Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C.

2012 CO 61, 287 P.3d 842, 2012 Colo. LEXIS 915, 2012 WL 5233521

• Court: Supreme Court of Colorado
• Decided: October 22, 2012
• Docket: No. 11SC265
• Status: Published

Opinions

Justice HOBBS

delivered the Opinion of the Court.

1 We granted certiorari in Hannon Law Firm, L.L.C. v. Melat, Pressman & Highs, L.L.P., - P.3d ---, 2011 WL 724742 (Colo.App.2011) (selected for official publication), to determine whether a withdrawing attorney who is barred from maintaining an action for recovery in quantum meruit from the client may nevertheless maintain an action in quantum meruit against former co-counsel, and, if so, when the withdrawing attorney's quantum meruit claim accrues.¹

T2 In the 1990s, The Hannon Law Firm ("Hannon"), Melat, Pressman & Higbie, LLP. ("Melat"), and Howarth & Smith ("Howarth") entered into a contingent fee agreement to represent multiple plaintiffs in an action against the Cotter Corporation ("Cotter") regarding contamination from a uranium mill. The three firms entered into a fee sharing agreement to apportion the fees and costs of the litigation among themselves. Hannon withdrew mid-representation, citing a strained relationship with Howarth. Six years later, after the underlying litigation settled, Hannon filed this quantum meruit action against Melat and Howarth, seeking the reasonable value of the services it provided up to the time of withdrawal.

[3 Melat and Howarth first filed a motion to dismiss under C.R.C.P. 12(b)(5) for failure to state a claim upon which relief can be granted. They argued that C.R.C.P. Chapter 28.3 of the Rules Governing Contingent Fees prevents such a recovery when the contingent fee agreement fails to contain a provision for quantum meruit recovery when the client terminates the fee agreement. The fee agreement in this case contained no such provision. The trial court denied the motion to dismiss, stating that "[alt issue in this case is the fee-sharing agreement" between law firms, "not the attorney-client fee agreement." The trial court observed that, for purposes of ruling on the motion to dismiss, it must accept the following as true: (1) Hannon worked an uncompensated 541.4 attorney hours, (2) Hannon expended 1881.9 paralegal hours on the Cotter case, 8) Han-non worked on the Cotter case for the beginning six years of the case, and (4) though the case settled six years after Hannon withdrew, the remaining law firms received a large benefit from the case in the form of a settlement without providing Hannon any compensation for the value of its services during the first half of the case's duration. "Under these facts," said the trial court, "Hannon could establish a claim for quantum meruit by demonstrating that 1) a benefit was conferred by one of the parties on the other, 2) the benefit was appreciated by the receiving party, and 3) the benefit was accepted under cireumstances where it would be inequitable for the benefit to be retained without payment of its value." The trial court said a jury trial would be required because, "(obviously, the amount of the damages is still to be determined."

1 4 Upon the trial court's dismissal of their motion, Melat and Howarth answered the complaint and subsequently filed a "Motion for Judgment on the Pleadings Based on the Statute of Limitations." In this motion, they stated that "the statute of limitations for claims based on quantum meruit" requires that the action "must be filed within three years of the date the cause of action accrued." The parties have litigated and argued this case in the trial court, the court of appeals, and before us based on a three-year statute of limitations period being applicable to Hannon's quantum meruit claim. The cer-tiorari issues Melat and Howarth bring to us do not include an issue regarding the length of the statute of limitations period. Because such an issue was not preserved in the trial court or in the court of appeals, and those courts had no opportunity to consider and rule on such an issue, we express no opinion on it. As to determination of the accrual date that triggers running of the statute of limitations period, Melat and Howarth contended that "an attorney's claim for quantum meruit recovery of fees accrues immediately upon the termination of the representation." Treating the motion for judgment on the pleadings as a motion for summary judgment, the trial court agreed with Melat and Howarth that the quantum meruit claim accrued at the time Hannon withdrew from representation and not when there was a recovery by settlement in the lawsuit.

