Wednesday, May 17, 2017

Former Firm May Sue Successor Firm For Failure To Honor Lien

The New Hampshire Supreme Court has reversed and remanded the dismissal of a claim of one law firm against another alleging conversion

The plaintiff was retained by a client to pursue a personal injury action. In connection with the representation, the client signed the plaintiff’s standard engagement contract, which states, in relevant part:

If I discharge my attorney or he withdraws from representation, I agree to pay him at the rate of $350.00 per hour, $175.00 per hour for his legal assistant(s), quantum meruit, or thirty-three and one-third percent (33-1/3%) of the last settlement offer, whichever is greater, from any recovery obtained on my behalf. I do further agree that my attorney will be entitled to the full contingency fee identified in this contract if he substantially performs under the contract. I grant my attorney a lien for his fees and costs on any recovery I receive in my case.

The plaintiff worked for the client for two years before being discharged without cause. The client subsequently hired the defendants, who filed an action (underlying action) on behalf of the client. The defendants ultimately settled the underlying action on the client's behalf.

Prior to settlement, the plaintiff filed a motion to intervene in the underlying action, asserting that he possessed a contractual lien for fees and costs incurred during his representation of the client. The client objected to the motion, claiming, among other things, that: (1) intervention would be inappropriate because of the possibility of juror confusion and because the plaintiff retained the ability to bring a separate quantum meruit claim; and (2) the plaintiff had "neither a lien nor a contractual claim" and was limited to recovery in quantum meruit. The court denied the plaintiff’s motion "for the reasons stated in the [client’s] objection," without further elaboration. According to the defendants, the plaintiff subsequently filed a motion to vacate the court’s order, which the court denied, ruling that it was "an untimely motion to reconsider."

After the settlement of the underlying action, the client filed a motion to order that the settlement check be made "payable solely to [the client] and her counsel, R. James Steiner." The court granted the motion.

On the same day, the plaintiff filed a series of motions in the underlying action, including a second motion to intervene wherein he again asserted that he possessed a contractual lien, a motion for interpleader, and a motion to foreclose lien. The client objected to all these motions, and the court denied all of them without explanation.

The plaintiff then initiated this action against the defendants, again alleging that he had an enforceable contractual lien for fees against the defendants. The defendants moved to dismiss the action for failure to state a claim. In its order granting the motion, the court noted that the plaintiff’s contractual lien claim was "arguably barred by the doctrine of collateral estoppel." Nonetheless, the court found that the plaintiff’s claim failed on the merits because he had not submitted any evidence of his contract with the client, and, thus, failed to allege "facts that c[ould] be reasonably construed to meet the elements of an enforceable contract containing the lien term."

On the merits

 Having thus established that the plaintiff may have a valid lien for the reasonable value of his services, we next consider whether that lien is enforceable against the defendants. The plaintiff asserts that the contract signed by the client is enforceable against the defendants because the defendants were aware of the lien at the time they were retained, and because the client should not be required to pay both lawyers’ fees. The defendants’ position is that, if the plaintiff has any claim for fees, the claim lies only against the client. Under the particular circumstances of this case, we are persuaded by the plaintiff’s argument.

Because the defendants do not argue that they were unaware that the client had discharged a prior attorney before retaining their services, we conclude that the lien for fees claimed by the plaintiff may be enforceable against the defendants. In so holding, we follow the view espoused by the Indiana Supreme Court in Galanis v. Lyons & Truitt, 715 N.E.2d 858 (Ind. 1999). As that court aptly explained:

In a system of professional responsibility that stresses clients’ rights, it is incumbent upon the lawyer who enters a contingent fee contract with knowledge of a previous lawyer’s work to explain fully any obligation of the client to pay a previous lawyer and explicitly contract away liability for those fees. If this is not done the successor assumes the obligation to pay the first lawyer’s fee out of his or her contingent fee. [The successor lawyer] was in the best position to evaluate and to reach an agreement as to a reasonable fee for the value of the work already done in [the client’s] case. "Lawyers almost always possess the more sophisticated understanding of fee arrangements. It is therefore appropriate to place the balance of the burden of fair dealing and the allotment of risk in the hands of the lawyer in regard to fee arrangements with clients." In the Matter of Myers, 663 N.E.2d 771, 774-75 (Ind. 1996). [The successor lawyer] also had the option to discuss with [the client] the need for someone to pay [the prior lawyer’s] fee and to refuse to accept the case if [the client] could not resolve any open issues with [the prior lawyer]. [The successor lawyer] neither advised [the client] of the need to pay the fee nor contracted away that responsibility for himself. Under these circumstances, [the successor lawyer], not [the client], should bear the burden of his silence. Accordingly, [the prior lawyer] is entitled to recover the compensation due [him] from [the successor lawyer’s] contingent fee...

We find the Galanis court’s reasoning persuasive, and, therefore, hold that the trial court erred in dismissing the plaintiff’s amended complaint. Accordingly, we reverse the trial court’s judgment and remand for further proceedings consistent with this opinion. In so doing, we emphasize that, for purposes of this appeal, we have accepted the plaintiff’s allegations as true. See Coyle, 147 N.H. at 100. On remand, the plaintiff will bear the burden of establishing the reasonable value of his services, which, as the Galanis court observed, is to be measured by the benefit conferred upon the client –– an amount that may or may not be commensurate with the time or effort expended by the plaintiff. See Galanis, 715 N.E.2d at 862. Also relevant to the plaintiff’s entitlement to fees will be the issue of whether he was, as he alleges, discharged without cause. See First National Bank of Cincinnati v. Pepper, 454 F.2d 626, 633 (2d Cir. 1972) (stating that "attorney discharged for cause. . . has no right to payment of fees"); cf. People ex rel. MacFarlane v. Harthun, 581 P.2d 716, 718 (Colo. 1978) (en banc) (stating that attorney discharged or removed "for professional misconduct in the handling of his client’s affairs" has no right to assert a statutory attorney’s lien).

 (Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2017/05/the-new-hampshire-supreme-court-has-reversed-and-remanded-the-dismissal-of-a-claim-against-a-law-firm-alleging-conversion.html

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