In re Petition for Distribution of Attorney's Fees Between Stowman Law Firm, P.A.
| Decision Date | 28 October 2015 |
| Docket Number | No. A13–2225.,A13–2225. |
| Citation | 870 N.W.2d 755 |
| Parties | In re PETITION FOR DISTRIBUTION OF ATTORNEY'S FEES BETWEEN STOWMAN LAW FIRM, P.A., and Lori Peterson Law Firm, formerly d/b/a Lori Peterson and Associates. |
| Court | Minnesota Supreme Court |
Erik F. Hansen, Burns & Hansen, P.A., Wayzata, MN; and David L. Stowman, Stowman Law Firm, Detroit Lakes, MN, for appellant.
Zenas Baer, Zenas Baer Law Office, Hawley, MN, for respondent.
Appellant Stowman Law Firm, P.A. (Stowman), which represented a client pursuant to a contingent-fee agreement, voluntarily withdrew from the representation of the client when efforts to settle the case failed. The client retained substitute counsel who then successfully settled the case. Stowman brought an action to recover in quantum meruit the value of the services provided prior to the withdrawal. Following a bench trial, the district court found that Stowman failed to establish good cause for withdrawal and, therefore, was not entitled to recover in quantum meruit. The court of appeals affirmed. We conclude that an attorney may withdraw from a contingent-fee agreement with or without cause, provided that the withdrawal satisfies the rules of professional responsibility. But the attorney must establish that the withdrawal is for good cause in order to recover in quantum meruit the reasonable value of the services rendered prior to withdrawal. Because Stowman failed to establish good cause, we affirm.
In July 2007 Stowman entered into a contingent-fee agreement to represent a client in a medical-malpractice claim against a doctor based on a one-third contingent fee, plus reimbursement for out-of-pocket expenses. The contingent-fee agreement, which is only three-quarters of a page in length, permitted Stowman to “withdraw from representation of this agreement,” if “after reasonable investigation of [the] claim” and notice to the client, it “determine[d] that it is not feasible to prosecute [the] claim.” The agreement also states that no settlement may be made without the client's consent, and provides in relevant part that the client agreed to pay Stowman for its services one-third “of the gross amount recovered.” “If there is no recovery, by either settlement or verdict, [the client] shall not be indebted to said attorneys for services rendered, and there shall be no attorney's fees paid.”
Over the next 2 years Stowman investigated the facts and reviewed the law to determine whether there was a basis for a medical-malpractice claim against the doctor. Stowman completed its investigation and decided to proceed with the case. To support its theory of the case, Stowman retained expert witnesses to provide favorable testimony on liability and damages. Stowman did not file a lawsuit or conduct any formal discovery.
In December 2009 the parties participated in mediation to resolve the case. Stowman agreed to present a settlement demand of $1.6 million at the mediation even though the Stowman lawyer responsible for the case believed the demand was too high. The mediation recessed without reaching a settlement. The next day, the mediator notified Stowman that the doctor would offer $100,000 if that amount would settle the claim. Stowman repeatedly advised the client to accept the offer, but the client declined to do so. Stowman subsequently told the client that the firm would withdraw if the case was not settled by January 1, 2010.
During the same time period, Stowman sought an advisory opinion from the Office of Lawyers Professional Responsibility (OLPR) on how to ethically withdraw from the client's case. As part of that exchange, the Stowman lawyer forwarded notes of a conversation with the client, which stated:
I have a client whose expectations I will be unable to meet. She has compromised to $1.4 million. The defense has offered $100,000.00, which is the high end of my evaluation of her damages and settlement value. I plan to withdraw from her representation if she does not accept the settlement offer.
The OLPR advised Stowman to follow the process to decline or terminate representation set forth in Minn. R. Prof. Conduct 1.16(b).
On January 4, 2010, Stowman verbally notified the client that it was withdrawing from representation. In a letter to the client the next day, the Stowman lawyer stated:
I do not think I can obtain a better result, either through continued negotiations, mediation, or at trial than the $100,000.00 offer from the defense. Therefore, I must withdraw immediately to allow you the opportunity to find an attorney whose evaluation of your claim is consistent with yours.
