Strohm v. Clearone Communications, Inc. , 732 Utah Adv. Rep. 34 ( 2013 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2013 UT 21IN THE
SUPREME COURT OF THE STATE OF UTAH
———————
SUSIE STROHM and DORSEY & WHITNEY, LLP,
Plaintiffs and Appellees,
v.
CLEARONE COMMUNICATIONS, INC.,
Defendant and Appellant.
———————
No. 20110569
Filed April 9, 2013
———————
Third District, Salt Lake
The Honorable Robert K. Hilder
No. 080917500
———————
Attorneys:
Milo Steven Marsden, Cameron M. Hancock, Salt Lake City,
William Michael, Jr., Minneapolis, MN, for appellees
James E. Magleby, Christopher M. Von Maack, Jennifer Fraser
Parrish, Salt Lake City, Brian S. Cousin, Neil A. Capobianco,
New York, NY, for appellant
———————
JUSTICE LEE authored the opinion of the Court in Sections I–V, in
which CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE NEHRING,
JUSTICE DURHAM, and JUSTICE PARRISH joined.
JUSTICE LEE authored the opinion of the Court in Sections VI and
VIII, in which CHIEF JUSTICE DURRANT and
ASSOCIATE CHIEF JUSTICE NEHRING joined.
JUSTICE LEE filed a dissenting opinion in Section VII as to
Section I of JUSTICE PARRISH‘s opinion, in which
ASSOCIATE CHIEF JUSTICE NEHRING joined.
JUSTICE PARRISH authored the opinion of the Court as to Section I
of her opinion, in which CHIEF JUSTICE DURRANT and
JUSTICE DURHAM joined.
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
JUSTICE PARRISH filed a dissenting opinion in Section II as to
Section VI of JUSTICE LEE‘s opinion, in which JUSTICE DURHAM
joined.
JUSTICE LEE, Opinion of the Court as to Sections I-VI and VIII;
dissenting as to Section VII:
¶1 This case concerns a corporation‘s statutory and contractu-
al duty to indemnify a corporate officer‘s criminal defense costs.
Susie Strohm, the one-time CFO of ClearOne Communications,
Inc., was charged with eight federal criminal counts relating to an
investigation into certain accounting practices at ClearOne. She
was later acquitted of all but one count. Strohm and her counsel,
Dorsey, asserted that ClearOne is obligated by statute and con-
tract to indemnify her (and, by extension, Dorsey) for her criminal
defense costs and brought suit to collect those costs. The district
court agreed with Strohm and Dorsey and ordered ClearOne to
indemnify Strohm for her defense costs, subject to certain re-
strictions. It also found that a contract between the parties entitled
Dorsey to charge ClearOne 18 percent interest on the amounts
that were billed to ClearOne but not timely paid and to collect the
costs it expended in enforcing ClearOne‘s contractual obligation
to indemnify Strohm.
¶2 On appeal, ClearOne challenges the district court‘s deci-
sions and its ultimate fee award. Strohm and Dorsey cross-appeal
the district court‘s decision to place certain limitations on their in-
demnification and collection award. A unanimous court affirms
the district court‘s indemnification decisions in large part, its rul-
ing relating to contract termination rights, its reasonableness de-
termination for fees in the criminal case, and its decision to en-
force the 18 percent interest rate provision in the Dorsey letter. A
majority of the court, however, joining Section I of Justice Par-
rish‘s separate opinion for the court, reverses the district court‘s
decision to allow Dorsey to recoup its fees in the collection matter,
a determination from which I dissent. We remand for further pro-
ceedings.
I. BACKGROUND
¶3 ClearOne is a manufacturer of video-conferencing equip-
ment based in Salt Lake City. Susie Strohm was its CFO until her
resignation in December 2003. This case arises out of civil and
2
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court
criminal proceedings challenging accounting practices at
ClearOne during Strohm‘s tenure. The Securities and Exchange
Commission initiated a civil securities fraud action against
ClearOne, Strohm, and Frances M. Flood, ClearOne‘s then-CEO,
to investigate these practices at ClearOne. In early 2003, while that
action was pending, the U.S. Attorney for the District of Utah im-
paneled a grand jury to begin a criminal investigation that paral-
leled the SEC action. The U.S. Attorney subsequently informed
ClearOne that it ―had begun an investigation stemming from the
complaint in the SEC action.‖
¶4 In the wake of these actions, ClearOne and Strohm execut-
ed an engagement agreement in the form of a letter from Milo
Steven Marsden, who was at that time a partner at Bendinger,
Crockett, Peterson & Casey, PC, to Strohm and ClearOne. In this
letter—signed by ClearOne‘s CEO Michael Keough—Marsden
and Bendinger agreed ―to represent [Strohm‘s] interests in con-
nection with the SEC civil complaint . . . and in connection with
further related investigations and litigation.‖ The letter also al-
lowed Marsden and his law firm to collect 18 percent interest on
―any amount billed and unpaid‖ for thirty days and to recover
―all reasonable costs expended in connection with collecting
amounts due under this Agreement, including reasonable attor-
neys‘ fees.‖
¶5 ClearOne and Strohm entered into two additional agree-
ments in the following year. First, counsel for ClearOne, Strohm,
and Flood executed a Joint Defense Privilege and Confidentiality
Agreement in February 2003. This agreement allowed the parties
to ―shar[e] documents, factual material, mental impressions,
memoranda, interview reports, litigation strategies, and other in-
formation.‖ Later, Clear One and Strohm also executed an Em-
ployment Termination Agreement to resolve ―disputes regarding
Strohm‘s demand for indemnification.‖ This agreement, like the
Joint Defense Agreement, acknowledges that ―the SEC action has
spawned, and may continue to spawn, multiple related proceed-
ings, including . . . a grand jury investigation being conducted by
the United States Department of Justice.‖
¶6 These agreements governed the parties‘ relationship until
Marsden left Bendinger for Dorsey & Whitney, LLP in 2004. On
that occasion, he wrote to ClearOne and Strohm to ―update― their
engagement letter ―to reflect this move.‖ Like the Bendinger letter,
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STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
the Dorsey letter confirms that ClearOne and Strohm had engaged
Marsden and Dorsey ―to represent [Strohm] in connection with
the SEC civil complaint . . . and in connection with further related
investigations and litigation.‖ But the Dorsey letter differs from
the Bendinger letter in several respects. Most importantly for the
matter before us, it does not repeat the Bendinger letter provisions
allowing 18 percent interest and collection costs and attorney fees.
It also lists three by-then-instituted civil matters as being ―in-
clud[ed]‖ in ―further related investigations and litigation.‖ But,
like the Bendinger letter, the Dorsey letter makes Strohm and
ClearOne ―jointly and severally responsible for payment of all
amounts billed‖ which are ―due on receipt.‖
¶7 Despite these early internal maneuverings, it wasn‘t until
May of 2007 that the U.S. Attorney informed Marsden that Strohm
was the target of a grand jury investigation. Strohm was indicted
months later with one count of conspiracy, two counts of making
materially false and misleading statements to auditors, and two
substantive counts of securities fraud. Two subsequent indict-
ments added a charge of making material misrepresentations to
auditors and two perjury counts.
¶8 Work on Strohm‘s criminal defense began in earnest in
May 2007, with ClearOne appearing to recognize an indemnifica-
tion obligation for her defense costs. Indeed, ClearOne paid
Dorsey‘s bills for the first nine months. By March 2008, however,
ClearOne expressly refused to pay any further defense costs and
denied that its engagement agreements with Marsden required it
to do so.
¶9 In response, Dorsey and Strohm initiated the instant collec-
tion action against ClearOne, seeking—among other things—to
enforce the engagement agreements and to require ClearOne to
indemnify Strohm for her defense costs. Meanwhile, Strohm‘s
criminal trial commenced in early 2009, with Dorsey representing
Strohm. Of the eight counts for which she was indicted, Strohm
was convicted of only one count—perjury related to testimony
given in the SEC action.1 Following Strohm‘s near complete ac-
1 Strohm appealed her conviction to the Tenth Circuit Court of
Appeals, which upheld it in full. United States v. Strohm, 671 F.3d
1173, 1188 (10th Cir. 2011).
4
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quittal, Strohm and Dorsey amended their complaint against
ClearOne to remove now-moot claims and to add a claim for
mandatory statutory indemnification under Utah Code section 16-
10a-903 and -907.
¶10 Both before and after Strohm‘s criminal trial and limited
conviction, the parties engaged in contentious litigation over
Strohm‘s and Dorsey‘s statutory and contract claims. As to the
statutory claims, Strohm and Dorsey filed a motion for summary
judgment just after Strohm‘s conviction, basing their claim for re-
lief on the grounds that Strohm had been acquitted on seven of
the eight counts against her. The district court granted the motion,
stating that Utah Code sections 16-10a-903 and -907 required
ClearOne to indemnify Strohm for ―the reasonable expenses in-
curred by her in connection with the proceeding or claim[s] with
respect to which she has been successful.‖ It also ordered
ClearOne to pay for Strohm‘s ―reasonable expenses incurred in
order to obtain court-ordered indemnification pursuant to‖ Utah
Code sections 16-10a-903 and -907(1).
¶11 Resolution of Strohm‘s and Dorsey‘s contract claims was
somewhat more complicated. Both parties filed early motions for
partial summary judgment relating to Dorsey‘s claim that its en-
gagement agreement with ClearOne required ClearOne to reim-
burse it for Strohm‘s criminal defense costs. But the district court
ultimately determined that ―facial ambiguity concerning the scope
and purpose of the agreements‖ prevented it from ruling on the
motions. It accordingly ordered discovery regarding the inten-
tions of the parties to the engagement letters.
¶12 Discovery ensued over the following months, the most im-
portant development being the deposition of ClearOne‘s 30(b)(6)
designee, Keough.2 In that deposition, Keough testified that when
he signed the first engagement letter, he understood that a federal
criminal investigation was underway that could result in criminal
litigation and claims brought against Strohm. He also testified that
when he signed the engagement letters, he understood that
Marsden would represent Strohm in both the SEC action and in
2 UTAH R. CIV. P. 30(b)(6) (allowing a corporation to ―designate
one or more officers, directors, managing agents, or other persons
to testify on its behalf‖ in a deposition).
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STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
any related federal criminal investigation. Further, he clarified
that he and ClearOne understood the engagement agreements to
make ClearOne liable for 18 percent interest and for collection
costs necessary to enforce the agreements.
