United States District Court, E.D. Kentucky, Southern Division, Pikeville
RICHARD C. ADLER, M.D., Plaintiff,
JOE F. CHILDERS, Claimant.
MEMORANDUM OPINION AND ORDER
AMUL R. THAPAR, District Judge.
A stable house requires a strong foundation, without which it may crumble. The same can be said of an attorney-client relationship. Plaintiff Richard Adler, M.D. has firsthand experience with both of these phenomena: Dr. Adler hired a lawyer when he discovered faults in his home constructed atop mine spoil. As litigation progressed, Dr. Adler claims that the condition of his property worsened. At the same time, his relationship with his attorney, Joe Childers, also deteriorated. Dr. Adler may be able to recover damages for his investment in his house through litigation. But how may Childers recoup his investment in the now-defunct attorney-client relationship? Under Kentucky law, Childers can collect the fair value of his legal services per the doctrine of quantum meruit.
In 2012, Dr. Adler retained Childers's legal services in his suit against a property developer and a construction company. Childers Exhibit 2. The parties agreed that Dr. Adler would pay Childers at a rate of $175 per hour and reimburse him for certain litigation costs and expenses. Id. The parties also agreed that Childers would collect "20% of any amounts recovered whether by settlement prior to filing suit or after litigation has been commenced." Id. Childers testified that he voluntarily accepted this arrangement, although it granted him an hourly fee that was less than his customary billing rate. He explained that he had expected to recover much of the value of his services through the contingency component of this blended fee agreement.
After executing the agreement, Childers committed himself to this complex case. He filed the complaint, conducted discovery, and hired expert witnesses to provide opinions about the construction and location of Dr. Adler's home. Dr. Adler, too, upheld his end of the bargain and paid Childers on a monthly basis as required by the fee agreement. See Childers Exhibit 2; Childers Exhibit 5 (noting payments received from Dr. Adler); ECF No. 150-3. The relationship progressed fairly smoothly; Childers guided Dr. Adler through an unsuccessful mediation session and litigated a number of summary judgment motions and motions in limine. In October 2013, however, Dr. Adler stopped paying Childers's fee. Childers Exhibit 5 (indicating that Dr. Adler paid Childers $14, 632.02 through October 16, 2013). Nevertheless, Childers continued to represent Dr. Adler, opposing a motion for a jury view and otherwise building the case for trial. See ECF No. 121.
After several additional months of trial preparation, the parties began to resurrect settlement talks. On March 22, 2014, Dr. Adler communicated to Childers that he would accept a "bare minimum" settlement of $300, 000 plus attorney's fees. Childers testified that he agreed to cut his fees to $62, 250 based on that representation. See also R. 3-5 (Exhibit E to Reply of Joe Childers - Email dated March 26, 2014). Childers explained that this fee reduction strategy made sense given the risk that Dr. Adler may not recover the cost of his house at trial. Childers then initiated settlement conversations with the defendants. On March 28, 2014, Childers told Dr. Adler that the defendants had agreed to the total settlement amount of $362, 250. See R. 3-6 (Exhibit F to Reply of Joe Childers - Email dated March 28, 2014). He noted that the defendants also agreed to disclose to prospective buyers that the subdivision was built on mine spoil and warn those buyers that they should consult with an engineer before purchasing the property-just like Dr. Adler desired. Id. But Dr. Adler was not completely at ease with this settlement. He communicated that he was nervous about Childers's unwillingness to litigate the case. Id. (noting that he had a "very strange feeling in the pit of his stomach" because Childers was reluctant to go to trial).
The parties' relationship suffered a fatal blow a few days later. While Childers was on vacation, Dr. Adler learned that the Court dismissed his case from its active docket, but retained jurisdiction over the matter pending consummation of the settlement per its standard procedure. Dr. Adler then emailed Childers, accusing him of dismissing the case without prior approval. See R. 3-7 (Exhibit G to Reply of Joe Childers - Email dated April 9, 2014). In his email, Dr. Adler claimed that Childers drafted the settlement agreement in a manner that "adequately protects the defendants alone" and that it was full of provisions that Dr. Adler could not accept. Id. He demanded that Childers reinstate the case and claimed that the parties had not reached a settlement. Id. At the end of his message, Dr. Adler again referenced Childers' ability to adequately represent him in the litigation. Id. ("Finally, to reiterate once again what I repeatedly asked you on previous occasions, if you have any hidden considerations that prevent you from adequately representing me against Elk Glenn, please let me know....").
