King & King, Chartered v. Harbert International, Inc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 10, 2007 Decided October 12, 2007

No. 06-7119

KING & KING, CHARTERED

APPELLANT

v.

HARBERT INTERNATIONAL, INC., ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 06cv00324)

Christopher M. McNulty argued the cause and filed the

briefs for the appellant.

Michael J. McManus argued the cause for the appellees.

With him on the brief for appellees Harbert International, Inc.,

and Raymond J. Harbert were Jeffrey J. Lopez and Justin O.

Kay.

Laurence Schor and Dennis Ehlers were on the brief for

appellees Bilhar International Establishment, Bill Harbert

International Construction, Inc., and Bill L. Harbert.

Before: HENDERSON, RANDOLPH, and BROWN, Circuit

Judges.

2

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge: Appellant King & King, Char-

tered, appeals from the district court’s dismissal of a claim for

quantum meruit and a claim of tortious interference with

contractual relations. We affirm the district court’s decision as

to both claims.

I

King & King, Chartered, a law firm with offices in

Washington, D.C., represented one or more of the appellees in

a dispute with the United States over construction contracts. In

confusing circumstances, the clients elected not to pursue the

case, and King & King thus lost the chance to earn its contingent

fee. Although the clients had already paid a deposit of $150 per

billed hour, the firm demanded more, filing the instant action in

Superior Court in the District of Columbia, asking for the full

$4.8 million it would have earned for a complete recovery.

Alternatively, the firm sought quantum meruit compensation for

work performed. In addition, King & King sought damages for

tortious interference, alleging two of the appellees caused the

clients to withdraw the case. After removing the case to district

court, appellees successfully moved to dismiss the entire

complaint for failure to state a claim. King & King, Chartered

v. Harbert Int’l, Inc., 436 F. Supp. 2d 3 (D.D.C. 2006). King &

King appeals the dismissal of the quantum meruit and tortious

interference claims.

Appellees include Bill Harbert, his nephew Raymond

Harbert, corporations they control, named Bill Harbert Interna-

tional Construction (BHIC) and Harbert International (HII)

respectively, and a corporation of which each originally con-

trolled 50%, named Bilhar International Establishment (Bilhar).

Between 1987 and 1989, HII received fifteen contracts for

construction work on Kwajalein Atoll related to the Strategic

Defense Initiative. Appellant, who had provided legal services

3

to HII since the early 1980’s, represented the corporation in

various disputes with the U.S. Government over the perfor-

mance of the Kwajalein contracts. Eventually, the disputes

became so substantial that the appellees filed a claim at the

Armed Services Board of Contract Appeals (ASBCA) request-

ing a $12.8 million adjustment to the contract price. King &

King prepared this claim in 1992 and 1993 and filed the claim

in 1994. King & King continued to prosecute the claim over the

succeeding years.

At first, HII apparently paid the firm on an hourly basis,

but in 1995 they agreed to a contingent fee. Under the agree-

ment, King & King was to receive 20% of the first $2 million

recovered in the case and 25% of any greater recovery. In the

meantime, King & King was to bill $150 per hour, and these

payments would be deducted from the eventual contingent

recovery. According to the complaint, Bill Harbert signed the

1995 fee agreement on behalf of BHIC and HII. He controlled

the former corporation, and he had been the President of the

latter until 1990 and Vice Chairman until 1992. On June 18,

2002, Bill Harbert sent King & King a letter promising person-

ally to pay debts owed by HII for the firm’s services.

Meanwhile, Bill and Raymond Harbert had adjusted their

business structures. In 1990 Raymond succeeded Bill as

President of HII, and the two agreed to transfer HII’s interna-

tional construction business to Bilhar. On December 9, 1991,

HII assigned all its pending and future claims under the

Kwajalein contracts to Bilhar, while Bill Harbert bought HII’s

interest in Bilhar. King & King did not learn about the

assignment until 1997, when HII revealed it in response to a

government discovery request in the ASBCA case.

In 1998, the ASBCA suspended the proceedings, at the

request of the Department of Justice, which had begun a

criminal investigation into the Harberts’ dealings. After the

Department requested a further stay, the ASBCA finally

4

dismissed the proceedings on September 28, 1998. The

dismissal was without prejudice as long as HII reinstated its

claim before September 29, 2001. During the intervening three

years, the criminal investigation focused on Bill Harbert’s

corporations, which the government accused of fraud and bid

rigging in relation to some construction contracts in Egypt.

