in-re-petition-for-distribution-of-attorneys-fees-between-stowman-law ( 2015 )

STATE OF MINNESOTA
IN SUPREME COURT
A13-2225
Court of Appeals Dietzen, J.
Concurring, Stras and Lillehaug, JJ.
Took no part, Hudson, J.
In re Petition for Distribution of Attorney’s Fees
between Stowman Law Firm, P.A., and Lori Filed: October 28, 2015
Peterson Law Firm, formerly d/b/a Lori Peterson Office of Appellate Courts
and Associates
________________________
Erik F. Hansen, Burns & Hansen, P.A., Wayzata, Minnesota; and
David L. Stowman, Stowman Law Firm, Detroit Lakes, Minnesota, for appellant.
Zenas Baer, Zenas Baer Law Office, Hawley, Minnesota, for respondent.
________________________
SYLLABUS
1. An attorney who withdraws for good cause from representation under a
contingent-fee agreement may recover in quantum meruit the reasonable value of the
services rendered prior to withdrawal, provided that the recovery upon withdrawal is not
otherwise addressed in the agreement and the attorney satisfies the ethical obligations
governing withdrawal from representation.
2. The refusal of a client to accept a settlement offer does not constitute good
cause for an attorney to withdraw from representation under a contingent-fee agreement.
Affirmed.
1
OPINION
DIETZEN, Justice.
Appellant Stowman Law Firm, P.A. (Stowman), which represented a client
pursuant to a contingent-fee agreement, voluntarily withdrew from the representation of
the client when efforts to settle the case failed. The client retained substitute counsel who
then successfully settled the case. Stowman brought an action to recover in quantum
meruit the value of the services provided prior to the withdrawal. Following a bench
trial, the district court found that Stowman failed to establish good cause for withdrawal
and, therefore, was not entitled to recover in quantum meruit. The court of appeals
affirmed. We conclude that an attorney may withdraw from a contingent-fee agreement
with or without cause, provided that the withdrawal satisfies the rules of professional
responsibility. But the attorney must establish that the withdrawal is for good cause in
order to recover in quantum meruit the reasonable value of the services rendered prior to
withdrawal. Because Stowman failed to establish good cause, we affirm.
In July 2007 Stowman entered into a contingent-fee agreement to represent a
client in a medical-malpractice claim against a doctor based on a one-third contingent fee,
plus reimbursement for out-of-pocket expenses. The contingent-fee agreement, which is
only three-quarters of a page in length, permitted Stowman to “withdraw from
representation of this agreement,” if “after reasonable investigation of [the] claim” and
notice to the client, it “determine[d] that it is not feasible to prosecute [the] claim.” The
agreement also states that no settlement may be made without the client’s consent, and
provides in relevant part that the client agreed to pay Stowman for its services one-third
2
“of the gross amount recovered.” “If there is no recovery, by either settlement or verdict,
[the client] shall not be indebted to said attorneys for services rendered, and there shall be
no attorney’s fees paid.”
Over the next 2 years Stowman investigated the facts and reviewed the law to
determine whether there was a basis for a medical-malpractice claim against the doctor.
Stowman completed its investigation and decided to proceed with the case. To support
its theory of the case, Stowman retained expert witnesses to provide favorable testimony
on liability and damages. Stowman did not file a lawsuit or conduct any formal
discovery.
In December 2009 the parties participated in mediation to resolve the case.
Stowman agreed to present a settlement demand of $1.6 million at the mediation even
though the Stowman lawyer responsible for the case believed the demand was too high.
The mediation recessed without reaching a settlement. The next day, the mediator
notified Stowman that the doctor would offer $100,000 if that amount would settle the
claim. Stowman repeatedly advised the client to accept the offer, but the client declined
to do so. Stowman subsequently told the client that the firm would withdraw if the case
was not settled by January 1, 2010.
During the same time period, Stowman sought an advisory opinion from the
Office of Lawyers Professional Responsibility (OLPR) on how to ethically withdraw
from the client’s case. As part of that exchange, the Stowman lawyer forwarded notes of
a conversation with the client, which stated:
3
I have a client whose expectations I will be unable to meet. She has
compromised to $1.4 million. The defense has offered $100,000.00, which
is the high end of my evaluation of her damages and settlement value. I
plan to withdraw from her representation if she does not accept the
settlement offer.
The OLPR advised Stowman to follow the process to decline or terminate representation
set forth in Minn. R. Prof. Conduct 1.16(b).
On January 4, 2010, Stowman verbally notified the client that it was withdrawing
from representation. In a letter to the client the next day, the Stowman lawyer stated:
I do not think I can obtain a better result, either through continued
negotiations, mediation, or at trial than the $100,000.00 offer from the
defense. Therefore, I must withdraw immediately to allow you the
opportunity to find an attorney whose evaluation of your claim is consistent
with yours.
No other reasons for withdrawal were stated in the letter, or in other documents, between
the mediation and the withdrawal.
Thereafter, the client retained respondent Lori Peterson Law Firm (Peterson) as
substitute legal counsel to represent her pursuant to a 40-percent contingent-fee
agreement. Subsequently, Peterson successfully negotiated a settlement of the claim for
$200,000.
When Stowman learned of the settlement, it filed and served an attorney’s lien,
and asked the defendant’s attorney to name Stowman on the settlement draft in order to
protect its fee interest. In February 2011 the client and the defendants entered into a
confidential settlement agreement and mutual full and final release of all claims. The
settlement agreement provided, among other things, that in consideration of the
settlement terms, which included any claim for attorney fees, the client released the
4
defendants and other releasees. Additionally, the client had 30 days to negotiate a
resolution of any attorney liens, and if the negotiation was unsuccessful, a check in the
amount of $200,000 payable to the client, Peterson, and Stowman would be delivered to
Peterson’s attorney.
