Crumley & Assocs., P.C. v. Charles Peed & Assocs., P.A.

• Decision Date: 03 April 2012
• Docket Number: No. COA11–1077.,COA11–1077.
• Citation: 730 S.E.2d 763
• Court: North Carolina Court of Appeals
• Parties: CRUMLEY & ASSOCIATES, P.C., Plaintiff, v. CHARLES PEED & ASSOCIATES, P.A., James W. Snyder, Jr., and Charles O. Peed, Jr., Defendants.

730 S.E.2d 763

CRUMLEY & ASSOCIATES, P.C., Plaintiff,

v.CHARLES PEED & ASSOCIATES, P.A., James W. Snyder, Jr., and Charles O. Peed, Jr., Defendants.

No. COA11–1077.

Court of Appeals of North Carolina.

April 3, 2012.

Appeal by plaintiff and defendant from judgment entered 30 September 2010 by Judge John O. Craig, III in Forsyth County Superior Court. Heard in the Court of Appeals 6 March 2012.

Tuggle Duggins & Meschan P.A., by Michael S. Fox, Jeffrey S. Southerland, Greensboro, and Alan B. Felts, for plaintiff-appellant.

Bennett & Guthrie, P.L.L.C., Winston–Salem, by Richard V. Bennett, Joshua H. Bennett, and Roberta King Latham, for defendant-appellant Charles Peed & Associates, P.A.

Charles O. Peed, Jr., pro se, for defendant-appellant.

MARTIN, Chief Judge.

Plaintiff, Crumley & Associates, P.C., (“Crumley”) brought this action alleging various claims for relief against defendant Charles Peed & Associates, P.A., (“Peed & Associates”) and the individual defendants, Charles Peed, Jr. (“Peed”) and James W. Snyder, Jr. (“Snyder”). The genesis of the dispute involves the parties' respective claims of entitlement to certain attorneys fees awarded to Snyder in contingent fee cases which originated while he was an employee of Crumley, but which were collected by Peed & Associates after Snyder left Crumley's employ and became employed by Peed & Associates. Crumley sought to recover damages against Peed & Associates on various theories, including breach of contract, constructive trust, quantum meruit, and against the individual defendant, Charles Peed, for constructive fraud.

Briefly summarized, the voluminous record filed in this Court reflects that prior to 29 January 2007, Snyder was employed by Crumley as an associate attorney. While employed by Crumley, Snyder was required to sign an employment contract which contained, inter alia, provisions stating that if Snyder left Crumley's employ:

Upon a client choosing to have Mr. Snyder represent them in the future, Mr. Snyder shall, within 30 days, pay to the firm any funds the firm has advanced to the client.

....

Mr. Snyder agrees to pay to the firm 70% of the fees he may receive from his continued representation of the client in the matter for which the firm was representing the client at the time of his departure.

On 29 January 2007, Crumley terminated Snyder's employment. Snyder thereafter secured employment with Peed & Associates. Crumley sent a letter to each of Snyder's clients informing them, as is required by the North Carolina State Bar, that they had a choice whether to continue to be represented by Crumley, follow Snyder to Peed & Associates, or obtain other representation. Between twenty-eight and thirty-three clients decided to continue their attorney-client relationship with Snyder. These clients were primarily workers' compensation claimants in North Carolina and Virginia whose cases were being handled by Snyder on a contingent fee basis. In the months that followed, cases that had followed Snyder to Peed & Associates began to settle, and Snyder was awarded fees based on the contingent fee agreements. On 4 May 2007, attorneys for Crumley wrote Peed and Peed & Associates notifying them that Crumley claimed entitlement to a portion of the fees awarded to Snyder in those cases based on the fee provision in Snyder's compensation agreement with Crumley. Alternatively, plaintiff sought to have the fees held in trust and specifically requested that

all fees in all such cases must be held until the final resolution of the dispute over the fees in the subject cases. Assuming that the fee provisions in Snyder's Compensation Agreement with [Crumley] are invalid and unenforceable, we will still have to address fee allocation and will have to do so on a case-by-case, quantum meruit basis.

(Emphasis in original.) Despite receiving the letter, Peed deposited the disputed fees into the operating account for Peed & Associates, where the money was later used to pay the firm's general operating expenses, including Snyder's salary.

