Opinion ID: 2823820
Heading Depth: 2
Heading Rank: 2

Heading: Quantum Meruit in Attorney Discipline Cases

Text: Â¶27Â Â Â Â Â Â Â We have carried principles of quantum meruit recovery into our attorney discipline cases. Relevant here, our prior rulings indicate that, where the parties have a flat fee agreement, a discharged attorney does not violate the ethical obligation to refund unearned fees where the attorney is entitled to a portion of the fee in quantum meruit for the reasonable value of services rendered before being discharged. Â¶28Â Â Â Â Â Â Â In People v. Johnson, 612 P.2d 1097, 1098 (Colo. 1980), private defense counsel received an advance payment of $1,500 toward an orally agreed-upon total fee of $5,000 to handle a murder case. The client discharged him soon thereafter, and the attorneyÂ failed to refund any of the money despite the clientâs requests for a refund of the unearned portion of the $1,500 payment. Id. We held that because there was no definitive agreement regarding the amount that the attorney would be paid if his services were terminated, the oral fee agreement necessarily âwas upon a quantum meruit basis.â Id. at 1099. The grievance committee found that the attorney was entitled to $500 on a quantum meruit basis for work performed, and we agreed with this determination. However, the grievance committee also determined that by retaining the additional $1,000 that was unearned, the attorney violated DR-2-110(A)(3), the disciplinary rule then in effect requiring prompt refund of unearned parts of a fee. Id. We affirmed the committeeâs determination that the attorney violated DR-2-110(A)(3) by âfailing to return that portion of the $1500 payment which was unearned.â Id. We ordered the attorney to return $1,000 in unearned fees to his client, but in so doing, we implicitly allowed him to retain the $500 to which he was entitled under quantum meruit. Id. Â¶29Â Â Â Â Â Â Â Our more recent decision in In re Sather likewise took no issue with an attorneyâs retention of a portion of a flat fee as compensation for services provided before discharge. 3 P.3d at 415. In that case, we disciplined an attorney under current Rule 1.16(d) for failing to return the unearned portion of a $20,000 advance fee after his client discharged him. Id. at 405. The written agreement between the attorney and client described the arrangement as a ânon-refundableâ flat fee contract and stated that the client acknowledged that the âminimum flat feeâ of $20,000 would not be returned to him regardless of the amount of time that the firm expended. Id. at 406. After the clientÂ discharged the attorney, the attorney provided an accounting claiming that his fees and expenses as of the date of discharge totaled $6,923.64. Id. at 407. Despite the ânon-refundableâ language in their agreement, the attorney acknowledged that he should refund the remaining $13,076.36 to the client. 9 Id. However, the attorney did not fully refund this difference until nearly five months later and thus violated Rule 1.16(d) by failing to return the unearned fee in a timely manner. Id. Â¶30Â Â Â Â Â Â Â Significantly, we held that the attorney violated Rule 1.16(d) by failing to return the unearned $13,076.36ânot by failing to return the entire $20,000 advance payment. See id. at 415 (âUpon discharge, [the attorney] acknowledged his obligation to return the unearned portion of the $20,000 to [the client], and [the attorney] eventually returned the entire unearned amount of $13,076.36. . . . Because [the attorney] only partially returned the unearned fees three months after being discharged and did not return the remainder of the unearned fees until five months after being discharged, we agree with the Board that his conduct violated Colo. RPC 1.16(d).â (emphasis added)). In so doing, we first implicitly recognized that the attorney âearnedâ and rightfully retained $6,923.64 for his workâeven though nothing in the opinion suggested that his ânon-refundableâ flat fee agreement provided for quantum meruit recovery (or an hourly fee) upon early termination. We then concluded that he violated Rule 1.16(d) by failing to return the portion of the fee that he had not earned.Â Â¶31Â Â Â Â Â Â Â The Office of Attorney Regulation Counsel argues that In re Sather requires an attorney who is discharged by her client to refund the entire advance fee if the agreement is silent about early termination, regardless of whether the attorney has expended time and money on the case. The Office of Attorney Regulation Counsel points to an isolated statement in In re Sather to support this position: âUpon discharge, the attorney must return all unearned fees in a timely manner, even though the attorney may be entitled to quantum meruit recovery for the services that the attorney rendered and for costs incurred on behalf of the client.