Tuesday, November 5, 2002
S.C. Says Lack of Client Consent Invalidates Fee-Sharing Agreement
By KENNETH OFGANG, Staff Writer/Appellate Courts
Failure to obtain the client’s written consent bars enforcement of an agreement to share fees among lawyers from different firms who worked together on a case, the state Supreme Court ruled yesterday.
The justices unanimously affirmed a ruling by the First District’s Div. One, declaring that a San Francisco lawyer is not entitled to enforce a contract that would have entitled him to more than one-fourth of the $1.4 million in attorney fees generated by Rena Weeks’ precedent-setting suit against Baker & McKenzie.
The law firm, which boasts to be the world’s largest, was hit with a judgment of more than $3.5 million for allowing the plaintiff, a secretary in its Palo Alto office at the time, to be sexually harassed by a then-partner.
The high court rejected Arthur Chambers’ argument that Rule 2-200 of the Rules of Professional Conduct—prohibiting fee-splitting between lawyers absent written disclosure to, and written consent from, the client—only applies to referral fees and not to arrangements among lawyers who actually share the work of representing the client.
Rule a Defense
The justices also concluded that the rule, while for the benefit of the client, is a defense that may be raised in an action between lawyers to which the client is not a party.
Chambers sued to enforce an alleged oral agreement with one of Weeks’ trial lawyers, Philip Kay. Chambers—who rented space in his Sutter Street office building to Kay in 1992 and 1993 and allowed Kay to use his law library, telephones, postage, and fax and copy machines—said the two men had an oral agreement to serve as co-counsel in the Weeks case and that he was to receive one-sixth of the 40 percent contingency fee which Kay and Weeks agreed to if the case settled before depositions, and 28 percent of the fee if it progressed beyond that point.
Chambers claimed he was removed as co-counsel due to strategic disagreements with Kay, and that Kay reiterated the fee agreement in writing when Chambers was removed but later renounced it and offered to pay Chambers $200 an hour instead, which Chambers declined.
Chambers’ interpretation of Rule 2-200, Justice Marvin Baxter wrote for the high court, is contrary to the plain language of the rule—which says a lawyer “shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with” the first lawyer absent the required disclosure and consent—and with a State Bar ethics opinion.
Nor, the justice went on to say, can the attorneys’ space-sharing arrangement be deemed to make them partners or associates and thus outside the scope of the rule. They clearly did not have a partnership, the justice explained, and since there was no employer-employee relationship, Chambers was not an associate.
Chambers’ argument that he and Kay had a joint venture, Baxter said, is unavailing because even if it is factually accurate, the partner-associate exception does not extend to joint venturers.
Baxter went on to reject the argument that because the rule is for the benefit of the client, who was not a party to the lower court proceedings, the contract should be enforced without regard to the ethics violation.
“[B]ecause this court approved rule 2-200 under legislative authorization…and because the rule binds all members of the State Bar…it would be absurd for this or any other court to aid Chambers in accomplishing a fee division that would violate the rule’s explicit requirement of written client consent and would subject Chambers to professional discipline.”
The justice acknowledged the First District’s holding that Chambers may, contrary to the ruling of the trial judge, recover in quantum meruit. Kay’s arguments that the trial judge was correct cannot be considered, Baxter explained, because Kay did not petition for review of the Court of Appeal ruling.
The amount recoverable in quantum meruit, however, cannot take into consideration the amount of the contingency fee, Baxter said. “We perceive no legal or policy justification for finding that the fee the parties negotiated without the client’s consent furnishes a proper basis for a quantum meruit award in this case,” he wrote.
The case is Chambers v. Kay, 02 S.O.S. 5618.
Copyright 2002, Metropolitan News Company