¶13 Strohm and Dorsey thereafter renewed their motion for
summary judgment, and ClearOne filed its own cross-motion. The
district court granted summary judgment in favor of Strohm and
Dorsey based largely on Keough‘s uncontradicted deposition tes-
timony concerning the intentions of the parties combined with re-
citals in the Joint Defense Agreement and the Employment Ter-
mination Agreement. Specifically, the court held that the engage-
ment agreements ―together form an enforceable contract, provid-
ing an alternative basis to require [ClearOne] to pay [Strohm‘s]
reasonable legal fees incurred in this action or to reimburse her for
fees paid to her counsel and co-plaintiff‖ and that Strohm and
Dorsey were ―entitled to judgment for [18 percent] interest and
fees incurred in seeking recovery under the letter agreements.‖
¶14 With ClearOne‘s obligations under both statute and con-
tract now settled, all parties set about determining the amount of
Strohm and Dorsey‘s award, with Strohm and Dorsey first filing a
petition for an Award of Reasonable Attorney Fees and Costs in
July 2010 and with ClearOne filing an opposition and cross-
motion in response. After hearings on these motions, the district
court entered judgments for Dorsey on its contract claim and for
Strohm on her statutory indemnification claim. It also ruled that
ClearOne could not unilaterally end its obligation to pay for
Dorsey‘s services under the engagement agreements. Based on
these judgments, the district court awarded Strohm and Dorsey
(1) all hours and expenses billed and paid by ClearOne through
March 31, 2008, with no adjustment or reimbursement, (2) reason-
able fees and expenses incurred in the criminal case through Feb-
ruary 27, 2009, (3) prejudgment interest on criminal case fees and
expenses at the rate of 18 percent, and (4) reasonable attorney fees
and expenses in the collection case through August 10, 2010.
¶15 ClearOne now appeals, challenging the district court‘s
summary judgment rulings, which we review for correctness.
Bahr v. Imus, 2011 UT 19, ¶ 15, 250 P.3d 56. ClearOne also chal-
lenges the overall reasonableness of the district court‘s fee award.
Due to the district court‘s ―broad discretion in determining what
constitutes a reasonable attorney fee[,] . . . we will not reverse
6
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[such a] determination . . . absent an abuse of discretion.‖ Bakowski
v. Mountain States Steel, Inc., 2002 UT 62, ¶ 33, 52 P.3d 1179.
Dorsey cross-appeals, challenging the district court‘s rulings limit-
ing certain of its awards for attorney fees and interest.
¶16 Under these standards, we first affirm the district court‘s
indemnification rulings in full, except for the decision to limit in-
demnification for defense costs to those incurred before Strohm‘s
perjury conviction. We likewise affirm the district court‘s deter-
mination that the engagement agreement between the parties
does not give ClearOne the right to unilaterally terminate its
payment obligation to Dorsey. And though ClearOne challenges
the district court‘s fee award in the criminal case as unreasonable,
we disagree and affirm. We next consider and affirm the court‘s
ruling that the parties‘ engagement agreement contemplated 18
percent interest on unpaid fees and allowed Dorsey to recover
fees and costs incurred in enforcing the engagement agreements.
We also affirm the district court‘s decision to enforce the interest
rate provision. Finally, though I would enforce the collection fee
provision as well, a majority of the court, joining Section I of Jus-
tice Parrish‘s separate opinion, invalidates the collection fee pro-
vision on public policy grounds. These holdings require us to re-
mand this matter to the district court for a revised fee award in
conformity with this opinion.
II. INDEMNIFICATION
¶17 On appeal to this court, ClearOne challenges both of the
district court‘s indemnification rulings. For their part, Strohm and
Dorsey ask this court to affirm in large part the district court‘s rul-
ings on indemnification and challenge only certain limitations the
district court imposed on indemnification. We agree with Strohm
and Dorsey on all counts. We accordingly affirm the district
court‘s indemnification rulings in full save for its limitation of fee
reimbursement in the criminal case, which we reverse.
A. Statutory Indemnification
¶18 After Strohm successfully challenged seven of the eight
counts for which she was indicted, she amended her complaint
against ClearOne to include a claim for mandatory statutory in-
demnification under Utah Code sections 16-10a-903 and -907. The
district court then granted Strohm‘s motion for partial summary
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STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
judgment on that claim, a decision ClearOne now challenges on
three grounds.
1
¶19 ClearOne‘s first statutory argument is based on section 902,
which allows a corporation to indemnify its director if ―his con-
duct was in good faith; . . . he reasonably believed that his conduct
was in, or not opposed to, the corporation‘s best interests; and . . .
in the case of any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful.‖ UTAH CODE § 16-10a-902(1).
According to ClearOne, this statute establishes a ―standard of
conduct‖ and limits the indemnification a corporation can provide
to its officers. This argument falters on the grounds that it miscon-
strues section 902 and ignores other sections of the code that ex-
pressly apply to officer indemnification.
¶20 By its own terms, section 902 applies only to the directors
of a corporation. Id. (―[A] corporation may indemnify an individ-
ual made a party to a proceeding because he is or was a director
. . . .‖ (emphasis added)). This section‘s title (―Authority to in-
demnify directors‖) confirms that. Id. We can find nothing in sec-
tion 902 that suggests that it extends beyond directors to encom-
pass officers.3 See Olsen v. Eagle Mountain City, 2011 UT 10, ¶ 9, 248
P.3d 465 (stating that statutory interpretation often requires exam-
ination of a statute‘s structural context).
¶21 An examination of the rest of title 16 supports this result.
We interpret individual sections of the code ―in harmony with
other provisions in the same statute and with other statutes under
the same and related chapters.‖ Sill v. Hart, 2007 UT 45, ¶ 7, 162
P.3d 1099 (internal quotation marks omitted). We must look to
these other sections to decide if all of the standards for director
indemnification apply equally to officer indemnification, as
ClearOne seems to suggest. Because the code contains provisions
that specifically govern officer indemnification, we cannot pre-
sume that all the provisions governing director indemnification
3 The code is riddled with instances where a director is treated
differently than an officer. See, e.g., UTAH CODE § 16-10a-841 (al-
lowing corporations to limit the liability of its directors on a broad
scale, but suggesting that officer liability can only be limited when
a corporation is a certain type of depository institution).
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apply to officers as well. See UTAH CODE § 16-10a-907 (entitled
―Indemnification of officers, employees, fiduciaries, and agents‖).
This is particularly true given that the code makes specific direc-
tor indemnification provisions—and not others—applicable to of-
ficers. See id. § 16-10a-907(1) (providing that officers are entitled to
mandatory and court-ordered indemnification to the same extent
as a director under Utah Code sections 16-10a-903 and -905). Be-
cause no statute makes officer indemnification subject to, depend-
ent on, or coextensive with permissive director indemnification
under section 902, we decline ClearOne‘s request that we apply
that section to deny Strohm‘s statutory indemnification claim.
¶22 The district court ordered ClearOne to indemnify Strohm
under sections 16-10a-903 and -907—not under section 902. Under
section 907, an officer is entitled to mandatory indemnification on-
ly to the extent that a director is entitled to indemnification under
903. Id. And section 903 requires a corporation to indemnify a di-
rector who successfully defended himself in a proceeding where
he was a party to the action because he was/is a director of the
corporation. See id. § 16-10a-903. Thus, an officer is entitled to
mandatory indemnification when he successfully defends himself
in a proceeding where he was a party because he was/is an officer
of a corporation. See id § 16-10a-907(1).
¶23 Yet ClearOne inexplicably presents section 902 to us as con-
trolling in this case. It does so by inserting a bracketed ―or officer‖
immediately after the word ―director‖ in its quote of the language
of the statute. This is not an accurate portrayal of section 902.
ClearOne is free to argue that when the statute says ―director,‖ it
means ―director or officer.‖ But that argument must be based on
the language of the statute as written, not on a misleading altera-
tion to its quoted terms. ClearOne‘s bracketed ―or officer‖ comes
perilously close to the latter. Counsel do damage to the credibility
of their arguments when they are made to rest on confusing dis-
tortions of the controlling legal text. ClearOne‘s position fails on
its merits. But it is not at all helped by counsel‘s bracket-bungled
―quote‖ of the statutory text.
¶24 As neither section 907 nor section 903 make mention of sec-
tion 902‘s standard of conduct, we reject ClearOne‘s argument
that only officers complying with that standard are entitled to in-
demnification. We will not import into one statutory section lan-
guage from another when nothing in the statute or statutory
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STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
scheme requires it. Because Strohm successfully defended seven
of the eight charges brought against her in her capacity as an of-
ficer of ClearOne, she is entitled to indemnification from
ClearOne under Utah Code sections 16-10a-903 and -907 for the
reasonable expenses she incurred in doing so. We accordingly af-
firm the district court‘s ruling on statutory indemnification.
2
¶25 ClearOne next argues that it avoided any statutory duty of
indemnification by exercising a statutory option to limit its duty
to indemnify officers. Specifically, ClearOne suggests that it
―adopted bylaws limiting indemnification to officers and directors
who have satisfied the requisite standard of conduct‖—the same
standard of conduct described in Utah Code section 16-10a-902.
This argument likewise fails. Once again, ClearOne ignores the
unambiguous language of the statute and advocates a position
that is unsupported by law.
¶26 It is true that Utah Code section 16-10a-907 allows a corpo-
ration to limit its duty to indemnify its officers. But, by the terms
of that statute, a corporation must place such limitation in its arti-
cles of incorporation. Id. Nowhere does section 907 allow a corpora-
tion to place limitations on indemnification in its bylaws. Because
―articles of incorporation‖ is unambiguous and on its face does
not encompass bylaws, ClearOne‘s attempt to limit indemnifica-
tion in its bylaws is of no consequence under the controlling stat-
ute in this case. We refuse to dismiss the statutory terminology as
insignificant. Bylaws are not articles of incorporation, and a stat-
ute contemplating the latter is not satisfied by the former.
¶27 Once again, the rest of the code reinforces this conclusion.
