Huskinson & Brown, LLP v. Wolf

• Decision Date: 23 February 2004
• Docket Number: No. S107616.,S107616.
• Citation: 9 Cal.Rptr.3d 693,32 Cal.4th 453,84 P.3d 379
• Court: California Supreme Court
• Parties: HUSKINSON & BROWN, LLP, Plaintiff and Respondent, v. Mervyn H. WOLF et al., Defendants and Appellants.

9 Cal.Rptr.3d 693

32 Cal.4th 453

84 P.3d 379

HUSKINSON & BROWN, LLP, Plaintiff and Respondent, v. Mervyn H. WOLF et al., Defendants and Appellants.

No. S107616.

Supreme Court of California

February 23, 2004.

Law Offices of Marc Appell, Woodland Hills, Appell & Wolf, Encino, Marc J. Appell, Woodland Hills, and Brent I. Rosenweig for defendants and appellants.

Huskinson & Brown, Manhattan Beach, and Clark L. McCutchen, Denver, CO, for Plaintiff and Respondent.

Werchick & Werchick and Arne Werchick, Truckee, for Arthur Cambers as Amicus Curiae on behalf of Plaintiff and Respondent.

Jerome Fishkin, San Francisco, for Attorney Discipline Defense Counsel as Amicus Curiae on behalf of Plaintiff and Respondent.

BAXTER, J.

This case concerns a dispute between two law firms over compensation for legal services performed for a client who prevailed in a lawsuit against a third party. Rule 2-200 of the California Rules of Professional Conduct (all further references to rules are to these rules) bars law firms from dividing client fees among themselves if the client has not given written consent to the agreed division after a full written disclosure of its terms. (Rule 2-200(A)(1).) Here, plaintiff and defendants had entered into a fee-sharing agreement without providing written disclosure to the client or obtaining her written consent. Although rule 2-200 precludes enforcement of that agreement, may plaintiff nonetheless recover from defendants the reasonable value of the legal services it rendered on the client's behalf? Consistent with the language and intent of rule 2-200, and with analogous statutory and case law providing that attorneys may recover in quantum meruit for the reasonable value of their legal services from their clients when their contractual fee arrangements are found to be invalid or unenforceable, we conclude that plaintiff may. In holding that rule 2-200 does not preclude quantum meruit recovery when its client disclosure and consent requirements are not met, we emphasize that our decision in no way increases the attorney fees paid or owed by the client in such a situation.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Huskinson & Brown is a law firm that specializes in defending health care providers. Beverly Sanchez approached plaintiff with a potential medical malpractice claim against a health care provider. Plaintiff referred the matter to defendants Mervyn H. Wolf and the law firm of Appell & Wolf. Although defendants took responsibility for prosecuting Sanchez's action, plaintiff paid $800 to a medical expert involved in her lawsuit. Plaintiff also performed 20 hours of legal services on Sanchez's case, which the trial court later valued at $250 per hour. In exchange for the referral, defendants orally agreed to pay plaintiff 25 percent of any attorney fees recovered.

Following a $250,000 judgment in Sanchez's favor, defendants received attorney fees from Sanchez but failed to pay 25 percent of the fees to plaintiff in accordance with their oral agreement. Plaintiff then sued defendants for, among other things, breach of contract, unjust enrichment, and recovery in quantum meruit.

The matter was tried to the court. The trial court denied recovery on plaintiff's breach of contract cause of action, finding the fee-sharing agreement unenforceable because it was not disclosed to Sanchez in writing and her written consent was not obtained. On the unjust enrichment cause of action, however, the court awarded $18,497.91, an amount equal to what plaintiff would have received under the unenforceable fee-sharing agreement. As an alternative to the unjust enrichment award, the court awarded plaintiff $5,800 in quantum meruit for the legal services and costs it rendered on behalf of Sanchez.

The Court of Appeal agreed that breach of contract recovery was unavailable, but reversed the judgment and directed the trial court to enter a new judgment awarding plaintiff $800 in damages and an additional sum for costs and disbursements under Code of Civil Procedure section 1032. The appellate court concluded the unjust enrichment award was in error because the contractual fee-sharing arrangement violated rule 2-200. It further found the alternative quantum meruit award of $5,800 improper to the extent $5,000 of that award represented fees for legal work.¹

We granted plaintiff's petition for review and later ordered briefing, limited to the issue of quantum meruit recovery.