T5 The court of appeals upheld the trial court's judgment with regard to its interpretation of C.R.C.P. Chapter 28.3 allowing a quantum meruit claim among co-counsel, but reversed the trial court's determination that the claim accrued when Hannon withdrew from the litigation, instead of when the recovery occurred that made funds available to the attorneys.

I 6 We agree with the court of appeals and affirm its judgment. We hold that where multiple attorneys are co-counsel in a contingent fee agreement, C.R.C.P. Chapter 23.3 does not bar a withdrawing attorney from pursuing a quantum meruit action against former co-counsel for a share of attorney fees obtained in the case, even though that attorney is barred from pursuing such an action against the former client. The claim accrues at the time the withdrawing attorney knows or should know of the occurrence of the settlement or judgment that will result in the payment of attorney fees.

I.

7 We take the following facts from Han-non's complaint, which we must accept as true for the purposes of the issues raised in this appeal. See Abts v. Bd. of Edu., 622 P.2d 518, 521 (Colo.1980). In 1991, Melat filed a complaint on behalf of multiple plaintiffs who claimed to have been injured by the Cotter Corporation due to Cotter's operation of a uranium mill near Cafion City. Hannon entered its appearance and began representing the plaintiffs in 1998. In 1994, a third law firm, Williams & Trine, P.C. ("Williams"), also entered its appearance on behalf of the plaintiffs, In 1995, the three firms entered into a contingent fee agreement with the plaintiffs. Under the terms of the agreement, Melat, Hannon, and Williams would receive one third of the gross amount of any settlement or judgment. - The plaintiffs would receive two thirds, less costs incurred or advanced in the litigation.

€ 8 In 1996, Melat, Hannon, and Williams entered into a fee sharing agreement with Howarth. Under the agreement, the fees were apportioned twenty percent each to Me-lat, Hannon, and Williams, and forty percent to Howarth. The fee sharing agreement was silent regarding the recovery of fees in the event one or more firms withdrew as counsel for the plaintiffs.

T 9 In 1998, Hannon withdrew from representation with leave of the trial court, citing disagreement with Howarth regarding Ho-warth's demands on Hannon and lack of communication regarding Hannon's role at trial.² Hannon filed notice of an attorney lien, asserting that it was entitled to $160,231.35 for costs expended, as well as reasonable compensation for 541.1 attorney hours and 1881.9 paralegal hours worked on the Cotter case during the period of its representation.³

110 The Cotter litigation settled in 2004, triggering the contingency and payment of attorney fees, six years after Hannon's withdrawal. After settlement, Melat paid Han-non $160,231.35 for Hannon's costs, but both Melat and Howarth refused to share attorney fees with Hannon.

11 Hannon filed suit in this case on September 26, 2007, seeking to recover from Melat and Howarth the reasonable value of its services under a theory of quantum meru-it. Melat and Howarth moved to dismiss the complaint for failure to state a claim under CRCP. 12(b)(5), arguing that an attorney may only recover quantum meruit under a contingent fee agreement if the agreement gave the client notice of that possibility. The trial court denied the motion, reasoning that the rules governing contingent fee agreements did not necessarily apply to bar an attorney from recovering from former co-counsel.

{12 Melat and Howarth then moved for judgment on the pleadings, arguing that Hannon's claim accrued when it withdrew from representation in 1998. Treating the motion as a motion for summary judgment, the district court granted the motion and dismissed the case, premised on the claim accruing at the time Hannon withdrew from representation and not when a recovery occurred through settlement of the lawsuit⁴