In many instances, the code illustrates that ―bylaws‖ and ―articles
of incorporation‖ are not interchangeable. As just one example,
the Utah Revised Business Corporation Act delineates how arti-
cles of incorporation and bylaws may be amended. The process
for amending articles of incorporation is much more restrictive
than the process imposed for bylaws. See id. §§ 16-10a-1001 to -08,
10a-1020 to -23. To amend articles of incorporation, for instance,
the board of directors must propose an amendment, which must
then be voted upon by the shareholders. Id. § 16-10a-1003. Yet, ei-
ther the board of directors or the shareholders can amend a corpo-
ration‘s bylaws at any time. Id. § 16-10a-1020. Thus, articles of in-
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corporation and bylaws are hardly interchangeable. The differ-
ences in statutory procedures for their amendment highlight the
perils of equating them.
¶28 In any event, the bylaws cited by ClearOne do not support
the indemnification standard it advances. The only indemnifica-
tion limit in the bylaws that imposes a standard of conduct—
Section 5.1—applies only to directors. Though ClearOne cites this
section as ―expressly prohibit[ing] indemnification of a director or
officer unless‖ the standard of conduct is satisfied, it clearly does
no such thing with respect to officers. That is not to say that
ClearOne‘s bylaws do not limit officer indemnification in any
way. They do. Section 5.3 limits officer indemnification, but does
so without imposing the standard of conduct listed in 5.1. Instead,
it allows ClearOne to indemnify officers ―to any extent consistent
with public policy.‖ As discussed below, we can identify no pub-
lic policy ground that would prevent Strohm from meriting in-
demnification in this instance. Infra ¶¶ 29–32. Therefore, nothing
in ClearOne‘s bylaws—or articles of incorporation—prevents it
from indemnifying Strohm.
3
¶29 ClearOne‘s final challenge to the district court‘s statutory
indemnification ruling is grounded in public policy. Section 902, it
argues, ―establishes a Utah public policy prohibiting the use of
corporate funds unless the corporate director or officer has satis-
fied the requisite standard of conduct.‖ We disagree.
¶30 While declarations of public policy may be found in stat-
utes, not all statutory provisions constitute overarching state-
ments of public policy. See Peterson v. Browning, 832 P.2d 1280,
1282 (Utah 1992). And nothing in this statute suggests to us that
section 902 is such a statement. Instead, we read section 902 as
part of a larger indemnification scheme that is itself a comprehen-
sive statement of public policy.
¶31 The code provides for three types of indemnification: per-
missive, court-ordered, and mandatory. See UTAH CODE §§ 16-10a-
902, -905, -907. Permissive indemnification is subject to the stand-
ard of conduct described in section 902. Mandatory indemnifica-
tion, on the other hand, does not depend on any standard of con-
duct. See id. §§ 16-10a-905, -907. Thus, corporations may be re-
quired to indemnify an officer even when that officer has acted in a
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STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
manner that is contrary to section 902‘s standard of conduct. Giv-
en that indemnification is statutorily required in some circum-
stances despite noncompliance with the 902 standard of conduct,
it cannot be against public policy to allow corporations to indem-
nify officers that do not meet such a standard of conduct. Rather,
Utah‘s public policy concerning indemnification for corporate of-
ficers and directors encompasses a range or scale of duties of in-
demnification—one that, at least sometimes, does not require
compliance with a standard of conduct.
¶32 The text of the statutory indemnification scheme is the
governing public policy in this area. See VCS, Inc. v. La Salle Dev.,
LLC, 2012 UT 89, ¶ 23, 293 P.3d 290 (―[The purported purpose of a
statute] cannot be used to . . . override the meaning of a statute
that is otherwise plain.‖). By applying the statute as written, we
remain faithful to the public policy embraced by the legislature.
And the statute, on its face, requires ClearOne to indemnify
Strohm for her successful criminal defense. We accordingly affirm
the district court‘s statutory indemnification ruling.
B. Contractual Indemnification
¶33 ClearOne next argues that the district court erred when it
ruled that the engagement agreements were an ―alternative basis‖
for criminal defense indemnification.4 We conclude that the en-
gagement letters unambiguously required ClearOne to indemnify
Strohm for her criminal defense, and affirm the district court‘s rul-
ing on this alternative ground.
¶34 Whether the engagement letters required ClearOne to in-
demnify Strohm for her criminal defense is a matter of contract
interpretation. ―When interpreting a contract, a court first looks to
the contract‘s four corners to determine the parties‘ intentions,
which are controlling.‖ Bakowski v. Mountain States Steel, Inc., 2002
UT 62, ¶ 16, 52 P.3d 1179. ―[T]he parties‘ intentions are deter-
4 Though the district court referred to the engagement agree-
ments as being an ―alternative basis‖ for requiring indemnifica-
tion, the agreements are more aptly described as superior sources
of indemnification. As explained below, the engagement agree-
ments provide a broader indemnification right than does the stat-
ute and so cannot be thought of as merely backing up the statuto-
ry indemnification duty.
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mined from the plain meaning of the contractual language . . . .‖
Glenn v. Reese, 2009 UT 80, ¶ 10, 225 P.3d 185 (internal quotation
marks omitted); Pugh v. Stockdale & Co., 570 P.2d 1027, 1029 (Utah
1977) (―The beginning point of interpretation of a contract is . . .
the ordinary and usual meaning of the words.‖). We consider ex-
trinsic evidence of party intent only when the contractual lan-
guage is ambiguous. Glenn, 2009 UT 80, ¶ 10. ―A contractual term
or provision is ambiguous if it is capable of more than one reason-
able interpretation because of uncertain meanings of terms, miss-
ing terms, or other facial deficiencies.‖ Id. (internal quotation
marks omitted). ―Whether a contract is ambiguous is a question of
law, which we . . . review for correctness.‖ Bodell Constr. Co. v.
Robbins, 2009 UT 52, ¶ 16, 215 P.3d 933.
¶35 Both engagement letters contain similar language, and both
encompass indemnification for criminal defense. The Bendinger
letter was drafted and executed first and states, in pertinent part:
―This letter will summarize and confirm the agreement for my
firm, Bendinger, Crockett, Peterson & Casey to represent Susie
Strohm‘s interests in connection with the SEC civil complaint, ref-
erenced above, and in connection with further related investiga-
tions and litigation.‖ The Dorsey letter was executed some four-
teen months later. Its operative section states: ―[T]his letter con-
firms your engagement of Dorsey & Whitney, LLP . . . to represent
Susie Strohm in connection with the SEC civil complaint, refer-
enced above, and in connection with further related investigations
and litigation including, among others, Anderton v. ClearOne
Communications, et al. Civil No. 0300918066; and E-Bond Epox-
ies, Inc. Profit Sharing Plan and Trust v. Frances Flood et al. Civil
No. 030906061.‖
¶36 Though the word ―criminal‖ is not used in either letter,
their terms clearly encompass criminal litigation. In context, the
―further related investigations and litigation‖ identified in both
letters includes a criminal investigation and resulting trial. Under
this clause, ClearOne agreed to indemnify Strohm for investiga-
tions and litigation related to the SEC civil complaint. The investi-
gation and litigation most closely related to the SEC civil action
was the federal criminal action. Indeed, the SEC civil action and
the federal criminal action involved the same allegations and the
same conduct. One can only be thought of as the natural result of
the other. For this reason, we cannot agree with the district court
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STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
that the ―scope and the purpose of the agreements‖ are facially
ambiguous.
¶37 We likewise reject ClearOne‘s construction of ―litigation‖
as referring exclusively to civil matters. The ordinary meaning of
―litigation‖ is broad enough to encompass both criminal and civil
actions, even though it may often be used to refer to civil actions.
―Litigation‖ and ―litigate‖ are defined as ―[l]egal action or pro-
cess‖ and ―[t]o subject [something] to legal proceedings,‖
AMERICAN HERITAGE DICTIONARY 763 (1981), or as ―the practice of
taking legal action‖ and ―to carry on a legal contest by judicial
process‖ or to ―prosecute or defend by pleadings, evidence, and
debate in a court,‖ WEBSTER‘S THIRD NEW INTERNATIONAL
DICTIONARY 1322 (2002). A criminal proceeding by the prosecution
against a defendant fits easily and naturally within these defini-
tions. A criminal proceeding is a legal action or process. It accord-
ingly qualifies as ―litigation‖ under the engagement letters.
¶38 The Dorsey letter‘s listing of three civil actions as included
in ―further related investigations and litigation‖ is not to the con-
trary. An otherwise broad, generic contract term may be restricted
when modified by a clearly exclusive list. But this list is neither
exclusive nor restrictive.5 The Dorsey letter lists three civil cases as
examples, but it does not limit indemnifiable actions to those spe-
cific claims or even claims like them. Instead, the three civil ac-
tions are described as being ―among others.‖
¶39 The parties‘ use of the word ―investigation‖ is further indi-
cation that they contemplated indemnification for criminal de-
fense. ―Investigation‖—or ―to investigate‖—is defined as a ‖de-
tailed examination‖ or ―searching inquiry‖ or ―to observe or
study closely; inquire into systematically.‖ WEBSTER‘S THIRD NEW
INTERNATIONAL DICTIONARY 1189 (2002). Though this definition
encompasses civil, non-official inquiries, ―investigation‖ is used
most often in a criminal context. In this way, ―investigation‖—like
―litigation‖—can refer to undertakings in either a criminal or civil
matter, but here the word more commonly has a criminal flavor.
5See Rodriquez v. Christus Spohn Health Sys., No. C-09-95, 2011
WL 4074475, at *4 (S.D. Tex. Aug. 18, 2011) (stating that use of the
word ―‗including‘ followed by a list indicates that the list is not
meant to be exclusive‖).
14
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court
So, the engagement letters clearly contemplate that ClearOne
would indemnify Strohm for the costs associated with investigat-
ing the criminal charges against her. Given that contemplation,
only a tortured reading of the letters would dictate indemnifica-
tion for both criminal and civil investigation but only for civil—not
criminal—litigation. We accordingly affirm the district court‘s rul-
ing requiring ClearOne to indemnify Strohm for her criminal de-
fense costs under the engagement agreements.
¶40 Dorsey and Strohm ask us to go one step further. In the
cross-appeal, they argue that once the district court determined
that Dorsey was entitled to fees under the engagement letters, it
could not change the contract terms to then limit those fees by
time or based on the success of that representation. We agree.
