David M. Majchrzak

Shareholder, Klinedinst PC

Litigation, Legal Ethics

501 W Broadway Ste 600
San Diego , CA 92101-3584

Phone: (619) 239-8131

Fax: (619) 238-8707

Email: dmajchrzak@klinedinstlaw.com

Thomas Jefferson School of Law

David practices in the areas of legal ethics and litigation of professional liability claims.

Fee agreements often offer a final resolution of a significant issue for an engagement, how much a lawyer should be paid for their advice and services. But there are circumstances when the arc of the lawyer-client relationship goes off script and the appropriate fee is measured instead by quantum meruit, the amount earned or as much as one has deserved.

This can often happen when a client substitutes one counsel in for another in a contingency matter. This results in a need to divide the fee between the lawyers, leaving a question of how much is to be paid to predecessor counsel. Unfortunately, California does not have in place a system to arbitrate such fee disputes among lawyers, only those between lawyers and clients.

The concept behind quantum meruit is paying the lawyer the reasonable value of the services provided, to the extent that they directly benefited the client. In that way, the underlying principle is akin to unjust enrichment: one who has received a benefit should restore the other by return of the thing or its equivalent in money. Accordingly, the idea that the client must be benefited by the services is central to quantum meruit determinations.

Once that threshold is crossed, however, determining the value of the services becomes more subjective. Contract price and the reasonable value of services rendered may be two separate things. The reasonable value of the lawyer’s services may exceed a contract price, or be less. But the contract will, nonetheless, serve as a ceiling on the amount that may be recovered in quantum meruit. It will likewise determine whether the fee is contingent, something that does not change simply because the client discharged the lawyer. As one opinion on the subject has set forth, “if courts cannot use quantum meruit to change the terms of a contract which the parties did make, it follows that neither can they use quantum meruit to impose a highly generous and extraordinary contract that the parties did not make.”

Whether in the context discussed above—determining what a predecessor counsel may be entitled to—or another, a useful starting point for determining the amount of a reasonable fee is often the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. This calculation provides an objective basis on which to make an initial estimate of the value of a lawyer’s services. The party seeking an award of fees should provide information supporting the hours worked and rates claimed. It is for this reason that it may benefit lawyers who are to be paid based on a percentage of recovery to nonetheless concurrently maintain records of their hours worked, though the law does not require them to do so.

But, providing the number of hours worked and rates claimed is not the end of an analysis. The lawyer must also show the total fees claimed are reasonable. The same analysis that would apply under Rule of Professional Conduct 1.5 are relevant here. Factors can include the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure of the attorney’s efforts, and the lawyer’s skill and learning, all considered at the time of contracting. The number of hours used in the formula for calculating any fees would be reduced to the extent that they provided services that did not benefit the client’s recovery for their claims. This would presumptively include duplicative efforts and time for non-legal or unnecessary tasks.

That said, in certain instances, attorneys may recover quantum meruit amounts that are calculated by means other than a straight multiplication of hours worked by an hourly rate. A classic example of this is where the lawyer agreed to a contingency fee based on the amount recovered, and the fee agreement did not provide for a specific methodology to calculate fees when the agreement was terminated early. In addition to compensation for the legal services rendered, it must be considered that there is the chance the lawyer on a contingent fee contract will receive nothing or recover an amount that, with the percentage fee, will provide inadequate compensation. Even putting aside the contingent nature of the fee, lawyers under such an arrangement agree to delay receiving fees until the conclusion of the case, in effect financing the client’s case during the pendency of the lawsuit, which could take years. As one court noted, fortunately, “when an attorney partially performs on a contingency fee contract, we already have the parties’ agreement as to what was a reasonable fee for the entire case.” (Cazares v. Saenz (1989) 208 Cal.App.3d 279, 288.)

Accordingly, one reasonable way of assessing the value of the lawyer’s services in such situations may be looking at the most recent offer they received for their client. That amount can serve as a marker of how far that matter was advanced before the representation ended. But the contingent nature would not change. The lawyer would still bear the risk that the client would not recover, and would not be entitled to payment unless the contingent event occurred—whether through settlement, judgment, or other such methods of recovery set forth in the engagement agreement. Again, that is because this contract may not be rewritten; it should be used to determine the amount that should be paid, notwithstanding the fact that the full amount of the services contemplated within were not provided.

An important consideration in contingency matters may be that the risk undertaken by predecessor counsel is usually substantially greater than their successors. There are simply more unknown factors at that time as the matter has not been developed. So, if risk is a factor as to the multiplier, then the original attorney who developed the case should get a significantly higher multiplier than those who come on with the benefit of hindsight, knowing what information is available after investigation or discovery, whether formal or informal, has been developed.

As set forth above, determining how much a predecessor law firm should be paid for services during the successive representation of a client is not subject to a streamlined resolution, such as fee disputes directly between lawyers and their clients. But the same principles that apply to determining how much a client owes—reasonableness, benefit to the client, risk undertaken, contractual terms, etc.—apply to determining how much of the fee the successor counsel should pay to the predecessor.