Estate of McClain v. Killmer, Lane & Newman, LLP.
2024 COA 50. No. 23CA0379. Attorneys and Clients—Rules of Professional Conduct—Contingent Fee Agreements—Restatement (Third) of the Law Governing Lawyers—Partial or Complete Forfeiture of a Lawyer’s Compensation.
May 9, 2024
Elijah McClain was injected with ketamine by a paramedic while detained by police officers, and he subsequently died. Following Elijah’s death, his mother Sheneen McClain (McClain) met with Newman, a partner at Killmer, Lane & Newman, LLP (KLN), to obtain legal representation for Elijah’s estate, for federal civil rights and wrongful death claims, and to sue Falck Rocky Mountain (Falck), the ambulance crew that supplied the ketamine. Newman encouraged McClain to include Elijah’s father, Mosley, in the representation, and McClain told Newman that Mosley was an absent father and owed her child support. Nevertheless, McClain and Mosley jointly signed a contingency fee agreement for legal representation with KLN. Newman filed a probate case to establish Elijah’s estate (estate), but KLN never entered into a separate contingent fee agreement with the estate. The Falck case settled in 2020. Ongoing tensions arose between McClain and KLN, and McClain and Mosley later retained separate probate counsel. In 2021, McClain terminated KLN as her counsel on the federal claims and hired Rathod Mohamedbhai (RM) as her counsel, again signing a contingency fee agreement (RM fee agreement). Due to Newman’s extensive knowledge of the case, Mohamedbhai suggested that the firms divide work on the case. The firms agreed to an 80/20 split of all fees, with 80% to KLN and 20% to RM (80/20 agreement).
McClain, Mosley, and the estate ultimately agreed to settle the federal case for $15 million. McClain and Mosley agreed that McClain would receive 65% of the gross settlement and Mosley would receive 35%, with both sums subject to claims for attorney fees and costs. No portion of the settlement proceeds was allocated or distributed to the estate. The next day, KLN wrote to RM asserting that it was entitled to a 40% contingent fee from McClain. In response, McClain and the estate filed suit seeking a declaratory judgment that because KLN had been terminated for cause, it was not entitled to any fees for its work on behalf of McClain and the estate. Ultimately, the district court determined that KLN had a concurrent conflict of interest in representing both McClain and Mosley, so McClain had terminated KLN’s representation for cause. But the court concluded that KLN’s wrongful conduct was not so serious that it warranted a complete forfeiture of KLN’s right to any compensation for its work. The district court determined that KLN should receive a 40% contingent fee on McClain’s portion of the settlement from the federal litigation, and that the fee should be split with RM according to the 80/20 agreement. The district court did not award KLN any fees against the estate based on the federal litigation. As to the separate Falck settlement, the court determined that KLN was entitled to a 40% contingent fee, but that it would need to repay McClain (1) $22,785.10 (the difference between the actual 50% split and the eventual 65% split in McClain’s favor in the federal litigation); (2) the amount Mosley owed McClain for past child support; and (3) the amount of fees McClain paid a probate attorney. The court also awarded RM $780,000 from McClain’s portion of the recovery in the federal litigation and $420,000 from Mosley’s portion of that recovery, apparently pursuant to the 80/20 agreement (as applied to the 40% contingent fee).
On appeal, McClain and the estate argued that the district court erred by finding that KLN’s wrongful conduct was not so clear and serious that it caused a complete forfeiture of KLN’s right to recover a fee for work performed on behalf of McClain and the estate. The court of appeals determined that the Restatement (Third) of the Law Governing Lawyers (Am. L. Inst. 2000) (hereinafter Restatement) provides the proper criteria for evaluating whether a lawyer’s wrongful conduct rises to a level that forfeits the lawyer’s right to recover for work performed pursuant to a contingent fee agreement that has been terminated. These criteria are (1) the gravity and timing of the violation, (2) its willfulness, (3) its effect on the value of the lawyer’s work for the client, (4) any other threatened or actual harm to the client, and (5) the adequacy of other remedies. Here, the record supports the district court’s finding that KLN had a concurrent conflict of interest when representing both McClain and Mosley that McClain did not waive. But balancing the foregoing considerations, the court concluded that the district court did not err by determining that a complete forfeiture of any fee was not warranted.
McClain and the estate also argued that the district court erred by calculating any fee based on the 40% fee contemplated by the contingency fee agreement divided pursuant to the 80/20 agreement for the work it did on the federal litigation. Here, while McClain signed the contingency fee agreement, she terminated KLN’s representation for good cause before the case was resolved and the contingency triggering the 40% fee was achieved. Further, KLN stated no viable legal theory explaining why it was entitled to enforce the RM fee agreement and did not assert a claim for enforcement of the RM fee agreement as a third-party beneficiary. Therefore, KLN lacks standing to enforce the RM fee agreement. Further, there was no evidence that McClain approved the 80/20 agreement, and the district court did not determine that a contingent fee was due from McClain to RM, so the 80/20 agreement did not provide a vehicle for KLN to enforce the RM fee agreement against McClain. And basing the 40% fee on a quantum meruit theory would be inconsistent with the ethical rules governing contingent fee agreements, so the judgment awarding KLN and RM a 40% fee from the proceeds of the federal lawsuit was erroneous. Rather, KLN’s recovery on quantum meruit principles should be based on a lodestar analysis as applied to the hours KLN worked on the case before McClain terminated its representation of her, which the court determined is $1,433,420.
McClain and the estate further contended that KLN forfeited any right to a fee related to the Falck settlement because KLN did not have a written fee agreement with the estate, and that the representation was impacted by the same conflicts of interest as the joint representation of McClain, the estate, and Mosley in the federal litigation. However, the KLN attorney successfully completed the representation, and the Falck engagement was not marred by wrongful conduct to the extent that prevented an award of the contemplated contingent fee to KLN for the federal litigation.
The judgment holding that KLN did not forfeit its right to receive any fee from McClain was affirmed. That portion of the judgment awarding attorney fees in favor of KLN and RM was reversed. Attorney fees were awarded in favor of KLN and against McClain in the amount of $1,433,420 for KLN’s work on behalf of McClain in the federal litigation. The award to KLN of attorney fees in the amount of $140,000 for the Falck litigation, less the deductions totaling $33,282.60 was affirmed. Because the $140,000 fee was previously distributed to KLN, the $33,282.60 deduction must be subtracted from KLN’s fee award against McClain. After deduction, the total judgment in favor of KLN and against McClain is $1,400,137.40.