¶41 In its ruling and order dated January 24, 2011, the district
court held that ―from the date of [the perjury] jury verdict
ClearOne shall not be held liable . . . to pay [Strohm‘s] fees and
expenses in the criminal case post-February 27, 2009, all of which
must be attributed to the perjury count.‖ Based on this language,
it appears that the district court assumed that Strohm could not
recover defense fees related to charges for which she was convict-
ed. This would have been true if Strohm‘s—and Dorsey‘s—claims
were limited to statutory indemnification. The statute under
which Strohm qualifies for indemnification states that ―a corpora-
tion shall indemnify a director [or, by operation of subsection 907,
an officer] who was successful, on the merits or otherwise, in the defense
of any proceeding, or in the defense of any claim . . . against reasonable
expenses incurred by him in connection with the proceeding or
claim with respect to which he has been successful.‖ UTAH CODE
§ 16-10a-903 (emphasis added). Because Strohm was convicted of
one count of perjury, this statute would operate to save ClearOne
from indemnifying her for fees related to that charge.
¶42 But the district court did not limit Strohm and Dorsey‘s in-
demnification right to statutory indemnification. Rather, it held
that the engagement letters ―provid[ed] an alternative basis to re-
quire [ClearOne] to pay [Strohm‘s] reasonable legal fees incurred
in her defense of federal criminal proceedings . . . or to reimburse
her for fees paid to her counsel and co-plaintiff.‖ So, Strohm and
Dorsey can require indemnification for the perjury charge if the
letter agreements contemplated that ClearOne would indemnify
15
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
Strohm for fees related even to unsuccessfully defended charges.
We read the letters that way and accordingly reverse.
¶43 Nothing in the engagement letters purports to limit indem-
nification to successful challenges to criminal charges. Rather, the
letters contemplate that Bendinger and then Dorsey would repre-
sent Strohm in her criminal defense and that Strohm and
ClearOne would ―be jointly and severally responsible for pay-
ment of all amounts billed under th[ese] Agreement[s].‖ ―Where
the terms and conditions of a contract are not unconscionable, and
no fraud, duress, or misrepresentation is claimed, the courts must
enforce all contracts as the parties have made them and not as the
court thinks they should have been made.‖ Johnson v. Geddes, 161
P. 910, 915 (Utah 1916).
¶44 So, while we agree with the district court‘s ultimate ruling
on the contractual indemnification issue, we reverse its decision to
limit Strohm‘s indemnification for criminal defense costs to those
incurred before February 27, 2009. We accordingly remand to the
district court for a determination of reasonable fees from that date
to the conclusion of Strohm‘s appeal in the criminal case.
III. TERMINATION OF DORSEY ENGAGEMENT
AGREEMENT
¶45 ClearOne next argues that it ended its payment obligation
under the Dorsey letter in November 2009, nine months after
Strohm‘s jury verdict and six months before she was sentenced,
and thus cannot be forced to indemnify Strohm for amounts in-
curred after that date. On this point, the district court determined
that ClearOne did not have the power to ―unilaterally terminate
the attorney-client relationship‖ between Strohm and Dorsey.
ClearOne contends that this was error. Specifically, ClearOne as-
serts that it never attempted to sever Strohm‘s attorney-client rela-
tionship with Dorsey, but sought only to end its obligation to pay
Dorsey‘s fees.
¶46 The Dorsey engagement letter provides that ―[Dorsey] will
withdraw from representation upon your request.‖ It also states
that the letter confirms ―your engagement of [Dorsey] to represent
[Strohm].‖ ClearOne argues that because it is a party to the en-
gagement letter, ―your‖ as used in the letter refers to it and thus
gives it the power to terminate its payment obligation. We do not
read the letter that way.
16
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court
¶47 Because the letter is addressed to both Strohm and
ClearOne (through Keough, its CEO), ―your‖ is best understood
in its plural form, meaning ClearOne and Strohm. Under this
reading, the ―your‖ in Dorsey‘s promise to ―withdraw from rep-
resentation upon your request‖ refers to both Strohm and
ClearOne. The Dorsey letter, therefore, does not give ClearOne the
option of unilaterally asking Dorsey to withdraw. Rather, the
terms of the engagement letter require a joint withdrawal request.
And Strohm never asked Dorsey to withdraw. Thus, the district
court was correct when it refused to enforce ClearOne‘s Novem-
ber 2009 letter attempting to force Dorsey‘s withdrawal.6
¶48 In briefing, ClearOne suggests that it never attempted to
sever Strohm‘s attorney-client relationship with Dorsey, but only
to end its own payment obligation to Dorsey. But the letter does
not give ClearOne the option of ending its payment obligation. It
simply gives the parties the option of asking Dorsey to ―withdraw
from representation.‖ And the only representation that Dorsey
undertook is representation of Strohm. Asking an attorney to
withdraw from a case is vastly different from ending a require-
ment to pay for that attorney. While the letter contemplates the
former, it says nothing about the latter.
¶49 We accordingly affirm the district court‘s ruling on the
ground that ClearOne had no right under the letter agreement to
6 Dorsey was representing Strohm and her interests and, by
agreement, owed ―all . . . professional responsibilities under ap-
plicable law . . . solely to‖ her. Allowing what amounts to a third-
party payor to unilaterally sever an attorney-client relationship
under these circumstances could be problematic. By rule, lawyers
may not allow third-party payors to guide or interfere with prop-
er representation of a client. See UTAH R. PROF‘L CONDUCT 5.4(c)
(―A lawyer shall not permit a person who recommends, employs
or pays the lawyer to render legal services for another to direct or
regulate the lawyer‘s professional judgment in rendering such le-
gal services.‖). In so noting, we do not and need not reach the
question whether a third-party payor‘s unilateral request for
withdrawal would put counsel in jeopardy under this rule. Our
conclusion, rather, is simply to note the potential for conflict un-
der the rule and to observe that our construction of the engage-
ment agreements avoids it.
17
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
unilaterally request Dorsey‘s withdrawal or to terminate its pay-
ment obligation to Dorsey.
IV. REASONABLENESS OF FEE AWARD
¶50 ClearOne next contests the reasonableness of the district
court‘s attorney fee determination in the criminal case, arguing
that the award was excessive. We disagree.
¶51 Once the district court determined that Strohm and
ClearOne were entitled to both statutory and contractual indemni-
fication for Strohm‘s criminal defense, it acquired ―broad discre-
tion in determining what constitutes a reasonable attorney fee‖
under both the statute and the contract. See Bakowski v. Mountain
States Steel, Inc., 2002 UT 62, ¶ 33, 52 P.3d 1179.7 The evaluation of
reasonableness is guided by the following considerations:
1. What legal work was actually performed?
2. How much of the work performed was reasonably
necessary to adequately prosecute the matter?
3. Is the attorney‘s billing rate consistent with the
rates customarily charged in the locality for similar
services?
4. Are there circumstances which require considera-
tion of additional factors, including those listed in
the Code of Professional Responsibility?8
7 See also Foote v. Clark, 962 P.2d 52, 54 (Utah 1998) (―Generally,
attorney fees in Utah are awarded only as a matter of right under
a contract or statute.‖).
8 Utah Rule of Professional Conduct 1.5(a) lists the following
―factors to be considered in determining the reasonableness of a
fee‖:
(1) the time and labor required, the novelty and diffi-
culty of the questions involved and the skill requisite
to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the
acceptance of the particular employment will pre-
clude other employment by the lawyer;
18
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court
Dixie State Bank v. Bracken, 764 P.2d 985, 990 (Utah 1988) (footnotes
omitted).9
¶52 Because the reasonableness of an attorney fee award ―must
be decided against a variety of factual backgrounds,‖ the district
court ―is in a better position than an appellate court to gauge the
quality and efficiency of the representation and the complexity of
the litigation.‖ Valcarce v. Fitzgerald, 961 P.2d 305, 317 (Utah 1998)
(internal quotation marks omitted). Thus, ―we will not reverse a
trial court‘s determination of whether a fee is reasonable absent an
abuse of discretion.‖ Bakowski, 2002 UT 62, ¶ 33. Under this stand-
ard, a district court‘s ruling will not be reversed unless it ―was be-
yond the limits of reasonability,‖ see Daines v. Vincent, 2008 UT 51,
¶ 21, 190 P.3d 1269 (internal quotation marks omitted), or not
―based on an evaluation of the evidence,‖ Cottonwood Mall Co. v.
Sine, 830 P.2d 266, 269 (Utah 1992).
¶53 ClearOne contends that the district court‘s fee award ex-
ceeds the limits of reasonableness. Specifically, ClearOne argues
that the fees awarded in the criminal case are unreasonable be-
(3) the fee customarily charged in the locality for
similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by
the circumstances;
(6) the nature and length of the professional relation-
ship with the client;
(7) the experience, reputation and ability of the law-
yer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
9 See Salmon v. Davis Cnty., 916 P.2d 890, 898 (Utah 1996)
(“[S]ome of the factors relevant to attorney fee determinations . . .
include the difficulty of the litigation, the efficiency of the attor-
neys in presenting the case, the reasonableness of the number of
hours spent on the case, the fee customarily charged in the locality
for similar services, the amount involved in the case and the result
attained, and the expertise and experience of the attorneys in-
volved.‖ (internal quotation marks omitted)).
19
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
cause (1) certain lawyers‘ rates were too high, (2) the district court
allowed unnecessary travel-related expenses, and (3) Dorsey‘s at-
torneys charged excessive hours in the criminal case. 10 We disa-
gree.
1
¶54 ClearOne‘s first challenge to the district court‘s attorney fee
award in the criminal case centers on its contention that Dorsey‘s
out-of-town attorney rates were too high for the Salt Lake City
market and higher than anticipated in the engagement agree-
ments, which contemplated that Marsden would be Strohm‘s
primary counsel. The district court set rates for two of Strohm‘s
criminal counsel, William Michael and Christopher Shaheen, at
$515 and $400 per hour respectively. According to ClearOne, rates
for Strohm‘s attorneys should not exceed customary Utah rates
and should, in no event, exceed the $360 per hour set for Marsden.
In so arguing, ClearOne relies on the district court‘s statement in
its March 2, 2010 Ruling and Order that, based on the Bendinger
letter, the parties intended ―that except in unusual circumstances,
[Marsden‘s] rate would be the highest rate.‖ In ClearOne‘s view, it
was an abuse of discretion for the court to then conclude that
10 ClearOne also argues that the district court erred when it em-
ployed the voluntary payment rule to conclude that ClearOne
waived its right to contest the amount of attorney fees paid to
Dorsey for its criminal defense work prior to commencement of
the instant litigation. See S. Title Guar. Co. v. Bethers, 761 P.2d 951,
955 (Utah 1988) (―[A] person cannot recover back money which he
has voluntarily paid with full knowledge of all of the facts, with-
out fraud, duress, or extortion in some form.‖ (internal quotation
marks omitted)). But the district court made it clear that it was not
relying on this rule when it declined to consider pre-litigation
payments in its reasonableness assessment. According to the dis-
trict court, the rule only buttressed its determination that Dorsey
waived its right to contest the reasonableness of the pre-litigation
charges by paying—and sometimes negotiating a reduction in—
these charges. We agree with that determination. And though the-
se already-paid fees could properly play a role in determining the
reasonableness of the unpaid fees, the district court did not abuse
its discretion by failing to consider them in that capacity.
