Opinion · Ohio Supreme Court
Reid, Johnson, Downes, Andrachik & Webster v. Lansberry
68 Ohio St. 3d 570
- Type
- Opinion
- Court
- Ohio Supreme Court
- Jurisdiction
- Ohio
- Date
- 1994-03-30
- Topic
- general
applying modern rule in contingent fee case, but recognizing that under certain circumstances, contract damages are available | totality of circumstances surrounding each situation should be considered in determining reasonable value of discharged contingent-fee attorney's services in quantum meruit | totality of circumstances surrounding each situation should be considered in determining reasonable value of discharged contingent-fee attorney’s services in quantum meruit | and remanding where attorney was seeking to recover in quantum meruit after being terminated | totality of circumstances test can consider the results in addition to various other factors | even when an attorney is discharged for just cause and the contingent fee contract was not fulfilled, the attorney is entitled to recover the reasonable value of services rendered the client prior to discharge on the basis of quantum meruit | “[A]n attorney who is discharged must yield the case file” | “An attorney operating under even a contingent-fee contract should keep an accurate record of time and resources expended” because “number of hours worked in an important factor to be considered by the trial court in determining [the reasonable value of services rendered].”
Citator
- Cited by
- 48 opinions
[This opinion has been published in Ohio Official Reports at68 Ohio St.3d 570
.]
REID, JOHNSON, DOWNES, ANDRACHIK & WEBSTER, APPELLEE, v. LANSBERRY,
APPELLANT.
[Cite as Reid, Johnson, Downes, Andrachik & Webster v. Lansberry,
1994-Ohio-512
.]
Attorneys at law—Client has absolute right to discharge law firm subject to
obligation to compensate firm for services rendered—Contingent-fee
agreement—Discharged law firm's cause of action for fee recovery on basis
of quantum meruit arises, when—Factors trial court should consider in
determining reasonable value of discharged contingent-fee firm's services.
1. A client has an absolute right to discharge an attorney or law firm at any time,
with or without cause, subject to the obligation to compensate the attorney
or firm for services rendered prior to the discharge.
2. When an attorney representing a client pursuant to a contingent-fee agreement
is discharged, the attorney's cause of action for a fee recovery on the basis
of quantum meruit arises upon the successful occurrence of the
contingency.
3. A trial court called upon to determine the reasonable value of a discharged
contingent-fee attorney's services in quantum meruit should consider the
totality of the circumstances involved in the situation. The number of hours
worked by the attorney before the discharge is only one factor to be
considered. Additional relevant considerations include the recovery sought,
the skill demanded, the results obtained, and the attorney-client agreement
itself.
(No. 92-2013—Submitted December 7, 1993—Decided March 30, 1994.)
APPEAL from the Court of Appeals for Summit County, No. 15449.
__________________
SUPREME COURT OF OHIO
{¶ 1} In October 1984, defendant-appellant Donald Lansberry was injured
in a motor vehicle accident. In December of that year, he and his wife entered into
a contingent-fee-representation agreement with plaintiff-appellee, the law firm of
Reid, Johnson, Downes, Andrachik & Webster ("Reid, Johnson"). In late May or
early June 1986, William A. LeFaiver, a salaried attorney with Reid, Johnson who
had been working on the Lansberrys' case, ceased affiliation with the law firm. On
August 27, 1986, the Lansberrys signed a contingent-fee-representation contract
with LeFaiver. This contract did not mention the previous representation
agreement signed with the law firm. In August and September 1986, the Lansberrys
sent three letters to Reid, Johnson, all of which advised the law firm that the
Lansberrys considered LeFaiver (not the law firm) to be their attorney. The first
two letters essentially proposed that LeFaiver and Reid, Johnson jointly represent
the Lansberrys. In the third letter, the Lansberrys reiterated that LeFaiver was their
attorney, and clearly informed Reid, Johnson that the firm was to cease representing
them. In all three letters, the Lansberrys asked that Reid, Johnson forward their file
immediately to LeFaiver.
{¶ 2} On or about September 16, 1986, Reid, Johnson filed a complaint
(which the Lansberrys contend was filed without their permission) on behalf of the
Lansberrys in common pleas court. The law firm notified the Lansberrys by a letter
dated September 25, 1986, that the Lansberrys' file would not be released to
LeFaiver until two conditions were met: (1) payment of expenses incurred by the
firm relating to the matter, and (2) payment to the firm of one-third of any
settlement reached or judgment achieved in the matter. In October 1986, LeFaiver
sent two letters to Reid, Johnson requesting that the Lansberrys' file be sent
immediately to him.
{¶ 3} By October 8, 1986, Reid, Johnson had received a settlement offer of
$65,000 from the insurance company of the other driver involved in the accident.
The law firm advised LeFaiver that the Lansberrys' file would be released upon
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January Term, 1994
payment of expenses advanced by Reid, Johnson, and upon receipt by the firm of a
written guaranty of payment for one-third of $65,000 executed by Donald
Lansberry. On October 20, 1986, the Lansberrys executed a guaranty to pay Reid,
Johnson $21,666.67 upon recovery of an amount equal to or greater than $65,000,
in return for the release of the Lansberrys' file to LeFaiver.
