Galanis v. Lyons & Truitt

• Decision Date: 08 September 1999
• Docket Number: No. 64S03-9904-CV-231.,64S03-9904-CV-231.
• Citation: 715 N.E.2d 858
• Parties: Michael J. GALANIS, Appellant (Cross Defendant Below), v. LYONS & TRUITT, Appellee (Plaintiff Below), and Suzanne Brown, Appellee (Defendant/Cross-Claimant Below).
• Court: Indiana Supreme Court

715 N.E.2d 858

Michael J. GALANIS, Appellant (Cross Defendant Below), v. LYONS & TRUITT, Appellee (Plaintiff Below), and Suzanne Brown, Appellee (Defendant/Cross-Claimant Below).

No. 64S03-9904-CV-231.

Supreme Court of Indiana.

September 8, 1999.

Karl L. Mulvaney, Nana Quay-Smith, Candace L. Sage, Indianapolis, Indiana, Tammy C. Wilson, Chesterton, Indiana, Attorneys for Appellant.

Thomas F. Macke, Valparaiso, Indiana, Attorney for Appellee Suzanne Brown. James L. Sullivan, Valparaiso, Indiana, Attorney for Appellee Lyons & Truitt.

ON PETITION TO TRANSFER

BOEHM, Justice.

We hold that in the absence of express written fee agreements providing otherwise (1) a lawyer retained under a contingent fee contract but discharged prior to the contingency is entitled to recover the value of services rendered if there is a subsequent settlement or award; (2) the fee is to be measured by the proportion of the total fee equal to the contribution of the discharged lawyer's efforts to the ultimate result; and (3) a subsequent lawyer under a contingent fee agreement who knew of the previous lawyer's representation is responsible for paying the predecessor's fee out of the subsequent lawyer's fee. These are default settings the law supplies in the absence of fee agreements providing otherwise and parties and lawyers are not prevented from making other reasonable fee arrangements.

Factual and Procedural Background

Suzanne Brown was injured in an automobile accident on September 7, 1988. Her first lawyer withdrew because of a conflict of interest and she discharged a second for failure to return phone calls. Brown then retained Robert Truitt of Lyons & Truitt to represent her. Truitt and an associate took several depositions and prepared for trial over the next two and one-half years. When Truitt was appointed to the Porter Superior Court in July of 1993,¹ Brown discharged his firm and retained Michael Galanis. Brown signed a written contingent fee agreement providing that Galanis would receive 40% of the gross amount recovered if the case settled or went to trial plus an additional 10% if the case was appealed. The agreement made no reference to compensating Lyons for its apparently significant role in the case. When Galanis met with Truitt to obtain Brown's file, Truitt explained to Galanis that his firm had taken the case under the 1/3 contingent fee arrangement provided in the written agreement between Brown and her first lawyer.

Approximately four months after Galanis assumed the case, Brown was successful at trial and a jury awarded her $250,000. The case was then settled for $200,000. Shortly after settlement, Lyons sent Galanis an itemized list of its hours worked and expenses incurred on Brown's case, but requested no specific fee. Galanis communicated with Brown and Lyons on several occasions. Ultimately, Brown (through Galanis) offered Lyons $4,000 to settle the fee dispute and Lyons requested 1/3 of 1/3 of the recovery or $22,200. The parties could not reach an agreement.

Nearly two years after its first demand for payment, Lyons filed a complaint for declaratory judgment against Brown requesting that the trial court determine Brown's obligations under the two contingent fee agreements. Brown filed a cross-claim against Galanis asserting that Galanis, not Brown, was responsible for any fee owing to Lyons. Galanis filed a motion for summary judgment as to his exposure for Lyons's fees. The trial court held that Lyons was entitled to a reasonable fee, which was determined to be "commensurate with the hourly rate charged by an attorney in a similar case," and that Galanis was responsible for paying that fee.

Galanis appealed the trial court's holding that he was responsible for paying the fee and Lyons appealed the trial court's ruling on the reasonable value of its services. The Court of Appeals affirmed the trial court, holding that (1) under quantum meruit Lyons is entitled to the reasonable value of its services rendered and (2) Galanis is responsible for paying the Lyons's fees because holding Brown responsible for both would chill her right to discharge her lawyer. It affirmed without discussion the trial court's ruling that Lyons's fee should be "commensurate with" a standard hourly rate. Galanis v. Lyons & Truitt, 698 N.E.2d 368 (Ind.Ct. App.1998). We granted Galanis' petition to transfer.

