Anderson v. Gailey , 100 Idaho 796 ( 1980 )

BAKES, Justice.

This appeal concerns the right of the appellant Stoker, an attorney, to a portion of the contingent fee provided for in respondent Annest’s attorney fee contract with his clients who discharged respondent without cause and retained appellant, who negotiated a settlement of the case. The district court awarded the respondent the entire contingent fee. We reverse and remand.

In May of 1973 Bernice Boyer and Martin Anderson retained respondent James An-nest to represent them in an action for the wrongful death of their son, Richard Anderson. Under the terms of their agreement with Mr. Annest, Annest’s fee was contingent on recovery. The contract provided, inter alia, that Annest would be entitled to 40% of the total sum recovered, excluding costs, if the recovery followed an appeal. After Annest was retained the defendant in the action offered to settle for $15,000, which Annest’s clients rejected. A later offer by the defendants to settle for $10,000 was also rejected by the clients. The case then proceeded to trial. During the trial the defendants offered to settle for $17,500. Plaintiffs Anderson and Boyer apparently believed that one of the defendants had insurance coverage of $100,000, and they insisted that Annest not accept any settlement less than $100,000. Annest made their position known to the defense attorney and rejected the settlement offer of $17,500.

A jury verdict was returned in favor of the defendants, but on appeal that verdict was reversed by this Court. See Anderson v. Gailey, 97 Idaho 813, 555 P.2d 144 (1976). Following the reversal, the defendants again offered to settle for $10,000. Annest communicated this offer to his clients and they instructed him to reject it. Annest then began to prepare for another trial. Before a second trial was held, however, the clients discharged Annest for the stated reason that “very little progress [had] been made in this case in over three years.” For the purpose of this proceeding, Stoker has agreed, however, that the discharge was without cause. Appellant Stoker, who was later substituted in place of Annest as counsel, negotiated a settlement of $25,000. The entire $25,000 was paid into the registry of the court.

Stoker then filed a “motion for division of attorney fees” and respondent Annest responded with a “motion for order to pay in accordance with contract.” A hearing was held on these motions at which Annest and Stoker both waived any procedural rights to a separate action and agreed that the issue be decided by the district court at that time. At that hearing appellant Stoker explained to the district court that “the contract that I had with the client was basically whatever fee was obtained under Mr. Annest’s contract would be divided by the court in accordance with what we submitted here; in line with the cases I have been able to find . . . I would request the right to submit a short brief . dealing with . . whether the court has the right to divide the 40% fee or should Mr.. Annest get the whole thing.” Appellant Stoker argued that because respondent Annest was discharged prior to full performance, he was not entitled to the full 40% provided for in the contingent fee contract and that appellant Stoker was entitled to that portion to which Annest was not entitled. Following the hearing and after the submission of authorities in support of their positions, the district court in a memorandum opinion ruled in favor of Annest for the full 40% provided for in the contingent fee contract, /. e., $9,236.67.¹ By order dated January 6,1978, the court ordered the $9,236.67 fee portion of the deposit held in the registry of the court to be paid to Annest and “the balance of the settlement proceeds held by the clerk . . . ” to be paid “. . over to Mr. Stoker, in trust on behalf of his clients.” Stoker appeals to this Court from that January 6,1978, order.

Even though respondent Annest stipulated to the procedure before the district court in determining the adverse claim of Stoker to the attorney fee portion of the settlement proceeds in the court’s registry, on appeal respondent Annest strenuously challenges the right of Stoker to pursue this appeal, contending that “Stoker has no standing to maintain the appeal and is not a real party in interest.” However, this Court has ruled to the contrary in the recent case of James v. Dunlap, 100 Idaho 697, 604 P.2d 711 (1979), wherein this Court stated, at page 713:

“Concomitant with the contention just disposed of, respondents argue that appellants were not parties in the court below in the juvenile proceeding. This is true, but appellants were very much parties in the ensuing compensation proceeding and certainly they were aggrieved by the order holding them not so entitled. Renfro v. Nixon, 55 Idaho 532, 45 P.2d 595 (1935), is ample authority for the proposition that in this jurisdiction an attorney in quest of his fee may be an aggrieved party entitled to appeal.”

The James case is dispositive of respondent’s contention that the appeal should be dismissed.

