KENNETH H. BAKER, ET AL. V. RICHARD SHAPERO, ET AL.
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RENDERED : OCTOBER 19, 2006
TO BE PUBLISHED
,Suprmr 01ourf of
2004-SC-0639-DG
KENNETH H . BAKER AND
WO SIN CHIU
V.
APPELLANTS
APPEAL FROM COURT OF APPEALS
2003-CA-0124 & 2003-CA-0139
JEFFERSON CIRCUIT COURT NO. 98-CI-6240
RICHARD SHAPERO AND
CARL FREDERICK
APPELLEES
OPINION OF THE COURT BY JUSTICE GRAVES
Reversing and Remanding
Appellants, Kenneth H. Baker and Wo Sin Chiu, appeal from an opinion of the
Court of Appeals which affirmed in part and vacated in part a decision of the Jefferson
Circuit Court. On discretionary review to this Court, we reverse the Court of Appeals
and remand the case for further consideration .
This matter involves the enforcement of an attorney's lien by Appellees, Richard
Shapero and Carl Frederick . On March 27, 1998, Wo Sin Chiu sustained serious
injuries from an auto collision . He remained in the hospital for fifteen (15) days; with
seven (7) of those days being in intensive care . The trial court found as fact that Chiu's
sister initiated contact with Richard Shapero and asked to retain his services . On April
1, 1998, Shapero sent a paralegal to the hospital where Chiu was assisted by his sister
in signing an Employment Agreement with Shapero . The Employment Agreement
specified that Shapero, or one of his designees, would represent Chiu in any litigation
arising from the auto collision in return for a forty percent (40%) contingency fee .
Shapero then immediately transferred the case to Carl Frederick, who began working
on the matter with an associate . On May 7, 1998, Chiu discharged Shapero and
Frederick and hired other counsel . Four days later, Chiu rehired Shapero and
Frederick . However, on July 14, 1998, Chiu discharged Shapero and Frederick
permanently and retained the services of Kenneth Baker.
With Baker as his attorney, Chiu ultimately received a total settlement of
$175,000 . Shapero and Frederick immediately filed an attorney's lien against the
settlement, claiming entitlement to the contingency fee set forth in the Employment
Agreement signed by Chiu on April 1, 1998 . Pursuant to the standards set forth in
LaBach v. Hampton, 585 S .W.2d 434 (Ky. App. 1979), the trial court determined that
Shapero and Frederick were dismissed without cause, and thus, were entitled to a fee
based on this employment contract . The Court of Appeals affirmed, but vacated and
remanded for a recalculation of the fee actually due to Shapero and Frederick .
Appellants petitioned for discretionary review to this Court, which we granted . We now
overrule LaBach v. Hampton , supra, and therefore, must reverse both the Court of
Appeals and the trial court.
In the 1979 LaBach case, the Court of Appeals addressed "the proper measure
for the allowance of a fee to an attorney employed under a contingent contract who is
discharged without cause before completion of the contract ." Id . at 436 . Citing to Henry
v. Vance , 111 Ky. 72, 63 S.W. 273 (1901), the court held that the discharged attorney
should recover the amount of the agreed upon contingent fee less "the reasonable cost
of services of other attorneys required to complete the contract ." Id.
Since this 1979 ruling, it has been noted that Kentucky's policy of allowing
attorneys who are discharged without cause to claim entitlement to a contingency fee
on a former client's final recovery, even though they never completed the contracted
work, is an extreme minority position. Most jurisdictions only allow these discharged
attorneys to claim fees on a quantum meruit basis. See Lester Brickman, Sag the
Fee when the Client Discharges a Contingent Fee Attorney , 41 Emory L.J. 367, 373 n.
37 (Spring 1992) (citing the vast majority of jurisdictions which apply true quantum
meruit recovery for attorneys who are discharged without cause); Limitation to Quantum
Meruit Recovery, Where Attorney Employed under Contingent-Fee Contract is
Discharged without Cause, 56 A.L .R. 5th 1, § 3(a) (1998) (same) .
A closer examination of LaBach, supra , reveals that the predecessor cases cited
in that opinion do not support the reasoning therein . For example, LaBach cited our
1901 case of Henry v. Vance, supra, as authority for its decision . In Henry v. Vance ,
however, the Court specifically held that discharged attorneys "should [generally] be
relegated to an action to recover [on] quantum meruit." Id. at 276 . This rule, the Court
determined, is consistent with the client's unqualified right "to discharge his attorney at
any time, with or without cause, even in a case where a contingent fee has been agreed
upon . . . ." Id . The reasoning and holding in Henry v. Vance was reaffirmed on at least
two occasions prior to the Court of Appeals' opinion in LaBach . See Hubbard v.
