IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 94-20626

_____________________

CLYDE W. AUGUSTSON, Individually

and as Parents of and sole heirs of

Hildegard D. Augustson, Deceased, ET AL.,

Plaintiffs-Appellants,

versus

LINEA AEREA NACIONAL-CHILE S A

(LAN-CHILE),

Defendant,

and

SPEISER, KRAUSE, MADOL and MENDELSOHN,

Appellee.

_______________________________________________________

Appeal from the United States District Court for

the Southern District Of Texas

_______________________________________________________

February 29, 1996

Before REAVLEY, HIGGINBOTHAM and BARKSDALE, Circuit Judges.

REAVLEY, Circuit Judge:

A Texas lawyer has been awarded compensation from his former

client although the lawyer ceased to participate in the lawsuit

prior to its resolution. Because he chose to withdraw due to

disagreement with the client over the extent of discovery and

settlement value, we reverse and render judgment denying

compensation to the lawyer.
2
 

1 The relevant portions of the contract read as follows:

* * *

2. You [Speiser Krause] are to have the exclusive right to

take all legal steps which you deem necessary to

enforce said claims. You are not to settle these

claims without the consent of the undersigned [the

Augustsons], and the undersigned is not to settle these

claims without your written consent.

3. You are to take all steps which you deem necessary for

the proper investigation, preparation and trial of any

3

I.

On February 20, 1991, Susan Augustson and her grown

daughter, Hildegard, flew as passengers from Punta Arenas, Chile,

to Puerto Williams, Chile, on a flight operated by Linea Aerea

Nacional-Chile, S.A. (“LAN-Chile”). The pilots made a high speed

approach at a low angle and the airplane failed to stop at the

end of a wet, downward sloping runway. The plane traveled down

an embankment and plunged 150 yards into the frigid waters of

Beagle Channel. Both Susan and Hildegard survived the initial

crash into the water, but Susan was unable to extricate her

daughter from her seat. Susan received no help from the flight

crew, who had abandoned the airplane, and was forced to watch her

daughter drown, narrowly escaping herself by swimming out the

back door of the airplane.

On October 22, 1991, Susan and her husband, Clyde Augustson,

appellants in this action, signed a contingent fee contract in

San Antonio, Texas, with Speiser, Krause, Madole & Mendelsohn,

Mata (“Speiser Krause”), to represent them in their claims

against LAN-Chile for Hildegard’s death. Under the contract,1
actions filed in connection with these claims, and you

are to handle any necessary trials, appeals, and retrials thereof.

* * *

5. You are to handle these claims on a contingent fee

basis, so that if there is no recovery or settlement,

there will be no legal fees payable by the undersigned

to you.

6. In consideration of the services rendered and to be

rendered by you, the undersigned hereby agrees to pay

you, and you are authorized to retain out of any moneys

that may come into your hands by reason of the above

claims, as your contingent legal fee, a sum equal to:

Twenty-five percent (25%) of the lump sum

recovered and of the present value of future payments

in the event of a structured settlement, whenever

recovered by suit, settlement or otherwise. . . .

7. You are to advance for the account of the undersigned

all out-of-pocket expenses which you deem necessary for

the prosecution of these claims, subject to

reimbursement by the undersigned at the time of

settlement or conclusion of litigation; Provided,

However, that you are to apportion the common

litigation expenses equally among all cases in which

you are retained arising out of this accident.

4

Speiser Krause agreed to investigate the facts and prepare for

trial. The contract also gave the Augustsons the right to make

the final decision on settlement of their claims. On March 2,

1992, Susan Augustson retained Speiser Krause to prosecute her

action for her own personal injuries. Speiser Krause also

represented ten other clients with claims arising from the

accident.

Speiser Krause undertook some investigation of the crash,

incurring expenses of $12,774.39 to obtain documents, interview

survivors and other crash observers, research the ticketing, and
 

249 Stat. 3000 (1934), T.S. No. 876, reprinted in 49 U.S.C.

§ 1502 note (1976).

5

research the LAN-Chile operation. Charles F. Krause, drawing on

thirty years of experience in aviation, concluded that LAN-Chile

had been negligent. However, because of the Warsaw Convention2

governing international air travel, unless the plaintiffs could

prove willful misconduct on the part of the airline, the claims

would be limited to $75,000 each. Speiser Krause believed that

even if it could convince a jury of willful misconduct, such a

verdict stood a good chance of being overturned on appeal.

