Discharged Contingent Fee Lawyer May Recover for Services

By Lazar Emanuel

[Originally published in NYPRR July 2004]

When a law firm under a contingent fee agreement is discharged without cause, it may recover for its services in quantum meruit whether or not the client ultimately achieves any recovery. [Universal Acupuncture Pain Services PC v. Quadrino & Schwartz, Ct. App. 2d Cir. No. 02-9469 (NYLJ, 6/11/2004, p. 26).]

The law firm of Quadrino & Schwartz PC (Q&S) was retained under a contingent fee agreement by Universal Acupuncture to recover for reimbursement of medical and acupuncture services from State Farm Insurance. The agreement provided for payment to Q&S of 20% of any sum recovered by Universal through judgment or settlement. After commencement of litigation, Q&S was discharged by Universal. Q&S immediately demanded compensation in quantum meruit for the value of its services through the date of discharge and advised Universal that it would assert a charging lien on all files and papers pending payment.

Before the action could be terminated, Q&S applied to the district court for determination and award of counsel fees. The court postponed any decision on the fees until the outcome of the litigation. The litigation was ultimately settled without any monetary award to Universal. The court referred the issue of counsel fees for Q&S to a federal Magistrate, whore commended that counsel fees be denied because Universal had not recovered any funds. The district court adopted the Magistrate’s report in full and denied the claim for counsel fees.

The Court of Appeals reversed. Basic to its decision was the fact that neither the district court nor the Magistrate had determined whether Q&S was discharged for cause. Speaking for the Court, Judge Robert D. Sack discussed the following matters.

Right of client to discharge attorney. Under New York law, a client may discharge its lawyer at any time with or without cause. [Cohen v. Grainger, 81 N.Y.2d 655, 602 N.Y.S.2d 788(1993).] If a lawyer is discharged for cause, he or she is not entitled to legal fees. [Teichner v. W&J Holsteins, Inc., 64 N.Y.2d 977, 489 N.Y.S.2d 36 (1985).]

Discharge without cause. If the lawyer is discharged without cause prior to the conclusion of the matter, he may recover the fair and reasonable value of his services in quantum meruit; or, if the parties have so agreed, he may be paid part of the client’s ultimate recovery on a contingent fee basis. [Cohen, supra., “Only if the client and attorney agree may the attorney receive a fee based on a percentage of the recovery.”] In the case of Q&S, the firm demanded quantum meruit compensation immediately after the discharge. The firm argued that its discharge was without cause and that it was therefore entitled to determination and payment of its fee.

When to fix quantum meruit fees. Q&S argued that the district court had abused its discretion by postponing determination of its quantum meruit fee until the outcome of the litigation. Judge Sack recognized that the New York courts usually determine quantum meruit fees immediately after discharge. The Cohen court, supra, explained the reasoning behind this practice: “As a practical matter, quantum meruit valuation of services rendered by a discharged attorney can best be determined at the time of discharge, rather than some months or years later when the case finally ends.”

But Judge Sack concluded that the district court had not abused its discretion in this case.

We do not think, however, that a court necessarily abuses its discretion by postponing the determination of the fair and reasonable value of an attorney’s services either in order to avoid unnecessary delay in the underlying litigation, or if, under the particular circumstances of the case, a more accurate determination can be made later. [Citing Tops Mkts., Inc. v. Quality Mkts., Inc., No. 93-CV-0302E (F) (W.D.N.Y. 2001).]

Fixing the quantum meruit fee. However, the court concluded that the district court had abused its discretion by denying Q&S its quantum meruit fees on the ground that Universal had received no monetary recovery. Because a quantum meruit fee is based on the reasonable value of services and is usually fixed immediately after discharge, it is not limited by the client’s ultimate recovery, “which might be determined after — sometimes long after — the time of discharge.” The New York preference for fixing quantum meruit fees immediately after discharge is inconsistent with requiring such fees to be contingent upon monetary recovery.“ It follows that a court ought not to consider the former client’s actual recovery in determining quantum meruit fees.”

In determining the fair and reasonable value of the lawyer’s services to the date of discharge, a court may consider the following factors:

1. The contingent nature of the representation;

2. The results achieved by the lawyer before discharge; and

3. The client’s actual chance of success at the time the lawyer was discharged.

“The client’s chance of success at the time of discharge is thus not irrelevant to the amount of a quantum meruit award.”

The Appellate Court remanded to the district court to determine whether the discharge of Q&S was for cause. If not for cause, then the court was directed to determine an appropriate fee in quantum meruit based on the principles listed above.

Lazar Emanuel is the Publisher of NYPRR

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Lazar Emanuel