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Faricy Law Firm, P.A. v. API, Inc. Asbestos Settlement Trust

Supreme Court of Minnesota

June 6, 2018

Faricy Law Firm, P.A., Appellant/Cross-Respondent,
v.
API, Inc. Asbestos Settlement Trust, Respondent/Cross-Appellant.

          Office of Appellate Courts Court of Appeals

          Vadim Trifel, John H. Faricy, Jr., Faricy Law Firm, P.A., Minneapolis, Minnesota, for appellant/cross-respondent.

          Justin P. Weinberg, Michael M. Sawers, Adam G. Chandler, Briggs and Morgan, P.A., Minneapolis, Minnesota, for respondent/cross-appellant.

         SYLLABUS

         1. To determine the value of services owed to a discharged contingent-fee attorney in quantum meruit, a district court must weigh the equities by considering the (1) time and labor required; (2) nature and difficulty of the responsibility assumed; (3) amount involved and the results obtained; (4) fees customarily charged for similar legal services; (5) experience, reputation, and ability of counsel; (6) fee arrangement existing between counsel and the client; (7) contributions of others; and (8) timing of the termination.

         2. Because the district court determined the value of a discharged attorney's services in quantum meruit based on an incorrect application of the law, remand to the district court is appropriate.

         Affirmed as modified.

          OPINION

          CHUTICH, JUSTICE.

         This case requires us to clarify the proper method for calculating the quantum meruit[1] value of an attorney's services when a client terminates the contingent-fee agreement before a matter concludes. Respondent API, Inc. Asbestos Settlement Trust (API Trust), retained appellant Faricy Law Firm, P.A. (Faricy), under a contingent-fee agreement to assist with asbestos litigation. Faricy represented the predecessor to API Trust and then API Trust for about 10 years and was involved in pursuing several claims. Two months before settling a claim upon which Faricy had worked, API Trust discharged Faricy.

         Minnesota law prohibits a discharged contingent-fee lawyer from receiving the contingent fee as a contract remedy, instead allowing recovery only of the reasonable value of services under a theory of quantum meruit. See In re Petition for Distribution of Attorney's Fees Between Stowman Law Firm, P.A., 870 N.W.2d 755');">870 N.W.2d 755, 761 (Minn. 2015); Lawler v. Dunn, 176 N.W. 989, 990 (Minn. 1920). The district court concluded that Faricy had failed to prove the value of the services that it had provided and dismissed Faricy's attempt to recover a portion of API Trust's settlement funds. The court of appeals reversed and remanded, concluding that the district court had applied the wrong test for determining quantum meruit. It provided a set of factors for the district court to consider on remand. Faricy seeks review on the issue of whether the contingent-fee agreement can be considered as a factor when determining the reasonable value of services in quantum meruit, and API Trust seeks cross-review regarding the amount of evidence required to prove quantum meruit. We granted review on both issues.

         FACTS

         For 10 years, Faricy represented API Trust and its predecessor, API, in suits against insurance carriers that refused to indemnify API for asbestos-related verdicts and settlements. The insurance carriers claimed that API had exhausted the aggregate limits under their respective policies, but Faricy advised API to pursue coverage from the carriers because API's policies had no aggregate limits. Under an agreement providing for payment to Faricy on an hourly-fee basis, API first retained Faricy in 2002 to pursue these asbestos-related insurance-coverage claims. In 2004, Faricy and API entered into a second retainer agreement, which provided for a reduced hourly rate along with a 14% contingency fee. Soon thereafter, API filed for Chapter 11 bankruptcy, leading to the formation of API Trust, which continues to handle the remaining asbestos-related claims and insurance-coverage litigation through its trustee. From 2002 to 2009, Faricy represented API and API Trust on various asbestos-related claims, and API Trust paid Faricy for all work completed before January 2009.

         In 2004, while working under the first retainer agreement, Faricy filed an insurance claim on behalf of API Trust with Home Liquidator. The dispute here concerns Faricy's work on the Home Liquidator claim after January 2009.

         At API Trust's behest, Faricy and API Trust entered into a third retainer agreement in January 2009; this agreement, which replaced the 2004 agreement, had no hourly fee and a 1/3 contingent fee. The agreement allowed API Trust to terminate Faricy's representation for any reason and stated that, in the event of termination, "the Firm shall be entitled to receive such compensation as determined by Minnesota law under the circumstances of this engagement."

         From January 2009 to August 2012, Faricy represented API Trust on the Home Liquidator claim. Faricy's attorneys drafted letters, conducted legal research, and advised and strategized with API Trust concerning settlement negotiations with Home Liquidator.

