Michael D. Mills, Respondent, vs. Marquard & Associates, Appellant.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C8-02-1793

 

Michael D. Mills,
Respondent,
 
vs.
 
Marquard & Associates,
Appellant.

 

Filed June 10, 2003

Affirmed

Wright, Judge

 

St. Louis County District Court

File No. C201602633

 

 

Thomas R. Thibodeau, Jerome D. Feriancek, Thibodeau, Johnson & Feriancek, P.L.L.P., 800 Lonsdale Building, 302 West Superior Street, Duluth, MN  55802 (for appellant)

 

John D. Kelly, Debra A. Filteau, Hanft Fride, 1000 U.S. Bank Place, 130 West Superior Street, Duluth, MN  55802 (for respondent)

 

 

            Considered and decided by Wright, Presiding Judge, Randall, Judge, and Hudson, Judge.

 

U N P U B L I S H E D  O P I N I O N

 

WRIGHT, Judge

 

In its dispute with a former associate attorney over the distribution of a contingency fee, appellant law firm Marquard & Associates appeals from summary judgment, arguing that the district court erred when it ruled that (1) pursuant to an employment agreement appellant was entitled to 50 percent of the contingency fee and (2) the employment agreement between the firm and the associate is enforceable.  We affirm.

FACTS

 

            When appellant Marquard & Associates (Marquard) hired respondent Michael Mills as an attorney on January 15, 1999, Mills signed an employment agreement.  The agreement was modified on February 1, 2000, but the changes did not affect the portions of the agreement that pertain to this case.  In relevant part, the employment agreement provides:

Employee understands and agrees that all clients shall be and shall remain clients of the firm (Employer) even subsequent to Employee's departure, should Employee leave Employer's employment.  At such time as Employee's employment terminates with Employer, Employee shall provide Employer with a list of all clients serviced by Employee.  Regardless of the reason for Employee's departure, all files shall remain with the Employer and Employee agrees to make no contact with any client at any time regarding the performance of any legal services for such client subsequent to Employee's departure.  In recognition of the fact that it is the client's right to choose what person or firm performs client's legal services the parties hereto agree that a written notice shall be sent to clients whose files were being primarily handled by Employee stating that Employee has left the employment of Employer and that the client's file has been assigned to a different attorney who will handle client's file unless written instructions to the contrary are received from the client.  The form and contents of such notice shall be left to the sole discretion of Employer.

            To streamline and expedite the transitional process Employee agrees in the event Employee departs [from] Employer's employment to provide a detailed written memorandum setting out the status of each matter then receiving Employee's attention, outlining as well anticipated future activity required on each of said files along with such other information as is reasonably necessary and appropriate to enable Employer to promptly and expeditiously undertake any further action which may be necessary and in a client's interest.

            As to clients who direct their matters be turned over to Employee for his continued attention after Employee's departure, fees generated for work performed prior to Employee's departure shall be the sole property of Employer.  If the matter is a contingency fee case and any client directs that their matters be turned over to the Employee for his continued attention after Employee's departure then Employee shall be obligated to pay Employer the following:

A sum calculated by multiplying the contingent fee received by such Employee by fifty per cent (50%) as to each part or facet of the contingent fee case in which such employee is involved in representing such client and receives a fee as a contingent fee case from such representation.

Unless waived by Employer in writing, Employee or client shall be obligated to reimburse Employer for all out-of-pocket disbursements made by Employer on behalf of the client prior to or at the time the client's file is turned over to Employee[.]

 

(Emphasis added).

            Harold and Carol Preble were involved in an accident in August 1999.  They retained Marquard to represent them in their personal-injury matter.  Harold Preble signed a retainer agreement with Marquard on August 18, 1999, which provides:

CLIENT shall be responsible for reasonable attorneys' fees and costs upon termination of services of LAW FIRM.  CLIENT gives LAW FIRM a continuing lien in CLIENT'S claim and proceeds.

 

Carol Preble signed a retainer agreement on May 20, 2000, which provides:

CLIENT shall be responsible for reasonable attorneys' fees and costs upon termination of services of LAW FIRM.  If CLIENT discharges LAW FIRM, CLIENT agrees that should any recovery ever be received in this claim, CLIENT will pay to LAW FIRM attorneys' fees equal to the hours LAW FIRM has spent on the claim, multiplied by LAW FIRM'S hourly rate at the time of signing this agreement, unless an offer of settlement has been made, in which case a fee will be paid based on the offer at the same percentage as contained in the above paragraph [one-third], or a fee based on the total hours, whichever is greater.  CLIENT gives LAW FIRM a continuing lien in CLIENT'S claim and proceeds.

 

            Both retainer agreements provide that, in the event that money was recovered by settlement of a claim on behalf of the clients, attorney fees would be one-third of the total recovery.  Marquard drafted the employment agreement and both retainer agreements.