{¶ 4} In December 1989, Reid, Johnson filed suit against Donald Lansberry
in the Summit County Court of Common Pleas, seeking to enforce the guaranty. In
the complaint, the law firm alleged that Lansberry's personal-injury case had been
settled, that the disputed amount had been placed in an escrow account following
the settlement, and that the firm was entitled to recover $21,666.67 plus interest.
Reid, Johnson apparently dropped its claim for recovery of expenses advanced by
the firm on behalf of the Lansberrys. In his answer, Lansberry denied that Reid,
Johnson was entitled to the money in the escrow account, and alleged that the law
firm was entitled to an amount not to exceed $2,500. Lansberry claimed that Reid,
Johnson spent less than twenty hours on Lansberry's case prior to being discharged
as Lansberry's attorney, and that the reasonable value of Reid, Johnson's services
was $125 per hour. Lansberry argued that $2,500 was the quantum meruit measure
of the total value of the law firm's services.
{¶ 5} Reid, Johnson's motion for summary judgment was denied by the trial
court, which referred the case to a referee for a determination of damages in
quantum meruit pursuant to Fox & Associates Co., L.P.A. v. Purdon (1989), 44 Ohio St.3d 69
,541 N.E.2d 448
.
{¶ 6} The referee, after observing that Lansberry had received
approximately $94,000 in settlement of his claim, recommended that Reid, Johnson
receive the $21,666.67 plus interest contained in the escrow account. Focusing on
the circumstances surrounding the October 20, 1986 payment guaranty signed by
the Lansberrys, the referee recommended that the guaranty should be enforced.
Specifically, the referee found that the Lansberrys had signed the guaranty under
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SUPREME COURT OF OHIO
no duress from the law firm, and that the document was signed in order "to trick
[Reid, Johnson] into releasing the file, based upon the promise of [the Lansberrys]
to pay the $21,666.67 set forth therein." The referee apparently found the Fox case
inapplicable to the facts as he determined them, as no citation to Fox appears in the
referee's order and recommendation. The referee found that Lansberry's contention
that Reid, Johnson had put in about twenty hours of work with a value of $125 per
hour was supported by the record, but recommended that the firm's recovery should
not be limited to a quantum meruit award in that amount.
{¶ 7} The trial court accepted the referee's report in part, but determined
that the referee had not applied the applicable rule of law to the facts as the referee
determined them. Stating that it was apparent from the referee's report that
Lansberry had discharged the law firm prior to resolution of his personal-injury
matter, the trial court essentially determined that neither the Lansberrys' contingent-
fee agreement with the firm, nor the later payment guaranty modifying that
agreement, was enforceable. In so ruling, the trial court referred to Fox for the
proposition that when an attorney is discharged by a client without cause prior to
final resolution of the case (or prior to substantial performance), the discharged
attorney may recover only the reasonable value of services rendered prior to the
discharge on the basis of quantum meruit. See Fox, 44 Ohio St.3d 69
,541 N.E.2d 448
, at syllabus. Applying that principle of Fox, the trial court awarded Reid,
Johnson $2,500 as the reasonable value of services rendered prior to discharge by
the Lansberrys, and ordered the remainder of the funds in the escrow account
disbursed to Donald Lansberry.
{¶ 8} On appeal, the Court of Appeals for Summit County reversed the
judgment of the trial court. The court of appeals found Fox inapplicable to the facts
before it: "Fox holds that where an attorney is discharged by a client, with or
without just cause, the attorney is only entitled to recover the reasonable value of
services rendered prior to the discharge based on quantum meruit, rather than
4
January Term, 1994
damages based on the contingent fee contract. In the present case, the clients
discharged the law firm in September 1986, subjecting them to a claim by the firm
for fees based on quantum meruit, according to Fox. However, since they thereafter
entered into a new guaranty contract, upon the advise [sic] of attorney LeFavier
[sic], Fox does not preclude its enforcement." Thus, consistent with the
recommendation of the referee, the court of appeals determined that the payment
guaranty was enforceable.
{¶ 9} The cause is now before this court pursuant to the allowance of a
motion to certify the record.
__________________
Reid, Berry & Stanard and Timothy T. Reid, for appellee.
Kevin E. Brown, for appellant.
__________________
ALICE ROBIE RESNICK, J.
{¶ 10} In Fox & Associates Co., L.P.A. v. Purdon (1989), 44 Ohio St.3d 69
,541 N.E.2d 448
, syllabus, this court held: "When an attorney is discharged by a client with or without just cause, and whether the contract between the attorney and client is express or implied, the attorney is entitled to recover the reasonable value of services rendered the client prior to discharge on the basis of quantum meruit. (Scheinesohn v. Lemonek [1911],84 Ohio St. 424
,95 N.E. 913
, and Roberts v. Montgomery [1926],115 Ohio St. 502
,154 N.E. 740
, overruled.)" Thus, pursuant
to Fox, even if an attorney is discharged without cause, and even if a contingent fee
agreement is in effect at the time of the discharge, the discharged attorney recovers
on the basis of quantum meruit,1 and not pursuant to the terms of the agreement.
