U.S. ex rel. Virani v. Jerry M. Lewis Truck Parts & Equipment, Inc., s. 95-56396

• Decision Date: 10 July 1996
• Docket Number: Nos. 95-56396,95-56456,s. 95-56396
• Citation: 89 F.3d 574
• Parties: , 97 Cal. Daily Op. Serv. 5140, 96 Daily Journal D.A.R. 8286 UNITED STATES of America ex rel. Alnoor VIRANI, Plaintiff-Appellee, v. JERRY M. LEWIS TRUCK PARTS & EQUIPMENT, INC.; Steven Lewis; Robert Holtzman, Defendants, and Hall & Phillips, Appellants. UNITED STATES of America ex rel. Alnoor VIRANI, Plaintiff-Appellee, v. Steven H. LEWIS; Jerry M. Lewis Truck Parts & Equipment, Inc.; Robert Holtzman, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 574

89 F.3d 574

65 USLW 2057, 97 Cal. Daily Op. Serv. 5140,

96 Daily Journal D.A.R. 8286

UNITED STATES of America ex rel. Alnoor VIRANI, Plaintiff-Appellee, v. JERRY M. LEWIS TRUCK PARTS & EQUIPMENT, INC.; Steven Lewis;

Robert Holtzman, Defendants,

and

Hall & Phillips, Appellants.

UNITED STATES of America ex rel. Alnoor VIRANI, Plaintiff-Appellee, v. Steven H. LEWIS; Jerry M. Lewis Truck Parts & Equipment, Inc.; Robert Holtzman, Defendants-Appellants.

Nos. 95-56396, 95-56456.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 3, 1996.

Decided July 10, 1996.

Marc Marmaro, Jeffer, Mangels, Butler & Marmaro, Los Angeles, California, for real party-in-interest Hall & Phillips.

Phillip R. Benson, Newport Beach, California, for plaintiff-appellee.

Fred D. Heather, Troop, Meisinger, Steuber & Pasich, LLP, Los Angeles, California, and Susan B. Myers, McKenna & Cuneo, LLP, Los Angeles, California, for defendants Jerry M. Lewis Truck Parts & Equipment, Inc., and Steven H. Lewis.

Appeals from the United States District Court for the Central District of California, William D. Keller, District Judge, Presiding. D.C. No. CV-89-01302-WDK-Ex.

Before: FARRIS, FERNANDEZ, and THOMAS, Circuit Judges.

FERNANDEZ, Circuit Judge:

The law firm of Hall & Phillips (HP) appeals the district court's order which required Jerry M. Lewis Truck Parts & Equipment, Inc. (Lewis), the defendant in a qui tam suit, to pay statutory attorneys' fees to Alnoor Virani, the qui tam relator, rather than directly to HP. The law firm was Virani's attorney in the qui tam action. At the same time, Lewis appeals the district court's refusal to reconsider the amount of the attorneys' fees award because Lewis contends that improper fee arrangements made the attorneys' fees unreasonable. We reverse the district court's order that the attorneys' fees be paid directly to the qui tam relator rather than directly to the attorneys, but we affirm the district court's denial of Lewis's motion for reconsideration.

STATEMENT OF THE CASE

In February 1989, Virani retained HP to represent him in a qui tam action against Lewis under the False Claims Act (FCA). 31 U.S.C. §§ 3729-3732. The retainer agreement provided that Virani would not pay HP for legal services in connection with the Lewis litigation. The agreement, however, did reserve HP's right to seek court-awarded costs, expenses, and attorneys' fees from Lewis. The agreement further assigned to HP all monetary amounts awarded as costs, expenses or attorneys' fees and provided that HP would have the "ultimate authority concerning the conduct of this litigation, including decisions such as whether to continue to prosecute the case and the terms of any settlement."

On the same day, Virani also entered into an agreement with the Taxpayers Against Fraud (TAF). That agreement bound the parties to act as co-plaintiffs in the Lewis case. TAF agreed to pay the litigation expenses while Virani promised that TAF would receive 40% of any recovery awarded by the court. The agreement further provided that any percentage of the recovery that TAF adjudged to be necessary to pay to counsel would come exclusively out of TAF's share. Some months earlier, in September 1988, TAF had entered into an agreement with HP whereby TAF agreed to pay HP two-thirds of its hourly rate in addition to half of any damages received by TAF in FCA cases. HP had agreed to represent TAF in several FCA cases already in progress and in future FCA cases. Virani claims to have had no knowledge of the agreement between TAF and HP.

In December of 1990, TAF withdrew from this litigation, but before it withdrew it entered into a second agreement with Virani which reaffirmed Virani's obligation to pay 40% of any award to it. In May 1992, TAF entered into a second agreement with HP which superceded the September 1988 agreement. TAF agreed to pay at least a 50% contingency fee in each of TAF's FCA cases. However, the parties also agreed that specific arrangements could be made for any particular lawsuit, and TAF agreed to pay a two-thirds contingency fee in the Lewis litigation.

