Attorney Robert Reeve sued attorney Kenneth Meleyco to enforce a referral fee agreement after Reeve referred a client to Meleyco but Meleyco did not pay the referral fee.
A jury found that Reeve was entitled to recover for breach of contract and also under a quantum meruit theory, and the trial court awarded Reeve prejudgment interest. Meleyco appeals, arguing among other things that Reeve cannot recover for breach of contract because the client did not provide written consent to the arrangement, the quantum meruit claim is barred by the applicable statute of limitations, and Reeve is not entitled to prejudgment interest.
Former rule 2-200 of the State Bar Rules of Professional Conduct (former rule 2- 200) was in effect during the relevant time period. It required an attorney to obtain written consent from the client before sharing a fee, and case precedent renders unenforceable as against public policy any attorney fee sharing agreement if the client did not give informed, written consent consistent with former rule 2-200.
In this case, Meleyco wrote a letter to the client explaining that the referral fee would not come from the client’s percentage of any settlement, and the client signed an acknowledgement at the bottom of the letter indicating that he received the letter and understood its contents. The client subsequently testified that his acknowledgement expressed his agreement that the referral fee could be paid to Reeve.
Former rule 2-200(A) provided in pertinent part: “A member 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 . . . .” This rule was superseded by rule 1.5.1 of the State Bar Rules of Professional Conduct operative November 1, 2018.
A fee-sharing agreement between attorneys is unenforceable as against public policy if the client did not give informed, written consent to the fee-sharing agreement. (Chambers v. Kay (2002) 29 Cal.4th 142, 147-161.)
Oral consent by the client to the fee-sharing agreement is not sufficient to satisfy former rule 2-200. (Margolin v. Shemaria (2000) 85 Cal.App.4th 891, 896, 899-903.)
When a referral fee agreement is unenforceable as against public policy, the referring attorney may nevertheless recover the reasonable value of the legal services under a quantum meruit theory. (Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 460-461.)
The California Court of Appeal concluded the client’s written acknowledgement that he received and understood the letter did not constitute written consent to the referral fee agreement under former rule 2-200, and the client’s subsequent testimony did not remedy the deficiency.
The referral fee agreement is unenforceable as against public policy and Reeve cannot recover for breach of contract. In addition, the California Court of Appeal agrees with Meleyco that Reeve’s quantum meruit claim is barred by the two-year limitations period.
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* Disclaimer – Robert Rodriguez is licensed to practice only in the State of California & this analysis is applied only under State of California law. Robert Rodriguez is also admitted to practice in the U.S. District Courts, Central, Northern & Eastern Districts of California. Robert Rodriguez has practiced in the California Court of Appeal. No Guarantees Represented.