Universal Acupuncture v. Quadrino & Schwartz

• Decision Date: 02 June 2004
• Docket Number: No. 02-9469.,02-9469.
• Citation: 370 F.3d 259
• Parties: UNIVERSAL ACUPUNCTURE PAIN SERVICES, P.C., Plaintiff-Counter-Defendant-Appellee, Dipak Nandi, M.D., Plaintiff-Appellee, v. QUADRINO & SCHWARTZ, P.C., Appellant, State Farm Mutual Automobile Insurance Co., Defendant-Counter-Claimant.
• Court: U.S. Court of Appeals — Second Circuit

370 F.3d 259

UNIVERSAL ACUPUNCTURE PAIN SERVICES, P.C., Plaintiff-Counter-Defendant-Appellee Dipak Nandi, M.D., Plaintiff-Appellee, v. QUADRINO & SCHWARTZ, P.C., Appellant State Farm Mutual Automobile Insurance Co., Defendant-Counter-Claimant.

No. 02-9469.

United States Court of Appeals, Second Circuit.

Argued: December 2, 2003.

Decided: June 2, 2004.

COPYRIGHT MATERIAL OMITTED

Evan S. Schwartz, Quadrino & Schwartz, P.C. (Richard J. Quadrino, Jason A. Newfield, of counsel), Garden City, NY, for Appellant.

Anthony J. Mamo, Jr., Medina & Mamo, Sleepy Hollow, NY, for Appellees.

Before: VAN GRAAFEILAND, SACK, and GIBSON,^* Circuit Judges.

SACK, Circuit Judge.

The appellant, Quadrino & Schwartz, P.C. ("Q & S"), appeals from an order of the United States District Court for the Southern District of New York (Shira A. Scheindlin, Judge) denying Q & S's request for attorney's fees in quantum meruit to be paid by its former clients, plaintiff-counter-defendant-appellee Universal Acupuncture Pain Services, P.C. ("Universal"), and plaintiff-appellee Dipak Nandi, M.D. (collectively, the "clients"). The clients had retained Q & S under a contingent-fee agreement to represent them in a lawsuit against an insurance company in which the clients sought reimbursement of charges for medical and acupuncture services. But the clients had discharged Q & S before the completion of the suit. Q & S requested that the district court order the clients to pay Q & S fees in quantum meruit for the services it had rendered prior to its discharge. The court held that Q & S was not entitled to such fees because the clients ultimately did not recover money in the suit for which they had retained Q & S.

We reverse the order of the district court and remand the case to the court for its determination of whether Q & S was discharged for cause and, if not, for a determination and award of a fee in quantum meruit.

BACKGROUND

The principal facts underlying this appeal are set forth in a thorough opinion by the district court. Universal Acupuncture Pain Servs., P.C. v. State Farm Mut. Auto. Ins. Co., 232 F.Supp.2d 127 (S.D.N.Y.2002). We repeat them here only to the extent we think necessary to explain our resolution of this appeal.

In May 2001, Universal retained Q & S to represent it in an action to be brought in the United States District Court for the Southern District of New York against defendant-counter-claimant State Farm Mutual Automobile Insurance Company ("State Farm"). Id. at 129. Universal and Q & S executed a retainer agreement that provided that Q & S would be compensated by a legal fee of twenty percent of the sum recovered through judgment or settlement, if any.¹ Id. at 129 n. 2. State Farm brought a counterclaim against Universal and claims against Universal's founder, third-party-defendant Dr. Dipak Nandi and third-party-defendant Dongxing Sun, a licensed acupuncturist.² Id. at 129.

On August 19, 2002, the clients discharged Q & S as counsel and ordered that Q & S cease working on the litigation with State Farm. Id. In response, Q & S demanded that the clients compensate the firm in quantum meruit for the reasonable value of the legal services it had provided up to that time. It notified the clients that it would maintain a retaining lien³ on the clients' files until all outstanding fees and disbursements were paid.

On September 18, 2002, Q & S requested that the district court determine and award attorney's fees in quantum meruit. On November 12, 2002, the court (Shira A. Scheindlin, Judge) postponed that determination pending the resolution of the litigation between the clients and State Farm. Id. at 134. According to the district court, under New York law,

[t]he mere fact that the attorney has elected to recover under quantum meruit does not change the fact that she originally took the case on a contingency. Her election of quantum meruit means only that she can recover a fixed amount from her former client's ultimate recovery, if any.

Id. Because Q & S's attorney's fees depended upon the clients' ultimate recovery in the litigation, the district court decided, the amount of the fees could not be determined until the litigation ended.

Thereafter, the clients and State Farm settled the underlying litigation, with no provision for a monetary award to the clients. The district court then referred the determination of Q & S's quantum meruit fee to Magistrate Judge Henry Pitman. After confirming that the clients had not received any monetary recovery, the magistrate judge, relying on the district court's November 12, 2002, decision, recommended that Q & S be denied legal fees, without determining whether Q & S had been discharged as counsel for cause. Q & S filed timely objections to the magistrate judge's report, but, on June 9, 2003, the district court adopted the report in full and ordered that the claim for legal fees be denied.

