Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. 37-2007-00082757- CU-BT-CTL, Joan M. Lewis, Judge.
BENKE, Acting P. J.
The plaintiffs in this class action case allege the retainer agreement defendant law firm routinely employed violated the California Rules of Professional Conduct (Rules) in a number of respects. They further contend these alleged violations support class action claims under the provisions of the Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.) (CLRA) and the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) (UCL).
All further references to rules are to these rules.
The trial court sustained the defendant's demurrer to the complaint. The trial court did not give the plaintiffs leave to amend their class allegations. However, the trial court did give plaintiffs leave to amend their individual claims to specify the violations of the Rules to which they were subjected and the harm they suffered. The plaintiffs declined to amend their complaint and a judgment dismissing the complaint was entered.
We affirm. Under the CLRA, plaintiffs must show they were harmed; under the UCL, plaintiffs must demonstrate the defendant unlawfully profited or obtained funds from them. Because in general an attorney may recover the value of his or her services, a fee agreement which violates the Rules does not, without further proof the amount paid under the agreement exceeded the value of the services received, show a client was harmed or that an unlawful profit was obtained. These circumstances deprive plaintiffs' claims of the commonality needed to maintain a class action. The existence of any claim will depend upon an individualized determination as to the value of services the plaintiff received. The need to show harm or unlawful profit also defeats the plaintiffs' individual claims. The complaint does not allege the plaintiffs paid the defendant amounts which exceeded the value of the services they received and hence the complaint does not establish the right to relief under either the CLRA or the UCL.
FACTUAL AND PROCEDURAL BACKGROUND
Appellants James C. Smith and George E. Canessa were former clients of respondent Pacific Law Center, PC (PLC). They allege they signed a retainer agreement which they contend was unlawful in that it provided: the firm's fees were earned upon receipt; no portion of the fees were refundable; the firm was permitted to deposit fees in its general account; the firm could withdraw as counsel if the client did not follow its advice; any guarantor of financing the firm provided was required to continue making payments even if the client terminated the attorney-client relationship. Plaintiffs contend these provisions are unlawful and unfair and in particular violate rule 4-100 (former rule 8-101) of the Rules, which requires a client's funds be segregated from an attorney's funds. Plaintiffs allege PLC, in requiring that clients sign the retainer agreement, violated the CLRA and the UCL. As we have indicated, plaintiffs further allege a large class composed of PLC's other clients was subject to the same retainer agreement and therefore entitled to recover under the CLRA and the UCL.
Rule 4-100 provides: "(A) All funds received or held for the benefit of clients by a member or law firm, including advances for costs and expenses, shall be deposited in one or more identifiable bank accounts labeled 'Trust Account,' 'Client's Funds Account' or words of similar import, maintained in the State of California, or, with written consent of the client, in any other jurisdiction where there is a substantial relationship between the client or the client's business and the other jurisdiction. No funds belonging to the member or the law firm shall be deposited therein or otherwise commingled therewith except as follows:
PLC filed a demurrer to the complaint. PLC argued that with respect to the class allegations, individual issues predominated over common questions of law and fact. With respect to the individual claims, PLC argued the complaint failed to allege how PLC acted unlawfully in handling the individual's fees and in what manner the individuals were harmed. As we noted at the outset, the trial court sustained the demurrer with leave to amend the individual claims, plaintiffs elected not to amend, and a judgment of dismissal was entered.
DISCUSSION
I
We review the trial court's ruling on a demurrer de novo. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) Where the plaintiff has been given an opportunity to amend, we presume the complaint states as strong a case as is possible. (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 457.)
With respect to class allegations, "[d]emurrers without leave to amend are properly sustained where there is no reasonable possibility that the plaintiffs could establish a community of interest among the potential class members and that individual issues predominate over common questions of law and fact." (Weil & Brown, Civil Procedure Before Trial (2008) § 14.94.1, citing Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440; TKX Cos., Inc. v. Superior Court (Burchard) (2001) 87 Cal.App.4th 747, 753.) Thus, " ' "[c]lass actions will not be permitted... where there are diverse factual issues to be resolved, even though there may be many common questions of law." [Citation.] "[A] class action cannot be maintained where each member's right to recover depends on facts peculiar to his case." ' [Citations.]" (Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1231; see also City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 459.)
