When a contingent-fee client fires a law firm shortly before settlement, the court should consider not only the contingent fee agreement but also other factors including the timing of the termination and the contributions of others when making a quantum meruit fee award.
That’s the ruling of the Supreme Court in Faricy Law Firm v. API Inc. Asbestos Settlement Trust, decided June 6 by a 4-2 court. Chief Justice Lorie Gildea dissented, joined by Justice G. Barry Anderson, and Justice Paul Thissen did not participate.
The court remanded the matter to the District Court for determination of an appropriate quantum meruit award.
“The set of factors that we adopt today should guide district courts faced with the task of balancing the equities in determining the quantum meruit value of the services of a discharged contingent-fee attorney,” wrote Justice Margaret Chutich for the court.
Evidence to calculate fee award
For 10 years, the plaintiff Faricy represented API Trust and its predecessor, API in connection with indemnification claims for asbestos-related verdicts and settlements. This case concerns work performed in a case with Home Liquidator under a 33 1/3 percent contingent fee after January 2009. While Faricy represented API Trust, Home Liquidator offered $11 million to settle the case. Shortly thereafter, API fired Faricy. About two months later, the case settled for $21.5 million.
API had acknowledged that Faricy was entitled to a fee but later refused to pay the contingent fee or any fee at all. Faricy filed a lien seeking the entire one-third fee.
However, the District Court evaluated the case under quantum meruit. It said that Faricy’s work product, advice and recommended negotiation strategy led to the settlement in significant part. But it also said that Faricy, because it was sticking to its claim for one-third of the settlement, failed to provide significant evidence to calculate a fee award.
“Although the district court ‘implored Faricy’ to provide more evidence of the value that its legal work conferred on API Trust, the lack of evidence of the hours that Faricy had worked stymied the district court’s efforts,” Chutich wrote.
The Court of Appeals said it was error to award nothing and remanded for a quantum meruit analysis. Both sides sought review. The court granted both petitions — how to calculate a quantum meruit award in contingent-fee cases and whether the remand was appropriate in light of the evidence submitted to show the value of the legal services provided by Faricy. It did not rule on the second issue.
Walking away empty-handed
A discharged attorney may not sue for breach of contract because the client always has the right to terminate the relationship. For similar reasons, an attorney may not sue for the contingent fee but “should not necessarily walk away empty-handed,” Chutich wrote. Instead, the attorney is entitled to pursue a quantum meruit recovery, which is an equitable remedy. The discharged attorney must prove the value of the attorney services.
The question thus becomes how to value the services and whether to consider the contingent-fee agreement. The Court of Appeals has provided various factors but never explicitly designated the contingent fee award as one of them.
The court delineated eight factors (see sidebar) including the contingency fee, and added two that have not been announced previously—the contributions of others and the timing of the termination. “We have chosen these factors because they combine considerations that we have previously applied to determine the value of an attorney’s services in other contexts with concerns that are specific to the context of a discharged contingent-fee attorney,” explained Chutich.
The first six factors derive from the considerations for determining the reasonable value of legal services owed in the condemnation context and under the lodestar method.
But those factors do not suffice to determine the value conferred upon the client, the court continued, particularly where representation is terminated after a firm has substantially contributed to a successful end.
“These factors allow the court to measure the value of the services depending on how the timing of the termination related to the ultimate result and whether the discharged attorney added value compared to other contributors in the case. … Considering the timing of the termination is especially crucial to prevent a client from avoiding a contingent fee when it becomes apparent that the client will recover or reach a successful result,” Chutich wrote.
They are also consistent with principles of equity, which requires a balance of equities and not a bright line rule, the court continued.
Accordingly the court remanded the case for consideration of all the factors, including the contingent fee. The court went on to explain that it was not holding that Faricy was “automatically” entitled to its full contingent fee, but it also held that evidence of hours worked was not the only measure of value. The court has the discretion to open the record on remand.
Dissent: Absence of proof
The dissent was dissatisfied with the majority opinion because Faricy provided no evidence that could be used to compute fees. The District Court was correct when it refused to compute fees. “Even if the equities weighed in favor of Faricy, there is still an absence of proof on the fundamental element of the claim—reasonable value of services provided,” Gildea wrote. The firm should not get a second bite at the apple via a reopened record on remand, she added.
Quantum meruit factors
(1) Time and labor required;
(2) Nature and difficulty of the responsibility assumed;
(3) Amount involved and the results obtained;
(4) Fees customarily charged for similar legal services;
(5) Experience, reputation, and ability of counsel;
(6) Fee arrangement existing between counsel and the client;
(7) Contributions of others; and
(8) Timing of the termination.