Firm may recover fees in quantum meruit where fee-sharing agreement violated professional conduct rule

Law Reporter, Jun 2004

Huskinson & Brown, LLP v. Wolf, 84 P.3d 379 (Cal. 2004).

The California Supreme Court held that a law firm may recover fees in quantum meruit after a fee-sharing agreement was found unenforceable under professional conduct rules because the client did not provide written consent to the agreement.

Here, a law firm referred a client with a medical negligence claim to another law firm. The first firm had paid a medical expert for the case and also performed 20 hours of legal work. In exchange for the referral, the second firm orally agreed to pay the first firm 25 percent of any attorney fees recovered. After the client received an award, the second firm refused to pay the 25 percent. The first firm sued, seeking recovery in quantum meruit.

A trial court found for plaintiff on the quantum meruit claim. An appellate court reversed, finding that the fee-sharing agreement violated the state's professional conduct Rule 2-200, which provides, in part, that lawyers cannot share fees for legal services without the client's written consent.

Reversing, the state high court rejected defendant's argument that permitting recovery under quantum meruit is analogous to permitting a division of fees that is barred by 2-200. Rule 2-200, the court explained, does not restrict attorney compensation on any basis other than fee division. It does not bar attorneys from making or accepting referrals, agreeing to a division of labor, or actually working on a case where labor is divided. Although a quantum meruit award would compensate a firm for legal work performed under an agreement that is barred by 2-200, such an award does not involve a division of fees that the client has paid. Thus, there is no fee division subject to the rule's disclosure and consent requirements.

The court further noted allowing recovery in quantum meruit would not discourage compliance with rule 2-200. Attorneys who negotiate contingent fee-sharing arrangements prefer to receive negotiated fees rather than the lesser amounts representing the reasonable value of services rendered. Thus, even if quantum meruit recovery is available, such attorneys do not have less incentive to comply with 2-200. The court noted that if the parties here had obtained the client's consent to the agreement, plaintiff would have received significantly greater fees than what the trial court had originally awarded under quantum meruit. Because the negotiated fee far exceeds the amount of quantum meruit recovery, it is logical to assume that plaintiff and other firms will still have an incentive to comply with rule 2-200.

In addition, the legislature's regulation of fee arrangements favors quantum meruit recovery, the court said. Under the Business & Professions Code, attorneys must obtain written fee agreements from their clients. However, even though the provisions provide that failure to comply renders an agreement voidable at the client's option, both also state that an attorney remains entitled to collect a reasonable fee even if the agreement is void. Thus, allowing quantum meruit recovery is consistent with the legislature's policy that firms that perform services deserve reasonable compensation even in the absence of a valid fee agreement.

Accordingly, the court remanded.

Plaintiff's Counsel

Clark L. McCutchen, Venice, Cal.

Amicus Curiae Counsel

Arne Werchick, Truckee, Cal.

Jerome Fishkin, San Francisco, Cal.