Estate of Callahan, In re

• Decision Date: 14 August 1991
• Docket Number: No. 69367,69367
• Citation: 578 N.E.2d 985,144 Ill.2d 32,161 Ill.Dec. 339
• Parties: , 161 Ill.Dec. 339 In re ESTATE of Phillip Edward CALLAHAN, a Disabled Person (Deborah Oughton, Guardian, Appellant, v. John C. Parkhurst, Appellee).
• Court: Illinois Supreme Court

Page 985

578 N.E.2d 985

144 Ill.2d 32, 161 Ill.Dec. 339

In re ESTATE of Phillip Edward CALLAHAN, a Disabled Person (Deborah Oughton, Guardian, Appellant, v. John C Parkhurst, Appellee).

No. 69367.

Supreme Court of Illinois.

Aug. 14, 1991.

Rehearing Denied Sept. 30, 1991.

Philip H. Corboy, Corboy & Demetrio, Chicago, for Phillip Edward Callahan.

John C. Parkhurst, Bartley, Parkhurst, Hession & Schroeder, Peoria, for John C. Parkhurst.

Justice THOMAS J. MORAN delivered the opinion of the court:

The law firm of Bartley, Parkhurst, Hession and Schroeder (the Parkhurst firm) was employed on a contingent-fee basis by Deborah Oughton (wife and guardian of Phillip Edward Callahan) to represent her in all matters arising from her husband's automobile accident. She later discharged the firm, which then filed a claim for attorney fees in the circuit court of Peoria County. The law firm's claim was later assigned to an individual member of the firm, John C. Parkhurst, claimant herein. The trial court awarded the claimant $36,000 as the value of legal services rendered to the estate. On appeal, the appellate court affirmed the $36,000 judgment, but reversed that portion of the order wherein the trial court retained jurisdiction for the purpose of determining further fees that may be due the claimant from any recovery by the ward's employer under its workers' compensation lien. (188 Ill.App.3d 323, 135 Ill.Dec. 755, 544 N.E.2d 112.) This court allowed plaintiff's petition for leave to appeal (134 Ill.2d R. 315(a)).

The issues presented are whether: (1) a discharged attorney's cause of action for a quantum meruit fee accrues prior to the resolution of his former client's lawsuit; (2) a discharged attorney can recover his fee from the workers' compensation benefits paid to the estate; (3) the trial court abused its discretion in awarding $36,000 to the claimant; and (4) the Illinois Industrial Commission is the proper forum to determine whether the claimant is entitled to any portion of the 25% fee assessed against the employer's workers' compensation lien.

The relevant facts are as follows. Phillip Callahan was employed in Springfield, Illinois, by the National Federation of Independent Business. While en route to a meeting connected with his employment, he became totally disabled when his car collided with a garbage truck. Ms. Oughton was appointed guardian of her husband's estate. In May of 1985 she entered into a contingent-fee contract with the Parkhurst firm wherein the firm was to be paid 25% of any amount recovered for the ward by way of suit, settlement, or in any other manner, for claims arising from her husband's automobile accident.

The Parkhurst firm received a discharge letter on August 11, 1986. The guardian retained other counsel and all legal matters relating to her husband's automobile accident were to be assumed by the law firm of Corboy and Demetrio.

On August 21, 1986, the Parkhurst firm filed a claim against the guardianship estate asking the court for reasonable attorney fees for the legal services it had rendered to the estate. The claim was later assigned to the claimant. He filed a supplement to the original claim and asked the court to award a quantum meruit fee of $50,000.

Even though the underlying action arising from the automobile accident was not adjudicated or settled, a hearing was nonetheless held on the fee claim in the circuit court of Peoria County. After hearing evidence and testimony as to the legal services rendered to the estate, the court awarded the claimant a quantum meruit fee of $36,000. The claim was ordered to be paid from the assets of the guardianship estate. Moreover, the court retained jurisdiction for the purpose of determining whether the claimant would be entitled to additional fees arising from any future recovery by the ward's employer under its compensation lien as provided for in the Workers' Compensation Act (the Act) (Ill.Rev.Stat.1987, ch. 48, par. 138.5(b)).

The first issue presented for review is whether a discharged attorney's cause of action for a quantum meruit fee accrues prior to the resolution of his former client's lawsuit. In Illinois, a client may terminate the services of his attorney at any time with or without cause. (Rhoades v. Norfolk & Western Ry. Co. (1979), 78 Ill.2d 217, 227-28, 35 Ill.Dec. 680, 399 N.E.2d 969.) A "client's right to discharge his attorney at will is not a breach of contract but a term of the contract implied by law because of the special relationship between attorney and client and that it would be anomalous and unjust to hold a client liable in damages for exercising that implied right." Rhoades, 78 Ill.2d at 229-30, 35 Ill.Dec. 680, 399 N.E.2d 969.

