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January 16, 2013

Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal.App.4th 172

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The Fourth District holds a referring attorney, prevented by the handling attorney from obtaining informed written client consent to a fee division as required by California Rule of Professional Conduct 2-200, may raise equitable estoppel in response to the handling attorney’s rule 2-200 defense in a subsequent breach of contract action. 

Barnes, Crosby. Fitzgerald & Zeman, LLP (“Barnes”) referred a potential class action to Jerome Ringler.  Ringler agreed in writing to pay a share of anticipated fees with Barnes, and the proposed class representative, Cordell Meridith, agreed in writing to the fee split.  Ringler filed Meridith’s case as an individual claim on her behalf, with the option to convert it to a class action.

After Ringler left one firm to start his own, Barnes arranged for another law firm to co-counsel with Ringler and finance the class action.  Barnes also provided a list of prospective class members.

Ringler abruptly informed Meridith he would no longer represent her.  He then filed a class action almost identical to Meridith’s claim.  The class representatives in the new lawsuit had been identified by Barnes.

For several years Ringler avoided Barnes’s questions about when and how Ringler would let the new class representative and the court know about the referral fee.  Ringler brought up Barnes’s prior representation of a class action defendant employee as a potential conflict, but never circulated the conflict waiver Barnes drafted to address the issue.  Ringler continued to assure Barnes he would honor the fee split agreement, but when the case settled refused to do so.

At trial, Ringler did not dispute the underlying facts, but argued that since new class representatives never agreed to the fee split, Rule of Professional Conduct rule 2-200 precluded the fee split.  The trial court strictly construed the requirements of rule 2-200, found Barnes could not rely on an equitable estoppel to argue Ringler was precluded from raising the rule as a defense, and found in favor of Ringler.

The Court of Appeal agreed that an “unbroken” line of precedent requires strict adherence to rule 2-200, and precludes equitable arguments in the face of non-compliance.  Rule 2-200, requiring a client’s informed, written, consent to fee divisions between lawyers, is a client protection statute.  It protects against excessive fees, and promotes confidence in the legal profession.  Case law has created a strong incentive to comply with rule 2-200: fee division agreements between lawyers are unenforceable without compliance with the rule.  Precedent mandates an attorney who can obtain client consent, but fails to do so, is not entitled to the benefits of a fee division contract with another lawyer.  Even the other lawyer’s promise to obtain the client’s written consent is not a defense to a lawyer claiming a fee.

California Rule of Court 3.769(b) requires court approval of class action fees.  Full disclosure to and consent of class members is impractical to obtain.  Therefore, rule 3.769(b) protects class action plaintiffs from attorney conflicts of interest.  The class action court considers the effect of fee division contracts to ensure reasonableness of the fee award.  Attorneys have disclosure duty to the court, and an attorney who fails to comply with Rule 3.769(b) is not entitled to fees, even if the attorney has complied with rule 2-200.

The Court of Appeal held the absence of rule 2-200 client consent does not render a fee division contract non-existent, although the contract may be unenforceable.  The Court was mindful of the purposes of rules 2-200 and 3.769, as well as Business and Professions Code section 6068(m) [duty to keep client informed] and Rules of Professional Conduct, rule 3-500 [same.]  The handling attorney should not be able to evade those statutory and regulatory disclosure mandates by manipulating a rule 2-200 violation and rendering the fee division contract nonexistent.

The Court agreed with Barnes that the case was distinct because Ringler manufactured non-compliance with rule 2-200 by switching the class representative.  Attorneys would be reluctant to refer class action cases to specialists if the specialist lawyer could invalidate a referral fee agreement in this manner.  Thus, Barnes should be permitted to show the fee splitting contract applied to the class action, and Ringler should be equitably estopped from asserting rule 2-200 compliance as a defense.

Comment: The exception to strict compliance with 2-200 in this case is narrow; relief was afforded because the handling attorney simply replaced the consenting client with another party.  In general, an attorney expecting a referral fee has the sole obligation to obtain client consent pursuant to rule 2-200.  Failure to do so renders any fee division agreement unenforceable.

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