Hance v. Super Store Indus. - 44 Cal. App. 5th 676, 257 Cal. Rptr. 3d 761 (2020)

Rule:

The apparent intent of Rules Prof. Conduct, former rule 3-410, was to require an attorney to disclose a lack of professional liability insurance to a client, at the time the client retained the attorney, so the client could consider that information in making the decision to retain or not retain the attorney. The disclosure would enable the client to make an informed decision whether to engage an attorney who did not carry insurance that would protect the client in the event of the attorney's negligent or other wrongful conduct that might have an adverse effect on the client's case. The rule does not specify the consequences of noncompliance. In cases involving violations of other provisions of the California Rules of Professional Conduct, however, courts have determined a violation of the rules in the formation of a contract can render the contract unenforceable.

Facts:

The attorneys who represented the plaintiff class in a class action moved the trial court for approval of a settlement of the action; they also moved for an award of attorney fees and a division of the award among co-counsel. The division of fees between two of the attorneys was disputed, one seeking compensation in accordance with an alleged written agreement for the division of the fees and the other contending the purported agreement was unenforceable. The trial court made an award of attorney fees and divided the fees in accordance with the alleged fee division agreement. Appellant challenges the enforceability of that agreement and the division of the attorney fee award between himself and respondent.

Issue:

Was the fee division agreement enforceable notwithstanding the failure of the attorney, who lacked professional liability insurance, to make the required disclosure to clients?

Answer:

No

Conclusion:

Because an attorney who lacked professional liability insurance failed to make the required disclosure to clients under Rules Prof. Conduct, former rule 3-410(A), and condoning such a violation would be contrary to the goals of protecting the public and promoting respect and confidence in the legal profession under Rules Prof. Conduct, former rule 1-100(A), the court held that a fee division agreement was unenforceable to the extent it gave the attorney a percentage of a class action fee award. The attorney was not barred from seeking a reasonable fee in quantum meruit because a rule violation did not necessarily require all compensation be forfeited. The attorney's services included referring the case to an experienced class action attorney, consistent with Rules Prof. Conduct, former rule 2-200, because quantum meruit recovery was not limited to hours worked multiplied by hourly fee.