Separately, the client, Peterson, and Stowman entered into a distribution
agreement that established a process to facilitate the distribution of the settlement
proceeds to the client pending resolution of the fee dispute between Peterson and
Stowman. The agreement provided in relevant part:
40% of the total settlement will be placed into Lori Peterson’s law firm
trust account. The costs claimed as advanced by these two law firms will
also be placed into that trust account. None of these amounts will be
distributed without a final order of the court or arbitrator in the fee dispute
between Lori Peterson and the Stowman Law Firm, or by mutual consent of
Lori Peterson and the Stowman Law Firm.
....
The balance of the settlement proceeds will be paid to [the client].
The amount of the contingent fee and costs claimed by Stowman and Peterson was
deposited into Peterson’s trust account; the balance of the settlement proceeds was paid
to the client.
Because the client was unable to resolve the contingent-fee dispute between
Stowman and Peterson, Stowman petitioned the district court for recovery of the costs
advanced and for an equitable distribution of the contingent fees. Stowman sought a
division of the fees based on the value of the services the firm rendered to the client prior
to its withdrawal, under a theory of quantum meruit. The district court denied Peterson’s
motion for summary judgment and the matter proceeded to a bench trial. The district
5
court limited the trial to whether Stowman “rightfully withdrew from representation” so
as to be entitled to recover in quantum meruit. The court found that Stowman withdrew
because the client failed to follow Stowman’s recommendation to accept the offer of
settlement, which was based on the firm’s belief that a better offer could not be obtained
at trial. The court concluded that Stowman failed to establish good cause for its
withdrawal and therefore could not recover in quantum meruit. Further, the court
concluded that the distribution agreement did not create a contractual right for recovery
in favor of Stowman, but that Stowman was entitled to recover its costs of $8,273. The
court of appeals affirmed. In re Distribution of Attorney’s Fees between Stowman Law
Firm, P.A. & Lori Peterson Law Firm, 855 N.W.2d 760, 760 (Minn. App. 2014). We
granted review.
I.
Stowman acknowledges that an attorney who represents a client under a
contingent-fee agreement and voluntarily withdraws from representation loses the right to
bring a breach-of-contract claim in order to recover damages from the client. But,
Stowman contends, recovery in quantum meruit should be permitted when an attorney
ethically withdraws from a contingent-fee matter because it is unjust for a client to retain
the benefit of an attorney’s services without paying for that benefit. Stowman argues that
we should extend our holding in Lawler v. Dunn, 145 Minn. 281, 176 N.W. 989 (1920),
to allow an attorney who voluntarily withdraws from representation in a contingent-fee
matter to recover in quantum meruit the value of the services provided. Alternatively, if
6
an attorney is required to show good cause to permit recovery in quantum meruit after a
voluntary withdrawal, Stowman argues that it had good cause to withdraw.
We review questions of law de novo and questions of fact under the clearly
erroneous standard. In re Welfare of J.H., 844 N.W.2d 28, 34-35 (Minn. 2014); see also
Minn. R. Civ. P. 52.01. When determining whether a finding is clearly erroneous we
view the evidence in the light most favorable to the district court’s findings, and examine
the record to see if there is reasonable evidence to support the findings. Rasmussen v.
Two Harbors Fish Co., 832 N.W.2d 790, 797 (Minn. 2013). A finding of fact is clearly
erroneous if we are “left with the definite and firm conviction that a mistake has been
made.” In re Stisser Grantor Trust, 818 N.W.2d 495, 507 (Minn. 2012).1
To answer the questions raised we will first review the relevant law regarding
attorney-client fee disputes and quantum meruit principles, and then apply those
principles to the issues before us.2
1
The procedural posture of this case is somewhat unusual. The fee petition names
Peterson and Stowman as parties, even though the attorney-client relationship, and
therefore the claim, is logically against the client. But Stowman’s petition procedure is
consistent with the parties’ distribution agreement. Specifically, in the distribution
agreement, the law firms and the client acknowledged that the dispute over the funds held
in trust was between the law firms and that the client waived any claim to the funds in
dispute. Thus, Peterson’s and Stowman’s respective claims to the funds held in trust are
in the nature of an interpleader action. See Minn. R. Civ. P. 22. Because no party
contends that Stowman’s petition is brought against the wrong party, we turn to the
merits of the claim.
2
Quantum meruit is a term that is frequently misunderstood, largely because it may
apply to two very different circumstances: as a claim at law for the fair market value of a
party’s performance under an implied-in-fact contract, or as a claim in equity as
restitution for the value of a benefit conferred in the absence of a contract under a theory
(Footnote continued on next page.)
7
A.
Our court has the power and authority to regulate the practice of law, including the
power to adopt rules regulating the ethical obligations of attorneys. See Minneapolis Star
& Tribune Co. v. Hous. & Redev. Auth., 310 Minn. 313, 318-19, 246 N.W.2d 448, 452
(1976) (explaining that the court adopted the code of professional responsibility pursuant
to its authority to regulate the practice of law); Petition for Integration of Bar of Minn.,
216 Minn. 195, 199, 12 N.W.2d 515, 518 (1943) (stating “the making of regulations and
rules governing the legal profession falls squarely within the judicial power thus
exclusively reserved to the court.”). Thus, even apart from contract terms, ethical rules
govern the attorney-client relationship. For example, an attorney’s fee must be
reasonable under the circumstances, even if contingent on the outcome. Minn. R. Prof.
