Chambers v. Kay

In Chambers v. Kay (2002) 29 Cal.4th 142, plaintiff attorney began serving as cocounsel in a sexual harassment action previously brought by defendant attorney on behalf of defendant's client. (Id. at p. 146.) In a letter firing plaintiff, defendant acknowledged that there had been an agreement to provide plaintiff with a percentage of any attorney fees recovered in the action; however, defendant did not seek the consent of his client. (Ibid.) The California Supreme Court held that in the absence of written consent from the client pursuant to rule 2-200, the fee-sharing agreement was invalid, and plaintiff was precluded from sharing the subject attorney fees. (Chambers v. Kay, supra, at p. 145.) In that case, the Supreme Court denied recovery to an attorney seeking to enforce a fee-sharing agreement where there was no compliance with the written disclosure and consent requirements of rule 2-200. (Id. at pp. 147-161.) In so ruling, the Court specifically rejected any argument that enforcement of rule 2-200 is unjust because it only punishes one of the attorneys that is party to the alleged fee-sharing agreement. An attorney can protect his or her interests, and at the same time fulfill the beneficial purposes of the rule, and act in the client's best interest, by requesting proof of the client's written consent to the fee division before committing to working on the case. (Id. at pp. 162-163.) In Chambers, supra, 29 Cal.4th 142, Arthur Chambers sought to recover from Philip Kay his share of a contingency fee generated from the successful prosecution of a lawsuit in favor of Rena Weeks, a client of Kay's. (Id. at pp. 145-146.) The Supreme Court upheld the lower courts' conclusions that Chambers could not enforce his alleged agreement for the division of fees because he had not complied with the requirements of rule 2-200. (Id. at pp. 147, 156.) The Court rejected Chambers' contention that he and Kay were partners because both attorneys put their names jointly on pleadings, made joint court appearances, acted as " 'true co-counsel' " in the Weeks lawsuit, and agreed "to work jointly, to contribute to the lawsuit's costs, and to defer any compensation for work performed for several years." (Id. at p. 150.) The Court explained that even though Chambers and Kay worked together in Weeks and a few other cases, and shared certain office space and facilities, with Kay paying Chambers for their use, the two attorneys were not members of the same law firm but maintained independent law practices with separate identities, separate addresses of record with the State Bar, and separate clients, expenses, and liabilities. (Id. at pp. 150-151.) Additionally, the Court noted that Chambers and Kay were not partners as that term was commonly understood because there was no evidence suggesting that Chambers and Kay acted as co-owners of a law firm or law office, or that they contemplated sharing in the profits and losses of a continuing business engaged in the practice of law. (Ibid.) Finally, the Court held that even assuming Chambers correctly characterized his relationship with Kay as a joint venture regarding the Weeks case in that the attorneys had agreed to work together, share costs, and defer any compensation for work performed for several years in the hopes of splitting profits when the case was concluded, a joint venture relationship was not exempt from the requirements of rule 2-200. (Id. at pp. 151-152.) The Court considered whether a party to an undisclosed fee-splitting agreement could later enforce the contract. There, two attorneys entered into a fee-sharing agreement to act a cocounsel in a sexual harassment case. Under the agreement, lead counsel agreed to pay the other attorney one-sixth of the 40 percent contingency fee called for in the retainer agreement with the client. (Chambers, supra, 29 Cal.4th at p. 147.) In violation of Rules of Professional Conduct, rule 2-200, the attorneys never obtained the client's approval of the fee-sharing agreement. During discovery in the sexual harassment case, the lead counsel fired his cocounsel, but reaffirmed the fee-sharing agreement. After the jury in the sexual harassment case awarded the client substantial compensatory and punitive damages, the lead counsel refused to honor the agreement. (29 Cal.4th at pp. 146-147.) The discharged attorney sued in a separate action to enforce the agreement. The Supreme Court affirmed summary judgment for the defendant on the breach of contract claim because the attorneys failed to obtain their client's approval of the fee-splitting agreement. Although Rules of Professional Conduct, rule 2-200 does not specify any penalty for its violation, the court determined that allowing an attorney to enforce a fee-splitting agreement obtained without the client's consent "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.' Such a result would be untenable as well as inconsistent with the policy considerations that motivated the adoption of rule 2-200." (Chambers, supra, 29 Cal.4th at p. 158.) The court rejected the plaintiff's argument the trial court should have prevented the defendant from invoking his own violation of Rules of Professional Conduct, rule 2-200 as a defense, finding the plaintiff's own neglect of the rule "equally disturbing." (29 Cal.4th at p. 162.) The court recognized the plaintiff could have taken steps to both protect his interests and fulfill the purposes of the rule. (Id. at pp. 162-163.) The Court explained the scope of rule 2-200(A)(1), "The language and history of rule 2-200(A)(1) make evident that its requirements have always applied to fee divisions where work on the client's behalf is divided among attorneys from separate law firms or law offices." In Chambers, the Supreme Court described the relationship between the lawyers which gave rise to the disclosure requirements of rule 2-200(A)(1) as follows: "The record is undisputed that Chambers was never Kay's salaried employee and that Chambers did not expect Kay to pay him a salary or other wages as compensation for his work in Weeks. On the contrary, all of the evidence shows that the parties agreed Chambers would be compensated based solely on a percentage of any contingent fee that Weeks paid to Kay. The evidence also establishes that Chambers advanced costs in the Weeks case, reflecting additional conduct inconsistent with his claim to have been Kay's employee. Viewed together, these uncontroverted facts establish a 'division of fees' governed by rule 2-200(A)(1) . . . ." (Ibid.) The California Supreme Court held that rule 2-200 precluded the plaintiff attorney from recovering fees under a fee-sharing contract to which the client had not consented in writing. (Chambers, supra, 29 Cal.4th at p. 145.) Chambers stated, "Were we to hold that the fee ... may be divided as the 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.' " (Id. at p. 158.) Chambers cited Margolin with approval (Chambers, supra, 29 Cal.4th at pp. 156-157), and explained that Margolin denied the plaintiffs relief under equitable estoppel principles "because the plaintiffs could have protected themselves by providing the client with the required written fee-sharing disclosure and obtaining her consent" (Chambers, at pp. 158-159). The plaintiff in Chambers argued that enforcing the fee-sharing contract despite the lack of written client consent "would effectuate the intent of the contracting attorneys and would avoid incentives for fraud in the inducement of such contracts." (Id. at p. 159.) The California Supreme Court stated: "Because attorneys are fully capable of safeguarding their own interests simply by obtaining the requisite client consent, we are not persuaded that Chambers's proffered reasons are sufficient to disregard rule 2-200's command." (Ibid.) Chambers concluded: "Although the plaintiff complains that the defendant should not be permitted to take advantage of his own disregard of the Rules of Professional Conduct, we are not persuaded that this circumstance justifies or otherwise excuses the plaintiff's equally disturbing neglect of rule 2-200 and the policy considerations that motivated its adoption. The plaintiff could have protected his interests, and at the same time fulfilled the beneficial purposes of the rule and acted in the client's best interests, by requesting proof of her written consent to the fee division before committing himself to her case." (Id. at pp. 162-163.)