Firm that permissively withdrew without reasonable justification is not entitled to fees in quantum meruit

Law Reporter, May 2004

Rus, Miliband & Smith v. Conkle & Olesten, 6 Cal. Rptr. 3d 612 (Ct. App. 2003).

A California appellate court held a law firm that provided no reasonable justification for permissively withdrawing from representation of a client cannot recover fees in quantum meruit from subsequent settlement proceeds the client obtained under new representation.

Here, a law firm representing the bankruptcy trustee of a collapsed real estate business sued the business's former accountants. As part of a settlement, the law firm agreed to represent the accountants in a bad faith action against their professional negligence insurer. After the accountants questioned the law firm about the basis of the lawsuit against the insurer, the firm moved to withdraw as counsel, citing a collapse in communications. Despite the accountants' objections to the firm's withdrawal, a trial court granted the motion.

Under new representation, the accountants obtained a large settlement from the insurer. The accountants' former law firm then filed a quantum meruit claim against the new attorneys and the accountants, alleging the firm was entitled to a portion of the settlement. The trial court granted summary judgment to the new attorneys and to the accountants.

Affirming, the appellate court noted that when a client unilaterally discharges an attorney, the attorney may assert a quantum meruit claim against any recovery. However, when an attorney withdraws without being discharged, any claim to a recovery depends on whether the attorney withdrew with justifiable cause.

Finding no mandatory basis for the withdrawal here, the court turned to the question of whether attorneys who permissively withdraw can recover fees. The court noted that such cases require "heightened scrutiny" because of the inequity that would result from allowing lawyers to benefit from voluntarily leaving a client without representation and shifting the time, effort, and risk of obtaining a recovery to the client. In this case, the law firm never provided any factual reason to justify withdrawal, the court noted. The firm merely presented the accountants' letter to the firm, which questioned the basis of the suit against the insurer. There is nothing in the letter indicating the accountants' reluctance to cooperate with the firm. Moreover, the accountants had a right to question the firm's actions. Clients should not have to worry about losing representation if they ask their attorneys questions that may indicate some skepticism regarding the meritoriousness of a case, the court reasoned. Based on the lack of any reasonable justification for the withdrawal, the court concluded, the firm may not recover fees in quantum meruit.