Conduct 1.5(a), (c); see also Holt v. Swenson, 252 Minn. 510, 514-15, 90 N.W.2d 724,
728 (1958) (holding that a contingent-fee agreement is permissible so long as it is not
overreaching or unreasonable).
Specifically, Minn. R. Prof. Conduct 1.5(c) provides:
A contingent fee agreement shall be in a writing signed by the client and
shall state the method by which the fee is to be determined . . . . Upon
conclusion of a contingent fee matter, the lawyer shall provide the client
with a written statement stating the outcome of the matter and, if there is a
(Footnote continues from previous page.)
of unjust enrichment. Black’s Law Dictionary 1437 (10th ed. 2014); see also Certified
Fire Prot. Inc. v. Precision Constr., 283 P.3d 250, 256 (Nev. 2012). Stowman’s express
contract with its client precludes recovery under the first theory, but its argument for
recovery in quantum meruit for the reasonable value of services provided prior to
withdrawal, as an implied term in all contingent-fee agreements, implicates the second
theory.
8
recovery, showing the remittance to the client and the method of its
determination.
The Minnesota Rules of Professional Conduct also address an attorney’s ability to
withdraw from representation of the client. An attorney is required to withdraw from
representation in certain circumstances. Minn. R. Prof. Conduct 1.16(a). A lawyer may
also permissively withdraw for various delineated reasons, including when “withdrawal
can be accomplished without material adverse effect on the interests of the client.” Id. at
1.16(b)(1).
We have recognized the different nature of the attorney-client relationship
compared to other contractual relationships and, therefore, we have applied different
legal principles to interpret and enforce attorney-fee agreements. See Krippner v. Matz,
205 Minn. 497, 506, 287 N.W. 19, 24 (1939) (“While [an attorney-client] contract may
have similar attributes, the agreement is, essentially, in a classification peculiar to
itself.”). Because the attorney-client relationship, even if memorialized in a written
agreement, is subject to ethical and professional rules promulgated by the court, ordinary
contract principles must yield at times to these paramount standards. Id. (stating “[w]e
think it is a misconception to attempt to force an agreement between an attorney and his
client into the conventional modes of commercial contracts”).
The concurrence would resolve this dispute simply on the basis of the contract
terms. We do not agree. Stowman did not assert a breach-of-contract claim, nor does it
seek to recover the contract amount. Rather, Stowman seeks recovery based on the value
of the services it provided to the client. See Int’l Materials Corp. v. Sun Corp., 824
9
S.W.2d 890, 895 (Mo. 1992) (“The . . . lawyers failed to fulfill the terms of their
contingent fee contract with the client; therefore contractual recovery is not proper. . . .
[T]he lawyers’ only recovery could be in quantum meruit for benefits conferred.”); see
also Burns v. Stewart, 290 Minn. 289, 300-01, 188 N.W.2d 760, 767 (1971) (stating the
court “should not be unmindful of the equities” and permitting attorney to recover “for
the reasonable value of his services” notwithstanding a contractual contingent-fee term).
We therefore turn to the principles that govern the claim Stowman asserted.
We have previously considered the recovery permitted to an attorney when the
attorney-client relationship is terminated, with or without cause. Burns, 290 Minn. at
291, 188 N.W.2d at 762; Lawler v. Dunn, 145 Minn. 281, 283, 176 N.W. 989, 989
(1920). In Lawler, we considered whether a client’s termination of an agreement with an
attorney for legal representation, without cause, constituted a breach of contract that
entitled the attorney to damages. 145 Minn. at 283, 176 N.W. at 989. The attorney was
retained to represent the client at trial in a criminal matter for a flat fee. Id. at 282, 176
N.W. at 989. The attorney asserted that the parties’ agreement included a term for
continued representation of the client after a conviction for purposes of a post-trial
motion and appeal. Id. at 282-83, 176 N.W. at 989. The attorney filed a post-trial motion
and began work on the appeal, at which point the client terminated the attorney. Id. at
283, 176 N.W. at 989. The attorney sued the client for breach of contract, alleging he
was entitled to recover the estimated fees for the successful completion of the appeal. Id.
The trial court submitted the case to the jury on the attorney’s theory. Id.
10
On appeal, we held that a contract for legal representation between an attorney and
a client may be cancelled by the client at any time, with or without cause. Further, we
noted that the discharge of an attorney without cause does not constitute a breach of
contract because the right to terminate is an implied term of the contract. We noted that,
while a court “will not penalize a client for an exercise of the right” to terminate a
representation agreement and settle a matter without the attorney’s “consultation or
consent,” when the client does so the “measure of relief of the attorney is the reasonable
value of his services.” Id. at 285, 176 N.W. at 990; see also Meagher v. Kavli, 251 Minn.
477, 491-92, 88 N.W.2d 871, 881-82 (1958) (stating that when a representation
agreement is ended, the attorney is left “in a position where he may only recover the
reasonable value of the services he has rendered” and thus “[a]n attorney may recover for
his services under a common count in general assumpsit”).3 This implied term is
premised upon the understanding of the parties that the attorney rendered services with
the expectation of payment, the client was aware of that expectation, and the client
accepted the attorney’s services without objection. See High v. Supreme Lodge of World,
Loyal Order of Moose, 210 Minn. 471, 473-74, 298 N.W. 723, 725 (1941) (explaining
that attorney could recover reasonable value of services rendered under a theory of
quantum meruit when the attorney proved “(1) services were rendered; (2) under
3
Historically, quantum meruit was one of the common counts—a subspecies of the
writ of indebitatus or general assumpsit. 1 Joseph M. Perillo, Corbin on Contracts § 1.20
(rev. ed. 1993).
