The Ethics and Financial Impact of Dropping a Client for Nonpayment of Legal Fees

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Filing suit “against a current client to collect a fee creates an untenable conflict under [Rule of Professional Conduct] 1.7 between the lawyer’s duty to that client and the lawyer’s ‘personal interest’ in collecting his or her fee.” In re Simon, 20 A.3d 421, 27 Law. Man. Prof. Conduct 409 (N.J. 2011).

Accordingly, a lawyer who wishes to sue a client for fees “must either withdraw from the representation (if permitted by the rules of professional conduct) or wait until the lawyer’s duties in the matter are complete.” Timothy M. Burke, Don’t Sue a Current Client for Fees, Minn. Law. (Aug. 6, 2007).

See generally Arizona Ethics Op. 2000-03 (2000); Colorado Ethics Op. 110 (2002); Florida Ethics Op. 88-1 (1988); Los Angeles County Ethics Op. 476 (1994); Philadelphia Ethics Op. 81-54.

Withdrawal for Nonpayment

A client's failure to pay fees may be grounds for the lawyer's withdrawal under Rule of Professional Conduct 1.16(b)(5), which applies when a “client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled,” or Rule 1.16(b)(6), which applies when “the representation will result in an unreasonable financial burden on the lawyer.” See Kentucky Ethics Op. E-247 (1981); Pennsylvania Ethics Op. 91-16 (1991); Rhode Island Ethics Op. 91-15 (1991).

“On the other hand, ‘the nonpayment of fees is usually not a sufficient basis, standing alone, to override the attorney's ethical responsibilities of continued representation of a client....'” In re Schley, 2012 BL 394116, No. 09-34182-DOT (Bankr. E.D. Va. May 9, 2012).

Rather, courts have found nonpayment to be insufficient “where counsel failed to explain the amount of outstanding fees and failed to demonstrate that the clients were truly unable or unwilling to pay.” Abbott v. Gordon, 2010 BL 252304, No. DKC 09-0372 (D. Md. Oct. 25, 2010); New York State Ethics Op. 598 (1989) (“a client `deliberately disregards an agreement or obligation’ to pay fees whenever the failure is conscious rather than inadvertent, and is not de minimis in either amount or duration”).

Courts have not been unsympathetic to pleas to withdraw, however, when it is clear that a client can offer no reasonable assurance of paying a substantial amount owed or expected to be incurred in further litigation. E.g., Hammond v. T.J. Little & Co., 809 F. Supp. 156 (D. Mass. 1992) (client deliberately disregarded fee obligation where failure to pay extended over substantial period of time and there was little evidence client made efforts to meet fee obligation); Stair v. Calhoun, 722 F. Supp. 2d 258 (E.D.N.Y. 2010); Commonwealth v. Scheps, 523 A.2d 363 (Pa. Super. Ct. 1987); Silva v. Perkins, 622 A.2d 443 (R.I. 1993).


Although nonpayment is identified as grounds for withdrawal in Rule 1.16(b), paragraph (c) states that in litigation matters lawyers “must comply with applicable law requiring notice to or permission of a tribunal when terminating a representation,” and paragraph (d) stresses that the interests of a client—even a persistently nonpaying one—must be protected in the process.

Accordingly, while a court deciding a motion to withdraw will consider the impact of “accumulating fees and an attorney's potential ability to collect,” the “more time and effort an attorney puts into a case, and the closer the matter is to trial, the more prejudicial it is for the client if counsel is relieved.” In re Simon, 20 A.3d 421, 27 Law. Man. Prof. Conduct 409 (N.J. 2011) (“An attorney should not accept a retainer if he or she believes it cannot be paid if the matter progresses as expected, or merely to do some work and then seek to abandon the case.”).

If a court rules against withdrawal, the representation must continue regardless of the financial impact on the lawyer. Rule 1.16(c). Moreover, a lawyer is ethically forbidden to withhold services to coerce payment in this scenario. In re Hefron, 771 N.E.2d 1157 (Ind. 2002) (lawyer suspended six months for refusing to do further work until client agreed to renegotiate fee agreement); see also In re Cohen, 82 P.3d 224 (Wash. 2004); Oregon Ethics Op. 2005-1 (2005); Virginia Ethics Op. 974 (1987).