113 The court of appeals affirmed the district court's order denying the motion to dismiss for failure to state a claim, but reversed the order dismissing the case. The court held that although Hannon was barred from pursuing a quantum meruit action against the client, it could pursue such an action against former co-counsel because the claim did not require the client to pay any money other than that amount contemplated in the contingent fee agreement. In reversing the order dismissing the case, it held that Hannon's claim accrued upon recovery by the plaintiffs through settlement of the Cotter action rather than at the time of withdrawal. The court of appeals reasoned that the claim accrued not at the time Hannon conferred the benefit of its services, but at the time retention of that benefit by co-counsel to the exclusion of Hannon became unjust.⁵

{14 We granted certiorari to review the court of appeals' holdings that (1) Hannon could bring a quantum meruit action against former co-counsel, and (2) the claim acerued upon the occurrence of the favorable settlement in the underlying action rather than at the time Hannon withdrew from representation. We affirm the judgment of the court of appeals.

IL.

«I 15 We hold that where multiple attorneys are co-counsel in a contingent fee agreement, C.R.GC.P. Chapter 28.3 does not bar a withdrawing attorney from pursuing a quantum meruit action against former co-counsel for a share of attorney fees obtained in the case, even though that attorney is barred from pursuing such an action against the former client. The claim accrues at the time the withdrawing attorney knows or should know of the occurrence of the settlement or judgment that will result in the payment of attorney fees.

A.

Standard of Review

116 We review de novo an order granting or denying a motion to dismiss for failure to state a claim under CRCP. 12(b)(5b). Bly v. Story, 241 P.3d 529, 533 (Colo.2010). During our review, we accept all allegations in the complaint as true and view them in the light most favorable to the plaintiff. Id. The trial court properly grants a CRCP. 12(b)(5) motion only where the plaintiffs factual allegations cannot, as a matter of law, support a claim for relief. Id.

117 We also review de novo a judgment on the pleadings. See Conn. Gen. Life Ins. Co. v. A.A.A. Waterproofing, Inc., 911 P.2d 684, 687 (Colo.App.1995), aff'd sub nom, Constitution Assocs. v. NH Ins. Co., 930 P.2d 556 (Colo.1996). In considering such a motion, a court "must construe the allegations of the pleadings strictly against the movant, must consider the allegations of the opposing parties' pleadings as true, and should not grant the motion unless the pleadings themselves show that the matter can be determined on the pleadings." Id.

118 A basic principle of appellate Jurisprudence is that arguments not advanced in the trial court and on appeal are generally deemed waived. Moody v. People, 159 P.3d 611, 614 (Colo.2007). It is axiomatic that issues not raised in or decided by a lower court will not be addressed for the first time on appeal. People v. Salazar, 964 P.2d 502, 507 (Colo.1998). Our judicial system depends upon the orderly presentation and preservation of issues. Colo. Permanente Med. Group, P.C. v. Evans, 926 P.2d 1218, 1228-29 (Colo.1996). See also City & Cnty. of Denver v. Qwest Corp., 18 P.3d 748, 760 (Colo.2001).

B.

Applicable Law

"19 Quantum meruit is an equitable theory of recovery that arises out of the need to avoid unjust enrichment to a party in the absence of an actual agreement to pay for services rendered. Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 444-45 (Colo.2000). Quantum meruit allows a party to recover the reasonable value of the services provided when the parties either have no express contract or have abrogated it. Id. To recover in quantum meruit, a plaintiff must demonstrate that (1) at plaintiffs expense, (2) defendant received a benefit, (3) under cireumstances that would make it unjust for the defendant to retain the benefit without paying. Id. at 445. Whether retention of the benefit is unjust is a fact-intensive inquiry in which courts look to, among other things, the intentions, expectations, and behavior of the parties. Lewis v. Lewis, 189 P.3d 1134, 1140, 1143 (Colo.2008) (discussing the inquiry in the context of an unjust enrichment claim).