11
circumstances from which a promise to pay for them should be implied; and (3) their
value”).
We have applied the Lawler quantum meruit rule to a contingent-fee agreement.
In Burns, 290 Minn. 289, 188 N.W.2d 760, the attorney entered into a contingent-fee
agreement that entitled him to a fee equal to one-fourth of any amount of personal
property the client recovered from her husband, who had deserted her and left her
financially destitute. Id. at 292, 188 N.W.2d at 762. The attorney initiated a lawsuit
against the husband in California. Id. During settlement discussions, the client fired the
attorney. Id. Later, represented by different lawyers, the client eventually recovered
funds by settling the California action. Id. at 292, 188 N.W.2d at 763. We held that the
attorney, who had performed substantial services under the contingent-fee agreement and
was terminated by the client before funds were recovered, was entitled to recover the
reasonable value of his services. Id. at 301, 188 N.W.2d at 767. We allowed the attorney
to recover the reasonable value of services rendered in quantum meruit even though an
express contract between the attorney and client addressed fees and the attorney was not
entitled to recover fees under the terms of that contract.4
4
The concurrence relies on contract principles to argue that the remedy of quantum
meruit is not available because the contingent-fee agreement generally addresses when
Stowman may recover a fee and provides that Stowman may withdraw if it determines
the claim is not feasible. This approach fails to account for the ethical obligations that
distinguish the attorney-client agreement from the typical commercial contract
relationship. See Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 445 (Colo. 2000)
(“An attorney-client relationship relies on trust and confidence between the client and the
attorney,” which distinguishes that relationship “from other business relationships” and
“creates a somewhat different framework for the analysis of quantum meruit claims.”).
(Footnote continued on next page.)
12
Both Lawler and Burns involved situations in which the client terminated the
agreement with the attorney. We have not determined whether Burns and Lawler should
be extended to allow an attorney who voluntarily withdraws from representation under a
contingent-fee agreement to recover in quantum meruit the reasonable value of the
services rendered to the client prior to withdrawal.5 We therefore turn next to this
question.
B.
Stowman argues that an attorney who withdraws from representation should be
allowed to recover in quantum meruit, provided the withdrawal satisfies the attorney’s
ethical obligations. Stowman relies on Lawler to argue that recovery in quantum meruit
is an implied term in all contingent-fee agreements, regardless of the reasons for
withdrawal.
Our decision in Lawler does not support Stowman’s proposed rule. In Lawler, we
concluded that an implied term of a contract between an attorney and client is that the
(Footnote continues from previous page.)
The Rules of Professional Responsibility require attorneys to withdraw in certain
circumstances. For example, an attorney must withdraw when continued representation
“will result in violation of the Rules of Professional Conduct or other law” or the
attorney’s ability to represent the client is “materially impair[ed].” Minn. R. Prof.
Conduct 1.16 (a)(1)-(2). The ethical obligation of the attorney to withdraw raises the
question of whether the attorney is entitled to recover his or her fees up to the point of
withdrawal.
5
Relying on Burns, the court of appeals has held that “an attorney who rightfully
withdraws is entitled to compensation for the reasonable value of his or her services,
based not upon the contingency fee contract, but upon quantum meruit.” Ashford v.
Interstate Trucking Corp., 524 N.W.2d 500, 502-03 (Minn. App. 1994); see also Stall v.
First Nat’l Bank of Buhl, 375 N.W.2d 841, 845-46 (Minn. App. 1985).
13
contract may be terminated with or without cause, but in certain circumstances the
attorney could recover the reasonable value of the services rendered. Specifically, the
remedy we provided to the attorney in Lawler was based on a client termination without
cause. The underlying reasoning was that the attorney provided professional services
under circumstances in which a promise to pay should be implied. The rule we adopted
in Lawler was calculated to balance the right of the client to terminate the attorney
without cause against the right of the attorney to be paid for services for which there was
a reasonable expectation of payment. 145 Minn. at 284-85, 176 N.W. at 990.
The ethical obligations of attorneys support the Lawler rule. To begin with, the
ethical rules may require an attorney to withdraw for good cause. Minn. R. Prof.
Conduct 1.16(a). For example, an attorney may conclude that withdrawal is required
because continuing representation will result in a violation of the rules of professional
conduct.6 The attorney in this situation, forced to withdraw from representation, loses the
6
The rule proposed by the concurrence would prohibit an attorney who withdraws
for good cause, such as in the case of client perjury, see Minn. R. Prof. Conduct 3.3(a)
(prohibiting a lawyer from knowingly offering false evidence), from recovering any fee
unless that recovery is expressly provided for in the contract. Additionally, the
concurrence’s proposed rule would permit the client to terminate an attorney without
liability for any fees unless the parties’ agreement expressly addressed that possibility. In
our view, the concurrence’s proposed rule, which appears to be unique, ignores the
attorney’s ethical obligations that require withdrawal in some circumstances and is
contrary to our case law. See Burns v. Stewart, 290 Minn. 289, 291, 188 N.W.2d 760,
762 (Minn. 1971); Lawler, 145 Minn. at 283, 176 N.W. at 989. The concurrence’s rule
would encourage attorneys, in the face of contract silence on withdrawal for good cause,
to continue the representation simply to recover a fee, which is inconsistent with the
foundation of the attorney-client relationship. Int’l Materials Corp., 824 S.W.2d at 894
(“[T]he lawyer-client relationship is founded on trust and confidentiality” and “when
(Footnote continued on next page.)
