Quantum Meruit!: The Rights of the Discharged Contingent Fee Lawyer

Chapter 23.3, Colo. R. Civ. P., sets forth the requirements for an enforceable contingency fee agreement. Rule 6 of this Chapter states in no uncertain terms:

No contingent fee agreement shall be enforceable by the involved attorney unless there has been substantial compliance with all of the provisions of this rule.

If this language left any room for interpretation when originally drafted, recent decisions of the Colorado Supreme Court have added the judicial gloss, "and we really mean it."

In Elliott v. Joyce, 889 P.2d 43 (Colo. 1994), attorney Elliot entered into a contingent fee agreement with his client, Joyce. After expending approximately 120 hours in the cause, Elliott moved to withdraw. Elliott provided proper notice of his motion to withdraw, which was granted by the trial court without objection. Joyce retained new counsel who was able to settle the case. Subsequently, Elliott filed an attorney's lien, seeking recovery of attorney fees based on time and effort for services rendered, under the theory of quantum meruit.

The Colorado Supreme Court rejected Elliot's quantum meruit claim, because it concluded, regardless of whether his withdrawal was unilateral or with the client's consent, his contingency fee agreement did not expressly allow him to recover in quantum meruit under either circumstance:

We agree with Elliott that, under general contract law, the existence of an express contract does not preclude quantum meruit recovery and that generally, a claim for quantum meruit exists independently from any contract claim. See Denver Ventures Inc. v. Arlington Lane Corp., 754 P.2d 785, 787 (Colo. App. 1988). However, we decline the invitation to look to case law from other jurisdictions or to rely solely upon our case law prior to the adoption of chapter 23.3. Chapter 23.3, which governs here, has express provisions that should control and they provide sufficient guidance under the present facts.

Our rules under chapter 23.3 regulate contingent fee agreement contracts and Rules 5(d) and 6 limit quantum meruit under the attorney-client relationship. Rule 5(d) provides, in material part, that "each contingent fee agreement shall contain . . . a statement of the contingency upon which a client is to be liable to pay compensation otherwise than from amounts collected for him by the attorney . . . ." Rule 6 sets forth the "sanction for non-compliance," providing "no contingent fee agreement shall be enforceable by the involved attorney unless there has been substantial compliance with all of the provisions of [chapter 23.3]."

Elliott's contingent fee agreement includes the required statement of the contingencies upon which the client is to be liable, as required by Rule 5(d). However, other than recovery for amounts collected by Elliott (a contingency not applicable due to Elliott's withdrawal), the agreement otherwise only provides for client liability when the client terminates the agreement. Mutual abandonment or voluntary withdrawal by the attorney is not a contingency expressly provided or contemplated by the express terms of the fee agreement. Thus, although it specifically provides that the client must pay the attorney a fee based upon time and effort for services rendered if the client terminates the fee agreement, the fee agreement is silent as to liability when either Elliott unilaterally terminates the agreement or Elliott and Joyce mutually terminate the agreement. Hence, pursuant to Rule 6, by failing to expressly include a contingency as required to be set forth by Rule 5(d), Elliott cannot enforce payment by Joyce. (Emphasis added.)

889 P.2d at 45-46.

Although the decision left Elliot uncompensated for approximately $17,936.67 of his time, the court offered this encouragement to others:

[B]y our holding today we do not disapprove of contingent fee arrangements permitting recovery by attorneys from clients in quantum meruit. However, in order to enforce such agreements, a client's liability must be expressly provided within the written contingent fee agreement, as required by our rules. We agree with the court of appeals that to allow an attorney to recover a fee, when the attorney has voluntarily withdrawn from his representation, absent a provision in the contingent fee agreement providing for such payment, would violate the spirit and the letter of C.R.C.P. ch. 23.3. (Emphasis added.)

Id. at 46. The lesson of Elliot is expensive, but clear: the form contingency fee agreement set forth in Chapter 23.3 is a bare minimum. If the attorney hopes to recover anything other than a percentage contingency upon a successful judgement or settlement, Chapter 23.3's form is inadequate.See generally Struthers and Sanko, Your Contingent Fee Agreement, Colorado Trial Talk, vol. 45 No. 2 (Feb. 1996).

The result in Elliot was reaffirmed in Fasing v. LaFond, ____ P.2d ____, 21 Colorado Journal 161, 1997 WL 33590 (Colo. App. Jan. 30, 1997). There, where no written contingent fee agreement existed, the Court of Appeals affirmed the trial court's dismissal of the attorney's counterclaims based on a theory of promissory estoppel:

[T]he burden to ensure the validity of a contingent fee agreement is placed squarely and solely upon the attorney. Placing this burden on the lawyer clearly reflects the overriding policy in attorney-client relations to hold the attorney responsible for advising the client of the nature of the relations. See, e.g., 2 ABA/BNA, Lawyers' Manual on Professional Conduct, 41:313 (1994) . . . See also Beeson v. Industrial Claim Appeals Office, ____ P.2d ____ [, 1997 WL 6301](Colo. App. No. 96CA0884, January 9, 1997).

Nor do the rules provide for different treatment when the client is an attorney.

Here, the intent of the rules would be defeated if collateral methods of enforcing an otherwise invalid contingent fee agreement were allowed. . . . Simply stated, if promissory estoppel were allowed in this context, an attorney would, in effect, no longer be required to comply with the rules in order to recover a contingent fee.