120 In the context of the attorney client relationship, an attorney who withdraws before the close of a case may generally recover the reasonable value of his or her services under a quantum meruit theory. Mullens v. Hansel-Henderson, 65 P.3d 992, 999 (Colo.2002). However, C.R.C.P. Chapter 23.3, which governs contingent fee arrangements, may limit such recovery in certain situations because of notice due to clients regarding the fees for which they are liable. See Elliott v. Joyce, 889 P.2d 43, 46 (Colo.1994). In particular, Chapter 23.3 requires that contingent fee agreements contain "a statement of the contingency upon which the client is to be liable to pay compensation otherwise than from amounts collected for him by the attorney." CRCP. Ch. 28.3, Rule 5(d). We have interpreted Chapter 28.8 to limit a withdrawing attorney's ability to recover quantum meruit from a client to those cireumstances in which the underlying agreement adequately informs the client of that possibility. See Dudding, 11 P.3d at 446-47; Elliott, 889 P.2d at 46.

121 The point at which a withdrawing attorney's quantum meruit claim acerues in a contingent fee case that results in a settlement or judgment making funds available for attorney fees to co-counsel is a matter of first impression before us. In general, a claim accrues when a suit can be maintained. See Jones v. Cox, 828 P.2d 218, 224 (Colo.1992) (A claim accrues "when a suit may be maintained thereon."); Black's Law Dictionary 28 (Oth ed. 2009) (defining "accrue" as "to come into existence as an en-foreeable claim or right"). A quantum meru-it claim accrues when a person discovers, or through the exercise of reasonable diligence should discover, that all the elements of the claim are present. See Miller v. Armstrong World Indus., Inc., 817 P.2d 111, 113 (Colo.1991) (A claim for relief accrues when plaintiff knows, or should know, all material facts essential to show the elements of that cause of action.). See, eg., §§ 18-80-108(4), (6) & (8), C.R.S. (2012).

122 Courts from other jurisdictions are split regarding when a quantum meruit claim accrues within the context of an attorney-client dispute involving a contingent fee agreement. Under the California rule, the claim accrues upon occurrence of the contin-geney resulting in attorney fees. See Frocasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9 (1972). Two main rationales support the California Supreme Court's conclusion in FPracasse. First, a significant factor in determining the reasonableness of an attorney's fee is the "amount involved and the results obtained." Id. at 792, 100 Cal.Rptr. 385, 494 P.2d 9. Until the contingency occurs, it is impossible to determine the results obtained, and determining the amount involved is highly speculative, Id. Second, the court reasoned that it is unfair to burden the client with an obligation to pay his or her former attorney regardless of the outcome of the litigation. Id.

€23 By contrast, under the New York rule, accrual occurs immediately upon withdrawal or discharge of the attorney. See Tillman v. Komar, 259 N.Y. 133, 181 N.E. 75 (1932). The New York Court of Appeals reasoned that, because quantum meruit is a remedy that exists in the absence of a contract, the value of an attorney's services should not depend on a term from a contract that has been abrogated by the termination of the attorney-client relationship. Id. at 76; accord In re Estate of Callahan, 144 Ill.2d 32, 40-41, 161 Ill.Dec. 339, 578 N.E.2d 985 (1991) ("The claimant's recovery here should not be linked to a contract contingency when his recovery is not based upon the contract, but upon quantum meruit.").

C.

Application to this Case

1. A withdrawing attorney who is barred from recovering quantum me-ruit from the client may nevertheless maintain a quantum meruit action against former co-counsel.

1 24 Melat and Howarth first argue that a withdrawing attorney who is barred from recovering in quantum meruit from his or her former client is also barred from recovery from former co-counsel. Melat and Ho-warth assert that adopting a contrary rule would undermine the purpose of C.R.C.P. Chapter 23.3, Rule 5, which requires client notification of the cireumstances under which counsel will be entitled to compensation. In response, Hannon argues that neither our rules governing contingent fee agreements, nor the cases interpreting them, bar a withdrawing attorney from maintaining a quantum meruit action against former co-counsel because the rules do not govern fee-sharing relationships between attorneys.