14
opportunity to earn a fee under the contingent-fee agreement, despite having done what
was required under the terms of the agreement and despite providing the client with
valuable services. Further, the attorney is ethically obligated to protect the client’s
interests, including by providing successor counsel with copies of the attorney’s file in
the case. See Minn. R. Prof. Conduct 1.16(d). In Lawler, we balanced the client’s right
to terminate the relationship with or without cause, with the attorney’s ethical obligations
to the client and the need for public confidence in the legal profession to conclude that
the attorney’s right to recovery in these circumstances is limited to the “reasonable value”
of services. 145 Minn. at 284, 176 N.W. at 990 (explaining that the rule allowing an
attorney to recover the reasonable value of services rendered “is well calculated to
promote public confidence in the members of an honorable profession whose relation to
their clients is personal and confidential” (citation omitted)). These same factors weigh
heavily in favor of allowing an attorney who terminates the relationship for good cause
before resolution of the claim to recover the reasonable value of services rendered if the
client ultimately recovers in the case.
We conclude that an attorney who withdraws for good cause from representation
under a contingent-fee agreement may recover in quantum meruit the reasonable value of
services rendered prior to withdrawal, provided that the attorney’s recovery in the event
of withdrawal for good cause is not otherwise addressed in the contract and the attorney
(Footnote continues from previous page.)
those foundations deteriorate, it is not only impractical to persist in the relationship, it
diminishes the integrity of the bar to do so.” (citation omitted)).
15
satisfies the ethical obligations governing withdrawal from representation. Three reasons
support our conclusion.
First, ordinary principles of contract law will not always resolve the question of an
attorney’s right to recover in quantum meruit following a good-cause withdrawal because
the attorney-client relationship is also subject to ethical and professional rules
promulgated by the court.7 Indeed, ordinary contract principles may not apply given the
termination of the attorney-client contract. See Tillman v. Komar, 181 N.E. 75, 75-76
(N.Y. 1932) (“After cancellation [of a retainer agreement], its terms no longer serve to
establish the sole standard for the attorney’s compensation.”). Further, ethical obligations
continue after an attorney has withdrawn from representation and, therefore, it is not
unreasonable to allow an attorney who withdraws for good cause to recover in quantum
meruit if the client ultimately recovers.
Second, 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 our past decisions. Generally, attorney withdrawal for good cause is not
7
The attorney and client can, of course, address in a representation agreement the
subject of the agreed-upon recovery in the event of the attorney’s good-cause withdrawal.
A contingent-fee agreement stating that the attorney is entitled to recover for services
provided, or recover a portion of a contingent fee owed to substitute counsel, when a
recovery is obtained after the attorney withdraws from representation for good cause
must comply with the Rules of Professional Conduct. See Minn. R. Prof. Conduct 1.5(a)
(stating a lawyer must charge reasonable fees); see also Meagher, 251 Minn. at 490-91,
88 N.W.2d at 882 (explaining that the court will exercise its authority to oversee fee
agreements and prevent overreaching by attorneys); Holt, 252 Minn. at 514, 90 N.W.2d
at 728 (explaining that the court will prohibit unreasonable or unconscionable terms in
contingent-fee agreements). We express no opinion on the reasonableness of any such
provision.
16
voluntary or caused by the conduct of the attorney but instead is typically due to the
conduct of the client. In that case, the attorney is providing professional services of value
to the client under circumstances from which a promise to pay for those services should
be implied. See High, 210 Minn. at 473, 298 N.W. at 725 (stating that to recover in
quantum meruit, an attorney must prove that services were provided, that there was an
implied promise to pay, and the value of those services); Lawler, 145 Minn. at 285, 176
N.W. at 990; accord Burns, 290 Minn. at 301, 188 N.W.2d at 767 (concluding that a
contingent-fee attorney who devotes substantial time, money, and energy to a client’s
cause should not be precluded from recovering for the reasonable value of his services if
the client terminates the agreement prior to recovery). A contingent-fee attorney who
performs work based on these reasonable expectations should be allowed to recover the
reasonable value of services rendered, provided the attorney-client relationship is
terminated for good cause prior to the client’s recovery. See Roberge v. Cambridge Co-
op. Creamery, 248 Minn. 184, 188-89, 79 N.W.2d 142, 148 (1956) (“[R]egardless of
what the original intention of the parties was, as operations continued and difficulties
were encountered, the parties so conducted themselves that it must be inferred that
defendant expected to pay plaintiff the reasonable value of his services.”); Restatement
(Second) of Contracts § 5 (1981).
On the other hand, when an attorney terminates the attorney-client relationship
without good cause the circumstances are materially different, because such an attorney
demonstrates a willingness to forfeit a fee. See, e.g., Rice v. Perl, 320 N.W.2d 407, 411
(Minn. 1982) (“[A]n attorney . . . who breaches his duty to his client forfeits his right to
17
compensation.”); In re Lee’s Estate, 214 Minn. 448, 460, 9 N.W.2d 245, 251 (1943)
(“[A]n attorney at law who is unfaithful in the performance of his duties forfeits his right
to compensation.”); see also Dinter v. Sears, Roebuck & Co., 651 A.2d 1033, 1039 (N.J.
