How to Avoid a Reccius Referral

 

Welcome to information about the case of Suzanne Natbony v. Benjamin Reccius, Reccius Law, and Kimball, Tirey, St. John, LLP. This case is about how Mr. Reccius fraudulently induced Ms. Natbony to refer clients under the guise of Mr. Reccius’ promise to pay a 25% referral fee to Ms. Natbony and then allegedly failed to include the Rule 2-200 consent in the legal services agreements with the clients as a way to shirk his responsibility to pay the fee, while misrepresenting to the client to prevent Ms. Natbony from obtaining the requisite client consent.  Below is the appellate brief in the case, which is currently under appeal:

 

APPEAL BRIEF

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I. INTRODUCTION AND SUMMARY OF PROCEEDINGS BELOW

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The upcoming trial de novo on October 12, at 8:30am involves an appeal of a judgment entered on July 28, 2021, against Defendant Benjamin Reccius (“Defendant”)  in the above-referenced smalls claims case.  (Exhibit A)  This case arose from a promise by  Defendant to pay Plaintiff Suzanne Natbony (“Plaintiff”)  a referral fee of twenty-five percent (25%) of all fees earned on a landlord/tenant case she referred to Defendant, which was confirmed in writing. (Exhibit B, pages 10-11)  Plaintiff and her staff spent over 20 hours on the initial workup of the referred case and attempted to help the client with self-help measures regarding his dispute, including locating an attorney who specialized in landlord/tenant disputes who would handle the client’s matter on contingency when those measures were unsuccessful.  (Exhibit C-D)  Upon settlement of the case, Defendant failed to pay Plaintiff the agreed upon referral fee and after several attempts to resolve the dispute informally, this action followed.

At the first hearing, Defendant first denied the existence of any fee-sharing agreement with Plaintiff, but when confronted with undisputed documentary evidence of it, he admitted that there was an agreement but then argued that it was unenforceable due to purported non-compliance with California Rule of Professional Conduct 2-200 (“Rule 2-200”).  The court below also heard testimony from Plaintiff and received additional documentary evidence that Defendant had falsely advised his clients that it was illegal for Plaintiff to collect a referral fee on a landlord/tenant case.  In response, Defendant presented two self-serving declarations from his clients wherein they declined to authorize any referral fee to Plaintiff.  However, Defendant failed to produce his clients to testify at the hearing below and both clients failed to appear pursuant to Plaintiff’s subpoenas so that they could be cross-examined on the statements in their declarations.

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Defendant is expected to argue at the trial de novo that the court below applied the incorrect law, but that argument clearly fails on this record.  The court below had overwhelming documentary evidence that Defendant agreed to pay Plaintiff 25% of his fee earned in the underlying matter as a referral fee, notwithstanding Defendant’s self-serving testimony to the contrary.  The Court, as factfinder, was well within its discretion to assess the credibility of Defendant’s testimony and disavow it considering his unequivocal written promise to pay Plaintiff a 25% referral fee.  (Exhibit B, pages 10-11)  The court below was well within its discretion to credit Plaintiff’s credible testimony that Defendant promised to insert the required language regarding her referral fee in his retainer agreement with the clients to comply with Rule 2-200 and that he had communicated false information about the legality of such a fee to his clients when he refused to pay it to Plaintiff after the case settled.  Due to his failure to produce his clients at the hearing to be cross-examined about the statements in their declarations, the Court could properly infer that the declarations were procured because of that same false information and were not dispositive as to the enforceability of the referral fee to Plaintiff.  Finally, the Court had clear evidence that Defendant actively prevented Plaintiff from complying with Rule 2-200 when he instructed her not to communicate directly with his clients. (Exhibit B, pages 12) 

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Additionally, Defendant presented no evidence at the hearing below of his actual fee earned on the underlying case to rebut Plaintiff’s claim that she was owed a referral fee of $10,000.00, such as his retainer agreement with his clients, or offering the settlement agreement up for in camera review by the court, even though Plaintiff subpoenaed those very documents from Defendant.  Incredibly, Defendant now intends to argue for the first time on appeal that the amount of the judgment is speculative because there were no findings by the court below as to his hourly rates or the actual fee he earned on the matter.  Such an argument is beyond specious as the only reason why there were no such findings by the court was Defendant’s failure to present such evidence at the proceeding below.  This blatant attempt at a second bite at the apple only underscores the bad faith of Defendant’s appeal, as it clearly was filed only to delay Plaintiff’s right to collect her fees and to encourage her to abandon her claim.  Defendant’s gamesmanship has also resulted in a substantial waste of judicial resources to the extent that this issue could have been adjudicated in the proceeding below.