            Mills decided to leave Marquard, and at some point in October 2000, Mills informed a friend of his plans to do so.  Unbeknownst to Mills, his friend told Carol Preble that Mills planned to leave Marquard.  Later that same month, after receiving this information of Mills's anticipated departure, Carol Preble called and notified Mills that she wanted him to continue representing her and her husband.  Mills advised Carol Preble that he could not discuss the matter with her, but that she had the right to choose her attorney.  The Prebles opted to retain Mills as their attorney. 

            On October 30, 2000, Mills notified Marquard that he intended to resign, and he ended his employment the following day.  On November 1, Mills notified Marquard by letter that the Prebles had chosen him as their attorney.  The Prebles also notified Marquard that they had chosen to continue with Mills.  Also on November 1, Mills notified State Farm Insurance Company (State Farm), an adverse party in the personal- injury litigation, that he had been retained by the Prebles.  On November 8, Mills notified the district court presiding over the personal-injury matter and the adverse parties that he had been substituted as counsel for the Prebles.  On November 11 or 12, the Prebles signed a retainer agreement with Mills. 

On November 14, State Farm made the Prebles a $250,000 settlement offer, and on December 4, Liberty Mutual Insurance Company, another adverse party, made a $30,000 settlement offer.  On December 19, Metropolitan Property and Casualty Insurance Company made a settlement offer of $12,991.81 for no-fault claims.  The total amount recovered by the Prebles was $292,991.39.  Mills deposited the one-third contingency fee of $98,541.47 in an interest-bearing account.  On March 18, 2002, Mills paid the $2,041.48 in costs that Marquard maintained it incurred while the firm worked on the Prebles' file. 

Mills filed a declaratory judgment action, seeking to determine how the attorney fees should be divided between Mills and Marquard.  Prior to filing the declaratory judgment action, the parties stipulated that the Prebles would not be included in the litigation regarding attorney fees and that Mills would not raise an affirmative defense regarding the failure to include the Prebles in the lawsuit.  On July 15, 2002, the parties filed cross-motions for summary judgment.  The district court granted summary judgment in favor of Mills and ordered that the attorney fees be split according to the employment agreement, which provided that both parties receive 50% of the attorney fees.  This appeal followed.

D E C I S I O N

 

            On an appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the lower court[ ] erred in [its] application of the law. 

 

State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990) (citation omitted). 

A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law.  On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted.

 

Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted).  No genuine issue of material fact exists "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party."  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (alteration in original) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986)).  "[T]he party resisting summary judgment must do more than rest on mere averments."  Id. at 71.  A genuine issue for trial must be established by substantial evidence.  Id. at 69-70 (quoting Murphy v. Country House, Inc., 307 Minn. 344, 351, 240 N.W.2d 507, 512 (1976)).  Summary judgment is appropriate when material facts are undisputed and as a matter of law compel only one conclusion.  Kaczor v. Murrow, 354 N.W.2d 524, 525 (Minn. App. 1984). 

            Marquard argues that Mills breached the employment agreement, and, thus, it was entitled to recover in quantum meruit for the services rendered to the Prebles before they terminated their relationship with the firm.  Mills counters that the split of the contingency fee was appropriate under the enforceable employment agreement. 

We first examine the employment agreement to determine if it applies to the parties' dispute and if it is enforceable.  "The construction and effect of a contract are questions of law for the court."  Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979).  Marquard does not allege on appeal that there are genuine issues of material fact with regard to the employment agreement, so we need only examine the questions of law arising from it.  The employment agreement governs the division of attorney fees in a situation where an attorney leaves Marquard, a client follows that attorney, and the former Marquard attorney receives a contingency fee on behalf of the client.  The employment agreement expressly provides that

[i]f the matter is a contingency fee case and any client directs that their matters be turned over to the Employee for his continued attention after Employee's departure, then Employee shall be obligated to pay Employer the following:

A sum calculated by multiplying the contingent fee received by such Employee by fifty per cent (50%).

 

Applied to this case, the employment agreement requires Mills, who left Marquard and subsequently received a contingency fee on behalf of the Prebles, to pay 50% of the fee to Marquard.

Having determined that the employment agreement applies, we next address Marquard's contention that, even if the employment agreement is applicable, it is not enforceable.  Specifically, Marquard argues that the agreement should be rescinded because Mills breached it.  As a general rule, contract rescission "is justified only by a material breach or substantial failure in performance."  Cloverdale Foods of Minn., Inc. v. Pioneer Snacks,580 N.W.2d 46, 49 (Minn. App. 1998) (citing Cut Price Super Mkts. v. Kingpin Foods, Inc., 256 Minn. 339, 351, 98 N.W.2d 257, 266 (1959)).  A material breach occurs where one party to a contract refuses to perform a substantial part of the contract.  Liebsch v. Abbott, 265 Minn. 447, 451, 122 N.W.2d 578, 581 (1963). 