Super. 1995) (stating the withdrawing lawyer “could not . . . have reasonably expected
payment after” he “terminated his representation” under a contingent-fee agreement, and
the clients and successor attorney “should [not] reasonably have expected that [the
lawyer] would share in” a later recovery “absent a clear agreement to that effect” with the
clients and successor attorney). Absent some express contract language to the contrary, it
is objectively unreasonable for an attorney in these circumstances to expect compensation
for pre-withdrawal services. This is because the reasonable expectation of at least the
client, if not both parties to a contingent-fee agreement, is that the attorney who
voluntarily withdraws without good cause forfeits the right to recover a portion of a
contingent fee later obtained by substitute counsel.
Moreover, to allow a contingent-fee attorney to withdraw without good cause and
then recover a fee in quantum meruit may impermissibly shift the balance of power in
contingent-fee arrangements to favor the attorney’s economic interest8 over the objectives
of the client. Specifically, allowing recovery following withdrawal without good cause
would encourage attorneys to withdraw from a case simply because a client refused to
8
Stowman contends that requiring an attorney to show good cause for withdrawal
punishes attorneys by denying equitable recovery for the work performed. It further
contends that this rule does not benefit the client and only results in a windfall for
substitute counsel. But Stowman’s proposed rule would allow an attorney to withdraw
simply due to the attorney’s change of mind about the risk the case poses.
18
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). Additionally, such a rule may unfairly
limit the ability of the client to secure substitute counsel. Successor counsel may be
legitimately concerned with the economics of sharing a future contingent fee with the
prior counsel. See also Dinter, 651 A.2d at 1040 (refusing to permit recovery in quantum
meruit to an attorney who withdrew after an unsuccessful trial because “such an approach
might also cause a prospective new attorney to pause before undertaking representation to
prosecute an appeal or subsequent trial after remand.”).
Third, decisions from other jurisdictions support our conclusion. Most states that
have considered this issue have recognized the right of an attorney to recover for services
that were rendered prior to withdrawal, so long as the attorney’s withdrawal from the
case is for a “justifiable” reason or “good cause.” George Blum, Annotation,
Circumstances Under which Attorney Retains Right to Compensation Notwithstanding
Voluntary Withdrawal from Case, 53 A.L.R. 5th 287, 303-04 (1997); see Faro v. Romani,
641 So. 2d 69, 71 (Fla. 1994); Lofton v. Fairmont Specialty Ins. Managers, Inc., 367
S.W.3d 593, 597 (Ky. 2012); Bell & Marra, pllc v. Sullivan, 6 P.3d 965, 970 (Mont.
2000); Int’l Materials Corp. v. Sun Corp., Inc., 824 S.W.2d 890, 894 (Mo. 1992); Royden
v. Ardoin, 331 S.W.2d 206, 209 (Tex. 1960). These courts have reasoned that a good-
cause requirement aligns with the underlying purpose of contingent-fee agreements and
19
protects the valuable function such arrangements play in the modern legal system. See
Lofton, 367 S.W.3d at 593; Bell & Marra, pllc, 6 P.3d at 970.9
Good cause in this context is not easily defined, but is narrow in scope, and
depends on the facts and circumstances of each case. See Bell & Marra, pllc, 6 P.3d at
970 (explaining that good-cause withdrawal that would allow a contingency-fee attorney
to recover the reasonable value of services rendered under quantum meruit generally
exists when the client has engaged in culpable conduct or the continued representation
would violate the ethical duties of the lawyer). 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. See Minn. R. Prof. Conduct 1.16(a) (stating
that a lawyer shall withdraw from representation when the representation will result in a
violation of the rules of professional conduct or other law, or the lawyer’s physical or
mental condition materially impairs his or her ability to represent the client).
Additionally, good cause may include some of the reasons for permissible withdrawal in
the rules of professional conduct. See, e.g., Minn. R. Prof. Conduct 1.16(b)(2)-(3).
9
West Virginia is the only state that allows an attorney who voluntarily withdraws
without good cause to recover in quantum meruit. See May v. Seibert, 264 S.E.2d 643,
647-48 (W. Va. 1980) (allowing quantum meruit recovery if the client was not prejudiced
by the withdrawal).
20
II.
Stowman argues in the alternative that it had good cause to withdraw. According
to Stowman, its withdrawal was in accordance with Minn. R. Prof. Conduct 1.16(b)(1),
which permits an attorney to withdraw if “the withdrawal can be accomplished without
material adverse effect on the interests of the client,” and therefore it had good cause to
withdraw. Rule 1.16(b)(1) allows an attorney to withdraw from representation for no
reason or any reason if the withdrawal will not materially harm the client’s interests. The
focus of this rule is on the impact the withdrawal will have on the client’s interests, and
not the attorney’s reason for withdrawing. 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).
Stowman also argues that the client’s refusal to consider a reasonable settlement
offer constitutes good cause to withdraw. We disagree. The decision whether to settle a
case is the client’s to make, and the attorney must accept the decision made. See Minn.
R. Prof. Conduct 1.2(a) (“A lawyer shall abide by a client’s decision whether to settle a
matter.”). Dissatisfaction with a client’s exercise of that right does not constitute good
cause for a lawyer’s withdrawal from representation. See Auguston v. Linea Aerea
Nacional-Chile SA, 76 F.3d 658, 663 (5th Cir. 1996) (stating the “failure of the client to
accept a settlement offer does not constitute just cause for a withdrawing attorney to
collect fees.”); Estate of Falco, 233 Cal. Rptr. 807, 816-17 (Cal. App. 1987) (stating that
a client’s right to reject a settlement “cannot constitute cause” for a lawyer’s withdrawal,
21
and “[g]iven that it was [the clients’] absolute right to refuse settlement, it would be
anomalous to hold that their refusal to settle constitutes lack of cooperation sufficient to
award attorneys’ fees in quantum meruit.”). We conclude that the refusal of a client to
accept a settlement offer in a civil case does not constitute good cause to withdraw.