Effect on Compensation

When a lawyer is discharged by the client or withdraws for good cause before the completion of the representation, the lawyer loses the right to recover the compensation set forth in the fee agreement (typically, a contingent or flat-fee arrangement) and instead becomes entitled to the reasonable value of his services up to the time of discharge or withdrawal.

This quantum meruit rule has gained increasing support among the courts as being consistent with the rule that clients have an absolute right to discharge their attorney, with or without good cause, at any point in the representation. The client would be deterred from exercising this right if he were required to pay the full amount of the nonhourly contractual fee despite having discharged his attorney. See Galanis v. Lyons & Truitt, 715 N.E.2d 858 (Ind. 1999); Craft v. Kane, 747 N.E.2d 748 (Mass. App. Ct. 2001); Turpin v. Anderson, 957 S.W.2d 421 (Mo. Ct. App. 1997); Bruk v. Albin, 704 N.Y.S.2d 648 (N.Y. App. Div. 2000); see also Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 16 Law. Man. Prof. Conduct 567 (Colo. 2000) (attorney may seek quantum meruit recovery when fired in contingent fee agreement case, but only if agreement explicitly notifies client of attorney’s right to seek fees under theory of quantum meruit).

While the quantum meruit rule usually is invoked in cases involving contingent fee arrangements, it also has been applied where the fee contract called for an hourly fee, Barton v. McGovern, 504 So. 2d 457 (Fla. Dist. Ct. App. 1987), or a flat fee, Estate of Forrester v. Dawalt, 562 N.E.2d 1315 (Ind. Ct. App. 1990); Smith v. Binder, 477 N.E.2d 606 (Mass. App. Ct. 1985), or a monthly set fee, Olsen & Brown v. City of Englewood, 867 P.2d 96 (Colo. Ct. App. 1993), aff’d, 889 P.2d 673 (Colo. 1995); cf. Maksym v. Loesch, 937 F.2d 1237 (7th Cir. 1991) (where retainer called for mixed hourly/percentage fees, discharged lawyer may sue under contract for hourly fees earned before termination, but is limited to quantum meruit for contingent or retainer fees not earned before termination).

A number of the cases cited above purport to limit the quantum meruit rule to instances in which the client did not have good cause to discharge the lawyer. However, it has also been held that the lawyer is entitled to a quantum meruit fee even if he was discharged with cause (or with “just cause” or for “good cause”), although these definitions appear in cases involving little more than a breakdown in the attorney-client relationship. E.g., Crockett & Brown P.A. v. Courson, 849 S.W.2d 938 (Ark. 1993); Fracasse v. Brent, 494 P.2d 9 (Cal. 1972); Kopelman & Assocs. L.C. v. Collins, 473 S.E.2d 910 (W. Va. 1996).

Courts have found that the following reasons constitute “good cause” for withdrawal:

▸firm compelled to withdraw for serious conflict of interest, Smith & Burnetti P.A. v. Faulk, 677 So. 2d 404 (Fla. Dist. Ct. App. 1996);

▸unanticipated costs and expenses, Smith v. R.J. Reynolds Tobacco Co., 630 A.2d 820 (N.J. Super. Ct. App. Div. 1993);

▸client made settlement demands that lawyer deemed unreasonable, Kannewurf v. Johns, 632 N.E.2d 711 (Ill. App. Ct. 1994);

▸client refused to cooperate in discovery despite court order, Ashford v. Interstate Trucking Corp., 524 N.W.2d 500 (Minn. Ct. App. 1994);

▸unintentional violation of court order, South Carolina Ethics Op. 90-13 (1990);

▸lawyer’s disbarment for reasons unrelated to his representation of client, Eisenberg v. Gen. Motors Acceptance Corp., 761 F. Supp. 20 (E.D. Pa. 1991).

Lack of Good Cause

A lawyer who withdraws without good cause forfeits the right to compensation. In that situation, the lawyer is considered to have abandoned the client and breached the retainer contract.