In Rhoades, an individual entered into a contingent-fee agreement with a law firm and, on the next day, discharged the firm. After the former client agreed to settle his claim, the discharged firm brought an action to recover the full contingent fee under the attorneys lien statute. The court held that an attorney who enters into a contingent-fee agreement with a client and is discharged without cause "is entitled to be paid on a quantum meruit basis a reasonable fee for services rendered before discharge." Rhoades, 78 Ill.2d at 230, 35 Ill.Dec. 680, 399 N.E.2d 969.

The court's holding was grounded on the public policy concern that if the firm could recover its full contract fee, a client's right to discharge his attorney would be meaningless since, even though he had discharged his attorney, his financial responsibility to his former attorney would be unchanged. (Rhoades, 78 Ill.2d at 229, 35 Ill.Dec. 680, 399 N.E.2d 969.) In so holding, the court agreed with the reasoning of the California Supreme Court in Fracasse v. Brent (1972), 6 Cal.3d 784, 494 P.2d 9, 100 Cal.Rptr. 385, wherein the court reasoned that a client has an implied contract right to discharge his attorney.

The instant case is distinguishable from Rhoades because in that case the former client had already agreed to a settlement at the time the attorney filed his fee claim. Further, the court was not presented with the issue of whether a discharged attorney could bring an action for fees prior to the adjudication or settlement of his former client's lawsuit. Whereas in the instant case, the guardian has yet to recover on her claims arising out of her husband's accident. Therefore, whether the discharged attorney can recover under such circumstances is a matter of first impression for this court.

The highest courts of other States have addressed the issue with mixed results. Some States have held that an attorney's cause of action to recover compensation for services rendered does not accrue until the occurrence of the stated contingency. Fracasse, 6 Cal.3d 784, 494 P.2d 9, 100 Cal.Rptr. 385; Rosenberg v. Levin (Fla.1982), 409 So.2d 1016; Plaza Shoe Store, Inc. v. Hermel, Inc. (Mo.1982), 636 S.W.2d 53; First National Bank & Trust Co. v. Bassett (1938), 183 Okla. 592, 83 P.2d 837.

This view has been adopted for some of the following reasons: (1) the result obtained by the second attorney is an important factor to be considered in determining the discharged attorney's fee (Fracasse, 6 Cal.3d at 792, 494 P.2d at 14, 100 Cal.Rptr. at 390); (2) clients may have limited financial resources and it would be overly burdensome to require them to pay a fee if there was no recovery (Fracasse, 6 Cal.3d at 792, 494 P.2d at 14, 100 Cal.Rptr. at 390); (3) the public policy of allowing clients to freely discharge their attorneys is furthered (Rosenberg, 409 So.2d at 1022; Plaza Shoe Store, Inc., 636 S.W.2d at 60); (4) confidence in the legal profession is promoted (Plaza Shoe Store, Inc., 636 S.W.2d at 60); (5) any possible injustice to the attorney is avoided because a judgment could be worthless (Bassett, 183 Okla. at 595, 83 P.2d at 840); and (6) deferring the cause of action does not harm the attorney since he would not have recovered a fee under the contract until the occurrence of the contingency. Rosenberg, 409 So.2d at 1022.

On the other hand, other States have held that an attorney can bring a cause of action for the reasonable value of his services immediately after the client terminates the contingent-fee contract. (Booker v. Midpac Lumber Co. (1982), 65 Haw. 166, 649 P.2d 376; In re Tillman (1932), 259 N.Y. 133, 181 N.E. 75.) The rationale behind this so-called contract approach was best articulated in the New York case. First, the client cannot make the attorney's recovery dependent upon a contract term when the client has terminated the contract. The contract no longer governs their relationship. Second, the value of the first attorney's services cannot be measured by the result obtained by another. (Tillman, 259 N.Y. at 135, 181 N.E. at 75-76.) We have considered the rationale supporting each approach and hold that an attorney's cause of action for a quantum meruit fee accrues immediately after discharge.

We agree with the contract approach for the following reasons. First, "[a] contingent fee contract by definition is one that provides that a fee is to be paid to the attorney for his services only in case he wins, that is, a fee which is made to depend upon the success or failure to enforce a supposed right, and which fee is generally paid out of the recovery for the client." (Pocius v. Halvorsen (1963), 30 Ill.2d 73, 78, 195 N.E.2d 137.) However, when a client terminates a contingent-fee contract, the contract ceases to exist between the parties thereto and the contingency term, whether the attorney wins, is no longer operative. A client cannot terminate the agreement and then resurrect the contingency term when the discharged attorney files a fee claim. "Either [the contract] wholly stands or totally falls." Tillman, 259 N.Y. at 135, 181 N.E. at 75.

Second, quantum meruit is based on the implied promise of a recipient of services to pay for those services which are of value to...