The Risk Manager, Winter 2011
The Kentucky Court of Appeals in Lofton v. Fairmont Specialty Insurance Managers, Inc. (No. 2009-CA-001631-MR, 10/15/2010) ruled that a lawyer who voluntarily withdrew from a contingency fee case without just cause could only recover expenses.
Lofton represented Maxey in a personal injury action. When Maxey refused to accept a settlement offer of $25,000 Lofton decided that he could not represent her to her satisfaction and was granted permission by the court to withdraw. Maxey then obtained new counsel and ultimately accepted a settlement offer of $25,000. Lofton asked for attorney’s fees from the new counsel, but was only reimbursed for his expenses of $3,628.02. Lofton then brought an action for his fees based on quantum merit. The circuit court ruled that Lofton breached his contract with Maxey and only was entitled to recover expenses incurred while representing Maxey.
On appeal the Court of Appeals affirmed the circuit court’s order. After reviewing the law concerning entitlement to fees when a lawyer withdraws or is discharged the Court concluded:
It is clear from the record that the catalyst for Lofton's withdrawal was a profound disagreement between Lofton and Maxey concerning the reasonableness of the settlement offer versus the potential value of the case. And, Lofton testified that this settlement offer was at least $5,000 less than what he had valued the case. As noted, the contract between Lofton and Maxey did not address this scenario. While a client's failure to follow an attorney's advice concerning acceptance of a settlement offer may constitute just cause under some circumstances, it is our opinion that Lofton's voluntary withdrawal does not constitute just cause under the facts sub judice. 7A C.J.S. Attorney & Client § 268 (2004).
The contract executed by Lofton and Maxey provides that "no settlement will be made without the consent of the CLIENT." In light thereof, Lofton was contractually bound to accept Maxey's decision as to any possible settlement offer. It is simply incongruous for Lofton to agree to such contractual provision and then to withdraw when Maxey exercised her right under the contract. Lofton could easily have included language reserving his right to withdraw if the client refused to accept a reasonable offer. Hence, considering the particular facts herein, we conclude that Lofton's withdrawal was without just cause and that he was not entitled to any fee compensation. (citation omitted)
Lofton is highly recommended professional reading. When doing so compare the contingency fee agreement in that case with the following analysis of what the Kentucky Rules of Professional Conduct require to be included in a contingency fee agreement plus some recommended terms – one of which would have resulted in a different outcome in Lofton:
Rule 1.5(c) permits fees contingent on the outcome of the matter. Specific requirements are:
- The fee must meet the requirements of Rule 1.5(a).
- The fee agreement must be in a writing signed by the client.
- The agreement must include the method by which the fee is determined and the percentage or percentages that accrue to the lawyer in the event of settlement, trial or appeal.
- The agreement must cover litigation and other expenses to be deducted from the recovery; and must state whether such expenses are to be deducted before or after the contingent fee is calculated.
- The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party.
- Upon conclusion of a contingent fee matter, the lawyer must provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.
While not stipulated in Rule 1.5, recommended additional matters to cover in contingency fee agreements to avoid fee disputes are:
- How the lawyer is paid if the client rejects a reasonable settlement offer and the lawyer withdraws.
- How the lawyer is paid if the lawyer is terminated by mutual agreement or if the client unilaterally discharges the lawyer and obtains other counsel.
- Whether the lawyer is obligated to pursue an appeal if there is an adverse judgment.
We also offer this risk management advice when withdrawing:
- Whenever possible withdrawal should be a clean break – a clear-cut decision with the client’s agreement in writing. Use a disengagement letter that:
- Confirms that the relationship is ending with a brief description of the reasons for withdrawal.
- Provides reasonable notice before withdrawal is final.
- Avoids imprudent comment on the merits of the case.
- Indicates whether payment is due for fees or expenses.
- Recommends seeking other counsel.
- Explains under what conditions the lawyer will consult with a successor counsel.
- Identifies important deadlines for the matter.
- Includes arrangements to transfer client files.
- If appropriate, includes a closing status report.
- After sending the disengagement letter you must carefully follow through on the duty to take necessary actions to protect the client’s interest and comply with the representations in the disengagement letter. This avoids a malpractice claim over the manner of withdrawal.
- Finally, a complete copy of the file should be retained. A fired client or one that fired you has a high potential to be a malpractice claimant. The first line of defense is a complete file with a comprehensive disengagement letter. This is the best evidence for showing competent and ethical practice in terminating a client. *
* From How To Fire A Client – The Client From Hell, Dog Cases, and Escape Clauses available on Lawyers Mutual’s Website at lmick.com – click on Resources and go to Bench & Bar Articles.