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Court clarifies fee split rule

The California Supreme Court sent a message to the state's lawyers last month: follow the rules and get your fee agreements signed.

In a unanimous decision, the court said that rule 2-200 of the California Rules of Professional Conduct means what it says - lawyers who are not partners, associates or shareholders cannot divide fees without the written consent of the client.

The ruling means that a San Francisco lawyer who did some work on a highly publicized sexual harassment suit cannot collect upwards of $500,000, which he claimed as his share of the attorney fees in the multi-million dollar case.

"Were we to hold that the fee . . . may be divided as (the two attorneys) agreed, with no indication that the required client consent was either sought or given, we would, in effect, be both countenancing and contributing to a violation of a rule we formally approved in order 'to protect the public and to promote respect and confidence in the legal profession,'" wrote Justice Marvin Baxter.

"Such a result would be untenable as well as inconsistent with the policy considerations that motivated the adoption of rule 2-200."

The case stemmed from a sexual harassment suit filed by former legal secretary Rena Weeks against Baker & McKenzie and an attorney in its Palo Alto office in 1992. San Francisco attorney Philip Kay was the lead counsel and he hired Arthur Chambers to help on the case by maintaining files, conducting some discovery, meeting with Weeks and appearing as co-counsel at pretrial hearings.

Long before the case went to trial, the lawyers had a falling out over tactics and Kay removed Chambers from the case. He sent Chambers a letter offering to pay him one-sixth of Kay's 40 percent contingency fee for the 175 hours of work he had done.

Although Kay sent a copy of the letter to Weeks, he never asked for or received her consent to the fee-splitting arrangement.

In 1994, a jury awarded Weeks $6.9 million, an amount that was later reduced by the trial judge to $3.5 million. After the verdict, an attorney for Kay told Chambers that because he failed to perform legal services and his billing statement contained "improper accounting," the fee-splitting arrangement was no longer valid.

Instead, Kay offered to pay Chambers $200 an hour for his work.

Chambers' subsequent breach of contract suit was tossed out by the trial and appellate courts, which both found that the fee-splitting agreement violated rule 2-200 because it was not in writing. The Court of Appeal reversed the lower court on Chambers' quantum meruit claim, but limited any recovery to a reasonable hourly rate rather than an apportionment of the contingency fee. The Supreme Court upheld that ruling in its entirety.

In his appeal to the Supreme Court, Chambers argued that rule 2-200 applies to fee divisions only where "pure referral fees" are at issue, that the arrangement between him and Kay fell within the exemption in the rule for partners and associates, and that non-compliance with the rule did not invalidate the fee agreement.

The court rejected each argument.

The State Bar submitted a friend of the court brief supporting the interpretation of rule 2-200 made by the Court of Appeals, but did not address the contractual or quantum meruit issues raised in the case.

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