Law Firm Not An Employment Agency – Can Recover In Quantum Meruit For Negotiating Personal Services Contract (IL Law)

 

Todd W. Musburger, Ltd. v. Meier, 394 Ill.App.3d 781 (1st 2009), while dated, is still post-worthy for its in-depth discussion of a lawyer’s quantum meruit recovery  from a client after the client fires the lawyer under a contingent fee contract.

The defendant radio personality had previously hired the plaintiff law firm under a multi-year written contract to serve as the defendant’s exclusive agent in negotiating defendant’s radio and television contracts.  That contingent fee contract called for the defendant to pay plaintiff 5% of the gross amount of any contract consummated by the plaintiff.

Plaintiff claimed that after the fee agreement was verbally renewed, the plaintiff spent about 200 hours over a one-year period negotiating the renewal of defendant’s radio contract with the WLS (AM 890) station and shopping defendant to competing stations.

Plaintiff alleged that its aggressive negotiation efforts culminated in a $12M/10-year contract offer from WLS; an offer rejected by defendant.  Plaintiff would have received $600,000 under the parties’ contingency contract if the defendant accepted the station’s offer re-upped there.

After it was fired by the defendant, the firm sued to recover for the value of its pre-termination work on the defendant’s behalf.

At trial, a jury awarded damages to the plaintiff of about $70K and the defendant appealed.

Held: Affirmed:

Q: Why?

A:  The court stated the operative rules governing attorney-client relationships and an attorney’s entitlement to recover fees:

– a client may discharge her attorney at any time, with or without cause;

–  when a client fires an attorney who was representing the client on contingency, the contingent-fee contract ceases to exist and is no longer operative;

– a discharged attorney may be compensated for the services rendered before the termination of the contingent fee contract on a quantum meruit basis;

– Quantum meruit is based on the implied promise of a recipient of services to pay for valuable services because otherwise the recipient would be unjustly enriched.”

– in quantum meruit recovery, the former client is liable for the reasonable value of the services received during the attorney’s employment.

–  an attorney’s quantum meruit recovery can be barred if an attorney has engaged in illegal conduct;

– just because a client doesn’t receive tangible benefits from a lawyer’s services, doesn’t mean a lawyer can’t recover  in quantum meruit.

The court affirmed the jury verdict and rejected all of defendant’s arguments on appeal.

The court first rejected defendant’s argument that plaintiff was prevented from recovering since it wasn’t licensed as a private employment agency under the Illinois Private Employment Agency Act 225 ILCS 515/11

The court found that plaintiff – a law firm – didn’t meet the statutory definition of “employment agency” since the plaintiff was hired to draft and negotiate on-air talent contracts.  It wasn’t a recruiter or job placement firm.

Next, the court affirmed the trial court’s barring defendant’s retained expert, a lawyer, from testifying that plaintiff shouldn’t have been allowed quantum meruit recovery and that plaintiff breached its fiduciary duties to the defendant.

In Illinois, the decision to admit or bar expert testimony is within the sound discretion of the trial court and the trial court’s ruling will not be reversed absent an abuse of that discretion.

Expert testimony is admissible if the proffered expert is qualified by knowledge, skill, experience, training, or education, and the testimony will assist the trier of fact in understanding the evidence.  But – “expert testimony as to legal conclusions that will determine the outcome of the case is inadmissible.”

Here, the trial court properly barred the defendant’s expert’s quantum meruit opinions since they invaded the province of the trial court.  It’s an axiom that the trial court decides legal issues while the jury decides factual ones.  The defendant’s excluded testimony that plaintiff wasn’t entitled to quantum meruit recovery was a pure legal conclusion.

The court upheld the jury’s quantum meruit damages award.  The court cited the voluminous trial testimony (over 100 pages in the record), offered in chronological detail, where plaintiff discussed the nature and difficulty of the contract negotiations carried out on defendant’s behalf, the money and degree of responsibility involved, and the time and labor required  Plaintiff’s testimony was supported by a radio station executive who had first-hand knowledge of the negotiations.

Afterwords:

  • This case provides a useful summary of quantum meruit in a fairly convoluted and interesting fact pattern involving high-level personal services contracts;
  • A law firm isn’t a job placement agency under the Illinois Private Employment Agency Act and so doesn’t have to be licensed to recover for employment contract negotiations;
  • A lawyer can recover for pre-termination services where he can support and quantify the services either through documentary or testimonial evidence.

 

 

Commercial Frustration and Prior Material Breach – Mizzou Appeals Court Weighs In

Clean the Uniform Co. St. Louis v. Magic Touch Cleaning, Inc., 300 S.W.3d 602 (Mo. 2009), a case from a jurisdiction I don’t practice in and that involves an unsexy fact pattern and monetary amount (less than $20K), still has some across-the-board relevance for its examination of liquidated damages clauses and the commercial frustration contract defense – two staples of commercial disputes.

The plaintiff and defendant entered into a three-year contract (the “Services Contract”) for plaintiff to rent cleaning uniforms and supplies to the defendant.  The contract called for the defendant to make at least partial payments on a weekly basis.  The contract contained a liquidated damages provision that said if the defendant prematurely terminated the Services Contract, the plaintiff could recover 50% of the average weekly rental charges for the six month period preceding the breach times the number of weeks remaining in the contract term.

The Services Contract also provided that it would be suspended for events that occurred beyond the parties’ control (a “force majeure” clause).

Defendant defaulted when its own one-year contract (the “Hospital Contract”) with a large VA hospital expired and wasn’t renewed.  Without the large VA hospital account, defendant couldn’t pay under the Services Contract.