With this in mind, Speiser Krause undertook to negotiate

with LAN-Chile, and elicited separate settlement offers for all

12 claims. The settlement offer for the Augustsons was $475,000,

well above the $150,000 limit established by the Warsaw

Convention for negligence claims. All clients except the

Augustsons accepted the settlement offers negotiated by Speiser

Krause.

Speiser Krause strongly recommended that the Augustsons

accept the settlement offer, believing that further discovery

would enhance LAN-Chile’s position by revealing negligence but

not willful misconduct. When the Augustson’s refused the offer,

Speiser Krause pressured them to give a final figure on which

they would agree to settle. The Augustsons refused to settle or

give a final figure, believing that they had insufficient

information on which to base a determination of the value of

their claims.
 

3Rule 1.15(b) permits a lawyer to withdraw from

representation in certain circumstances. See Tex. Disciplinary

R. Prof. Conduct 1.15(b) (1991) and Comments 7, 8, reprinted in

Tex. Gov’t Code Ann. tit. 2, subtit. G, app. A (Vernon Supp.

1995) (State Bar Rules art. 10, § 9). Under Rule 1.15(b)(1), the

lawyer has the option to withdraw if it can be accomplished

“without material adverse effect on the interests of the client.” 

Id. Withdrawal is also optional with the lawyer under certain

additional circumstances, even if withdrawal adversely affects

the client. Thus a lawyer may withdraw under (b)(2)-(7) as

follows:(b)(2) a client persists in a course of action that the

lawyer reasonably believes is criminal or fraudulent; (b)(3) the

client has misused the lawyer’s services in the past; (b)(4) the

client insists on pursuing an imprudent or repugnant objective or

one with which the lawyer has a fundamental disagreement; (b)(5)

the client refuses to pay for the lawyer’s services; (b)(6) the

representation will result in an unreasonable financial burden on

the lawyer or has been made unreasonably difficult by the client;

or (b)(7) other good cause for withdrawal exists. Id.

6

Because of the Augustsons persistence, Speiser Krause filed

suit on their behalf against LAN-Chile on February 18, 1993,

immediately before the statute of limitations was to expire. On

March 12, 1993, at Speiser Krause’s request, a mediation was

conducted before two former judges. The judges proposed to the

Augustsons that they ask LAN-Chile for $625,000 to settle the

case. The Augustsons refused that suggestion, still believing

that they had insufficient information on which to make a proper

settlement decision.

On June 1, 1993, Speiser Krause moved for voluntary

withdrawal for good cause pursuant to Rule 1.15(b) of the Texas

Disciplinary Rules of Professional Conduct.3 The Augustsons

opposed withdrawal in writing. After a hearing, the district

court permitted Speiser Krause to withdraw, deferring until later

a hearing on the reasonableness of Speiser Krause’s attorney’s

lien and expenses. At the time of withdrawal, Speiser Krause had
 

4The district court’s fee award was calculated to give the

plaintiffs the benefits that would have inured to them had they

accepted the $475,000 offer.

 

5The expenses included: (1) $2,129.06, the Augustsons

portion of the shared investigation expensess of $12,775.39; (2)

$2,330.61, the expenses spent on the Augustsons cases through

April of 1993; and (3) $6,975.55, the expenses spent between May

1, 1993 and the date of withdrawal.

7

taken no depositions and had retained no expert witnesses to

testify at trial.

The Augustsons retained John Howie as new counsel, who hired

expert witnesses, deposed the flight crew of the aircraft, and

prepared the case for trial. On the eve of trial LAN-Chile

agreed to pay the Augustsons $850,000 plus up to $5,000 in

expenses in order to settle the case.

Twelve days later the district judge conducted a lien

hearing, and on July 22, 1994, entered an order awarding Speiser

Krause fees of $98,714.784 and expenses in the amount of

$11,435.22,5 for a total of $110,150.00.

