In the Matter of Gilbert
In the Matter of Gilbert
Opinion of the Court
delivered the Opinion of the Court.
{ 1 In this attorney discipline proceeding, the respondent, Juliet Carol Gilbert, agreed to provide certain immigration-related legal services to Christopher Henderson and Vice-toria Peters for a flat fee. The written fee agreement did not include milestones or otherwise describe what payment, if any, the clients would owe Gilbert if the representation ended before she completed all of the specific tasks identified in the agreement. When her clients terminated the representation early, Gilbert retained a portion of the fees advanced by the clients as compensation for the approximately four-and-a-half hours of work she had performed on the case to that point.
T2 The Office of Attorney Regulation Counsel brought a disciplinary action against Gilbert alleging, among other things, that she violated Colorado Rule of Professional Conduct 1.16(d), which requires attorneys, upon termination, to refund any advance payment of fee that "has not been earned." Office of Attorney Regulation Counsel argued that Gilbert was obligated to refund the The entire advance fee paid by the clients because the fee agreement did not provide for either the assessment of a fee in the event of early termination or for any hourly fee. The Hearing Board determined, however, that Gilbert was entitled to a portion of the fee in quantum meruit because she had provided legal services for the clients and it would be unjust for the clients to retain the benefit of those services without compensating Gilbert. Because Gilbert had earned a portion of the advance fee in quantum meruit, the Board , concluded that Gilbert did not violate Rule 1.16(d) by retaining the funds earned.
(8 The Office of Attorney Regulation Counsel seeks review of the Hearing Board's determination. We conclude that the Hearing Board did not err when it determined that Gilbert did not violate Rule 1.16(d) under the cireumstances of this case. Accordingly, we affirm the Board's order.
I. Facts and Procedural History
1 4 Gilbert was a sole practitioner specializing in immigration law. In May 2011, she agreed to represent Victoria Peters in removal proceedings before the immigration court.
15 Peters, a Trinidad and Tobago native, married Christopher Henderson in 2004. Henderson, however, had previously married Carmen Sanchez, a native of the Dominican Republic, and had never terminated or annulled that marriage. When Henderson filed a Form 1-130 "Petition for Alien Relative" to classify Peters as his spouse, Henderson did not disclose his first marriage or the fact that the U.S. Citizenship and Immigration Services ("USCIS") had determined that his marriage to Sanchez was a sham. USCIS representatives met with Henderson and Pe'ters and determined that the couple had married only to obtain lawful immigration status for Peters. The USCIS therefore denied the 1-180 Petition, and the U.S. Department of Homeland Security initiated removal proceedings against Peters.
T 6 Henderson and Peters met with Gilbert a week before Peters' first appearance in immigration court for a master palendar
T7 Gilbert followed up their meeting by mailing an engagement letter to Henderson and Peters defining the seope of her representation, which the couple signed and returned. The agreement provided that, for a flat fee of $3,550, Gilbert would perform three tasks: represent Peters at the master calendar hearing, assist the couple with the second I-130 Petition, and accompany them to their interview with USCIS. Notably, the fee agreement did not include benchmarks or milestones to indicate when Gilbert would earn portions of the advance fee, nor did it explain what payment, if any, the clients would owe Gilbert if the representation ended before she completed all three tasks.
18 Between May and August 2011, the couple paid installments totaling $2,950 toward Gilbert's $3,550 flat fee. Gilbert represented Peters at the master calendar hearing at the end of May, and the immigration court granted a continuance so that Henderson could seek an annulment of his first marriage. During the summer, Gilbert conducted legal research on the case and corresponded with the clients By November, however, communication between Gilbert and the couple had broken down, and they discharged Gilbert. In an email to Gilbert terminating her representation, Peters and Henderson acknowledged that Gilbert was entitled to payment for one hour for her appearance at the May hearing. They requested that Gilbert refund their payments, minus her hourly fee for the master calendar appearance. They also asked what her hourly charge was, noting that the fee agreement did not contain an hourly rate.
T9 Onee the immigration court granted her motion to withdraw, Gilbert mailed Henderson and Peters a letter and a partial refund of the advance fee payment. Gilbert's letter explained that she had spent 4.41 hours on legal work at $250 an hour-including the court appearance, travel time, research, correspondence, and the motion to withdraw-and that she had incurred $11.64 in costs,. She therefore retained $1,114.14 as compensation for the work performed and refunded the remaining $1,885.86 of the advance fee payment. Henderson and Peters disputed the amount that Gilbert retained as earned fees.
' 10 Henderson and Peters contacted the Office of Attorney Regulation Counsel and requested an investigation. The Office of Attorney Regulation Counsel filed a complaint against Gilbert, alleging several violations of the Colorado Rules of Professional Conduct in her dealings with Henderson and Peters. The Hearing Board ultimately held that Gilbert violated Colo. RPC 1.15(a), 1.15(c), and, in turn, 1.5(f),
111 Relevant here, the Hearing Board dismissed the claim that Gilbert failed to refund unearned fees in violation of Colo. RPC 1.16(d) when she retained part of the advance fee payment as compensation for the work she had performed instead of refunding the entire amount upon her discharge. To determine whether Gilbert violated Rule 1.16(d), the Hearing Board first ascertained whether the funds that Gilbert retained had been "earned" for purposes of the Rule. The Board found that Gilbert showed Henderson and Peters her standard fee schedule, which indicated that she charged an hourly rate of $250 for "miscellaneous immigration" cases, but that this schedule was not part of the written fee agreement. The Hearing Board also found that the written fee agreement did not describe what payment, if any, would be due if the representation ended before Gilbert completed the three tasks she agreed to perform. However, the Board observed that this court has recognized an attorney's right to quantum meruit recovery for the reasonable value of services the attorney provided before being discharged. The Hearing Board reasoned that, under the cireum-stances of this case, Gilbert was entitled to recover a portion of her fee in quantum meruit. Accordingly, the Board concluded that Gilbert did not violate Rule 1.16(d) by retaining a portion of the fee she believed she had earned.
