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Starkey, Kelly, Blaney & WHite v. Nicolaysen

May 09, 2002


On certification to the Superior Court, Appellate Division, whose opinion is reported at 340 N.J. Super. 104 (2001).


In this appeal, the Court determines whether an attorney, who enters into an oral contingency-fee agreement that is later deemed to be unenforceable because it was not reduced to writing within a reasonable time, is entitled to collect either a fee or an award based on the principle of quantum meruit for services rendered before the contingency has occurred.

On April 5, 1984, Sigurd A. and Nancy Nicolaysen, husband and wife, entered into a written contract to sell their 113-acre farm to Chaim Melcer for $7,700 per acre, for a total of $870,000. Melcer assigned the contract to Henry Opatut. Unhappy with the contract because of the per acre sales price and a growing distrust of the buyer's attorney, the Nicolaysens in February 1985 contacted Charles E. Starkey, Esquire, a partner at the plaintiff law firm.

Because the Nicolaysens could not afford to pay Starkey on an hourly basis, he agreed to handle the matter on a contingent fee basis modeled after a typical condemnation action fee arrangement in which the fee usually was one-third of the excess received over the original condemnation offer. An oral agreement was reached that Starkey would provide services for a fee equal to one-third of the difference between the Melcer-Opatut contract price, 870,000, and any future sales price for the farm. The object of the retainer agreement was the termination of the Melcer-Opatut contract.

Starkey succeeded in terminating the contract and successfully defended against consolidated lawsuits for specific performance. Shortly thereafter, the Nicolaysens entered into a contract with Newman & Newman Builders and Developers, Inc., to sell the farm for $36,000 per acre for a total of $3,996,000. Under the Newman contract, the Nicolaysens received a $200,000 non-refundable deposit. After the Nicolaysens received the $200,000 deposit, the oral contingent fee agreement between Starkey and the Nicolaysens was placed in writing. In that November 13, 1987 agreement, Starkey reduced his fee from one-third to twenty percent of the sales price differential. The agreement stated that Starkey was entitled to a fee of twenty percent of the $3,126,000 difference between the Melcer-Opatut contract and the Newman contract, or the difference between the Melcer-Opatut contract and any other contract ultimately closed by the Nicolaysens. The sale never closed. The Nicolaysens decided to terminate the contract, and Newman sued for specific performance and return of the deposit. Starkey successfully defended the litigation through trial and on appeal, and the Nicolaysens were permitted to retain the deposit. Starkey declined the Nicolaysons' offer to pay a portion of his fees out of the $200,000 deposit received from Newman. While the Newman litigation was pending, Starkey assisted the Nicolaysens in seeking offers from other prospective buyers.

Mr. Nicolaysen died in 1992. In the spring of 1993, Mrs. Nicolaysen entered into another contract of sale, but the sale never materialized. Mrs. Nicolaysen died in July 1994. At the request of her son, Sigurd Nicolaysen, Jr., Starkey reviewed another developer's proposal to purchase the property for $1,000,000 in cash.

After making several unsuccessful attempts to confirm the contingent fee agreement with Mr. and Mrs. Nicolaysen's children, Sigurd Jr. and Lisa Gelburd, Starkey initiated this litigation in June 1996. Relief was not sought against the children individually or as heirs or devisees, but rather against the estate. While the litigation was pending, defendants entered into a contract of sale for $2,000,000 in cash, but that agreement was terminated by the purchasers in 1997. The property had not been sold by the time final judgment was entered below.

The trial court held that the contingent fee agreement was unenforceable because it had not been reduced to writing with a reasonable time, as required by the Rules of Professional Conduct. Two years later, the trial court ruled that Starkey was entitled to a fee of 115,712.50 on the theory of quantum meruit. Judgment was entered against the estate of Nancy Nicolaysen, Lisa Gelburd and Sigurd Nicolaysen, Jr., jointly and severally, rather than as a lien against the property. The trial court reasoned that the heirs benefited from Starkey's efforts and that sale of the property was uncertain.

The Appellate Division affirmed essentially for the reasons expressed by the trial court.

HELD: The contingent fee agreement was invalid for failure to reduce it to writing within a reasonable time. Starkey is entitled to payment based on quantum meruit notwithstanding the fact that the contingency has not been satisfied.

1. The execution of a written fee agreement thirty-three months after representation has commenced is not within a reasonable time as required by RPC 1.5(b), therefore the trial court correctly found the agreement invalid. (Pp. 8 to 9).

2. To recover under a theory of quantum meruit, a plaintiff must establish: (1) the performance of services in good faith; (2) the acceptance of the services by the person to whom they are rendered; (3) the expectation of compensation therefore; and (4) the reasonable value of the services. The four-part test has been satisfied in this case because: (1) Starkey provided valuable legal services in good faith; (2) the Nicolaysens accepted his services; (3) there was an expectation of payment and receipt of compensation as demonstrated by both the oral and written fee agreements; and (4) the reasonable value of his services has been established in a trial. (Pp. 9 to 12).

3. Although the defendants contend that allowing quantum meruit recovery in this case would foster inattention to RPC 1.5(b), the purpose of the rule's writing requirement is to avoid misunderstanding and fraud. Here, there is no hint of fraud or bad faith by Starkey, nor is there any suggestion of a misunderstanding by anyone. Invalidating the contingent fee agreement because it was not reduced to writing within a reasonable time is a sufficient vindication of the rule. (Pp. 12 to 13).

4. Allowing a quantum meruit recovery is proper even if the children do not sell the property and thereby satisfy the contingency. They continue to benefit from Starkey's services by receiving enjoyment and use of the property as well as the right to sell it at what is likely to be a price higher than the $7,700 per acre price under the Melcer-Opatut contract. (Pp. 13 to 14).

5. Starkey stipulated that he does not object to entry of judgment only against the estate, therefore the Court modifies the judgment below so that it is not entered against the heirs but against the estate. Because the judgment is a lien against realty, the lien immediately can be executed against the property. The quantum meruit fee of $115,712.50 awarded plaintiff by the trial court is not more than that ...

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