 

II. FACTUAL SUMMARY

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In the summer of 2017, James Hadgis approached Plaintiff’s associate counsel, Gregg Fowler (“Mr. Fowler”) about representing him and his wife in a dispute with their landlord.  Mr. Fowler assisted Mr. Hadgis with self-help measures, but when there was no settlement and Mr. Fowler was too busy to take the case, Mr. Fowler referred the case to his associate counsel.  Plaintiff advised Mr. Hadgis that she does not take matters on a contingency fee basis but agreed to vet their claims and search for an attorney who specialized in landlord/tenant disputes who would take their case on a contingency fee basis.  From September 2017 through March 2018, Plaintiff and her firm spent approximately 20 hours reviewing the Mr. Hadgis’ claims, searching for qualified counsel who would take their case on contingency, and assisting Mr. Hadgis with self-help measures regarding their dispute in the meantime.  (Exhibits B-C, D)  Plaintiff did not charge Mr. Hadgis for these services because she intended to negotiate a fair referral fee with the attorney who eventually agreed to take on the case.

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In February 2018, Plaintiff located Defendant, an attorney who specialized in landlord/tenant cases, and approached him about representing Mr. Hadgis and his wife on a contingency fee basis.  Defendant expressed interest in the referral and agreed to represent Mr. Hadgis and Ms. Robe on contingency.  Defendant also agreed to pay a referral fee to Plaintiff of 25% of the fees he earned on the matter and agreed to include language about the fee division with Plaintiff in his retainer agreement with the clients to comply with Rule 2-200.  (Exhibit B, pages 10-11)

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Over the next two years, Plaintiff referred more cases to Defendant in exchange for the payment of referral fees.  During this time, Plaintiff also checked in regularly with the clients as Ms. Robe had originally preferred a female attorney to represent them.  Plaintiff and Mr. Hadgis had agreed that Plaintiff would be available to consult with Defendant at any time on the case if a gender issue arose.  (Exhibit E, page 23)  In early 2021, after receiving no response from Defendant or his clients on the status of the case, Defendant emailed Plaintiff, instructing her not to contact his clients and denying the existence of any fee sharing agreement.  (Exhibit B, pages 12)  Specifically, Defendant asserted that his clients had not provided written consent to any fee division between Plaintiff and Defendant.  (Id.)  After additional attempts by Plaintiff to get Defendant to honor their contract were unsuccessful, Plaintiff had no choice but to initiate the instant action.  (Exhibit F)

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III. ARGUMENT

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A. Barnes Governs the Enforceability of the Referral Fee Agreement at Issue Here

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At the hearing below, the court advised the parties that it knew the relevant law governing the enforceability of fee sharing agreements between lawyers in California.  Defendant argued (after the court rejected his patently false and easily disprovable claim that no fee sharing agreement existed in the first place) that any promise to pay Plaintiff a referral fee was unenforceable because his clients had not provided written consent to divide his fee with Plaintiff, relying primarily on Margolin v. Shemaria (2000) 85 Cal.App.4th 891.  Defendant presented no evidence beyond his self-interested testimony and the suspect declarations from his clients in support of his argument that Margolin controlled.  Indeed, Defendant did not even attempt to introduce his retainer agreement with his clients to confirm that it did not in fact contain any language regarding the referral fee he promised to pay to Plaintiff.   Aside from his own uncredible testimony, Defendant presented no evidence in the proceeding below to rebut Plaintiff’s evidence that he prevented her from complying with Rule 2-200 after he used the purported non-compliance with the rule as a sword to justify not performing under his agreement with Plaintiff.

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Under the facts presented here, Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal.App.4th 172 controls.   In Margolin, the plaintiff attorneys represented a client in a family law matter and during that representation, learned that the client had potential tort claims against her husband.  Margolin, 85 Cal.App.4th at 896.  Plaintiffs referred their client to the defendant, who agreed to represent plaintiffs’ client in a tort claim against her husband.  Id.  The parties orally agreed to a division of fees earned in the tort action and the defendant orally promised to include the fee division in his retainer agreement with the client in compliance with then Professional Rule of Conduct 2-200.  Id.  After defendant successfully recovered his attorneys’ fees from the client in the tort action, he refused to pay plaintiffs any portion thereof.  Id.  Plaintiffs sued defendant for breach of contract and sought 50% of the defendant’s fees earned in the tort action.

