Fracasse v. Brent , 6 Cal. 3d 784 ( 1972 )

Opinion

BURKE, J.

In this case we are asked to reconsider the rule of damages which allows an attorney who has been discharged without cause by his client to recover as damages the full fee specified in the contract of employment, regardless of the reasonable value of his services or the extent of work performed under that contract. For the reasons hereinafter stated, we have concluded that this rule is inconsistent with the strong policy, expressed both judicially and legislatively, in favor of the client’s absolute right to discharge his attorney at any time, and that the attorney should be limited to a quantum meruit recovery for the reasonable value of his services, upon the occurrence of any contingency contemplated by his contract.

Plaintiff, George Fracasse, is a duly licensed attorney at law, who was retained by defendant Ray Raka Brent to prosecute a claim for personal injuries in her behalf. On or about March 12, 1969, Fracasse and Brent entered into a written contingency fee agreement, under which Brent agreed that Fracasse’s compensation would be 33V6 percent of any settlement made at least 30 days prior to the original trial date and 40 percent of any recovery obtained thereafter, whether by settlement or judgment.

Some time thereafter, but before any recovery had been obtained in the personal injury suit, Brent informed Fracasse that she wished to discharge him and retain another attorney. She did so and, on January 16, 1970, Fracasse filed the instant action, entitled “Complaint for Declaratory Relief.” Alleging that his discharge was without cause, and that Brent had breached her contract and had refused to give Fracasse the fee to which he would have been entitled thereunder, Fracasse prayed for a declaration that the contract was valid and that he had a one-third interest in any monies ultimately recovered in the personal injury action. Brent demurred generally and specially to the complaint. The trial court did not rule on the special demurrers, but held that the complaint did not state a cause of action and sustained the general demurrer without leave to amend on the authority of Brown v. Connolly, 2 Cal.App.3d 867 [83 Cal.Rptr. 158]. This appeal followed.

In Brown v. Connolly, supra, an attorney (Brown) was employed under a contingent fee contract which provided that he would be entitled to 25 percent of any recovery in certain litigation to be prosecuted by him. Brown filed a complaint on behalf of his client (Connolly) which prayed for $4,500,000 in damages. After his discharge by Connolly Brown filed an action against him for breach of contract, praying for $1,125,000 in damages—i.e., 25 percent of the recovery which Connolly had sought in the collateral litigation. Since Brown’s complaint indicated, however, that Connolly had not yet recovered anything in that litigation, the trial court sustained a demurrer without leave to amend; the Court of Appeal affirmed on the basis that a wrongfully discharged attorney has no cause of action against his former client for compensation, based on a contingent fee contract, until the happening of the stated contingency.

As the Brown court noted, the rationale of such a rule is obvious. “[Mjore often than not the size of a party’s claim bears little relation to its value. Such a rule . . . allowing judgment for attorney fees based upon a percentage of a wishful estimate (often by the attorney) of a client’s claim before its liquidation or any recovery thereon, would often lead to grossly unfair consequences. A client, unfortunate enough to have misconceived a reason to discharge his attorney, without any recovery on his claim could find himself adjudged to pay many times its value—a disaster to the client and a windfall to the attorney.” (Brown v. Connolly, supra, 2 Cal.App.3d 867, 870-871.)¹

As was emphasized above, the Brown court was dealing with a situation in which the attorney was suing for compensation prior to the happening of the contingency, i.e., prior to any recovery by the client. Plaintiff would distinguish Brown on the basis that he is merely seeking a declaration of his rights in any recovery which his former client ultimately might receive. Defendant on the other hand contends that because plaintiff would be entitled to no compensation whatever unless and until defendant recovered something by way of judgment or settlement, the action is premature. More importantly, defendant argues that it is grossly unfair to allow a discharged attorney to^ put a former client to the expense of defending a suit, the result of which can put the attorney in no better position than he was initially and the purpose of which is likely to be to force an unfair settlement. Without attempting to judge the motives underlying the bringing of the instant action, and while recognizing the factual distinction between Brown and the instant situation, we shall point out that in light of our holding regarding the applicable measure of damages, the action is premature and, on that basis, the judgment must be affirmed.

