Consolver v. Hotze ( 2015 )

No. 110,483
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
MAHNAZ CONSOLVER,
Appellant,
v.
CHRIS HOTZE,
Defendant,
(BRADLEY A. PISTOTNIK and the AFFILIATED ATTORNEYS
of PISTOTNIK LAW OFFICES, P.A.),
Appellees.
SYLLABUS BY THE COURT
1.
Absent a contract term governing termination, a client discharging a lawyer
retained on a contingent-fee basis typically must compensate the lawyer for the
reasonable value of the services provided. The equitable doctrine of quantum meruit or
unjust enrichment governs.
2.
Under a quantum meruit theory, a party conferring a benefit on another party is
entitled to recover the value of the benefit conferred if the recipient knew of the benefit
and retention of the benefit without compensation would be inequitable under the
circumstances.
3.
A client has the right to terminate a contract for legal representation at any time
with or without good cause.
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4.
Payment based on quantum meruit depends on the value or worth of the benefit to
the recipient. The recipient ought to owe an amount roughly equivalent to what he or she
might reasonably expect to pay on the open market for the goods or services constituting
the benefit.
5.
A quantum meruit payment is fundamentally incompatible with a contingency fee
for legal services. By design, a contingency fee builds in a premium over and above the
fair market value of the services provided to account for the risk of no recovery—and,
thus, no payment—not only in that case but in other cases the lawyer considers or takes.
6.
The lodestar method of calculating attorney fees provides a sound foundation for
determining a quantum meruit award. A court makes a lodestar fee calculation by
determining a reasonable hourly rate for the legal services and multiplies that by the
reasonable number of hours required to handle the litigation. In addition, the court should
take into account the criteria outlined in Kansas Rule of Professional Conduct (KRPC)
1.5(a) (2014 Kan. Ct. R. Annot. 515) for determining the reasonableness of a fee,
excluding whether the fee is fixed or contingent. A lodestar computation, folding in the
relevant KRPC 1.5 criteria, should generate a fee amount approximating the fair market
value of the services a lawyer has provided to a client and, thus, the value of the benefit
conferred for a quantum meruit award.
Appeal from Sedgwick District Court; J. PATRICK WALTERS, judge. Opinion filed March 20,
2015. Reversed and remanded with directions.
Stephen L. Brave, of Brave Law Firm, LLC, of Wichita, for appellant.
2
Jennifer M. Hill, of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., of Wichita, for
appellee.
Before SCHROEDER, P.J., BUSER and ATCHESON, JJ.
ATCHESON, J.: Plaintiff Mahnaz Consolver decided to change lawyers partway
through this personal injury action she filed in Sedgwick County District Court. Bradley
A. Pistotnik, the forsaken lawyer, filed a lien against any recovery for his fees and
expenses. After Consolver's new lawyer settled the underlying tort claim, the district
court enforced the lien by awarding Pistotnik a partial fee based on the contingency
clause of his contract with Consolver. The district court erred. We remand for a
redetermination of the fee due Pistotnik founded on a lodestar calculation consistent with
the equitable principles of quantum meruit that govern in this circumstance.
For purposes of the attorney fee issue in front of us, we need not recount the
circumstances of the motor vehicle collision between Consolver and Defendant Chris
Hotze. And given our conclusion that the district court applied the wrong measuring stick
in fashioning the fee due Pistotnik, we similarly need not detail the evidence presented at
the lien hearing. We offer only the facts essential to placing our legal determination in
context.
Consolver signed a contract with Pistotnik in April 2011 to represent her in getting
compensation for injuries she received in the motor vehicle collision about a month
earlier. The contract set Pistotnik's compensation as 33 1/3 percent of any recovery
realized before the final pretrial conference and 40 percent of a recovery after that point.
If Consolver recovered nothing, she owed Pistotnik nothing for his services or the case
expenses. The contract did not contain a clause governing termination of the lawyer-
client relationship before resolution of the underlying personal injury claim or how
Pistotnik should be compensated in that event.