In its memorandum the district court listed several reasons

why it believed Speiser Krause had the right to compensation:

first, the plaintiffs failed to share vital information that they

received with their attorneys; second, the plaintiffs refused to

fix any sum that was acceptable for settlement purposes; third,

the plaintiffs either lost faith or never had faith in Speiser

Krause’s ability sufficient to trust the firm’s judgment; fourth,

the pursuit of litigation would result in extensive expenses and

additional attorneys fees that would only diminish, and possibly
8

be fatal to, the plaintiffs’ claim; and fifth, the plaintiffs

“were intent on utilizing the Court and their counsel to vent the

anger and frustration felt over the death of their daughter,” and

would find no solace in a settlement “until all involved were

sufficiently punished or throttled by litigation.”

The Augustson’s now appeal the award of fees and expenses,

and, in the alternative, argue that the method used to compute

the award was incorrect. Because we agree no fee award should

have been given, we do not address the validity of the

computation.

II.

The rights and obligations of parties to a contingency fee

contract are governed by state law. Johnston v. California Real

Estate Inv. Trust, 912 F.2d 788 (5th Cir. 1990). Therefore

Speiser Krause’s ability to recover is based upon Texas law.

A.

Under Texas law, whether and how to compensate an attorney

when a contingent fee contract is prematurely terminated depends

on whether the attorney was discharged, withdrew with the consent

of the client, or withdrew voluntarily without consent. An

attorney discharged by the client without cause can recover on

the contingent fee contract or in quantum meruit. See Mandell &

Wright v. Thomas, 441 S.W.2d 841, 847 (Tex. 1969) (discharged

attorney can recover on the contract); Howell v. Kelly, 534

S.W.2d 737, 739-40 (Tex.Civ.App.--Houston [1st Dist.] 1976, no

writ) (discharged attorney has choice of remedies). An attorney
 

6We uncovered no Texas case that has compensated an attorney

after voluntarily withdrawing for just cause, so it is not clear

whether the withdrawing attorney would recover on the contract or

in quantum meruit. In Staples v. McKnight, 763 S.W.2d 914

(Tex.App.--Dallas 1988, no writ), the appellate court apparently

would have allowed a recovery on the contract, but the court

found there was no evidence of just cause to withdraw. Recovery

on the contract would follow the rule in Mandell & Wright

allowing recovery on the contract for attorneys discharged

without cause.

The Mandell & Wright rule is the “traditional” but now

minority rule, and this court has expressed its disfavor with it

in Johnston, 912 F.2d at 789. Most jurisdictions, following

Martin v. Camp, 114 N.E. 46 (N.Y. 1916), and Fracasse v. Brent,

494 P.2d 9 (Cal. 1972), limit the discharged attorney’s recovery

to quantum meruit (or to the lesser of quantum meruit and the

contract price), refusing to apply normal contract rules to the

9

discharged with cause can recover in quantum meruit for services

rendered up to the time of discharge. Rocha v. Ahmad, 676 S.W.2d

149, 156 (Tex.App.--San Antonio 1984, writ dism’d). When both

parties assent to the contract’s abandonment, the attorney can

recover for the reasonable value of the services rendered. Diaz

v. Attorney General of Texas, 827 S.W.2d 19, 22-23 (Tex.App.--

Corpus Christi 1992, no writ).

When an attorney, “without just cause, abandons his client

before the proceeding for which he was retained has been

conducted to its termination, or if such attorney commits a

material breach of his contract of employment, he thereby

forfeits all right to compensation.” Royden v. Ardoin, 331

S.W.2d 206, 209 (Tex. 1960) (quoting Beaumont v. J. H. Hamlen &

Son, 81 S.W.2d 24 (Ark. 1935)). Royden may be read to imply that

an attorney who withdraws with just cause may be compensated,

though we would not know whether on the contract or in quantum

meruit.6
attorney-client relationship because of the special trust and

confidence that must exist between attorney and client. The

majority jurisdictions reason that allowing recovery on the

contract impinges on the client’s absolute right to select the

lawyer of his choice by forcing the client to pay double fees,

one to his discharged attorney and one to his new lawyer. These

jurisdictions typically imply a term into the contingency

contract allowing discharge of the attorney at will, so that

discharge is not considered a breach and does not give rise to

contract damages. See, e.g., Martin, 114 N.E. at 47-48.

