Thursday, October 22, 2009
Ninth Circuit Allows Quantum Meruit Recovery for Client Referral
By SHERRI M. OKAMOTO, Staff Writer
The value of an attorney referral may be recovered in quantum meruit, the Ninth U.S. Circuit Court of Appeals held yesterday.
Although the panel upheld the dismissal of a law firm’s breach of contract and fiduciary duty claims against its Nevada co-counsel, Judge Dorothy W. Nelson said the district court had clearly erred in failing to compensate Buffalo, N.Y.-based Napier, Fitzgerald & Kirby LLP for the “reasonable value” of a client referral.
The firm was retained by Wendy Nostro in July 2001 to investigate whether the death of her husband in Nevada was due to potential medical malpractice.
Attorney Brian Fitzgerald subsequently contacted J.R. Crockett of Crockett & Myers Ltd. in Las Vegas and the men allegedly entered into an oral agreement that they would serve as co-counsel for Nostro and that Fitzgerald would receive half of the attorney fees in the case for his referral.
Fitzgerald apparently persuaded Crockett to reduce his contingency fee from 40 percent to 33.33 percent before Crockett, Fitzgerald and Nostro entered into a written retainer agreement specifying that any attorney fees were to be divided equally between both lawyers and that “[a]ll matters of policy, including but not limited to preparation and presentation of this claim, litigation, costs, possible settlement, trial and/or appeal…shall be determined jointly by the CLIENT and ATTORNEYS.”
Sometime later, Fitzgerald contacted Nostro and requested that she pay certain court costs. Nostro then contacted Crockett, who advised her that “it was their policy not to go after a client for court costs” and that “she could fire Mr. Fitzgerald,” who was not included in the conversation.
Nostro discharged Fitzgerald in June 2003, and in October 2004 Crockett informed Fitzgerald that a settlement had been reached in Nostro’s suit. However, he did not forward 50 percent of the attorneys’ fees to his former co-counsel.
After a failed attempt at mediation, Crockett filed suit in Nevada state court, arguing that Fitzgerald was only entitled to recovery in quantum meruit. The action was removed to federal court on the grounds of diversity.
Fitzgerald counter-claimed, asserting that Crockett had breached the oral referral agreement, written retainer agreement, implied covenant of good faith and fair dealing, and duty of loyalty as a fiduciary, but the district court disagreed and dismissed Fitzgerald’s claims with prejudice.
In May 2007, the parties proceeded to a bench trial on Crockett’s claim that Fitzgerald was only entitled to quantum meruit recovery.
At trial, the evidence showed that Fitzgerald contributed 17.2 hours to Nostro’s case before his discharge, for a total of $4,300 at his hourly rate of $250.
U.S. District Judge Philip M. Pro of the District of Nevada found that compensation at an hourly rate did not reasonably represent the value of Fitzgerald’s services, but noted that the attorney had focused on securing local counsel who was well-versed in Nevada medical malpractice law and successfully negotiated a reduction in Crockett’s contingency fee, allowing Nostro to keep an additional $100,000 of the settlement proceeds.
He determined that one-third of the $100,000 additional settlement was a reasonable sum, and awarded Fitzgerald $33,333.33.
On appeal, Nelson acknowledged that the Nevada courts had never applied the attorney-client privilege to bar claims of breach of the implied covenant of good faith and fair dealing or fiduciary duty. But she said she was persuaded that the Nevada courts would apply the privilege to Crockett’s conversation with Nostro in which he advised her that she could fire Fitzgerald because the conversation consisted of legal advice as to what Nostro could do regarding Fitzgerald’s request for costs.
She added that Fitzgerald’s exclusion from that conversation did not breach the written retainer agreement, reasoning that the contractual language requiring the attorneys to jointly “determine” costs did not require that any and all communications with the client regarding costs include both lawyers.
Nelson noted that Fitzgerald’s own behavior was consistent with this interpretation because Fitzgerald did not include Crockett in his earlier communication with Nostro asking her to pay for court costs.
The jurist also said that Fitzgerald could not introduce the alleged oral referral agreement as parol evidence to prove purported ambiguities in the written retainer since he had asserted that the oral contract was a separate and independent contract.
As Fitzgerald subsequently conceded that the referral fee agreement was embodied in the retainer, Nelson explained his breach of oral contract claim necessarily failed.
Turning to the issue of quantum meruit, Nelson said the originally-agreed-upon 50 percent fee was not a reasonable award since Fitzgerald was terminated over a year before the case ultimately settled.
However, she concluded that the district court erred in focusing solely upon the value of the reduced contingency fee in calculating Fitzgerald’s recovery and failing to account for the value, in and of itself, of the referral.
Joined by Judges Marsha S. Berzon and Richard R. Clifton, Nelson directed the district court to vacate its order and remanded for a recalculation of the quantum meruit award.
The case is Crockett & Meyers, Ltd. v. Napier, Fitzgerald & Kirby, LLP, No. 07-16191.
Copyright 2009, Metropolitan News Company