Opinion ID: 2525545
Heading Depth: 1
Heading Rank: 6

Heading: referral agreement

Text: The district court's memorandum decision began with the declaration: This is a contract action. We agree. However, whereas the district court focused solely on Wallace Saunders' duty under a referral agreement, the facts of this case require us to consider the interface of the respective parties' duties and obligations under a number of agreements. Oliver and Wallace Saunders had reciprocal rights and obligations emanating from an employment contract, the DCA, a stock purchase agreement, and the agreements executed upon Oliver's termination. There was an attorney/client relationship between Oliver and the Hotchkisses, and vicariously between Wallace Saunders and the Hotchkisses. Shamberg had an attorney/client employment agreement with the Hotchkisses and a referral agreement with Wallace Saunders and/or Oliver. We begin with the referral agreement between Shamberg and Wallace Saunders, which was the basis for the district court's ruling. The district court found that a valid referral fee agreement was formed between the two law firms, Wallace Saunders and Shamberg; that Wallace Saunders gave consideration when Oliver, as a director-agent of the firm, referred the Hotchkisses to Shamberg and that firm accepted the case; that, in return, Shamberg then promised to pay Wallace Saunders a referral fee; and that Wallace Saunders needed to do nothing else. Apparently, the district court viewed the referral agreement as a stand-alone contract for the sale of the medical malpractice claim and determined that Wallace Saunders had completed its performance and earned its referral fee when the client was delivered to Shamberg. We cannot accept that characterization. A client is not an article of property in which a lawyer can claim a proprietary interest, which he can sell to other lawyers expecting to be compensated for the loss of a property right. Palmer v. Breyfogle, 217 Kan. 128, 142, 535 P.2d 955 (1975). The referral agreement must be viewed in the context of the duties which are owed to the client. We do agree with the district court's finding that the original referral agreement was between the law firms. No one contests that fact, and Oliver's employment contract would dictate that he be considered an agent of Wallace Saunders while performing attorney services during his period of employment. However, the uncontroverted facts refute the notion that Wallace Saunders had no further obligation on the file after referral. The district court specifically found that Oliver provided beneficial legal counsel to Rob and Sara regarding their lawsuit both before and after he left [Wallace Saunders] on January 31, 2005. That finding is consistent with the affidavits from Oliver, Bergman, Robert Hotchkiss, and Sara Hotchkiss. Wallace Saunders contends that those services were not required by the referral agreement, pointing to language in Bergman's May 5, 2004, letter that the Shamberg firm would be responsible for doing all of the work. However, that same letter indicates that Oliver would be expected to continue to assist the Hotchkisses on certain matters and suggests that Bergman would utilize Oliver's assistance by specifically asking Oliver to accompany Bergman to visit a doctor. Moreover, the affidavits of both Oliver and Bergman, the two persons who negotiated the referral agreement on behalf of their respective firms, establish that the agreement contemplated Oliver's continued participation, after referral. While Wallace Saunders embraces Oliver's status as its agent to claim sole ownership of the referral fee, it apparently does not want to be bound by its agent's commitment to provide assistance to Bergman as part of the referral agreement. Aside from the ambiguous language in Bergman's letter, the evidence establishes that part of the consideration for the referral was Oliver's continued participation. Pointedly, the conduct of the parties corroborates that agreement. See Cline v. Angle, 216 Kan. 328, Syl. ¶ 6, 532 P.2d 1093 (1975) (If parties to a contract, subsequent to its execution, have shown by their conduct that they have placed a common interpretation on the contract, this interpretation will be given great weight in determining the meaning to be attributed to the provisions in question.). Both Bergman and Oliver conducted themselves as if the referral agreement called for Oliver's continued participation and assistance. At the very least, then, the question of whether Wallace Saunders was obligated to provide Shamberg assistance to earn its referral fee is a disputed fact. Nevertheless, even if no further participation by Oliver was required by the referral agreement, it is difficult to intuit how Wallace Saunders' percentage share of the contingency fee could have been fully earned before Shamberg earned the contingency fee which was to be divided. Generally, an attorney who is discharged before the occurrence of the