â Id. at 409â10 (emphasis added). The phrase âeven though,â according to the Office of Attorney Regulation Counsel, means that an attorney must first return all fees that a client has advanced and then pursue quantum meruit recovery in a separate claim against the client. Â¶32Â Â Â Â Â Â Â The Office of Attorney Regulation Counselâs argument fails for two reasons. First, the statement in In re Sather on which it relies forms no part of our discussion or holding regarding the attorneyâs violation of Rule 1.16(d) in that case, but rather appears in a separate part of the opinion discussing an attorneyâs obligation under Rule 1.15(f) to maintain advance fees in a separate trust account until the fees are earned. Id. Â The Office of Attorney Regulation Counsel therefore reads this language out of context and overlooks the facts of In re Sather. The attorney in that case violated Rule 1.16(d) by retaining funds beyond those to which he was entitled in quantum meruit for his work. Id. at 415. Had we intended to hold in In re Sather, contrary to our approach in Johnson, that Rule 1.16(d) requires an attorney to return the entire advance fee regardless of any benefits conferred or services rendered, we would have ordered theÂ attorney to return the entire $20,000 that the client paid him. Yet neither in In re Sather nor in Johnson did we require the attorney to refund all advance fee payments and then separately seek quantum meruit recovery from his former client. It would be a waste of resources in these circumstances to force attorneys to return money to which they are entitled and then bring suit against the client to recover it. Rather, the above-quoted statement in In re Sather, read in context, simply acknowledges that, although an attorney must return all unearned fees in a timely manner under Rule 1.16(d), such unearned fees do not include compensation to which the attorney is entitled in quantum meruit for the reasonable value of services the attorney has rendered before discharge. Id. (citing, inter alia, Olsen & Brown, 889 P.2d at 667). Â¶33Â Â Â Â Â Â Â Second, the Office of Attorney Regulation Counselâs argument hinges on its view that, for purposes of Rule 1.16(d), an attorney cannot âearnâ a fee except as explicitly provided for in the fee agreement. This view is not grounded in Rule 1.16(d) but instead rests on comment 12 to Rule 1.5. Comments to the Rules of Professional Conduct do not add obligations to the Rules but merely provide guidance for practicing in compliance with the Rules. Colo. RPC, Preamble and Scope, Â¶ 14. Ultimately, the text of the Rule is authoritative. Id. at Â¶ 21. Consistent with our decision in In re Sather, the text of Rule 1.5(f) provides that fees are earned when the lawyer âconfers a benefit on the client or performs a legal service for the client.â Colo. RPC 1.5(f); In re Sather, 3 P.3d at 410 (holding that fees are earned by âconferring a benefit on or performing a legal service for the clientâ). Â¶34Â Â Â Â Â Â Â The approach that the Office of Attorney Regulation Counsel urges effectively forecloses quantum meruit recovery for the reasonable value of services the attorney actually performed if a flat fee agreement fails to contain benchmarks or milestones setting forth exactly how the attorney will earn the fee shy of completing the agreed-upon services. 10 Such an approach is inconsistent with the result in both Johnson and In re Sather. It is also inconsistent with the core purpose of quantum meruit, which seeks to provide equity precisely where an agreement is lacking or has failed. Â¶35Â Â Â Â Â Â Â In advancing its argument, the Office of Attorney Regulation Counsel essentially seeks to treat flat fee agreements in the same fashion as contingent fee agreementsâyet we have never suggested that the unique requirements of Chapter 23.3 for contingent fee agreements necessarily apply to other types of fee agreements. In stark contrast to the specific requirements for contingent fee agreements, see C.R.C.P. Ch. 23.3, Rule 5, no rule currently requires a noncontingent flat fee agreement to include a provision indicating the possibility of quantum meruit recovery in the event of early termination. Â¶36Â Â Â Â Â Â Â Unlike a contingent fee arrangement, in which the attorneyâs fee is contingent upon the outcome of the case, a flat fee (sometimes called a âfixed feeâ) is a fee based on an agreed amount for particular services, regardless of the time or effort involved and regardless of the result obtained. See In re Sather, 3 P.3d at 410 (noting that a âflat feeâ is a type of fee paid in advance for specified legal services to be performed by the attorney). Flat or fixed fee arrangements can benefit the client by establishing in advance the maximum amount the client will have to pay for legal fees, thus permitting the client to budget based on a fixed sum rather than face potentially escalating hourly fees that may exceed the clientâs ability to pay. See id. (citing Alec Rothrock, The Forgotten Flat Fee: Whose Money Is It and Where Should It Be Deposited?, 1 Fla. Coastal L.J. 293, 354 (1999)). Whereas a client in a contingent fee arrangement generally has no expectation of payment unless the attorney obtains a successful result, a client in a flat fee arrangement expects to pay the attorney for his or her services regardless of the result obtained. The flat fee agreement merely establishes the maximum that the client may owe. Â¶37Â Â Â Â Â Â Â Although attorneys are certainly wise to include benchmarks or milestones in flat fee agreements, the Rules of Professional Conduct do not presently require them. Moreover, our case law barring quantum meruit recovery unless the fee agreement includes notice of this possibility arose out of the specific rules governing the content of contingent fee agreements. We have not suggested that the notice requirement pertaining to contingent fee agreements necessarily applies to other forms of fee agreements or that quantum meruit recovery under other types of fee agreements is likewise barred absent such notice.