See, e.g., Hensel v. Cohen, 202 Cal. Rptr. 85 (Cal. Ct. App. 1984) (firm abandoned client’s case after concluding it had no potential and was a “dead-blank loser”); Bell & Marra PLLC v. Sullivan, 6 P.3d 965, 16 Law. Man. Prof. Conduct 454 (Mont. 2000) (unanticipated financial burdens of contingent fee case not good cause to withdraw); Ryan v. State, 51 P.3d 175, 18 Law. Man. Prof. Conduct 551 (Wash. Ct. App. 2002) (not good cause where lawyer withdrew as co-counsel because he was forced to take on more responsibility than he originally envisioned); cf. Illinois Ethics Op. 90-26 (1991) (contingent fee lawyer who must withdraw after determining that conflict of interest exists loses right to any fee following date that conflict reasonably could have been discovered).

Substantial Performance

If a lawyer has fully performed his obligations under a retainer contract, he is entitled to the full fee specified in the agreement, despite the client’s decision to discharge him (or the lawyer’s decision to end the representation) while litigation was pending. Zaklama v. Mount Sinai Med. Ctr., 906 F.2d 650 (11th Cir. 1990) (whether client believes lawyer committed malpractice is irrelevant); Joseph E. Di Loreto Inc. v. O’Neill, 1 Cal. Rptr. 2d 636 (Cal. Ct. App. 1991) (contingent fee contract made clear that lawyer was not obligated to defend client’s recovery on appeal); see also Wegner v. Arnold, 713 N.E.2d 247 (Ill. App. Ct. 1999) (attorney who was discharged at 11th hour is entitled to full contract fee as quantum meruit).

The same rule has been applied when the lawyer “substantially performed” the contract before being discharged by the dissatisfied client. Kaushiva v. Hutter, 454 A.2d 1373 (D.C. 1983); Farrar v. Kelly, 440 So. 2d 939 (La. Ct. App. 1983); Taylor v. Shigaki, 930 P.2d 340 (Wash. Ct. App. 1997); cf. Martin v Buckman, 883 P.2d 185 (Okla. Ct. App. 1994) (substantial performance entitles lawyer to “proportionate share”).

At the other end of the performance spectrum, it has been said that a lawyer is not entitled to any fee if he withdraws or is discharged before performing any services for a client. Ohio Supreme Court Ethics Op. 88-31 (1988).

Section 40 of the Restatement (Third) of the Law Governing Lawyers (2000) takes the view that a discharged or withdrawing lawyer is entitled to “the lesser of the fair value of the lawyer’s services” or the contractual fee prorated for the services actually performed. This standard, Comment b notes, gives the lawyer a “fair fee” and at the same time compels the client to pay only “for work already performed.”

Contract Terms

A difficult issue is whether a lawyer may contemplate his possible discharge or withdrawal in the retainer contract and set forth the compensation he is entitled to receive should such an event occur before the completion of the representation.

One court said a provision entitling a lawyer to the “present value” of his contingent fee in the event he is discharged prematurely is contrary to public policy and unenforceable. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 22 Law. Man. Prof. Conduct 573 (Tex. 2006).

The majority in that case said such a provision penalizes the client for changing counsel, gives the lawyer an unethical proprietary interest in the client's cause of action, unfairly shifts all risks of the representation to the client and subverts the policies underlying contingent fee arrangements. See also Michigan Informal Ethics Op. CI-1129 (1986) (unethical for lawyer retained on contingent fee basis to ask client to sign retainer that permits lawyer to pursue quantum meruit hourly fee in event of lawyer’s withdrawal).

Other authorities, however, have concluded that in general the fee contract may include an anticipatory provision specifying the compensation payable to the lawyer for services rendered to the point of discharge.

These decisions and ethics opinions, however, appear to be premised on discharge by the client, not withdrawal by the lawyer. See Hill v. Centennial/Ashton Props. Corp., 561 S.E.2d 853 (Ga. Ct. App. 2002); Kansas Ethics Op. 93-03 (1993) (contract may grant discharged contingent fee lawyer quantum meruit fee measured as percentage of recovery ex-client receives through successor counsel’s efforts); Mississippi Ethics Op. 144 (1988) (approving provision in contingent fee agreement that upon lawyer’s discharge client must compensate lawyer’s services at $60 per hour or 20 percent of any recovery); Monroe County (N.Y.) Ethics Op. 86-2 (1986) (approving provision under which contingent fee lawyer becomes entitled to quantum meruit fee after discharge, so long as fee is not calculated according to percentage of previous offer); Virginia Ethics Op. 936 (1987) (retainer agreement may specify that upon discharge lawyer will receive compensation based on his standard hourly rates).