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In holding that the fee sharing contract was unenforceable, the Margolin court held that under the facts of that case, nothing prevented plaintiffs from obtaining their client’s written consent to the fee-sharing agreement with defendant in the tort action, such that the defendant was equitably estopped from asserting non-compliance with Rule 2-200 as a defense to any purported fee-sharing agreement.  The court observed that plaintiffs, as licensed attorneys, are charged with knowledge that Rule 2-200 requires actual, written consent to the fee division and that their reliance on defendant’s oral promise to obtain the written consent to the fee division required under the rule was unreasonable.  Id.  at 901.

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However, in Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal.App.4th 172, the court of appeal noted that the considerations in Margolin do not apply when a referring attorney is prevented from complying with Rule 2-200 by the attorney to whom she referred the client.  In Barnes, the plaintiff referred a potential class action to defendant, an attorney who specialized in prosecuting class actions.  Barnes, 212 Cal.App.4th at 174-175.  The parties agreed to split all legal fees earned in the prosecution of the class action.  Id.  The defendant subsequently obtained class certification and refused to pay any portion of the fees he earned on the class action to plaintiff.  Id.  Plaintiff sued defendant for their share of the legal fees from the class action, arguing that defendant was equitably estopped from using Rule 2-200 as a defense to the fee-sharing agreement.  Id.

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The court of appeal, in reversing the trial court’s decision in favor of defendant following a bench trial, held that the record demonstrated that the defendant had actively prevented plaintiff from complying with Rule 2-200 and obtaining written authorization from the class representatives for the fee division.  Id. at 175.  Specifically, it found that after there had been compliance with Rule 2-200 with the class representative prior to class certification, defendant then replaced him with new class representatives when he moved for certification and instructed the plaintiff to refrain from communicating with the new class representatives.  Id. at 181-186.  Under these circumstances, the court found that Margolin did not apply, and that plaintiff should have had the opportunity to prove at trial that the fee-sharing agreement with defendant applied to the new class representatives and that defendant should be equitably estopped from asserting non-compliance with Rule 2-200 as a ground that the contract was unenforceable as a matter of law.  Id. at 185-186.

Here, Plaintiff referred the potential clients to Defendant to handle a landlord/tenant dispute.  Defendant agreed to take on the potential clients’ case on a contingency basis and agreed to pay Plaintiff 25% of the fees earned on the matter as a referral fee and that he would include written disclosure of the fee division in his retainer agreement with the clients.  Defendant confirmed the amount of the referral fee in writing and advised Plaintiff that he had included the required Rule 2-200 language in the client’s retainer agreement and that he and the clients had signed it.  (Exhibit B.)  Under these facts, Plaintiff had no reason to doubt Defendant’s representations as to compliance with Rule 2-200.  Plaintiff told the clients that Plaintiff was referring their case to Defendant and would receive a referral fee.  Plaintiff had no reason to believe that Defendant had misled her to believe that the clients had signed a retainer agreement that was in violation of State Bar rules.

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It was not until Plaintiff independently learned that the clients’ case had resolved that she became concerned that Defendant’s representations about including the Rule 2-200 language in his retainer with the clients might have been false.  Indeed, Plaintiff learned that not only did Defendant lie to her about obtaining the clients’ written authorization for the fee division, but that he in fact advised the clients that referral fees were not allowed to be paid in such matters.  (Exhibit F)  Plaintiff did not realize this until after the case had settled when she attempted to collect the referral fee from Defendant.  (Id.)  When Defendant learned that Plaintiff had become aware of his deception, he expressly instructed Plaintiff not to contact the client so that Plaintiff would not be able to comply with the requirements of Rule 2-200.  (Exhibit B)

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Margolin does not apply because Defendant did not merely promise to include the language in the retainer agreement with the clients, he told Plaintiff that the clients signed off on the fee division in full compliance with Ruel 2-200.  Defendant then defamed Plaintiff to the clients by falsely stating that what she had done was against the law, was “shady,” and that she had subsequently forced Defendant to pay her a referral fee of 25%, such that the clients stopped replying to Plaintiff’s inquiries about the case and became hostile to her.  (Exhibit F)   Further, as soon as Plaintiff discovered that Defendant may not have included the Rule 2-200 language in the retainer agreement with the clients, Defendant emailed her on January 19, 2021, and instructed her not to contact his clients.  (Exhibit B, page 12)

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Accordingly, the record here clearly demonstrates Defendant misled Plaintiff as to getting the required authorizations from the clients required under Rule 2-200, and then actively prevented Plaintiff from complying with the rule when she learned that the clients did not sign off on the fee division.[1] Accordingly, like the defendant in Barnes, supra, Defendant is equitably estopped from asserting non-compliance with Rule 2-200 as a defense to his fee-sharing agreement with Plaintiff.