         In June 2012, while Faricy was still representing API Trust, Home Liquidator extended an $11 million settlement offer. On August 31, 2012, API Trust terminated Faricy's representation and requested a bill for the services that Faricy had provided on Home Liquidator and one other matter.

         Faricy responded in late September, requesting "33-1/3% of any Insurance Recovery against Home Insurance Company and the Home Liquidator." After receiving this letter, the trustee of API Trust discussed Faricy's request with his colleagues, the API Trust advisor and legal representative, admitting in an email that he thought that Faricy "is entitled to a quantum meruit fee for time spent." The trustee also testified at trial that he would have considered paying Faricy the reasonable value of its services had Faricy actually submitted a bill that reflected that it had "actually done something of value for the trust" and showed the time it had spent on that work. Despite this acknowledgment that Faricy would be entitled to the reasonable value of his services, the trustee did not respond to Faricy's request for the contingent fee because he did not want Faricy to file a lien on the Home Liquidator recovery.

         In November 2012, just over two months after API Trust terminated Faricy's representation, API Trust settled the Home Liquidator claim for $21.5 million. Two years later, Faricy learned that Home Liquidator would begin making settlement payments to API Trust. Faricy again wrote to API Trust and requested 1/3 of the payments, based on the 2009 contingent-fee agreement. In December 2014, API Trust informed Faricy for the first time that it did not consider the Home Liquidator claim to be within the scope of the 2009 agreement and that it refused to pay Faricy any amount that reflected the contingent fee or any fee. Although API Trust refused to pay Faricy for any work on the Home Liquidator claim, the trustee received $41, 000 for work completed on the Home Liquidator claim.

          In June 2015, Faricy filed an attorney's lien under Minn. Stat. § 481.13 (2016), asserting entitlement to 1/3 of all received and pending payments from Home Liquidator to API Trust. Faricy then sought to enforce the lien. Instead of awarding the contingent fee that Faricy had requested, the district court considered whether Faricy had proven a claim in quantum meruit, which would require API Trust to compensate Faricy for the reasonable value of the services that it had provided before API Trust terminated Faricy's representation.

         API Trust contended in district court that the contingent-fee agreement did not cover the work that Faricy did on the Home Liquidator claim, but the district court rejected that argument. The district court found that "Faricy and the trustee [for API Trust] worked together to set the stage for an excellent outcome consistent with the settlement objective that was identified entering the negotiations. Millions of dollars were recovered with the possibility of more in the future." It also found that "the events leading to the settlement between API Trust and the Home Liquidator lead to the reasonable inference that Faricy's work product, advice, and recommended negotiation strategy led to the settlement in significant part." [2] (Emphasis added.) Despite this recognition of the value that Faricy had provided to API Trust, the district court held that Faricy had failed to provide sufficient evidence to allow it to calculate the value of Faricy's services to API Trust.

         To determine the quantum meruit value of Faricy's services, the district court attempted to use two different methods of calculation: (1) the lodestar method, which focuses on evidence of the hours worked, see Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 542 (Minn. 1986) (adopting the United States Supreme Court's lodestar approach); see also Minn. Gen. R. Prac. 119.02 (outlining a standard procedure for considering attorney-fee requests that are to be determined under the lodestar method); and (2) a factor-based method developed by the court of appeals, see In re L-tryptophan Cases, 518 N.W.2d 616, 621 (Minn.App. 1994). Although the district court "implored Faricy" to provide more evidence of the value that its legal work conferred on API Trust, the lack of evidence of the hours that Faricy had worked stymied the district court's efforts. The court noted that it found "no basis for the court to arrive at a non-arbitrary or non-speculative reasonable value." The district court concluded that, no matter the calculation or approach, "Faricy failed to carry its burden of proving the reasonable value of its work in connection with the Home Liquidator claim." Accordingly, the district court dismissed Faricy's petition and extinguished Faricy's lien without awarding Faricy any compensation for its work.

         On appeal, the court of appeals concluded that the district court erred in deciding that Faricy had not provided enough evidence to calculate a quantum meruit fee. Faricy Law Firm, P.A. v. API, Inc. Asbestos Settlement Tr., A16-1539, 2017 WL 1832415, at *4 (Minn.App. May 8, 2017). According to the court of appeals, "it was erroneous for the district court to effectively rule that Faricy [was] entitled to nothing, despite correctly finding that Faricy performed some uncompensated work on the Home Liquidator claim for which a promise to pay was implied." Id. The court ...


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