20
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court
Marsden‘s time would be billed at $360 per hour but that other
attorneys‘ rates would be set even higher. We disagree.
¶55 The district court‘s determination of attorney billing rates,
for both in-state and out-of-state attorneys, was careful and rea-
sonable and certainly within the bounds of its discretion. In insist-
ing that no attorney should have been billed at higher than $360
per hour, ClearOne asks us to hold the district court to an off-
hand statement made in an order that neither intended nor at-
tempted to determine the reasonableness of Dorsey‘s fee request.
We see no basis for so doing, particularly when the district court
itself limited the import of that statement in the same Ruling and
Order. After stating that Marsden‘s rate would be the highest, the
court explained that it ―cite[d] these provisions for the sole pur-
pose of putting the parties on notice that a reasonable fee deter-
mination is within the sound discretion of the trial court, but the
Court will be guided as much as possible by contract language.‖
¶56 We see nothing in the district court‘s rate-setting analysis
that exceeds the bounds of the parties‘ intentions as memorialized
in the engagement letters. As the district court noted and as the
terms of the engagement letters confirmed, ―the ultimate form
and complexity [of the criminal case] was not known‖ at the time
the letter agreements were executed; ―[i]t was a matter of profes-
sional responsibility for Dorsey to staff the case as it evolved, with
lawyers best able to represent [Strohm];‖ and her lead criminal
counsel, William Michael, ―was an appropriate choice.‖ In the en-
gagement letters, the parties agreed that Marsden‘s law firm
would ―be entitled to decide who the appropriate firm employee
is for any particular task‖ and that ―hourly rates are subject to ad-
justment‖ and may ―be affected by factors such as the amount in-
volved in the representation, unusual time constraints, use of pri-
or work product, and overall value of the services.‖ In view of this
language, approving out-of-state attorneys at higher billing rates
is altogether reasonable.11
11 Contrary to ClearOne‘s contention, there is nothing contradic-
tory in the district court deciding both (1) that the engagement let-
ters contemplated indemnification for criminal defense because
Marsden wore ―two or more hats‖ as both civil and criminal de-
fense counsel and (2) that the complexity of the criminal case re-
quired different, higher priced counsel. That the case became un-
21
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
¶57 In determining reasonable attorney rates, the district court
examined the experience and skill level of Strohm‘s attorneys,
identified comparably skilled and experienced attorneys in the
Salt Lake City market, and used rates charged by the latter as a
reference to set reasonable rates for the former.12 We find nothing
unreasonable about this approach. Indeed, our caselaw recom-
mends just such an inquiry. See Dixie State Bank, 764 P.2d at 990
(calling for consideration of whether an attorney‘s rate is ―con-
sistent with the rates customarily charged in the locality for simi-
lar services‖). Its determinations on this score were bolstered by
Dorsey‘s expert, who ―validated both the selection of a highly
skilled specialist and the reasonableness of Dorsey‘s rates in both
[the criminal and collection] cases.‖13
2
¶58 Second, ClearOne challenges the district court‘s approval
of travel-related expenses, asserting that they cannot be reasona-
bly charged to ClearOne in light of the parties‘ understanding that
legal services would be performed locally. This contention falters
on similar grounds. The district court held, and we agree, that
wieldy and was more appropriately handled by others does not
change the fact that Marsden did function as a criminal defense
attorney when the parties signed the Bendinger letter.
12 For instance, the district court described Strohm‘s lead defense
attorney, Michael, as ―in the upper echelon of criminal lawyers
handling complex securities matters‖ and that ―fair comparisons
to [Michael], in the Salt Lake legal community, include James
Jardine (Ray, Quinney & Nebeker) and David Jordan (Stoel
Rives). Record evidence at comparable times include billing rates
for both of $450 in 2008-2009.‖ In similar fashion, the court re-
duced Mr. Shaheen‘s typical hourly rate from $475 to $400 ―to
more closely resemble his Salt Lake peers.‖
13 ClearOne seems to challenge the district court‘s decision to
credit Dorsey‘s expert on this issue instead of its own. But it is the
district court‘s province to determine the weight and credibility of
expert testimony. Yelderman v. Yelderman, 669 P.2d 406, 408 (Utah
1983). ClearOne‘s characterization of Dorsey‘s expert testimony as
―vague and conclusory‖ falls far short of a persuasive challenge to
the district court‘s determination on this score.
22
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ClearOne agreed to ―fund all reasonable and necessary expenses,
and did not place any restrictions on the identity or geographic
location of counsel.‖ As discussed above, supra ¶ 56, ClearOne
and Strohm agreed that Marsden‘s firm retained the discretion to
decide how to staff Strohm‘s representation. And the choice to use
Michael and others is, from where we sit, beyond reproach. As the
district court noted, ―the results speak for themselves.‖
¶59 Though the district court refused to limit or completely
avoid billing the lodging and travel costs, it once again softened
its ruling by giving ―careful scrutiny‖ to the issue of travel time.
Specifically, it noted that ―travel time that does not include any
preparation or related work done in behalf of the client is argua-
bly of less value to the client‖ and determined that a 25 percent
reduction would be applied to ―travel time billed without any de-
scription that includes preparation or work on the case.‖ This ap-
proach fits comfortably in the requirement that a district court
consider work ―actually performed‖ as well as other ―circum-
stances which require consideration of additional factors.‖ See
Dixie State Bank, 764 P.2d at 990. We therefore hold that the court
did not abuse its discretion by including travel-related expenses in
Dorsey‘s attorney fee award or in limiting the fees related to trav-
el time where no client work occurred.
3
¶60 In its final challenge to the reasonableness of the fee award
in the criminal case, ClearOne asserts that Dorsey charged exces-
sive hours, as purportedly evidenced by the disparity between the
time charged in Strohm‘s case and in the case against Flood
(Strohm‘s co-indictee). While Dorsey charged 8,199.25 hours for
all of its timekeepers through the verdict, Flood‘s counsel charged
only 4,331.75 for the same time period. As a threshold matter, we
find this kind of comparison largely unhelpful. The factual dispar-
ities and nuanced differences in strategy inherent in cases involv-
ing different defendants, evidence, and defenses typically make
one-to-one time comparisons relatively meaningless.
¶61 So while ClearOne also asserts that Dorsey has no justifica-
tion for spending more hours defending Strohm than Flood‘s
counsel spent defending her, the district court clearly found that it
did, and we agree. In response to ClearOne‘s ―simplistic‖ chal-
lenge, the district court noted that ―Dorsey & Whitney, with its
23
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
greater resources and experience in the area took the laboring oar
in document review and management, preparation of witness kits
and trial exhibits, and similar work, the fruits of which were
shared with [Flood‘s attorneys] under the Joint Defense Agree-
ment.‖ ClearOne completely ignores this point, but we cannot.
Having agreed to this burden sharing and benefited from it,
ClearOne cannot now hamstring Dorsey with it.
¶62 ClearOne also ignores another significant justification for
the disparity in time charged: Dorsey was overwhelmingly suc-
cessful in its defense of Strohm, while Flood was convicted on all
counts brought against her. We cannot say that this result is due
to Dorsey‘s work alone; undoubtedly differences between
Strohm‘s and Flood‘s actions and responsibilities played a part in
their respective criminal culpability. But our rules provide that the
result obtained on behalf of a client can play a part in the reasona-
bleness of the fee charged, see UTAH R. PROF‘L CONDUCT 1.5(a)(4),
and that factor accordingly weighs in favor of the reasonableness
of the district court‘s award.
¶63 In sum, we hold that the district court‘s attorney fee award
in the criminal case was reasonable. The parties agreed that
Marsden‘s law firm would make all staffing decisions and that
rates charged could increase over time to account for special cir-
cumstances. By adjusting attorney rates to the Salt Lake City mar-
ket and by limiting travel expenses, the district court properly
tempered its ruling to accommodate the reasonableness factors
that serve as guides in this inquiry.
V. CONSTRUCTION OF DORSEY ENGAGEMENT
AGREEMENT
¶64 ClearOne next challenges the district court‘s ruling that the
parties‘ engagement agreement contained provisions allowing 18
percent interest on unpaid charges and awarding Dorsey fees and
costs incurred in enforcing the engagement agreements. Under
the district court‘s ruling, the Dorsey letter—which contained no
provision for 18 percent interest or for collection fees—―implicitly
incorporated the terms of the Bendinger [letter],‖ which contained
those terms, ―changing only those elements of the former agree-
ment that were specifically addressed.‖ The district court reached
this result by determining that the Dorsey letter was ambiguous
but that extrinsic evidence revealed that the parties intended the
24
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court
Dorsey letter to incorporate the terms of the Bendinger letter not
specifically addressed therein.
¶65 We find no ambiguity in the Dorsey letter and read it to in-
corporate the Bendinger letter‘s interest rate and collection fee
provisions.
¶66 The original engagement agreement (the Bendinger letter),
provided that
Clearone will pay the full amount of [Bendinger‘s] bill
within thirty days after receipt. Any amount billed
and unpaid after such thirty day period shall bear and
accrue interest at the rate of 18% per annum from the
date billed until paid.
....
We shall be entitled to recover all reasonable costs ex-
pended in connection with collecting amounts due
under this Agreement, including reasonable attor-
neys‘ fees.
¶67 When Marsden joined Dorsey & Whitney in early 2004, he
sent ClearOne and Strohm a letter to memorialize this change. The
letter states that ―[a]s you know, I recently left the law firm of
Bendinger, Crockett, Peterson & Casey, and joined the law firm of
Dorsey & Whitney LLP. Our engagement agreement needs to be
updated to reflect this move. The rest of this letter is intended to
serve as the update.‖ The letter then goes on to list, in general
terms, the legal services that will be provided, along with the fees,
disbursements, and billings. It does not, however, repeat or con-
tradict the Bendinger letter‘s interest rate or collection fee provi-
sions.
