ETH 2008-175.

California Ethics Opinion 2008. ETH 2008-175. THE STATE BAR OF CALIFORNIASTANDING COMMITTEE ONPROFESSIONAL RESPONSIBILITY AND CONDUCTFORMAL OPINION NO. 2008-1752008ISSUES:What are a successor attorney's ethical obligations when her client in a contingency fee matter instructs her not to notify prior counsel, who has a valid lien against the recovery, of the fact or the amount of a settlement?DIGEST: 1. When a client instructs successor counsel not to disclose a settlement to a prior counsel with a valid lien, successor counsel must advise the client of the adverse ramifications of concealing the settlement, including a potential claim by prior counsel against the client. Should the client persist, successor counsel must nevertheless disclose the settlement to prior counsel. 2. A lawyer may not reveal confidential client information except with the consent of the client or as authorized or required by the State Bar Act, the Rules of Professional Conduct, or other law. Disclosure is required by law to fulfill the attorney's fiduciary duties to prior counsel. Disclosure is also authorized by law to enable both attorneys to protect their right to recover fees. 3. While the successor attorney is both obligated and permitted to disclose the fact and the amount of the settlement to the prior attorney, successor counsel may not disclose anything more to the prior attorney, without the client's consent, including the client's demand that the fact and the amount of the settlement be concealed from the prior attorney. 4. Once prior counsel is notified, both attorneys must remain mindful of their duty of confidentiality to the client in attempting to reach an accord, amicably or through legal process, on the proper allocation of fees. Moreover, should the attorneys resort to legal process to resolve any dispute over allocation of the fee, successor counsel should provide the client with notice and an opportunity to participate. In any legal proceeding, the presiding officer will be in a position to limit the disclosure of confidential information appropriately. AUTHORITIES INTERPRETED: Rules 3-100, 3-110, 3-500, 4-100, and 5-200 of the Rules of Professional Conduct of the State Bar of California. Business and Professions Code sections 6068, subdivisions (d), (e), and (m), 6106, and 6147. STATEMENT OF FACTS Client retains Attorney A to represent him in a legal malpractice claim against Former Attorney. A written fee agreement between Client and Attorney A states that Attorney A will be paid a contingency fee of 25% of Client's recovery against Former Attorney if settled before the filing of a complaint, and 1/3 of any recovery obtained after suit is filed. Attorney A's fee agreement complies in all respects with Business and Professions Code section 6147 and includes a valid and enforceable charging lien.(fn1) Attorney A undertakes an extensive review of the underlying matter in which Former Attorney represented Client. Upon completion of that review, Attorney A advises Client of problems with the case against Former Attorney, and asks Client to authorize him to settle for $150,000 before filing suit. Client, who believes his case against Former Attorney is worth at least $1 million, rejects Attorney A's advice, promptly terminates Attorney A, and demands the return of his file. Attorney A complies. Thereafter, and unbeknownst to Attorney A, Client retains Attorney B to pursue the malpractice case against Former Attorney. Attorney B's fee agreement with Client also calls for Attorney B to receive 1/3 of any recovery after suit is filed and includes a valid charging lien. In the course of one of their early consultations, Client tells Attorney B about Attorney A's prior involvement in the matter. After months of intensive litigation, Client settles his malpractice case against Former Attorney for $150,000. Attorney A is not aware that the legal malpractice case has been filed so he has not filed a notice of lien. On the defense side, no one is aware of Attorney A's lien as he was discharged prior to suit being filed. As a result, the settlement check is made payable solely to Client and Attorney B. Having learned of the terms of the original fee agreement between Client and Attorney A, Attorney B presents Client with an accounting showing $100,000 payable to Client and $50,000 in attorney's fees to be divided between Attorney B and Attorney A. Client endorses the $150,000 check for deposit into Attorney B's Client Trust Account ("CTA"), demands the immediate payment of the $100,000 due him, and signs the accounting after adding the following handwritten statement: "I authorize the payment of $50,000 in attorneys' fees to Attorney B. I prohibit payment of any fee to Attorney A, and I prohibit Attorney B to disclose the fact or the amount of the settlement to Attorney A." The Committee has been asked to provide guidance to Attorney B on her ethical responsibilities in this situation. DISCUSSION 1. Attorney B's Ethical Responsibilities to Client Regarding Disbursement of the Undisputed Funds Held in Attorney B's CTA Pursuant to Rule of Professional Conduct 4-100(B)(4),(fn2) an attorney must promptly pay, as requested by the client, any funds in the attorney's possession which the client is entitled to receive. Settlement funds in an attorney's CTA are funds in an attorney's possession. Both Attorney A and Attorney B contracted to receive 1/3 of the recovery after suit was filed. As a result, the total due to both attorneys is limited to 1/3 of the recovery with the amount owing to Attorney A to be determined based upon a quantum meruit analysis. (Fracasse v. Brent (1972) 6 Cal.3d 785, 791 [100 Cal.Rptr. 385]; Spires v. American Bus Lines (1984) 158 Cal.App.3d 211, 215-216 [204 Cal.Rptr. 531]; Cazares v. Saenz (1989) 208 Cal.App.3d 279, 288-289 [256 Cal.Rptr. 209].) As there is no dispute as to Client's right to receive $100,000, representing 2/3 of the recovery, Attorney B is ethically obligated to release $100,000 to Client promptly. ...

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