II
As PLC argues, a class action is not possible here because each class member's claim will depend on facts peculiar to his or her case.
The CLRA protects any consumer "who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770...." (Civ. Code, § 1780, subd. (a).) Such a consumer can recover "[a]ctual damages, but in no case shall the total award of damages in a class action be less than one thousand dollars ($1,000.)" (Civ. Code, § 1780, subd. (a)(1).) "This language does not create an automatic award of statutory damages upon proof of an unlawful act. Relief under the CLRA is specifically limited to those who suffer damage...." (Wilens v. TD Waterhouse Group, Inc. (2003) 120 Cal.App.4th 746, 754; see also Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 853-855.) As the court in Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 641, recently stated: "The statute speaks plainly about the use of an unlawful practice causing or resulting in some sort of damage. Thus, the statute provides that in order to bring a CLRA action, not only must a consumer be exposed to an unlawful practice, but some kind of damage must result. If the Legislature had intended to equate 'any damage' with being subject to an unlawful practice by itself, it presumably would have omitted the causal link between 'any damage' and the unlawful practice, and instead would have provided something like 'any consumer who is subject to a method, act, or practice declared to be unlawful by Section 1770 may bring an action' under the CLRA."
We note that in dictum the court in Kagan v. Gibraltar Sav. & Loan Assn. (1984) 35 Cal.3d 582, 593 (Kagan) stated, "we interpret broadly the requirement of section 1780 that a consumer 'suffer any damage' to include the infringement of any legal right as defined by section 1770." (Fn. omitted.) Although plaintiffs rely on this statement, it was expressly disapproved in Meyer v. Sprint Spectrum L.P., supra, 45 Cal.4th at p. 643, fn. 3.
Although a representative plaintiff in a UCL action must show that he or she suffered actual harm (Hall v. Time Inc., supra, 158 Cal.App.4th at pp. 853-855), the UCL does not itself provide for damages. (Wilens v. TD Waterhouse Group, Inc., supra, 120 Cal.App.4th at p. 755.) Rather, it only provides for disgorgement of unlawful profits or restitution of funds improperly received. (Ibid.)
In light of the requirement that a plaintiff show harm or unlawful profit, bare allegations of unlawful conduct will not support a class action under either the CLRA or the UCL. (See Wilens v. TD Waterhouse Group, Inc., supra, 120 Cal.App.4th at pp. 755-756.) In Wilens v. TD Waterhouse Group, Inc., the plaintiff alleged a discount stock broker retained an unconscionable right to terminate its customers' trading rights. The court refused to certify a class under either the CLRA or the UCL. With respect to the CLRA, the court found "this case does not lend itself to the presumption that each class member suffered damage by the mere insertion of the termination without notice provision in the webBroker agreement. Nor can we presume that those in the subclass, i.e., those whose access was terminated without notice, suffered damage caused by the termination." (Wilens v. TD Waterhouse Group, Inc., supra, 120 Cal.App.4th at p. 755.) Thus under the CLRA, "the individual issues here go beyond mere calculation; they involve each class member's entitlement to damages. Each class member would be required to litigate 'substantial and numerous factually unique questions to determine his or her individual right to recover,' thus making a class action inappropriate. [Citation.]" (Id. at p. 756.) The court reached a similar conclusion with respect to the plaintiff's UCL claim: the existence of any unlawful profit that could be disgorged would depend on an individual customer's trading and hence could not be treated on a class basis. (Ibid.)
As in Wilens v. TD Waterhouse Group, Inc., here the differences in individual claims are predominant over any common legal issues. For us the most obvious source of differences is the principle that notwithstanding a breach of the Rules, an attorney may recover the value of his or her services. (See Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 461-463.) In Huskinson & Brown v. Wolf a law firm performed some work on a medical malpractice case and then referred the case to another firm on the condition that it receive 25 percent of any attorney fees the second firm recovered. However, the law firms did not obtain the client's written consent to the division of fees, as required by rule 2-200(A)(1) of the Rules. The court held that while the initial firm could not recover under its fee-sharing agreement, it could recover the value of the services it provided: "Permitting quantum meruit recovery as between law firms is... consistent with case law holding or otherwise recognizing that attorneys may recover from their clients the reasonable value of their legal services when their fee contracts or compensation agreements are found to be invalid or unenforceable for other reasons. [Citations.]" (Id. at p. 461.)