Turning then to the question of damages we note that the rule respecting the measure of damages to be awarded a wrongfully discharge attorney derives from the 1854 case of Baldwin v. Bennett, 4 Cal. 392. In that case, an attorney was retained to litigate a matter and, by contract, the client had agreed to a $5,000 fee. The client settled the matter himself and the attorney sued for his fee. In support of its holding that the attorney was entitled to the full amount of the fee, the court set forth the following rationale: “The general rule as to measure of damages ... ‘is not the whole price agreed to be paid, but the actual loss sustained, which will consist of the value of the services rendered and the damage sustained by the refusal to allow performance of the rest of the contract.’ [Par.] To this rule there are, however, some exceptions. Where, from the nature of the contract, as in this case, no- possible mode is left of ascertaining the damage, we will have presented the anomalous case of a wrong without a remedy, unless we adopt the only measure of damages which remains, and that is, the price agreed to be paid. . . .” (Baldwin v. Bennett, supra, at p. 393.)

Despite the court’s faulty premise—there being no convincing reason why recovery on a quantum meruit theory would not fairly and adequately compensate the attorney for his services—Baldwin v. Bennett, supra, was cited as controlling in Webb v. Trescony, 16 Cal. 621 [18 P. 796]—an-other contractual fee case—with no discussion of alternative theories of recovery. Bartlett v. Odd Fellows’ Savings Bank, 79 Cal. 218 [21 P. 743], appears to' be the first case to apply the contract-price measure of recovery to a contingent fee contract. The court also held that a cause of action for wrongful discharge under a contingent fee contract accrues at the time of the happening of the contingency, not at the time of the discharge. The court affirmed the award of the stipulated fee without discussion of the basis for the rule, or citation of authority. The rule was reaffirmed in Zurich G. A. & L. Ins. Co. v. Kinsler, 12 Cal.2d 98, 100-101 [81 P.2d 913], in which the court held that “where, with respect to compensation for services thereafter to be performed, an attorney who was employed under a contingent contract . . . was discharged ‘without causé ... he [is] entitled to recover a judgment for the full amount that was provided by the terms of such contract.” (See also Denio v. City of Huntington Beach, 22 Cal.2d 580, 591 [140 P.2d 392, 149 A.L.R. 320]; Jones v. Martin, 41 Cal.2d 23, 27 [256 P.2d 905].)²

The rule was given substantial consideration in the case of Salopek v. Schoemann, 20 Cal.2d 150 [124 P.2d 21], an action to foreclose an attorney’s lien on the proceeds of a judgment. The trial court allowed the hen to the extent of the reasonable value of the services, and this court affirmed, holding that the attorney was discharged for cause and, therefore, was entitled only to a quantum meruit recovery. Chief Justice Gibson and Justice Traynor concurred, but contended that the line of cases following Baldwin v. Bennett, supra, 4 Cal. 392, should be overruled and that whether the discharge was with or without cause, the measure of damages should be the reasonable value of the attorney’s services. The concurring justices reasoned that “It is recognized as a part of the ethical rules governing the legal profession that an attorney will not sue a client for a fee except to prevent injustice, imposition or fraud. (See American Bar Association, Canons of Professional Ethics, Canon 14.) [Par.] The relation of attorney and client is one of special confidence and trust, and the dignity and integrity of the legal profession demand that the interests of the client be fully protected. [Citation.] Without public confidence in the members of the legal profession, which is dependent upon absolute fairness in the dealings between attorney and client, courts cannot function in the proper administration of justice. And inherent in the relationship between attorney and client is the fact that the client must rely almost entirely upon the good faith of the attorney who alone can make an informed estimate of the value of the client’s legal right and of the expense and effort necessary to enforce it. These considerations have given rise to the generally accepted rule that a client may discharge his attorney at any time with or without cause. [Citations.] But that is not enough. The right to discharge is of little value if the client must risk paying the full contract price for services not rendered upon a determination by a court that the discharge was without legal cause. The client may frequently be forced to choose between continuing the employment of an attorney in whom he has lost faith, or risking the payment of double contingent fees equal to the greater portion of any amount eventually recovered. . . . The uncertain position of the client in such circumstances is illustrated by the record in the present case where the trial court found the discharge was without cause and this court has made a contrary finding and concluded the discharge was justified. Unless a rule is adopted allowing an attorney as full compensation the reasonable value of services rendered to the time of discharge, clients will often feel required to continue in their service attorneys in whose integrity, judgment or capacity they have lost confidence.” (Salopek v. Schoemann, supra, at pp. 156-157; see Denio v. City of Huntington Beach, supra, 22 Cal.2d 580, 603-604.)

