In class actions, an attorney's agreement to share legal fees is governed by Rules of Professional Conduct, rule 2-200 (rule 2-200) and California Rules of Court, rule 3.769 (rule 3.769). Rule 2-200 permits an attorney to share legal fees with another lawyer only with the client's informed, written consent. Rule 3.769 requires an applicant seeking court approval of a class action settlement to inform the court of any fee-sharing agreement.
In this case, we hold that an attorney may be equitably estopped from claiming that a fee-sharing contract is unenforceable due to noncompliance with rule 2-200 or rule 3.769, where that attorney is responsible for such noncompliance and has unfairly prevented another lawyer from complying with the rules' mandates.Slip op. at 2.
The case is highly unusual in that courts very rarely if ever excuse noncompliance with Rule 2-200. The Court found the facts alleged here compelling.
In 2004 or 2005, plaintiff referred a potential class action suit against a company known as EquiCo to defendants, who filed the action in 2006. In 2009, defendants obtained certification of the class, using information obtained from plaintiff. Soon after, defendants notified plaintiff that because plaintiff had signed a nondisclosure agreement with EquiCo in a separate action in 2006, defendants would not split fees with plaintiff and would not disclose their fee split agreement to the class representatives or the court. Plaintiff was not was not in contact or privity with the class representatives, and defendants “had the exclusive means and opportunity to” disclose the fee-splitting agreement to the class and the court.
The Court held that, under the unique circumstances of this case, the parties’ noncompliance with Rule 2-200 did not preclude plaintiff from enforcing the referral fee agreement.
Specifically, plaintiff offered to prove that defendants changed the named class representatives in a class action suit — that is, made "a calculated switch of clients" — in order to use rule 2-200 "as a 'sword' to escape a written referral fee agreement approved by the originally referred proposed class action representatives."Slip op. at 8-9.
The Court remanded to the trial court with instructions to allow a trial on the issues, including whether the fee sharing agreement applied to the class action and whether defendants were equitably estopped from claiming the contract was unenforceable due to noncompliance with rule 2-200. Slip op. at 16-17.
The opinion is available here.