1. "Quantum meruit" means literally "as much as deserved." See Black's Law Dictionary (6
Ed.1990) 1243 (The equitable doctrine of quantum meruit is based on an implied "promise on the
part of the defendant to pay the plaintiff as much as he reasonably deserved to have for his labor."
[Emphasis sic.]).
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SUPREME COURT OF OHIO
{¶ 11} Fox overruled several precedents, Scheinesohn, supra, and Roberts, supra,
which had held that when a contingent-fee contract is breached by a client without just cause, the measure of damages is the full contract price, not the reasonable value of services rendered by the attorney prior to being discharged by the client. This court in Fox, by limiting a discharged attorney to a quantum meruit recovery, abandoned the so-called "traditional rule," now followed in a small minority of jurisdictions, in favor of a new emerging majority rule. See Sloan, Quantum Meruit: Residual Equity in Law (1992), 42 De Paul L.Rev. 399, 439 (rule in most jurisdictions today is that discharged attorney may recover "only on a quantum meruit basis" [emphasis sic]). See, generally, Annotation, Limitation to Quantum Meruit Recovery, Where Attorney Employed Under Contingent Fee Contract Is Discharged Without Cause (1979),92 A.L.R.3d 690
.
{¶ 12} The quantum meruit rule adopted by the court in Fox "strikes the
proper balance by providing clients greater freedom in substituting counsel, and in
promoting confidence in the legal profession while protecting the attorney's right
to be compensated for services rendered." 44 Ohio St.3d at 72
,541 N.E.2d at 450
. See Fracasse v. Brent (1972),6 Cal.3d 784, 792
,100 Cal. Rptr. 385, 390
,494 P.2d 9, 14
; Rosenberg v. Levin (Fla.1982),409 So.2d 1016, 1020
.
{¶ 13} One of the central tenets of the Fox approach is that a client has an
absolute right to discharge an attorney or law firm at any time, with or without
cause, subject to the obligation to compensate the attorney or firm for services
rendered prior to the discharge. See 44 Ohio St.3d at 72
,541 N.E.2d at 450
. Cf.
Model Rules of Professional Conduct (1992), Rule 1.16, Comment at 57 ("A client
has a right to discharge a lawyer at any time, with or without cause, subject to
liability for payment for the lawyer's services."). See Rosenberg, supra,
409 So.2d at 1020
(quantum meruit recovery limitation is necessary to avoid placing
restrictions on client's right to discharge attorney). Once discharged, the attorney
must withdraw from the case, and can no longer recover on the contingent-fee-
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January Term, 1994
representation agreement. The discharged attorney may then pursue a recovery on
the basis of quantum meruit for the reasonable value of services rendered up to the
time of discharge.
{¶ 14} The record indicates that appellant informed appellee several times
that LeFaiver, and not appellee, was his attorney. Appellant repeatedly asked
appellee to send his file to LeFaiver. Although appellant did not explicitly
discharge appellee as his attorney in the first two letters he sent the law firm
(proposing that appellee participate in a sort of co-representation with LeFaiver),
the third letter clearly conveys appellant's desire to discharge appellee. In that
letter, appellant unequivocally told appellee to cease representing him. The record
supports the observation made by the court of appeals that appellant discharged
appellee as his attorney, and that application of the rule of Fox would limit appellee
to a recovery in quantum meruit.
{¶ 15} However, the record does not support the court of appeals' further
determination that the guaranty contract subsequently signed by appellant with the
law firm after he discharged it means that Fox does not control this case. DR 2-
110(B)(4) requires that "a lawyer representing a client *** shall withdraw from
employment if: *** [h]e is discharged by his client." (Emphasis added.) Along
with the mandatory obligation to withdraw from a case when discharged, an
attorney who is discharged must yield the case file. At the time appellant
discharged the law firm, the firm was required to return his case file to him, and to
cease any and all involvement in the case. Yet the record unquestionably reveals
that appellee refused to give appellant the file and even took the additional step of
conditioning release of the file upon appellant's execution of a guaranty modifying
the prior contingent-fee agreement.
{¶ 16} Although appellant was not actually under duress (as the term is
strictly defined) when he signed the guaranty, for all practical purposes he was
made to sign the guaranty it to obtain the file. Since appellee should not have
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SUPREME COURT OF OHIO
imposed that condition on appellant to obtain the file once discharged, the guaranty
is not enforceable, and this case does come within the rule of Fox. As in Fox, "[t]he
law firm was discharged, and *** the maximum reach of its right to fees, with
regard to the client, is the reasonable value of the legal services actually rendered
to the date of discharge."2 44 Ohio St.3d at 72
,541 N.E.2d at 450
.
{¶ 17} Having determined that appellee's recovery from appellant should be
determined according to the equitable doctrine of quantum meruit, we address how
the amount of recovery should be measured.