112 Specifically, the Hearing Board concluded that the elements of quantum meruit were present here because: Gilbert "unquestionably provided legal services"; Peters received a benefit from Gilbert's services; and it would be unjust in light of the parties' intentions and expectations for Peters to retain the benefit of Gilbert's services without paying for them. The Hearing Board observed, for example, that Peters acknowledged in her email terminating Gilbert that Gilbert was entitled to a fee for her appearance at the hearing. The Board found that although Peters and Henderson may not have realized that Gilbert had also performed legal research on the case, it was "entirely reasonable" for Gilbert to have done so and to have billed her clients for the time she spent communicating with them.
113 Pursuant to C.R.C.P. 251.1(d) and C.R.C.P. 251.27(a), the Office of Attorney Regulation Counsel now seeks review of the Hearing Board's determination that Gilbert did not violate Rule 1.16(d).
II. Standard of Review
114 Under C.R.C.P. 251.27(b), this court affirms the decision of the Hearing Board unless we determine, based on the record, that the Hearing Board's findings of fact are clearly erroneous or unsupported by substantial evidence in the record, or that the form of discipline imposed (1) bears no relation to the conduct, (2) is manifestly excessive or insufficient in relation to the needs of the public, or (8) is otherwise unreasonable. C.R.C.P. 251.27(b), In re Haines, 177 P.3d 1239, 1244 (Colo. 2008). We review the Board's conclusions of law de novo. C.R.C.P. 251.27(b); In re Haines, 177 P.3d at 1245.
III. Analysis
115 Colorado Rule of Professional Conduct 1.16(d) protects clients' interests by requiring attorneys to refund unearned fees when the representation ends:
*1022 Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee or expense that has not been earned or incurred. ...
(Emphasis added.) A discharged attorney violates this rule if she fails to refund unearned fees in a timely fashion. In re Sother, 3 P.3d 403, 415 (Colo. 2000). Thus, whether Gilbert violated Rule 1.16(d) by failing to refund unearned fees turns on whether she "earned" the portion of the advance fee that she retained as compensation for the work she performed before she was discharged.
{16 The Office of Attorney Regulation Counsel argues that Gilbert violated Rule 1.16(d) because the flat fee agreement in this case did not expressly provide for compensation for work performed. short of completing all three tasks identified: appearing at the hearing, filing the second I-130 Petition, and attending the interview with USCIS. In support of its argument, the Office of Attorney Regulation Counsel relies on Colo. RPC 1.5(b), which requires an attorney who has not regularly represented the client to communicate the basis or rate of her fee and expenses to the client, in writing, before or within a reasonable time after commencing the representation. The Office of Attorney Regulation Counsel also points to comment 11 to Rule 1.5, which states that the written statement explaining the basis or rate of the fee "should include a description of the benefit or service that justifies the lawyer's earning the fee," as well as "a statement describing when a fee is earned."
{17 Rule 1.5(f) explains that an attorney earns the fee when she "confers a benefit on the client or performs a legal service for the client." Colo. RPC 1.5(F; see also In re Sather, 3 P.3d at 410 ("[An attorney earns fees only by conferring a benefit on or performing a legal service for the client."). The Office of Attorney Regulation Counsel points to comment 12 to this rule, which states that advance fees are earned "only as the lawyer performs specified legal services or confers benefits on the client as provided for in the written statement of the basis of the fee. ..."
T18 Relying on these comments to Rule 1.5, the Office of Attorney Regulation Counsel contends that, for purposes of Rule 1.16(d), Gilbert did not "earn" the $1,114.14 that she retained as compensation for the legal services she performed before she was discharged because the fee agreement contained no provision governing payment of fees in the event that Gilbert's representation ended before she completed the three identified tasks. Thus, regulation counsel argues, Gilbert's failure to promptly refund the entire advance fee violated Rule 1.16(d). In addition, the Office of Attorney Regulation Counsel contends that this court's opinion in In re Sather required Gilbert to return the entire advance fee and then separately seek quantum meruit recovery against her former clients if she wished.
{19 Gilbert counters that the Office of Attorney Regulation Counsel's reliance on Rule 1.5(b) (requiring the attorney to communicate the "basis or rate of the fee" in writing) is misplaced, given that it never alleged that she violated Rule 1.5(b). Gilbert further argues that she did not violate Rule 1.16(d) by failing to refund unearned fees because she was entitled to a portion of the advance fee under quantum meruit.
1 20 To determine whether Gilbert violated Rule 1.16(d), we briefly review our prior cases generally discussing an attorney's right to recover fees in quantum meruit. We then examine our cases discussing quantum meru-it in the context of attorney discipline matters, particularly In re Sather. We conclude that In re Sather does not stand for the proposition that where a noncontingent fee agreement is silent as to how the attorney will be paid in the event of early termination, the attorney must return the entire advance fee upon discharge regardless of the work performed to that point. To the contrary, the facts and holding of In re Sather are consistent with the Hearing Board's conclusion here that Gilbert did not violate Rule 1.16(d) by failing to return the portion of the advance fee to which she was entitled in quantum meruit. Although Gilbert violated
A. Quantum Meruit in Fee Dispute Cases
121 Quantum meruit is an equitable doctrine that invokes an implied contract where the parties either have no express contract or have abrogated it. See Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 444 (Colo. 2000). The doctrine does not depend on the existence of a contract, either express or implied in fact, but rather applies where a need arises to avoid unjust enrich ment to a party in the absence of an actual agreement to pay for the services rendered. See id. That is, the equitable doctrine of quantum meruit "seeks to restore fairness when a contract fails" by "ensuring that the party receiving the benefit of the bargain pays a reasonable sum for that benefit." Id. at 445. To recover in quantum meruit, a plaintiff must demonstrate that: (1) the defendant received a benefit, (2) at the plaintiff's expense, and (8) it would be unjust for the defendant to retain that benefit without paying for it. Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C., 2012 CO 61, ¶ 19, 287 P.3d 842, 847; Dudding, 11 P.3d at 445.
