Panel: Asbestos Trust Owes Law Firm For Work On Claim To Insolvent Insurer

Mealey's (May 9, 2017, 1:13 PM EDT) -- ST. PAUL, Minn. — A trial court erred by releasing an asbestos settlement trust of any duty to pay a law firm for work on a claim filed with an insolvent insurer despite finding that the firm performed some uncompensated work on that claim for which a promise to pay was implied, a Minnesota panel held May 8 (Faricy Law Firm, P.A., v. API Inc., Asbestos Settlement Trust, No. A16-1539, Minn. App., 2017 Minn. App. Unpub. LEXIS 421). 
(Unpublished opinion available.  Document #10-170526-020Z.)

The Minnesota Court of Appeals remanded for a proper analysis of the value of attorney fees by Faricy Law Firm P.A. based on quantum meruit for work performed in settling a claim with the liquidator of Home Insurance Co.  However, the panel of Judges Carol Hooten, Denise D. Reilly and Tracy M. Smith affirmed the denial of recovery based on the doctrine of account stated and the implied covenant of good faith and fair dealing.

Asbestos

In 2002, A.P.I. Inc. (API) retained Faricy to represent it against insurers for asbestos claims after the insurers refused to indemnify API for verdicts and settlements.  Part of Faricy’s work included submitting a claim to Home’s liquidator on API’s behalf in June 2004.

In 2005, API filed for bankruptcy, which led to the creation of the API Inc. Asbestos Settlement Trust (API Trust), the successor to API’s asbestos-related liability and insurance-coverage rights.

Under a new 2009 retainer agreement, API Trust retained Faricy to bring lawsuits against Zurich American Insurance Co. and Atlantic Mutual Insurance Co.  After API Trust terminated Faricy’s services, the firm sent an invoice requesting “33-1/3% of any Insurance Recovery” against Home reflecting the contingent-fee arrangement in the 2009 retainer.

Lien

On Nov. 7, 2012, API Trust settled with Home’s liquidator for $21.5 million.  Faricy followed up its invoice with a bill in 2014 to API Trust, asking for $1.07 million, equal to one-third of an initial payment from Home’s liquidator.  API Trust refused, arguing that the 2009 retainer was terminated before settlement and Faricy was not hired to work on the Home claim.

In June 2015, Faricy sued API Trust in the Ramsey County, Minn., District Court, seeking a determination that it has a lien against API Trust for $1.07 million, plus one-third of any additional amounts received from Home.  Faricy asserted claims for compensation based on the doctrine of account stated and the implied covenant of good faith and fair dealing.

The trial court ruled that Faricy’s work on the Home claim was within the scope of the 2009 retainer.  However, the court released API Trust of any duty to pay Faricy for work on the Home claim because the firm failed to prove the reasonable value of its services.  The court rejected Faricy’s claims based on account stated and the implied covenant of good faith and fair dealing.

Uncompensated Work

The panel ruled that the trial court erred by releasing API Trust of any duty to pay Faricy for work on the Home claim despite finding that the firm performed uncompensated work on that claim for which a promise to pay was implied.  The panel found that quantum meruit was the proper legal method to calculate the attorney’s lien amount.  The panel remanded for the court to engage in a quantum meruit analysis to determine the reasonable value of Faricy’s services.

“While we understand the district court’s frustration with Faricy, the findings of the district court and the evidence do not support a decision that results in no compensation.  The district court found that the trustee billed API Trust about $41,000 for his work leading to the Home Liquidator settlement.  Although the trustee felt a contingent-fee amount was excessive, the trustee admitted in correspondence that Faricy was entitled to quantum meruit,” the panel said.

To quantify factors such as the length of time Faricy spent on the case, the panel noted that the trial court should make findings based on the evidence in the record.

“For example, the district court should review trial exhibit 18, which documents time spent on several activities related to the Home Liquidator claim on May 18 and 19, 2009, and includes the hourly rate of the attorney who performed that work.  The district court should also evaluate whether any other exhibits showing communications between Faricy and API Trust are evidence of additional work on the Home Liquidator claim requiring compensation,” the panel said.

Account Stated

Regarding the initial invoice to API Trust, the panel held that this was not an account stated because API Trust had not yet received payment from Home’s liquidator.  Regarding the 2014 bill, the panel agreed with the trial court that Faricy was not entitled to the amount based on the account-stated doctrine because API Trust “specifically objected to that statement of account within a reasonable amount of time after Faricy had a colorable claim to a fee.”

Next, the panel held that the breach of the implied covenant of good faith and fair dealing claim was properly dismissed because a client has a right “to discharge his attorney at his election, with or without cause.”  Further, the panel explained that the 2009 retainer allowed API Trust to terminate the agreement “for any reason.”  Therefore, API Trust cannot be said to have “refus[ed] to fulfill some duty or contractual obligation” by terminating the 2009 retainer, the panel said.

Home Settlement

Finally, the panel ruled that the work on the Home settlement was within the scope of the 2009 retainer because API Trust repeatedly represented to Home’s liquidator that Faricy was its counsel and included Faricy in correspondence regarding the Home claim. 

“API Trust did not inform Faricy that it did not believe the Home Liquidator claim was within the scope of the 2009 retainer until December 12, 2014, after API Trust received a payment from the Home Liquidator settlement and nearly two years after the representation was terminated.  This evidence indicates that the parties understood the Home Liquidator claim to be within the scope services API Trust hired Faricy to perform,” the panel said.

Justin P. Weinberg and Michael M. Sawers of Briggs and Morgan represent API Trust.  Vadim Trifel and John H. Faricy Jr. of the Faricy Law Firm represent the firm.  All are in Minneapolis.

(Additional documents available:  Appellant’s statement of the case.  Document #10-170526-021B.  Respondent’s statement of the case.  Document #10-170526-022B.)