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Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Sunday, March 23, 2008

A Bad Case of Chutzpah

The Metropolitan News-Enterprise reports on a charming little case called Shalant v. Smith that was recently affirmed by the California Court of Appeals, 2nd District. 

In 1998, Stuart Smith retained Joseph L. Shalant for $5000 to represent him in a malpractice action.  Shalant filed claims against two physicians on Smith's behalf and eventually informed Smith that he had done so.  Four days before Smith was to be deposed in the action, Shalant demanded a non-refundable $25,000 fee plus $10,000 in costs and threatened to discontinue the representation if Smith did not pay.  Smith paid. Some time later, Smith fired Shalant after Shalant shouted at him in a telephone conversation.  Smith demanded a return of the $25,000 retainer on the ground that it violated California's Medical Injury Compensation Reform Act (MICRA).  Shalant refused.

In 2002, having retained new counsel, Richard Booth, Smith was able to settle his malpractice claim for $500,000.  Shalant claimed entitlement to a part of that recovery based on quantum meruit, but Smith and Booth refused.  Meanwhile, the State Bar Association was investigating Shalant for having entered into an illegal fee agreement with Smith.  Indeed, the State Bar Court found that the fee agreement violated MICRA and was the product of abusive conduct by Shalant constituting "a coercive act involving moral turpitude."  Since Shalant had been disciplined on four previous occasions, he was disbarred as a result of this conduct.  Shalant refused to return the improper $25,000 fee so the State Bar reimbursed Smith.  Happy ending, no?

No.  In 2006, Shalant sued Smith and Booth for quantum meruit, claiming entitlement to 85% of the appropriate MICRA fee that Booth had received.  The case was dismissed because the statute of limitations for quantum meruit claims had lapsed.  Shalant amended his complaint to add claims for breach of contract by both Smith and Booth and alleging that Booth was unjustly enriched.  The California Court of Appeal this week affirmed the dismissal of that amended complaint.  Shalant was not in privity with Booth and thus could not sue him for breach of contract.  Shalant was in privity with Smith, but since a client has a right to discharge his attorney, Shalant's only possible recovery would have been in quantum meruit.  However, any possible quantum meruit claim, the court found, was still barred by the statute of limitations, as was Shalant's unjust enrichment claim.

The full case can be downloaded here.  The opinion issued on March 19, 2008.

[Jeremy Telman]

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