10

The fundamental issue in this case, then, is whether Speiser

Krause had just cause to withdraw sufficient under Texas law to

receive compensation. The attorney bears the burden of proving

just cause to withdraw. Staples v. McKnight, 763 S.W.2d 914, 917

(Tex.App.--Dallas 1988, writ denied).

Whether just cause exists depends on the facts and

circumstances of each case. See id. at 916 (citing Matheny v.

Farley, 66 S.E. 1060, 1061 (W. Va. 1910)). Generally, just cause

exists when the client has engaged in culpable conduct. Thus,

for example, courts have found just cause where the client

attempts to assert a fraudulent claim; fails to cooperate;

refuses to pay for services; degrades or humiliates the attorney;

or retains other counsel with whom the original attorney cannot

work. See Wade R. Habeeb, Annotation, Circumstances under Which

Attorney Retains Right to Compensation Notwithstanding Voluntary

Withdrawal from Case, 88 A.L.R.3d 246-69 (1978 & Supp. 1995)

(describing cases from various jurisdictions in which attorneys

have retained the right to compensation after withdrawal).

Just cause has also been found where continued

representation is impossible due to forces beyond the attorney’s
11

control. Thus just cause has been found where continued

representation would violate ethical obligations of the attorney

or where the attorney has insufficient funds to pursue

litigation. See, e.g., Staples, 763 S.W.2d at 916 (allowing

withdrawal where the client was going to permit perjury); Estate

of Falco v. Decker, 233 Cal.Rptr. 807, 815-16 (Cal.Ct.App. 1987)

(allowing compensation where ethical obligations mandate

withdrawal); International Materials Corp. v. Wolff, 824 S.W.2d

890, 893-96 (Mo. 1992) (allowing compensation to attorney who

withdrew for lack of resources).

Both parties agree, and the cases are in almost universal

agreement, that failure of the client to accept a settlement

offer does not constitute just cause for a withdrawing attorney

to collect fees. See, e.g., Borup v. National Airlines, 159

F.Supp. 808, 810 (S.D.N.Y. 1958) (“[t]he mere fact that clients

refuse to accept a settlement recommended by the attorney is not

ground for his withdrawal”); Estate of Falco, 233 Cal.Rptr. at

815-16 (holding that failure to settle is not just cause to

withdraw for the purposes of awarding attorney fees); Faro v.

Romani, 641 So.2d 69 (Fla. 1994) (same); Ambrose v. Detroit

Edison Co., 237 N.W.2d 520, 523-24 (Mich.Ct.App. 1975) (failure

to settle is never a sufficient reason justifying withdrawal,

but, if it is irrational, it is one factor to consider in

evaluating the client’s cooperation with his attorney); Chaker v.

Chaker, 520 A.2d 1005, 1007 (Vt. 1986) (holding that failure to

settle is not just cause to withdraw for the purposes of awarding
 

7Speiser Krause relies particularly on Rules 1.15(b)(4) and

(6), which allow withdrawal, respectively, where “a client

insists upon pursuing an objective that the lawyer considers

repugnant or imprudent or with which the lawyer has fundamental

disagreement,” or where “the representation will result in an

unreasonable financial burden on the lawyer or has been rendered

unreasonably difficult by the client.” Tex. Disciplinary R.

Prof. Conduct 1.15(b)(4), (6) (1991).

12

attorney fees); Ausler v. Ramsey, 868 P.2d 877, 881 (Wash.Ct.App.

1994) (same); but see Kannewurf v. Johns, 632 N.E.2d 711, 714

(Ill.App.Ct. 1994) (an attorney is entitled to reasonable

compensation where he voluntarily withdrew for the sole reason

that the clients did not agree to accept a reasonable settlement

offer or negotiate as the attorney thought best); May v. Seibert,

264 S.E.2d 643 (W.Va. 1980) (a lawyer who withdraws without just

cause may recover under quantum meruit if withdrawal does not

prejudice the client).

B.

Speiser Krause argues that because it withdrew for good

cause, by permission of the court, under Tex. Disciplinary R.

Prof. Conduct 1.15(b), it therefore satisfied the Texas just

cause requirement for recovering attorneys fees.7 The propriety

of the district court’s decision to permit Speiser Krause’s

withdrawal is not now before us, and we assume the court

correctly found good cause to withdraw. Nevertheless, we

conclude that Royden prohibits all compensation in this case.