¶68 We interpret the Dorsey letter‘s ―update‖ plainly to incor-
porate the terms of the Bendinger letter not specifically addressed
or changed in the Dorsey letter. To ―update‖ something is not ―to
supplant‖ or ―to replace‖ it as ClearOne asserts. Instead, ―update‖
is simply ―to bring up to date.‖ WEBSTER‘S THIRD NEW
INTERNATIONAL DICTIONARY 2517 (2002). And the ordinary mean-
ing of bringing something up to date is to account for intervening
circumstances or to reflect the latest information or changes. See
id. at 2519 (defining ―up-to-date‖ as ―extending up to the present
time‖ or ―including the latest facts‖). Based on these definitions, it
25
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
seems clear that the Dorsey letter was meant to alter the parties‘
engagement agreement only to the extent that its provisions con-
flict with or change provisions of the Bendinger letter.14 Because
the Dorsey letter does not address or forbid interest on unpaid
billed amounts or an allowance for amounts incurred to enforce
the agreements,15 those terms from the Bendinger letter remain
part of the parties‘ engagement agreement.16
VI. REASONABLENESS OF THE INTEREST RATE
¶69 ClearOne, however, challenges the enforceability of the in-
terest rate provision, asserting that 18 percent interest is unrea-
14 Though ClearOne suggests that it is not clear enough, we re-
fuse to adopt a standard for incorporation that would require par-
ties to use magic words to accomplish something that can be done
in many ways and using many types of phrases. Indeed, in this
and all matters of contract interpretation, we will continue to be
guided—as we always have been—by the parties‘ intentions, as
revealed in the ordinary meaning of the words they used.
15 The Dorsey letter also neglects to mention the $5,000 retainer
required by the Bendinger letter. Thus, that term was also incor-
porated into the Dorsey letter, and Dorsey could have rightfully
required that ClearOne and Strohm provide a retainer. But Dorsey
did not, and the time when Dorsey could have asked for one has
passed.
16 In briefing and at oral argument, ClearOne seemed to suggest
that our Rules of Professional Conduct somehow require more
clarity in contracts between attorneys and their clients than we
require in contracts between regular parties. We disagree. While
rule 1.5(b) requires attorneys to communicate to the client ―[t]he
scope of the representation and the basis or rate of the fee and ex-
penses for which the client will be responsible‖ and ―[a]ny chang-
es in the basis or rate of the fee or expenses,‖ UTAH R. PROF‘L
CONDUCT 1.5(b), nothing in that rule or any other rule prescribes a
higher standard of clarity for attorney-client fee agreements than
that imposed on regular contracts. That is not to say that counsel
could not or should not aspire to greater clarity. Our rules simply
set a minimum standard. Bar members can and should seek to ex-
ceed the standard. But as for what is legally required, we read the
rules as consistent with the requirements of contract law.
26
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sonable in general because it is unconscionable and in this case
because, in a contract between a client and its attorney, such an
interest rate is unreasonable, unfair, and a violation of Utah Rule
of Professional Conduct 1.5(e). We find no merit to these argu-
ments and affirm the district court‘s decision to apply 18 percent
interest to charges billed in the criminal case.
¶70 ClearOne must offer more than its bare assertion of unrea-
sonableness to convince us to override the already-determined
intentions of the parties to a contract. At base, ClearOne‘s position
is simply that it shouldn‘t have to pay 18 percent interest because
that rate is high. But it is not enough to assail a contract term on
the grounds that it seems unfavorable to your interests. And if
ClearOne thought that 18 percent interest was truly outside the
bounds of acceptable rates—unconscionable as a matter of public
policy—it was obligated to present expert testimony and/or es-
tablished caselaw to that effect. It offered neither.
¶71 ClearOne‘s only arguable foothold seems to be in our Rules
of Professional Conduct and the ―higher ethical standard[]‖ that
applies to attorneys ―when contracting with their clients.‖ Infra
¶ 101. We do not disagree that our rules require more from attor-
neys in certain contractual relationships than is required of non-
attorneys. But nothing in our rules requires or even suggests that
we can use that standard as a basis for invalidating otherwise-
enforceable contractual provisions. Our Rules of Professional
Conduct ―define proper conduct for purposes of professional dis-
cipline‖ rather than establishing a higher duty as a matter of law.
UTAH R. PROF‘L CONDUCT, Preamble (emphasis added). They
―simply provide a framework for the ethical practice of law‖ and
―[f]ailure to comply with― that obligation ―is a basis for invoking
the disciplinary process‖ rather than a basis for contract tinkering.
Id.Violation of a rule should not itself give rise to a cause
of action against a lawyer nor should it create any
presumption in such a case that a legal duty has been
breached. . . . The Rules are designed to provide
guidance to lawyers and to provide a structure for
regulating conduct through disciplinary agencies.
They are not designed to be a basis for civil liabil-
ity. . . . The fact that a rule is a just basis for a lawyer‘s
self-assessment, or for sanctioning a lawyer under the
27
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, Opinion of the Court
administration of a disciplinary authority, does not
imply that an antagonist in a collateral proceeding or
transaction has standing to seek enforcement of the
rule.
Id.; Archuleta v. Hughes, 969 P.2d 409, 414 (Utah 1998) (―[T]he Utah
Rules of Professional Conduct are not designed to create a basis
for civil liability.‖).
¶72 Even if our court rules were relevant to this discussion,
ClearOne has not established that any of our rules require us to
alter the terms of its contract with Dorsey and Strohm. True, rule
1.5(a) precludes a lawyer from ―mak[ing] an agreement for,
charg[ing] or collect[ing] an unreasonable fee.‖ UTAH R. PROF‘L
CONDUCT 1.5(a). But we fail to see how a rule that on its face sets
standards for fees has any impact on interest that accrues on un-
paid fees. Interest charged after a lawyer has assessed a fee does
not become part of the fee itself.
¶73 None of our other rules of conduct are to the contrary.
ClearOne‘s contract with Dorsey is not a contingent fee agree-
ment, so rule 1.5(c) is inapplicable. See infra ¶ 101. It also does not
involve a separate business transaction, so rule 1.8(a) is no help.
See infra ¶ 102. While rule 1.5(b) does operate here to require both
―the basis or rate of the fee and expenses‖ and ―[a]ny changes in
the basis or rate of the fee‖ to ―be communicated to the client,‖ no
one has alleged such communication was absent. Rather, Justice
Parrish‘s separate opinion seems to impose an extra ―clarity‖ re-
quirement that goes beyond mere communication to require ―ex-
plicit‖ communication. See infra ¶¶ 101–05. This heightened clarity
statement, however, has no basis in the rules or in our caselaw.
¶74 In any event, moreover, rule 1.5(a) itself lists reasonable-
ness factors that appear to accommodate an interest rate of this
altitude—―the likelihood . . . that the acceptance of the particular
employment will preclude other employment by the lawyer,‖ ―the
fee customarily charged in the locality for similar legal services,‖
and ―the time limitations imposed by the client or by the circum-
stances‖ incorporate notions of special circumstances, risk, and
custom. See UTAH R. PROF‘L CONDUCT 1.5(a). Absent evidence on
these or other factors, we have no way to assess the reasonable-
ness of the interest rate here, and thus no basis for striking it
down.
28
Cite as: 2013 UT 21JUSTICE LEE, Opinion of the Court/dissenting
¶75 Accordingly, we refuse to invalidate the interest rate provi-
sion in this case because ClearOne has failed to carry its burden of
coming forward with evidence or authority to demonstrate that 18
percent interest is unreasonable.
VII. ENFORCEABILITY OF THE COLLECTION FEE PROVISION
¶76 ClearOne likewise challenges the collection fee provision,
arguing that the district court ran afoul of state public policy
when it allowed Dorsey to collect attorney fees on its own en-
gagement agreement. Specifically, ClearOne contends that our de-
cision in Jones, Waldo, Holbrook & McDonough v. Dawson, 923 P.2d
1366, 1374 (Utah 1996), articulates a public policy basis for disal-
lowing pro se lawyer-litigants from recovering their own attorney
fees. Unlike the majority, I disagree and would hold that Jones,
Waldo applies only in situations involving a true pro se lawyer-
litigant. Because Dorsey is not such a litigant, Jones, Waldo is inap-
plicable, as the district court correctly concluded.
¶77 In Jones, Waldo, a law firm sued a former client in an at-
tempt to collect attorney fees incurred representing the client in a
divorce action. Id. at 1369–70. As part of this action, the law firm
asked the court to award it attorney fees incurred in pursuing the
collection action against the client. Id. at 1370. The trial court de-
nied this request, and we affirmed, concluding that a lawyer-
litigant enjoys an advantage of ―competently present[ing] [a]
claim without retained counsel‖ and that we were ―loath to en-
hance that advantage by giving the lawyer-litigant recovery . . . as
[the successful] party‘s attorney.‖ Id. at 1374 (internal quotation
marks omitted). We also identified ―compelling public policy rea-
sons‖ supporting the result. Id. at 1375.
¶78 Specifically, we decided that (1) ―[f]inancing litigation by
fee awards provides a new incentive to lawyers to increase their
fees,‖ and ―gives rise to the danger of creating a ‗cottage industry‘
for claimants . . . as a way to generate fees rather than to vindicate
personal claims,‖ and (2) creates a ―captive client‖ who ―has no
control over the amount of time the attorney will spend or how it
will be spent.‖ Id. at 1375 (second alteration in original) (internal
quotation marks omitted). In such situations, we held that there is
no incentive for the lawyer-litigant to limit the total fee or ―to ex-
plore less expensive collection alternatives.‖ Id. In addition to the-
se public policy concerns, the Jones, Waldo court ―interpreted ‗at-
29
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, dissenting
torney fee‘ as denoting a monetary obligation (a fee) paid or owed
from one person (a client) to another person who has provided
legal representation (an attorney)‖ and determined that ―an attor-
ney‘s fee presupposes a relationship of attorney and client which
does not exist in pro se situations.‖ Id. (internal quotation marks
omitted). Pro se lawyer-litigants, under this rationale, do not incur
fees when they prosecute their own actions and so should not be
reimbursed for those fees. Id.¶79 I find Jones, Waldo distinguishable and inapplicable here.