Fasing v. LaFond, ____ P.2d at ____, 21 Colorado Journal at 163.

A different situation exists where the contingency lawyer is wrongly discharged:

An attorney who withdraws for justifiable reason or is terminated by a client without cause is entitled to compensation for the services rendered. Jenkins v. District Court, 676 P.2d 1201 (Colo. 1984).

Recovery in such instances is based on the theory of quantum meruit. Lane v. Gooding, 69 Colo. 216, 193 P. 670 (1920). See People v. Radinsky, 182 Colo. 259, 512 P.2d 627 (1973). See also Annot., Limitation to Quantum Meruit Recovery of Attorney Fees, 92 A.L.R.3d 690 (1979); and 1 S. Speiser, Attorneys' Fees 4:36 (1973).

Law Offices of J.E. Losavio v. Law Firm of McDivitt, 865 P.2d 934, 935 (Colo. App. 1993).(1)

Also of interest is the Colorado Court of Appeal's decision in Jones v. Feiger, Collison & Killmer, 903 P.2d 27 (Colo. App. 1994), rev'd, Feiger, Collison & Killmer v. Jones, 926 P.2d 1244 (Colo. 1996). In Jones, the attorneys attempted to keep control over the settlement process by providing in their fee agreement:

The law firm is not to settle any of the client's claims without the consent of the client. The client agrees to consider seriously any recommendation of settlement that the law firm makes. The client agrees not to refuse unreasonably to settle his claims should such an opportunity arise.

The law firm shall have the right to withdraw . . . for any other justifiable reason, including the client's failure to comply with any provision of this agreement. . . . At the time of withdrawal, . . . the client will pay [the law firm for work performed] an amount for fees and costs sufficient to equal 100% of . . . normal hourly rates.

903 P.2d at 29. While avoiding the mistake of Elliott v. Joyce, the Court of Appeals voided the clear, written and signed provision of the fee agreement as an undue restriction upon a client's right to settle upon whatever terms the client may wish, even if the decision is unwise:

We recognize that attorneys working under contingent fee arrangements risk their investment of time and, potentially, their advancement of costs on behalf of a client, and that clients can attempt to use the right of settlement to renegotiate a more favorable fee arrangement with the attorney facing such risks. Nevertheless, absent a change by the supreme court or General Assembly in existing public policy, the client's right to control settlement cannot be diminished by a contingent fee arrangement. . . .

. . . We therefore hold that the provisions of the representation agreement prohibiting the client from unreasonably refusing to settle and permitting the law firm, in such event, to withdraw, together with the provision for calculating fees, are unenforceable. See generally Restatement (Second) of Contracts 178 (1981).

Id. at 34-35.

The Colorado Supreme Court reversed, finding that Jones failed to preserve his public policy argument for appeal, and refusing to even consider the public policy issue as to the enforceability of the contingent fee agreement. Feiger, Collison & Killmer v. Jones, 926 P.2d 1244 (Colo. 1996). There is considerable weight of authority for the position taken by the Court of Appeals, however, and, given the Colorado Supreme Court's consistent deference to supporting a client's freedom of choice of counsel, it should come as no surprise if, given the proper procedural context, the Court of Appeals' result in Jones becomes the law of Colorado.

What is the contingent fee attorney to do, then? First, recognize that Chapter 23.3 will be enforced as written. The Colorado courts have shown no sympathy for the contingency fee attorney who ignores Chapter 23.3's requirements. Second, be aware that the model form provided by Chapter 23.3 is only a minimum, and even where filled in completely and competently will be inadequate except in those cases where the attorney sees the case through to completion of the contingency stated in the agreement. Third, the contingent fee attorney should devote as much time and zeal to the drafting of a proper contingent fee agreement, which states all the possible contingencies, as he would to the client's cause. Provisions should be made for the obvious contingencies that the attorney may be discharged without cause or may wish to withdraw with or without the client's consent. Whatever contingencies and outcomes are stated, they must be clear, written in plain English, signed by the client and result in a reasonable fee. Fourth, anticipate that, even where contingencies and outcomes are stated, clear and agreed upon in writing, the court will look askance at, if not void, any agreement it believes unfairly impinges on the client's freedom to choose, and to discharge counsel at any time.

1. The rationale of J.E. Losavio was recently affirmed by the Colorado Supreme Court in Olsen and Brown v. City of Englewood, 889 P.2d 673 (Colo. 1995). That case involved discharge of counsel without cause, not in a contingency fee context, but in a set monthly fee context. While affirming Jenkins and Losavio to permit recovery on a quantum meruit basis, the court limited Olsen and Brown to quantum meruit, and would not allow recovery of damages on a "benefit of the bargain" basis. In so doing, the court emphasized:

The position which Olsen asks us to adopt would have a profound effect on the power and inherent right of the client to discharge the attorney. To allow an attorney to recover damages for services not actually rendered prior to termination of the attorney-client relationship would penalize the client in direct contravention of the client's absolute right to discharge his attorney. (Citation omitted.)

889 P.2d at 676. The sanctity of freedom of choice of counsel is a driving philosophy behind the Colorado Supreme Court's insistence that, in contingent fee cases, any deviation from the general client's understanding, "no recovery unless the lawyer wins," must be expressed in clear written terms, signed by the client.