Court Rules Disbarred Attorney Cannot Collect from Client

Thursday, March 20, 2008

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Court Rules Disbarred Attorney Cannot Collect from Client

By STEVEN M. ELLIS, Staff Writer

An attorney who was disbarred for coercing a client into an illegal fee agreement cannot sue the client for work he performed on the case before the client terminated him because he waited too long to bring his action, this district’s Court of Appeal ruled yesterday.

Affirming the judgment of Los Angeles Superior Court Judge Rita J. Miller, Div. Four held in an unpublished opinion that attorney Joseph L. Shalant cannot collect from a $500,000 recovery his former client Stuart Smith received under theories of breach of contract, quantum meruit or unjust enrichment because Shalant waited to file his complaint until after the statute of limitations expired.

The California Supreme Court ordered Shalant disbarred on Jan. 13, 2006 after finding that his contingency agreement with Smith was illegal and the result of coercive bargaining tactics.

Smith had originally retained Shalant in 1998 to research the viability of a medical malpractice claim Smith was considering prosecuting, and paid him $5,000. However, without Smith’s knowledge or consent, Shalant subsequently filed a lawsuit against two physicians on Smith’s behalf, according to Smith’s complaint and State Bar records.

When Shalant told Smith about the action, Smith asked him to explain the fee basis for his services and Shalant responded that he would represent Smith on a contingency basis, subject to the maximum fee permitted by the Medical Injury Compensation Reform Act. Smith agreed, but the agreement was not reduced to writing.

More Money Demanded

Four days before Smith was to be deposed, Shalant told him he needed to pay more money if he wanted Shalant to continue to represent him. The deposition went forward with Shalant appearing for Smith, and the two continued to discuss Shalant’s fee over the next few days.

Shalant insisted on a $25,000 non-refundable fee—to be credited against any contingency fee in the event Smith recovered—plus $10,000 for costs, and told Smith that he would ask to be relieved as counsel if Smith did not pay the $25,000. Smith sent Shalant a check for the amount one month later, and the pair subsequently signed a written retainer agreement providing for the maximum contingent fee allowed by MICRA, a $25,000 nonrefundable fee, and $10,000 for expert witness fees.

The agreement also granted Shalant a lien on any recovery in the case to the extent he was entitled to legal fees and reimbursement for costs advanced.

Three months later, Smith discharged Shalant as counsel, according to a discipline summary published in the California Bar Journal, after Shalant shouted at him several times during a phone conversation.

Shalant responded by letter to Smith stating that Smith would “owe me no more money for services rendered.”

The next spring, Smith demanded return of the $25,000 retainer because the written fee agreement violated the MICRA limits, but Shalant refused to return the money.

Smith ultimately retained Richard Booth as counsel, and Booth settled the medical malpractice action for $500,000 in June of 2002.

Share of Recovery

Six months later, Shalant wrote to Booth demanding additional attorney fees and costs for his work on the case, followed up three months later by a demand that Smith and Booth agree to arbitrate Shalant’s claim for quantum meruit fee entitlement.

Smith and Booth rejected the demands.

Meanwhile, the State Bar had filed two disciplinary charges against Shalant alleging that he had entered into an illegal fee agreement when he entered into the written agreement with Smith, and that Shalant had committed an act involving moral turpitude, dishonesty or corruption.

A State Bar Judge found both charges to be true following a hearing, and the Review Department of the State Bar Court upheld the hearing officer’s decision on both counts.

The Review Department said that Shalant had entered into an agreement “for, charging, and collecting an illegal fee” because Business and Professions Code Sec. 6146 “does not allow a contingent fee agreement in a medical malpractice case to provide for a non-refundable flat fee in addition to the statutory maximum contingent fee.”

It also found that Shalant— by insisting on modifying the oral retention agreement to add the $25,000 nonrefundable fee and threatening to withdraw just days before Smith’s deposition if Smith did not consent—had engaged in abusive conduct that constituted “a coercive act involving moral turpitude.”

Disbarment Ordered

The Review Department recommended that Shalant, who had been disciplined on four previous occasions, be disbarred, and the California Supreme Court denied Shalant’s petition for writ of review and ordered him disbarred.

The State Bar’s Client Security Fund subsequently reimbursed Smith for the $25,000 Shalant had collected and refused to return.

Shalant filed suit against Smith and Booth in 2006 for quantum meruit for services rendered, and Smith demurred, raising multiple grounds including that the action was barred by the two-year statute of limitations applicable to such a claim. The trial court, finding that the claim was time barred, sustained the demurrer with leave to amend.

Shalant then filed a second amended complaint later that year abandoning his quantum meruit claim, and alleging causes of action for breach of a written contract unjust enrichment.

The breach of contract action was based on Shalant’s written agreement with Smith and named both Smith and Booth. Alleging that Booth “paid himself a full MICRA fee” upon settling the case, and that Shalant had performed “about 85%” of the total services rendered so that both Smith and Booth were liable, Shalant sought recovery of 85 percent of the “full MICRA fee” Booth had received.

Unjust Enrichment Action

The unjust enrichment action named only Booth, and alleged that he was “hold[ing] in trust the excess fee that he collected from Smith (out of the $500,000 settlement) for the benefit of [Shalant], i.e. the beneficiary of said constructive trust.”

Both Smith and Booth filed demurrers to the second amended complaint, and Miller sustained them without leave to amend and dismissed the action.

Shalant appealed, but the Court of Appeal, in an opinion by Justice Thomas L. Willhite Jr., affirmed the dismissal.

Examining Shalant’s action against Smith for breach of contract, Willhite noted that a “client…has the absolute right to discharge his attorney…at any time and cannot be liable for breach of contract for exercising that right.”

He wrote:

“Once the contract is terminated by the client’s discharge of counsel, the attorney’s only remedy is to sue in quantum [meruit] for the reasonable value of services rendered, assuming the contingency contemplated by the contract (e.g., recovery by the client) has occurred.”

Pointing out that the statute of limitations on Shalant’s claim had begun running in 2002 when Smith’s medical malpractice action had settled, Willhite wrote that “Shalant filed his complaint in January 2006, far too late to raise a timely quantum [meruit] claim, a conclusion which Shalant does not seriously dispute.”

Willhite then turned to Shalant’s claims against Booth, and noted first that Shalant’s breach of contract claim failed for lack of privity with Booth.

He similarly wrote that the trial court properly rejected Shalant’s claims for unjust enrichment against Booth because the two-year statute of limitations had passed, and because Shalant had no cause of action against Smith.

Justices Nora M. Manella and Steven C. Suzukawa joined Willhite in his opinion.

The case is Shalant v. Smith, B197243.