122 In the legal services context, courts applying the doctrine of quantum meruit have recognized that when a client discharges his or her attorney, the client remains obligated to pay the reasonable value of the services rendered, barring conduct by the attorney that would forfeit the attorney's right to receive a fee. Dudding, 11 P.3d at 445; see also Olsen & Brown v. City of Englewood, 889 P.2d 673, 675 (Colo. 1995) ("There is no question that an attorney who withdraws for a justifiable reason or is terminated by a client without cause is entitled to compensation for services rendered."). At the same time, we have recognized that the trust and confidence that underlies the attorney-client relationship distinguishes this relationship from other business relationships. Dudding, 11 P.3d at 445. By allowing an attorney to recover the reasonable value of services provided, the doctrine 'of quantum meruit operates to preserve the client's right to discharge an attorney while preventing clients from unfairly benefiting at their attorney's expense where the parties have no express contract or have abrogated it. See LaFond v. Sweeney, 2015 CO 8, ¶ 27, 343 P.3d 939, 947; Melat, ¶ 19, 287 P.3d at 847; Dudding, 11 P.3d at 447; see also Colo. RPC 1.16 emt. 4 ("A client has a right to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer's services.").
T23 In cases involving fee disputes, we have recognized that quantum meruit is an appropriate measure of recovery for the reasonable value of work performed by an attorney who is discharged without cause. In Olsen & Brown, for example, we held that an attorney who was discharged without cause could not recover damages for services not performed before his discharge based on the client's breach of the parties' noncontingent attorney-client contract. 889 P.2d at 677. Rather, we held that the discharged attorney's remedy was to recover the reasonable value of services actually performed on the basis of quantum meruit. Id.
I 24 We have applied the doctrine of quantum meruit differently to contingent fee arrangements. Given the unique nature of contingent fee agreements, we have held that an attorney who is discharged or withdraws may seek quantum meruit recovery for the reasonable value of the work performed before discharge or withdrawal, but only where the written contingent fee agreement contemplates the availability of such recovery. See Dudding, 11 P.3d at 446; Elliott v. Joyce, 889 P.2d 43, 46 (Colo. 1994). In E-liott, we observed that contingent fee agree
125 Six years later, in Dudding-another contingent fee case-we acknowledged that the doctrine of quantum meruit has arisen "precisely to address the absence of a written agreement." 11 P.3d at 448. Nevertheless, we felt compelled to honor both our prior case law and our rules governing contingent fee agreements by reaffirming that, to seek quantum meruit recovery, the attorney must provide some notice to the client in the fee agreement of the possibility that the attorney may seek equitable recovery in quantum me-ruit if the contract fails. Id. at 448, 449.
T26 Soon thereafter, we made clear in Mullens v. Hansel-Henderson, 65 P.3d 992, 998 (Colo. 2002), that our holding in Dudding does not apply to situations where the attorney has successfully completed the agreed-upon legal services in a contingent fee agreement. In reaching that conclusion, we reasoned that Rule 5(b) requires a contingent fee agreement to give a client notice of the possibility of quantum meruit recovery because, absent such notice, a contingent fee client has "no expectation to pay" if the attorney withdraws prematurely. Id. at 997. However, where the attorney has successfully completed the agreed-upon legal services, the very nature of the contingent fee agreement gives rise to the client's expectation that she must pay the attorney from the funds the attorney has recovered for the client. Id. at 998-99. Because the attorney in Mullens had completed the legal services for which he was retained under the contingent fee arrangement and had obtained a substantial settlement for the client, we held that he properly retained fees in quantum meruit for the reasonable value of the legal services he provided, even though the parties' contingent fee agreement was unenforceable because it was not in writing. Id. at 999.
B. Quantum Meruit in Attorney Discipline Cases
127 We have carried principles of quantum meruit recovery into our attorney discipline cases. Relevant here, our prior rulings indicate that, where the parties have a flat fee agreement, a discharged attorney does not violate the ethical obligation to refund unearned fees where the attorney is entitled to a portion of the fee in quantum
28 In People v. Johnson, 199 Colo. 248, 612 P.2d 1097, 1098 (1980), private defense counsel received an advance payment of $1,500 toward an orally agreed-upon total fee of $5,000 to handle a murder case. The client discharged him soon thereafter, and the attorney failed to refund any of the money despite the client's requests for a refund of the unearned portion of the $1,500 payment. Id. We held that because there was no definitive agreement regarding the amount that the attorney would be paid if his services were terminated, the oral fee agreement necessarily "was upon a quantum me-ruit basis." Id. at 1099. The grievance committee found that the attorney was entitled to $500 on a quantum meruit basis for work performed, and we agreed with this determination. However, the grievance committee also determined that by retaining the additional $1,000 that was unearned, the attorney violated DR-2-110(A)(8), the disciplinary rule then in effect requiring prompt refund of unearned parts of a fee. Id. We affirmed the committee's determination that the attorney violated DR-2-110(A)(8) by "failing to return that portion of the $1500 payment which was unearned." Id. We ordered the attorney to return $1,000 in unearned fees to his client, but in so doing, we implicitly allowed him to retain the $500 to which he was entitled under quantum meruit. Id.
129 Our more recent decision in In re Sather likewise took no issue with an attorney's retention of a portion of a flat fee as compensation for services provided before discharge. 3 P.3d at 415. In that case, we disciplined an attorney under current Rule 1.16(d) for failing to return the unearned portion of a $20,000 advance fee after his client discharged him. Id. at 405. The written agreement between the attorney and client described the arrangement as a "nonrefundable" flat fee contract and stated that the client acknowledged that the "minimum flat fee" of $20,000 would not be returned to him regardless of the amount of time that the firm expended. Id. at 406. After the client discharged the attorney, the attorney provided an accounting claiming that his fees and expenses as of the date of discharge totaled $6,923.64. Id. at 407. Despite the "non-refundable" language in their agreement, the attorney acknowledged that he should refund the remaining $18,076.36 to the client.
T 30 Significantly, we held that the attorney violated Rule 1.16(d) by failing to return the unearned $13,076.36-not by failing to return the entire $20,000 advance payment. See 1d. at 415 ("Upon discharge, [the attorney] acknowledged his obligation to return the unearned portion of the $20,000 to [the client], and [the attorney] eventually returned the entire unearned amount of $13,-076.36.... Because [the attorney] only partially returned the unearned fees three months after being discharged and did not return the remainder of the unearned fees until five months after being discharged, we agree with the Board that his conduct violated Colo. RPC 1.16(d)." (emphasis added)). In so doing, we first implicitly recognized that the attorney "earned" and rightfully retained $6,923.64 for his work-even though nothing in the opinion suggested that his "non-refundable" flat fee agreement provided for quantum meruit recovery (or an hourly fee) upon early termination. We then concluded that he violated Rule 1.16(d) by failing to return the portion of the fee that he had not earned.