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Pistotnik filed suit against Hotze and undertook discovery. About a year later,
Pistotnik had active settlement negotiations with Hotze's lawyer. Hotze had offered
$225,000, and his lawyer indicated $300,000 might be available if Consolver were
scheduled for additional surgery for her injuries. Pistotnik understood Consolver to say
she had been set for another surgery, but he could not confirm that understanding with
her physician. Pistotnik, however, advised Hotze's lawyer Consolver would be having
more surgery. Actually, Consolver neither had the surgery nor had she ever been
scheduled for the procedure. But based on Pistotnik's representation, Hotze's lawyer
extended a $300,000 settlement offer by e-mail on June 30, 2011, and confirmed the offer
by letter 2 days later.
In the meantime, however, Consolver fired Pistotnik as her lawyer in a letter faxed
to his office on June 28. Consolver hired Stephen Brave. Pistotnik promptly filed and
served a statutory lien claiming $106,771 in fees and expenses. Brave did additional
discovery in the case and settled the suit against Hotze in mid-2012 for $360,000.
Consolver, still represented by Brave, could not resolve Pistotnik's fee lien. The
district court held an evidentiary hearing on July 9, 2013, at which Consolver, Pistotnik,
and Hotze's lawyer testified. The district court entered an order with accompanying
findings of fact and conclusions of law awarding Pistotnik $86,944 in fees and $10,156 in
expenses. To determine a fee satisfying the lien, the district court began with the
$300,000 offer made shortly after Pistotnik had been fired, deducted the expenses, and
then applied the 33 1/3 percent contingency from the contract—yielding $96,518. Based
on its finding that Pistotnik "did the majority of the work to prepare the case for
settlement [or] trial," the district court concluded 90 percent of that amount or $86,944
represented an appropriate attorney fee. Finally, the district court added in the expenses
to come up with an award of $97,101 to Pistotnik in satisfaction of his lien. The district
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court characterized that approach as reflecting a quantum meruit determination of the
compensation due Pistotnik.
Consolver has timely appealed the district court's fee award.
The determination of reasonable legal fees is typically entrusted to the district
court's sound discretion. Unruh v. Purina Mills, 289 Kan. 1185, 1200, 221 P.3d 1130(2009); Johnson v. Westhoff Sand Co., 281 Kan. 930, 940, 135 P.3d 1127 (2006). A
district court exceeds that discretion if it rules in a way no reasonable judicial officer
would under the circumstances, if it ignores controlling facts or relies on unproven
factual representations, or if it acts outside the legal framework appropriate to the issue.
See Northern Natural Gas Co. v. ONEOK Field Services Co., 296 Kan. 906, 935, 296
P.3d 1106, cert. denied 134 S. Ct. 162 (2013); State v. Ward, 292 Kan. 541, Syl. ¶ 3, 256
P.3d 801 (2011), cert. denied 132 S. Ct. 1594 (2012).
Pistotnik's right to compensation for his legal services derives from his contractual
relationship with Consolver. But the contract contained no terms dealing with payment
should Consolver terminate Pistotnik before the litigation ended. In the absence of such
provisions, the courts have generally held that a client must compensate the terminated
lawyer based on equitable principles of quantum meruit or unjust enrichment. Shamberg,
Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 904, 220 P.3d 333 (2009); Madison
v. Goodyear Tire & Rubber Co., 8 Kan. App. 2d 575, 579, 663 P.2d 663 (1983).
Consolver and Pistotnik agree on this much of the law. Under a quantum meruit theory, a
party conferring a benefit on another party is entitled to recover the value of the benefit
conferred if the recipient knew of the benefit and retention of the benefit without
compensation would be inequitable under the circumstances. Haz-Mat Response, Inc. v.
Certified Waste Services Ltd., 259 Kan. 166, Syl. ¶ 6, 910 P.2d 839 (1996); City of
Neodesha v. BP Corporation, 50 Kan. App. 2d 731, 780, 334 P.3d 830 (2014) (necessary
conditions for quantum meruit recovery include inequity of retaining benefit "without
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payment of its value"); Jones v. Culver, 50 Kan. App. 2d 386, 390, 329 P.3d 511 (2014)
(same).