The main issue raised by appellant which we now address concerns the right of a client to dismiss without cause his attorney with whom he has executed a contingent fee contract, and the measure of damages, i. e., the amount of attorney fees, that that attorney is entitled to recover for the breach by the client of the contingent fee contract resulting from such a wrongful dismissal. The appellant urges us to follow the recent California decision of Fracasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9 (1972), which held that the remedy of a wrongfully discharged attorney is limited to recovery in quantum meruit of the value of the services rendered up to the time of discharge and that the attorney is not entitled to sue for damages for the client’s breach of the contingent fee contract. Although several jurisdictions have followed Fracasse in this respect, see e. g., Covington v. Rhodes, 38 N.C.App. 61, 247 S.E.2d 305 (1978); Heinzman v. Fine, Fine Legum & Fine, 217 Va. 958, 234 S.E.2d 282 (1977), we see no reason why the respondent should be denied the right to recover damages for breach of contract, and we decline the appellant’s invitation to adopt the California rule. However, since this issue is before the Court for the first time, an analysis of the California court’s opinion in Fracasse provides a useful framework for delineating the reasons for the rule which we adopt today.

Prior to Fracasse, California courts had consistently held that an attorney employed under a contingent fee contract and subsequently discharged without cause was entitled to recover the full amount of the contingent fee agreed upon regardless of the amount of work he had put into the case and even though the success contemplated as the contingency was brought about by another attorney whom the client had substituted. See Denio v. City of Huntington Beach, 22 Cal.2d 580, 140 P.2d 392 (1943); Zurich Gen. Accident & Liab. Ins. Co., v. Kinsler, 12 Cal.2d 98, 81 P.2d 913 (1938). While this rule could often result in a double expense to the client, the California courts did not consider that an inappropriate burden for the client to bear since that additional expense was the result of the client’s own improper act in discharging his counsel. See Fivey v. Chambers, 199 Cal.App.2d 457, 19 Cal.Rptr. 111 (1962).

This rule derived from an early California case, Baldwin v. Bennett, 4 Cal. 392 (1854). In Baldwin the client had engaged the services of an attorney to represent him for a contingent fee. However, the client, without the advice or knowledge of the attorney, settled the claim. The attorney then brought an action to recover his fee, which the client opposed contending that the attorney was entitled to recover only what his services were worth, without regard to the contract. The California court ruled:

“The general rule as to measure of damages in an action for breach of contract, is correctly given by appellant’s counsel. It ‘is not the whole price agreed to be paid, but the actual loss sustained, which will consist of the value of the services rendered and the damage sustained by the refusal to allow performance of the rest of the contract.’

“To this rule there are, however, some exceptions. Where, from the nature of the contract, (as in this case,) no possible mode is left of ascertaining the damage, we will have presented the anomalous case of a wrong without a remedy, unless we adopt the only measure of damages which remains, and that is, the price agreed to be paid.” 4 Cal. at 393.

The California court in Fracasse criticized the Baldwin decision and the rule it had sired on two grounds. First, the court noted that Baldwin was based on the “faulty premise” that the damages suffered by a wrongfully discharged attorney were not ascertainable and concluded that there was “no convincing reason why recovery on a quantum meruit theory would not fairly and adequately compensate the attorney for his services . ..” 100 Cal.Rptr. at 388, 494 P.2d at 12. The court then noted that because of the unique relationship between an attorney and his client the client must have the absolute right to dissolve that relationship whenever the client ceases to have confidence in the integrity, judgment or capacity of the attorney. The court concluded that the Baldwin rule, which imposed on the client the burden of paying the full contingent fee to the discharged attorney, unduly restricted that right. The court ruled that a client’s discharge of his attorney, with or without cause, “does not constitute a breach of contract for the reason that it is a basic term of the contract, implied by law into it by reason of the special relationship between the contracting parties, that the client may terminate that contract at will.” 100 Cal.Rptr. at 389, 494 P.2d at 13. Accordingly, the California court ruled that a wrongfully discharged attorney had no action for breach of his contingent fee contract but that his remedy was limited to recovery in quantum meruit.

