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Scott R. Larson, P.C. v. Grinnan

Court of Appeals of Colorado, Third Division

June 15, 2017

Scott R. Larson, P.C., a Colorado professional corporation, Appellant and Cross-Appellee,
Michael K. Grinnan, Appellee and Cross-Appellant.

         La Plata County District Court No. 13CV14 Honorable Jeffrey R. Wilson, Judge

          Holley, Albertson & Polk, P.C., Dennis B. Polk, Denver, Colorado; Recht Kornfeld, P.C., Heather R. Hanneman, Denver, Colorado, for Appellant and Cross-Appellee

          Burg, Simpson, Eldredge, Hersh & Jardine, P.C., David P. Hersh, Diane Vaksdal Smith, Nelson Boyle, Jacob M. Burg, Englewood, Colorado, for Appellee and Cross-Appellant


          WEBB JUDGE

         ¶ 1 This attorney fees dispute pits Colo. RPC 1.5(e) - which prohibits referral fees between lawyers in different law firms - against Colo. RPC 1.5(d) - which permits division of attorney fees between lawyers who are not in the same firm, other than in proportion to the work that each performed, only if the lawyers were jointly responsible for the engagement. Exactly what "joint responsibility" means is a novel question in Colorado.

         ¶ 2 Scott R. Larson, P.C., performed most of the work after the underlying case was referred to the firm. Larson asserts that because the trial court misinterpreted the "joint responsibility" limitation in Colo. RPC 1.5(d)(1), its award of referral fees to appellee and cross-appellant, Michael K. Grinnan, improperly apportioned the contingent fee that arose from settlement of the underlying case. Thus, Larson continues, fees the court awarded to Grinnan for originating the case must be reapportioned to Larson, leaving Grinnan with only the fees that the court awarded him for "actual services performed."

         ¶ 3 Grinnan, who referred the case to Larson but then acted mostly as a conduit with the clients, responds that because the court made a factual finding, with record support, that he and Larson had joint responsibility for the case, the fees awarded to him did not have to be in proportion to the services that he had performed. Thus, in Grinnan's view, the fee allocation properly compensated him for having originated the case. Still, he further asserts that the court erred in disregarding unrebutted expert testimony as to the percentage of fees that would reasonably and customarily be awarded to a lawyer in his position. He also challenges the court's award of prejudgment interest to Larson and its refusal to award costs to either party.

         ¶ 4 We vacate the attorney fee award, reject the contentions raised in Grinnan's cross-appeal, and remand the case for additional findings on joint responsibility and possible reconsideration of costs.

         I. Background A. Facts

         ¶ 5 A propane explosion destroyed Tim Kelley's home, seriously injuring Mr. Kelley, his wife, and their daughter. Grinnan, a life-long friend of Mr. Kelley, visited him in the hospital. Mr. Kelley asked Grinnan to represent the family.

         ¶ 6 Grinnan, a general practitioner with limited experience in personal injury cases, sought and obtained Mr. Kelley's consent to involve Larson. Larson entered into a contingent fee agreement with the Kelley family. As relevant to the fee dispute between Larson and Grinnan, this agreement:

• identified Grinnan as "associated counsel";
• stated that Grinnan would be paid a percentage of Larson's fee, "not to exceed 100%"; and
• provided that Larson was responsible for paying case expenses as they were incurred.

         Grinnan was not a signatory to this agreement.

         ¶ 7 On the Kelleys' behalf, Larson brought claims against Creative Plumbing and Heating, AmeriGas Propane, Inc., and Mesa Propane. Relatively early in the case, and just before Creative Plumbing filed for bankruptcy, its insurer made a policy limits settlement. From Larson's $333, 333 fee on this settlement, he sent Grinnan a check for $50, 000.

         ¶ 8 Litigation continued against AmeriGas and Mesa Propane. On the morning of the first day of trial, approximately three years after the claims had been filed, AmeriGas settled. At the end of the first trial day, Mesa Propane also settled.

         ¶ 9 Based on these settlements, the contingent fee agreement entitled Larson to a total fee of $3, 216, 666.67. Larson had incurred about $300, 000 in costs.

         B. Procedural Posture

         ¶ 10 Larson and Grinnan were unable to agree on how to divide the contingent fee. Shortly before Grinnan filed an attorney's lien, he entered his appearance. The trial court granted Grinnan's request that all attorney fees paid to Larson be deposited in a restricted interest bearing account. The court held an evidentiary hearing. It heard testimony from Scott Larson, Grinnan, and several experts.

         C. Trial Court's Rulings

         ¶ 11 The trial court entered a detailed, written order allocating the attorney fees.

         ¶ 12 The court began by finding that "the two attorneys did not reach an agreement as to how the fees would be divided."[1] Then it turned to Colo. RPC 1.5(d)(1). This rule permits "a division of a fee between lawyers who are not in the same firm . . . only if: (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation."

         ¶ 13 The court declined to divide the fees in proportion to services. Instead, it found that Grinnan had "assumed joint responsibility for the representation of the Kelleys" in two ways. First, by recommending Larson and being named as associated counsel, Grinnan "subjected] himself to potential malpractice liability." Second, as to the fee generated by the Creative Plumbing settlement, "by accepting a lesser amount than what [Grinnan] thought he was entitled when Creative settled, [Grinnan] was helping to pay the costs of the litigation."