Before discussing the application of quantum meruit in this case, we mention
several matters that either are not disputed here or do not arise on these facts. First,
nobody contends Pistotnik failed to perfect an attorney lien under K.S.A. 7-108, thereby
encumbering the settlement funds to the extent of any compensation due him. The statute,
however, does not address how to establish the amount of compensation. Next, Consolver
had a right to terminate her contract with Pistotnik at any time with or without good
cause. See Kansas Rule of Professional Conduct (KRPC) 1.16(a)(3), comment 4 (2014
Kan. Ct. R. Annot. 583) (client may discharge lawyer at any time); see also Nostrame v.
Santiago, 213 N.J. 109, 121, 61 A.3d 893 (2013) (client free to discharge lawyer at any
time); Balestriere PLLC v. BanxCorp, 96 A.D.3d 497, 497, 947 N.Y.S.2d 7 (2012) (well-
settled public policy of New York permits a client to terminate attorney-client
relationship freely at any time). Consolver did not discharge Pistotnik for demonstrable
negligence or dereliction or some other good cause. We, therefore, do not presume to
consider such a situation and expressly reserve any comment on what compensation, if
any, might be equitable when a client dismisses a lawyer for good cause in a contingent-
fee matter. Likewise, we do not speculate about two variations on the theme of this
dispute: (1) the efficacy of a contract termination clause calling for the lawyer to receive
some share of an eventual recovery or another measure of compensation; and (2) the
compensation that might be due a terminated lawyer if his or her replacement recovered
little or nothing for the client.
Payment based on quantum meruit depends on the value or worth of the benefit to
the recipient. And the value, therefore, should be viewed from the perspective of the
recipient. Put another way, the recipient ought to owe an amount roughly equivalent to
what he or she might reasonably expect to pay on the open market for the goods or
services constituting the benefit. Canyon Ambulatory Surgery v. SCF Arizona, 225 Ariz.
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414, 422, 239 P.3d 733 (2010); Children's Hospital Central California v. Blue Cross of
California, 226 Cal. App. 4th 1260, 1274, 172 Cal. Rptr. 3d 861 (2014); Matter of Estate
of Carroll, 436 N.E.2d 864, 866 (Ind. App. 1982); see Scheiber v. Dolby Laboratories,
Inc., 293 F.3d 1014, 1022-23 (7th Cir. 2002). We see no reason that measure shouldn't
apply here.
In this case, the district court stepped outside the legal principles guiding quantum
meruit to premise the fee award to Pistotnik on the contingency percentage in the contract
with Consolver. A quantum meruit payment is fundamentally incompatible with a
contingency fee in a contract for legal services. By design, a contingency fee builds in a
premium over and above the fair market value of the services to account for the risk of no
recovery—and, thus, no payment—not only in that case but in other cases the lawyer
considers or takes. In other words, a contingency fee realized in a given case offsets
uncompensated time the lawyer spends investigating or litigating matters that end up
producing no revenue. See Burlington v. Dague, 505 U.S. 557, 565, 112 S. Ct. 2638, 120
L. Ed. 2d 449 (1992) ("An attorney operating on a contingency-fee basis pools the risks
presented by his various cases: cases that turn out to be successful pay for the time he
gambled on those that did not."); Pennsylvania v. Del. Valley Citizens' Council, 483 U.S.
711, 719-20, 107 S. Ct. 3078, 97 L. Ed. 2d 585 (1987). Pistotnik's lawyer acknowledged
that economic reality. The premium, however, confers no added value or benefit to the
client receiving a favorable settlement or judgment. That amount exceeds the fair market
value of the lawyer's services measured by what those services would cost based on the
benefit conferred. In turn, a contingent-fee model should not be used to establish a
quantum meruit value of a lawyer's services to a particular client, since that would
effectively require the client to subsidize the lawyer's other contingent-fee work.