{¶ 18} As an initial matter, we join those jurisdictions which have held that
when an attorney representing a client pursuant to a contingent-fee agreement is
discharged, the attorney's cause of action for a fee recovery on the basis of quantum
meruit arises upon the successful occurrence of the contingency. Under this
approach, in most situations the discharged attorney is not compensated if the client
recovers nothing.
{¶ 19} The California Supreme Court, in Fracasse, supra,
6 Cal.3d at 792
,100 Cal.Rptr. at 390
,494 P.2d at 14
, gave two reasons for adopting this holding. First, the amount involved and the result obtained, two significant considerations in deciding whether an attorney fee is reasonable, cannot be determined until the contingency occurs. Second, a client of limited means, for whom the contingent- fee agreement is the only real hope of recovering an award, would be improperly burdened by an absolute obligation to pay his or her former attorney if no award is 2. Appellee argues that since Fox was decided after the contingent-fee-agreement and the guaranty modifying that agreement were signed, Fox should not control the result here. However, this court stated in Fox that "[e]ven prior to today's holding, Purdon had the absolute right to discharge Fox & Associates without proving just cause."44 Ohio St.3d at 72
,541 N.E.2d at 450
. The Fox court also observed that "[t]he fact that the contract is contingent does not vest the attorney with an interest in the case or affect the right to discharge."Id.
Hence, even prior to the Fox decision, appellant had a
right to discharge appellee and an accompanying right to control his case file; and appellee had no
vested right to recover on the contingency agreement. Furthermore, we have concluded that the
guaranty modifying that agreement is unenforceable and cannot have the effect appellee intended it
to have. Therefore, the quantum meruit recovery rule of Fox may properly be applied.
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January Term, 1994
ever won. "[S]ince the attorney agreed initially to take his chances on recovering
any fee whatever, we believe that the fact that the success of the litigation is no
longer under his control is insufficient to justify imposing a new and more onerous
burden on the client." Id.
See, also,Rosenberg, supra,
409 So.2d at 1022
(deferring
the discharged attorney's cause of action supports the goal of preserving client's
freedom to discharge; any resulting harm to attorney is minimized because the
attorney fee under original contingent agreement depended on contingency's
occurrence). We believe that the considerations behind this rule are consistent with
the policies espoused in Fox. Because the contingency occurred in this case
(appellant ultimately recovered approximately $94,000), appellee may recover in
quantum meruit, pursuant to Fox.
{¶ 20} As a further related matter, also consistent with the policies
underlying the result in Fox, we find that the quantum meruit recovery of a
discharged attorney should be limited to the amount provided for in the disavowed
contingent fee agreement. In Rosenberg, supra, 409 So.2d at 1020
, the court explained the reason behind adopting such a rule: "This limitation is believed necessary to provide client freedom to substitute attorneys without economic penalty. Without such a limitation, a client's right to discharge an attorney may be illusory and the client may in effect be penalized for exercising a right." See Brickman, setting the Fee When the Client Discharges a Contingent Fee Attorney (1992),41 Emory L.J. 367
, 369 (contending that the contingent fee amount should
be the maximum recovery for a discharged attorney).
{¶ 21} A trial court called upon to determine the reasonable value of a
discharged contingent-fee attorney's services in quantum meruit should consider
the totality of the circumstances involved in the situation. The number of hours
worked by the attorney before the discharge is only one factor to be considered.
Additional relevant considerations include the recovery sought, the skill demanded,
the results obtained, and the attorney-client relationship itself. See Rosenberg,
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supra, 409 So.2d at 1022
. Other factors to be considered will vary, depending on the facts of each case. As Fox,44 Ohio St.3d at 71
,541 N.E.2d at 449-450
,
mentioned, the Code of Professional Responsibility, DR 2-106,3 gives guidelines
for determining the reasonableness of attorney fees. Because the factors to be
considered are based on the equities of the situation, those factors, as well as the
ultimate amount of quantum meruit recovery by a discharged attorney, are matters
to be resolved by the trial court within the exercise of its discretion.
{¶ 22} In this case, it is not clear from the record, or from the trial court's
order, whether the trial court considered all the facts and circumstances surrounding
the matter in computing appellee's $2,500 recovery. In particular, the referee
appears not to have complied with the trial court's directions to utilize quantum
meruit in determining the amount of damages. Instead, the referee heard evidence
3. DR 2-106(B) provides, in pertinent part:
"*** Factors to be considered as guides in determining the reasonableness of a fee include
the following:
"(1) The time and labor required, the novelty and difficulty of the questions involved,; and
the skill requisite to perform the legal service properly.
"(2) The likelihood, if apparent to the client, that the acceptance of the particular
employment will preclude other employment by the lawyer.
"(3) The fee customarily charged in the locality for similar legal services.
"(4) The amount involved and the results obtained.
"(5) The time limitations imposed by the client or by the circumstances.
"(6) The nature and length of the professional relationship with the client.
"(7) The experience, reputation, and ability of the lawyer or lawyers performing the
services.