         ¶ 14 The court began the fee allocation by finding the one-third contingency to be reasonable and that under Colo. RPC 1.5(d), Grinnan "is entitled to have the Court determine the amount of attorney's fees he is entitled to receive." Then it found as follows:

• Larson benefitted from Grinnan's "referring the case to him, " as well as from Grinnan's "initially acting as a go-between for the Kelleys and Mr. Larson."
• "[T]he amount of work performed by Mr. Grinnan was significantly dwarfed by the amount of work performed by Mr. Larson" and other members of his firm.
• "The majority of the value Mr. Grinnan provided was . . . the origination of the case and . . . Mr. Grinnan's close relationship with Mr. Kelley that allowed Mr. Grinnan to explain matters to the Kelleys . . . in a way that they were reassured that the case was proceeding appropriately."
• "Mr. Grinnan provided no other services to Mr. Larson that aided him in the prosecution of the case."

         ¶ 15 Next, the court acknowledged expert testimony that "common practice in the legal community in the State of Colorado" would give "the attorney who originated the client . . . one-quarter to one-third of the fee." Still, the court drew on "its experience both in private practice and on the bench." It noted "the different amounts of work required to settle as to" Creative Plumbing and "the remaining two defendants."

         ¶ 16 Then it divided the fees as follows:

• Of the $333, 333.34 fee generated by the Creative Plumbing settlement, Grinnan was entitled to 20%, "10% for bringing the case to Mr. Larson and 10% for the actual services he provided."
• Because "Mr. Grinnan's involvement in acting as a go-between became increasingly less necessary and eventually unnecessary, " of the $2, 883, 333.33 fee generated by the AmeriGas and Mesa Propane settlements, Grinnan would receive 12.5%, "10% for originating the case and 2.5% for the actual services" provided.

         ¶ 17 In a later written order on interest and costs, the court awarded Grinnan prejudgment interest "at the rate of 8% percent from the date the settlement checks were issued" until final judgment entered on the fees allocated to him. However, the court noted that because of the "very limited amount of services" provided by Grinnan, his "claims for attorney's fees are far in excess of what any reasonable attorney would demand." Then it concluded that Grinnan's demand "that 100% of the fees be placed in a restricted account was, as a practical matter, a wrongful withholding, " which entitled Larson to interest under section 5-12-102, C.R.S. 2016, on the total amount of fees, less what was awarded to Grinnan.

         ¶ 18 Finally, the court declined to award costs, finding that neither lawyer "was the prevailing party."


         II. Remand Is Required to Resolve Joint Responsibility

         ¶ 19 Whether Grinnan assumed joint responsibility for the case is the heart and soul of this dispute. If he did not, then only fees proportional to the services that he performed could be awarded to him. Larson does not dispute that portion of the trial court's fee award.

         ¶ 20 Larson asserts that Grinnan never assumed joint responsibility because he did not assume responsibility for the representation as a whole. Ultimately, we conclude, as did the trial court, that Grinnan satisfied one of two components of joint responsibility - assuming financial responsibility. But remand is necessary for the trial court to determine whether he satisfied the other component - ethical responsibility, on which it made no findings.

         A. Standard of Review and Legal Framework

         ¶ 21 We review de novo the trial court's interpretation of a rule of professional conduct, People v. Hoskins, 2014 CO 70, ¶ 17 (citing People v. Nozolino, 2013 CO 19, ¶ 9), but will not disturb the court's factual findings unless they have no support in the record, Perfect Place v. Semler, 2016 COA 152M, ¶ 19. On this much, the parties agree.

         ¶ 22 The Rules of Professional Conduct "establish standards of conduct by lawyers, " Colo. RPC Preamble ¶ 20, for the purpose of protecting clients, Mercantile Adjustment Bureau, L.L.C. v. Flood, 2012 CO 38, ¶ 15.

         ¶ 23 When interpreting the Rules, the text of the Rule is authoritative. Colo. RPC Preamble ¶ 20. Our supreme court has cautioned: "Comments to the Rules of Professional Conduct do not add obligations to the Rules but merely provide guidance for practicing in compliance with the Rules." In the Matter of Gilbert, 2015 CO 22, ¶ 33.

         ¶ 24 Even so, our supreme court has sometimes relied extensively on comments. See, e.g., Mercantile Adjustment Bureau, L.L.C., ¶ 39 ("However, as their accompanying comments make perfectly clear, the ethical rules have developed to nevertheless limit the ability of lawyers to subsidize law suits or administrative proceedings brought on behalf of their clients, on the basis of two countervailing considerations."). And in People v. Lincoln, 161 P.3d 1274, 1280 (Colo. 2007), the court recognized that a comment broadened a rule:

Rule 1.6(a) states that "[a] lawyer shall not reveal information relating to representation of a client unless the client consents after consultation." However, the comment to this rule states that an attorney may not disclose confidential information, unless authorized or required by other Rules of Professional Conduct or other law.

         ¶ 25 Colo. RPC 1.5 regulates fees lawyers may charge for their work. As relevant here, Rule 1.5(e) prohibits referral fees. Even so, Rule 1.5(d) provides that lawyers may divide a fee under certain circumstances:

(d) Other than in connection with the sale of a law practice pursuant to Rule 1.17, a division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the arrangement, including the basis upon which the division of fees shall be made, and the client's ...

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