The district court, therefore, erred in its basic approach to the issue, and the result
is necessarily legally flawed.
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The lodestar method of calculating attorney fees provides a sounder foundation for
a quantum meruit award. A court makes a lodestar fee calculation by determining a
reasonable hourly rate for the legal services and multiplying that by the reasonable
number of hours required to handle the litigation. Hensley v. Eckerhart, 461 U.S. 424,
433, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983) (outlining lodestar method); Citizens Utility
Ratepayer Bd. v. Kansas Corporation Comm'n, 47 Kan. App. 2d 1112, 1126, 284 P.3d
348 (2012); Kroshnyi v. U.S. Pack Courier Services, Inc., 771 F.3d 93, 108 (2d Cir.
2014). The hourly rate should reflect the prevailing rates in the community for lawyers of
comparable experience and skill doing similar work, i.e., civil litigation. Blum v. Stenson,
465 U.S. 886, 895, 104 S. Ct. 1541, 79 L. Ed. 2d 891 (1984). Usually, the community is
considered the general geographical area in which the underlying case has been litigated.
Snider v. City of Cape Girardeau, 752 F.3d 1149, 1159 (8th Cir. 2014); Navarro v.
Monarch Recovery Management, Inc., No. 13-3594, 2014 WL 2805244, at *2 (E.D. Pa.
2014) (unpublished opinion). The reasonable time to perform the work commonly will be
derived from contemporaneous records showing specific tasks and the time taken to
perform them. The reviewing court may adjust the recorded time to eliminate duplicative
work, excessive conferences, and other unwarranted inefficiencies. Hensley, 461 U.S. at
434 (no award for "hours that are excessive, redundant, or otherwise unnecessary");
Robinson v. City of Edmond, 160 F.3d 1275, 1281 (10th Cir. 1998).
In addition, the court should take into account the criteria outlined in KRPC 1.5(a)
(2014 Kan. Ct. R. Annot. 515) for determining the reasonableness of a fee, excluding
whether the fee is fixed or contingent. The KRPC 1.5 factors consider the time required,
customary fees or rates for comparable legal services, constraints the litigation imposed
on the lawyer in terms of deadlines or forgoing other work, the experience and skill of the
lawyer, the nature of the ongoing professional relationship (if any) between the lawyer
and the client, the value of what was at stake in the case, and the result obtained. They
incorporate and expand upon the lodestar components of reasonable rate and reasonable
time.[1]
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[1]The criteria in KRPC 1.5 are used to assess the reasonableness of lawyer
compensation under the rules of professional conduct. They apply to agreed-upon or
contractual arrangements for payment. In most kinds of cases, a contingent fee is proper.
See KRPC 1.5(f). Had Pistotnik completed Consolver's case, the fee arrangement in their
contract would have been entirely appropriate under KRPC 1.5. Although a client may
pay a premium under a contingent fee contract if the case is successfully resolved, he or
she receives a benefit at the outset in not having to pay for the lawyer's services should
there be no recovery. Virtually no litigation is risk free, so the arrangement is both
reasonable and ethical. Here, however, the fee is not driven by the contract—Consolver
terminated that agreement—but by the purely equitable considerations of quantum
meruit. Those considerations depend solely on the value of the services and, therefore,
exclude any premium that could be charged for the services.
A lodestar computation, folding in the relevant KRPC 1.5 criteria, should generate
a fee amount approximating the fair market value of the services a lawyer has provided to
a client and, thus, the value of the benefit conferred for a quantum meruit award. See
Perdue v. Kenny A., 559 U.S. 542, 551, 130 S. Ct. 1662, 176 L. Ed. 2d 494 (2010)
("[T]he lodestar method produces an award that roughly approximates the fee that the
prevailing attorney would have received if he or she had been representing a paying client
who was billed by the hour in a comparable case."). The federal courts in New York, for
example, have used that process, combining factors like those in KRPC 1.5 with a
lodestar calculation, to establish fees due terminated lawyers on charging or attorney
liens. Sequa Corp. v. GBJ Corp., 156 F.3d 136, 148-49 (2d Cir. 1998); Antonmarchi v.