We agree with the California court that the Baldwin rule was founded on a faulty premise and produced intolerable results. It may be difficult to accurately assess the actual damages suffered by an attorney because of a client’s breach of a contingent fee contract.² However, in breach of contract cases the courts are often called upon to fix and award damages in situations where those damages are difficult to measure.³ But the difficulty of the task does not warrant the abandonment of the duty; rather, it requires the particularly careful use of judicial judgment and discretion. See Smith v. Daniels, 93 Idaho 716, 471 P.2d 571 (1970); Conley v. Amalgamated Sugar Co., 74 Idaho 416, 263 P.2d 705 (1953). As a comment to the Restatement on Contracts observed:

“The various difficulties involved in [awarding compensatory damages for breach of contract] frequently make it impractical to attain its purpose with any near approach to exactness. These [rules concerning such awards] are to be regarded by the court as guides in the estimation of damages to be recovered. Their application requires the use pf more judicial discretion than is usually the case.” Restatement of Contracts § 329, comment a (1932).

The courts are capable of determining the value of an attorney’s time and services with sufficient exactness for purposes of awarding damages both for breach of contract and for determining the amount of any setoff, whether by way of quantum meruit or otherwise.

We agree with the California court in Fracasse that the rule in Baldwin placed an intolerable burden on the client’s right to discharge his attorney and seek new counsel. Under the rule in Baldwin a client who engaged counsel on a contingent fee basis and thereafter discharged that attorney without cause and retained new counsel would nevertheless be obligated to pay the first attorney the full contingent fee despite the fact that the first attorney did not perform all the services necessary to secure settlement or payment of the claim and despite the fact that the discharge relieved the attorney of his duty to devote time and energy to the client’s case and thereby enabled him to profitably use that time elsewhere. See e. g., Jones v. Brown, 84 Cal.App.2d 390, 190 P.2d 956 (1948) (client required to pay attorney a 33ys% contingent fee even though substituted counsel had already been paid a 40% contingent fee). The Baldwin rule penalized clients for breaching the contract while treating attorneys as a privileged class by guaranteeing them their full fee if they were wrongfully discharged, regardless of what their actual damage may have been because of the breach.

Although we agree with the California court’s criticisms of the Baldwin rule, we do not agree that those criticisms require the rather extreme rule adopted by the court in Fracasse. In our view, the defects in the Baldwin rule are best remedied by applying the general rules of contract law which the Baldwin court recognized but thought to be too difficult to apply. The court in Baldwin recognized that under general principles of contract law the attorney was not entitled to “the whole price agreed to be paid” but was only entitled to recover “the actual loss sustained,” 4 Cal. at 393. However, that court did not apply this rule because it thought there was “no possible mode . left ... to ascertain the exact damage suffered by the wrongfully discharged attorney” and that “unless we adopt the only measure of damages which remains, and that is, the price agreed to be paid” that “we will have presented the anomalous case of a wrong without a remedy . . .” 4 Cal. at 393.

However, in Idaho this Court has consistently ruled that “in actions for breach of contract only such damages will be allowed as fairly compensate the injured party for his loss.” O. A. Olin Co. v. Lambach, 35 Idaho 767, 772, 209 P. 277, 278 (1922); see Nelson v. Hazel, 91 Idaho 850, 433 P.2d 120 (1967); Carey v. Lafferty, 59 Idaho 578, 86 P.2d 168 (1938); Jensen v. Wooters, 56 Idaho 595, 57 P.2d 340 (1936). As we stated in King v. Beatrice Foods Co., 89 Idaho 52, 402 P.2d 966 (1965):

“[A]s a general proposition . . . the purpose or objective of the court is to place the injured party ... in the position no better and no worse than he would have occupied had the contract been performed.” 89 Idaho at 58-59, 402 P.2d at 969, quoted in Industrial Leasing Corp. v. Thomason, 96 Idaho 574, 577, 532 P.2d 916, 919 (1974); Young Electric Sign Co. v. Capps, 94 Idaho 518, 522, 492 P.2d 57, 61 (1971).

We have long held in Idaho that the purpose of awarding damages for breach of contract is to fully recompense the non-breaching party for its losses sustained because of the breach, not to punish the breaching party. Application of this principle of course requires that the court in fixing damages account for the savings which inure to the non-breaching party because he is relieved of his duty to perform by the breach. As we stated in Young Electric Sign Co. v. Capps, supra :

“ ‘[T]he defendant’s non-performance . saves the plaintiff from the labor or expense of wholly or partly performing on his own part, ... in order to settle finally the rights of both parties in a single action, the court deducts this savings made by the plaintiff from the value of the performance which the defendant should have made.’ ” 94 Idaho at 522, 492 P.2d at 61, quoting 11 Williston on Contracts, § 1339 (3d ed. 1968).

