High court rebuffs attorney’s quantum meruit fee claim

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Lawyers who want to withdraw from contingent fee cases may do so, as long as the rules of professional responsibility are followed. But if the lawyer wants to get paid for working on the file, that attorney must prove that the withdrawal was for good cause.

Absent good cause, the attorney has no right to recover in quantum meruit, the Supreme Court held in In Re Petition for Distribution of Attorney’s Fees between Stowman Law Firm, P.A., and Lori Peterson Law Firm, formerly d/b/a Lori Peterson and Associates.

“Good cause in this context is not easily defined but is narrow in scope and depends on the facts and circumstances of each case,” the court said. But it definitely does not include a difference of opinion between the attorney and the client about the value of the case, which is what happened in Stowman.

“The court is saying that the wishes of the client trump the exercise of professional judgment,” attorney David Stowman said. He said there was evidence in the record and the briefs of evidence that was adverse to the client and would have “torpedoed” the case.

He also said that the first judge on the case ruled that it was governed by Rule 1.16 (b) of the Rules of Professional Conduct, which allows withdrawal in adherence to professional rules. A quantum meruit recovery is then justified, the judge ruled. But that judge retired and the second judge went in a different direction. “We could have taken a different posture but we believed we had to prove Rule 1.16 (b),” Stowman said.

Lori Peterson responded to Minnesota Lawyer’s request for comment by email, saying “It’s always nice to win. However, this has been a ridiculous waste of time and resources for the parties and the courts. In an effort to avoid litigation early on, I attempted to compromise. Despite the fact the Stowmans abandoned the client, and despite the fact I obtained over double the highest settlement number they received, I offered them half the fees. They refused, demanding it all. Now, they have lost at every step. I have to ask: What was accomplished with all this wasted effort?

Stowman said he was not offered half the fees.

Client sought seven figures

In July 2007, the Stowman Law Firm in Detroit Lakes entered in to a contingency fee agreement in a medical malpractice claim with a woman identified as C.D. 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 Jeffrey 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 was about $8,200 into the case in out-of-pocket expenses.

The client hired attorney Lori Peterson of Minneapolis. At a second mediation, the case settled for $200,000, with a contingent fee of 40 percent. In 2011 the client received her funds and the fee was put in to a trust account while Peterson and Stowman 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 beyond the $8,272.69 in out-of-pocket expenses.

The Court of Appeals said the judge did not err, and at the same time said the result was likely inequitable

‘Good cause’ to withdraw

Stowman argued that the attorney should be able to recover in quantum meruit after ethically withdrawing from a case, because it is unjust for a client to retain the benefit of the attorney’s services without paying for them.

The high court said that ordinary contract principles must yield to the paramount ethical and professional rules promulgated by the court. (The concurring justices disagreed. See sidebar.) In Lawler v. Dunn, decided in 1920, the court said that a client has the right to discharge an attorney at any time, but that in those instances the attorney is entitled to the reasonable value of his services. The reasoning is that the attorney rendered services expecting to be paid, the client was aware of the expectation and the client accepted the services.

The court accepted Stowman’s argument that Lawler should be extended to situations where the attorney terminated the representation, but limited that extension to withdrawals for good cause. It also limited its ruling to cases where withdrawal for good cause is not otherwise addressed in the contract and the attorney satisfies the ethical rules.

The court also said that allowing an attorney who withdraws for good cause to recover the reasonable value of the professional services provided up to the point of withdrawal is consistent with its past decisions, including Lawler. Those past decisions also say that an attorney who terminates a relationship without good cause has breached a duty to the client and thus has demonstrated a willingness to forfeit a fee.

The court was also concerned that allowing withdrawal without good cause favors the attorney’s economic interest over the client. “Specifically, allowing recovery following withdrawal without good cause would encourage attorneys to withdraw from a case simply because a client refused to settle the case, even though an attorney must ‘abide by a client’s decision whether to settle a matter.’ Minn. R. Prof. Conduct 1.2(a),” the court said.

A client in this situation may have trouble finding another lawyer, the court noted. “Successor counsel may be legitimately concerned with the economics of sharing a future contingent fee with the prior counsel,” the court said.

Client culpable

Although the court said that good cause depends on the facts and circumstances of each case, it then set a high standard: “Generally, good cause requires that the attorney establish the client has engaged in culpable conduct and the attorney has not, and that the attorney’s continued representation of the client would violate the attorney’s ethical obligations. Thus, good cause may include the reasons for mandatory withdrawal in the rules of professional responsibility.”

The court rejected Stowman’s argument that Minnesota Rules of Professional Conduct allow withdrawal if there is no materially adverse effect on the interests of the client and that should satisfy the good cause standard. The court flatly stated that “The definition of good cause we have adopted, however, focuses on the attorney’s reasons for withdrawal and the cause of those reasons and does not include permissive withdrawal for no reason under Rule 1.16(b)(1).”

It also said that a client’s refusal to accept a settlement offer is not good cause, and that Stowman proffered no other reason other than the attorney’s belief that he could not get a better result than the $100,000 offer. The attorney wrote to the client, “I must withdraw immediately to allow you the opportunity to find an attorney whose evaluation of your claim is consistent with yours.”

The definition of good cause remains to be seen but the court has drawn a logical distinction between Rule 1.16 (b) (1), and the other parts of the rule which cover client conduct, said Minneapolis attorney Eric Cooperstein.

The case may put a greater burden on lawyers but it has always been true that clients can be unreasonable, Cooperstein said. “Lawyers who enter into a contingent fee know they could lose,” he said.

Cory Whalen of SiebenCarey, a large personal injury firm, says his firm rarely withdraws from a case, but said that the lawyers will review their retainer agreements to make sure they are very clear and also consistent with the ethical rules. Chris Messerly Robins Kaplan said that his retainer agreement allows the lawyer to withdraw if he or she does not believe that the chances of success justify going forward.

But collection of fees has nothing to do with the retainer agreement, Messerly added.

Stowman did demonstrate good cause to withdraw, said Arden Hills attorney Richard Thomas.

“I agree with the good cause standard and the court’s concern about the lawyer withdrawing only because the client disagrees with the settlement proposal. That lawyer agreed to take the case to trial. That’s the deal. But it seems to me if the lawyer and client are no longer effectively communicating, that is good cause,” Thomas said.

“And the definition of quantum meruit takes into consideration the fair value of the services and the appropriate division of the fee. Here, the second lawyer got the benefit of all the work done by the first lawyer Why is that fair?”

Concurrence: Contingent fee contract protects clients

Justice David Stras, joined by Justice David Lillehaug, said that ordinary contract principles should apply to the case and that such a rule more effectively protects clients. The retainer agreement says that if there is no recovery by Stowman then Stowman receives no fee, Stras said, and “[t]his is how the typical contingency-fee agreement works.”

The concurrence said that the contract should be read as a whole and that nothing in the contract provides for a fee after withdrawal. Stras also wrote that it is axiomatic that a contract will be construed against the drafter. Stras also said that parol evidence could be used to clarify any ambiguity, and pointed to Stowman’s website that states, “we do NOT charge a fee unless we recover money for you, our client.” (Emphasis by the court.)

“I believe that our obligation to regulate the practice of law, along with attorneys’ ethical obligations toward their clients, compels a rule that is more solicitous of client interests, not less,” Stras wrote. The court need not reach the question of “good cause” to withdraw, he concluded.