Q & S appeals.

DISCUSSION

I. Appealability and Standard of Review

The litigation having been concluded and the order denying legal fees being final, we have jurisdiction over the appeal of that order. See 28 U.S.C. § 1291; Leibovitz v. New York City Transit Auth., 252 F.3d 179, 184 (2d Cir.2001); see also In re Austrian & German Bank Holocaust Litig., 317 F.3d 91, 98 (2d Cir.2003) ("Whenever a district court has federal jurisdiction over a case, it retains ancillary jurisdiction after dismissal to adjudicate collateral matters such as attorney's fees."). We review the district court's denial of attorney's fees for abuse of discretion. Herman v. Davis Acoustical Corp., 196 F.3d 354, 356 (2d Cir.1999). A district court abuses its discretion by relying on an erroneous interpretation of law. Id.

II. Q & S's Right to Fees in Quantum Meruit

Under New York law,⁴ a client may discharge his or her lawyer at any time, with or without cause. See Cohen v. Grainger, Tesoriero & Bell, 81 N.Y.2d 655, 658, 602 N.Y.S.2d 788, 789, 622 N.E.2d 288, 289 (1993). If a lawyer is discharged for cause, he or she is not entitled to legal fees. Teichner by Teichner v. W & J Holsteins, Inc., 64 N.Y.2d 977, 979, 489 N.Y.S.2d 36, 37, 478 N.E.2d 177, 178 (1985). If the lawyer is discharged without cause and prior to the conclusion of the case, however, he or she may recover either (1) in quantum meruit, the fair and reasonable value of the services rendered, or (2) a contingent portion of the former client's ultimate recovery, but only if both of the parties have so agreed. See Lai Ling Cheng v. Modansky Leasing Co., 73 N.Y.2d 454, 458, 541 N.Y.S.2d 742, 744, 539 N.E.2d 570, 572 (1989); see also Cohen, 81 N.Y.2d at 658, 602 N.Y.S.2d at 790, 622 N.E.2d at 290 ("Only if the client and attorney agree may the attorney receive a fee based on a percentage of the recovery."). "Recovery on a quantum meruit basis is called for even where the attorney discharged without fault was employed under a contingent fee contract." Smith v. Boscov's Dep't Store, 192 A.D.2d 949, 950, 596 N.Y.S.2d 575, 576 (3d Dep't 1993);⁵ see also Cohen, 81 N.Y.2d at 658, 602 N.Y.S.2d at 790, 622 N.E.2d at 290 (discussing a discharged attorney's options for recovery in a case involving a contingency-fee agreement). In this case, immediately after the clients discharged Q & S and before the litigation was resolved, Q & S requested compensation in quantum meruit. Therefore, unless the clients discharged Q & S for cause, it was entitled to receive such compensation.

A. When Quantum Meruit Fees Are Determined

Q & S argues that the district court should not have awaited the completion of the underlying litigation to determine whether Q & S was discharged for cause and, if not, the amount of fees in quantum meruit. While we agree that a district court typically should determine quantum meruit fees upon request by the discharged attorney, we cannot conclude that the district court, in this case, abused its discretion by waiting until the conclusion of the underlying litigation.

Under New York law, a lawyer's right to recover in quantum meruit accrues immediately upon discharge. See Cohen, 81 N.Y.2d at 658, 602 N.Y.S.2d at 789, 622 N.E.2d at 289; Lai Ling Cheng, 73 N.Y.2d at 459, 541 N.Y.S.2d at 745, 539 N.E.2d at 573; Schneider, Kleinick, Weitz, Damashek & Shoot v. New York, 302 A.D.2d 183, 188, 754 N.Y.S.2d 220, 224 (1st Dep't 2002); Butler, Fitzgerald & Potter v. Gelmin, 235 A.D.2d 218, 219, 651 N.Y.S.2d 525, 527 (1st Dep't 1997); Turner v. Steve Brody, Inc., 24 A.D.2d 904, 904, 264 N.Y.S.2d 867, 867-68 (2d Dep't 1965) (mem.). As a result, New York courts ordinarily calculate quantum meruit compensation at that time. See Cohen, 81 N.Y.2d at 659, 602 N.Y.S.2d at 790, 622 N.E.2d at 290 ("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."); Lai Ling Cheng, 73 N.Y.2d at 458, 541 N.Y.S.2d at 745, 539 N.E.2d at 572 (noting that quantum meruit "compensation [is] a fixed dollar amount determined at the time of discharge"); Tillman v. Komar, 259 N.Y. 133, 136, 181 N.E. 75, 76 (1932) ("Since [an attorney] is entitled at the [time of discharge] to enforce his claim by action, he need not ... be compelled to await the outcome of the litigation from which he has been displaced."). 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. See Tops Mkts., Inc. v. Quality Mkts., Inc., 2001 WL 392082, at *3, 2001 U.S. Dist. LEXIS 4238, at *10 (W.D.N.Y. Apr.4, 2001) (noting that a court "has discretion to defer the determination of the fair and reasonable value of a discharged attorney's fees under quantum meruit until the...