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September 18, 2008

Strong v. Beydoun (2008) 166 Cal.App.4th 1398

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The Fourth District refuses to allow an attorney to pursue a quantum meruit claim against a client in lieu of a fee sharing agreement with co-counsel rendered unenforceable by failure to comply with the Rules of Professional Conduct.

Ali Beydoun and Edwin Craig Sheldon retained Bill Suojanen to represent them in their claims against Novell, Inc. for a one-third contingent fee. Suojanen entered into a fee sharing agreement with Kathleen Strong to help him with the prosecution of the case and promised to get his clients to sign off on the fee sharing agreement. After Strong worked on the case for a year Suojanen terminated her services, recovered a substantial award and fee, and failed to honor his fee split with Strong. Strong sued Suojanen for fraud, intentional interference with prospective economic advantage, and promissory estoppel. The complaint alleged causes of action against Beydoun, Sheldon, and Suojanen for quantum meruit, unjust enrichment, and a declaratory relief.

The trial court sustained the demurrers without leave to amend as to the causes of action for quantum meruit, unjust enrichment, and declaratory relief against the clients because she failed to comply with Rule 2-200, requiring the informed written consent of the client for any fee division between counsel.

The Court of Appeal affirmed. Rule 2-200 is to assure that the client knows the extent of, and the basis for, the sharing of such fees by attorneys so that the client is not charged unwarranted fees and the attorney who actually provides the client with services has sufficient compensation to be able to share fees with the referring attorney.

Strong acknowledged that she could not enforce the contractual agreement between her and Suojanen based on precedent clearly barring her claim. The Court of Appeal also barred the enforcement of her claims against the clients. The Supreme Court has allowed claims for quantum meruit between counsel where there has been a violation of Rule 2-200. An award based on the reasonable value of the services was not a fee division within the prohibition of the rule. Thus Strong can recover in quantum meruit from Suojanen.

The Court then turned to the question of whether Strong could recover in quantum meruit against the clients in light of the Rule 2-200 violation. Strong alleged Beydoun and Sheldon knew she was working on their case and that she expected payment, but not that they asked her to work for them or that they agreed to pay her. Strong’s financial arrangement was with Suojanen.

Noting the consumer protection purpose of Rule 2-200, the court concluded that it made no sense to allow an attorney to bypass the rule and seek recovery from the client when the only connection to the client is through an unenforceable fee-sharing agreement. Strong’s only recourse was against Soujanen.

Comment: It should now be clear to California attorneys that there are few avenues of recovery when they fail to follow ethical rules concerning fee agreements with clients.

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