Legal Ethics Quarterly, April 2012 Vol. 9, No. 1

9.1.1

Referral Fees, Recovery of

Case:

Crockett & Myers, Ltd. v. Napier, Fitzgerald & Kirby, LLP (9th Cir. 2011) 664 F.3d 282

Issue:

Was a District Court’s quantum meruit award of $33,000 to an attorney who had referred a contingency fee case (“referring attorney”) to another attorney (“recipient attorney”) plainly erroneous where the recipient attorney had received a $500,000 contingency fee in settling the matter and the recipient attorney customarily pays a one-third referral fee?

Holding:

Yes.  The Ninth Circuit reiterated its instructions in Crockett & Myers, Ltd. v. Napier, Fitzgerald & Kirby, LLP (9th Cir. 2009) 583 F.3d 1232 (Crockett I) that, as part of a quantum meruit claim for services rendered in a medical malpractice claim, the District Court should have recalculated the quantum meruit award to include the value of the client referral “in and of itself” apart from any other benefit the referring attorney conferred on the recipient attorney.  The Ninth Circuit had further instructed the District Court that it “may also consider ‘established customs' when calculating an award under quantum meruit.”

In light of the undisputed evidence that the recipient attorney customarily paid a one-third referral fee, and that the recipient attorney recovered a $500,000 contingency fee in settling the referred case, the District Court award of $33,000 in quantum meruit was plainly erroneous.  The Ninth Circuit found that “[t]he second attorney’s custom of paying a one-third referral fee is the most definitive indication of the value of” the benefit conferred by the referring attorney on the recipient attorney in referring the matter, $166,666, and should have been the starting point for calculating the value of the referral in of itself and thus the appropriate measure of the quantum meruit award to the referring attorney. 

Note:

The Ninth Circuit reduced the award by the amount that the referring attorney had “decreased the overall value” of the case to the recipient attorney by negotiating, on the client’s behalf, to get the recipient attorney to reduce his standard contingency fee from 40% to 33 1/3%.  The net recovery to the referring attorney was thus $100,000.

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