Quantum Meruit Basics – Illinois Law

QMQuantum meruit (Latin derivation: “as much as he deserved”) has repeatedly saved the day in situations where my client has performed services for a defendant but there is a contractual defect (such as missing price terms or an unclear completion date)that makes suing under a breach of contract impossible.  Time and again, quantum meruit has proved to be a valuable fallback or “Plan B” to a failed breach of express contract claim.  The remedy has ensured that my client at least gets something in situations where it would normally get nothing.

I’ve found quantum meruit to be especially useful in view of the realities of modern-day business transactions.  In my experience, it seems that contracts are often entered into by people (usually non-lawyers) who are bound and determined to get a deal done.  No matter what.  This single-mindedness of purpose often results in a myopic focus on finalizing the agreement instead of a meaningful consideration of a deal’s details or the possible consequences that could flow from a future breach.  It’s no surprise then, that key contract terms are often omitted, agreements aren’t signed, or are signed by the wrong parties.

Bernstein and Grazian, P.C. v. Grazian and Volpe, P.C., 402 Ill.App.3d 961 (1st Dist. 2010) provides a good summary of  quantum meruit’s pleading and proof elements.  The case is a partnership dispute between two law firms fighting over  – what else? – fees.  The plaintiffs (a dissolved law firm and representative of a deceased partner of that firm) filed suit for monetary and injunctive relief against defendants,  two former law partners of the plaintiff firm and those partners’ current firm. 

The trial court ruled against plaintiffs on breach of fiduciary duty and breach of contract claims but entered judgment for plaintiffs on a quantum meruit theory – awarding them 10% of the attorneys’ fees collected on open files which defendants’ firm assumed after plaintiff firm’s dissolution.  Id. at 965-966.   The First District reversed.  It held that there was insufficient evidence for the court to award 10% of attorneys’ fees earned on all pending cases which were formerly plaintiff’s (and were now defendants’ cases).  Volpe, 402 Ill.App.3d at 980. 

The black letter quantum meruit elements: (1) plaintiff performed a service to benefit the defendant; (2) he did not perform the  service gratuitously; (3) defendant accepted plaintiff’s service; and (4) no contract existed to prescribe payment for this service. 

The quantum meruit plaintiff has the burden of proving that valuable services were rendered by him, that the services were received by defendant, and the circumstances are such that it would be unjust to allow the defendant to retain the benefits of plaintiff’s services.  The measure of quantum meruit recovery is the “reasonable value of work” and the plaintiff must show that its uncompensated services were of measurable benefit to defendant.  Volpe, 402 Ill.App.3d at 979. 

The Court held that while defendants did benefit from plaintiff’s legal services, plaintiff failed to offer sufficient evidence to substantiate the trial court’s quantum meruit award.  Id. at 979-80.  The plaintiff didn’t offer the court any basis to quantify the value of the plaintiff’s services.  As a result, the plaintiffs ended up with nothing.

Conclusion – I always file quantum meruit as an alternative claim to a breach of contract claim.  Illinois  Code Sections 2-604 and 2-613 permit alternative pleading.  This does two things: (1) it ensures that my client at least gets something in the event of a contract defect or if my client is in breach; and (2) it mitigates the all-or-nothing nature of only proceeding on a breach of contract theory.  When pleading quantum meruit, I also make sure I don’t incorporate by reference my breach of contract allegations.  

By definition, quantum meruit can’t co-exist with a breach of express contract claim.  Some firms love (and I do mean love) to file motions to strike complaints on this basis.  The Volpe case ( and others like it) shows that a quantum meruit plaintiff must do more than simply allege that he benefitted a defendant.  Instead, the plaintiff must produce competent evidence that quantifies the monetary value of plaintiff’s services.

 

How to Enforce Settlement Agreements In Federal Court

I once represented a plaintiff in a Federal question case (based on the Computer Fraud and Abuse Act) that settled with the defendant making installment payments over time.  In the settlement agreement, I took great pains to emphasize that if the defendant missed a payment, I could immediately move to reinstate the case and accelerate the settlement amount plus fees and costs.  For good measure, I provided that the court retains jurisdiction to enforce the settlement terms if the defendant defaulted.  I thought I was doubly protected.  Defendant’s counsel signed off on all the terms.

We then entered a stipulation to dismiss.  The court dismissed the suit with prejudice.  I remember feeling vaguely uneasy about the “with prejudice” language but quickly reminded myself that (a) dismissals with prejudice AND with the court retaining jurisdiction (seemingly an oxymoron) are entered all the time in State court and (b) the defendant’s counsel requested the with prejudice language as an inducement for getting his client to agree.  After a ton of time and money on this case, both sides were anxious to put this one to bed.

Fast forward about 4 months into an 18-month payment arrangement and the defendant defaulted and my demand letter for compliance went unanswered.  I quickly filed a motion to vacate the dismissal, to reinstate and enter judgment for the full settlement amount – just as the settlement agreement allowed me to.  Imagine my shock when the court denied my motion?!  Apparently, the “with prejudice” language has teeth.

I then filed a motion to vacate the dismissal under FRCP 60 – the rule that governs motions to vacate judgments on the basis of mistake, fraud, inadvertence or other reasons “that justify relief.”  The Court denied this motion too. My only remedy was to now file a breach of contract action in State Court for breach of the settlement agreement (the contract).  While we were able to recover some additional payments from the defendant after we filed in state court (before the defendant filed for bankruptcy protection), I had to consider the question of what I could have done differently?