Unlike the law firm in Jones, Waldo, Dorsey is not purely a pro se
litigant. See id. at 1369; see also Smith v. Batchelor, 832 P.2d 467, 473–
74 (Utah 1992) (holding that a pro se attorney-litigant is not enti-
tled to recover attorney fees for successful litigation). As a signa-
tory to the engagement agreements, Strohm is ―jointly and sever-
ally responsible‖ for fees owed to Dorsey, including those in-
curred in the collection action. Thus, Dorsey seeks in this case to
vindicate not only its rights, but Strohm‘s as well.
¶80 This is an important difference in my view—one that Jus-
tice Parrish‘s separate opinion for the court dismisses too quickly.
Dorsey has a client in this case. And the presence of a client inter-
est largely alleviates the public policy and incentive concerns
raised in Jones, Waldo. With Strohm on board, Dorsey cannot be
seen to operate without client control because it is bound by rule
and by agreement to represent Strohm professionally and ethical-
ly. See UTAH R. PROF‘L CONDUCT 1.2(a) (―[A] lawyer shall abide by
a client‘s decisions concerning the objectives of representation and
. . . shall consult with the client as to the means by which they are
to be pursued.‖); id. 3.2 (―A lawyer shall make reasonable efforts
to expedite litigation consistent with the interests of the client.‖).
Perhaps ClearOne had no client control, as the majority suggests.
See infra ¶ 96. But Strohm did. And she has a real stake in the out-
come of the collection action against ClearOne. Should Strohm‘s
and Dorsey‘s claims against ClearOne prove unsuccessful, Strohm
would be liable for Dorsey‘s unpaid fees. And, as the district court
noted, Strohm‘s rights under the engagement agreements ―cannot
be vindicated unless she has competent counsel to assert those
rights.‖ Dorsey accordingly cannot be said to be pursing litigation
―as a way to generate fees rather than to vindicate personal
claims.‖ See Jones, Waldo, 923 P.2d at 1375 (internal quotation
marks omitted).
30
Cite as: 2013 UT 21JUSTICE LEE, dissenting
¶81 These distinctions leave only one element of the rationale
in Jones, Waldo—that pro se lawyer-litigants do not incur fees.
Strohm‘s presence in this action, however, renders that element
inapplicable. Because Strohm will become liable to pay Dorsey‘s
fees should Dorsey be unable to collect them from ClearOne, it
can hardly be said that she has not incurred attorney fees in pur-
suing this collection action. She has certainly incurred them and,
based on her engagement agreement with Dorsey, she is legally
responsible to pay them. Whether she is likely to have the funds
to pay those fees is another matter, but that was not at all a factor
that drove our decision in Jones, Waldo. See infra ¶ 97. And I cannot
agree that Strohm ―had almost nothing to lose by supporting
Dorsey‘s attempt to prevail against ClearOne.‖ See infra ¶ 96. She
had everything to lose. Perhaps Dorsey could not satisfy its entire
debt by pursuing Strohm for her part of its collection fees, but it
could ruin her financially and leave her with nothing.
¶82 Even if the rationale was applicable here, I would find it
insufficient and unrealistic. Every minute a law firm (or lawyer)
spends in a pro se collection action is a minute it cannot spend on
other matters for paying clients. Thus, in some sense, law firms
really do incur costs when they engage in pro se litigation. It is no
answer to speculate that ―in many cases firms are not utilizing
their full capacity,‖ so ―undertaking extensive pro se litigation of-
ten does not, as a practical matter, result in lost opportunity
costs.‖ See infra ¶ 95. Such speculation may or may not be correct,
but it does accept as true one important fact: that (at least some)
firms incur costs when pursuing their own collection matters.
How many that may be is unknowable, despite the majority‘s in-
vocation of ―most‖ and ―often.‖ See infra ¶ 95.
¶83 Thus, because this case does not implicate the core of the
Jones, Waldo decision—public policy considerations concerning
captive clients and improper incentives—I would conclude that
nothing prevents Dorsey from seeking fees for time spent on col-
lection efforts under the engagement agreement.
¶84 That does not mean, however, that my preferred approach
would give Dorsey and firms like it an unfettered and ungov-
erned right to collect these kinds of fees. In circumstances like the-
se, this court has always entrusted the calculation of fees and as-
sessment for reasonableness to the discretion of the district court.
See Cottonwood Mall Co. v. Sine, 830 P.2d 266, 269 (Utah 1992) (stat-
31
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE LEE, dissenting/Opinion of the Court
ing that attorney fees must be reasonable). The careful exercise of
that discretion is sufficient to alleviate any of the lingering con-
cerns expressed in Jones, Waldo and identified as the driving fac-
tors behind the majority‘s extension of Jones, Waldo. Infra ¶¶ 91–
95. Lawyer-litigants who unnecessarily run up legal fees and em-
ploy tactics that serve only to prolong and complicate litigation
should expect to face a challenge to the reasonableness of their
fees under our caselaw. See Salmon v. Davis Cnty., 916 P.2d 890,
893 (Utah 1996) (explaining that reasonableness of an attorney fee
award is assessed based on factors such as the efficiency of the at-
torneys, the amount involved, and the result obtained).
¶85 I accordingly dissent from Section I of Justice Parrish‘s sep-
arate opinion for the court. I would affirm the district court‘s
award in Dorsey‘s favor of fees incurred in seeking recovery un-
der the letter agreements.
VIII. CONCLUSION
¶86 For the foregoing reasons, we affirm the district court‘s de-
termination that Utah Code sections 16-10a-903 and -907 and the
parties‘ engagement agreements require ClearOne to indemnify
Strohm, but reverse the district court‘s decision to limit Strohm‘s
criminal defense cost indemnification to the fees and expenses
billed before her perjury conviction. We also conclude ClearOne
did not have the right to unilaterally end its payment obligation to
Dorsey and Strohm and affirm the district court‘s reasonableness
determination for fees in the criminal case. Next, we determine
that the Dorsey letter incorporated the 18 percent interest and col-
lection fee provisions from the Bendinger letter and affirm the dis-
trict court‘s decision to enforce the interest rate provision. Finally,
though a majority of the court invalidates the collection fee provi-
sion under Jones, Waldo, I would enforce it. We remand for further
proceedings consistent with this opinion.
——————
JUSTICE PARRISH, Opinion of the Court as to Section I; dissent-
ing as to Section II:
ANALYSIS
¶87 While I concur in much of the analysis of the lead opinion,
I respectfully disagree as to two issues. Specifically, I disagree
with the lead opinion‘s conclusion that Dorsey is entitled to re-
cover its attorney fees in the collection action because the factual
32
Cite as: 2013 UT 21JUSTICE PARRISH, Opinion of the Court
situation presented in this case implicates the public policy con-
cerns raised by Jones, Waldo, Holbrook & McDonough v. Dawson, 923
P.2d 1366, 1374–75 (Utah 1996). Even though this case does not
involve a purely pro se lawyer-litigant, see supra ¶¶ 79–80, Strohm
had no incentive to rein in Dorsey, who was therefore uncon-
strained by costs. Our prohibition on fee collection by lawyer-
litigants was designed to protect against this precise type of be-
havior. My view on this issue has garnered a majority and so rep-
resents the holding of the court with respect to the recoverability
of attorney fees in the collection action.
¶88 I also disagree with the lead opinion as to a lawyer‘s ethi-
cal obligations in contracting with his clients. In contracting with
clients, lawyers are bound by higher ethical standards than typical
parties to a contract. I believe that the Agreements in this case do
not meet that heightened standard.
I. ATTORNEY FEES ARE NOT WARRANTED UNDER
A NATURAL EXTENSION OF THE JONES WALDO
RULE PROHIBITING THE COLLECTION OF
ATTORNEY FEES BY PRO SE LAWYER-LITIGANTS
¶89 The lead opinion reads Jones Waldo narrowly and applies
it only to those situations where the attorney or law firm is solely
representing its own legal interests. In this case, however, since
the Agreements make Strohm jointly and severally responsible for
Dorsey‘s attorney fees, including those incurred in the collection
action, the lead opinion reasons that Dorsey is not ―purely a pro
se litigant‖ and that Jones Waldo’s reasoning is inapplicable. See
supra ¶ 79.
¶90 The lead opinion finds this distinction dispositive because
of the view that the presence of a client ―largely alleviates‖ the
public policy and perverse incentives for continued litigation that
concerned us in Jones Waldo. Supra ¶ 80. It reasons that Dorsey ―is
bound by rule and by agreement to represent Strohm profession-
ally and ethically‖ and should ―Dorsey‘s claims against ClearOne
prove unsuccessful, Strohm would be liable for Dorsey‘s unpaid
fees.‖ Supra ¶ 80. The lead opinion therefore concludes that
Dorsey is not engaging in the kind of fee-driven litigation that we
found unacceptable in Jones Waldo.
¶91 Though the lead opinion correctly concludes that Dorsey
has a client in the formal sense, by distinguishing between the
33
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE PARRISH, Opinion of the Court
purely pro se setting of Jones Waldo and the facts here, it eviscer-
ates the underlying principles of Jones Waldo—protecting captive
clients and curbing improper incentives. Particularly where, as
here, the client has little or no incentive to act as a check on the
behavior of her attorneys and there are few, if any, external incen-
tives for the attorneys to control costs, the policies driving our
holding in Jones Waldo are implicated.
¶92 We have long recognized the ―general rule that pro se liti-
gants should not recover attorney fees . . . regardless of their pro-
fessional status.‖ Smith v. Batchelor, 832 P.2d 467, 473–74 (Utah
1992). Because the lawyer-litigant‘s ability to competently present
a claim without the aid of retained counsel is an inherent ad-
vantage, we are ―loath to enhance that advantage by giving the
lawyer-litigant recovery not only as a successful party, but also as
that party‘s attorney.‖ Id. at 474.
¶93 In Jones Waldo, we identified several important public
policy concerns motivating the general prohibition against the
collection of attorney fees for pro se attorney-litigants. First,
permitting pro se lawyer-litigant fee recovery creates an incentive
to artificially increase fees. Jones, Waldo, Holbrook & McDonough v.