In the context of a breach of a contract for personal services, this rule entitles the wrongfully discharged employee or agent to recover the contract price diminished by the expenses saved and by the amount he received or could have earned from other suitable employment available because of his discharge. See Restatement of Agency (Second) § 455, comment d (1958); 11 Williston on Contracts, § 1358 (3d ed. 1968); 5 Corbin on Contracts, § 1095 (1964); D. Dobbs, Handbook on the Law of Remedies, § 12.25 (1973). The discharged employee has a duty to mitigate his losses. This rule applies whether the employee’s agreed compensation is a fixed sum or contingent on results accomplished, 11 Williston, supra at 301, and has been applied to wrongfully discharged attorneys on contingent fee contracts. See Knoll v. Klatt, 43 Wis.2d 265, 168 N.W.2d 555 (1969); Tonn v. Reuter, 6 Wis.2d 498, 95 N.W.2d 261 (1959); Berry v. Nichols, 227 Ark. 297, 298 S.W.2d 40 (1957); 5 Corbin on Contracts, supra at 520-521 (discussing the Tonn decision); S. Speiser, Attorneys’ Fees §§ 4.34- 35 (1973); see also Restatement (Second) of Agency, § 449, comments b & d (1958). Cf. Buckalew v. City of Grangeville, 100 Idaho 460, 600 P.2d 136 (1979) (a public officer wrongfully discharged has no duty to mitigate damages).

We are mindful that the client must be free to retain counsel whom he trusts and in whom he has confidence and to discharge an attorney with whom he is dissatisfied. But we do not believe that these interests and considerations preclude the application of basic principles of contract law. The dissent in Fracasse appropriately observed that:

“Although [attorney-client] contracts are subject to the usual precepts governing persons standing in a confidential relationship, no statute, decision or rule of professional conduct has declared that they are not subject to general contract law. No authority has ever so jettisoned respected contract principles to decree, as do the majority today, that a solemn, valid agreement between attorney and client may be dissolved into thin air at the mere whim of the client.” 100 Cal. Rptr. at 393, 494 P.2d at 17.

The client, just as any other contracting party, is free to breach the contract and discharge the attorney⁴ Except in unique situations, contract law is not designed to compel a contracting party to continue with a contract with which it is dissatisfied. Rather, contract law only assures that the non-breaching party receives the benefit of the contract. While the client who discharges an attorney without cause would be liable to the attorney for breach of contract, the liability of the client should be limited to the fee specified in the contract diminished by the savings in time and effort to the attorney resulting from discharge. Unlike the situation resulting from the rule in Baldwin, the client should not be forced to pay to both the discharged attorney and a substituted attorney a full contingent fee. Likewise, the discharged attorney should not reap the windfall of receiving a full fee for only part performance.

Although the client is only liable for the attorney’s actual losses and not necessarily the full contract fee, a client who discharges one attorney and hires another will nevertheless usually pay more in attorney fees than if he had only retained the services of one attorney. The services performed by the second attorney will generally be somewhat duplicative of services already performed by the first attorney, and those duplicated services ordinarily would be reflected both in the first attorney’s recovery and in the fees charged by the second attorney.⁵ In this sense the client’s freedom to discharge an attorney is burdened. However, it is not inappropriate for the client to bear this burden where he has discharged his first attorney without cause. In sum, an application of general principles of contract law in this type of case will not generally result in the imposition of a significantly greater burden on the client than that which results from a recovery in quantum meruit under the California court’s rule in Fracasse.

We conclude that a proper application of the general principles of contract law best remedies the evils pointed out by the California court in Fracasse, and yet does so without engaging in the dubious practice of finding “implied in law” terms in the contingent fee contract and without stripping the attorney entirely of his right to rely on the contingent fee contract and to sue for its breach.⁶ The California court’s decision in Fracasse, as the dissent in that case noted, reduced “an attorney-client contract to a hollow and meaningless act” and to an agreemeht that “may be dissolved into thin air at the mere whim of the client.” 100 Cal.Rptr. at 393-394, 494 P.2d at 17-18. In our view an attorney-client contract is still a contract, and either the attorney or the client is entitled to sue for damages for its breach.

