Attorney fee agreement falters without client signature.

A fee-splitting agreement between two attorneys cannot be enforced because the client did not sign off on it, the California Supreme Court has ruled. The state's Rules of Professional Conduct require that attorneys who are not members of the same firm provide their clients with full disclosure and obtain their written consent for any agreement to split fees.

Judge Marvin Baxter, writing for the majority, quoted an earlier decision by the court: "`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.'" (Chambers v. Kay, 126 Cal. Rptr. 2d 536 (2002) (quoting Margolin v. Shemaria, 102 Cal. Rptr. 2d 502 (2000)).)

Baxter continued: "Such information may affect the client's level of confidence in the attorneys and is indispensable to the client's ability to make an informed decision regarding whether to accept the fee division and whether to retain or discharge a particular attorney.... [R]equiring the client's written consent to fee divisions among participating attorneys impresses on the client the importance of consent and the right to reject a fee division."

In 1992, San Francisco attorney Philip Kay asked Arthur Chambers to serve as cocounsel in a sexual harassment case he had filed on behalf of his client, Rena Weeks. Kay also paid Chambers a monthly fee to use his conference room and share some office services, but the two maintained separate legal practices. Chambers's work on the Weeks case primarily involved maintaining office files, conducting discovery, and conferring with the client.

A dispute between the lawyers arose during the case, and in September 1993, Kay notified Chambers in writing that his services were no longer needed. In the letter, Kay confirmed that Chambers would "receive the compensation agreed upon"--16.5 percent of the attorney fees if the case settled before depositions, and 28 percent after that, plus expenses.

Kay sent a copy of the letter to Weeks but did not seek or obtain her consent to the proposed division of fees. He sent a second letter to Chambers, without a copy to the client, in November, reiterating the fee agreement and requesting a record of his time and expenses spent on the case.

When the case eventually went to trial, the jury awarded Weeks compensatory and punitive damages, along with substantial attorney fees. Kay then wrote to Chambers, saying that he was nullifying the fee agreement because of Chambers's "failure to perform legal services," less-than-satisfactory records, and "changed circumstances." He offered to pay Chambers $200 per hour for the time he spent on the case--substantially less than 28 percent of the attorney fees awarded.

When the judgment was affirmed on appeal in 1998 and Kay received his fees, Chambers filed suit. The trial court granted summary judgment in favor of Kay, finding that the fee agreement was not enforceable because the client had not consented in writing. Chambers appealed, arguing that the professional-conduct rule did not apply because it governed only "pure referral fees" and did not affect a fee agreement with a lawyer who was a "partner of, associate of, or shareholder" in the primary attorney's firm.

"This rule has always been perceived as regulating referral fees and only referral fees," said attorney Arne Werchick of Truckee, California, who represented Chambers. "It has never been held to govern working agreements between attorneys--in which the client is entirely unaffected--to share compensation based upon work performed in a particular case. No California court has ever held to the contrary."

Higher courts rejected this argument. The state supreme court held that the rule applied to all attorney fees and that Kay and Chambers were not partners or associates, but rather that they maintained separate and distinct law practices. Therefore, the rule did apply and the fee agreement was deemed unenforceable.