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Chambers, Fees, and Work Comp

Tuesday, December 10, 2002 | 1026 | 0 | min read

If you're a lawyer in California you have no doubt heard of the relatively recent Supreme Court fee splitting decision in Chambers vs. Kay (2002) _Cal 4th [2002WL 31444916 (Cal.)]. The Court in the Chambers case strictly construes Rule Of Professional Conduct 2-200 which prohibits referral fees or splitting fees with another lawyer who is not a partner, associate or shareholder without the express written consent of the client.

Though most workers' compensation cases are handled either by a single individual or law firm, and typically no other lawyer gets involved without an order from the Workers' Compensation Judge either substituting in or dismissing a lawyer or law firm, the decision does impact the payment of money to other lawyers in consideration for the referral of a case or client. Basically, any compensation paid for a referral must be done only with the client's written consent if compensation is for anything other than work performed.

Exploring the 5 policy considerations in the Chambers case helps to delineate whether or not a workers' compensation attorney needs to be concerned with Rule 2-200: (1) protection of the client's right to know the extent of and basis of fee sharing; (2) protection of the client from unwarranted fees to ensure that the attorney actually doing the work is sufficiently compensated; (3) a written disclosure assures the client is not expected to remember any fee splitting arrangements made at the outset of litigation; (4) written disclosure impresses upon the client the importance of the client's consent to fee arrangements; and (5) division of fees may reflect each attorney's responsibilities, and the client has a right to expect who will do what on his or her case.

There is a three point test promulgated by the California State Bar that the Court approved to determine whether a written disclosure is required of the client in a referral fee situation:

"(1) The amount paid to the outside lawyer is compensation for the work performed and is paid whether or not the law office is paid by the client;

"(2) The amount paid by the attorney to the outside lawyer is neither negotiated nor based on fees which have been paid to the attorney by the client; and

"(3) the outside lawyer has no expectation of receiving a percentage fee. (State Bar Formal Opinion NO. 1994-138, p.2).

Pass this test and your referral fee arrangement is not subject to a written disclosure to the client per Chambers. Any part of this test that does not pass should provoke a letter to the client disclosing the referral fee arrangement and requesting signed acquiescence. In fact, a statement of such, identifying the referral fee recipient, can be incorporated directly into the representation agreement.

Other state jurisdictions have similar rules, and the Chambers case, though requiring a bit of extra paper work, is just good common sense nevertheless. Get your client to consent, in writing, to the payment of referral fees.

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