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A law firm discharged midway through a case may still seek recovery of fees under the quantum meruit doctrine even though it was working on a contingency basis and its client failed to recover any money, the 2nd U.S. Circuit Court of Appeals ruled last week. The three-judge panel in Universal Acupuncture Pain Services, P.C. v. Quadrino & Schwartz, 02-9469, overturned a ruling by U.S. District Judge Shira Scheindlin denying legal fees to Quadrino & Schwartz, a seven-attorney firm in Garden City. Universal Acupuncture Pain Services and its owner Dr. Dipak Nandi retained the firm on a contingency basis of 20 percent to represent them in a lawsuit seeking reimbursement for medical services from an insurance company. The clients fired the firm before settling the suit, which had no provision of a monetary award to the clients, said the appeals court. Scheindlin found that the law firm was not entitled to fees if its client did not recover any money. After all, reasoned the Southern District judge, the firm would have received nothing under the contingency arrangement if it had continued to represent the client to the final resolution of the case. The panel of three judges — Ellsworth Van Graafeiland, Robert Sack, and John Gibson, a judge from the 8th Circuit sitting by designation — disagreed. The success or failure of a former client’s ultimate recovery, held the panel, does not affect a law firm’s right to recover legal fees when it is discharged without cause. The panel remanded the case, directing the lower court to determine whether the firm was discharged for cause. If there was no cause, continued the panel in an unanimous opinion authored by Sack, then Scheindlin should reward legal fees. DIFFERENT STANDARDS Scheindlin turned down the firm’s claims for legal fees under the doctrine of quantum meruit. That doctrine prevents one party in a contract from unfair enrichment by compensating the terminated party for the services he or she has completed up to the date of termination, explained Sack. Scheindlin had rejected the application of this doctrine in a contingency fee arrangement in which plaintiffs failed to recover any money. “Clients who enter into a contingency fee arrangement do not expect to pay their attorneys unless they recover on their claims,” the judge held. “To require clients to pay in quantum meruit for their attorney’s services, regardless of whether there is a recovery, if they choose to discharge the attorney in the middle of the case, would penalize the clients for exercising their absolute right to terminate the attorney-client relationship at any time and render such right meaningless.” Citing the authority of the state’s highest court, the federal appeals court applied a different standard. “If a lawyer is discharged for cause, he or she is not entitled to legal fees,” wrote Sack in interpreting New York law. “If the lawyer is discharged without cause and prior to the conclusion of the case, however,” the judge said, “he or she may recover either (1) in quantum meruit, the fair and reasonable value of the services rendered, or (2) a contingent portion of the former client’s ultimate recovery, but only if both of the parties have so agreed.” The court went on to say that recovery on a quantum meruit basis is called for even where the attorney discharged without fault was employed under a contingent fee contract. Therefore, unless the clients discharged Quadrino & Schwartz for cause, it was entitled to receive such compensation, said the court. In arriving at her decision, Scheindlin did not take into consideration whether Nandi and Universal Acupuncture discharged Quadrino & Schwartz for cause, said the appellate court. Because the lower court had not evaluated the nature of the discharge, the panel said it could not review whether or not the discharge was for cause. The factors used to determine quantum meruit fees if the discharge was without cause include: the work completed by the firm prior to its termination; the nature of the fee arrangement such as contingency versus hourly; and the client’s prospect for victory at the time of the discharge, said Sack. Evan S. Schwartz, who represented Quadrino & Schwartz and is a founding partner in the firm, said that time records kept by his firm indicated fees exceeding $200,000. Citing confidentiality of attorney-client communications, Schwartz declined to explain the reason for the discharge. In its brief review of the issue, the district court said that Nandi cited “improper and excessive billing and poor legal representation” as the basis of the discharge. The firm denied the allegations in the prior proceedings. Nandi’s lawyer, Anthony J. Mamo Jr., of the Sleepy Hollow firm Medina & Mamo, declined to elaborate on the lower court’s analysis. Quadrino & Schwartz concentrates on insurance and business litigation. Its founding partners, Richard Quadrino and Schwartz, previously represented insurance companies but now exclusively represent policyholders, Schwartz said.

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