The district court determined that Stowman withdrew from representation because
the client refused to accept the $100,000 settlement offer and the law firm believed that it
could not obtain a better recovery at trial. This finding is supported by the record and is
not clearly erroneous. After receiving the $100,000 settlement offer, the attorney
repeatedly advised the client to accept the offer and told her that Stowman would
withdraw from representation if the case was not settled by January 1, 2010. The client
refused to accept the offer. In a memo in the file, the attorney noted that he could not
meet the client’s expectations and would “plan to withdraw from her representation if she
did not accept the settlement offer.” In a letter dated January 5, 2010, a Stowman lawyer
stated:
I do not think I can obtain a better result, either through continued
negotiations, mediation, or at trial than the $100,000.00 offer from the
defense. Therefore, I must withdraw immediately to allow you the
opportunity to find an attorney whose evaluation of your claim is consistent
with yours.
No other reasons for withdrawal were stated in the letter. Therefore, Stowman’s
withdrawal due to the client’s refusal to accept a settlement offer was not for good cause.
22
III.
In summary, we conclude that because Stowman did not have good cause to
withdraw, it is not entitled to recover in quantum meruit a portion of the contingent fee
obtained by Peterson.10
Affirmed.
HUDSON, J. took no part in the consideration or decision of this case.
10
Before this court, Stowman also argued the district court erred by: (1) adopting
the standard for recovery in quantum meruit drawn from Ashford v. Interstate Trucking
Corp. of Am., 524 N.W.2d 500, 501 (Minn. App. 1994), in its order denying summary
judgment, and then applying a different standard at trial; and (2) denying Stowman’s
motion for a new trial based upon newly discovered evidence consisting of the settlement
agreement between the client and the defendants. We did not grant review on either
issue, and therefore they are not properly before us and we decline to address them.
Gieseke ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 844 N.W.2d 210, 223
n.14 (Minn. 2014) (stating that a party waived argument by failing to raise the issue in its
petition for review); Tatro v. Univ. of Minn., 816 N.W.2d 509, 515 (Minn. 2012) (same).
23
CONCURRENCE
STRAS, Justice (concurring).
I agree with the court that the Stowman Law Firm is not entitled to recover a fee in
this case. In contrast to the court, however, I would apply ordinary contract principles,
not a good-cause standard, to reach this conclusion.
The court and I part company on the need to resolve the question of whether to
extend Lawler v. Dunn, 145 Minn. 281, 176 N.W. 989 (1920), and Burns v. Stewart, 290
Minn. 289, 188 N.W.2d 760 (Minn. 1971), to allow a law firm to recover a portion of a
contingency fee when it has withdrawn voluntarily. The court’s theory seems to be that
the retainer agreement does not address the precise circumstance presented by this case: a
voluntary withdrawal caused by disagreement about the settlement value of the client’s
action. In my view, the court’s reading of the agreement is too narrow.
The first paragraph of the retainer agreement states that the client retains Stowman
“in the prosecution and recovery of my claim and cause of action . . . .” The second
paragraph says that the client “agree[s] to pay them for their services a sum equal to
thirty-three and one-third (33 1/3%) percent of the gross amount recovered.” (emphases
added). The second paragraph makes clear that the firm receives fees for its “services”
only if the “recovery” is by “them,” the firm’s attorneys. Among other things, the
“amount recovered” refers back to the retention of Stowman for “recovery of [the]
claim.” Such an assumption is also built into the third paragraph: “[i]f there is no
recovery by either settlement or verdict, I shall not be indebted to said attorneys for
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services rendered, and there shall be no attorney’s fees paid.” Again, the reference to
“recovery” refers to recovery by the firm’s attorneys.
The sixth paragraph covers how the firm is to handle funds from a settlement or
judgment. It states that “from the proceeds, if any, coming into the possession of the
[attorneys], by way of settlement or judgment, the attorneys are authorized to deduct their
attorney’s fees and costs of litigation not previously reimbursed by” the client. In other
words, the retainer agreement assumes what is typical: the law firm represents the client
to the point of settlement or judgment, funds recovered go to the law firm, and the law
firm then disburses the funds—minus its one-third fee and expenses—to the client.
The seventh and eighth paragraphs not only reflect this understanding, they
demonstrate that the parties expressly contemplated a disagreement over settlement
valuation and the possibility of a voluntary withdrawal. The seventh paragraph allows
Stowman to withdraw after reasonable investigation if the firm determines “that it is not
feasible to prosecute such claim.” The eighth paragraph makes clear that “[n]o settlement
of this claim may be made without first securing the consent of” the client. Neither
paragraph includes any provision for Stowman to receive a fee if it voluntarily withdraws
before settlement or judgment. Both paragraphs, read together with the remainder of the
retainer agreement, imply exactly the opposite: if there is no recovery by Stowman,
Stowman receives no fee. This is how the typical contingency-fee agreement works.1
1
The court asserts that I ignore the possibility that an attorney may be required to
withdraw from some cases for ethical reasons, which would require the attorney to either
forego a fee or continue to represent a client notwithstanding the duty to withdraw. As to
(Footnote continued on next page.)
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The final paragraph, entitled “Other,” contains blank lines for any special
understandings between attorney and client. The “Other” paragraph is blank. At the
bottom of the form, Jeffrey Stowman “accept[ed] employment on the above terms on
behalf of Stowman Law Office.”
