Augustson v. Linea Aerea Nacional-Chile S.A. (LAN-Chile), NACIONAL-CHILE

• Decision Date: 29 February 1996
• Docket Number: LAN-CHILE,No. 94-20626,NACIONAL-CHILE,94-20626
• Citation: 76 F.3d 658
• Parties: Clyde W. AUGUSTSON, Individually and as Parents of and sole heirs of Hildegard D. Augustson, Deceased, et al., Plaintiffs-Appellants, v. LINEA AEREAS.A. (), Defendant, and Speiser, Krause, Madol and Mendelsohn, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 658

76 F.3d 658

64 USLW 2659

Clyde W. AUGUSTSON, Individually and as Parents of and sole heirs of Hildegard D. Augustson, Deceased, et al Plaintiffs-Appellants, v. LINEA AEREA NACIONAL-CHILE S.A. (LAN-CHILE), Defendant and Speiser, Krause, Madol and Mendelsohn, Appellee.

No. 94-20626.

United States Court of Appeals Fifth Circuit.

Feb. 29, 1996.

John Howie, Misko, Howie, & Sweeney, Dallas, TX, John M. Weaver, Dallas, TX, for Plaintiffs-Appellants.

David William Marshall, Charles F. Krause, Speiser, Krause & Madole, San Antonio, TX, for Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, HIGGINBOTHAM and BARKSDALE, Circuit Judges.

REAVLEY, Circuit Judge:

A Texas lawyer has been awarded compensation from his former client although the lawyer ceased to participate in the lawsuit prior to its resolution. Because he chose to withdraw due to disagreement with the client over the extent of discovery and settlement value, we reverse and render judgment denying compensation to the lawyer.

I.

On February 20, 1991, Susan Augustson and her grown daughter, Hildegard, flew as passengers from Punta Arenas, Chile, to Puerto Williams, Chile, on a flight operated by Linea Aerea Nacional-Chile, S.A. ("LAN-Chile"). The pilots made a high speed approach at a low angle and the airplane failed to stop at the end of a wet, downward sloping runway. The plane traveled down an embankment and plunged 150 yards into the frigid waters of Beagle Channel. Both Susan and Hildegard survived the initial crash into the water, but Susan was unable to extricate her daughter from her seat. Susan received no help from the flight crew, who had abandoned the airplane, and was forced to watch her daughter drown, narrowly escaping herself by swimming out the back door of the airplane.

On October 22, 1991, Susan and her husband, Clyde Augustson, appellants in this action, signed a contingent fee contract in San Antonio, Texas, with Speiser, Krause, Madole & Mendelsohn, Mata ("Speiser Krause"), to represent them in their claims against LAN-Chile for Hildegard's death. Under the contract, ¹ Speiser Krause agreed to investigate the facts and prepare for trial. The contract also gave the Augustsons the right to make the final decision on settlement of their claims. On March 2, 1992, Susan Augustson retained Speiser Krause to prosecute her action for her own personal injuries. Speiser Krause also represented ten other clients with claims arising from the accident.

Speiser Krause undertook some investigation of the crash, incurring expenses of $12,774.39 to obtain documents, interview survivors and other crash observers, research the ticketing, and research the LAN-Chile operation. Charles F. Krause, drawing on thirty years of experience in aviation, concluded that LAN-Chile had been negligent. However, because of the Warsaw Convention ² governing international air travel, unless the plaintiffs could prove willful misconduct on the part of the airline, the claims would be limited to $75,000 each. Speiser Krause believed that even if it could convince a jury of willful misconduct, such a verdict stood a good chance of being overturned on appeal.

With this in mind, Speiser Krause undertook to negotiate with LAN-Chile, and elicited separate settlement offers for all 12 claims. The settlement offer for the Augustsons was $475,000, well above the $150,000 limit established by the Warsaw Convention for negligence claims. All clients except the Augustsons accepted the settlement offers negotiated by Speiser Krause.

Speiser Krause strongly recommended that the Augustsons accept the settlement offer, believing that further discovery would enhance LAN-Chile's position by revealing negligence but not willful misconduct. When the Augustson's refused the offer, Speiser Krause pressured them to give a final figure on which they would agree to settle. The Augustsons refused to settle or give a final figure, believing that they had insufficient information on which to base a determination of the value of their claims.

Because of the Augustsons' persistence, Speiser Krause filed suit on their behalf against LAN-Chile on February 18, 1993, immediately before the statute of limitations was to expire. On March 12, 1993, at Speiser Krause's request, a mediation was conducted before two former judges. The judges proposed to the Augustsons that they ask LAN-Chile for $625,000 to settle the case. The Augustsons refused that suggestion, still believing that they had insufficient information on which to make a proper settlement decision.

