Key Lawyer Fee Rule Changed : Litigation: Decision says lawyers must pay consultants from their share of settlement.

Like many people, Concepcion Ojeda couldn’t hope to spend the kind of money herself that it would take to get a lawsuit ready for trial.

The Chula Vista woman wanted to sue a San Diego hospital, blaming it for her daughter’s birth defects, including cerebral palsy. But lawsuits, especially complicated medical claims, take a lot of money and expertise.

So, along with her lawyers, Concepcion Ojeda turned to a medical-legal consulting firm in Virginia. It helped her settle the case, for $1.1 million. That settlement led recently to a landmark court ruling that ought to make it easier for other people claiming medical woes to gain access to legal experts--for no extra money.

In a first for California, a state appeal court said clients and lawyers absolutely are entitled to reach out for help from consultants. But, it said, the money to pay the consultants had to come from the lawyers’ pocket--even if that was tantamount to a violation of one of the basics of legal ethics, that a lawyer may not split legal fees with a non-lawyer.

The starchy rules of legal ethics, the 4th District Court of Appeal said, sometimes have to give way before the “practical challenges of real-world legal economics.”

The landmark ruling holds the potential to transform the big-bucks world of civil litigation, where lawyers--trained to be generalists--increasingly must rely on expert consultants to evaluate medical claims, traditionally among the most difficult to win. It’s a ruling that holds enormous promise and uncertainty for lawyers, doctors and clients.

“Look, it also imposes an enormous dash of realism onto what had been a subject covered with cant,” said Kurt Melchior, a San Francisco attorney and expert on the seemingly impenetrable subject of lawyers and their bills.

For clients, especially for poorer people, the ruling should mean greater access to the courts, attorneys said last week. Anyone with a medical claim can pursue a lawsuit against doctors and hospitals without having to front money to a lawyer, or to doctors actually willing to review and criticize another doctor’s work.

The medical-legal consulting firms, one of the new breed of litigation services whose ads clutter the back pages of legal trade journals, find and employ those doctors.

If the case isn’t settled before a trial, the consultants search the nation for another physician, one willing to testify in court. The expert testimony is billed separately, and on an hourly basis, to avoid the perception that the testifying doctor is more interested in winning than in the truth.

But, like the lawyer, the consulting firm gets paid for all its other work at the end of the case, if at all.

And, because of a complicated point of California law, there’s a twist that benefits clients--at the expense of lawyers.

State law sets a cap on the attorney’s fees available in medical malpractice claims. The 4th District Court, one of the state’s six mid-level appeal courts, said the consultant’s share must come out of that sharply restricted take.

Since the point of a medical malpractice suit is to provide for an injured person, the consultant’s fee should come from the pocket of the lawyer, not the victim, the court said.

For lawyers, plain and simple, that means splitting a fee, and the court’s decision underscores a remarkable recognition of the dramatic changes that have overtaken the way lawyers do business. It remains to be seen, lawyers said last week, whether those changes are good for the profession--and for clients.

It used to be clear, attorneys said last week, what it was that a lawyer did. A lawyer interviewed witnesses, drafted legal briefs, recruited experts, prepared exhibits. Then it was off to court, to pick a jury, cross-examine the other side’s witnesses and argue the case.

Many successful lawyers still operate in that traditional way. “I personally have not ever hired a consultant on a contingent fee basis. And I wouldn’t,” said Ronald H. Rouda, a San Francisco lawyer and current president of the California Trial Lawyers Assn.

Other lawyers, also successful, take a different view of strategy. A paralegal might interview the witnesses and draft the briefs. The consulting firm might recruit the experts. A graphics or video service might prepare the exhibits, perhaps in full color. In the courtroom, a psychologist might suggest which jurors seem more or less receptive.

“It’s interesting, there’s a real change going on,” said Dennis J. Hayes, a San Diego lawyer. “This is a time of specialization. More and more and more, more people are providing litigation support. It can be very helpful. I mean very.”

What the recent 4th District ruling is likely to do, lawyers said, is spell out precisely what “services” it is a lawyer still provides that deserve payment.

Only “services,” not the “costs” of preparing a medical malpractice case for trial, entitle a lawyer to fees, the 4th District court said.

The “costs” come off the top of any judgment or settlement, leaving the lawyer--and now, perhaps, a consulting firm--to split their shares. The client, of course, gets the rest.

Traditionally, the “costs” associated with a lawsuit have included such items as court transcripts, filing fees, jury fees and the hourly compensation paid to expert consultants, the 4th District Court said. Increasingly, lawyers also have been trying to recoup expenses such as travel, postage, photocopying, word processing and computer research, the court said.