Snyder sought an opinion from the North Carolina State Bar regarding the enforceability of the pertinent sections of his compensation agreement with Crumley. In 2008, the Ethics Committee of the State Bar issued a Proposed Ethics Opinion, later adopted by the State Bar Council as 2008 FEO 8, which addressed the ethical implications of fee-splitting provisions identical to those found in Snyder's compensation agreement with Crumley. The opinion concluded the 70/30% fee-split and provision requiring repayment of advanced costs within thirty days did not comply with the provisions of Rule 5.6 of the Rules of Professional Conduct.

Defendants moved for summary judgment. Crumley thereafter submitted to a voluntary dismissal of a number of its claims, including those for declaratory judgment and breach of contract, but pursued its claims against Snyder, against Peed & Associates for a portion of the fees based in quantum meruit, and against Peed for constructive fraud. After a hearing, the trial court granted summary judgment dismissing Crumley's claims against Snyder, denied the motions of Peed & Associates and Peed, and entered summary judgment in favor of Crumley with respect to the liability of Peed & Associates for a portion of the fees in quantum meruit and Peed individually for constructive fraud.

The parties thereafter stipulated to the amount of fees received by Peed & Associates in each of the cases, the periods of time each of the respective firms handled each case, and the professional time expended by each firm in connection with each case. The trial court heard evidence without a jury on the question of damages and entered judgment awarding Crumley $147,946.53 in quantum meruit as its reasonable share of the attorneys fees collected by Peed & Associates, together with $7,577.12 for costs and expenses which Crumley advanced in connection with the cases. The trial court also awarded Crumley $1.00 in nominal damages against Peed, individually, for constructive fraud. Crumley, Peed, and Peed & Associates appeal.

_________________________

Initially, we are constrained to observe that both Crumley and Peed, in their briefs and at oral argument, freely trade suggestions and outright allegations that the other has engaged in unprofessional and even unethical conduct, perhaps hoping thereby to persuade the Court toward deciding for the party engaging in the least egregious conduct. Those questions are better left to the State Bar and the parties' peers, and we reject their attempts, in exchanging affronts, to obfuscate the purely legal issues their dispute has presented, first to the trial court, and now to this Court.

The trial court granted summary judgment in favor of Crumley on the issues of liability, and those determinations are the primary issues presented for our review. “Our standard of review of an appeal from summary judgment is de novo; such judgment is appropriate only when the record shows that ‘there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.’ ” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).

I.

Defendant Peed & Associates asserts the trial court erred when it permitted Crumley to recover in quantum meruit, arguing that because the fee-splitting provisions of Crumley's compensation agreement with Snyder violated the Rules of Professional Conduct, they were unenforceable and, essentially, that Crumley's attempts to enforce the agreement amounted to “unclean hands.” We reject this argument.

“ Quantum meruit is a measure of recovery for the reasonable value of services rendered in order to prevent unjust enrichment.” Paul L. Whitfield, P.A. v. Gilchrist, 348 N.C. 39, 42, 497 S.E.2d 412, 414 (1998). An action in quantum meruit cannot stand if there is an enforceable contract. Id. at 42, 497 S.E.2d at 415.

The “clean hands” doctrine prevents recovery in equity where the party seeking relief comes to court with unclean hands. Ray v. Norris, 78 N.C.App. 379, 384, 337 S.E.2d 137, 141 (1985), disc. review denied,316 N.C. 378, 342 S.E.2d 897 (1986). “The maxim applies to the conduct of a party with regard to the specific matter before the court as to which the party seeks equitable relief and does not extend to that party's general character.” Creech v. Melnik, 347 N.C. 520, 529, 495 S.E.2d 907, 913 (1998).

We believe the law is settled in North Carolina that counsel, who has provided legal services pursuant to a contingency fee contract and is terminated prior to a resolution of the case and the occurrence of the contingency upon which the fee is based, has a claim in quantum meruit to recover the reasonable value of those services from the former client, or, where the entire contingent fee is received by the former client's subsequent counsel, from the subsequent counsel. See Pritchett & Burch, PLLC v. Boyd, 169 N.C.App. 118, 124–25, 609 S.E.2d 439, 443,disc. review denied,359 N.C. 635, 616 S.E.2d 543 (2005); Guess v. Parrott, 160 N.C.App. 325, 331, 585 S.E.2d 464, 468 (2003).

In the instant case, neither Crumley's quantum meruit claim nor the trial court's award were based upon the unenforceable fee-splitting agreement; rather, they were based upon the reasonable value of Crumley's services while it handled each of the cases. Thus, the fact that the fee-splitting agreement was determined to be in violation of the Rules of Professional...