Class Action, Ethics: One Counsel’s Failure To Disclose A Lack Of Professional Liability Insurance Invalidated Class Action Fee Division Agreement

However, Matter Was Remanded For Trial Judge To Consider Quantum Meruit Recovery.

            Hance v. Super Store Industries, Case No. F075852 (5^th Dist. Jan. 23, 2020) (published) is a very scholarly opinion exploring an ethics issue.  Briefly told, a plaintiff’s class action attorney was an experienced labor attorney, but he referred the matter to class action specialists under a fee division agreement.  At the end of the day, the case settled and $4.3 million was awarded to class counsel, with the lower court honoring a fee division agreement for the referring attorneys and other class attorneys.  On appeal, the fee division agreement was challenged as unenforceable on numerous grounds.

            The Fifth District agreed that it was unenforceable based on one ground.  Referring attorney had failed to disclose that he had no professional liability insurance, an ethics violation which did invalidate the fee division agreement.  (Rule of Professional Conduct, former Rule 3-410, now Rule 1.4.2).  However, not all was lost.  The matter was remanded for the trial judge to consider if quantum meruit recovery was allowable to the referring attorney, given that the record showed there was value in his referral services during the case.  The appellate court also agreed that the QM recovery was not necessarily limited to the lodestar hours billed by the referring attorney.