The appellate court did not spell out what constitutes a “cost” and what are legal “services,” beyond the obvious--a “cost” is the cost of doing business but “services” mean profit. The 4th District sent the case back to a San Diego Superior Court judge to figure it out.

“This opinion is really going to shape that line, define what attorneys do and don’t do, what experts do and don’t do,” said attorney Hayes, whose clients include The Medical Quality Foundation, the consulting firm based in Herndon, Va., that Ojeda used in her suit. “It’s really something.”

Remarkably, despite the practical importance of lawyers’ bills to both attorneys and to consumers, and though thousands of lawsuits slog through the California courts every year, no state appellate court had ever considered the issue until the Ojeda case came to the 4th District Court. And it got there only because of a quirk in state law.

Generally, an attorney may charge a fee contingent on the outcome of a case, so long as it is not an “unreasonable” fee, usually meaning no more than one-third of the total. That rule is so well-known that hardly ever does a judge have to bother with the review of such a fee.

In medical malpractice cases, however, a 1975 law limits an attorney’s contingent fee to a sliding scale tied to the amount of the judgment or settlement. And, in cases involving a minor, that law demands that a judge approve the attorney’s fee.

The Ojeda case began when Frances Ojeda was born Jan. 13, 1982, at Sharp Cabrillo Hospital, with severe brain damage, including cerebral palsy, according to court records.

Her mother, Concepcion Ojeda, filed suit against the doctor who delivered the girl. That case led to a settlement that set up a trust fund for the girl.

After meeting with another attorney, Concepcion Ojeda opted to file a second suit, against the hospital. Not wanting to dip into the trust fund to defray the costs of the second suit, she signed a contract with The Medical Quality Foundation to assist the lawyers in preparing the case.

In exchange for 20% of the recovery, the foundation agreed to review the medical records in the case and locate expert witnesses willing to testify. The attorneys--the San Diego law firm of Sparber, Ferguson, Naumann, Ponder & Ryan--signed the contract too, acknowledging the deal.

The lawyers, meanwhile, had a separate contingency fee arrangement with Concepcion Ojeda.

Over the next 28 months, according to court files, the foundation performed 170 hours of work on the Ojeda case. In early 1990, the case was settled for $1.1 million.

Though entitled under the contract to $220,000, the foundation agreed as part of the settlement to accept $125,000. The lawyers put in for $151,666 in fees and for $27,528 in costs that they had advanced.

On Feb. 6, 1990, San Diego Superior Court Judge Ross Tharp said the consultants’ contingency was “unlawful, unethical, violative of the laws of the state of California regulating the practice of law, contrary to public policy and contrary to the best interests of (Frances Ojeda).”

Tharp did not, however, explain why the contract was unlawful or unethical.

In 1984, the State Bar of California had said it would not be illegal--in theory, at least--for a consumer to sign a contingency fee contract with a medical-legal consulting firm.

But, in practice, the bar said, that kind of arrangement would be improper in a medical malpractice case, the only arena where it would make sense to employ such a firm, since that would amount to fee-splitting.

In 1980, a court in Maryland ruled that consultants’ contingency fee contracts were valid. But courts in New Jersey, in 1987, and in Michigan, in 1989, took the opposite side, ruling that such contracts violate legal ethics.

The foundation appealed Tharp’s ruling. Two weeks ago, on July 16, the 4th District Court ruled that the foundation’s contract was legal.

The reasons for the rule against fee-splitting are to make sure lawyers retain control of their cases and to protect clients from unreasonably high fees, the three-judge court said.

No self-respecting lawyer is likely to give up control, the court said. And, particularly in medical malpractice cases, where attorney’s fees are capped by law, the danger of outrageous fees is low, the court said.

The court went on to explain the long-held rule in medical malpractice cases for calculating an attorney’s fee. First, “costs” get deducted from the total sum, the gross recovery. Next, attorneys--and, now, consultants--get paid for their “services,” calculated as a percentage of the net.

Because the line between “costs” and “services” is so fuzzy, the court said, a Superior Court judge ought to review the work the lawyers and the foundation did in the case, then allocate the money between the two, keeping in mind the caps on “services” set by state law in a medical malpractice case.

There is no limit on “costs.” But “costs” nearly always amount, as they did in the Ojeda case, to a sum far less than “services.”

Judge Howard Wiener wrote the opinion. Judges Daniel J. Kremer and Don R. Work joined in it.

Rather than appeal to the Supreme Court, the foundation plans to see how the Superior Court judge rules, then appeal that ruling if necessary, attorney Hayes said.

“What all this is doing is making the attorney give up some of his contingency fee for the benefit of receiving the expert advice he needs to litigate the case,” Hayes said. “Hey, I’m a lawyer. But is that so bad?”