Where the injury caused by the breach of contract is irreparable, or where the damages would be inadequate or difficult or impossible to determine, rescission is appropriate.

 

Johnny's, Inc. v. Njaka,450 N.W.2d 166, 168 (Minn. App. 1990) (citing Marso v. Mankato Clinic, 278 Minn. 104, 116, 153 N.W.2d 281, 290 (1967)).

            Marquard asserts that Mills breached the employment agreement in three ways: (1) Mills had unauthorized contact with the Prebles about his departure; (2) Mills failed to provide a written memorandum setting forth the status of his files; and (3) Mills failed to pay Marquard's out-of-pocket expenses incurred on behalf of the Prebles' file.  The district court ruled that, because none of these alleged breaches was material, rescission of the employment agreement is not justified.

            The facts that relate to Marquard's allegations of breach are undisputed.  The employment agreement provides that Mills can "make no contact with any client at any time regarding the performance of any legal services."  Both Carol and Harold Preble testified during depositions that they initiated contact with Mills on their own volition.  The employment agreement recognizes "the fact that it is the client's right to choose what person or firm performs client's legal services."  The Prebles did exactly that.  Further, the fee-splitting clause at issue in this case appears to have been written for this very situation.  Thus, the Prebles' contact with Mills does not establish a substantial failure in performance sufficient to constitute a material breach. 

            The employment agreement required Mills, upon leaving the firm, to provide Marquard with "a detailed written memorandum setting out the status of each matter then receiving employee's attention."  Marquard does not dispute that Mills left status notes in each client file, just as another attorney who left Marquard had done.  Marquard also does not dispute that a list of Mills's client files was kept on Marquard's computer system.  Considering that Mills functionally performed the requirements of the employment agreement, Mills's actions in this regard do not constitute a material breach.

            According to the employment agreement, Mills was required to pay out-of-pocket expenses incurred on the Prebles' file in the amount of $2,041.48 to Marquard "prior to or at the time" the file was turned over to Mills.  It is undisputed that this money was not paid until March 18, 2002.  Although Mills was late in paying Marquard the out-of-pocket expenses under the terms of the employment agreement, rescission of the agreement is not warranted, because damages from the late payment are not "irreparable[,] * * * inadequate or difficult or impossible to determine."  Johnny's, Inc.,450 N.W.2d at 168 (citing Marso,278 Minn. at 116, 153 N.W.2d at 290).  Thus, we conclude that the late payment does not constitute a material breach.  As none of the breaches alleged by Marquard is material, rescission of the employment agreement is unwarranted.  The district court correctly ruled that the employment agreement is enforceable.

            Marquard next argues that it is entitled to recover attorney fees from Mills in quantum meruit.  The basis of a recovery in quantum meruit is that "the defendant has received a benefit from plaintiff which it is unjust for [the defendant] to retain without paying for it."  Ylijarvi v. Brockphaler, 213 Minn. 385, 393, 7 N.W.2d 314, 319 (1942).  But a valid, enforceable contract between the parties precludes recovery under quantum meruit.  Sterling Capital Advisors, Inc. v. Herzog,575 N.W.2d 121, 126 (Minn. App. 1998)(citing Sharp v. Laubersheimer, 347 N.W.2d 268, 271 (Minn. 1984)); see also United States Fire Ins. Co. v. Minn. State Zoological Bd., 307 N.W.2d 490, 497 (Minn. 1981) (stating that "equitable relief cannot be granted where the rights of the parties are governed by a valid contract").  Because we conclude that the employment agreement was enforceable, the doctrine of quantum meruit recovery is inapplicable here.  The district court did nor err in concluding that "the [employment] agreement must supercede quantum meruit recovery." 

            Although Marquard urges us to apply the factors set out in In re L€‘tryptophan Cases, 518 N.W.2d 616, 621 (Minn. App. 1994), we have expressly held that, in circumstances such as these, the L€‘tryptophan factors are inapplicable.  Barna, Guzy & Steffen, Ltd. v. Beens, 541 N.W.2d 354, 357 (Minn. App. 1995), review denied (Minn. Feb. 27, 1996) (stating that it "is not necessary to resort to the L€‘tryptophan factors when" an agreement exists "among the attorneys on how to split fees with departing attorneys").  Further, as the district court noted, enforcing the fee-splitting agreement, rather than resorting to equitable relief, is appropriate on public-policy grounds.  Id. at 356.

            Marquard impliedly argues that the retainer agreements with the Prebles should control the outcome of the fee-splitting agreement.  But the retainer agreement governs attorney-fee matters between Marquard and the Prebles, not the parties in this action.  The retainer agreement only addresses the Prebles' obligation to Marquard, not Mills's obligation to his former employer.  Thus, the retainer agreement has no bearing on the issues in this case.

            Affirmed.