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Appeals Court Upholds $12 Million Disgorgement of Lawyer’s Fees

June 15, 2021, 7:58 PM

A California lawyer is required to disgorge $12 million in attorneys’ fees awarded in a state court case, after the U.S. Court of Appeals for the Ninth Circuit rejected challenges to the trial court’s jurisdiction, discovery rulings, and decision to certify a class.

The Ninth Circuit also rejected Mark Richard Obenstine’s argument that the disgorgement order was an abuse of discretion because not all of the class members signed retainers with him and only half of those that did were eligible for relief under California law.

Under California law, the issue is the wrongdoer’s enrichment, not the victim’s loss, the court said. The lower court found that he “wronged all class members in the state court case,” even if they didn’t retain him, and that “he profited $12 million from it,” whether the class members were California residents or not, according to the unpublished ruling Monday.

The court also rejected Obenstine’s argument that the disgorgement was excessive because it didn’t account for costs, taxes, and other expenses he incurred in connection with the case. Under California law, claims for restitution are measured by what was taken from the plaintiffs, the court said.

The underlying case, a class action filed in 2009, involved breach of contract claims over the purchase of units in what would eventually become the Cosmopolitan in Las Vegas. In 2011, the plaintiffs filed a class action against their prior class counsel, including Obenstine, in federal court for professional malpractice, breach of fiduciary duty, and fraud.

The court rejected Obenstine’s jurisdictional argument based on a named plaintiff’s alleged lack of standing. Although the plaintiff testified that he wasn’t aware of “any negative financial impact” that Obenstine “has done with respect to him,” the plaintiff also testified that he didn’t recover the total amount of his deposit for his unit and wasn’t returned the retainer that he advanced Obenstine.

Obenstine’s challenge to class certification argued, among other things, that the trial court shouldn’t have ruled on his motion for summary judgment before deciding the plaintiffs’ motion for class certification.

Although there is a general rule against deciding motions for summary judgment first, the Ninth Circuit has explained that it’s reasonable when early resolution would protect the parties and the court from unnecessary and costly further litigation. Furthermore, Obenstine failed to allege any harm from the order of decision making and waived the argument by moving for summary judgment before the class was certified, the court said.

Judges Susan P. Graber, Consuelo M. Callahan, and Danielle J. Forrest joined the decision.

Obenstine represented himself. The class is represented by Chavez & Gertler LLP, Mehri & Skalet PLLC, and Fay Law Group PLLC.

The case is Estakhrian v. Obenstine, 9th Cir., No. 19-55459, unpublished 6/14/21.

To contact the reporter on this story: Holly Barker in Washington at hbarker@bloombergindustry.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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