Key Settlement Enforceability Rules

Federal courts don’t like to babysit settlement agreements (who knew?!).  Seventh Circuit caselaw provides that when a case is dismissed pursuant to a stipulation to dismiss, the court does not automatically acquire jurisdiction over disputes arising out of an agreement that produces the stipulation.  Kokkonen v. Guardian Life Ins. Co. v. Am., 511 U.S. 375, 378 (1994); McCall-Bey v. Franzen, 777 F.2d 1178, 1188 (7th Cir. 1985)(rejecting suggestion that federal judges have inherent power to enforce settlement agreements arising from lawsuits that were previously before them). 

An important rule in the 7th Circuit is that “[a] settlement agreement, unless it is embodied in a consent decree or some other judicial order or unless jurisdiction to enforce the agreement is retained (meaning that the suit has not been dismissed with prejudice), is enforced just like any other contract.”  Lynch, Inc. v. SamataMason, Inc., 279 F.3d 487, 489 (7th Cir. 2002). 

The 7th Circuit holds that a district judge can’t dismiss a suit with prejudice and at the same time retain jurisdiction to enforce the settlement agreement: it’s a contradiction in terms.  A signed stipulation of dismissal does not vest the Court with jurisdiction over an ancillary contract dispute just because the parties included retention of jurisdiction language in the stipulation.   Parties cannot confer federal jurisdiction by agreementLynch, 279 F.3d at 489. 

What About FRCP 60?

I was also surprised that my Rule 60 motion to vacate motion was denied.  But, it turns out the standard for Rule 60 relief is high.  Like life-and-death high.  In Nelson v. Napolitano, 657 F.3d 586, 589 (7th Cir. 2011), the Court held that there may be “some instances” where a Federal court will vacate a voluntary dismissal on plaintiff’s motion, but it would have to be on the order of “a defendant faking his own death with a fraudulent death certificate in order to induce a plaintiff to voluntarily dismiss.”

The take-away:

In dismissing an action in Federal Court (at least in the 7th Circuit), it’s a bad idea to put “with prejudice” language in a dismissal order or stipulation if you want to be able to reopen the case at a later date (such as where a defendant misses an installment payment). 

Even better, try to put the settlement payment terms in the dismissal order.  This will increase your chances of getting the court to enforce a settlement if the defendant defaults. 

If you can’t reinstate a case because of prior “with prejudice” language, then file a new suit for breach of contract (for breach of settlement agreement) in state court.

Recovering Litigation Costs in Illinois State Court – What About Westlaw Research?

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In a small dollar case, a plaintiff’s recoverable “costs” typically include filing fees and service fees. See Household Int’l v. Liberty Mutual, 195 Ill. 2d 578 (2001).  This amount is usually negligible (usually less than $500) and not worth fighting over. However, where a fee-shifting provision in a contract provides for prevailing party “litigation expenses” or “costs of collection” (as many commercial contracts do) and the case drags on one or more years, the litigation costs can be substantial.

In Illinois, “[c]osts are allowances in the nature of incidental damages awarded by law to reimburse the prevailing party, to some extent at least, for the expenses necessarily incurred in the assertion of his rights in court.” Galowich v. Beech Aircraft Corp., 92 Ill. 2d 157, 165-66 (1982).

Code sections 5-108 and 5-109 – allow the a winning party to recover costs. The First District, in  analyzing a Federal Truth in Lending claim, held that any expenses paid to a third party including expert witness expenses, special process server expenses, deposition expenses, filing and messenger fees and computerized legal research costs can all be recovered by the prevailing plaintiff. Johnson v. Thomas, 342 Ill.App.3d 382, 401-402 (1st Dist. 2003).

By contrast, “overhead expenses” – costs a lawyer incurs independent of a specific case – are generally not recoverable.  Overhead costs include: telephone charges, in-house delivery charges, in-house photocopying, check processing, newspaper subscriptions, and in-house paralegal and secretarial assistance. Id. at 401-402.

The reason: overhead costs, at least in theory, are already reflected in an attorney’s hourly rate. See Harris Trust & Savings Bank, 230 Ill. App. 3d 591, 599 (1st Dist. 1992).

Whether a prevailing party can recover for computerized legal research expenses will turn on the winning side’s billing method.  Where the attorney’s fee is contingent or fixed – computer research expenses are not allowed.  The theory being that the computer research benefitted the contingent fee lawyer by reducing his research time and increasing his efficiency.  Because of this, the contingent lawyer should not be able to shift the computer research costs to a losing party. 

In contrast, for an attorney charging by the hour, the saved time resulting from computer research actually works against him – he will bill for fewer hours than if he researched the “old fashioned way” (does anyone remember Shepardizing?). 

With hourly billing, “the attorney should not be required to absorb the additional expense engendered by computer research fees in light of the diminished billable hours that result from such computer assistance”. Id.

Johnson does caution that computer research expenses are properly denominated “fees”; not costs. This is because computer research is part of the attorney’s overall effort in prosecuting or defending his client’s case. Id. So, if the statute or contract allows for recovery of fees and costs, computerized research expenses will be recoverable.  Conversely, if the contract only provides for winning party “costs”, computer research charges can’t be recovered under Johnson‘s rationale.

The take-away: I’ve been involved in more than a few multi-year cases where the litigation expenses (aside from the attorneys’ fees) exceeded $10,000.  As a consequence, a working knowledge of what litigation expenses an Illinois court will and will not permit is essential for practitioners engaged in protracted commercial litigation.