Massachusetts Appeals Court Permits Fired Attorneys to Collect Contingent Fees


Nos. 06-P-1419, 07-P-842. November 18, 2008.

The Massachusetts Appeals Court has upheld jury verdicts in favor of five attorneys who assisted in the recovery of a $9 million settlement against an insurance company who allegedly engaged in unfair claims settlement practices. The jury found that the five attorneys performed work on the case, were subsequently dismissed by the Plaintiffs, who filed legal malpractice claims against each attorney. The attorneys then brought counterclaims to recover for legal fees arising from their representation. Several of the attorneys worked for hourly fees and several had contingent fee agreements. The Court found that a jury was justified in considering evidence of the contingent fee agreements, which the Plaintiffs signed, and could make an award in reliance on the formulas therein.

The case had its origins in a 1983 complaint filed in the Essex Superior Court, wherein Plaintiffs alleged that they had sustained damages during the late 1970s and early 1980s, as a result of emissions from the operations of a leather finishing plant operated by Salem Suede, Inc. on property adjacent to the Plaintiffs. In 1993, a jury returned a verdict in their favor, and awarded them over $2 million. The judgment was affirmed on appeal. Subsequent attempts were made to collect on the judgment, including a suit filed against Salem Suede, and against The Travelers Indemnity Company, Inc., claiming that Travelers had engaged in unfair claims settlement practices. Salem Suede filed for bankruptcy, and ultimately in 1999, after several attorneys had come and gone, Travelers agreed to pay a lump sum of $9 million, in full settlement of all claims against Travelers and Salem Suede. The settlement was reflected in a written settlement agreement, which included as a condition precedent to payment that the defendants resolve any outstanding claim that might constitute a lien on the settlement proceeds, including any claims for attorney’s fees.

The new litigation ensued and there was a 63 day trial, resulting in verdicts for the attorneys and against the defendants on their malpractice claims. In supporting the jury verdict in favor of the attorneys’ recovery of fees, the Appeals Court articulated the well settled legal principle that an attorney may recover fees under a theory of quantum meruit arising out of a contingent fee agreement. It ruled that quantum meruit was a claim independent of an assertion for damages under the contract, although both claims have as a common basis the contract itself. Although the termination of the attorney’s engagement ended the attorneys’ right to recover on the contingent fee agreement itself, the Appeals Court stated that a court may look to the terms of the underlying contract to help determine appropriate recovery under quantum meruit, and upheld the jury awards, which applied this formula.

Additionally, the trial judge had awarded the plaintiff attorneys statutory interest under G.L. c. 231, § 6C. On appeal, the defendants contended that no prejudgment interest should have been awarded. The Appeals Court determined that the defendants’ argument that interest should not run because they did not have use of the funds during the pendency of the proceedings was inapposite. It upheld the award of interest because the award of interest compensates the prevailing party for the loss of use of funds, without regard to any use made by the adverse party.

The lower Court had considered and rejected the Defendants’ and the Plaintiff attorneys’ claims under G.L. c. 93A, finding that neither’s actions constituted unfair or deceptive acts or practices. However, the Court did not rule out that an attorney had a right to make a claim under G.L. c. 93A, §§ 2 and 11, based on a defendant’s failure to pay for legal services rendered. However, the Appeals Court found that a breach of contract, standing alone, was not an unfair trade practice under c. 93A. To rise to the level of a c. 93A violation, a breach must be both knowing and intended to secure “unbargained-for benefits” to the detriment of the other party, and the alleged misconduct must exceed the level of mere self-interest, rising instead “to the level of ‘commercial extortion’ or a similar degree of culpable conduct.”

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