Virani and Lewis settled the underlying qui tam action, and the court awarded $316,500 in statutory attorneys' fees. During the attorneys' fee litigation, Lewis discovered the arrangements between Virani, HP, and TAF. Lewis asserted that because the fee arrangements were "fraudulent and unconscionable," the statutory attorneys' fee should be lowered. The district court, however, adopted the Report and Recommendation of the Magistrate Judge and rejected Lewis's argument.

After the court awarded the statutory fees, Virani claimed that he was entitled to personally receive the fees because he was unaware of the arrangement between HP and TAF. The district court agreed. It concluded that Virani was entitled to collect the fees himself and determined that it had not retained jurisdiction to determine how the fee ought to be allocated under the fee agreements between HP and Virani. In effect, it allowed Virani to keep the fees, unless HP could successfully obtain them from him in another action.

JURISDICTION AND STANDARDS OF REVIEW

The district court had jurisdiction pursuant to 28 U.S.C. § 1331 and 31 U.S.C. § 3732(a). We have jurisdiction pursuant to 28 U.S.C. § 1291.

"We generally review fee awards for an abuse of discretion." Haworth v. Nevada, 56 F.3d 1048, 1051 (9th Cir.1995); Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268, 273 (9th Cir.1995). However, we review the supporting findings of fact for clear error, but review whether the district court applied the correct legal standard de novo. Price v. Seydel, 961 F.2d 1470, 1475 (9th Cir.1992); see also Parents of Student W v. Puyallup School Dist., No. 3, 31 F.3d 1489, 1498 (9th Cir.1994). Also, we review any element of statutory interpretation involved in the district court's decision de novo. See Haworth, 56 F.3d at 1051. We review a district court's determination that it lacks subject matter jurisdiction de novo. See Seven Resorts, Inc. v. Cantlen, 57 F.3d 771, 772 (9th Cir.1995); Sopcak v. Northern Mountain Helicopter Serv., 52 F.3d 817, 818 (9th Cir.1995).

DISCUSSION

A. Entitlement to Receipt of Fees.

The relationships between Virani, HP, and TAF have generated an issue that courts are rarely required to focus upon. As do many other statutes, the False Claims Act provides for an award of fees to successful plaintiffs. It states, in pertinent part: "Any such person shall also receive an amount of reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs." 31 U.S.C § 3730(d)(1). On its face this seems to say that the plaintiff can recover the attorneys' fee for himself. What then of the attorney? Are not the fees for his services and should not he, if anyone, receive them? It is usually assumed that the answer to the latter question is "Yes, of course, how could it be otherwise." That assumption simply tends to be in the background of decision making about fees. "Yet there are times when someone will ask that a usually unacknowledged part of the background be brought to the forefront and perused before it recedes again into relative obscurity." Larson v. Neimi, 9 F.3d 1397, 1402 (9th Cir.1993). This is one of those cases.

What makes the issue most interesting is that at first blush it appears to present us with a conundrum: if the attorney is entitled to the fee, how can it be that he has no right to ask for it, and if the client has the right to ask for it, how can it be that he has no right to keep it? The answer was suggested by Hohfeld, for as he said, "the term 'rights' tends to be used indiscriminately to cover what in a given case may be a privilege, a power, or an immunity, rather than a right in the strictest sense; and this looseness of language is occasionally recognized by the authorities." Wesley Newcomb Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 Yale L.J. 16, 30 (1913). So it is here. The client's right is really a power to obtain fees for his attorney; the attorneys' right does not come into being until the client exercises that power; the defendant's liability will only arise if that power is exercised. But we are a little ahead of ourselves and will now outline the authorities which appear to create the conundrum in the first place.

The Supreme Court has made it clear that, in general, statutes bestow fees upon parties, not upon attorneys. Evans v. Jeff D., 475 U.S. 717, 731-33, 106 S.Ct. 1531, 1539-40, 89 L.Ed.2d 747 (1986). Those fees can, therefore, be waived by the party himself. Id. As the Court has said, "just as we have recognized that it is the party's entitlement to receive the fees in the appropriate case, so have we recognized that as far as [42 U.S.C. § 1988] is concerned, it is the party's right to waive, settle, or negotiate that eligibility." Venegas v. Mitchell, 495 U.S. 82, 88, 110 S.Ct. 1679, 1683, 109 L.Ed.2d 74 (1990). Thus, the attorney remains at the mercy of the client, who can either demand attorneys' fees from the defendant, or not, as he chooses. If the client chooses not to ask for the fees, the attorney has no standing to request them. See Willard v. City of Los Angeles, 803 F.2d 526, 527 (9th Cir.1986); see also Freeman v. B & B Assocs., 790 F.2d 145, 149 (D.C.Cir.1986). Of course, the attorney cannot then look to the defendant for payment.

On the other hand, weighty authority demonstrates that the client himself is not entitled to keep the fees which are measured by and paid on account of the attorneys' services. The plaintiff cannot collect fees at all unless there is a true attorney-client relationship. That is even true when the plaintiff is an attorney. Kay v. Ehrler, 499 U.S. 432, 435-437, 111 S.Ct. 1435, 1437, 113 L.Ed.2d 486 (1991). The mere fact that the attorneys' labor, even reasonable and skilled labor, is expended on the...