Dawson, 923 P.2d 1366, 1375 (Utah 1996). ―In the case of a paying
client, the lawyer who wants to retain client satisfaction will have
an incentive to limit the total fee. That incentive is not present in
fee award cases.‖ Id. (internal quotation marks omitted). ―A
captive client . . . has no control over the amount of time the
attorney will spend or how it will be spent. And [lawyer-litigants]
ha[ve] no motivation to explore less expensive collection
alternatives.‖ Id.¶94 A second, though related risk, is that permitting pro se
lawyer-litigants to recover their fees will result in increased and
protracted litigation. Id. Where a lawyer-litigant may finance her
own litigation through fee awards, there is an incentive to in-
crease fees, which in turn drives the ―adversary‘s predictable re-
sponse . . . to litigate the fee claim itself.‖ Id. (internal quotation
marks omitted); see also Connor v. Cal-Az Props., Inc., 668 P.2d 896,
898 (Ariz. Ct. App. 1983) (reasoning that ―attorneys representing
themselves might be tempted to protract litigation for their own
financial betterment‖). This gives rise to the danger of ―creating a
‗cottage industry‘ for claimants . . . as a way to generate fees rath-
34
Cite as: 2013 UT 21JUSTICE PARRISH, Opinion of the Court
er than to vindicate personal claims.‖ Jones Waldo, 923 P.2d at
1375 (internal quotation marks omitted).
¶95 Finally, we expressed reservations about characterizing
the costs of pro se attorney litigation as fees that are ―incurred.‖
Id. ―It is by no means self-evident that the time a lawyer spends
on his own case represents fees ‗incurred.‘‖ Id. Because attorney
fees are ―a monetary obligation (a fee) paid or owed from one per-
son (a client) to another person who has provided legal represen-
tation (an attorney) . . . attorney fee[s] presuppose[] a relationship
of attorney and client which does not exist in pro se situations.‖
Swanson & Setzke, Chtd. v. Henning, 774 P.2d 909, 910 (Idaho Ct.
App. 1989) (internal quotation marks omitted). Further, because
in many cases firms are not utilizing their full capacity, undertak-
ing extensive pro se litigation often does not, as a practical matter,
result in lost opportunity costs. Rather, such a firm is incentivized
to use its extra capacity, in the form of lawyers in search of billable
hours or new associates whose time would not otherwise be
billed, to pursue pro se litigation with the hope that the firm will
reap a significant fee award, with zero downside risk. We there-
fore reasoned in Jones Waldo that ―a law firm does not ‗incur‘ fees
when it uses its own attorneys in a collection action.‖ 923 P.2d at
1375.
¶96 Though Dorsey technically has a client in Strohm, the
public policy concerns motivating the general prohibition against
the collection of attorney fees for pro se attorney-litigants are di-
rectly implicated by the facts here. ClearOne, as the entity un-
derwriting the cost of Strohm‘s litigation, is the captive client that
―has no control over the amount of time the attorney will spend or
how it will be spent.‖ Id. Dorsey had no incentive to limit the
hours it expended or the costs it incurred to prosecute its collec-
tion action against ClearOne. Nor was Strohm motivated to limit
Dorsey‘s expenditures in the collection action. Because ClearOne
was jointly and severally liable under the Agreements for the un-
derlying fees and was statutorily required to indemnify Strohm
for her fees in both the underlying criminal and the subsequent
collection action, Strohm had almost nothing to lose by support-
ing Dorsey‘s attempt to prevail against ClearOne.
¶97 As a practical matter, it is far more likely that Dorsey
would collect its nearly one million dollar fee from ClearOne, a
large corporation, than from Strohm, a private individual. Even
35
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE PARRISH, Opinion of the Court
lacking an explicit agreement between them that Dorsey would
not attempt to collect any residual unpaid fees from Strohm, it is
highly unlikely that Dorsey would have expended over eight
hundred thousand additional dollars to attempt to collect fees
from Strohm in the event that Dorsey was unsuccessful in its col-
lection action against ClearOne. And the higher the collection fees
became—pursuant to the 18 percent interest rate specified in the
Agreement—the less likely Strohm would be able to pay the fees
for which she was jointly and severally responsible and the less
likely Dorsey would have been to pursue her. And, in any event,
Strohm was statutorily entitled to indemnity from Clear One.
¶98 These realities negate, as a practical matter, Strohm‘s in-
centive to reign in her attorneys. Indeed, they created a perverse
incentive for her to refrain from limiting Dorsey‘s efforts. Further,
because Dorsey employed its own attorneys rather than those of
another firm, Dorsey had nothing to lose in protracted litigation.
As we explained in Jones Waldo, Dorsey‘s use of in-house attor-
neys means that it does not incur fees. Id. As a result, neither
Strohm nor Dorsey had any incentive to limit the total fee gener-
ated by the collection action against ClearOne—a result squarely
within the scope of Jones Waldo.
¶99 While Jones Waldo does not govern every collection action,
there are instances outside of the purely pro se lawyer-litigant set-
ting that, because of their peculiar factual bases, raise concerns re-
lated to captive clients and unconstrained litigation that Jones
Waldo was meant to curb. Though the lead opinion reasons that
―[w]ith Strohm on board, Dorsey cannot be seen to operate with-
out client control,‖ Strohm was disincentivized to control
Dorsey‘s escalating costs. Supra ¶ 80. Rather, Dorsey was incen-
tivized to prolong litigation in order to assess and collect its fees
from ClearOne. Therefore, even though this case is not directly
within the facts presented in Jones Waldo, the policy interests mo-
tivating that case extend naturally to the facts present here, and its
prohibition of the award of attorney fees to pro se lawyer-litigants
should also apply. We therefore hold that Dorsey is unable to re-
cover its attorney fees in the collection action.
36
Cite as: 2013 UT 21JUSTICE PARRISH, dissenting
II. IN CONTRACTING WITH THEIR CLIENTS,
ATTORNEYS ARE BOUND BY HIGHER ETHICAL
CONSIDERATIONS THAN TYPICAL PARTIES
TO A CONTRACT
¶100 I disagree with the lead opinion‘s analysis regarding the
standard to be applied to attorneys entering into fee agreements.
Supra ¶ 64. While I agree that the Dorsey letter incorporates the
provisions of the Bendinger letter, the interest rate and collection
provisions contained in the letters raise concerns about a lawyer‘s
ethical role when drafting such engagement agreements and I be-
lieve the issue should not be resolved on summary judgment.
¶101 Despite the lead opinion‘s assertion that ―nothing in [the
Rules of Professional Conduct] prescribes a higher standard of
clarity for attorney-client fee agreements than that imposed on
regular contracts,‖ supra ¶ 68 n.14, the attorney-client relationship
is not analogous to an ordinary contractual relationship. Indeed,
the Utah Rules of Professional Conduct (Rules) contemplate high-
er ethical standards for attorneys when contracting with their cli-
ents than do typical laws of contract formation. For instance, we
require that a contingent fee agreement ―be in a writing signed by
the client‖ and that it ―state the method by which the fee is to be
determined.‖ UTAH R. PROF‘L CONDUCT 1.5(c). Such formalities
are not required in typical contract formation, even when such a
contract is based on a contingent return.
¶102 Similarly, subject to certain limited exceptions, ―[a] law-
yer shall not enter into a business transaction with a client or
knowingly acquire an ownership, possessory, security, or other
pecuniary interest adverse to a client.‖ Id. 1.8(a). Again, there is
no such prohibition on typical contracting parties, nor is there
such a prohibition when lawyers are contracting with parties
whom they do not represent. Finally, under the Rules, lawyers
may not ―solicit any substantial gift from a client,‖ nor may they
prepare instruments conveying substantial gifts unless they are
related to the client. Id. 1.8(c). Such restrictions are simply inap-
plicable to non-lawyers. As stated by the California Court of Ap-
peal, ―[t]he Rules of Professional Conduct are not only ethical
standards to guide the conduct of members of the bar; but they
also serve as an expression of public policy to protect the public.‖
Fields v. Ratfield, No. C09-01125, 2012 WL 5359775, at *9 (Cal. Ct.
App. Nov. 1, 2012) (internal quotation marks omitted).
37
STROHM v. CLEARONE COMMUNICATIONS, INC.
JUSTICE PARRISH, dissenting
¶103 Such protection of the public extends to the clarity of a
lawyer‘s communication with his or her client on the issue of fees.
I agree with the lead opinion that lawyers can and should aspire
to ―great[] clarity‖ in their dealings with clients, but I believe that
the ―minimum standard‖ set by the Rules is higher than that
which the lead opinion advocates. Supra ¶ 68 n.16 (―[A]s for what
is legally required, we read the rules as consistent with the re-
quirements of contract law.‖). Under the Rules, ―the basis or rate
of the fee and expenses for which the client will be responsible
shall be communicated, preferably in writing, before or within a
reasonable time after commencing the representation . . . . Any
changes in the basis or rate of the fee or expenses shall also be
communicated to the client.‖ UTAH R. PROF‘L CONDUCT 1.5(b). In
this case, however, the communication between Dorsey, Strohm,
and ClearOne is anything but explicit.
¶104 For example, Dorsey‘s decision to bring in what the dis-
trict court determined to be overpriced out-of-state counsel was
not adequately communicated. See supra ¶ 54. Because the
Dorsey letter did not explicitly contemplate the use of expensive
outside counsel, neither Strohm nor ClearOne were on notice that
Dorsey would hire such counsel and bill them at rates hundreds
of dollars higher than those in the local area. Such exorbitant fees
were in contrast to the language of the letter stating that Dorsey‘s
―fees are ordinarily based on our usual and customary hourly
rates [of approximately $255].‖ And though the Dorsey letter
stated that ―[o]ur hourly rates are subject to adjustment from time
to time,‖ hiring high-priced out-of-state counsel surely cannot
constitute an ―adjustment‖ to Dorsey‘s typical hourly rates.
¶105 The lack of clarity in agreements such as those at issue
here is entirely within the control of the attorneys drafting the
agreements. And when lack of clarity leads to issues of notice or
misplaced expectations, it is the clients, rather than the drafting
attorneys, who are negatively impacted. I believe that attorneys
should be held to a higher standard. They should not just strive
for ―great[] clarity‖ in their agreements, but should not be benefit-
ted when they neglect to draft agreements that lack such clarity.
CONCLUSION
¶106 The holding of the court is that Dorsey is not entitled to
recover its attorney fees in the collection action. Attorney fees
38
Cite as: 2013 UT 21JUSTICE PARRISH, dissenting
were not warranted because the facts here present a natural exten-
sion of our precedent prohibiting collection of attorney fees by pro
se lawyer-litigants. Although Dorsey technically has a client, the
incentives are such that there was essentially no check on its ex-
penditures.
¶107 I respectfully dissent from the lead opinion as to the
standards to be applied to lawyers in drafting fee agreements with
their clients. Lawyers should be, and often are, held to higher eth-
ical standards than other parties to a contract.
39