An interesting question relating to contingency fee attorneys arose in Universal Acupuncture Pain Services, P.C. v. Quadrino & Schwartz, a case that was decided on June 2, 2004. There, the appellant, a law firm, had agreed to represent the appellees on a contingent fee arrangement. The clients, in the midst of the litigation, fired the law firm. The law firm claimed that it was entitled to be paid on a quantum meruit basis and requested that the Court determine and award attorneys' fees on that basis. The District Court postponed the determination of that issue until the resolution of the case, holding that the fact that the law firm had a contingent fee agreement with the client was still relevant and that, by electing to be paid on a quantum meruit basis, the law firm was only able to recover a fixed fee from its former client's ultimate recovery.

The lawsuit settled without a monetary award to the clients. The magistrate recommended, based on the District Court's ruling, that the law firm should not be paid and did not determine whether the law firm had been discharged for cause. The District Court adopted the magistrate's report, and the law firm appealed.

The Second Circuit, applying New York law, held that unless the law firm was discharged for cause, it was entitled to be paid the reasonable value of its services, even if it had a contingent fee agreement. The Court held, however, that the District Court had not abused its discretion to wait until the end of the litigation to decide the issue of compensation even though it is usual for such a determination to be made immediately after discharge.

The Court did hold that the District Court had abused its discretion by deciding that the law firm was precluded from recovering based on the fact that the clients did not obtain a monetary award. It noted that such a position is inconsistent with the usual practice of determining the amount of fees immediately after discharge. While the Court recognized that such a holding might constain a client's ability to terminate representation, it was bound by New York State precedent, holding that attorneys are entitled to such compensation even where there was a contingent fee agreement. The case was remanded to the District Court for a determination of whether the law firm was discharged for cause, and, if it was not, for a determination of fees based on quantum meruit.

The decision can be found at the Second Circuit website.