Larew v. Hope Law Firm, P.L.C., 20-1035

CourtUnited States State Supreme Court of Iowa
Writing for the CourtMCDERMOTT, JUSTICE.
PartiesJAMES C. LAREW, Appellant/Cross-Appellee, v. HOPE LAW FIRM, P.L.C., Appellee/Cross-Appellant, and ANDREW L. HOPE, TRAVIS J. BURK and HOPE LAW FIRM & ASSOCIATES, P.C., Appellees.
Decision Date24 June 2022
Docket Number20-1035

JAMES C. LAREW, Appellant/Cross-Appellee,
v.

HOPE LAW FIRM, P.L.C., Appellee/Cross-Appellant,

and ANDREW L. HOPE, TRAVIS J. BURK and HOPE LAW FIRM & ASSOCIATES, P.C., Appellees.

No. 20-1035

Supreme Court of Iowa

June 24, 2022


Submitted February 22, 2022

Appeal from the Iowa District Court for Polk County, Robert B. Hanson, Judge.

The parties appeal the district court's ruling in an action involving former co-counsel on a contingent-fee case asserting error in the district court's determination of the terms of an implied-in-fact contract, quantum meruit calculation, successor liability, and related causes of action.

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Craig Kelinson (argued) and Dean Lerner (argued) of Kelinson & Lerner, PLC, West Des Moines, for appellant/cross-appellee.

Bruce H. Stoltze (argued) and John Q. Stoltze of Stoltze & Stoltze, PLC, Des Moines, for appellees.

McDermott, J., delivered the opinion of the court in which Appel, McDonald, and Oxley, JJ., joined. Waterman, J., filed an opinion concurring in part and dissenting in part in which Christensen, C.J., and Mansfield, J., joined.

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MCDERMOTT, JUSTICE.

The Hope Law Firm agreed to represent a client in a contingent-fee case. Lawyer James Larew had an of-counsel arrangement with the Hope Law Firm and agreed to work on the client's case in exchange for a portion of the firm's fee. But during the course of the case, Larew's relationship with Andrew Hope (the Hope Law Firm's owner) soured, and Larew and the firm ended the of-counsel arrangement. Larew nonetheless continued to work on the case, ultimately winning a large judgment at trial. Litigation ensued over the disposition of the fee. In this appeal, we address a bevy of claims in "the lawsuit after the lawsuit" between dueling lawyers.

I.

Larew operates a law practice in Iowa City. Hope operates a law practice- the eponymous Hope Law Firm-in Des Moines. In June 2011, Larew and the Hope Law Firm entered into a written of-counsel agreement. The of-counsel agreement stated that "[t]he Firm shall assign cases to the Attorney, and the Attorney may accept said cases as an of counsel attorney." The firm agreed to "provide clerical and administrative support for the Attorney as necessary and proper." Larew (as the "Attorney") was responsible for "manag[ing] the performance of all activities customarily comprising the practice of law."

The agreement provided for Larew's compensation and reimbursement as follows:

Attorney shall be entitled to forty percent (40%) of the net fees collected on cases litigated by Attorney. Net fees comprise those amounts received by the Firm after accounting for all of the Firm's outside expenses associated with a given case, including, but not

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limited to court costs and fees for expert services Expenses, for the purpose of figuring net fees in the context of compensation, do not include general overhead expenses such as advertising, utilities, travel, housing (if outside of Des Moines and Iowa City), etcetera
. . . Costs. In addition to compensation, in the event that Attorney shall incur out of pocket costs with respect to the performance of the activities contemplated by this Agreement, Attorney shall be re-imbursed for the same upon presentation to the Firm of an itemization of said costs. Costs shall include those types of expenses normally recognized as deductible business expenses

The of-counsel relationship was "at will" and could be terminated by either party without notice but "[a]ny and all cases brought in by, or assigned to, the Attorney after the execution of this Agreement are property of the Firm, even after the Attorney's of counsel relationship with the firm ends." Larew was added as an "of counsel" lawyer to the Hope Law Firm's letterhead and website.

In December 2011, Hope and Larew traveled to Minnesota to meet with a prospective client to discuss a potential claim for a bad-faith denial of insurance coverage. The prospective client was an entity named Swanny of Hugo, Inc., which operated a restaurant in Hugo, Minnesota. The restaurant's building had been destroyed by a fire and Swanny's owner, Catherine Anderson, disputed the insurance carrier's payout under the corporation's business income and other coverages.

Hope and Larew were interested in taking the case. But they first had to arrange local counsel in Minnesota since the lawsuit would need to be filed in Minnesota and neither was licensed to practice there. They located a Minnesota lawyer named Lucas Wilson who agreed to serve as local counsel.