I. A Discharged Lawyer is Entitled to the Reasonable Value of Services Rendered

"A client has a right to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer's services." Indiana Professional Conduct Rule 1.16 comment; see Matter of Lansky, 678 N.E.2d 1114, 1116 (Ind.1997)

; see also 7 AM.JUR.2D Attorneys at Law § 181 (1997). We assume that an agreement calling for a reasonable method of compensating a discharged lawyer may be enforceable according to its terms. Cf. RESTATEMENT (SECOND) OF CONTRACTS § 3777 (1981). Here, however, Lyons and Brown had reached no explicit agreement as to whether or how much Lyons was to be compensated if the firm was discharged before a result was known. The conventional rule is that "[a]n attorney who is employed under a contingent fee contract and discharged prior to the occurrence of the contingency is limited to quantum meruit recovery for the reasonable value of the services rendered to the client, and may not recover the full amount of the agreed contingent fee." 7 AM.JUR.2D Attorneys at Law § 181 (1997); accord Matter of Lansky, 678 N.E.2d at 1116; Kelly v. Smith, 611 N.E.2d 118, 122 (Ind.1993). As the Court of Appeals observed, "this rule strikes the proper balance by providing clients freedom in substituting counsel, prohibiting clients from being held responsible for attorney's fees not previously agreed to, and protecting an attorney's right to be compensated for services rendered." Galanis v. Lyons & Truitt, 698 N.E.2d 368, 372 (Ind.Ct.App.1998).

A corollary of the client's right to discharge a lawyer is that a contract between the client and the lawyer that unduly impairs that right is invalid. 1 GEOFFREY C. HAZARD, JR. & W. WILLIAM HODES, THE LAW OF LAWYERING § 1.16:201-1 (1990 & Supp.1998). Accordingly, even if an agreement calls for a full contingent fee in the event of discharge, it is likely to be unenforceable. If a client is required to pay the discharged lawyer the fee for the completed project, especially if this is a percentage contingent fee, and then pay a second fee for its completion, the client's right to discharge the lawyer may be too costly to assert. Id. at § 1.16:602 n. 2.1 (a client's right to discharge is not much of a right if it would be too costly to assert); AFLAC, Inc. v. Williams, 264 Ga. 351, 444 S.E.2d 314, 317 (1994) ("A client should not be deterred from exercising his or her legal right because of economic coercion."). Otherwise stated, holding a client responsible for the entire amount of a contract would chill a client's exercise of the right to discharge a lawyer. Estate of Forrester, 562 N.E.2d at 1317; see also Saucier v. Hayes Dairy Prod., Inc., 373 So.2d 102, 116 (La.1978)

(the client's absolute right to discharge a lawyer is stripped of effect if the exercise of that right is conditioned upon payment of the full amount specified in the contract). The requirement of Professional Conduct Rule 1.5 that a lawyer's fee be reasonable is also relevant. A full contingency for partial completion overcompensates the discharged lawyer by giving a full contingent fee for less than a full work load.

Similarly, however, allowing a full contingency to a successor may be unreasonable. If the former lawyer has contributed significantly to the result but the successor receives a full contingent fee, either the first lawyer remains uncompensated for that contribution or the client pays more than a full contingent fee. In either case, the successor gets a windfall in the form of being relieved of the effort contributed by the first lawyer but nonetheless receives a full contingent fee. None of these results is the desired default setting the law should provide in the absence of a contract spelling out exactly who pays how much under these circumstances.

II. Determining the Reasonable Value of the First Lawyer's Services

Quantum meruit is an equitable doctrine that prevents unjust enrichment by permitting one to recover the "value of work performed or material furnished if used" by another and if valuable. 17A C.J.S. Contracts § 440 at 553 (1963). Where there is a successor lawyer, the benefit the client received from the predecessor's work is either retained by the client in the form of obtaining a more favorable fee agreement, or it is transferred to the successor in the form of relieving the successor of the need to expend the same effort. As applied to this case, if Lyons is not compensated for the useful work it performed on Brown's case, either Brown or Galanis is unjustly enriched. The dollar value to offset the unjust enrichment is based on the value conferred on the client, not the effort expended by the lawyer, although the two may be the same in many instances.

Arriving at the proper number to place on the predecessor's services is ultimately a factual determination for the trial court. The trial court in this case held that the "reasonable value" of Lyons's work should be determined "commensurate with the hourly rate of a community attorney charging for similar services." Judge Staton, dissenting in the Court of Appeals in this case, read this as requiring a fee "equal [to] `the hourly rate of a community attorney....'" Galanis v. Lyons & Truitt, 698 N.E.2d 368, 374 (Ind.Ct.App.1998) (Staton, J., dissenting). The parties apparently make the same assumption. Lyons challenges this method of calculating the reasonable value of the firm's work. If a fee agreement provides for an hourly rate in the event of a pre-contingency termination, it is presumptively enforceable, subject to the...