"(8) Whether the fee is fixed or contingent."
We recognize that attorneys operating under contingent fee representation agreements
sometimes do not maintain detailed records concerning hours worked and certain expenses incurred.
By the very nature of the contingent agreement, the attorney receives a fixed amount following
successful completion of the representation without regard to the number of hours worked. The lack
of accurate recordkeeping sometimes makes it difficult to establish what a reasonable value of
services rendered should be. However, despite this possible difficulty of proof, the principles set
forth in Fox and in this case require the discharged attorney to establish the reasonable value of
services rendered, and the number of hours worked is an important factor to be considered by a trial
court in determining that value. An attorney operating under even a contingent-fee contract should
keep an accurate record of time and resources expended. "Every attorney [including one operating
under a contingent fee agreement] runs the risk of being discharged and needing proof of effort in
order to recover any fee." Sloan, supra, 42 De Paul L.Rev. at 446.
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January Term, 1994
which focused on whether the guaranty signed by appellant was enforceable,
leading to the recommendation that quantum meruit was not the proper measure of
recovery.
{¶ 23} It appears that the parties at trial presented very little evidence going
to what a proper quantum meruit recovery should be, beyond the hours worked on
the matter. Because the referee gave only limited consideration to a determination
of appellee's quantum meruit damages, and because the trial court relied on
evidence presented at trial to set the amount of the quantum meruit recovery, we
are not convinced the trial court had sufficient information before it to conduct a
thorough consideration of all relevant factors. We remand this cause to allow the
trial court to specifically address the amount of appellee's recovery in quantum
meruit, in light of the principles delineated in Fox and in this opinion.
Judgment reversed
and cause remanded.
MOYER, C.J., A.W. SWEENEY and WRIGHT, JJ., concur.
DOUGLAS, F.E. SWEENEY and PFEIFER, JJ., concur in part and dissent in part.
__________________
DOUGLAS, J., concurring in part and dissenting in part.
{¶ 24} Our decision today may be the worst of the bad jokes about lawyers.
Unfortunately, this is no joke. What we say today is that lawyers are the only
persons in this state who are prohibited from enforcing written contracts according
to their express terms and conditions when such contracts involve payment for
services and a dispute, regardless of cause or merit, arises over representation. I
would think that even those who are most critical of lawyers and the legal
profession would find this policy to be patently unfair.
{¶ 25} Accordingly, I concur with the majority in paragraph one of the
syllabus. If quantum meruit is to remain the test, I also concur with paragraph three
of the syllabus. I respectfully dissent with regard to paragraph two of the syllabus
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and, specifically, the continued application, in cases such as the one before us, of
the rule of quantum meruit. I also dissent with regard to the ultimate judgment of
the majority in reversing the judgment of the court of appeals. I would affirm the
judgment of the court of appeals for the reason stated by that court and/or for the
reasons stated infra.
{¶ 26} This case graphically presents a problem that is increasing in scope
in our profession. It is a problem that is unpleasant to confront and dealing with
the problem may appear, to some, to be lawyer self-serving in nature. It would be
easier to quietly ignore the problem as though it did not exist and, thereby, keep our
dirty linen within our own household. Unfortunately, such a course of action
ignores reality and does nothing to help those who must confront circumstances
such as are presented by today's case. The genesis of this case and others like it
should be branded for what it is—"case stealing."
{¶ 27} Given Fox & Associates Co., L.P.A. v. Purdon (1989), 44 Ohio St.3d 69
,541 N.E.2d 448
, the majority opinion very fairly sets forth the facts necessary
for a determination in this matter. However, there is more to the story and this story
should be told.
{¶ 28} There are three principal players in this case. Two are parties: the
law firm of Reid, Johnson, Downes, Andrachik & Webster ("Reid") and Donald
Lansberry ("Lansberry"). The third is attorney William A. LeFaiver ("LeFaiver"),
a non-party.
{¶ 29} LeFaiver was admitted to practice law in Ohio in 1969. Between
August 1969 and April 1979, LeFaiver was an attorney with the United States
Department of Justice in Cleveland. From April 1979 to April 1983, he was in
private practice with the law firm of Hahn, Loeser, Freedheim, Dean & Wellman.
In May 1983, LeFaiver became associated with the law firm of Guren, Merritt,
Fiebel, Sogg & Cohen. This association continued for one year (until May 1984).
In June 1984, LeFaiver joined the Reid law firm and, as an employee of the firm,
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January Term, 1994
was paid an annual salary of $60,000. This employment relationship continued
until June 1986 when LeFaiver either withdrew from or was discharged by the firm.
{¶ 30} In October 1984, Lansberry was injured in a motor vehicle accident.
Lansberry and his wife asked LeFaiver, who was then an associate of the Reid law
firm, to represent them.4 After consultation with others in the firm, LeFaiver had
the Lansberrys sign an agreement denominated as a "Contingent Fee Contract."