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Anderson (on behalf of Swanny), the Hope Law Firm, and Wilson-but not Larew-signed a contingent-fee agreement setting forth the terms of the representation. The agreement provided for a contingent fee of 38% to the lawyers if the case was resolved without an appeal filing and 40% if there was an appeal. The agreement allowed the lawyers to the agreement-the Hope Law Firm and Wilson-"in [their] sole discretion and . . . expense" to "associate any other attorney in the representation of the Client's Claims." Larew began work on the case under the existing of-counsel agreement with the Hope Law Firm. Hope, Larew, and another attorney affiliated with Larew's firm named Claire Diallo were all admitted pro hac vice in Minnesota to work on the case.

But in 2012 the relationship between Larew and Hope began to deteriorate, and in December Larew asked Hope to remove him from the Hope Law Firm's letterhead and website. The of-counsel agreement was formally terminated in May 2013. As they negotiated details of their separation, Larew and Hope settled on how cases and fees would be split in some, but not all, of the cases that Larew had worked on. Although both Larew and Hope agreed that Larew would continue to work on the Swanny case, there was no agreement on how any potential recovery in that litigation would be divided. At one point, Hope proposed that Larew take 95% and the Hope Law Firm take 5% of the fee, but Larew countered that he should receive 100% and the firm 0% since they had agreed to a similar division in a different case where the roles were reversed.

During their discussions about separation, Hope warned Larew that any attempt Larew might make to secure a separate contract with any of the Hope

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Law Firm's clients would risk a claim of intentional interference with an existing contract. Larew responded that he understood that the client engagements were with the Hope Law Firm and that he wouldn't "take on full representation of any client without a separate attorney-client agreement with said client."

All the while, the Swanny litigation continued. Neither Larew nor Hope informed Anderson, or local counsel Wilson, that Larew's affiliation with the Hope Law Firm had ended. Larew acknowledges that he and Hope both failed in their ethical duties of disclosure to the client on this subject. Hope, for his part, disclaimed any ethical duty to disclose to the client that Larew no longer associated with his firm, asserting this duty fell solely on Larew.

Larew never executed a separate agreement with Anderson to represent Swanny in the litigation. The lawyers remained as counsel of record throughout the litigation. But Hope's involvement diminished as Larew began handling nearly all aspects of the representation. Larew's office, for instance, paid all out-of-pocket expenses in the case after May 2013. Larew handled all the considerable motion practice that the case required and took ten depositions in three states leading up to trial. Larew handled the eight-day trial in Minnesota that concluded with the jury's verdict on October 16, 2013. Hope had no communications with Larew in the four months leading up to trial, and did not attend the trial.

The jury determined that Swanny had proved several breaches of the insurance contract, including breach of the business income provision, and awarded $1,134,500. Because Swanny's claim succeeded on the merits, the case

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proceeded to a separate "bad faith" phase to determine an amount to award for taxable costs and attorney fees based on the absence of a reasonable basis for the insurance carrier's denial of benefits under the policy. Hope emailed Larew about a week after the trial, congratulating Larew on the verdict and asking to be updated on the bad-faith phase so Hope could prepare an itemization of the Hope Law Firm's time spent on the case.

The record contains conflicting accounts about discussions with the client over bringing in separate counsel to handle the ensuing stages of the case, including a likely appeal. Larew and Diallo testified that the group never discussed bringing on different counsel with Anderson. Wilson testified that he recommended to Anderson that appellate counsel be brought in. Hope and Travis Burk, another attorney employed at the Hope Law Firm involved in some of the communications, both testified that Wilson suggested bringing in appellate counsel as well.

Burk soon called Minnesota attorneys Brenda Sauro and Adina Bergstrom about possibly handling post-verdict issues in the Swanny litigation. Hope and Burk traveled to Minnesota to meet with Sauro, Bergstrom, and Wilson. Sauro and Bergstrom agreed to take on the representation and negotiated an addendum to the fee agreement that Anderson had previously entered into with the Hope Law Firm and Wilson. It stated that Anderson, the client, "authorizes and agrees that only" the Hope Law Firm, Wilson's firm, and Sauro and Bergstrom's firm "handle all aspects of the Action . . . from the date of this Agreement forward." (Emphasis added.) The fees to Sauro and Bergstrom's firm

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would be paid from the fees owed under the original contingent-fee agreement- 38% prior to appeal and 40% if an appeal is filed. Sauro and Bergstrom's firm would be paid hourly fees up to $40,000 and a "retroactive" contingent fee (taken from the verdict...

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