No other reasons for withdrawal were stated in the letter, or in other documents, between the mediation and the withdrawal.
Thereafter, the client retained respondent Lori Peterson Law Firm (Peterson) as substitute legal counsel to represent her pursuant to a 40–percent contingent-fee agreement. Subsequently, Peterson successfully negotiated a settlement of the claim for $200,000.
When Stowman learned of the settlement, it filed and served an attorney's lien, and asked the defendant's attorney to name Stowman on the settlement draft in order to protect its fee interest. In February 2011 the client and the defendants entered into a confidential settlement agreement and mutual full and final release of all claims. The settlement agreement provided, among other things, that in consideration of the settlement terms, which included any claim for attorney fees, the client released the defendants and other releasees. Additionally, the client had 30 days to negotiate a resolution of any attorney liens, and if the negotiation was unsuccessful, a check in the amount of $200,000 payable to the client, Peterson, and Stowman would be delivered to Peterson's attorney.
Separately, the client, Peterson, and Stowman entered into a distribution agreement that established a process to facilitate the distribution of the settlement proceeds to the client pending resolution of the fee dispute between Peterson and Stowman. The agreement provided in relevant part:
The balance of the settlement proceeds will be paid to [the client].
The amount of the contingent fee and costs claimed by Stowman and Peterson was deposited into Peterson's trust account; the balance of the settlement proceeds was paid to the client.
Because the client was unable to resolve the contingent-fee dispute between Stowman and Peterson, Stowman petitioned the district court for recovery of the costs advanced and for an equitable distribution of the contingent fees. Stowman sought a division of the fees based on the value of the services the firm rendered to the client prior to its withdrawal, under a theory of quantum meruit. The district court denied Peterson's motion for summary judgment and the matter proceeded to a bench trial. The district court limited the trial to whether Stowman “rightfully withdrew from representation” so as to be entitled to recover in quantum meruit. The court found that Stowman withdrew because the client failed to follow Stowman's recommendation to accept the offer of settlement, which was based on the firm's belief that a better offer could not be obtained at trial. The court concluded that Stowman failed to establish good cause for its withdrawal and therefore could not recover in quantum meruit. Further, the court concluded that the distribution agreement did not create a contractual right for recovery in favor of Stowman, but that Stowman was entitled to recover its costs of $8,273. The court of appeals affirmed. In re Distribution of Attorney's Fees between Stowman Law Firm, P.A. & Lori Peterson Law Firm, 855 N.W.2d 760, 760 (Minn.App.2014). We granted review.
Stowman acknowledges that an attorney who represents a client under a contingent-fee agreement and voluntarily withdraws from representation loses the right to bring a breach-of-contract claim in order to recover damages from the client. But, Stowman contends, recovery in quantum meruit should be permitted when an attorney ethically withdraws from a contingent-fee matter because it is unjust for a client to retain the benefit of an attorney's services without paying for that benefit. Stowman argues that we should extend our holding in Lawler v. Dunn, 145 Minn. 281, 176 N.W. 989 (1920), to allow an attorney who voluntarily withdraws from representation in a contingent-fee matter to recover in quantum meruit the value of the services provided. Alternatively, if an attorney is required to show good cause to permit recovery in quantum meruit after a voluntary withdrawal, Stowman argues that it had good cause to withdraw.
We review questions of law de novo and questions of fact under the clearly erroneous standard. In re Welfare of J.H., 844 N.W.2d 28, 34–35 (Minn.2014) ; see also Minn. R. Civ. P. 52.01. When determining whether a finding is clearly erroneous we view the evidence in the light most favorable to the district court's findings, and examine the record to see if there is reasonable evidence to support the findings. Rasmussen v. Two Harbors Fish Co., 832 N.W.2d 790, 797 (Minn.2013). A finding of fact is clearly erroneous if we are “left with the definite and firm conviction that a mistake has been made.” In re Stisser Grantor Trust, 818 N.W.2d 495, 507 (Minn.2012).1
To answer the questions raised we will first review the relevant law regarding attorney-client fee disputes and quantum meruit principles, and then apply those principles to the issues before us.2
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