On appeal from Superior Court of New Jersey, Law Division, Somerset County, L-983-96.
Before Judges Baime, Carchman and Lintner.
The opinion of the court was delivered by: Carchman, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This appeal requires us to consider whether an attorney who has failed to secure a timely written contingent fee agreement may recover either a contingent fee or an award based on quantum meruit, or is barred from any fee recovery. Here, plaintiff law firm Starkey, Kelly, Blaney & White and its clients, Nancy and Sigurd Nicolaysen (decedents), agreed on a contingent fee but did not reduce their agreement to writing for a period exceeding two years after the commencement of representation. Judge Arnold concluded that the belated execution of the contingent fee agreement was a violation of RPC 1.5(b) which barred recovery of a contingent fee, but reserved plaintiff's right to seek quantum meruit relief. Following a subsequent trial on that issue, Judge Hoens concluded that quantum meruit relief was warranted and granted an award. Decedents' heirs, defendants Lisa Gelburd and Sigurd Nicolaysen, Jr. (Sandy), and the Estate of Nancy Nicolaysen appealed, and plaintiff cross-appealed. We hold that under the circumstances presented here, plaintiff was barred from a contingent fee award but was entitled to quantum meruit relief. We affirm the award and dismiss the cross-appeal.
These are the undisputed facts. On April 5, 1984, in contemplation of their retirement and their children's futures, decedents entered into a contract to sell their 113-acre Montgomery Township farm to Chaim Melcer for the sum of $870,000, at $7,700 per acre, contingent upon Melcer's ability to obtain preliminary subdivision approval and access to all required utilities within twelve months (Melcer contract). Eight months later, on January 30, 1985, Melcer assigned the contract to a builder, Henry Opatut (Opatut contract), who sought to extend the time frame for required utilities approvals.
Decedents were worried by and dissatisfied with the price terms, Opatut's proposed performance extension, and their then- attorney's recent poor press. So, in early 1985, on the recommendation of a mutual acquaintance, decedents retained Charles E. Starkey, a partner in plaintiff, to represent them in the matter and advise them on the farm sale. Starkey believed that decedents had not received a fair price from Melcer, advised them to terminate the sale agreement upon Opatut's failure to meet his performance contingencies, and over the course of nine more years and during the remainder of their lifetime provided extensive legal services to decedents with respect to the farm. As decedents lacked the resources to pay for Starkey's services on an hourly basis, they agreed over the course of several subsequent meetings that Starkey would represent them on a contingent fee basis for one-third of the difference between the Melcer/Opatut contract sale price of $870,000 and any sale price should he succeed in extricating them from the contract:
Now, from the beginning of my personal meeting with [decedents], they were concerned about how they would pay the fee because they didn't have any money. That was the reason they were trying to sell the property in the first place. Early on, I don't know whether it was the — I doubt whether it was the first meeting, the first meeting I probably said we'll work that out, but certainly within the next month or so we discussed how they could pay the fee.
They flat out told me they couldn't afford an hourly basis. I said that's okay. What we would do is handle it on a contingent fee basis. I told them that the closest thing on a contingent fee basis that I was familiar with would be a condemnation action, and I told them that the normal approach in a condemnation action if you represent the condemnee is that you get a percentage, usually one-third, of the excess over what the offer in condemnation was.
Starkey thereafter not only successfully represented decedents in terminating the Mercer/Opatut contract by defending against consolidated suits for specific performance at a three-day trial and on subsequent appeal, but also simultaneously represented decedents in their continued negotiations with other developers for the sale of their land.
On December 23, 1986, while the Melcer/Opatut litigation was still pending before this court, decedents entered into a contract of sale with Newman and Newman Builders and Developers, Inc. in the amount of $3,996,000, at the rate of $36,000 per acre, contingent upon decedents' success on the Melcer/Opatut appeal (Newman contract). Pursuant to the Newman contract, decedents received a $50,000 deposit from Newman within four months of its signing, and additional incremental deposits of $10,000 per month thereafter, for a sum total of $200,000. This sum was determined to be non-refundable.