{31 The Office of Attorney Regulation Counsel argues that In re Sather requires an attorney who is discharged by her client to refund the entire advance fee if the agreement is silent about early termination, regardless of whether the attorney has expended time and money on the case. The Office of Attorney Regulation Counsel points to an isolated statement in In re Sather to support this position: "Upon discharge, the attorney
{32 The Office of Attorney Regulation Counsel's argument fails for two reasons. First, the statement in In re Sather on which it relies forms no part of our discussion or holding regarding the attorney's violation of Rule 1.16(d) in that case, but rather appears in a separate part of the opinion discussing an attorney's obligation under Rule 1.15(f) to maintain advance fees in a separate trust account until the fees are earned. Id. The Office of Attorney Regulation Counsel therefore reads this language out of context and overlooks the facts of In re Sather. The attorney in that case violated Rule 1.16(d) by retaining funds beyond those to which he was entitled in quantum meruit for his work. Id. at 415. Had we intended to hold in In re Sather, contrary to our approach in Johnson, that Rule 1.16(d) requires an attorney to return the entire advance fee regardless of any benefits conferred or services rendered, we would have ordered the attorney to return the entire $20,000 that the client paid him. Yet neither in In re Sather nor in Johnson did we require the attorney to refund all advance fee payments and then separately seek quantum meruit recovery from his former client. It would be a waste of resources in these cireumstances to force attorneys to return money to which they are entitled and then bring suit against the client to recover it. Rather, the above-quoted statement in In re Sather, read.in context, simply acknowledges that, although an attorney must return all unearned fees in a timely manner under Rule 1.16(d), such unearned fees do not include compensation to which the attorney is entitled in quantum meruit for the reasonable value of services the attorney has rendered before discharge. Id. (citing, inter alia, Olsen & Brown, 889 P.2d at 676).
4 33 Second, the Office of Attorney Regulation Counsel's argument hinges on its view that, for purposes of Rule 1.16(d), an attorney cannot "earn" a fee except as explicitly provided for in the fee agreement. This view is not grounded in Rule 1.16(d) but instead rests on comment 12 to Rule 1.5. Comments to the Rules of Professional Conduct do not add obligations to the Rules but merely provide guidance for practicing in compliance with the Rules. Colo. RPC, Preamble and Seope, 1 14. Ultimately, the text of the Rule is authoritative. Id. at 121. Consistent with our decision in In re Sather, the text of Rule 1.5(f) provides that fees are earned when the lawyer "confers a benefit on the client or performs a legal service for the client." Colo. RPC 1.5(f);, In re Sather, 3 P.3d at 410 (holding that fees are earned by "conferring a benefit on or performing a legal service for the client").
[ 34 The approach that the Office of Attorney Regulation Counsel urges effectively forecloses quantum meruit recovery for the reasonable value of services the attorney actually performed if a flat fee agreement fails to contain benchmarks or milestones setting forth exactly how the attorney will earn the fee shy of completing the agreed-upon services.
1 35 In advancing its argument, the Office of Attorney Regulation Counsel essentially seeks to treat flat fee agreements in the same fashion as contingent fee agreements-yet we have never suggested that the unique
1 86 Unlike a contingent fee arrangement, in which the attorney's fee is contingent upon the outcome of the case, a flat fee (sometimes | called a "fixed fee") is a fee based on an agreed amount for particular services, regardless of the time or effort involved and regardless of the result obtained. See In re Sather, 8 P.8d at 410 (noting that a "flat fee" is a type of fee paid in advance for specified legal services to be performed by the attorney). Flat or fixed fee arrangements can benefit the client by establishing in advance the maximum amount the elient will have to pay for legal fees, thus permitting the client to budget based on a fixed sum rather than face potentially escalating hourly fees that may exceed the client's ability to pay. See id. (citing Alec Rothrock, The Forgotten Flat Fee: Whose Money Is It and Where Should It Be Deposited?, 1 Fla. Coastal L.J. 298, 354 (1999)). Whereas a client in a contingent fee arrangement generally has no expectation of payment unless the attorney obtains a successful result, a client in a flat fee arrangement expects to pay the attorney for his or her services regardless of the result obtained. The flat fee agreement merely establishes the maximum that the client may owe. -
T37 Although attorneys are certainly wise to include benchmarks or milestones in flat fee agreements, the Rules of Professional Conduct do not presently require them. Moreover, our case law barring quantum meruit recovery unless the fee agreement includes notice of this possibility arose out of the specific rules governing the content of contingent fee agreements. We have not suggested that the notice requirement pertaining to contingent fee agreements necessarily applies to other forms of fee ggreements or that quantum meruit recovery under other types of fee agreements is likewise barred absent such notice.
C. Gilbert Did Not Violate Rule 1.16(d)
188 We conclude that the Hearing Board did not err when it determined that (Gilbert did not violate Rule 1.16(d) under the circumstances of this case. The Board first determined that Gilbert was entitled to a portion of her fee in quantum meruit it specifically found that Gilbert "unquestionably provided legal services" and that Peters received a benefit from Gilbert's services. The Hearing Board further concluded that it would be unjust in light of the parties' intentions and expectations for Peters to retain the benefit of Gilbert's services without paying for them. The Board specifically found that Peters and Henderson understood-and in fact expected-that Gilbert would begin work immediately, and that Peters' email expressly acknowledged that Gilbert was entitled to payment for appearing at the master calendar hearing. It also found that, although Gilbert did not include her hourly rate in the written fee agreement, she showed Peters and Henderson her list of standard fees during their initial meeting, which included her hourly fee. These findings are supported by the record.
139 The Hearing Board ultimately determined that Gilbert did not violate Rule 1.16(d) by failing to return that portion of the fee to which she was entitled in quantum meruit, We conclude that the Hearing Board did not err in determining that Gilbert did not violate Rule 1.16(d) under the cireuam-stances of this case.
