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Clients Changing Lawyers – Part 2

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To read the first part of this article, click here.

In my previous blog, I outlined the risks that clients face when they terminate a lawyer whom they hired on a contingent fee basis. The Texas Supreme Court’s 1969 decision in Mandel & Wright is that a client who fires a lawyer employed on a contingent fee without good cause continues to be obligated to pay the lawyer under the contingency contract. If, on the other hand, the client fires the lawyer for good cause, then the client owes the lawyer only a fee under quantum meruit analysis. This blog article analyzes the concept of quantum meruit recovery.

The underlying premise of this rule permitting quantum meruit recovery is that the client should have to pay for the benefit the client received before terminating the first lawyer even if that termination was justified. Imagine, for example, that a lawyer labors diligently on a client’s case for over a year but then commits some act that warrants termination for cause. The client can terminate the lawyer and avoid the contractual obligation of paying a contingent fee to the lawyer. But it would not be just for the client to avoid paying for the actual benefit received before termination.

Keep in mind that we are talking about what happens after there has been a second trial in which the client prevails by proving the termination was for good cause. As we discussed previously, the issue of what constitutes good cause must be decided on a case-by-case basis. But, for now, we are assuming the client has satisfied that burden of proof. The issue then to be decided is what the client owes a lawyer under the quantum meruit analysis.

Many lawyers incorrectly assume that a quantum meruit recovery is automatically the same as an hourly rate calculation: The lawyer’s reasonable hourly rate times the number of hours worked. Actually, the measure of a quantum meruit recovery is the value the client received from the lawyer’s services. That usually is measured by the hourly rate analysis. The legal assumption underlying an hourly rate analysis under quantum meruit is that the client would have had to pay some lawyer a reasonable hourly rate to secure the beneficial (but unpaid) services of the terminated contingent-fee lawyer. But it is a mistake to assume that all quantum meruit recovery is based upon this hourly rate analysis. If, for example, the client can show that some of the work performed by the terminated lawyer was of no benefit to the client, then the client need not pay the lawyer for those services. Remember, the touchstone is not what the lawyer should recover but rather how the client benefited.

From the lawyer’s perspective, a trial in which the lawyer is entitled only to a quantum meruit recovery often is further complicated by the fact that lawyers who work on a contingent fee often do not keep time records showing the amount of time spent on the work for the client. While the law concerning the proof required to demonstrate a quantum meruit recovery is currently in flux, one thing we can say for certain is that the lawyer’s best chance of recovery is to have contemporaneous time records—broken down by tasks performed and the amount of time expended on each individual task. Anything less than that is subject to being stricken as not constituting reliable evidence.

There’s one last issue that needs to be addressed when discussing the lawyer’s entitlement to a quantum meruit recovery: Can the lawyer recover more than the hourly rate analysis by showing extraordinary benefit to the client from the lawyer’s services? The short answer appears to be no—the maximum recovery under a quantum meruit recovery is the hourly rate analysis. The Texas Supreme Court recently addressed this issue in Hill v. Shamoun & Norman. In that case, the lawyers claimed to have had an oral—and therefore unenforceable—contingent-fee agreement. Acknowledging that this oral agreement was unenforceable, the lawyers nonetheless claimed that they were entitled to an amount equal to the contingent fee calculation because the client benefited in an amount equal to that contingent fee calculation. The Texas Supreme Court rejected this theory, holding that the contingent fee agreed upon between the client and lawyer constituted no evidence of the value of the services for purposes of recovery in quantum meruit. Otherwise, the court reasoned, the lawyer could evade the statutory requirement for contingent-fee contracts to be in writing. This reasoning suggests strongly that the most a lawyer can recover under quantum meruit is the hourly rate times hours expensed.