Royden states that “‘[i]f an attorney, without just cause,

abandons his client . . . he thereby forfeits all right to

compensation.’” Royden, 331 S.W.2d at 209 (quoting Beaumont v.
13

J. H. Hamlen & Son, 81 S.W.2d 24 (Ark. 1935)). We reject Speiser

Krause’s argument that cause to withdraw under Rule 1.15

necessarily implies cause to receive compensation under Royden. 

Rule 1.15 addresses withdrawal under all circumstances and is not

related to the issue of compensation.

The objectives of a hearing on cause to withdraw differ from

the objectives of a hearing on attorney’s fees, and because of

these differences circumstances can arise that would authorize a

trial court to permit counsel to withdraw but retain no fee. 

When considering a motion to withdraw, a trial court is given

broad discretion in order to protect the best interests of the

client. In such a setting, the court generally focuses on the

presence of circumstances harmful to the attorney-client

relationship, and inquiry into the cause of these circumstances

is irrelevant. At a lien hearing, however, the focus of

attention is on the cause of attorney-client problems.

A court at a withdrawal hearing must also be concerned about

the quality of representation a client will receive from an

attorney who has a fundamental disagreement with a client’s

objective, or who believes that the client’s objective poses an

unreasonable financial burden. See Tex. Disciplinary R. Prof.

Conduct 1.15(b)(4), (6) (1991). But the objective is for the

client to choose. If the objective is neither illegal nor

frivolous, then an attorney who is retained under a contingent

fee contract and who withdraws because he disapproves of his

client’s objective may not receive compensation through the
 

8We express no view on whether an attorney’s withdrawal for

ethical obligations may sometimes justify compensation. Courts

in Texas and other jurisdictions would allow compensation for

some ethical violations. See, e.g., Staples, 763 S.W.2d at 917

(allowing compensation for an attorney who withdraws when his

client was going to commit perjury); Estate of Falco, 233

Cal.Rptr. at 814 (allowing compensation when the rules of

professional conduct required withdrawal). However, the facts of

the case at bar did not present an ethical dilemma for Speiser

Krause. Speiser Krause could have continued representing the

Augustsons without violating any ethical obligations.

14

court. Any other rule would impinge on the client’s right to

choose the objectives of his representation.8

A contrary rule would also encourage attorneys to withdraw

from “bad” cases on the grounds that the client uncooperatively

insists on going to trial, allowing the attorney to avoid the

risks of representation without losing the benefits of an

eventual recovery. It is in such “bad” cases that a client will

have the most trouble finding another attorney, and the existence

of an attorney’s lien will make the search all the more

difficult.

As for the lawyer, if he cannot persuade the client of his

own views he can protect himself at the early stage by refusing

to take the case, by charging higher than normal fees in other

cases, or by limiting the scope of representation through

contract. At later stages the lawyer may weigh his choices to

proceed or to terminate, perhaps seeking court approval to exit a

case, even though he cannot obtain compensation.

Speiser Krause cites Staples v. McKnight, 763 S.W.2d 914

(Tex.App.--Dallas 1988, writ denied), in support of its argument

that good cause under the rules of professional conduct
15

necessarily implies good cause under Royden. In Staples, the

court concluded that a client’s intent to commit perjury is just

cause for the attorney to withdraw and receive compensation under

Royden (though the court denied compensation after finding no

evidence that the client was going to perjure himself). Staples

stated that “[t]he critical question, then, is did [the former

attorney] have just cause to withdraw,” and then noted that

“certain causes justifying an attorney’s voluntary withdrawal are

set forth in our Code of Professional Responsibility.” 763

S.W.2d at 916 & n.1. We do not read these statements to stand

for the proposition that any cause to withdraw under the rules of

professional responsibility satisfies Royden.

C.

Speiser Krause argues that they should be compensated

because they were “constructively discharged” by the Augustsons. 

This assertion is meritless. The Augustsons were intent on

pursuing litigation, against the advice of counsel. To that end

they refused to accept an initial settlement offer or set a price

at which they would settle. Their decision was risky, but the

record reveals the Augustsons understood the risk. Speiser

Krause makes no assertion that their lawsuit was frivolous. 

