Norton Frickey, PC v. JAMES B. TURNER, PC

• Decision Date: 17 June 2004
• Docket Number: No. 03CA0236.,03CA0236.
• Citation: 94 P.3d 1266
• Parties: NORTON FRICKEY, P.C., Plaintiff-Appellee, v. JAMES B. TURNER, P.C., a professional corporation, Defendant-Appellant.
• Court: Colorado Court of Appeals

94 P.3d 1266

NORTON FRICKEY, P.C., Plaintiff-Appellee, v. JAMES B. TURNER, P.C., a professional corporation, Defendant-Appellant.

No. 03CA0236.

Colorado Court of Appeals, Div. IV.

June 17, 2004.

Weeks & Luchetta, LLP, Jeffrey L. Weeks, Colorado Springs, Colorado, for Plaintiff-Appellee.

James B. Turner, P.C., James B. Turner, Colorado Springs, Colorado, for Defendant-Appellant.

Opinion by Judge ROY.

In this contract dispute between James B. Turner, P.C. (attorney), and Norton Frickey, P.C. (the firm), attorney appeals from a judgment entered upon a jury verdict. His sole contention on appeal is that the trial court erred when it ruled on a pretrial motion that the contract to apportion attorney fees upon attorney's departure from the firm was enforceable in accordance with its terms and was not contrary to public policy. We disagree and therefore affirm.

The following facts are undisputed. The firm is engaged in the practice of law primarily as plaintiff's counsel in contingent fee personal injury cases. In March 1994, attorney, who had been associated with the firm for several years, chose to affiliate with another firm (new firm). The firm notified the clients served by attorney and gave them an option of following attorney or remaining with the firm. Approximately sixty clients chose to follow attorney. On the last day of attorney's affiliation with the firm, the parties entered into a final settlement agreement and mutual release (agreement), stating in relevant part:

With respect to clients of [the firm] for whom [attorney] provided legal services during his affiliation with [the firm], and who subsequently leave [the firm] to receive legal services from [attorney], [attorney] agrees to pay [the firm]: (1) All costs advanced by [the firm] on behalf of said clients; and (2) forty percent (40%) of the amount of money received by [attorney] from or on behalf of said clients, whether through settlement, payment of a judgment or otherwise....

This agreement has been reached after thorough bargaining and negotiation and represents a mutually agreeable compromise and accord and satisfaction of any and all claims of the parties against each other.

Attorney paid the agreed upon fees and costs until late 1998, at which time four cases remained unresolved. Upon resolution of those cases, attorney refused to pay the firm the agreed upon portion of attorney fees generated.

The firm filed this action alleging breach of contract against both attorney and his new firm. The action against the new firm was the subject of a separate appeal. Norton Frickey, P.C. v. Gaddis, Kin & Herd, P.C., (Colo.App. No. 03CA0187, Apr. 8, 2004), 2004 WL 743922(not published pursuant to C.A.R. 35(f))(new firm not separately liable to firm for attorney fees when it signed the agreement acknowledging and agreeing to accommodate the fee and cost obligations contained in the agreement).

The firm and attorney filed cross-motions for summary judgment on the legality of the agreement. In attorney's motion, he argued that the agreement was unenforceable because it violated Colo. RPC 1.5, thus leaving the firm only with a claim in quantum meruit. The firm took the contrary position. The trial court denied both motions, but concluded that the contract was not void and was enforceable in accordance with its terms.

The matter then proceeded to trial on the issue of whether the agreement had been, as attorney asserted, orally modified. A jury found that it had not and awarded the firm approximately $140,000 plus interest and costs.

I.

Attorney contends that the agreement is void and unenforceable because it violates Colo. RPC 1.5(d). We disagree.

Courts will not enforce contracts or contract terms that are void as contrary to public policy. A contract provision is void if the interest in enforcing the provision is clearly outweighed by a contrary public policy. Fed. Deposit Ins. Corp. v. Am. Cas. Co., 843 P.2d 1285 (Colo.1992).

The Colorado Rules of Professional Conduct were adopted by the supreme court in 1992, effective January 1, 1993, and are derived from the American Bar Association Model Rules of Professional Conduct. See Model Rules of Prof'l Conduct Annotated (5th ed.2003). Colo. RPC 1.5, entitled "Fees," states in relevant part:

(d) Other than in connection with the sale of a law practice pursuant to Rule 1.17, a division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed and responsibility assumed by each lawyer;

(2) the client consents to the employment of an additional lawyer after a full disclosure of the division of fees to be made;

(3) the total fee is reasonable; and

(4) the division is set forth in writing signed by the lawyers and by the client with informed consent.