The contract was executed on December 10, 1984 and the parties were the Reid law
firm and the Lansberrys. The law firm agreed to represent the Lansberrys and, for
its services, the law firm was to receive 33.3 percent of the proceeds of any
settlement before suit or 40 percent after suit. The contract is part of the record in
this case and, without question, the only parties to the contract are the Reid law firm
and the Lansberrys.
{¶ 31} After LeFaiver left the Reid law firm in 1986, a dispute between
LeFaiver and the law firm erupted with the law firm contending that LeFaiver, in
various ways, was undermining the law firm's relationship with various clients. The
majority opinion details only some of the activity involving Reid, the Lansberrys
and LeFaiver. This activity (as later found by the referee) included LeFaiver
writing letters to the Reid law firm which were signed by Lansberry; LeFaiver
entering into another contingent fee contract (on the same day as Lansberry's first
letter to Reid) with the Lansberrys, with LeFaiver knowing full well of the existence
of the contingent fee contract between the Lansberrys and Reid; and LeFaiver
drafting, and having the Lansberrys execute on October 20, 1986, a guaranty of
payment of the Reid contingent fee contract, which guaranty contract Mrs.
Lansberry, at trial, testified she and her husband never planned to abide by even as
they signed the agreement.
4. The Lansberrys knew, and had been represented by, LeFaiver before LeFaiver became associated
with the Reid law firm.
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{¶ 32} While the majority opinion tells us some of this story, what the
majority does not tell us is that the Reid law firm, on October 23, 1986, filed a
declaratory judgment, injunctive relief and money damages action against LeFaiver
alleging, inter alia, that LeFaiver "[p]rior to June 1, 1986 and subsequent to June
1, 1986 * * * embarked on a course of conduct that was intended to interfere with,
damage, and compromise plaintiff's [Reid's] professional relationship with various
clients." Reid then prayed for an order
"* * * enjoining and restraining defendant [LeFaiver] from interfering with the
contractual relationships that exist between plaintiff firm and various clients"; an
order "* * * enjoining defendant from issuing defamatory statements [against the
Reid law firm]"; an order "* * * restraining and enjoining defendant from harassing,
annoying, or interfering with the pending litigation or settlement negotiations that
are ongoing between the firm and various firm clients and defense representatives";
an order for defendant to "* * * establish an escrow account and deposit any and
all funds received from various firm clients * * *"; and an order for defendant to
immediately account to the firm for any and all funds that defendant has received
from various firm clients * * *" and for compensatory damages of $100,000 and
punitive damages of $150,000.
{¶ 33} Since the full record of this underlying case is not before us, it cannot
be determined what all went into the resolution of the Reid versus LeFaiver lawsuit.
What we do know from the record before us is that the case was settled and at least
part of the settlement included LeFaiver's writing letters to the Lansberrys, a Ms.
Klein and a Mr. and Ms. Nannarone renouncing any right or claim in various
settlement checks sent by insurance carriers to the letter recipients. LeFaiver's letter
to the Lansberrys, dated September 28, 1987, was typical and stated, in part, that
"[a]s to that settlement check sent to you in the amount of $21,666.67 and made
payable by the involved insurance carrier to both you and the Reid, Johnson law
firm * * *, please be advised that I make absolutely no claim to nor assert any right
14
January Term, 1994
or benefit in or to any such sum. * * *" (Emphasis in original.) It is difficult to
ignore these letters and their import.
{¶ 34} Meantime, in either October or November 1987, Lansberry's suit for
his personal injuries was settled for about $94,000. By order entered in that case,
Judge Winter directed funds from an insurance company draft for $21,666.67
(presumably pursuant to the Reid-Lansberry contingent fee contract) be placed in
escrow "* * * until the fee dispute among Plaintiffs [Lansberrys] and their former
[Reid] and present [LeFaiver] attorneys is resolved." Subsequently, on December
8, 1989, Reid, in the case now before us, sued Lansberry in an effort to enforce the
contingent fee contract.
{¶ 35} This case was assigned to Judge Morgan. Judge Morgan had the
right idea of how to settle the matter in this and like cases. At a March 13, 1990
pretrial, Judge Morgan indicated that Reid should file an amended complaint and
bring LeFaiver into the case as a necessary party. Reid declined to do this on the
basis that LeFaiver had, by this time, waived any claim to the escrowed funds.
Judge Morgan's suggestion was right on point, especially given that LeFaiver filed
an affidavit in the case saying that the Lansberrys owed LeFaiver "* * * more than
$33,000.00 which is yet to be paid * * *."5
{¶ 36} Judge Morgan referred the case for trial before Referee Shoemaker.
Upon conclusion of the trial, the referee filed a report with the trial court which is
both extensive and illuminating. For a complete understanding of this case, the
referee's report should be read in full. Several of the referee's "conclusions of law"
should be noted here.
5. On this subject, LeFaiver testified as follows:
"Q. Did you warn them [the Lansberrys]—it's a simple question. Did you warn them, 'You
may have to pay two fees'? That can be answered yes or no.
"A. I told—I told them that it was likely they would have to pay the law firm of Reid,
Johnson what the law firm earned as well as my fee, which I had a contractual agreement with them
regarding." (Emphasis added.)