Consolidated Edison Co. of New York, 678 F. Supp. 2d 235, 242 (S.D.N.Y. 2010);
Balestriere PLLC v. CMA Trading, Inc., No. 11 Civ. 9459, 2014 WL 7404068, at *3-5
(S.D.N.Y. 2014) (unpublished opinion).
On remand, the district court should determine the quantum meruit fee due
Pistotnik using the lodestar method with any appropriate modifications consistent with
the relevant criteria in KRPC 1.5. We recognize this may require reopening the
evidentiary record and trust the district court to do so in a way promoting efficient
resolution of the fee dispute. In that respect, we offer a couple of observations. First, the
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reasonable hourly lodestar rate is a market rate for lawyers' services in the area. The
hourly rate Pistotnik may quote for his own services is not a direct proxy for the market
rate in the Wichita area for experienced civil litigators, although it may have some
relevance if he has been regularly hired on that basis.
Second, at the initial hearing, Pistotnik testified that he did not keep
contemporaneous time records of the work he did for Consolver. Nor did he attempt to
prepare a detailed, after-the-fact accounting of his time. Rather, Pistotnik testified to a
broad range of what he estimated to be the total number of hours he spent on the case—a
very rough determination that came across as little better than a guess. That sort of
generic reporting is unacceptable for lodestar purposes. Although the courts
understandably have a distinct preference for contemporaneous time records, they can
and do consider "reconstructed" records derived from a lawyer's careful review of the file
and his or her studied recollection. See Hensley, 461 U.S. at 437-38 & nn.12, 13 (district
court properly discounted claimed hours in lodestar calculation absent contemporaneous
time records); Sheldon v. Vermonty, 237 F. Supp. 2d 1270, 1277-78 (D. Kan. 2002)
(district court reduces compensable hours because time records were general and
apparently not contemporaneous); Ragin v. Harry Macklowe Real Estate Co., 870 F.
Supp. 510, 520 (S.D.N.Y. 1994) (same); Har-Tzion v. Waves Surf & Sport, Inc., No. 7:8-
CV-137, 2011 WL 3421323, at *2 (E.D.N.C. 2011) ("Although contemporaneous time
records are greatly preferred, adequate reconstructions may support an [attorney fee]
award."). The district court should carefully review any such records presented on
remand and resolve doubts about their sufficiency or the reasonableness of the reported
time against Pistotnik, since he chose not to keep a contemporaneous accounting.
We have limited our discussion to the attorney fee component of the award in
satisfaction of Pistotnik's statutory lien without separately addressing the expenses. The
parties, too, have focused on the fees rather than the expenses. On remand, however, the
district court may revisit both aspects of the overall lien award to Pistotnik.[2]
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[2]Given our disposition of the case, we need not review the implications of some
of the district court's factual findings that might be fairly questioned. For example, the
district court relied on the $300,000 settlement offer as a basis for its fee calculation. The
offer, however, was extended after Pistotnik had been terminated. The last offer to
Consolver while Pistotnik represented her was $225,000. More troubling, however, the
$300,000 offer was triggered by a misrepresentation—later corrected—that Consolver
would undergo additional surgery. We fail to see how a settlement offer obtained through
a mistaken representation should be considered at all in establishing a reasonable fee. The
district court also never explained how it determined "the case was 90% complete" when
Consolver terminated Pistotnik. The percentage has no anchor in the district court's
findings of fact or conclusions of law.
Finally, we note and quickly reject Consolver's alternative argument that Pistotnik
should receive no fee because the contract limited the contingency to a recovery he
obtained for her—something that didn't happen here. The contract is not so limited. It
simply requires the agreed-upon percentage be applied to "whatever amount is recovered
. . . whether by settlement or trial." More fundamentally, however, Consolver can't
terminate the contract, particularly absent good cause, and then rely on the terms of the
contract to defeat an equitable claim for payment.
Reversed and remanded with directions.
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