Childers explained that he did not ask for the case to be dismissed, and that parties often negotiate subsidiary settlement provisions after agreeing to settle the case. Id. Childers also noted that he settled the matter on terms that he had previously presented to Dr. Adler for approval. Id. Even after this explanation, Dr. Adler insisted on reinstating the case. He claimed that the inclusion of a confidentiality provision was a "deal breaker" and that his failure to object to settlement terms he previously viewed did not mean he accepted those terms. Id. at 3.
In response to Dr. Adler's demands, Childers did not immediately reinstate the case, but rather proceeded in an incremental manner. He notified the defendants of Dr. Adler's decision and then explained to Dr. Adler that the defendants would ask for additional compensation for walking away from the settlement discussions. See R. 3-9 (Exhibit I to Reply of Joe Childers - Email dated April 14, 2014). Dr. Adler remained steadfast and instructed Childers to reinstate the case. Id. at 2. Dr. Adler even accused Childers of misrepresenting information to the Court. Id. Still, Childers hoped he could convince Dr. Adler to accept the settlement. He stated that he would file a motion to reinstate the case that would be accompanied by a motion to withdraw. But Childers refrained from filing such a motion in the hopes that Dr. Adler would change his mind. Before Childers acted, Dr. Adler notified the Court-a full two weeks before the deadline to reinstate the case-that he was without counsel and that he wished to restore the matter to the Court's active docket. ECF No. 125; ECF No. 126. Following this notice, Childers filed a motion to withdraw, indicating that communications with his client had "deteriorated." ECF No. 127. Finally, Childers filed a motion for attorney's fees and a lien, seeking quantum meruit compensation in lieu of a contractual contingency fee. See R. 1; R. 3 at 12.
Whether Childers can recover a reasonable fee turns on the circumstances that led to the dissolution of his attorney-client relationship. Where an attorney withdraws without valid cause, he cannot collect any payment under a contingency fee agreement-even through an action for quantum meruit. See Lofton v. Fairmont Specialty Ins. Mgrs., Inc., 367 S.W.3d 593 (Ky. 2012). But where the client discharges the attorney or where counsel has good cause to withdraw, he may maintain a quantum meruit action for reasonable fees. Id. at 597; Baker v. Shapero, 203 S.W.3d 697 (Ky. 2006). But what happens when both parties contribute to the breakdown of the relationship? In such circumstances, Kentucky law indicates that an attorney may recover his fees under an action for quantum meruit.
I. Childers is Entitled to Recoup a Reasonable Fee in an Action For Quantum Meruit.
Dr. Adler argues that the facts of this case fall squarely under Lofton. R. 2 at 3-4. He claims that Childers simply withdrew from the representation because he disagreed with Dr. Adler about the value of the case and his choice to reject an inferior settlement. See id.; see also Lofton, 367 S.W.3d at 596-97 (noting that a "fundamental disagreement" over the value of the case does not permit an attorney to withdraw from the representation for cause and collect fees in quantum meruit ).
But Lofton specifically distinguishes cases where the attorney and client reach "a mutual understanding" as to the settlement goals but the client "later depart[s] from that understanding and adopt[s] a substantially different settlement objective." 367 S.W.3d at 598. And that is what happened in this case. Dr. Adler communicated his main settlement goals-a $300, 000 recovery plus attorney's fees-to Childers, who in turn negotiated a settlement for those amounts. See R. 3-5 (Exhibit E to Reply of Joe Childers - Email dated March 26, 2014); R. 3-6 (Exhibit F to Reply of Joe Childers - Email dated March 28, 2014). Childers testified that he even managed to negotiate terms requiring the defendants to disclose to prospective buyers that the subdivision was built on mine spoil and warn those buyers that they should consult an engineer before purchasing the property. These provisions were consistent with Dr. Adler's other settlement goals. However, Dr. Adler abruptly rejected the settlement, claiming that he had not agreed to its terms. R. 3-8 ...