140 Certainly, Gilbert's dealings with Henderson and Peters warranted disciplinary action. By commingling her clients' advance fee with her own monies, Gilbert violated Colo. RPC 1.15(a), 1.15(c), and 1.58), and she was disciplined for these violations. The wiser course would have been for Gilbert
IV. Conclusion
T 41 We hold that, under the cireumstances of this case, Gilbert did not violate Colo. RPC 1.16(d) when she failed to return a portion of the advance fee to which she was entitled under quantum meruit. Accordingly, we affirm the Hearing Board's order.
. People v. Gilbert, Case No. 12PDJ085 (Colo. O.P.D.J. July 17, 2013).
. Although she continued to believe that she had earned the $1,114.14, Gilbert later refunded this remaining amount to the clients in February 2013, shortly after disciplinary proceedings were commenced against her.
. Citations are to the Colorado Rules of Professional Conduct as they appeared in the Hearing Board's 2013 opinion, before they were repealed and readopted effective June 17, 2014.
. Gilbert does not appeal the Hearing Board's determination or the sanction imposed.
. The Hearing Board also observed that Gilbert did not charge Peters and Henderson for all of the legal services she provided.
. The Hearing Board noted that Peters and Henderson discharged Gilbert because of a general deterioration of the relationship, and not because Gilbert was commingling their funds or for any other fault on her part.
. We have also applied the doctrine of quantum meruit in other situations where a fee agreement failed. In Melat, for example, we held that an attorney could pursue an action in quantum me-ruit against former co-counsel for a share of the contingent fee where the attorney withdrew from
. As we pointed out in Mullens v. Hansel-Henderson, 65 P.3d 992 (Colo. 2002), Rule 7 of Chapter 23.3 now provides a form Contingent Fee Agreement which contains a sample notice provision for such agreements: "In the event the client terminates this contingent fee agreement without wrongful conduct by the attorney which would cause the attorney to forfeit any fee, or if the attorney justifiably withdraws from the representation of the client, the attorney may ask the court or other tribunal to order the client to pay the attorney a fee based upon the reasonable value of the services provided by the attorney." Id. at 996 (quoting C.R.C.P. Ch. 23.3, Rule 7, Form 2, subsection 3).
. In addition to violating Rule 1.16(d), the attorney violated Colo. RPC 8.4(c) by characterizing the $20,000 fee as "non-refundable" when he knew that he would have to refund it under certain circumstances. Id. at 405.
. Under the Office of Attorney Regulation Counsel's approach, an attorney with a flat fee agreement can never "earn" a portion of the fee by merely "conferring a benefit or performing a legal service for the client," but instead must complete the agreed-upon services in full. Given this view of how fees are earned, it is difficult to understand how such an attorney who is discharged before completing the agreed-upon services could ever establish entitlement to any portion of the fee in quantum meruit.
. The Office of Attorney Regulation Counsel does not contest any of the Hearing Board's findings of fact. Instead, it argues, as discussed above, that Gilbert was required to return the entire advance fee under In re Sather because her flat fee agreement was silent as to how Gilbert would be paid if she was discharged.
. Indeed, we recognize that, given the growing prevalence of such fee arrangements, clarifying amendments to Colo. RPC 1.5(F) may be warranted.
Dissenting Opinion
dissenting.
42 The majority holds that "Gilbert did not violate [Colorado Rule of Professional Conduct (RPC') ] 1.16(d) by failing to refund the portion of the advance fee to which the Hearing Board determined she was entitled in quantum meruit as compensation for the services she provided before her discharge." Maj. op. 120. The majority's reasoning is premised on a fundamental misunderstanding of the procedural workings of the equitable remedy of quantum meruit Quantum meruit is a quasi-contractual doctrine that permits a party to a contract to recover the reasonable value of her services if the contract fails. In this case, rather than recovering fees not delineated in her written flat-fee contract when her clients terminated her representation, as might be appropriate under quantum meruit, Gilbert unilaterally withheld the fees to which she felt she was entitled and then justified her withholding under the guise of quantum meruit.
143 The majority's holding permits attorneys to unilaterally retain as "earned," in their own business accounts, advance fees that they had not earned by the terms of their written agreement simply because they feel that they would win a quantum meruit case. This inverts the procedural structure of quantum meruit and unjustly shifts the burden onto clients who owe nothing under the terms of the agreement to bring an action against the attorney to resolve the status of the disputed funds. Because a determination of what is "earned" in quantum meruit necessarily requires the party seeking recovery to bring an action as a plaintiff and to prove what she earned, fees cannot properly be considered "earned" in quantum meruit until they have been adjudicated as such. Here, Gilbert did not bring a claim against her clients and secure a court ruling delineating what she had earned in quantum meruit but rather unilaterally withheld funds that she had not earned by the terms of her written agreement without first obtaining a quantum meruit ruling in her favor. Therefore, I would hold that she violated RPC 1.16(d)s requirement that she "refund[ ] any advance payment of fee or expense that has not been earned or incurred" upon termination of representation.
I. The Relevant Rules of Professional Conduct Contextualized
I 44 RPC 1.16(d), in relevant part, requires that "[uJpon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as ... refunding any advance payment of fee or expense that has not been earned or incurred." Because Gilbert had not previously represented these clients, she was required to communicate, in writing, "the basis or rate of the fee and expenses" that she would charge. Colo. RPC 1.5(b). Gilbert's written agreement with her clients simply established a flat rate that she would charge onee three distinct tasks had all been completed, only one of which she completed prior to her termination. Despite having no agreement regarding hourly recovery upon termination, Gilbert withheld a portion of her clients' advance fees premised on an hourly rate. Thus, whether Gilbert violated RPC 1.16(d) turns on whether the fees to which she unilaterally determined that she was entitled in quantum meruit-based on an hourly rate that was not incorporated or referenced in her written agreement with her clients-were nonetheless "earned" prior to an adjudicative body determining that she was entitled to them.
