September 09, 2020 Top Story

Fee Agreement Ethics Violation Voids $4 Million Attorney Fee

Agreement unenforceable for failure to notify clients of lack of insurance

By Susan F. Dent

An attorney’s failure to advise his clients that he lacked malpractice insurance prompted the reversal and remand of a $4.3 million class action settlement attorney fee award. In so ruling, the Fifth District Court of Appeal of the State of California underscored its long-held principle that attorneys must not violate ethics rules while securing their own financial gain. ABA Section of Litigation leaders agree this ruling reminds attorneys to carefully structure their fee-splitting agreements and to keep their clients advised of all elements of representation, including insurance coverage.

Having malpractice insurance may prevent fee-splitting arguments and ensuing ethical violations

Having malpractice insurance may prevent fee-splitting arguments and ensuing ethical violations

Credit: chaofann | iStockphoto by Getty Images

Fee-Splitting Agreement Gone Wrong

In John Hance v. Super Store Industries et al., an attorney referred his client to a labor law attorney to represent the client in an action against his employer based on wage-and-hour claims. The labor law attorney discussed the matter with the potential client and concluded his case could become a class action. As the labor law attorney had limited experience with class actions, he brought in experienced class action attorneys. At no point during these discussions did the labor law attorney mention to his client, or any of the other attorneys, that he lacked legal malpractice insurance.

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