Retailer Sued by California Must Pay Legal Fees, Not Insurer

April 15, 2021, 7:26 PM

A California retailer has to pay its own legal fees in a consumer protection suit filed against it by the state, the Ninth Circuit said Thursday.

Under California insurance law, an insurer is prohibited from paying legal fees for any insured sued by the state under its Unfair Competition Law and False Advertising Law.

When Adir International LLC, which runs the retail chain Curaco in California, was sued by the state under the two statutes, it asked its insurer, Starr Indemnity and Liability Company, to cover its legal fees. Although its contract with Adir said it would, Starr changed its mind after California pointed out the prohibition.

Adir claimed the state stripped it of its due process right to have its insurer cover its defense. The district court disagreed and ordered Adir to return the $2 million in fees Starr had already paid.

The due process right to counsel in civil suits only applies in extreme scenarios where the government substantially interferes with a party’s ability to communicate with its lawyer or actively prevents a party that is willing and able to obtain counsel from doing so, the opinion by Judge Kenneth K. Lee said.

There is no reason to enlarge the right here, the U.S. Court of Appeals for the Ninth Circuit said. While Adir complains that California’s prohibition is unfair, “the statute does not actively prevent Adir from obtaining counsel or communicating with its lawyers,” it said.

“At the end of the day, California’s law only makes it harder, though not necessarily impossible, for a civil litigant to retain the counsel of their choice,” the court said. Adir was also able to obtain competent counsel—without the use of insurance funds—for this appeal, it said.

Judges N. Randy Smith and Matthew F. Kennelly, sitting by designation, joined the opinion.

Klapach & Klapach represented Adir. Troutman Pepper Hamilton Sanders LLP represented Starr.

The case is Adir Int’l LLC v. Starr Indem. & Liab. Co., 2021 BL 138051, 9th Cir., No. 19-56320, 4/15/21.

To contact the reporter on this story: Bernie Pazanowski in Washington at bpazanowski@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com

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