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B. Plaintiff’s Claim is Fair and Reasonable

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As set forth in his legally deficient Request to Cancel Judgment, Defendant is expected to argue at the trial de novo that the amount of Plaintiff’s claim here and in the proceeding below is speculative and unconscionable because it comprises almost the entirety of the fee he earned in the underlying landlord/tenant case.  Defendant’s argument should be rejected in its entirety if he fails to produce any supporting authentic documentary evidence of his earned fee beyond his own self-interested testimony, which is simply not credible.

At the May 20, 2021, hearing below, Defendant claimed under penalty of perjury that he did not promise Plaintiff a referral fee, or that no writing memorializing such an agreement existed.  However, at the subsequent hearing on June 30, 2021, Defendant directly contradicted his own testimony and admitted to promising Plaintiff the referral fee when confronted with a series of emails between him and Plaintiff wherein he unequivocally agreed to pay Plaintiff a 25% referral fee.  Simply put, Defendant is uncredible.  As such, this Court should not entertain his patently transparent attempt to game the appeals rules in small claims court by raising new claims for the first time on appeal that are unsupported by any evidence beyond Defendant’s own testimony, such as the operative legal services agreement between his firm and the clients, the settlement agreement in the underlying action, and his client trust account records demonstrating the transfer of the fee to his firm’s operating account.[1]

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Second, as set forth in his procedurally improper Request to Cancel Judgment, Defendant is expected to argue for the first-time on appeal that his earned fee in the underlying case would have resulted in only a $2,500.00 referral fee to Plaintiff.  However, as stated above, Defendant never put forth any evidence in the proceeding below of his fee.  Absent such proof at the time of the trial de novo, the amounts awarded by the small claims court should stand because the only competent evidence of the amounts owed to the Plaintiff under the referral fee agreement was that which was submitted by Plaintiff and accepted into evidence by the court in the proceeding below, and which Plaintiff submits again herewith.  (Exhibit D)

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Third, Defendant failed to challenge, rebut, or otherwise assert any affirmative defense to the amount of Plaintiff’s claim in the proceeding below.  The plaintiff has the burden of proving the case by offering evidence to support the claim.  Plaintiff credibly testified at the proceeding below as to why her fee was at least $10,000, which is the limit in small claims court.  Plaintiff also subpoenaed the legal services agreement that Defendant had with his clients and suggested the court below conduct an in-camera review of the settlement agreement, if confidential, to determine what the actual fee was.  Defendant failed to comply with the subpoena and did not submit any documents requested by Plaintiff’s subpoena and failed to introduce any evidence supporting his affirmative defense that the fee should be less.  Accordingly, this Court should not entertain this claim in the trial de novo.  Code Civ. Proc. § 116.770(d).

 

C. Payment of the Referral Fee to Plaintiff Does Not Violate Rule 2-200

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The intent of Rule 2-200 is to protect consumers.  Allowing Defendant to avoid performing under his fee sharing agreement under these circumstances “would be detrimental to the public and would weaken confidence in the legal profession.  Clients benefit from “referrals by ‘less capable lawyers to … experienced specialists….’ ” (Barnes, supra, at 185-186 [citing Margolin, 85 Cal.App.4th at 894, n.2]).

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As the Court of Appeal acknowledged in Margolin, part of the reasoning in allowing referral fees is that a less experienced attorney should be encouraged to refer a case of the type she does not typically handle to an attorney who is experienced in handling such matters.  Allowing an attorney to use the Rules of Professional Conduct as a sword to escape their contractual obligations to attorneys who refer them cases would be detrimental in that it would weaken confidence in the legal profession.  Attorneys would be less likely to refer a case as inexperienced attorneys may keep cases by a referral to a more experienced practitioner to a specialist, who may better serve the client through their expertise in the particular subject matter of the case, if the specialist could invalidate the referral agreement by using deception to avoid the client authorize the referral fee.

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Here, the clients not only gave oral consent to the referral and to the referral fee, but  also consented to Defendant’s fee.  Accordingly, any subsequent payment by Defendant to Plaintiff from his earned fee has no effect on the settlement proceeds that have been distributed to the clients.  There is no reason why the fee sharing agreement should not be honored under these circumstances.

