Attorney loses his share of $4.3 Million attorney fee award for failure to disclose to the client that he did not have malpractice insurance.

The case Hance v. Super Store Indus., 44 Cal. App. 5th 676 (2020), decided in January by the California Court of Appeals, 5th Appellate District, reminds attorneys that enter into fee sharing agreements that it is important to follow all rules of professional conduct concerning disclosures to clients.

In a class action involving wage and hour claims, the lower court awarded the class counsel $4.3 million, and divided the fees in accordance with a fee division agreement entered into between the class counsel.  One of the attorneys challenged the enforceability of that agreement and the division of the attorney fee award between himself and another attorney. The other attorneys that were entitled to share the fees did not challenge the division of the attorney fee award

The Court of Appeals found that the fee division agreement was unenforceable because one of the attorneys involved in the fee dispute did not have malpractice insurance and failed to disclose that fact to the client as required by the California Rules of Professional Conduct. The Court found that condoning the ethics violation would be contrary to the goals of protecting the public and promoting respect and confidence in the legal profession. The intent of the rule was to require the attorney to disclose the lack of malpractice insurance to the client at the time of retention, so that the client could consider the information in making the decision to retain or not retain the attorney. The Court ruled that the case should be remanded to the lower court to recalculate the award.

The take away from this case is that a failure to strictly abide by ethics rules concerning disclosures to a client could result in a finding that a fee sharing agreement is unenforceable, even if ultimately the client is not harmed in any way

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