The post-discharge fee must, of course, be reasonable. Fla. Bar v. Doe, 550 So. 2d 1111 (Fla. 1989) (lawyer reprimanded for including “discharge clause” in contingent fee contract that would have required client to pay greater of $350 hourly fee or 40 percent of settlement amount if lawyer were discharged). The lawyer may not claim the full contingent fee upon discharge if it would constitute an excessive fee. In re Waller, 524 A.2d 748 (D.C. 1987); Vermont Ethics Op. 91-3.

Moreover, the agreement may not be set up in a way that impinges on the client’s right to terminate the relationship or make key decisions in the representation. Cohen v. Radio-Elecs. Officers Union, 679 A.2d 1188 (N.J. 1996) (retainer agreement with “sophisticated client” may provide that client agrees to compensate lawyer if client terminates relationship, so long as provision does not chill client’s right of termination); New York City Ethics Op. 1996-5 (1996) (disapproving lawyer's use of “initiation/retainer fee” that would be subject to forfeiture if client discharges lawyer).

For example, the Philadelphia bar’s ethics committee concluded that a contingent fee agreement generally may not include alternative fee provisions that would be triggered if the client rejects the lawyer’s settlement advice. Philadelphia Ethics Op. 2001-1, 18 Law. Man. Prof. Conduct 405 (2002).

What's ‘Reasonable'?

How much is a “reasonable” fee under quantum meruit? Some courts have resorted to the “lodestar” approach: multiplying the reasonable number of hours by a reasonable hourly fee. E.g., Dean v. Holiday Inns Inc., 860 F.2d 670 (6th Cir. 1988).

Others, however, have concluded that the conventional lodestar approach does not sufficiently address all the circumstances in the representation. See Searcy, Denney, Scarola, Barnhart & Shipley P.A. v. Poletz, 652 So. 2d 366 (Fla. 1995) (pure lodestar method is “ill-suited” for assessing attorneys' fees because it does not contemplate totality of circumstances surrounding professional relationship); see also Johnson v. Hunter, No. M2000-03099-COA-R3-CV, 17 Law. Man. Prof. Conduct 652 (Tenn. Ct. App. 2001) (judge erred in using pure lodestar calculation rather than applying all factors in DR 2-106 for determining what fee is “reasonable” in settling dispute between co-counsel).

Courts typically look to the factors listed in Model Rule 1.5(a) (or, formerly, the Model Code’s DR 2-106(B)) when undertaking this analysis. E.g., Am. Bank & Trust Co. v. Tullos, 701 F. Supp. 574 (W.D. La. 1988); Henry, Walden & Davis v. Goodman, 741 S.W.2d 233 (Ark. 1987); Rosenberg v. Levin, 409 So. 2d 1016 (Fla. 1982); In re Harris, 934 P.2d 965 (Kan. 1997).

It is also appropriate for the court to look at the extent to which the lawyer brought the client’s matter nearer to resolution before being discharged. Wegner v. Arnold, 713 N.E.2d 247 (Ill. App. Ct. 1999); Campbell v. Bozeman Investors of Duluth, 964 P.2d 41 (Mont. 1998).

In the leading case applying this approach, Fracasse v. Brent, 494 P.2d 9 (Cal. 1972), the court observed: “To the extent that such discharge occurs `on the courthouse steps,’ where the client executes a settlement obtained after much work by the attorney, the factors involved in a determination of reasonableness would certainly justify a finding that the entire fee was the reasonable value of the attorney’s services.” See also Cazares v. Saenz, 256 Cal. Rptr. 209 (Cal. Ct. App. 1989) (rejecting pure lodestar approach in allocating fees between discharged and replacement counsel); La Mantia v. Durst, 561 A.2d 275 (N.J. Super. Ct. App. Div. 1989); Int'l Materials Corp. v. Sun Corp., 824 S.W.2d 890 (Mo. 1992) (appropriate to examine value that original lawyers’ efforts had to client’s replacement attorneys).