These contracts had already given rise to a federal qui tam

lawsuit, which the United States joined in February 2001. The

government followed with a criminal indictment of Bill

Harbert’s corporations in July 2001.

As the 2001 deadline for refiling at the ASBCA

approached, King & King tried to contact Bill Harbert. By

September 28, he had not replied, but the firm refiled the case

anyway. The ASBCA immediately suspended all proceedings

until the criminal trial ended on February 12, 2002. When the

ASBCA proceeding reconvened, the Government demanded

proof that King & King had authority to refile the case. The

firm drafted a letter of authorization for Raymond Harbert, the

President of HII, to send to the ASBCA. He responded through

his criminal attorney, demanding, among other things, that King

& King move to substitute Bilhar for HII as the claimant at the

ASBCA. In depositions and in filings at the ASBCA, Raymond

Harbert refused either to disavow the proceeding or to ratify it

unequivocally. Eventually, on December 20, 2002, the ASBCA

issued a show cause order demanding that HII ratify the refiling.

Since the company did not respond, the ASBCA dismissed the

case with prejudice.

King & King complains that appellees’ effective

abandonment of the ASBCA case spoiled the firm’s chance to

follow through on work already done and win the case. In

addition, Raymond Harbert and HII, by not ratifying the refiling,

interfered with the firm’s representation of Bilhar, preventing

recovery of the contingent fee.

5

II

This Court reviews the dismissal of a complaint de novo.

Am. Fed’n of Gov’t Employees v. Rumsfeld, 321 F.3d 139, 142

(D.C. Cir. 2003).

A

A client has the ultimate authority to control his affairs;

thus, he may settle a claim, regardless of his attorney’s efforts

to prosecute it. Barnes v. Quigley, 49 A.2d 467, 468 (D.C.

1946). A client may also, in good faith, choose to withdraw a

claim despite having expressly promised his attorney otherwise.

Id. In addition, a client may discharge his attorney, with or

without cause, and such a discharge will not constitute a breach

of any agreement between them. Skeens v. Miller, 628 A.2d

185, 187 (Md. 1993).

This rule is admittedly harsh to attorneys, especially to

those who provide services under contingent-fee agreements, for

they bear a substantial risk. An attorney’s fees under such an

agreement depend not only on the merits of the case, but also on

the client’s continued zeal for the cause and his willingness to

continue retaining the attorney.

The District of Columbia, like other jurisdictions, wants

clients to “compensate attorneys reasonably,” as a matter of

“fundamental fairness.” Connelly v. Swick & Shapiro, P.C., 749

A.2d 1264, 1267-68 (D.C. 2000). Therefore, a contingent-fee

attorney may seek reasonable compensation when his client

terminates the representation without cause. Universal

Acupuncture Pain Servs. P.C. v. Quadrino & Schwartz, P.C.,

370 F.3d 259, 263 (2d Cir. 2004) (unless a contingent-fee

attorney was discharged for cause, he is entitled to reasonable

compensation); Skeens, 628 A.2d at 188. If the attorney

substantially performed his tasks before being terminated, he

may receive the agreed proportion of the client’s eventual

recovery. Kaushiva v. Hutter, 454 A.2d 1373, 1375 (D.C.

6

1983). Even if he performed negligible services, of little actual

benefit to the client, he is entitled to quantum meruit

compensation. In re Waller, 524 A.2d 748, 750 (D.C. 1987).

Conversely, an attorney terminated for good cause

cannot recover a contingent fee. Greenberg v. Sher, 567 A.2d

882, 884 (D.C. 1989). A similar rule should preclude quantum

meruit compensation when the client chooses to discontinue a

case because of his reasonable assessment that there is “no

chance of recovery.” Universal Acupuncture, 370 F.3d at 265

n.7. Otherwise, a contingent-fee client, convinced he had no

chance of success, would have to continue his case just to avoid

quantum meruit liability. Such a policy would encourage

litigants to take unwarranted risks and prolong litigation simply

to avoid paying attorney fees — a predicament that mocks the

ideal of client control.