However, if this Court finds that the referral fee agreement was invalid for non-compliance with Rule 2-200, Plaintiff should be able to recoup the reasonable value of the services she rendered to Defendant’s clients under principles of quantum meruit.  While the actual amount of the clients’ settlement and the resulting fee earned by Defendant remains unknown at present, if and when such evidence is received by this Court, any award it issues under quantum meruit principles should not focus solely on the actual time Plaintiff spent in working on the case prior to referring it to Defendant but must also consider the value to the clients by referring it out to a specialist.  See Hance v. Super Store Industries (2020) 44 Cal.App.5th 676, 694 (“[I]n assessing the value of an attorney’s services to the client…for quantum meruit purposes, the trial court may consider the reasonable value to the client…of the referral.”) 

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Given the time Plaintiff spent on the case reviewing its merits and ensuring that it was referred to a specialist who could not only meet the clients’ requirements as to the fee arrangement, but also achieve a result that was consistent or exceeded the clients’ expectations of what they considered a successful outcome, Plaintiff should be awarded a fair fee.[1]  (Exhibits B and D)

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D. Defendant Appealed the Judgment in Bad Faith

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Defendant not only appealed this case in bad faith as discussed above but has also filed several documents to intentionally delay this proceeding in bad faith for no other reasons than to intimidate Plaintiff into abandoning my case.  After filing a baseless peremptory challenge to the judge who was initially assigned to this appeal, the new trial date was pushed back several weeks for no legitimate reason.  Thereafter, Defendant wasted more judicial resources by filing several Requests to Cancel Judgments with various courts, all of which were denied because of the pending instant appeal, which Defendant filed one day after judgment was entered against him in the proceeding below.  The only cognizable reason for Defendant to needlessly file his multiple Requests to Cancel Judgments after he filed his notice of appeal was to simply delay the instant proceedings in order to harass and intimidate Plaintiff into dropping her claims.

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Defendant’s improper motive for the instant appeal is also evidenced by the fact that this small claims appeal trial de novo with this Court was originally set for September 24, 2021, but due to Defendant’s Request to Postpone Trial, the appeal was continued to October 12, 2021.  In his Request to Postpone Trial, Defendant stated that he “will be out of town starting 9/24/21 and will return 9/27/21.” (Exhibit H)  Once again, Defendant has been dishonest with the Court because he was indeed in town.  Plaintiff served Defendant with the trial subpoena for personal appearance and documents for this case at his residence, at approximately 5 p.m. on the very day this appeal was initially scheduled and the day that Defendant falsely claimed that he was out-of-town.   (Exhibit H-I)

Plaintiff’s process server, Mr. Abel Silva (“Mr. Silva”) arrived at Defendant’s home to serve him at approximately 1:30pm (at the initially scheduled time of the appeal) on September 24, 2021.  Mr. Silva spoke to a neighbor who said that she did not think that Defendant was out-of-town and that his car was parked in the parking lot.  Mr. Silva obtained photos of the vehicle and was able to finally serve Defendant around 5pm on September 24, 2021, after Defendant had been evading service all day and threatened to call the police on Mr. Silva for simply doing his job.

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In conclusion, the Court should affirm the judgment entered on July 28, 2021, for $9,000.00 plus $195.00 in costs to stand, and award additional costs including attorneys’ fees and loss of earnings, as sanctions against Defendant for filing the instant appeal in bad faith.  Code Civ. Proc. § 116.790.

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IV. CONCLUSION

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For the foregoing reasons, the Court should affirm the judgment entered in the small claims proceeding below in favor of Plaintiff and award her all costs and other statutory remuneration owed to her for this frivolous appeal under California law, including but not limited to an award of reasonable attorneys’ fees not to exceed $1,000.00.  Code Civ. Proc. § 116.790(a).  A true and correct copy of an invoice for attorneys’ fees in this case is included.  (Exhibit J)

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[1] Indeed, Defendant has presented no evidence whatsoever that the client refused to sign a retainer agreement that included the required Rule 2-200 language, or that in fact his executed retainer agreement with the client does not include such language.

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[2] Evidence that is obviously in Defendant’s possession.

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[3] Indeed, the clients likely consented to a consulting fee in their legal services agreement with Defendant. Exhibit G is a true and correct copy of a redacted fee agreement between Defendant and another one of his clients, who is a friend of Plaintiff and voluntarily produced it to Plaintiff, with redactions to protect his identity. (Exhibit G page 28.)

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Evidence