Tuesday, February 24, 2004
Supreme Court Rules:
Ethics Rule No Bar to Law Firm’s Quantum Meruit Fee Recovery
By DAVID WATSON, Staff Writer
An ethics rule barring lawyers and law firms from dividing fees without full disclosure to, and the consent of, the client does not prevent a firm from recovering the reasonable value of its work under a theory of quantum meruit, the state Supreme Court ruled yesterday.
The high court ruling leaves the Manhattan Beach firm of Huskinson & Brown without the $18,000 it was awarded by Los Angeles Superior Court Judge Deanne Myers as its share of a medical malpractice award won by Encino lawyer Mervyn Wolf for Beverly Sanchez. But it allows the firm to recover more than the $800 it would have received under a May 2002 ruling by this district’s Court of Appeal.
Myers found the oral agreement under which Wolf was to pay 25 percent of his fee to the Huskinson firm in return for referring the case to him to be unenforceable under Rule 2-200 of the California Rules of Professional Conduct. The rule bars splitting fees with a lawyer outside the firm undertaking representation unless the “client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division.”
But the trial judge said Huskinson should be allowed to recover the 25 percent anyway on an unjust enrichment theory.
As an alternative, she ruled the firm should receive $5,000 for legal work it did on the case and $800 in fees it paid to a medical expert under the doctrine of quantum meruit.
In an opinion by Justice Norman Epstein, this district’s Div. Four cut all but the $800, concluding the policy underlying Rule 2-200 would be undermined by allowing a quantum meruit recovery for legal work.
But yesterday Justice Marvin Baxter, writing for a unanimous Supreme Court, disagreed.
“[R]ule 2-200 does not purport to restrict attorney compensation on any basis other than a division of fees,” Baxter wrote. “Nor does it suggest that attorneys or law firms are categorically barred from making or accepting client referrals, from agreeing to a division of labor on a client’s case, or from actually working on a case where labor is divided.”
The justice reasoned:
“True, a quantum meruit award as such would serve to compensate for legal services that have been performed pursuant to an agreement rendered unenforceable under rule 2-200. But when based on the reasonable value of those services, such an award involves no apportionment of the fees that the client paid or has agreed to pay and therefore is not a fee division subject to Rule 2-200’s client disclosure and consent requirements.”
Baxter noted that in 1994 the State Bar’s Standing Committee on Professional Responsibility and Conduct formally advised lawyers that they need not comply with the requirements of Rule 2-200 before paying outside attorneys an hourly fee to work on a case.
“Like an hourly fee arrangement,” he explained, “an award of compensation based on the number of hours plaintiff worked on Sanchez’s case would not divide or be otherwise tied to the specific legal fees she paid.”
Permitting quantum meruit recovery “would not discourage” attorneys from complying with Rule 2-200, Baxter asserted.
“Attorneys who negotiate contingent fee-sharing agreements, which take into account the risk that the client pays no fee if the client does not prevail in his or her case, understandably prefer to receive their negotiated fees rather than the typically lesser amounts representing the reasonable value of the work performed,” he observed. “Consequently, even if quantum meruit recovery is available when the absence of client notification or consent renders a fee-sharing agreement unenforceable, such attorneys have no less incentive to comply with rule 2-200.”
The justice continued:
“The facts of this case illustrate the point precisely. If the parties had obtained Sanchez’s written consent to the agreed fee sharing as rule 2-200 requires, plaintiff might have received $18,497.91 in fees. As determined by the trial court, however, the reasonable value of plaintiff’s 20 hours of legal services was only $5,000. Because the negotiated fee far exceeds the amount of quantum meruit recovery, we may logically assume that, notwithstanding the availability of quantum meruit recovery, plaintiff and all other similarly situated law firms and attorneys remain fully motivated to see that all of their future fee-sharing agreements comply with rule 2-200.”
Courts have denied quantum meruit recovery to attorneys for violations of the Rules Of Professional Conduct only where the rule that was violated “proscribed the very conduct for which compensation was sought,” Baxter said.
Arne Werchick of Werchick & Werchick in Palm Desert, who filed an amicus brief in the case, said the case resolved an issue left hanging when the high court decided Chambers v. Kay (2002) 29 Cal.4th 142. In that case, the justices said a failure to comply with Rule 2-200’s written consent provision barred recovery on a written agreement to divide a contingency fee, but did not say whether quantum meruit recovery was barred.
Werchick, who represents the plaintiff in Chambers, said that while only a few thousand dollars was at stake in the case decided yesterday, the amount at issue in Chambers could be as much as $1 million.
Yesterday’s ruling will allow his client to seek a quantum meruit recovery in that case, Werchick said.
“That’s what we were holding our breath for,” he commented, adding:
“We may get a small payday, but we’ll get a payday.”
The case is Huskinson & Brown, LLP v. Wolf, 04 S.O.S. 831.
Copyright 2004, Metropolitan News Company