125 We agree with Hannon and hold that C.R.C.P. Chapter 28.8 does not bar a withdrawing attorney from maintaining a quantum meruit action against former co-counsel even if it would bar the attorney from recovering from the client. Chapter 28.3 does not purport to impose restrictions on fee sharing agreements or equitable recovery between attorneys. Rather, its purpose is to ensure that the client is fully advised of the financial obligations he or she assumes by entering into a contingent fee agreement. Dudding, 11 P.3d at 446 (citing with approval Joyce v. Elliott, 857 P.2d 549, 552 (Colo.App.1993), aff'd, 889 P.2d 43 (Colo.1994)).

126 In this case, the attorneys collectively entered into a contingent fee agreement with their clients under which the attorneys received one third of the amount of settlement or judgment and the clients received two thirds minus costs expended and advanced. To the extent that the agreement failed to notify the clients of the possibility of quantum meruit recovery, Hannon may not recover from them. See Dudding, 11 P.3d at 446; Elliott, 889 P.2d at 46. In contrast, while Hannon's claim against Melat and Ho-warth for quantum meruit recovery would require them to share their portion of the proceeds of the settlement, it does not require the clients to pay any more or less than the amount contemplated in the underlying agreement. Thus, recovery from co-counsel would not offend the rationale behind Chapter 28.3, which is to protect clients. Chapter 28.8 does not act as a general bar against a quantum meruit action between attorneys. We perceive no reason why Chapter 28.3 and cases interpreting it should prevent Hannon from seeking to recover fees from former co-counsel.

127 We therefore agree with the court of appeals and conclude that the trial court did not err in denying Melat and Howarth's motion to dismiss for failure to state a claim.

2. In the context of a contingent fee arrangement, a withdrawing attorney's quantum meruit claim against former co-counsel accrues when the attorney knows or should know of the occurrence of the favorable settlement or judgment that will result in attorney fees.

128 Melat and Howarth next argue that the statute of limitations on Hannon's claim for quantum meruit began to run at the time Hannon withdrew from representation; they argued in the trial court, in the court of appeals, and before us that the applicable statute of limitations period is three years.⁶ In response, Hannon asserts that the claim only accrued when the underlying litigation settled, resulting in a recovery.

[29 Based on Hannon's complaint, we assume as true for the purposes of a judgment on the pleadings that, at the time Hannon withdrew, Melat and Howarth had received the benefit of Hannon's services at Hannon's expense. Such evidence goes towards two of the three elements of a quantum meruit claim. As to the third element, Hannon contends that retention of the benefit only became unjust when the underlying plaintiffs, through the combined efforts of co-counsel, obtained a settlement in their case.

'I 30 We acknowledge that quantum meruit is an equitable theory of recovery that exists independent of any contract. Therefore, the contingency itself-a term of an agreement Hannon could not enforce against the client when he withdrew from representation-should not control a quantum meruit claim between co-counsel. In the absence of any express agreement or contract, a court looks to the intentions, expectations, and behavior of the parties to determine when recovery has become unjust. Lewis, 189 P.3d at 1140, 1148. In any contingent fee arrangement, no party expects to recover fees or costs unless and until the case settles or the client receives a favorable judgment. A claim for quantum meruit should accrue when that expectation has been frustrated. Under the facts alleged here, a favorable settlement was achieved, but Melat and Howarth refused to share with Hannon the proceeds of the settlement payable to attorneys. The alleged facts of the parties' behavior include that Melat, consistent with an accrual date based upon obtaining a recovery, readily paid Han-non its share of the costs while denying Hannon any share in the recovery of funds available for attorney fees. As the California Supreme Court pointed out in Fracasse, in a contingent fee arrangement, it is difficult to determine the reasonable value of an attorney's services before the outcome of the case. 6 Cal.3d at 792, 100 Cal.Rptr. 385, 494 P.2d 9. Under our own rules of professional conduct, a major factor in determining the reasonableness of an attorney's fee is "the amount involved and the results obtained." Colo. RPC 1.5(a)(4). Given that quantum meruit is a form of equitable relief, it is not justifiable to award a withdrawing attorney a fee prior to settlement or judgment because the value of the attorney's services is too speculative at that point.