DISCUSSION

Rule 2-200 provides in relevant part that a member of the State Bar "shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless ... [¶] ... [t]he client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division...." (Rule 2-200(A)(1).) In Chambers v. Kay (2002) 29 Cal.4th 142, 126 Cal.Rptr.2d 536, 56 P.3d 645 (Chambers), we held that an attorney may not recover on an agreement with another attorney to divide contingent fees generated from the successful prosecution of a client's case in the absence of compliance with rule 2-200's written client consent requirement. The central issue here is whether, in the absence of written client consent to an agreement between law firms to divide fees, a law firm that is barred from dividing fees under rule 2-200 may nonetheless recover from the other law firm in quantum meruit for the reasonable value of services it rendered to advance the client's case.²

Quantum meruit refers to the well-established principle that "the law implies a promise to pay for services performed under circumstances disclosing that they were not gratuitously rendered." (Long v. Rumsey (1938) 12 Cal.2d 334, 342, 84 P.2d 146.) To recover in quantum meruit, a party need not prove the existence of a contract (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449, 78 Cal.Rptr.2d 101; Mayborne v. Citizens' Trust & Savings Bank (1920) 46 Cal.App. 178, 182, 188 P. 1034), but it must show the circumstances were such that "the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made" (Estate of Mumford (1916) 173 Cal. 511, 523, 160 P. 667; see Long v. Rumsey, supra, 12 Cal.2d at p. 342, 84 P.2d 146; Crane v. Derrick (1910) 157 Cal. 667, 672, 109 P. 31; see generally 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 113, p. 138). Here, the quantum meruit award reflects the trial court's implicit determination that plaintiff did not gratuitously offer the services covered by that award and that all parties herein expected plaintiff would be compensated for its work in the event attorney fees were recovered in Sanchez's case. Nonetheless, defendants contend, in essence, that they owe plaintiff nothing because allowing recovery on an implied promise to pay for plaintiff's services is tantamount to permitting a division of client fees, in contravention of rule 2-200.³ To resolve this issue, we look first to rule 2-200 to ascertain what it seeks to accomplish. By its terms, the rule expressly prohibits attorneys from "divid[ing] a fee for legal services" when certain requirements, such as written client consent to the fee division after a full written disclosure of its terms, have not been met. Notably, however, rule 2-200 does not purport to restrict attorney compensation on any basis other than a division of fees. Nor does it suggest that attorneys or law firms are categorically barred from making or accepting client referrals, from agreeing to a division of labor on a client's case, or from actually working on a case where labor is divided.

The question arises whether a quantum meruit award for services rendered in reliance on a fee-sharing agreement that lacks written client consent constitutes a division of fees within the rule's contemplation. We think not. True, a quantum meruit award as such would serve to compensate for legal services that have been performed pursuant to an agreement rendered unenforceable under rule 2-200. But when based on the reasonable value of those services, such an award involves no apportionment of the fees that the client paid or has agreed to pay and therefore is not a fee division subject to rule 2-200's client disclosure and consent requirements.

Formal Opinion No. 1994-138 of the State Bar Standing Committee on Professional Responsibility and Conduct (State Bar, Formal Opinion No. 1994-138) clarifies that rule 2-200 does not apply where there is no direct division of client-paid fees. For example, if a law office that works directly with a client agrees to pay an "outside" lawyer $50 per hour for his or her services, and bills that work to the client at $70, the proposed compensation would not trigger rule 2-200's requirements because the outside lawyer would not be paid a percentage of the fees collected from the client. (State Bar, Formal Opn. No. 1994-138, supra, at pp. 3-4.) That is, "the amount paid to the outside lawyer is not tied to specific legal fees received by the law office." (Id. at p. 4.) Like an hourly fee arrangement, an award of compensation based on the number of hours plaintiff worked on Sanchez's case would not divide or be otherwise tied to the specific legal fees she paid.

We next examine whether allowing recovery in quantum meruit would undermine compliance with the Rules of Professional Conduct. As we recently explained, the purpose of rule 2-200's disclosure and consent requirements is to safeguard the right of clients to know how their legal fees will be determined and the extent of, and the basis for, their attorneys' sharing of fees. (Chambers, supra, 29 Cal.4th at pp. 156-157,126 Cal.Rptr.2d 536,56 P.3d 645.) In the case of pure referral fee arrangements," `[k]nowledge of these matters helps assure the client that he or she will not be charged unwarranted fees just so that the attorney who actually provides the...