No fees for attorney that withdrew

Simply withdrawing from representing a client in a way that conforms to the rules of professional conduct is not enough to qualify a lawyer to recover attorney fees down the road if the case settles.

In order to show that the ex-lawyer is entitled to quantum meruit recovery of a percentage of the contingency fee, there must also be a well-documented “complete breakdown of the attorney client relationship” that goes beyond the client rejecting a settlement offer.

That was the opinion of the Minnesota Court of Appeals in in Re: Petition for Distribution of Attorney Fees between Stowman Law Firm and Lori Peterson Law Firm. The published decision was released last week.

Both sides agree that the decision codifies the circumstances under which an attorney who withdraws from representation can share in a contingency fee that is later collected. The winning side said the decision clarifies the appropriate standard for a successful petition for contingency fees and brings Minnesota in line with the rest of the country. The losing side said there was case law to support its position and the Court of Appeals has adopted a hybrid standard with this decision.

In July 2007, the Stowman Law firm in Detroit Lakes, entered in to a contingency fee agreement with a woman identified as C.D. in a medical malpractice claim. At settlement discussions the client instructed her attorney Jeffrey Stowman to demand first $1.6 million and then $1.4 million. The defense offered $20,000.

After mediation, the defense agreed to offer $100,000 but only if it would end the case. The client would not accept it and Stowman eventually withdrew, saying he could not get a better result than $100,000 at trial. He also thought it would cost between $25,000 and $50,000 to try the case. At that point, Stowman said, he was about $8,200 in to the case in out of pocket expenses.

The woman hired two more lawyers before finally hiring Lori Peterson of Hadley, Minn. The case settled for $200,000, with 40 percent set aside for attorney’s fees. In 2011 that money was put in to a trust account while Peterson, the client and the Stowman firm worked to resolve the dispute over the proceeds. That was unsuccessful and in January 2012 the Stowman firm petitioned for a distribution of the contingency fees. The District Court found in April 2013 that Stowman failed to establish “good cause” for withdrawing from the case and was therefore not entitled to recover a portion of the fees beyond the $8,272.69 in out of pocket expenses.

Stowman appealed to the Minnesota Court of Appeals. On appeal Stowman argued that there was case law that the District Court judge didn’t consider that supports a decision to award further contingency fees if an attorney withdraws. Further Stowman argued that the withdrawal was done “ethically and permissibly” and he was therefore eligible for contingency fees on the basis of quantum meruit. The firm also argued that the client’s refusal to accept the settlement offer has been interpreted as a sign of lack of trust between the two parties and therefore tantamount to a breakdown of the attorney client relationship.

In an opinion written by Judge Michael Kirk the court disagreed. Kirk concluded that the relationship between the attorney and the client was not always perfect, but it was not severed. The client trusted Stowman and had confidence in his ability. Further, rejecting a settlement offer did not justify an attorney’s withdrawal from a case. Stowman may have withdrawn from the case in a way that complied with the rules of professional conduct, but that alone did not entitle him to fees.

In the opinion, Kirk offered some advice on what attorneys need to do in this situation, recognizing that it is difficult to ensure a complete record of the reasons for withdrawal.

The court said it recognized the time, money and effort the Stowman firm put in to developing the case and “we acknowledge that the result is likely inequitable,” but that was not enough to find error in the trial judge’s application of the law.

“We therefore emphasize the importance of an attorney setting forth all the reasons for withdrawal in his or her withdrawal letter to support entitlement to quantum meruit recovery. To do so, an attorney may need to be very candid in describing any issues with the client.”

Zenas Baer, of Hawley, Minn., represented Lori Peterson. He argued that an attorney shouldn’t be rewarded for quitting a case.

“The Court of Appeals rejected the notion that a lawyer can have the freedom to withdraw from a contingent fee case but hedge his bets by claiming a lien on future proceeds,” he said.

If lawyers were allowed to fire clients and still claim a portion of the settlement down the road, clients would have a hard time finding their next lawyer. He said that Stowman was offered a considerable payment during settlement negotiations and rejected it.

“The reason they gave about why they were entitled to the fees was because the client rejected the settlement offer [of $100,000.] But no court has adopted that as rationale to be entitled to a fee. There needs to be more; some conduct attributable to the client that causes the breakdown of the relationship,” Baer said.

David Stowman represented Jeffrey Stowman. He said his firm is considering whether to appeal the case to the Supreme Court. He said there are still unsettled issues, namely, the definition of good cause that an attorney needs to withdraw from a case, that was used by the trial court and affirmed by the Court of Appeals. That standard is an out of date one, he said. He said most states now say an attorney can withdraw absent good cause if doing so can be accomplished without “material adverse effect on the client.”

In David Stowman’s view, Jeffrey Stowman followed the letter of the law and withdrew in a way that would entitle him to a portion of the fees collected under the Minnesota Rules of Professional Conduct.

“The trial court determined that we ethically, permissibly withdrew from this case. To me that should be enough. But it looks now like the Court of Appeals has made a hybrid standard here between an ethical withdrawal and a mandatory withdrawal,” Stowman said.