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SUPREME COURT OF OHIO
{¶ 37} The referee reported to the judge that "[t]hroughout all this, they [the
Lansberrys] had legal advice from Attorney LeFaiver, who not only drafted the
original letters in August and September, but also the guarant[y] which was to
secure the payment of the $21,666.67. It is also concluded that neither Mr.
Lansberry nor Mrs. Lansberry ever intended to live up to the agreement, even when
they signed it and gave it to their attorney to be returned to the Plaintiff.
* * * There is also no evidence that the execution of such document was the only
way that the Defendant and his wife could get their file so they might be able to file
a suit to protect the running of the two year statute of limitations in the matter.
Likewise, the record is barren of proof that the Plaintiff's conduct in retaining the
Defendant's file was in violation of some professional code requirement and/or let
alone in violation of any law in Ohio. While that point is suggested by Attorney
LeFaiver [who had, without apparent cause, sent information concerning Reid to
Disciplinary Counsel—another problem we may have to deal with some day], there
is no indication that any board or agency adjudicated the conduct of the Plaintiff in
such matter. Considering the background, education and the totality of the
circumstances surrounding this matter, the Defendant and his wife are found not to
have signed the document of October 20, 1986 [the guaranty agreement] because
of any duress or coercion. Rather, the Referee concludes the signing of the
document and its presentation through Attorney LeFaiver to the Plaintiff was done
to trick the Plaintiff into releasing the file, based upon the promise of the Defendant
and his wife to pay the $21,666.67 set forth therein." (Emphasis added.) Now we
know "the rest of the story."
{¶ 38} The referee went on to say that "[t]he evidence overwhelmingly and
well beyond the preponderance standard, established that the Defendant held out
to the Plaintiff that he and his wife wished to modify the original contingent fee
agreement by means of the negotiated October 20, 1986 document * * *."
(Emphasis added.) Finally, the referee said, "[w]herefore, the Plaintiff has
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January Term, 1994
established by a preponderance of the evidence that it is entitled to the $21,666.67
amount * * *."
{¶ 39} In his judgment entry, Judge Morgan first noted that no objections,
pursuant to Civ.R. 53(E)(2), to the referee's report had been filed. The judge then
adopted the referee's report, conclusions, findings and recommendations as his
own—except the portion of the report dealing "with the applicable rule of law."
Judge Morgan then noted that prior to this court's ruling in Fox, supra,
"* * * Ohio recognized that an attorney could recover upon a contingent fee contract with a client if he had been discharged without cause. If he had been discharged with cause, the most he could recover would be a quantum meruit amount. However,Fox, supra,
substantially changed the previous line of Ohio cases regarding an
attorney's recovery on a contingent fee contract * * *." Being bound to follow Fox,
Judge Morgan then held that Reid was only entitled to recover "its quantum meruit
services in the amount of $2,500."
{¶ 40} Thus, Reid had two written unambiguous contracts with the
Lansberrys and could collect on neither. Reid appealed. The court of appeals
found, it thought, a way around the dilemma. The appellate court found that Fox
did not apply because the Lansberrys "* * * entered into a new guaranty contract,
upon the advise [sic] of attorney [LeFaiver] * * *" after having discharged the law
firm in September of 1986. Thus, concluded the court of appeals, "[t]he law firm
is therefore entitled to a fee based on the terms of the guaranty."
{¶ 41} Now the case is before us to take another look at whether we did the
right thing in Fox. I concurred in Fox and still agree that a client has an absolute
right to discharge an attorney or law firm at any time, with or without cause, subject,
however, to the obligation of the client to compensate the attorney or firm. I no
longer agree, given this case and numerous other like situations that are well-known
in the profession, that quantum meruit should be the basis of fee recovery. To
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SUPREME COURT OF OHIO
continue this test deprives lawyers of the basic rights of contract law that all other
citizens are afforded. I now believe I was in error in concurring in Fox.
{¶ 42} It is a fundamental principle that parties are generally free to
negotiate the terms of a contract. In Blount v. Smith (1967), 12 Ohio St.2d 41, 47
,41 O.O.2d 250, 253
,231 N.E.2d 301, 305
, this court said that "[t]he right to contract
freely with the expectation that the contract shall endure according to its terms is as
fundamental to our society as the right to write and to speak without restraint.
Responsibility for the exercise, however improvident, of that right is one of the roots
of its preservation." (Emphasis added.)
{¶ 43} Not so long ago the General Assembly decided that the tort system
needed to be looked at—and maybe overhauled better describes its action. In R.C.
4705.15(B), the General Assembly said that "[i]f an attorney and a client contract
for the provision of legal services in connection with a claim that is or may become
the basis of a tort action and if the contract includes a contingent fee agreement,
that agreement shall be reduced to writing and signed by the attorney and the client.
The attorney shall provide a copy of the signed writing to the client."