{31 If an attorney were allowed to withdraw from a case and immediately claim quantum meruit from former co-counsel, the remaining attorneys would find themselves in the grossly unfair position of having to pay the withdrawing attorney for the value of his or her services even though they themselves might never recoup the value of their own work. Moreover, such an outcome would give co-counsel no incentive to work through their differences for the good of the client. If an attorney knows she or he can file a quantum meruit claim at the moment of withdrawal, the attorney has no reason to compromise with co-counsel and could threaten to withdraw and file for quantum meruit in order to coerce co-counsel into adopting a particular trial strategy or method of fee sharing. We see no sound policy behind allowing such an outcome.

$32 We therefore conclude that a withdrawing attorney's quantum - meruit claim against co-counsel in a fee sharing agreement such as the one before us acerues when the attorney learns or through due diligence should learn of the occurrence of the favorable settlement or judgment that will result in payment of attorney fees. Thus, we agree with the court of appeals and determine that the trial court erred in ruling that Hannon's claim acerued when it withdrew from representation.

IIL.

33 Accordingly, we affirm the judgment of the court of appeals.

Justice COATS dissents.

1 . - The issues on which we granted certiorari were as follows:

1. Whether the court of appeals erred in holding that, when a withdrawing attorney is barred from recovering quantum meruit from the client, the attorney may nevertheless recover quantum meruit from former co-counsel.

2. Whether the court of appeals erred in holding that when an attorney withdraws from a contingency fee case, the attorney's quantum meruit claim does not accrue until there is a recovery in the underlying lawsuit.

2 . Whether Hannon justifiably withdrew from representation affects the merits of its quantum meruit claim but does not affect our analysis here. See Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 446 (Colo.2000).

3 . Williams also withdrew from representation prior to trial.

4 . The district court treated Melat and Howarth's motion for judgment on the pleadings as one for summary judgment because "resolution of the issue presented require{d)[the] Court to consider [the fee sharing agreement]." The court of appeals held that this conclusion was unnecessary because the fee sharing agreement was both referred to in, and attached to, Melat's complaint. See Yadon v. Lowry, 126 P.3d 332, 335-36 (Colo.App.2005) (holding that a document referred to in a complaint, even though not formally attached, was not a matter "outside the pleadings" for purposes of a C.R.C.P. 12(b)(5) motion to dismiss (citing 11 James Wm. Moore et al., Moore's Federal Practice § 56.30[4], at 56-225 & -226 (3d ed.2005))). The court of appeals reviewed the motion as one for judgment on the pleadings. Because the court of appeals' holding on this issue is not in dispute before this court, we likewise review this motion as one for judgment on the pleadings.

5 . Judge Terry dissented from the majority's holding on this issue, finding that Hannon's claim accrued no later than the date of Hannon's withdrawal from the federal court litigation.

6 . Melat and Howarth argue in their opening brief before us that "Hannon's claim is barred by the three year statute of limitations." They do not argue that any lesser period than three years applies in this case. In making their accrual argument, they refer to section 13-80-108(6), C.R.S. This is the provision of the rule that pertains to any express or implied contract. They do not invoke section 13-80-108(8), C.R.S., which refers to a cause of action for losses or damages not otherwise enumerated. In any event, subsections (6) and (8) both provide, respectively, that a cause of action accrues when the breach or the injury, loss, or damage is discovered or should have been discovered by the exercise of reasonable diligence. We can therefore decide the matter of accrual in this case without injecting sua sponte the issue of the relevant statute of limitations period. Melat and Howarth have not preserved any issue they might have had regarding the length of the applicable statute of limitations period for purposes of this appeal. Moody v. People, 159 P.3d 611, 614 (Colo.2007).