Monday, December 24, 2012

Ebenezer Scrooge Is Rebuked, and Tiny Tim Gets His Referral Fees.

In a battle over one-third of $13.5 million, let the gamesmanship begin. Two Orange County law firms were engaged in a battle to share class action attorney fees. The battle was between the referring class-action attorney and the prosecuting class-action attorneys.   The key rules of the gamesmanship were: 1) Rule of Professional Conduct 2-200 and 2) Rule of Court 3.769.

Rule 2-200 requires that an attorney  to provide full disclosure to his client  of any proposed fee sharing agreement and  that he obtain his client’s  prior written consent for the fee splitting.   Rule 3.769 requires that as part of a class action settlement, the trial court, in order to award attorneys fees, must be provided with the full retainer agreement between the attorney and the class.

In the case of a class action, the named class representives ordinarily would sign the Rule 2-200 fee splitting agreement on behalf of the class.  In this case,  matters became complicated when the referring attorney settled a separate individual whistleblower case against the same employer-defendant named in the class action.  The referring attorney as part of the settlement of the separate individual whistleblower case agreed to confidentiality of all matters learned in the individual litigation. 

Now the class-action attorney, after several years of assuring the referring attorney that the referral fee was to be paid, asserted that a fee arrangement with the referring attorney would risk creating a “conflict of interest” between the attorneys and the class clients.  That is, presumably, the defendant employer would assert that the class attorneys should be disqualified from representing the class because they were in violation of the confidentiality agreement of the referring attorney. 
The exact nature of the conflict is not spelled out in the Court of Appeal decision, but the confidentiality clause was prospective only, that is, information shared with the class action attorneys by the individual plaintiff attorney before the settlement could not be the basis for a conflict of interest.

This latter point is of some relevance because it tended to show that the class-action attorneys were using a bogus reason to lock out the referring attorneys claim for fees. The tactic used by the class-action attorneys was to  dismiss the originally filed class-action which used the names of the class representatives  provided by the referring attorney.  The class-action attorneys then refiled the class-action using the names of different class-action representatives, hoping thereby to defeat the referring attorneys lien for fees.

The class action attorneys' ploy was simply this: there can be no referral fee paid because there was no signed agreement to split fees as required by rule 2-200. Consequence: the class-action attorneys were roughly  $4 million richer. One wonders if this diligent assertion  of Rule 2-200 was motivated by a noble desire to comply with the high purposes of Rule 2-200 to protect the public from conflicts of interest, or, was simple old-fashioned greed?

 The Court of Appeal, Justices Rylaarsdam, Aronson, and newly appointed Presiding Justice Ikola unanimously held for the referring attorney.   The Justices basically recognized that the procedural tactics of the class-action attorneys had unjustly prevented the referring attorney from notifying the court of its fee sharing arrangement. The court found that the reason the contract was not signed was due simply to switching class-action representatives. The Court of Appeal noted that this kind of “bait and switch” tactic would discourage class-action referrals, and that would be harmful to the public. That is, attorneys should be encouraged to refer cases to specialists within various areas of law.   The Court stated that class-action attorneys cannot wield Rule 2-200 as a sword to obtain unjust enrichment. 

 I am personally happy with this Court of Appeal ruling.  In my opinion, the Court simply refused to allow an ethical rule to be used for unethical purposes.

For the full decision, see:  Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler 2012 DJDAR16991 [Filed Dec. 19, 2012]

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