A remarkably purist approach to the “courthouse steps” situation was used in Morris v. City of Detroit, 472 N.W.2d 43 (Mich. Ct. App. 1991), which held that a lawyer who performed “99 and 44/100 percent” of the work on a contingent fee case, and then was discharged just before the occurrence of the contingency, was not entitled to the full contingent fee. Rather, the lawyer could recover only in quantum meruit, which the court said entitled him to 99 and 44/100 percent of the contingent fee.

Some courts hold that the discharged lawyer’s quantum meruit fee may be no higher than the maximum amount he would have recovered under the fee contract. Joyce v. Elliott, 857 P.2d 549 (Colo. Ct. App. 1993); Rosenberg v. Levin, 409 So. 2d 1016 (Fla. 1982); Plaza Shoe Store Inc. v. Hermel Inc., 636 S.W.2d 53 (Mo. 1982).

In New York, however, the abandoned contract does not limit the lawyer’s level of compensation; a court may decide that the reasonable value of the lawyer’s services is more than he would have recovered under the fee agreement. In re Estate of Goldin, 480 N.Y.S.2d 392 (N.Y. App. Div. 1984); cf. Finkelstein v. Kins, 511 N.Y.S.2d 285 (N.Y. App. Div. 1987) (when client disputes amount owed for completed representation, lawyer may not claim amount in excess of bill under quantum meruit).

Accrual of Fee Claim

There is a difference of opinion as to when a discharged contingent fee lawyer may assert a claim for attorneys’ fees.

Some courts have held that the lawyer must wait until the contingency occurs to assert her quantum meruit claim, since under the contract the lawyer would have been entitled to no fee if the client failed to recover by judgment or settlement. Fracasse v. Brent, 494 P.2d 9 (Cal. 1972); Rosenberg v. Levin, 409 So. 2d 1016 (Fla. 1982); Somuah v. Flachs, 721 A.2d 680 (Md. 1998); Plaza Shoe Store Inc. v. Hermel Inc., 636 S.W.2d 53 (Mo. 1982).

Others hold that because the contingent fee lawyer is no longer bound by the fee contract after her discharge, she has an immediate right upon discharge to claim quantum meruit payment. Universal Acupuncture Pain Servs., P.C. v. Quadrino & Schwartz, P.C., 370 F.3d 259, 20 Law. Man. Prof. Conduct 290 (2d Cir. 2004); In re Callahan, 578 N.E.2d 985 (Ill. 1991); Skeens v. Miller, 628 A.2d 185 (Md. 1993); Adkin Plumbing & Heating Supply Co. v. Harwell, 606 A.2d 802 (N.H. 1992).

In enforcing this right, the lawyer has a choice: claim an immediately payable fixed fee based on the reasonable value of her services, or opt for a fee that is payable when the client recovers and is based partly on a percentage of the recovery and partly on the portion of the total legal work the discharged lawyer performed. Lai Ling Cheng v. Modansky Leasing Co., 539 N.E.2d 570 (N.Y. 1989); La Mantia v. Durst, 561 A.2d 275 (N.J. Super. Ct. App. Div. 1989).

Other authorities suggest that the terms of the fee agreement will determine whether a lawyer is entitled to seek compensation at the moment of termination. Compare Four Winds, LLC v. Smith & DeBonis LLC, 854 N.E.2d 70 (Ind. Ct. App. 2006) (“[A]bsent a contrary agreement between the lawyer and the client, attorney fees pursuant to a contingency fee agreement should be taken only when the client receives payment.”); Herr v. Carter Lumber, Inc., 888 N.E.2d 853, 24 Law. Man. Prof. Conduct 348 (Ind. Ct. App. 2008) (distinguishing Four Winds where retainer did not provide for immediate payment).

Fees: Structured Settlements

Some authorities have concluded that absent an express agreement to the contrary, a lawyer may not take her entire contingent fee “off the top” of a client's “structured settlement.” See, e.g., Knight v. Aqui, 966 F. Supp. 2d 989, 29 Law. Man. Prof. Conduct 614 (N.D. Cal. 2013); Oregon Ethics Op. 2005-15 (2005).

Instead, the contingent fee must be distributed to the lawyer on a pro rata basis when—and if—the settlement payments are received. Garcia v. Garau Germano Hanley & Pennington P.C., 14 N.E.3d 88 (Ind. Ct. App. 2014). Client consent is essential, one court said, because “deferred payments involve a time value factor and collection risks, and the client must be informed of those risks.”

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