 Cal.App.2d Supp. at p. 771, 70 P.2d 281.)   Additionally, it is not necessary that the matter with respect to which the advice was given be pending before a state court.  (Mickel v. Murphy, supra, 147 Cal.App.2d at p. 722, 305 P.2d 993;  State Bar of California v. Superior Court (1929) 207 Cal. 323, 278 P. 432;  People v. Sipper, supra, 61 Cal.App.2d Supp. at p. 846, 142 P.2d 960;  Cohn v. Thompson (1932) 128 Cal.App.Supp. 783, 788, 16 P.2d 364.)

 In the course of representing ESQ against Tandem Computers Incorporated (Tandem) pursuant to the retainer agreement, the Birbrower firm engaged in numerous activities in California.   These activities are set forth in detail in this opinion's statement of facts at pages 859–860 (undisputed facts 13(a) through 13 (l )) and will not be repeated here.   Suffice it to say, these activities clearly constitute the “practice of law” as defined by the above cited California cases.   The Birbrower firm gave legal advice and counsel to ESQ in California, it made settlement demands to Tandem on ESQ's behalf, it assisted in negotiating and drafting a settlement agreement, and it filed a demand for arbitration.   Under California cases defining the practice of law, the Birbrower firm's in-state activities clearly constituted the practice of law.

Since the Birbrower firm practiced law in California without being licensed to practice in this state, it violated the proscription against unauthorized practice contained in section 6125.   We now turn to the second question raised in this writ petition:  does the firm's violation of section 6125 make the attorney fee agreement unenforceable?

To answer this question, both the Birbrower firm and ESQ rely on an ALR annotation entitled “Right of Attorney Admitted in One State to Recover Compensation for Services Rendered in Another State Where he was not Admitted to the Bar.”  (11 A.L.R.3d 907.)   The annotation states the general rule that “an attorney who is not admitted to practice in the state where he performs services is not entitled to recover compensation for such services even though he is admitted to practice in another state.”  (11 A.L.R.3d, § 3 [a], p. 908.)   It also lists exceptions to the general rule.   It is these that the Birbrower firm calls to our attention.

 The first exception concerns practice in federal courts.  (11 A.L.R.3d, § 5, pp. 912–913.)   Several cases, including two in California, have allowed attorneys to recover their fees where the services rendered involved practice before federal courts, reasoning that states have no jurisdiction to purport to regulate practice before the federal courts.  (See e.g., Cowen v. Calabrese (1964) 230 Cal.App.2d 870, 41 Cal.Rptr. 441;  In re McCue (1930) 211 Cal. 57, 293 P. 47;  Spanos v. Skouras Theatres Corporation (S.D.N.Y.1964) 235 F.Supp. 1.)   The Birbrower firm contends that because the ESQ–Tandem dispute was going to be arbitrated before the American Arbitration Association, this was akin to practice before the federal courts.   We disagree.   None of the supremacy issues applicable if a state were to attempt to regulate an attorney's practice in federal courts would apply in the situation where litigants have chosen an alternative forum to resolve their disputes.

 The second exception is labeled “services not involving courtroom appearance.”  (11 A.L.R.3d, § 4, p. 911.)   It states that a few courts have allowed attorneys to recover fees where the services they rendered in the local jurisdiction did not involve courtroom appearances or other actual litigation before the state courts.   The annotation lists two cases applying this exception, and the pocket part lists a third.   In the first, a 1912 case, a New Jersey attorney successfully sued his client in New Jersey for services he provided in a corporate reorganization, even though some of the services were rendered in North Carolina, where he was not licensed.  (Wescott v. Baker (1912) 83 N.J.L. 460, 85 A. 315.)   This case is distinguishable;  for this case to be analogous, the Birbrower firm would have had to sue ESQ in New York for legal services rendered.   In any event, California cases have consistently held that it is not necessary that a matter be pending in state court.   The critical inquiry is whether the unlicensed person rendered legal advice and counsel or prepared legal instruments or contracts by which legal rights were secured.  (Mickel v. Murphy, supra, 147 Cal.App.2d at p. 722, 305 P.2d 993;  State Bar of California v. Superior Court, supra, 207 Cal. 323, 278 P. 432;  People v. Sipper, supra, 61 Cal.App.2d Supp. at p. 846, 142 P.2d 960;  Cohn v. Thompson, supra, 128 Cal.App.Supp. at p. 788, 16 P.2d 364.)   The other two cases employing this exception were Spanos v. Skouras Theatres Corporation, supra, 235 F.Supp. 1, cited in the previous paragraph for also applying the “practice in federal courts” exception, and Dietrich Corp. v. King Resources Co. (10th Cir.1979) 596 F.2d 422.   In both of those cases, however, the out-of-state attorney worked with local attorneys.   Clearly if the Birbrower firm had associated with locally licensed attorneys, its fees would have been recoverable.   All the remaining cases cited in the annotation rejected this exception, as do we.