{45 Under RPC 1.5(f), "[flees are not earned until the lawyer confers a benefit on the client or performs a legal service for the client." But this language is not so clear as the majority makes it seem, see maj. op. 1 83, as is evidenced by the need for a clarifying Comment regarding flat fees. In the context of an advance lump-sum fee, as is at issue here, Comment 12 to RPC 1.5 clarifies that "the lawyer must deposit an advance of unearned fees in the lawyer's trust account" and "[t]he funds may be earned only as the lawyer performs specified legal services or confers benefits on the client as provided for in the written statement of the basis of the fee, if a written statement is required by [RPC] 1.5(b)" (emphasis added). Although the majority correctly observes that "the text of each Rule is authoritative" and that "Comments do not add obligations to the rules," these Comments should be given weight as "guides to interpretation," especially where the rule's language is as general as that of 1.5(f). Colo. RPC, Preamble and Scope, 11 14, 21; see also maj. op. 1 83.
146 Additionally, "[the standard principles of statutory construction apply to our interpretation of court rules," In re Marriage of Wiggins, 2012 CO 44, ¶ 24, 279 P.3d 1, 7, and statutes must be read "as a whole, construing each provision consistently and in harmony with the overall statutory design," Whitaker v. People, 48 P.3d 555, 558 (Colo. 2002). The overarching purpose of RPC 1.5 is to require lawyers to establish clear, reasonable fee agreements with their clients, and in this context, RPC 1.5(f) clarifies that advance fees are not the property of the attorney immediately, but rather only once the attorney performs the work for which the fees were advanced under the agreement. See RPC 1.5. Therefore, 1.5(f) must be read in the greater context of 1.5's regulation of fee agreements, and as its related regulations and Comment 12 amply demonstrate, 1.5(f)'s definition of "earned" is limited to fees contemplated by the fee agreement.
II. Quantum Meruit Permits Recovery, Not Retention
147 Although an attorney may generally recover the reasonable value of work done when the agreement underlying that work fails, this must be done by filing a claim
48 Quantum meruit permits an attorney to recover through litigation fees for the reasonable value of services provided when a contract fails, either from the client or from an appropriately established trust fund in which disputed funds are kept, see Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C., 2012 CO 61, ¶ 19, 287 P.3d 842, 847-not to unilaterally withhold or retain such funds in their own accounts. Black's Law Dictionary alternately defines "recovery" as "[the obtainment of a right to something (esp. damages) by a judgment or decree" and "[aln amount awarded in or collected from a judgment or decree." Black's Law Dictionary 1466 (10th ed. 2014) (emphasis added). Here, however, Gilbert improperly relied on quantum meruit to justify her unilateral withholding of her clients' advanced and unearned fees with no adjudication and no basis in her written fee agreement. This interpretation inverts the doe-trine. Quantum meruit is not an affirmative defense against wrongful withholding of a client's funds upon termination. Rather, it provides an equitable cause of action for attorneys (and others) to seek compensation for work performed when the contract underlying that work fails. Melat, ¶ 19, 287 P.3d at 847.
€ 49 Our recent discussion of quantum me-ruit in Melat highlights this distinction:
Quantum meruit is an equitable theory of recovery that arises out of the need to avoid unjust enrichment to a party in the absence of an actual agreement to pay for services rendered. Quantum meruit a/lows a party to recover the reasonable value of the services provided when the parties either have no express contract or have abrogated it. To recover in quantum meruit, a plaintiff must demonstrate that (1) at plaintiffs expense, (2) defendant received a benefit, (8) under cireumstances that would make it unjust for the defendant to retain the benefit without paying. Whether retention of the benefit is unjust is a fact-intensive inquiry in which courts look to, among other things, the intentions, expectations, and behavior of the parties.
Id. (emphasis added) (citations omitted). Thus, proper application of the theory in the context of an attorney-client dispute requires that the attorney either return the unearned funds to the client or maintain the disputed funds in a neutral trust account, see Colo. RPC 1.15(c), 1.16(d), then seek to recover those funds by satisfying the three-prong test before a court, Melat, ¶ 19, 287 P.3d at 847. °
150 Crucially, the burden to prove that funds have been earned under quantum me-ruit falls upon the attorney. But in this case, Gilbert never pursued recovery in quantum meruit. Rather, under the guise of quantum meruit, she simply withheld-in her own business account-her clients' advance fees that she had not earned upon termination under the written agreement, and she then claimed quantum meruit as a defense against charges that she failed to return unearned fees as required by RPC 1.16(d) Such a
51 In fact, the concept of an attorney's need to actively seek recovery under quantum meruit is so ingrained in the doctrine that it explicitly underpins every case to which the majority cites except People v. Johnson, 199 Colo. 248, 612 P.2d 1097 (1980) (addressed infra Part III). See LaFond v. Sweeney, 2015 CO 3, ¶ 27, 343 P.3d 989 ("[A] quantum meruit recovery action vis-&-vis the client never properly arose in this case. The underlying basis for applying this equitable doctrine regarding fee recovery is absent here." (emphasis added)); Melat, ¶ 20, 287 P.3d at 847 ("In the context of the attorney-client relationship, an attorney who withdraws before the close of a case may generally recover the reasonable value of his or her services under a quantum meruit theory." (emphasis added); Mullens v. Hansel-Henderson, 65 P.3d 992, 995 (Colo. 2002) ("Generally attorneys may recover on an unenforceable contract on the basis of quantum meruit." (emphasis added)); Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 446 (Colo. 2000) ("We have permitted quantum meruit recovery in the context of a non- . contingent attorney-client contract when an attorney withdraws for a justifiable reason or a client terminates the attorney without cause." (emphasis added)); Sather, 3 P.3d at 409-10 ("Upon discharge, the attorney must return all unearned fees in a timely manner, even though the attorney may be entitled to quantum meruit recovery for the services that the attorney rendered and for costs incurred on behalf of the client." (emphasis added)); Olsen & Brown v. City of Englewood, 889 P.2d 673, 675 (Colo. 1995) ("There is no question that an attorney who withdraws for a justifiable reason or is terminated by a client without cause is entitled to compensation for services rendered. Gener"ally, courts are in agreement that quantum meruit is an appropriate measure of recovery in such cireumstances." (second emphasis added) (citation omitted)); Elliott v. Joyce, 889 P.2d 43, 44 (Colo. 1994) ("After the matter was settled, Elliott filed an attorney's lien . seeking recovery of attorney fees ... based on time and effort for services rendered, under the theory of quantum meruit - . [The trial court accepted 'the proceeds of the settlement ... to be held by the court until James Elliotts attorney's lien question is resolved." (first and third emphases added)). As these quotations illustrate, quantum meruit is a theory of recovery, and thus attorneys must seek and be granted recovery in a court before such fees can be properly considered "earned."