{¶ 44} Given our decision in Fox and our holding today, one might logically
ask, "What happened to what the Ohio Supreme Court said in Blount and what
purpose does R.C. 4705.15 serve when the contract can be breached at will by a
client?" The only logical answer is that the law of contract protects all but lawyers
whose services involving a contingent fee contract are terminated, even without
cause, by a client.
{¶ 45} It should be recognized that in today's competitive market place,
substantial expense has been incurred by a law firm (lawyer) before a client even
comes in the door. Much of this expense, such as that related to a firm's reputation,
contacts, consultation and services not covered by a fee, office space with attendant
overhead and even advertising of the law firm (lawyer) through public appearances
and other forms, inures to the benefit of a client. When a case is pirated by a firm
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January Term, 1994
member or associate or even by another attorney not ever connected with the firm
who will, maybe just before settlement, "do it for less"—and the rule for the original
attorney for compensation is quantum meruit, we just encourage such activity.
{¶ 46} This need not be so! In Cleveland Co. v. Standard Amusement Co.
(1921), 103 Ohio St. 382
, 387,133 N.E. 615, 616
, this court set forth "* * * that where one party repudiates a continuing contract the injured party may (1) treat the contract as rescinded and recover on a quantum meruit so far as he has performed, or (2) keep the contract alive for the benefit of both parties, being at all times himself ready and able to perform at the end of the time specified in the contract, and sue and recover under the contract, or (3) he may treat the repudiation as putting an end to the contract for all purposes of performance and sue to recover as far as he has performed and for the profits he would have realized if he had not been prevented from performing." See, also, Wellston Coal Co. v. Franklin Paper Co. (1897),57 Ohio St. 182
,48 N.E. 888
; 3 Restatement of the Law 2d, Contracts (1981), Sections 344-347, 378; 2 Restatement of the Law 2d, Agency (1958), Sections 453, 455; and 11 Williston, Law on Contracts (3 Ed. 1968), Section 1358; 12 Williston (1970), supra, at Section 1459. Until Fox and the decision today which further perpetuates Fox, this court has long adhered to the general rule of contract law set forth above, allowing an attorney or law firm discharged by a client prior to completion of the contract to recover the bargained-for contract price. See Scheinesohn v. Lemonek (1911),84 Ohio St. 424
,95 N.E. 913
; Roberts v. Montgomery (1926),115 Ohio St. 502
,154 N.E. 740
; and Bolton v. Marshall (1950),153 Ohio St. 250
,41 O.O. 270
,91 N.E.2d 508
. Fox changed all this law
by overruling these cases.
{¶ 47} If we make it clear that contingent fee contracts will be enforced and
that any lawyer taking a case being handled by another firm or lawyer takes the
case encumbered with the fee agreement with the original firm subject, of course,
to a judicial determination as to how the fee should be divided between the lawyers,
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SUPREME COURT OF OHIO
then we serve the purpose and theory of the law and protect clients. Clients should
not be required to be involved in lawyer fee disputes. If an action is filed to recover
under a contingent fee agreement, then the subsequent lawyer (as Judge Morgan
suggested) can be joined and we could require that the client be responsible only
for that which the client has contracted for and the dispute (and the expense of the
dispute) should be only between the lawyers.
{¶ 48} In the case before us, to date Lansberry has paid nothing even though
he has received a settlement of over $90,000. He now wants to pay Reid only
$2,500. Viewing what has gone on in this case to this point, it is difficult to
determine the outcome of LeFaiver's and the Lansberrys' contingent fee agreement.
Maybe Lansberry, now that he has won in this case, will tell LeFaiver that he
(Lansberry) has a good thing going, discharge LeFaiver before payment is made
and then tell LeFaiver to sue because the amount due will only be quantum meruit.
{¶ 49} To reach a just decision in this case, I would affirm the judgment of
the court of appeals. I would go further, however, and have the syllabus paragraphs
read:
"1. A client has an absolute right to discharge an attorney or law firm at
any time, with or without cause, subject to the obligation to compensate the
discharged attorney or firm.
"2. If the discharge is without cause and the client has entered into a
contingent fee contract, the fee for services rendered shall be based upon the terms
of the fee contract. (Fox & Associates Co., L.P.A. v. Purdon [1989], 44 Ohio St.3d 69
,541 N.E.2d 448
, overruled.)
"3. If a dispute arises between attorneys over distribution of the amount of
fees realized from a contingent fee contract, such dispute shall be settled between
the attorneys without expense to any client."6
6. Contingent fee contracts remain under attack and scrutiny. See Passell, Contingency Fees in
Injury Cases Under Attack by Legal Scholars, N. Y. Times, National Edition, Feb. 11, 1994, at A1,
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January Term, 1994
{¶ 50} Because the majority opinion does not reach this result, I must
respectfully dissent in part.
F.E. SWEENEY and PFEIFER, JJ., concur in the foregoing opinion.
__________________
col. 1. This dissent is not meant to lend support or nonsupport for such fee agreements as we know
them today. My whole and only theme is that if a contract (any contract) is definite in nature and is
entered into between two or more competent parties and is based upon a legal consideration to do
or refrain from doing some lawful thing, then it should be enforced.
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