It has long been recognized in this state that the client’s power to discharge an attorney, with or without cause, is absolute (Code Civ. Proc., § 284). In discussing the unique relationship between attorney and client, this court stated that “The interest of the client in the successful prosecution or defense of the action is superior to that of the attorney, and he has the right to employ such attorney as will in his opinion best subserve his interest. The relation between them is such that the client is justified in seeking to dissolve that relation whenever he ceases to have absolute confidence in either the integrity or the judgment or the capacity of the attorney. . . . The fact that the attorney has rendered valuable services under his employment, or that the client is indebted to' him therefor, or for moneys advanced in the prosecution or defense of the action, does not deprive the client of this right. . . .” (Gage v. Atwater, 136 Cal. 170, 172 [68 P. 581]; see Herron v. State Farm Mutual Ins. Co., 56 Cal.2d 202, 205-206 [14 Cal.Rptr. 294, 363 P.2d 310].)

Upon reflection, we find this language irreconcilable with the rule of Baldwin v. Bennett, supra, 4 Cal. 392, and its progeny. It should be sufficient that the client has, for whatever reason, lost faith in the attorney, to establish “cause” for discharging him. Otherwise, a client may believe that he has legal cause for discharging an attorney, and subsequently discover that a trial court’s contrary conclusion has cost him 7316 percent of a recovered judgment. (See Jones v. Brown, 84 Cal.App.2d 390 [190 P.2d 956].) As Witkin states the matter, “the client has the power to discharge his attorney at any time for no. reason at all; the client may confuse this power with a right to discharge without liability. . . . [Discharge without cause may subject the client either h> an essentially penal recovery not measured by the value received, or, in some cases, to double recovery of fees—by the new attorney and the discharged attorney. Consequently, it is of vital importance that the client know whether he has legal cause for terminating the contract, but the authorities furnish him with no reliable test.” (1 Witkin, Cal. Procedure (2d ed. 1970) pp. 113-114.)

We have concluded that a client should have both the power and the right at any time to' discharge his attorney with or without cause. Such a discharge does not constitute a breach of contract for the reason that it is a basic term of the contract, implied by law into it by reason of the special relationship between the contracting parties, that the client may terminate that contract at will. It would be anomalous and unjust to hold the client liable in damages for exercising that basic implied right. (See Martin v. Camp, 219 N.Y. 170 [114 N.E. 46], setting forth the rationale for the New York rule.)

Amicus contends that there will be substantial difficulty in ascertaining the amount of recovery under a quantum meruit theory. The same difficulty—if such it be—is also present, however, in cases in which an attorney has been discharged with ’’cause” and yet such difficulty does not appear to have been insurmountable. (See 1 Witkin, Cal. Procedure, supra, pp. 98-109, and cases cited therein.) Nor do we believe that abandonment of the present rule will lead to a wholesale discharging of attorneys by clients motivated solely by a desire to save attorneys’ fees. To the extent that such discharge is followed by the retention of another attorney, the client will in any event be required, out of any recovery, to pay the former attorney for the reasonable value of his services. Such payment, in addition to the fee charged by the second attorney, should certainly operate as a self-limiting factor on the number of attorneys so discharged. To the extent that such discharge occurs “on the courthouse steps,” where the client executes a settlement obtained after much work by the attorney, the factors involved in a determination of reasonableness woulcf certainly justify a finding that the entire fee was the reasonable value of the attorney’s services. (Oliver v. Campbell, 43 Cal.2d 298 [273 P.2d 15]; see Los Angeles v. Los Angeles-Inyo Farms Co., 134 Cal.App. 268, 276 [25 P.2d 224], setting forth the factors which should be taken into consideration in determining a reasonable fee.)