The comment to the rule states, in pertinent part:

A division of fee is a single billing to a client covering the fee of two or more lawyers who are not in the same firm. A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist. Paragraph (d) permits the lawyers to divide a fee on the basis of the proportion of services they render and responsibility assumed by each. The client must consent to the fee division in writing. The client must be advised of and agree to the share of the fee that each lawyer is to receive.

The policy behind this rule is that clients should be able to choose which attorney finally represents them and the type of legal fees to be charged. Baron v. Mullinax, Wells, Mauzy & Baab, Inc., 623 S.W.2d 457, 461 (Tex.App.1981); see Tomar, Seliger, Simonoff, Adourian & O'Brien, P.C. v. Snyder, 601 A.2d 1056, 1058 (Del.Super.Ct.1990)(rule "formulated to prohibit brokering, to protect a client from clandestine payment and employment, and to prevent aggrandizement of fees" (quoting Vogelhut v. Kandel, 308 Md. 183, 517 A.2d 1092, 1096 (1986))); Jay Tuley, Comment, Fee Sharing Agreements & Their Enforceability Without Client Consent, 22 J. Legal Prof. 375, 382-83 (1998)(rule protects clients from excessive attorneys fees and possible representational problems).

Colo. RPC 1.5(d) most commonly applies in disputes concerning the apportionment of a contingent fee between attorneys who separately represented the same client at different stages of a matter. Courts addressing those fee disputes require attorneys to abide by that state's equivalent to Colo. RPC 1.5(d), and when they do not, courts have held that the fee agreement is void as contrary to public policy and unenforceable. See, e.g., Dragelevich v. Kohn, Milstein, Cohen & Hausfeld, 755 F.Supp. 189 (N.D.Ohio 1990); In re Estate of Katchatag, 907 P.2d 458 (Alaska 1995); Holstein v. Grossman, 246 Ill.App.3d 719, 186 Ill.Dec. 592, 616 N.E.2d 1224 (1993); Londoff v. Vuylsteke, 996 S.W.2d 553 (Mo.Ct.App.1999).

However, courts addressing an agreement to apportion fees upon the departure of an attorney from a law firm have concluded that such agreements are not subject to that state's equivalent to Colo. RPC 1.5(d), and therefore such agreements are not void and unenforceable. See, e.g., Tomar, Seliger, Simonoff, Adourian & O'Brien, P.C. v. Snyder, supra; Miller v. Jacobs & Goodman, P.A., 699 So.2d 729 (Fla.Dist.Ct.App.1997); Romanek v. Connelly, 324 Ill.App.3d 393, 257 Ill.Dec. 436, 753 N.E.2d 1062 (2001); McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, 197 Mich.App. 282, 494 N.W.2d 826 (1992); Hendler & Murray v. Lambert, 147 A.D.2d 444, 537 N.Y.S.2d 560 (N.Y.App.Div.1989); Baron v. Mullinax, Wells, Mauzy & Baab, Inc., supra; Restatement (Third) of the Law Governing Lawyers § 47 cmt. g (2000).

We initially note that several of the courts concluding that their equivalent to Colo. RPC 1.5 does not apply in these circumstances have a version that includes an additional provision: "Notwithstanding Rule 1.5(f) [Colo. RPC 1.5(d)], a payment may be made to a lawyer formerly in the firm, pursuant to a separation or retirement agreement." Ill. RPC 1.5(j); see Romanek v. Connelly, supra; Hendler & Murray v. Lambert, supra; Baron v. Mullinax, Wells, Mauzy & Baab, Inc., supra. This provision is a carryover from DR 2-107(B), which contained an almost identical provision. One noted reference states:

Model Rule 1.5 does not contain similar language (although a number of states added it when they adopted the Rules), but there is no indication in the rule or its accompanying comment that a fundamental departure from DR 2-107(B) was intended by the deletion.

Fees: Division Among Lawyers, ABA/BNA Lawyers' Manual on Prof'l Conduct No. 232, at 41:710 (Oct. 24, 2001).

However, other jurisdictions with versions similar to Colorado's RPC 1.5 have concluded that the rule does not apply to the division of fees between a firm and a departing attorney and have enforced apportionment provisions in separation agreements. See Tomar, Seliger, Simonoff, Adourian & O'Brien, P.C. v. Snyder, supra; Miller v. Jacobs & Goodman, P.A., supra; McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, supra.

Most of these latter courts reasoned that the apportionment provision in a separation agreement was enforceable and not against public policy because it had no effect on clients. One court rejected an argument that a post-termination fee allocation provision placed an undue economic burden on a client's freedom to choose legal representation. Miller v. Jacobs & Goodman, P.A., supra, 699 So.2d at 731-32. Another court explained that a fee-allocation provision between a departing attorney and his or her firm was "simply a mechanism for dividing an already existing fee," and therefore did not implicate the policies behind RPC 1.5. McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, supra, 494 N.W.2d at 828. Yet another court stated that because the...