Due to Mrs. Nicolaysen's concern over the prospect of continuing litigation, Mr. Nicolaysen's failing health, and "that so much time had gone by before any money was paid," she wanted to formalize "some method of paying" Starkey for his services, and Starkey obliged on November 10, 1987, not only by reducing their oral contingent fee agreement to writing, but also by unilaterally reducing his typical percentage fee to 20% of the sale price differential. This adjustment was made in light of the Newman contract, which would have yielded a fee of $625,200 at that rate upon closing. That letter agreement, which decedents signed and returned to plaintiff on November 13, 1987, over two and one-half years after commencement of Starkey's representation, provided:
While our case before the Appellate Division is still awaiting final decision, I thought that we should make an effort to reduce to writing our arrangement for establishing legal fees for our past and future services.
During our initial meetings you will recall that I discussed handling this case on a basis similar to a real estate condemnation matter. In those types of cases, the normal approach is to base a legal fee on the spread between the amount offered by the condemning authority and the amount finally obtained for the client as a result of the negotiations and/or litigation. Typically, that type of contingent fee is in the amount of one-third of the monies obtained for the client.
In your situation and because of what I have always regarded as the great disparity between your contract price with Opatut and what I thought would be the real worth of your property, I indicated to you that one- third would be an excessive fee. Accordingly, our fee proposal is to perform all services, including a Supreme Court Appeal if that becomes necessary, for a fee based on twenty percent of the difference between the present acre price in the Opatut contract and the present acre price realized by you from the Newman contract or any other contract which is ultimately closed by you. No money would be due us if we were unsuccessful in obtaining a price higher than that offered by Opatut and, in any event, payments would be due us only as received by you. For example, if you received part of the purchase price at closing and took back a mortgage for the balance, we would be entitled to receive our percentage fee only on the money when it comes into your hands.
Out-of-pocket expenses for filing fees, depositions and the like, as in the past, would be billed to you as they are incurred.
If the above accurately reflects our understandings as to a fee, I would appreciate it if you could acknowledge by signing a copy of the letter which I have enclosed. If you have any questions, please do not hesitate to call.
Sandy was apprised of this agreement and its terms directly by decedents at the time of its execution, and it was his understanding that his parents "did not have the money to pay the fees and that [his] mother was concerned that so much time had gone by before any money was paid" to Starkey.
Four months later, in March, 1988, Newman requested an extension for its faltering performance of the contract terms related to down payments and obtaining sewage disposal services and approval, and decedents again elected to terminate the contract. Starkey again successfully represented decedents both at trial and on appeal in defending against Newman's suit for specific performance and decedents' return of the $200,000, and he continued to assist decedents in their efforts both to secure another buyer and to obtain regional sewer service for their property. Decedents then "suggested that [plaintiff] should start collecting a fee out of [the non-refunded $200,000 deposit]." Although Starkey regularly accepted decedents' payments of costs pursuant to their agreement, he declined their offer to begin collecting his fee from the Newman deposits.
Mr. Nicolaysen died in October 1992. In the spring of 1993, Mrs. Nicolaysen entered into a contract of sale with Calton Homes which apparently fell through. After Mrs. Nicolaysen's death July 1994, Starkey obliged Sandy's request to review another developer's proposal to purchase the property for $1,000,000 cash. Starkey's subsequent attempts to ascertain defendants' intent with respect to the contingent fee agreement were met with silence.
After receiving no response to Starkey's inquiries regarding fees, on June 3, 1996, plaintiff filed a complaint seeking compensation for the legal services performed for decedents by enforcement of the agreement or under the equitable doctrines of quantum meruit or unjust enrichment. Defendants, by answer, admitted that plaintiff had been retained by decedents and not paid for its services, and asserted various separate defenses, including plaintiff's failure to comply with the conditions precedent of R. 1:20A-6 (requiring pre-action notice of client's right to request fee-arbitration) and N.J.S.A. 2A:13-6 (barring action for fees until a bill has been sent to client) and failure of the farm sale contingency. In response, on August 8, 1996, plaintiff sent defendants an un-itemized bill for attorneys' fees in the amount of $625,200 along with an itemized accounting of costs which had previously been paid by the Nicolaysens and a fee-arbitration notice.
Plaintiff, having satisfied the conditions precedent, then amended its complaint to seek the additional relief of a declaratory judgment that the fee agreement was valid and to remain in full force and effect until all provisions were fulfilled. Defendants then claimed that plaintiff's fee agreement violated both ...