Plaintiff sued to recover past-due amounts and liquidated damages under the Service Contract’s early termination provision.  The defendant argued that the VA hospital’s refusal to renew the Hospital Contract was an event beyond defendant’s control and excused its contract obligations to the plaintiff.

The trial court entered judgment for the plaintiff and the defendant appealed.

Held: Affirmed.

Q: Why?

The court found that the Hospital Contract’s termination was an event beyond defendant’s control.  The law is that if a party to a contract wants its performance to be excused if a certain event happens, and that event is reasonably foreseeable to happen after a contract is signed, the party should expressly provide for that contingency in the contract.

The commercial frustration doctrine posits that “if the happening of an event not foreseen by the parties and not caused by or under the control of either party has destroyed or nearly destroyed either the value of the performance or the object or purpose of the contract, then the parties are excused from further performance.”

While performance is technically still possible in a commercial frustration case, the defense will apply if the expected value of performance by a party has been destroyed by an intervening and unexpected event.

The court held that the defendants should have appreciated that the Hospital Contract could expire during the term of the Services Contract and not be renewed.  The defendant could have negotiated to make the Services Contract dependent on the continuing viability of the Hospital Contract but didn’t do so.  It wrote: “non-renewal of the [Hospital Contract] was a reasonably foreseeable risk at the time of contracting that did not excuse Customer’s performance under the [Services Contract].”

For the same reason, the defendant’s argument that it’s default was caused by an event beyond its control failed.  The Service Contract’s force majeure provision listed “strikes” and “lockouts” as specific events beyond the parties’ control.  But a third party’s refusal to renew an ancillary agreement (here, the Hospital Contract) wasn’t similar enough to a strike or lockout to absolve defendant’s payment obligations under the Service Contract.

Afterwords: To prevail on a commercial frustration argument, a defendant has a heavy burden.  Parties should take pains to spell out events that could happen during the term of a contract that makes it impossible for one party to perform its obligations.  A failure to clearly account for contingencies can result in a court finding that you assumed the risk of an intervening event making contractual performance impossible

 

 

 

 

 

Judicial Notice, Screenshot Evidence and On-line “Browsewrap” Contractual Arbitration Clauses – A Case Note

Judicial notice serves the salutary purpose of saving litigation time and expense.  It applies in situations where one party wants to establish a fact that’s not subject to reasonable dispute (e.g. Sacramento is the capital of California, for instance).  Judicial notice’s effect is that the party doesn’t have to endure the time and expense of calling a witness to testify or to marshal cumbersome documents to prove the generally known fact.

The rule is codified at Federal Rule of Evidence (and Illinois Rule of Evidence) 201.  Van Tassell v. United Marketing Group, LLC, 795 F.Supp.2d 770 (N.D.Ill. 2011) is a fairly recent case application of judicial notice in the context of a class action consumer fraud action versus various on-line vendors for unapproved credit card charges.

In addition to its clear judicial notice illustration, the case also has value for its discussion of the key factors governing on-line contracts that contain hard-to-find alternative dispute provisions.

Here’s some key judicial notice points, gleaned from the case (and others like it):

– Under FRE 201, a court may take judicial notice of an adjudicative fact that is not subject to reasonable dispute;

– An adjudicative fact is one that applies specifically to the parties in a specific case (as opposed to “legislative facts” which involve more general facts that could apply across the board to any situation);

– A fact is not subject to reasonable dispute where (1) it is generally known within the territorial jurisdiction of the trial court; or (2) is capable of accurate and ready determination by resort to sources whose accuracy can’t reasonably be questioned.

One of the on-line vendor defendants moved to dismiss the complaint and attached screenshots of on-line enrollment forms, which contained pro-merchant disclaimer language.  The defendant asked the court to take judicial notice of the enrollment pages since they were printed off the Internet.

But the court refused to take judicial notice of the Web pages.  In their response to the motion, the plaintiffs filed affidavits stating they never viewed the enrollment pages.  They (the plaintiffs) also didn’t refer to the enrollment pages in their Complaint.  As a result, the Web enrollment pages weren’t properly before the court on a motion to dismiss since on a Rule 12(b)(6) motion, a court typically only considers the face of a complaint and any documents “central” to a complaint.

Next, the court addressed whether the various on-line contract’s arbitration provisions were enforceable against the consumer plaintiffs on an on-line merchant defendant’s motion to compel arbitration.

Cyberspace contracts don’t change the elemental rules of contract formation: a contract requires a meeting of the minds and a manifestation of mutual assent.  Two common Internet contracts are clickwrap agreements and browsewrap agreements.  In the former, the webpage user must take affirmative steps to accept on-line contract terms; usually by clicking “accept” or checking an “I agree” box.  With a browsewrap contract, though, no action needs to be taken to “accept” the on-line vendor’s contract terms.  Using the site equates to accepting the terms.

The contract here involved a browsewrap contract and so was subjected to closer court scrutiny.  Since the arbitration provision was couched in the site’s “Conditions of Use” section which could only be accessed via a multi-step process, the court found the provision wasn’t prominent enough to be enforced.  As a result, the court denied the merchant’s motion to compel arbitration.  (pp. 779-780, 789-791).

Take-aways:

1/ The case provides an interesting applications of judicial notice to computerized context.  While this court didn’t take judicial notice, I’ve found it to be an economical time-saving device as it eliminates the need to go through the cumbersome exercise of gathering evidence on issues for which there’s really no room for debate;

2/ Arbitration provisions buried in a maze of fine print or that can only be located through a tedious, multi-step process won’t be enforced;

3/ Browsewrap contracts that result in a user’s passive acceptance of contract terms are more stringently construed by a court than is a clickwrap contract.