 A third exception has been made in a “few cases” where the attorney “makes a full disclosure to his client of his lack of local license and does not conceal or misrepresent the true facts.”  (11 A.L.R.3d, § 3[b], p. 910.)   One of the three cases cited is Spanos v. Skouras Theatres Corporation, supra, 235 F.Supp. 1, which also employed the first two exceptions, including the exception for practice before the federal courts that is recognized in California.   The second case, from 1845, allowed a New Hampshire attorney to recover for services rendered in Massachusetts after May 1, 1836, when a revised statute went into effect containing no express prohibition of recovery by an unlicensed attorney.  (Ames v. Gilman (1845) 51 Mass. 239.)   California, in contrast, has a statute, section 6125, which prohibits practice within the state by anyone, including lawyers licensed in other states, who are not members of the California State Bar.   The third case, Freeling v. Tucker (1930) 49 Idaho 475, 289 P. 85, allowed an Oklahoma attorney to recover for services rendered in an Idaho probate court.   The court presumed in favor of the attorney that the court in which he had tried the case had extended to him the right to appear as a matter of comity.

There are no California cases that have applied the “full disclosure” exception, and we reject it.   The exception does not further the important state interest in regulating attorneys who practice law in this state.   An out-of-state lawyer has not established that he or she is familiar with this state's laws and procedures.   Nor is an out-of-state lawyer subject to the disciplinary controls that the State Bar maintains over its members.   Additionally, an out-of-state lawyer has not demonstrated his or her competence before the bar of this state.   It is not in California's best interest to have its citizens subject to the risk of placing their legal affairs into the hands of a person who has not satisfied the requirements for admission to the State Bar and who has not associated with local counsel.

 The last exception upon which the Birbrower firm relies is in cases requiring “interstate representation.”  (11 A.L.R.3d, § 6, p. 913.)   This exception is inapplicable under the facts presented here, however.   The underlying dispute was between Tandem, based in California, and ESQ, also based in California.   ESQ alleged that Tandem violated the Software Development and Marketing Agreement that the parties entered into in California in March 1990.   That agreement specified that “[t]he internal laws of the State of California (irrespective of its choice of law principles) shall govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto.”   Nothing about this dispute was interstate in nature.   Consequently, the exception does not apply.

 Since none of the exceptions apply, the Birbrower firm is subject to the general rule enunciated in the annotation:  an out-of-state attorney who renders services locally is not entitled to recover fees for the local services.   As the court stated in Hardy v. San Fernando Valley C. of C. (1950) 99 Cal.App.2d 572, 222 P.2d 314, “It is unlawful for a person not an active member of The State Bar to practice law in this state.  ( ․ § 6125.)   Practicing without being a member is a misdemeanor. ( ․ § 6126.)   No one may recover compensation for services as an attorney at law in this state unless he was at the time the services were performed a member of The State Bar.  (See 7 C.J.S. 1022, § 165 and cases cited;  5 Am.Jur. 353, § 156 and cases cited;  Anno. 118 A.L.R. 652.)”  (Id., at pp. 576–577, 222 P.2d 314.)   The Birbrower firm attempts to distinguish the facts in this case from the facts in Hardy.   However, it is not the facts in Hardy that dictate its result.   Whether a person may recover compensation for services as an attorney at law requires first and foremost that the person be a member of the State Bar when the services were rendered.   Only if that prerequisite is met do other facts become relevant.

In the instant case, the court has allowed the Birbrower firm to pursue its claim for quantum meruit.   In addition, the court has indicated it sees no impediment in the Birbrower firm recovering the reasonable value of the services rendered in New York.   However, the attorney fee agreement is void and unenforceable for the reason that it includes payment for services rendered in California, to a California client, in a California dispute, between California parties, over a contract entered into in California, which was to be governed by California law.   When New York counsel decided to accept this representation, it should have researched California law, including the law governing the practice of law in this state.   It never associated with California counsel, yet it engaged in numerous acts in California that constituted the unauthorized practice of law in this state.   We conclude that the trial court correctly granted ESQ's motion for summary adjudication of issues.

DISPOSITION

The petition for writ of mandate is denied.

FOOTNOTES

1.   ESQ's separate statement of undisputed facts also set forth facts relating to the content and validity of the attorney fee agreements.   The Birbrower firm agreed that these facts were also undisputed.   We do not set them forth here, however, because the court granted ESQ's motion solely on the basis of its first argument:  that the fees were unenforceable because the Birbrower firm had engaged in the unauthorized practice of law.

2.   Granting summary adjudication on these issues left the following to be decided at trial:  (1) ESQ's malpractice action against the Birbrower firm, and (2) the fifth through seventh causes of action in the Birbrower firm's counterclaim.   The fifth cause of action was for quantum meruit (the reasonable value of legal services provided), the sixth was for damages based on fraud and deceit, and the seventh was for damages for negligent misrepresentation.

3.   All further statutory references are to the Business and Professions Code unless otherwise specified.

COTTLE, Presiding Justice.

BAMATTRE–MANOUKIAN and MIHARA, JJ., concur.