Furthermore, these quotes are mere examples-the majority of these cases refer to recovery dozens of times, and none refers to withholding funds under the doctrine or to an attorney being permitted to retain funds under the flag of quantum meruit.
III. Sather and Johnson Support Returning Fees ,
{ 53 In Sather, in a line that should resolve this case, the court holds that "[ulpon discharge, the attorney must return all unearned fees in a timely manner, even though the attorney may be entitled to quantum meruit recovery for the services that the attorney rendered and for costs incurred on behalf of the client." 3 P.3d at 409-10 (emphasis added) (citing Colo. RPC 1.16(d)). While we also held that "an attorney earns fees by conferring a benefit on or performing a legal service for the client," this holding was intended to bolster the conclusion that the attorney violated RPC 1.15 by labeling advance fees as "non-refundable" and putting them directly into his account rather than maintaining them in trust. Id. at 405. As we observed, requiring that funds be kept in trust "protects the client's right to discharge an attorney." Id. at 409 (citing Colo. RPC 1.16(d) emt.) Thus, Sather confirms that fees earned "by conferring a benefit on or performing a legal service for" a client do not include fees that could potentially be recovered in quantum meruit-at least not before the fees have actually been recovered through litigation. See id. at 410.
154 The majority disregards this plain reading of Sather. Initially, it ignores the interrelationship between the rules at issue and dismisses this clear language prohibiting Gilbert's behavior as relating only to "a separate part of the opinion discussing an attorney's obligation under [RPC] 1.15(f) to maintain advance fees in a separate trust account until the fees are earned." Maj. op. 182. Thus, the majority concludes, this plain language citing 1.16(d) is meaningless when considering an attorney's duties under 1.16(d). Instead, the majority focuses on the fact that we sanctioned the attorney in Sather for failing to return the unearned portion of his fees, as is prohibited by 1.16(d), and infers that this ruling "implicitly recognized that the attorney 'earned' and rightfully retained" some portion of the funds in quantum meruit "even though nothing in the opinion suggested that his 'non-refundable' flat fee agreement provided for quantum meruit recovery (or an hourly fee) upon early termination." Id. at ¶ 32. To the majority, the fact that we did not "require the attorney to refund all advance fee payments and then separately seek quantum meruit recovery from his former client" means that we considered quantum meruit fees to have been earned at the moment the attorney decided he should be entitled to them. See id. at 1 82.
155 The majority infers too much. In Sather, the court simply took the term "unearned" from the language of 1.16(d), and since the court determined that the attorney did violate 1.16(d) because some portion of the fees retained as "nonrefundable" was clearly unrecoverable under either quantum meruit or contract, 3 P.3d at 407, 415, the court had no reason to reach the question of whether an attorney violates 1.16(d) by keeping funds in her own account as "earned" under quantum meruit before the funds were adjudicated as such. Additionally, the attorney retained these fees not under the guise of quantum meruit but rather under an unenforceable "non-refundable" fee agreement, and the Hearing Board then validated a portion of the funds as deserved under quantum meruit. See id. at 407-08. The mere fact that the court did not then perform the legal fiction of requiring the attorney to return all the advance fees and then immediately requiring the client to return the funds that the board had adjudicated as deserved in quantum meruit merely reflects judicial efficien
156 Similarly, Johnson never actually holds that an attorney has a right to retain funds under quantum meruit simply because she feels that she earned them. In that case, an attorney entered into an oral agreement to represent a criminal defendant and received an advance payment of $1500 before the client terminated representation. Johnson, 612 P.2d at 1098. Because there was no written agreement and no agreement regarding what would happen in the event of early termination, the court determined that the "fee arrangement by necessity was upon a quantum meruit basis." Id. The court then agreed with a grievance committee determination that the attorney "expended no more than 8 or 9 hours on the case" and that the attorney was therefore "entitled on a quantum meruit basis to $500 and that a refund of $1000" was due to his client. Id. at 1099. Notably, this case did not address the procedural requirements of quantum meruit but rather allowed the attorney to retain $500 in quantum meruit of the $1500 advance payment he had been withholding after his client terminated him. Because the attorney failed "to return that portion of the $1500 payment which was unearned," the court found that he violated DR-2-110(A)(8), which was an older iteration of RPC 1.16(d) and required "the prompt refund of unearned parts of a fee when a lawyer withdraws from employment." Id.; see also Canon 2 of Colorado Disciplinary Rules, DR 2-110(A)(8) (Withdrawal from Employment) (adopted and effective Mar. 18, 1976).
157 The majority reads this as impliedly finding that the attorney did not violate DR 2-110(A)(8) by retaining funds that he was eventually deemed to have earned in quantum meruit by the court. See maj. op. 11 28, 32. Much like in Sather, however, the Johnson court never held that the attorney at issue was permitted to make his own determination regarding his entitlement to retain advance fees under quantum meruit; rather, it held that he did violate DR-2-110(A)(8) by not returning the portion of the funds that the court deemed unearned. Johnson, 612 P.2d at 1099. Hence, the court simply ruled that DR 2-110(A)(8) forbade retaining unearned fees, and since some of the fees were clearly unearned, the attorney violated the rule.
[58 Moreover, even if this case is read to have affirmatively approved of the attorney's retention of fees because his unspoken agreement "by necessity was upon a quantum meruit basis," see id. at 1098, this ruling was made before attorneys were required to reduce fee arrangements with new clients to writing under RPC 1.5(b). Compare Colo. RPC 1.5(b) (titled "Fees" and requiring that the basis and rate of fees are communicated to clients that the attorney has not represented regularly in writing), with Canon 2 of Colorado Disciplinary Rules, DR 2-106 (Fees for Legal Services) (reciting the then-existing fee regulations and mirroring RPC 1.5(a)'s prohibition on excessive fees, but never prohibiting oral fee agreements regardless of the attorney's prior business relations with the client). Therefore, this reading of Johnson's holding does not comport with the current iteration of the rules requiring that attorneys communicate "the basis or rate of the fee ... to the client, in writing." Colo. RPC 1.5(b). Thus, even if the court intended to affirmatively endorse retention of fees under the flag of a silent oral agreement regarding quantum meruit, the rules of professional conduct have evolved significantly since this case was decided, rendering the court's logic obsolete.
