Attorney Fees,  Ethics

Know Who Your Client Is

When you’re suing a client for your attorney fees, it might be helpful to know who your client is. A law firm’s failure to establish that prevents its recovery of fees in Shimko v. Guenther, case no. 05-16847 (9th Cir. Oct. 12, 2007).

The Guenthers were limited partners in two limited partnerships (“the CORF entities”). When the CORF entities were sued, the Guenthers and other owners sought counsel regarding their potential personal liability for the liabilities of the CORF entities. On that much, the parties agreed.

But the Guenthers claimed that the CORF entities were the clients, and that, as limited partners, they were not liable for fees. The attorneys argued the Guenthers were liable because: (1) the owners, not the CORF entities, were the clients so the fees were attributable to representing the Guenthers personally, and (2) even if the fees were for representation of the CORF entities, the Guenthers were liable because the attorneys reasonably believed the Guenthers were general partners.

After a one-day bench trial, the district court entered judgment in favor of the attorneys on claims for contract and action on account, even though it found that the attorneys represented the CORF entities, on the ground that the attorneys reasonably believed the Guenthers were general partners. It did not reach the unjust enrichment claim.

The Ninth reverses. Because advice regarding the personal exposure of the owners was a subject of the engagement, the attorneys had a duty to review the organic documents of the CORF entities to determine if any limited partners had exposed themselves to liability by acting as a general partner. Since those documents identified the Guenthers as limited partners, that information was imputed to the attorneys. Thus, the attorneys could not reasonably believe the Guenthers were general partners.

The attorneys don’t appear to be entirely out of luck. The Ninth remands for consideration of the unjust enrichment claim because the Guenthers are liable to the extent they were billed for services that benefitted them.

UPDATE (10/17/07):   For coverage of this and ethical/professional legal issues generally, the Legal Profession Blog is a good resource.