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Supreme Court ruling on fees: 'Bah Humbug'

Diane Karpman
Karpman

By DIANE KARPMAN

'Tis the season to be jolly, but there is nothing amusing about Chambers v. Kay, 02 C.D.O.S. 10913, (Nov. 4, 2002) a new Supreme Court decision on referral fees. California telephone lines were lit up with plaintiffs' lawyers and even sophisticated class action lawyers saying, "oh no, not me." The case starkly clarified referral fee issues, strictly applying Rule 2-200.

The opinion illuminates the allocation of authority between the lawyer and the client, sometimes a murky subject. Clients have complete control over decisions involving substantive or "essential rights" involving the "merits of the case." (concurrence Blanton v. Womancare (1983) 145 Cal. App. 3d 100). Settlement or dismissal are categorically "essential rights."

Chambers indicates that the allocation of financial or economic resources, including what lawyers will be paid for representation, is an essential right. Clients must be given full written disclosure of any fee division, either pure referrals or fee divisions among lawyers jointly working on a case, and give written consent. "Just as a client has a right to know how his or her attorney's fees will be determined, he or she also has a right to know the extent of, and the basis for, the sharing of such fees by attorneys" (quoting Margolin v. Shemaria (2002) 85 Cal. App. 4th 891, 903). Disclosure alone was deemed insufficient because "requiring the client's written consent to the fee sharing impresses upon the client the importance of his or her consent, and of the right to reject the fee sharing." (Ibid.)

The court rejected the "ostensible" partnership argument in fee divisions. In professional negligence, where a group of lawyers is "hanging out together," they are often classified as an ostensible partnership, which is the fall-back category for loosely associated lawyers carrying on a business for profit.

Chambers affects plaintiffs' lawyers who frequently create joint ventures to fund the tremendous economic commitments caused by class actions. Class actions mandate a heightened level of competency, which the trial court is obligated to monitor at all stages of litigation. Adequacy includes the ability and financial resources to manage the case, because "where there is reason to doubt the loyalty of counsel or the adequacy of counsel's representation, serious questions arise concerning the preclusive effect of any resulting judgment" (Cal Pak Delivery Inc. v. United Parcel Service Inc. (1996) 52 Cal. App. 4th 1).

Funding consortiums and loosely organized plaintiff steering committees should take notice and disclose the arrangements to the class representatives to obtain written consents, to avoid issues at fairness hearings down the road.

The consent requirement will have the salutary benefit of preventing lawyer to lawyer disagreements and a multitude of potential litigation, which could have a negative impact upon the client's case.

It is also the charitable season . . . and nothing yet seems to restrict a lawyer's right to give a donation to the political party that took a beating, the Red Cross, Greenpeace or any other entity or individual in a demonstration of holiday spirit.

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