159 In sum, neither Sather nor Johnson had any reason to reach the question of whether unilateral retention of the portion of fees that the court eventually deemed earned in quantum meruit also violated the rule. That question was not essential to the resolution of either case. Furthermore, the majority's contention that it "would be a waste of resources in these cireumstances to force
IV. Conclusion
60 The majority's assertion that viewing Gilbert's misfeasance here as a violation of RPC 1.16(d) would effectively foreclose the remedy of quantum meruit in cases where flat-fee contracts fail misunderstands Regulation Counsel's central contention. See maj. op. 134. Regulation Counsel does not contend that attorneys camnmot recover in quantum meruit when a flat-fee agreement fails, but rather that they must recover in quantum meruit before such fees can be considered "earned."
T 61 This case is not about whether Gilbert was entitled to recover in quantum meruit had she followed the proper procedure. I take issue not with the Hearing Board's eventual determination that Gilbert proved the elements of quantum meruit, but with Gilbert retaining the fees under the guise of quantum meruit before the Board considered her claim. Nor is it about punishment. Gilbert does not contest the punishment that she received for her other rule violations, and Regulation Counsel did not request any additional punishment had we held that Gilbert violated RPC 1.16(d). Rather, this case is about whether an attorney is entitled under RPC 1.16(d) to retain fees in her own business account to which she unilaterally determined that she was entitled without any basis in her written agreement with her client and without a court order granting her those fees in quantum meruit. I would hold that an attorney is not so entitled. To deem fees "earned" when an attorney believes she has a viable claim in quantum meruit turns the doctrine on its head, and had Gilbert's clients not pursued their claim, no legal determination would ever have been made regarding whether these fees were earned under quantum meruit or not.
€62 The majority insists that, in holding that Gilbert did not violate RPC 1.16(d), it does "not intend to suggest that attorneys may unilaterally determine what they believe they are owed in quantum meruit." Maj. op. 'I 40. But that question is precisely what this case is about. If Gilbert was allowed to unilaterally retain fees as "earned" in quantum meruit prior to a court considering the question, then she did not violate RPC 1.16(d); if fees in quantum meruit are not earned until they are adjudicated as such, then Gilbert retained unearned fees and violated 1.16(d). Therefore, by determining that Gilbert did not violate 1.16(d), the majority necessarily holds that 1.16(d) permits attorneys to unilaterally withhold advance fees under quantum meruit based solely on their own estimations of their entitlement-at least in cases such as this where a hearing board eventually agrees with the attorneys' prior unilateral determinations. The majori
I am authorized to state that JUSTICE COATS and JUSTICE EID join in this dissent.
. Gilbert could have complied with RPC 1.16(d) while avoiding the risk that funds returned to her clients and then pursued in quantum meruit would be exhausted prior to recovery simply by complying with the requirement that advance fees be kept in trust. See Colo. RPC 1.15(c) (2013) (repealed and readopted in 2014 as Colo. RPC 1.15A(c)) (requiring that attorneys maintain disputed property separately until the dispute is resolved). This rule permits attorneys to keep disputed funds in the trust account until their quantum meruit claim is resolved, and arguably even to immediately deposit into a trust account disputed funds that they failed to hold in trust initially when a client terminates the representation and the attorney feels entitled to quantum meruit. Had Gilbert taken either of these paths, I would agree that she acted in compliance with RPC 1.16(d). But she did neither, choosing instead to simply withhold the funds in her business account and force the client to bring an action against her. RPC 1.16(d) does not permit such behavior.
. Of more pragmatic concern, under the majority's broad reading of RPC 1.5(f), an attorney who is advanced fees under a written flat-fee agreement can remove funds from that advance for any work that the attorney feels relates to the completion of the agreed-upon task, regardless of the efficiency or necessity of the tasks performed-or theoretically even for work that benefits the client but is wholly unrelated to the agreed-upon task-and then unilaterally retain them upon termination under quantum meruit. This possibility highlights the need to reference the written terms of an agreement when determining whether an attorney "earned" advance fees under 1.5(f).
. The Hearing Board's undisputed findings of fact indicate that Gilbert obtained the court order granting her motion to withdraw by December 26, 2011-the latest point at which her representation could be considered fully terminated- and she did not return the full advance fees until February 11, 2013.
. The court in Melat does refer to "the conduct of Merat [sic]} and Howarth in unjustly retaining all of the recovered attorney fees," ¶ 38, 287 P.3d at 851, but Melat and Howarth were the original defendant firms in the underlying quantum meru-it suit in which the Hannon Law Firm sought recovery of fees that it felt it had earned as withdrawn co-counsel in quantum meruit, see id. at 11 1-3, 287 P.3d at 844.
Similarly, the Mullens court upheld a trial court decision allowing "Mullens to retain fees under quantum meruit." 65 P.3d at 994. In that case, however, the trial court found that Mullens did have an oral agreement for a forty-percent contingency on a bad faith claim, under which he kept his portion of the settlement, but that the agreement was unenforceable under Chapter 23.3's requirement that all contingency agreements be reduced to writing. Id. The court then determined that the amount kept by Mullens under the unenforceable agreement was earned in quantum meruit, so rather than require Mul-lens to return the fees to his' client only to have the client immediately pass the funds back to Mullens under quantum meruit, the court simply allowed Mullens to "retain" the fees. Id. This
. Regulation Counsel's contention that attorneys do not "earn" a portion of flat-fee agreements merely by "conferring a benefit on or performing a legal service for the client" relates only to earned fees in the context of RPC 1.16(d). Regulation Counsel concedes that Gilbert would have been permitted to "return the entire advance fee and then separately seek quantum meruit recovery against her former clients if she wished," maj. op. 118, and deciding that Gilbert violated 1.16(d) would in no way eliminate quantum me-ruit as a remedy in failed flat-fee agreements.
Reference
- Full Case Name
- In the MATTER OF Juliet Carol GILBERT
- Cited By
- 13 cases
- Status
- Published