August 20, 2017

Colorado Court of Appeals: Attorney Must Assume Financial and Ethical Responsibility in Order to Share Fees

The Colorado Court of Appeals issued its opinion in Scott R. Larson, P.C. v. Grinnan on Thursday, June 15, 2017.

Attorney Fee Dispute—Referral Fees—Division of Fees.

Grinnan is a general practitioner with limited experience in personal injury cases. Grinnan’s friend Kelley asked Grinnan to represent him in a personal injury case. Grinnan obtained Kelley’s approval to involve Scott Larson., P.C. in the case, and Larson entered into a contingency fee agreement with the Kelley family. As relevant here, the agreement identified Grinnan as “associated counsel,” stated that Grinnan would be paid a percentage of Larson’s fee “not to exceed 100%,” and provided that Larson was responsible for paying case expenses. Grinnan was not a signatory to the agreement.

Larson brought claims against various entities and settled with one early in the case. From Larson’s $333,333 fee on this settlement, he sent Grinnan a check for $50,000. After three years of litigation, the case settled. Based on the settlements, the contingent fee agreement entitled Larson to a fee of $3,216,666.67. Larson had incurred about $300,000 in costs.

Larson and Grinnan couldn’t agree on how to divide the contingent fee. Grinnan entered his appearance, and the court granted his request that all attorney fees paid to Larson be placed in a restricted interest bearing account. Following a hearing, the trial court entered a detailed written order allocating the attorney fees. The trial court declined to divide the fees in proportion to services and found that Grinnan had assumed joint responsibility for the litigation. The court divided the fees by awarding Grinnan 20% of the $333,333.34 from the first settlement and 12.5% of the $2,883,333.33 fee from the other two settlements. The court also awarded Grinnan prejudgment interest at the rate of 8% from the date the settlement checks were issued until final judgment entered on the fees allocated to him. It also awarded Larson interest on the fees placed in the restricted account less the fees awarded to Grinnan (as a wrongful withholding). The court declined to award costs, finding that neither lawyer was the prevailing party.

On appeal, Larson asserted that Grinnan never assumed joint responsibility because he did not assume responsibility for the representation as a whole. The court of appeals found that Grinnan had assumed one of the two components of joint responsibility—financial responsibility for the case—because of Grinnan’s exposure to liability for any malpractice of Larson. A remand was necessary to determine whether he also assumed ethical responsibility, the second component, on which the court had made no findings.

As guidance to the trial court on remand, the court analyzed the ethical responsibility issue. It concluded that a referring lawyer must: actively monitor the progress of the case; make reasonable efforts to ensure that the firm of the lawyer to whom the case was referred has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct; and remain available to the client to discuss the case and provide independent judgment as to any concerns the client may have that the lawyer to whom the case was referred is acting in conformity with the Rules of Professional Conduct.

On remand, if the court finds that Grinnan assumed ethical responsibility, the court’s fee award will stand, subject to appeal by Larson. If the court finds that Grinnan did not assume ethical responsibility, he is only entitled to fees in proportion to the services he performed, with the referral fees to be reallocated to Larson, subject to appeal by Grinnan.

The court concluded that Grinnan failed to preserve issues he raised on cross-appeal.

Grinnan also contended that the trial court erred in finding a wrongful withholding.  The court found no error in the trial court’s award of prejudgment interest to Larson based on Grinnan’s wrongful withholding.

The court also noted that on remand the trial court could reconsider its decision not to award costs based on its findings on ethical responsibility.

The attorney fee award was vacated, the cross-appealed rulings were affirmed, and the case was remanded.

Summary provided courtesy of The Colorado Lawyer.

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