There is no indication that the attorney-client relationship had

completely broken down through acrimony or failure to

communicate. In fact, the Augustsons opposed Speiser Krause’s

motion to withdraw. On this record, it is clear that Speiser

Krause withdrew because the Augustsons failed to accept its
16

advice to pursue settlement. Assuming arguendo that a client can

“constructively discharge” an attorney, such a discharge may not

be effected by a client’s refusal to follow counsel’s advice on

settlement.

The district court found that the Augustsons withheld vital

information from Speiser Krause. The uncontroverted testimony

was that Clyde Augustson received a report from the state

department which contained information he felt was material to

the issue of willful misconduct. The Augustsons were interested

in finding out the firm’s response to the report. Clyde spoke

with Speiser Krause about the report several times. He sent them

his synopsis of the report. The firm never asked for the entire

report, and he assumed the firm had a copy. Under these facts it

was clearly erroneous to find that the Augustsons kept material

information from Speiser Krause.

The district court also believed the Augustsons were using

litigation to vent their rage against LAN-Chile and to find out

all they could about the circumstances of their daughter’s death,

without regard to whether the information was relevant to their

lawsuit. We will not attempt to separate out the mixed

motivations of a litigant. Undoubtedly the Augustsons found

solace in some of the crash information uncovered by litigation,

but that casts no suspicion on the legitimate use of discovery in

pursuit of their legitimate claim. Certainly the Augustsons

wanted LAN-Chile to admit to wrongdoing, but that is a legitimate

goal in our legal system. The short answer to the district
17

court’s position is that events proved the Augustsons correct. 

They believed there was willful misconduct, they pursued their

claim vigorously through litigation and achieved a settlement of

$855,000, nearly twice the recovery Speiser Krause had urged them

to accept.

Speiser Krause argues strenuously that this is not a mere

“failure to accept settlement” case, urging that the plaintiffs

never had sufficient confidence in Speiser Krause to give them a

demand of the amount of money they wished to recover; that the

case was made unreasonably difficult by the failure of plaintiffs

to fix an amount for which Speiser Krause could negotiate; that

the plaintiffs fundamentally disagreed with experienced counsel

about how to proceed; and that the plaintiffs’ pursuit of

discovery was inimicable to their interests because it might

uncover negligence but no willful misconduct.

These arguments are unconvincing. A lawyer is an agent of

his client. Texas Employers Ins. Ass’n v. Wermske, 349 S.W.2d

90, 93 (1961). Under the Texas Disciplinary Rules of

Professional Conduct “a lawyer shall abide by a client’s

decisions: (1) concerning the objectives and general methods of

representation; [and] (2) whether to accept an offer of

settlement of a matter, except as otherwise authorized by law.” 

Tex. Disciplinary R. Prof. Conduct 1.02(a) (1991). Under the

Augustsons’ contingent fee contract, the Augustsons had the right

to refuse any settlement agreement, and Speiser Krause agreed to
 

9The district court expressed concern over the difficult

position Speiser Krause faced. The Augustsons, in the court’s

view, were intent on pursuing ill-advised litigation which likely

would harm their claim and possibly lead to a malpractice suit

against Speiser Krause. We do not deny that such suits sometimes

occur where litigation fails, but we do not believe such a

possibility warrants compensation for a withdrawing attorney, at

least where, as here, the possibility of a malpractice suit is

nothing but conjecture and the attorney has protected himself by

recommending settlement.

18

prepare the case for trial. The Augustsons also had the right to

have their claim adjudicated in the federal courts.

Under all these sources the Augustsons had the right to

pursue litigation first and settlement later, if at all. 

Admittedly litigation contained risks, and may indeed have hurt

the Augustsons claims. But that was the Augustsons risk to

take.9

III.

We conclude that this record establishes as a matter of law

that Speiser Krause had no justification or cause to withdraw

that would preserve its entitlement to compensation. Under Texas

law Speiser Krause terminated its right to compensation by its

withdrawal. The expenses incurred by Speiser Krause prior to its

withdrawal are not affected by all that has been said. We remand

the case to the district court for it to award Speiser Krause

only its actual reasonable expenses attributable to the

Augustsons prior to the time Speiser Krause withdrew from

representation of the Augustsons.

REVERSED AND REMANDED