Thus, even if plaintiffs are able to establish PLC's retainer agreement violates the Rules, without an individual determination as to the value of the services the firm provided to a particular client, there will be no basis upon which to conclude either that any client suffered damage or that PLC was unfairly enriched. Such individual determinations of the services PLC provided to particular clients and their value preclude class treatment of plaintiff's claims. (See Wilens v. TD Waterhouse Group, Inc., supra, 120 Cal.App.4th at p. 755.)
We recognize that PLC contends its agreement is valid.
As PLC points out, in addition to the problems posed by its right to recover the value of its services, individual determinations would also have to be made with respect to plaintiffs' contentions that, in particular circumstances, the retainer agreement was unlawful. For instance, with respect to PLC's right to withdraw as counsel, there are circumstances in which a lawyer has the right to withdraw. (See e.g. ABA Model Rules, rule 1.1.6(2): "A lawyer ordinarily must decline or withdraw from representation if the client demands that the lawyer engage in conduct that is illegal or violates the Rules of Professional Conduct or other law[;]" see also rules 3-700(B), (C).) Thus for an actionable claim to arise the plaintiffs would not only have to show PLC exercised its right to withdraw, but that under the given circumstances PLC had no right to withdraw. The same is true with respect to the fact that the retainer agreement makes fees paid nonrefundable. In order to establish a claim under the CLRA or the UCL, plaintiffs would have to establish that in a particular case a client asked for and was entitled to a refund.
In sum, the trial court properly dismissed the class allegations because the individual issues presented by plaintiffs' claims plainly predominate over any common questions of fact or law. (See Alvarez v. May Dept. Stores Co., supra, 143 Cal.App.4th at p. 1231.)
III
In their complaint, plaintiffs allege they "sustained injuries and damages arising out of PLC's common course of conduct in violation of law." However, as PLC points out, there are no allegations in the complaint as to how the individual plaintiffs were damaged by any particular defect in the retainer agreement. Of significance, there is no allegation the fees plaintiffs paid PLC exceeded the value of the services plaintiffs received. As we have discussed, in the absence of such an allegation and proof of it, plaintiffs cannot demonstrate they were injured by PLC's conduct or that PLC obtained an unjust profit, and hence they cannot make a claim under the CLRA or the UCL. Thus the trial court properly sustained PLC's demurrer to the complaint. Where as here, a plaintiff has been given leave to amend, but fails to do so, we must presume that the plaintiff cannot correct the defect in his or her complaint. (See Otworth v. Southern Pac. Transportation Co., supra, 166 Cal.App.3d at p. 457.) Thus the trial court properly dismissed the plaintiffs' individual claims as well the class claims.
Judgment affirmed. Respondent to recover its costs.
WE CONCUR: HUFFMAN, J., IRION, J.
"(1) Funds reasonably sufficient to pay bank charges.
"(2) In the case of funds belonging in part to a client and in part presently or potentially to the member or the law firm, the portion belonging to the member or law firm must be withdrawn at the earliest reasonable time after the member's interest in that portion becomes fixed. However, when the right of the member or law firm to receive a portion of trust funds is disputed by the client, the disputed portion shall not be withdrawn until the dispute is finally resolved.
"(B) A member shall:
"(1) Promptly notify a client of the receipt of the client's funds, securities, or other properties.
"(2) Identify and label securities and properties of a client promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable.
"(3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the member or law firm and render appropriate accounts to the client regarding them; preserve such records for a period of no less than five years after final appropriate distribution of such funds or properties; and comply with any order for an audit of such records issued pursuant to the Rules of Procedure of the State Bar.
"(4) Promptly pay or deliver, as requested by the client, any funds, securities, or other properties in the possession of the member which the client is entitled to receive.
"(C) The Board of Governors of the State Bar shall have the authority to formulate and adopt standards as to what 'records' shall be maintained by members and law firms in accordance with subparagraph (B)(3). The standards formulated and adopted by the Board, as from time to time amended, shall be effective and binding on all members."