On its face, the retainer agreement is complete: there are no missing, material
terms. The agreement lays out precisely when and how Stowman receives a fee. It even
covers the circumstances, akin to the situation here, when the client refuses to settle or
the firm concludes that it is not “feasible” to prosecute the claim. The retainer agreement
thus presents a garden-variety task of contractual interpretation: we must ascertain the
intent of the parties through the language of their written contract. See Savela v. City of
Duluth, 806 N.W.2d 793, 796 (Minn. 2011); see also Downing v. Ind. Sch. Dist. No. 9,
207 Minn. 292, 298, 291 N.W. 613, 616 (1940) (ascertaining intent is the “cardinal rule”
in the interpretation of contracts). The retainer agreement, like most contracts, does not
explicitly address every possible contingency. But it is sufficiently clear to ascertain
(Footnote continues from previous page.)
the former possibility, a contingency-fee agreement already accounts for the risk that an
attorney will not receive a fee despite doing substantial work on the case. In assessing
their risk, attorneys are capable of accounting for the possibility that either they or the
client will terminate the representation before the matter is finally resolved. Indeed,
contingency-fee agreements already include a “risk premium.” Cf. Gisbrecht v.
Barnhart, 535 U.S. 789, 810 (2002) (Scalia, J., dissenting) (discussing the idea of a “risk
premium” in contingency-fee agreements). Regarding the latter possibility, attorneys
must adhere to their ethical obligations, even at some financial cost to themselves, and in
interpreting contracts for legal services, we should not assume that attorneys will
disregard those obligations.
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intent: Stowman is not entitled to a fee when it withdraws voluntarily before settlement or
judgment.
The court apparently disagrees, presenting its holding as applicable when an
“attorney’s recovery in the event of withdrawal for good cause is not . . . addressed in the
contract.” The court does not explain why the retainer agreement in this case is
incomplete, so it never goes the extra step of squaring its interpretation with other black-
letter principles of contract interpretation. Those principles, once applied, also suggest
that Stowman is not entitled to a fee.
First, we must read and interpret contracts, like statutes, as a whole, not as separate
isolated provisions. See Halla Nursery, Inc. v. City of Chanhassen, 781 N.W.2d 880,
884-85 (Minn. 2010). In addition to the other provisions discussed above, the fourth
paragraph of the retainer agreement says that, in the event Stowman recovers nothing for
the client, the client must still pay costs. Specifically, the fourth paragraph states that
“[a]ctual costs, if any, advanced by [Stowman] . . . will be paid by the undersigned
regardless of the outcome.” (Emphasis added.) Significantly, there is no analogous
provision regarding fees accompanying the term in the seventh paragraph allowing
Stowman to withdraw voluntarily, which strongly suggests that Stowman would be
entitled only to costs, if anything, from the client in the event of a voluntary withdrawal.
Second, even if the retainer agreement were ambiguous regarding its application to
this situation, “it is axiomatic that the contract will be construed against the drafter.”
Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). Here, Stowman
drafted the contract.
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Third, any ambiguity in a contract may be clarified by reference to parol evidence.
Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 832 (Minn. 2012); Betlach
v. Wayzata Condo., 281 N.W.2d 328, 330 (Minn. 1979) (“[A]ll evidence offered to
clarify or explain ambiguous terms . . . should be admitted, as long as it is not for the
purpose of varying terms whose meaning is plain.”). Here, the communications between
Stowman and the client included a statement, once found on Stowman’s website, that
“[t]o give the best possible service, we do NOT charge a fee unless we recover money for
you, our client.” (Emphasis added.) If there were any doubt about whether Stowman was
entitled to a fee in the situation presented here, this statement indicates it was not.
Finally, as the court notes, this is not an ordinary commercial contract; it is an
agreement between an attorney and a client. I understand the point made by the court
that different concerns govern attorney-client relationships. However, 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.2
Several provisions of the Minnesota Rules of Professional Conduct support my
view. One rule makes clear that the “basis or rate of the fee . . . shall be communicated to
the client . . . .” Minn. R. Prof. Conduct 1.5(b). In other words, the burden to
communicate clearly, in a way that the client can understand, is on the attorney. The
attorney has an even greater responsibility when fees are contingent on the outcome of
2
These considerations also cause me to question whether the court’s rule is
consistent with precedent allowing recovery for unjust enrichment only when one party
confers a benefit on another party and “retention of the benefit is not legally justifiable.”
Caldas, 820 N.W.2d at 838.
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the matter. Not only must the agreement be in “a writing signed by the client,” it must
“state the method by which the fee is to be determined, including the percentage or
percentages that shall accrue to the lawyer in the event of settlement, trial or appeal . . . .”
Minn. R. Prof. Conduct 1.5(c). If there is ambiguity in the written contingency-fee
agreement on when and how to calculate fees, then the attorney has neither clearly
“stated the method by which the fee is to be determined” nor the percentage that “shall
accrue.” This failure of communication cuts against the attorney’s right to collect a fee,
not against the client.
In this case, both general principles of contract interpretation and the special
concern we have shown for clients through our rules should lead us to interpret and apply
the retainer agreement according to its plain meaning. For these reasons, we need not
reach the question of whether the Stowman firm’s withdrawal was not “justifiable,” as
the court of appeals decided, or without “good cause,” as the court decides. I would
decide the case based on basic principles of contract interpretation, and conclude that, by
the terms of the retainer agreement, Stowman is not entitled to a fee upon voluntary
withdrawal. Accordingly, I respectfully concur only in the result.
LILLEHAUG, Justice (concurring).
I join in the concurrence of Justice Stras.
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