On June 1, 1993, Speiser Krause moved for voluntary withdrawal for good cause pursuant to Rule 1.15(b) of the Texas Disciplinary Rules of Professional Conduct. ³ The Augustsons opposed withdrawal in writing. After a hearing, the district court permitted Speiser Krause to withdraw, deferring until later a hearing on the reasonableness of Speiser Krause's attorney's lien and expenses. At the time of withdrawal, Speiser Krause had taken no depositions and had retained no expert witnesses to testify at trial.

The Augustsons retained John Howie as new counsel, who hired expert witnesses, deposed the flight crew of the aircraft, and prepared the case for trial. On the eve of trial LAN-Chile agreed to pay the Augustsons $850,000 plus up to $5,000 in expenses in order to settle the case.

Twelve days later the district judge conducted a lien hearing, and on July 22, 1994, entered an order awarding Speiser Krause fees of $98,714.78 ⁴ and expenses in the amount of $11,435.22, ⁵ for a total of $110,150.00.

In its memorandum the district court listed several reasons why it believed Speiser Krause had the right to compensation: first, the plaintiffs failed to share vital information that they received with their attorneys; second, the plaintiffs refused to fix any sum that was acceptable for settlement purposes; third, the plaintiffs either lost faith or never had faith in Speiser Krause's ability sufficient to trust the firm's judgment; fourth, the pursuit of litigation would result in extensive expenses and additional attorneys fees that would only diminish, and possibly be fatal to, the plaintiffs' claim; and fifth, the plaintiffs "were intent on utilizing the Court and their counsel to vent the anger and frustration felt over the death of their daughter," and would find no solace in a settlement "until all involved were sufficiently punished or throttled by litigation."

The Augustsons now appeal the award of fees and expenses, and, in the alternative, argue that the method used to compute the award was incorrect. Because we agree no fee award should have been given, we do not address the validity of the computation.

II.

The rights and obligations of parties to a contingency fee contract are governed by state law. Johnston v. California Real Estate Inv. Trust, 912 F.2d 788 (5th Cir.1990). Therefore Speiser Krause's ability to recover is based upon Texas law.

A.

Under Texas law, whether and how to compensate an attorney when a contingent fee contract is prematurely terminated depends on whether the attorney was discharged, withdrew with the consent of the client, or withdrew voluntarily without consent. An attorney discharged by the client without cause can recover on the contingent fee contract or in quantum meruit. See Mandell & Wright v. Thomas, 441 S.W.2d 841, 847 (Tex.1969) (discharged attorney can recover on the contract); Howell v. Kelly, 534 S.W.2d 737, 739-40 (Tex.Civ.App.--Houston [1st Dist.] 1976, no writ) (discharged attorney has choice of remedies). An attorney discharged with cause can recover in quantum meruit for services rendered up to the time of discharge. Rocha v. Ahmad, 676 S.W.2d 149, 156 (Tex.App.--San Antonio 1984, writ dism'd). When both parties assent to the contract's abandonment, the attorney can recover for the reasonable value of the services rendered. Diaz v. Attorney General of Texas, 827 S.W.2d 19, 22-23 (Tex.App.--Corpus Christi 1992, no writ).

When an attorney, "without just cause, abandons his client before the proceeding for which he was retained has been conducted to its termination, or if such attorney commits a material breach of his contract of employment, he thereby forfeits all right to compensation." Royden v. Ardoin, 160 Tex. 338, 331 S.W.2d 206, 209 (1960) (quoting Beaumont v. J.H. Hamlen & Son, 190 Ark. 630, 81 S.W.2d 24 (1935)). Royden may be read to imply that an attorney who withdraws with just cause may be compensated, though we would not know whether on the contract or in quantum meruit. ⁶

The fundamental issue in this case, then, is whether Speiser Krause had just cause to withdraw sufficient under Texas law to receive compensation. The attorney bears the burden of proving just cause to withdraw. Staples v. McKnight, 763 S.W.2d 914, 917 (Tex.App.--Dallas 1988, writ denied).

Whether just cause exists depends on the facts and circumstances of each case. See id. at 916 (citing Matheny v. Farley, 66 W.Va. 680, 66 S.E. 1060, 1061 (1910)). Generally, just cause exists when the client has engaged in culpable conduct. Thus, for example, courts have found just cause where the client attempts to assert a fraudulent claim; fails to cooperate; refuses to pay for services; degrades or humiliates the attorney; or retains other counsel with whom the original attorney cannot work. See Wade R. Habeeb, Annotation, Circumstances under Which Attorney Retains Right to Compensation Notwithstanding Voluntary Withdrawal from Case, 88 A.L.R.3d 246-69 (1978 & Supp.1995) (describing cases from various jurisdictions in which attorneys have retained the right to compensation after withdrawal).

Just cause has also been found where continued representation is impossible due to forces beyond the attorney's control. Thus just cause has been found where continued representation would violate ethical obligations of the attorney or where the attorney...