Contingency Fee Recovery After Withdrawal or Discharge

  The rules on fee recovery by an attorney after withdrawal or discharge in a contingency case depend on two things: 1) who initiated the separation; and 2) why. When a client discharges an attorney the courts have adopted a bright line rule – the attorney is entitled to a reasonable fee against any recovery. In this circumstance whether the attorney was discharge for cause, or not, makes no difference; the attorney is entitled to recover the reasonable value of his services rendered to the time of discharge.

  The rules are more complex when an attorney withdraws without having been discharged by the client. In this circumstance, the attorney’s right to fees will depend on whether the attorney had “justifiable cause so as to permit a recovery of compensation.” If the attorney had just cause, the attorney may be entitled to reasonable fees to the date of discharge; otherwise, the attorney’s claim for fees will fail because an attorney who withdraws without justifiable cause may not recover any attorney’s fees under a contingency fee agreement. [This post concerns attorney’s fees only, not an attorney’s right to recover costs pursuant to a written fee agreement or valid attorney lien.]

  There is another bright line rule in the scenario where an attorney withdraws without having been discharged by the client: If the attorney withdraws because the attorney believes that the case has no merit, the attorney has no claim on any eventual recovery and cannot collect any fees. The reason for the rule is that, by definition, the attorney did not expect any recovery on a meritless claim. Cases that come within this rule would include those where an attorney has withdrawn because a client refused to accept a settlement of what the attorney believed was a weak case. Except when this bright line rule applies, whether an attorney is entitled to reasonable fees up to the time of withdrawal will depend on the particular facts of the case.

  One justifiable reason for withdrawal is ethical compulsion. When professional ethics require withdrawal there is no injustice in allowing later recovery by the attorney of reasonable fees. Still, to recover fees, an attorney must meet five requirements if withdrawal is based on ethical compulsion. The attorney has the burden of proof to show: 1) the withdrawal was truly mandatory under the Rules of Professional Responsibility or other statute; (2) counsel’s “overwhelming and primary” motivation was the desire to adhere to these ethical imperatives, as distinct from a private ulterior motive; 3) counsel commenced the action in good faith; 4) subsequent to counsel’s withdrawal, the client obtained recovery; and (5) counsel has demonstrated that counsel’s work contributed in some measurable degree towards the client’s ultimate recovery.

  Rule 3-700 of the State Bar Rules of Professional Responsibility is divided into two parts: mandatory and permissive withdrawals. Mandatory withdrawals and the right to fees are governed by the rule announced in the preceding paragraph. What rules apply where the attorney seeks reasonable fees following permissive withdrawal?

  In some situations an attorney may recover fees when the withdrawal is merely permissive, as opposed to mandatory. However, in cases involving permissive withdrawal it is within the discretion of the trial court, with heightened scrutiny, to determine whether counsel’s withdrawal was justified for the purpose of awarding fees.

  Thus, in situations where withdrawal is merely permissive, a fact-specific inquiry is necessary and the court must look to the reason behind the justifiable rule, when applied to the specific facts of the case, to determine whether there is justifiable cause so as to permit a recovery of compensation. When fees are barred it is because of the inequity of allowing attorneys to capitalize on their own voluntary actions in leaving a client without a lawyer. Such situations have been characterized as bet hedging, given an attorney’s possible economic motivations in seeking to reduce the attorney’s losses.

  As one court stated: “To allow an attorney under a contingency fee agreement to withdraw without compulsion and still seek fees from any future recovery is to shift the time, effort and risk of obtaining  the recovery . . . from the attorney, who originally agreed to bear those particular costs in the first place, to the client. The withdrawing attorney gets a free ride as to many of the headaches of litigation which he or she otherwise would have had to endure . . . and then, at the end of it all, protecting the fruits of victory by responding to an appeal. It is a very tough row which a contingency fee attorney originally agrees to hoe. Thus it is unassailably unfair to allow him or her to escape that labor absent the most compelling of permissive reasons — reasons that . . . must pass heightened scrutiny.”

  This discussion was culled from the following opinions which should be consulted in any analysis of the issues presented: Estate of Falco and Rus, Miliband & Smith v. Conkle & Olesten.

   UPDATE: An important conflict of interest case is presently on review before the California Supreme Court. Among other issues, the case is expected to decide whether a conflict of interest that caused no damage to the client and did not affect the value or quality of an attorney’s work (1) requires the attorney to disgorge all previously paid fees, and (2) precludes the attorney from recovering the reasonable value of the unpaid work. The lower court determined that the conflict prevented the firm from recovering any legal fees. [See, Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2016) 244 Cal.App.4th 590.]

  I consult with clients and accept cases involving attorney-client fee disputes, legal malpractice, and breach of fiduciary duty claims. For other types of cases I accept, please consult the My Practice page. If you are seeking a consult or representation, please give me a call at 818-971-9409. – Michael Daymude

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