This article focuses on California Rule of Professional Conduct [CRPC] Rule 1.5.1, which took effect November 1, 2018, and regulates fee sharing by lawyers who are not in the same law firm. Rule 1.5.1 includes pure “referral” fees, as well as where the attorneys share work on the case.
Rule 1.5.1 implements two significant changes to the former rule 2-200 intended to increase client protection: first, the agreement between the lawyers to divide a fee must now be in writing; and second, a new timing mandate requires the client to consent in writing to the division after a full disclosure of the contemplated fee sharing at or near the time the lawyers enter into the agreement to divide the fee.
Under former Rule 2-200, there was no express requirement that the agreement between the lawyers be in writing. Case law has held that client consent to the fee division need not be obtained until the fee is actually divided, which might not occur until years after the lawyers entered into their agreement.
The changes implemented by Rule 1.5.1. are intended to further assure the client’s representation is not adversely affected as a result of an agreement to divide a fee. Deferring disclosure and client consent to the time the fee is divided denies the client a meaningful opportunity to consider the concerns the rule is intended to address. (See Mink v. Maccabee (2004) 121 Cal.App.4th 835.)
Former Rule 2-200 did not require the agreement between the lawyers be in writing, did not require the identification of the parties to the division, and permitted client consent at the time of the fee split—which is oftentimes at the end of a case when all the work has been done.
The new CRPC 1.5.1 provides:
The writing requirements of paragraphs (a)(1) and (a)(2) may be satisfied by one or more writings. (Comment to Rule 1.5.1.)
The terms “law firm” and “writing” as used in Rule 1.5.1 are defined in CPRC 1.0.1(c) and (n) respectively. Under Rule 1.5(a) the total fee must not be “unconscionable.”
The purpose of Rule 1.5.1 is to protect the public and promote respect for and confidence in the legal profession. (Chambers v. Kay (2002) 29 Cal4th 142, 157 fn.9 [former rule 2-200]) It protects clients from inherent potential conflicts of interest. (Mark v. Spencer (2008) 166 Cal.App.5th 219, 225.)
The written disclosure to the client ensures the lawyers themselves truly agree to the exact terms of the fee-sharing agreement, thus making it less likely they will have a disagreement that will lead to litigation or potentially negatively impact the client. (Chambers v. Kay, supra, 29 Cal.4th 142, 157 fn. 9) New CPRC 1.5.1(a) further solidifies the lawyers’ understanding by requiring that they enter into a written agreement to divide a fee.
Fee sharing agreements in violation of Rule 1.5.1 are void and unenforceable on public policy grounds. (Chambers v. Kay, supra, 29 Cal.4 th at 156-161; Huskinson & Brown, LLP v. Wolf (2004) 32 Cal.4th 453, 463 (former CRCP 2-200); Tuft, Peck & Mohr, Cal. Prac. Guide: Professional Responsibility (The Rutter Group 2018) §§5:466.[Tuft]) Quantum meruit recovery, however, for the reasonable value of legal services is still permitted as between lawyers, but not against the client, and cannot be based upon the terms of the unenforceable fee division agreement itself. (Tuft, supra, at §466.2 Huskinson, at 458-461.)
Before beginning work on a case, each fee-sharing lawyer should independently ensure timely compliance with CRPC 1.5.1. An attorney should not rely on another attorney to provide the common client with the requisite written disclosure and obtain the client’s written consent. (See Tuft at §5:466.1; Chambers v. Kay, supra, 29 Cal.4 th at 162-163.)
California attorneys dividing fees with attorneys from other jurisdictions should be mindful that most other jurisdictions follow the American Bar Association Model Rule 1.5(e) which significantly differs from CRPC 1.5.1. ABA Model Rule 1.5 (e) permits lawyers to divide a fee only to the extent that the referring lawyer is compensated in proportion to the work actually done by each lawyer on the matter or if the referring lawyer assumes joint responsibility for the matter. In contrast, CRPC 1.5.1 requires neither of these terms.
California’s is one of a minority of states that still permits a “pure referral fee” whereby a lawyer is permitted to be compensated for referring a matter to another lawyer without requiring the referring lawyer’s continued involvement in the matter. Under California law, such referral fees are not contrary to public policy. (Moran v. Harris (1982) 131 Cal.App.3d 913, at 921-922.)
Another significant difference is that ABA Model Rule 1.5(e) does not require fee-sharing lawyers to have a written fee division agreement. CRPC 1.5.1 (a)(1) does.
Also ABA Model Rule 1.5(e) provides that the client may consent in writing to the fee division and each lawyer’s share, or the lawyer may send the client a writing confirming the client’s oral consent at the time or at a reasonable time after such oral consent. In contrast, CRPC 1.5.1(a)(2) requires the client’s written consent after the written disclosure of each lawyer’s share, as well as the complete terms of the division, the identity of all lawyers involved, and fact a fee division will be made.
Finally, the State Bar’s website includes sample “Written Fee Agreement Forms” with non-binding, optional provisions. These include: “Attachment C – Optional Clauses and Disclosure Forms” that address the “Division of Contingency Fees,” an “Other Attorney – Hourly” provision and a “Payment of Referral” clause which may aid California lawyers in complying with their ethical obligations under Rule 1.5.1.
http://board.calbar.ca.gov/docs/agendaItem/Public/agendaitem1000024230.pdf)
Richard D. Hendlin is an attorney at law.
**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**
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