The trial court in this case properly concluded that Annest was entitled to recover on his contingent fee contract but erred in awarding Annest the entire fee and not just Annest’s actual losses. We therefore remand the case for further proceedings. On remand the court is to consider the expenses saved Annest because he was not required to complete performance under the contract, see Berry v. Nichols, supra, and to consider the value to Annest of being relieved of his obligation to continue to perform services and expend further time in the representation of the clients. See Torn v. Reuter, supra. In making these determinations on remand the court may properly look to the services performed by Stoker, the substituted counsel, as an indication of the services which remained to be performed under the contract and which Annest was no longer obligated to perform. In doing so, however, the court on remand is also to be cognizant of the fact that some of the services performed by the substituted counsel, Stoker, were necessarily duplicative of services already performed by An-nest, and Annest’s recovery on the contract should not be reduced by the value of those services.

Stoker’s attorney fees, of course, are based on his particular agreement with the clients. The record suggests that under his agreement with the clients he was to receive that portion of the 40% contingent fee to which Annest was not entitled. If this is the case, on remand the district court is to award to Stoker the difference between Annest’s actual damages for the client’s breach of the contract and the fee provided by the contract.

Reversed and remanded. Costs are awarded to appellant. No attorney fees.

DONALDSON, C. J., and SCOGGIN, J. pro tem., concur.

1 . As the sole authority for its conclusion, the district court quoted the following statement from 6 Cal.Jur.2d:

“An attorney employed under a contingent fee contract to perform certain services, but discharged by the client without cause before the completion of said services, does not thereby lose such rights against the client as he would have had upon completion of the contemplated services. He is generally entitled to the same amount of compensation and under the same contingency as if he had completed the services contemplated. He therefore may recover the full amount of the contingent fee agreed upon, even though the success contemplated as the contingency was brought about by another attorney whom the client had substituted. If this means a double expense to the client, it is a result of his own improper act. . . . Even where the attorney would be entitled to sue for the contingent fee agreed upon, he has the option to sue instead for the reasonable value of his services rendered prior to the unjustified discharge by the client.” 6 Cal.Jur.2d, Attorneys at Law, § 119.

However, the law as expressed in the foregoing quotation from Cal.Jur.2d was no longer the law in California at the time of the Court’s decision herein, as a result of the decision of the California Supreme Court in Fracasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9 (1972), discussed later herein. 7 Cal.Jur.3d, § 260, p. 592, now follows in the rule in Fracasse v. Brent, supra, and supercedes the statement in 6 Cal.Jur.2d, § 119, which followed the cases prior to Fracasse, and particularly the early decision of Baldwin v. Bennett, 4 Cal. 392 (1854), which was expressly overruled in the Fracasse case.

2 . Like Baldwin and Fracasse, the case at bar does not present the more difficult problem of determining the actual loss suffered by an attorney employed under a contingent fee contract but discharged without cause where the contingency has not yet occurred. In Baldwin and the instant case the contingency had occurred before the action to recover on the contract was brought. In Fracasse the court ruled that the discharged attorney was not entitled to bring an action for recovery in quantum meruit until the contingency had occurred.

3 . The most difficult of contract damages pales when compared to the much more difficult and uncertain determination of tort damages, i. e., pain and suffering, mental anguish, outrage, injury to reputation, heart balm, etc.

4 . We note, however, that the attorney, because of his professional position, does not have the same freedom to withdraw from representation of the client. See ABA Code of Professional Responsibility, EC 2-32 (1976); Idaho Code of Professional Responsibility; DR 2-110 (1978); I.R.C.P. 11(b).

5 . This problem is not presented in this case, however, as the record indicates that Stoker agreed with the clients Anderson and Boyer that his fee would be the difference between the full contingent fee provided for in Annest’s contract and the amount Annest was actually entitled to recover.

6 . In his motion to the district court, the respondent sought payment of his fee based on the contract. He did not seek, alternatively, recovery in quantum meruit. Hence, we need not decide here whether an attorney may elect between damages for breach of contract and recovery in quantum meruit or whether recovery in quantum meruit, if permitted, may exceed the fee provided by the contract. See Chambliss, Bahner & Crawford v. Luther, 531 S.W.2d 108 (Tenn.Ct.App.1975); Howell v. Kelly, 534 S.W.2d 737 (Tex.Civ.App.1976).