The facts here exemplify the dilemma. By 2002,

appellees had disputed the Kwajalein contracts with the

Government for eleven years without success, and their overall

legal position had deteriorated disastrously. Their original claim

for $12.8 million had grown, with the addition of interest, to

$20.1 million, while the Government had continued to oppose

them vigorously. In 2002, the Government was trying to get the

appellees’ claims dismissed on the ground that HII’s 1991

assignment of the Kwajalein contracts to Bilhar was made

without government consent and was therefore illegal. HII

apparently doubted its ability to oppose dismissal, since during

this phase of the ASBCA proceeding, it made factual

representations that King & King asserts “would have resulted

in the forfeiture of the appeals.” [Compl. ¶ 26, JA 16]1

Meanwhile, Bill Harbert and his companies were busy

1

Needless to say, a client’s general authority to control his

affairs includes the responsibility to represent the facts accurately.

7

defending civil and criminal fraud cases arising from the Egypt

contracts.

Federal criminal indictments came in July 2001, and a

criminal trial took place in February 2002. The civil case, a qui

tam lawsuit, began in 1995, but the Government had just

intervened in February 2001. In the middle of these fraud cases,

in September 2001, King & King, of its own volition, filed to

reinstate the ASBCA case. Given their situation, it would be

eminently reasonable for the appellees to believe they had no

chance to prevail at the ASBCA; to concentrate their efforts on

defending the more dangerous fraud cases; and even to abandon

the ASBCA case as part of a compromise with the Government.

These are the kinds of difficult decisions a client must have the

autonomy to make. The appellees tried to free their hands by

putting the ASBCA case on a contingent-fee basis; in such

extremely adverse circumstances, the law will not handcuff

them by requiring quantum meruit compensation.

B

Appellant’s claim for tortious interference with

contractual relations fails because no third party who interfered

with the contingent-fee agreement has been identified.2 A

person cannot be liable for interfering with his own contract.

Sorrells v. Garfinckel’s, Brooks Bros., Miller & Rhoads, Inc.,

565 A.2d 285, 289 (D.C. 1989).

2

The district court ruled that appellant had no claim because a

client’s decision to terminate an attorney is not a breach of a

contingent-fee agreement. 436 F. Supp. 2d at 16-17. We suspect that

the District of Columbia would follow Maryland in allowing tortious

interference claims when a third party induces a client to terminate an

attorney. See Sharrow v. State Farm Mut. Auto. Ins. Co., 511 A.2d

492, 497-98 (Md. 1986).

8

King & King argues Raymond Harbert and HII were not

parties to the contingent-fee contract. On this theory, when

Raymond Harbert failed to ratify the reinstated ASBCA case, he

interfered with the contingent-fee agreement Bill Harbert

executed. However, the Complaint itself refutes this argument.

King & King alleged Bill Harbert executed the agreement on

behalf of “HII and BHIC,” and that he later promised to honor

“the commitments he had made on behalf of HII to pay for

plaintiff’s legal services.” [Compl. ¶ 34, JA 20-21] The firm

then demanded that HII pay $4.8 million as its contingent fee.

[Compl. ¶ 36, JA 21] It alleged that by not paying, HII “breach-

ed the fee agreement . . . entered into by defendant, Bill Harbert

on its behalf.” [Compl. ¶ 38, JA 38] Although the firm also

suggested, in the alternative, that Bill Harbert acted only on his

own behalf, [Compl. ¶ 37, JA 21] this allegation is insufficient,

because the tortious interference claim would be illogical. HII

was the named party in the ASBCA case. If there was any

contingent-fee agreement to interfere with, HII must have been

a party to that agreement.3

As a party to the contingent-fee agreement, HII cannot

have interfered with it. Therefore, King & King has no claim

for tortious interference with contractual relations.

III

The district court’s order dismissing King & King’s

complaint as to all claims is

Affirmed.

3

Because Raymond Harbert acted in his capacity as President of

HII, he cannot be liable for tortiously interfering with its contracts.

See Press v. Howard Univ., 540 A.2d 733, 736 (D.C. 1988) (officers

of a corporation cannot tortiously interfere with its contracts).