Supreme Court Rules Quantum Meruit Applies to Attorneys’ Liens in Contingency Cases

October 23, 2006

The Supreme Court just published Baker v. Shapero, which involved the enforcement of an attorney’s lien by Richard Shapero and Carl Frederick. Shapero and Frederick represented the Appellant Chiu, who sustained serious injuries from an auto collision. He was in the hospital for fifteen days, seven of those in intensive care. Chiu’s sister initiated contact with Shapero and asked to retain his services. Shapero sent a paralegal to the hospital where Chiu, assisted by his sister, signed an employment agreement with Shapero. Shapero, or one of his designees, agreed to represent Chiu in return for a 40% contingency fee. Shapero then transferred the case to Carl Frederick. Chiu subsequently discharged Shapero and Frederick, rehired them four days later, and then permanently discharged them.

Chiu received a settlement of $175,000.00. Shapero and Frederick immediately filed an attorney’s lien, claiming entitlement to their contingency fee. The trial court following LaBach v. Hampton, 585 S.W.2d 434 (Ky.App. 1979), determined that Shapero and Frederick were dismissed without cause, and thus, entitled to a fee based on the contract. Under LaBach an attorney discharged without cause before completion of the contract was entitled to the agreed upon contingent fee less, “the reasonable cost of services of other attorneys required to complete the contract.”

The Supreme Court noted this position was the extreme minority position and that most jurisdictions only allow those discharged attorneys to claim fees on a quantum meruit basis. In fact, the Supreme Court found that the cases cited within LaBach actually supported this majority position. Accordingly, the Court found compelling reasons to overrule the holding in LaBach and apply the majority rule originally intended by those cases. It held, that “when an attorney employed under a contingency fee contract is discharged without cause before completion of the contract, he or she is entitled to fee recovery on a quantum meruit basis only, and not on the terms of the contract. This view is consistent with the client’s unqualified right to discharge his attorney at any time. The case was remanded to allow Shapero and Frederick a chance to prove the quantum meruit value of their services. (The amount considered reasonable to compensate them for their services rendered in the quasi contractual relationship) .

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