Goffinett, 253 Ky. 779, 70 S.W.2d 671, 672 (1934) ("It is sufficient to say that under the
law of this state a client may at any time discharge his attorney, and substitute another
in his place, but if he has performed services under the contract, he is entitled to
recover compensation to the extent of the services performed, based on quantum
meruit, and not on the terms of the contract ."); Gilbert v. Walbeck, 339 S .W.2d 450, 451
(Ky. 1960) ("Since a client may at any time discharge his attorney even if a contract
exists, unless the attorney's services are completely performed thereunder an
allowance of compensation is based upon quantum meruit."). Accordingly, we find
compelling reasons to overrule the holding in LaBach v. Hampton , supra, and apply the
majority rule originally intended by this Court in Henry v. Vance, supra, and reaffirmed in
Hubbard v. Goffinett, supra, and Gilbert v. Walbeck , supra .
In accordance with the vast majority of other jurisdictions that have addressed
this issue, we hold that when an attorney employed under a contingency fee contract is
discharged without cause before completion of the contract, he or she is entitled to fee
recovery on a quantum meruit basis only, and not on the terms of the contract . As
such, the Court of Appeals' opinion is reversed, and this matter is remanded for
proceedings in conformity with this opinion . Specifically, Shapero and Frederick shall
be permitted to prove the quantum meruit value of the services they provided to Chiu
prior to their final discharge on July 14, 1998 .
As well as asking that Labach be overruled, Appellants further challenge, as
clearly erroneous, the trial court's finding of fact that Appellees' conduct did not amount
to unethical solicitation in violation of SCR 3.130 - SCR 7 .09.
As support for their
argument, Appellants reference the trial court's seemingly inconsistent finding that Chiu
was "for all purposes, incapacitated when his sister helped him sign" the employment
contract that was presented to him in the hospital on April 1, 1998. However, the trial
court also considered and found additional findings of fact compelling : (1) Shapero had
not initiated contact with Chiu or his sister; and (2) Chiu conceded at trial that he did
voluntarily retain Shapero and Frederick in the hospital on April 1, 1998, and again on
May 11, 1998 . While we do not in any way encourage or condone the presentation of
an employment contract to an incapacitated man in his hospital bed, we also cannot say
that the trial court was clearly erroneous in ruling that the totality of these circumstances
do not amount to unethical solicitation .
Appellants next allege that even if Appellees' conduct did not amount to unethical
solicitation, Chiu is not contractually obligated to pay any attorney fees to Appellees
whatsoever since he was incapacitated at the time he signed the employment contract .
See Connors v. Eble , 269 S .W.2d 716, 717-718 (Ky. 1954) ("The test of legal capacity
to contract is the ability to understand and appreciate the consequences of the
particular transaction ."). We disagree .
Although Chiu may not have had the legal capacity to contract on the day the
employment agreement was executed, he clearly ratified his assent thereto by his
subsequent actions . See Central Adiustment Bureau, Inc. v. Ingram Associates, Inc. ,
622 S .W .2d 681, 686 (Ky. App. 1981) (any lack of mutuality of assent on the date the
contract was signed was abrogated by the parties' later ratification of the contract
terms). Moreover, there need not be an enforceable contract in order for one to be
entitled to recovery under the theory of quantum meruit. See Black's Law Dictionary
1276(8 th ed . 2004) (Quantum meruit is defined as "damages awarded in an amount
considered reasonable to compensate a person who has rendered services in a quasicontractual relationship") . Appellees have met the requirements to be entitled to
recovery under a theory of quantum meruit, and accordingly, we reject Appellants'
contentions to the contrary . See 66 Am .Jur.2d Restitution and Implied Contracts §38
(2001) (setting forth requirements for quantum meruit recovery) .
Finally, Appellants allege the trial court erred in finding that Appellees were
discharged without cause . Upon review, we are not persuaded to reverse the trial
court's and the Court of Appeals' holdings on this issue.
Appellants' remaining arguments are rendered moot by this opinion and are
unlikely to recur upon remand .
The decision of the Court of Appeals is reversed ; and the case is remanded for
further proceedings consistent with this opinion .
All concur. Minton, J ., not sitting.
ATTORNEY FOR APPELLANTS
Kenneth Baker
1500 Kentucky Home Life Building
239 South Fifth Street
Louisville, KY 40202
ATTORNEY FOR APPELANTS
Peter L . Ostermiller
Kentucky Home Life Building
239 South Fifth Street, Suite 1800
Louisville, KY 40202
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