In short, we find no injustice in a rule awarding a discharged attor-. ney the reasonable value of the services he has rendered up to the time of discharge.³ In doing so, we preserve the client’s right to discharge his attorney without undue restriction, and yet acknowledge the attorney’s right to fair compensation for work performed.

We return, therefore, to the question of the timeliness of the action filed by plaintiff. It had been held that a claim based upon unlawful discharge of an attorney retained under a contingent fee contract did not accrue until the happening of the contingency. (Brown v. Connolly, supra, 2 Cal.App.3d 867; Barlett v. Odd Fellows’ Savings Bank, supra, 79 Cal. 218, Jones v. Martin, supra, 41 Cal.2d 23.) The basis for the rule was, of course, the fact that until the happening of the contingency, the amount of damages suffered by the attorney could not be ascertained. Having held herein that an attorney henceforth will be entitled to recover only the reasonable value of his services to the time of discharge, the question arises whether his cause of action has accrued at that time. With respect to contingent fee contracts, we hold otherwise for two reasons.

First, one of the significant factors in determining the reasonableness of an attorney’s fee is “the amount involved and the result obtained.” (1 Witkin, Cal. Procedure, supra, p. 102, citing A.B.A. Code, DR 2-106(B).) It is apparent that any determination of the “result obtained” is impossible, and any determination of the “amount involved” is, at best, highly speculative (see Brown v. Connolly, supra, 2 Cal.App.3d 867), until the matter has finally been resolved. Second, and perhaps more significantly, we believe it would be improper to burden the client with an absolute obligation to pay his former attorney regardless of the outcome of the litigation. The client may and often is very likely to be a person of limited means for whom the contingent fee arrangement offers the only realistic hope of establishing a legal claim. Having determined that he no longer has the trust and confidence in his attorney necessary to sustain that unique relationship, he should not be held to have incurred an absolute obligation to compensate his former attorney. Rather, since the attorney agreed initially to' take his chances on recovering any fee whatever, we believe that the fact that the success of the litigation is no longer under his control is insufficient to justify imposing a new and more onerous burden on the client. Hence, we believe that the attorney’s action for reasonable compensation accrues only when the contingency stated in the original agreement has occurred—i.e., the client has had a recovery by settlement or judgment. It follows that the attorney will be denied compensation in the event such recovery is not obtained.⁴

In summary, we hold that an attorney discharged with or without cause is entitled to recover the reasonable value of his services rendered to the time of discharge. Cases to the contrary, commencing with Baldwin v. Bennett, supra, 4 Cal. 392, are overruled. We further hold that the cause of action to recover compensation for services rendered under a contingent fee contract does not accrue until the occurrence of the stated contingency. In light of these rules, it seems clear that there is no present controversy such as would justify the court in exercising its discretion to entertain an action for declaratory relief (Code Civ. Proc., § 1060 et seq.). Whether there might be some circumstances in which a declaratory relief action might properly be brought by an attorney we need not decide. (See Merkley v. Merkley, 12 Cal.2d 543 [86 P.2d 89].) The facts presented in the instant case cannot support such an action.

The judgment of the trial court is affirmed.

McComb, J., Peters, J., Tobriner, J., and Mosk, J., concurred.

1 The court in Brown assumed, contrary to our holding herein, that upon the occurrence of the contingency, attorney Brown could recover the entire contingent fee set forth in the contract, if he proved that he was wrongfully discharged.

2 It has also been held that the attorney may elect to sue in quantum meruit rather than sue for the fee contracted to be paid. (See Echlin v. Superior Court, 13 Cal.2d 368, 375-376 [90 P.2d 63, 124 A.L.R. 719].)

3 In passing, we note that a substantial number of jurisdictions, including New York, have adopted such a rule. (See Annot., 54 A.L.R.2d 604, 618-620; Annot., 136 A.L.R. 231, 254-258; 7 Am.Jur.2d, Attorneys at Law, §§ 255-256.)

4 To the extent that Tracy v. MacIntyre, 29 Cal.App.2d 145 [84 P.2d 526], is inconsistent with the views expressed herein, that case is disapproved.