Reversing a trial court’s dismissal of a law firm’s quasi-contract claims against a former client, the First District recently considered the enforceability of a contingency fee contract that was missing a material term.
The plaintiff law firm in Seiden Law Group, P.C. v. Segal, 2021 IL App (1st) 200877 sued the defendant, an ex-client, for quantum meruit and unjust enrichment to recover the value of its fees and costs incurred in a prior lawsuit.
Key Facts
In 2013, the client defendant hired the plaintiff law firm to petition the U.S. government in Federal court for the return of personal property the government confiscated after her ex-husband’s 2004 criminal racketeering conviction.
The contingent fee contract, drafted by the plaintiff firm, was silent on the percentage of recovery that would go to the firm if the suit was successful. It read: “_____% of recovered funds…. pursuant to a forfeiture resulting from a matter concerning [defendant’s ex-husband].” The contract also provided that in the event of discharge, the firm could recover pre-firing accrued fees and expenses advanced in the lawsuit.
In 2016, the client fired the law firm. At the time of its firing, the law firm had not recovered any property on the defendant’s (then, the plaintiff’s) behalf.
The law firm then sent defendant a bill for nearly $100,000 based on its assessed value of the legal services provided to the plaintiff in the case against the government. Plaintiff sued when defendant refused to pay under quantum meruit and unjust enrichment theories of recovery.
The basis for plaintiff’s claims was that since the underlying fee agreement was unenforceable since it was missing an essential price term, it could sue alternatively for quantum meruit and unjust enrichment.
The trial court dismissed the suit. It found that the existence of an express contract – the contingency agreement – precluded the law firm’s quantum meruit and unjust enrichment claims. That the contingent-fee contract was missing a recovery percentage, did not render the contract unenforceable. The trial court noted that courts routinely supplied missing price terms in a variety of contexts. And since the contract was enforceable, it defeated plaintiff’s claims.
Reversing, the First District first noted that under Illinois law, a contract’s material terms must be definite enough so that its terms are reasonably certain and able to be determined.
Where a contract lacks a term, a court can supply one where there is a reasonable basis for it. But where the absent term is essential or so uncertain that there is no basis for deciding whether an agreement has been kept or broken, there is no contract.
Illinois courts routinely scrutinize the reasonableness of attorney fees and contingent-fee contracts to ensure that collected fees are not excessive. Illinois courts have found contingency fees ranging from 25% – 40% to be reasonable. There are even statutory benchmarks for certain fee agreements. Code Section 2-1114 (735 ILCS 5/2-1114), for example, caps contingent agreements at 33.3% of total recovery in a medical malpractice case.
However, the Court held that in an arcane case involving recovery of assets seized by the government, there is no industry standard contingent fee amount. Because of this, the Court held that the trial court could not supply a missing percentage recovery term. [19-20]
The First District also noted the contingent-fee contract ran afoul of Illinois Rule of Professional Conduct 1.5(c) which requires that contingent-fee agreements specify the method by which the fee is to be determined, and the percentage accruing to the lawyer after trial or settlement. RPC 1.5(c) [21]
The Court ultimately found that the trial court should not have dismissed the plaintiff’s quantum meruit and unjust enrichment claims.
Quantum Meruit
In Illinois, a plaintiff can sue for quantum meruit where there is no enforceable contract between the parties. But quantum meruit is not available where the underlying contract is unenforceable as a matter of public policy; such as where a contract is illegal or violates a statute. The rationale is that a party to a contract that violates public policy should not be able to circumvent the offending contract by relying on quantum meruit.
But where a contract is unenforceable for violating an ethical rule that does not involve public policy, it will not bar quantum meruit recovery.
A contract only violates public policy where it “has a tendency to injure the public welfare.” Here, the court found the omission of the percentage recovery an “innocuous omission” that was the product of “carelessness and sloppy contract formation.” In the Court’s view, this did not rise to the level of a public policy violation. [28]
Because the contract’s missing percentage recovery term did not implicate public policy concerns, the First District held that the law firm could assert a successful quantum meruit claim. [24]
Unjust Enrichment
The Court then considered the Plaintiff’s unjust enrichment complaint count. To state a valid unjust enrichment claim in Illinois, a plaintiff must allege (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) absence of justification and (5) the absence of a remedy provided by law. [31]
While similar in that they both aim to provide a plaintiff with restitution where no contract exists, quantum meruit and unjust enrichment differ in their respective recoverable damages. The former measures recovery by the reasonable value of work and material provided while the latter considers the benefit received and retained because of the improvement provided.
The Court sustained plaintiff’s unjust enrichment claim for the same reason it found plaintiff’s quantum meruit cause was prematurely dismissed.
Afterwords:
Seiden Law’s lessons are many for commercial litigators. For one, a missing contractual term cannot always be supplied by a court; especially if contract involves specialized subject matter.
The case also makes clear that a breach of RPC 1.5’s contingency fee strictures will not automatically void a contract. It is only when an ethical violation rises to the level of a public policy breach, that a court will nullify a contract.
This case also solidifies the proposition that, when faced with an unenforceable contract that does not implicate public policy concerns, a plaintiff can still bring alternative and equitable claims for quantum meruit and unjust enrichment.