contingency provided for in a contingency fee contract may not recover compensation on the basis of the contract, but rather the attorney is entitled only to the reasonable value of the services rendered based upon quantum meruit. Madison v. Goodyear Tire & Rubber Co., 8 Kan.App.2d 575, Syl. ¶ 1, 663 P.2d 663 (1983). If the Hotchkisses had discharged Shamberg prior to obtaining the settlement judgments, there would have been no contingency fee to split and Wallace Saunders' purported vested right in a share of that fee would have been illusory. More importantly, however, the district court's ruling that Wallace Saunders did not need to do anything further to earn its referral fee ignores the firm's vicarious obligations to the Hotchkisses. In its brief, Wallace Saunders attempted to skirt the issue by arguing that its representation of the Hotchkisses ended upon the referral to Shamberg. At oral argument, the firm argued that Ryder v. Farmland Mut. Ins. Co., 248 Kan. 352, 362, 807 P.2d 109 (1991), stands for the proposition that a referring attorney does not have an attorney/client relationship with the person referred. Neither argument fits the facts of this case. The affidavits of Robert Hotchkiss and Sara Hotchkiss state that they considered Oliver to be their attorney from their first consultation about the medical malpractice claim and that the representation continued throughout the medical malpractice litigation. Oliver actively counseled the Hotchkisses about selecting an attorney and participated in the selection process. Oliver's services from the beginning exceeded the simple referral scenario. Thereafter, as the district court specifically found, Oliver continued to provide beneficial services to the Hotchkisses, i.e., they continued to be Oliver's clients even after the referral. Again, if Wallace Saunders wants to claim Oliver as an agent in order to claim ownership of the referral fee agreement, it must also claim Oliver's clients as clients of the firm. Moreover, the district court found that Wallace Saunders had set up client files for the Hotchkisses in the normal fashion, i.e., Wallace Saunders' own records refute its assertion that the Hotchkisses were not firm clients after the referral date. The affidavits of Robert and Sara Hotchkiss also clearly establish their expectation that Oliver would continue to advise and counsel them, after the referral to Shamberg. Robert Hotchkiss' affidavit states that he asked how Oliver would be paid for his advice and counseling on the medical malpractice case and Oliver said that his fees would be paid out of Bergman's percentage. Therefore, regardless of what Oliver promised Bergman with respect to doing the work on the malpractice litigation, Oliver promised the Hotchkisses that he would provide them with continuing legal advice and counseling after the referral and that the Hotchkisses would not need to pay any fees over and above the contingency percentage. Wallace Saunders was bound by that agreement, as Oliver's principal. Accordingly, the Hotchkisses' consent to the referral agreement and the resultant referral fee must be viewed in the context of their vicarious attorney/client relationship with Wallace Saunders. The firm's obligations to its own client cannot be divorced from the referral agreement it made with another firm. Although the referral fee may be paid by one firm to another, the bottom line is that fee is being paid by the clients. Wallace Saunders' argument, and the district court's suggestion, that Oliver should look to the Hotchkisses to pay additional fees for his postdeparture beneficial services suggests a breach of the firm's agreement with the Hotchkisses. Moreover, requiring the Hotchkisses to pay more than the contingency fee contradicts the district court's finding that the referral agreement met the reasonableness requirement of KRPC 1.5(g) (2008 Kan. Ct. R. Annot. 448) because the judge in the medical malpractice lawsuit approved the amount of the contingency fee. That fee approval contemplated that the referring attorney would be fully compensated through its percentage share of the agreed-upon contingency fee. If the Hotchkisses must pay more than the total contingency fee, then the validity of the referral agreement is suspect under the requirement that the total fee must be reasonable, i.e., the referral agreement cannot increase the total amount of fees the client must pay. To summarize, Wallace Saunders, through its agent Oliver, had an attorney/client relationship with the Hotchkisses which required the firm to provide the client with advice and counseling throughout the medical malpractice litigation. The clients agreed to compensate for those services by consenting to the referral agreement which gave Wallace Saunders a share of the contingency fee. When Oliver departed the firm, the referral fee had not been fully earned because the clients were still entitled to services, i.e., the referral agreement remained executory.