§26.4 Payment of Contingent Fee

The Case: Swafford v. Harris , 967 S.W.2d 319 (Tenn. 1998).

The Basic Facts: A plaintiff in a personal injury action entered into two contracts with his physician. The first provided that the physician would act as medico/legal consultant and assist in preparing the patient's personal injury lawsuit in return for a contingency fee agreement, and the second requiring the patient's attorney to pay the physician money owed to him for medical services he provided to the patient.

The Bottom Line:

• "The United States District Court for the Western District of Tennessee has certified the following questions to this Court pursuant to Rule 23 of the Tennessee Supreme Court.
  1. Whether a contract between a personal injury plaintiff and his physician to pay the physician a fee contingent on the outcome of litigation for the coordination of and consultation with respect to the medico/legal aspects of the lawsuit, including potentially the giving of expert medical testimony at trial, is enforceable under the laws of Tennessee;
  2. Whether a contract between a personal injury plaintiff and his physician to pay the physician a fee contingent on the outcome of litigation for medical services and treatment (i.e., actual care and treatment for the injuries) to the plaintiff/patient is enforceable under the laws of Tennessee; and
  3. If either or both of the above contracts are unenforceable, whether the physician may recover on a quantum meruit theory for the expert and/or medical services."
  967 S.W.2d at 319-20.
• "We accepted these important legal questions of first impression under Rule 23 and, in response, conclude that a contract requiring a party to pay a physician a fee for medico-legal expert services and/or medical treatment that is contingent on the outcome of litigation is contrary to public policy in this state and therefore void. We also conclude that under the facts of this case, payment for the physician's expert services and/or medical treatment pursuant to a theory of quantum meruit is not appropriate." Id. at 320.
• "[I]t is our view that sound public policy in this jurisdiction, as in others, is crystal clear: a contingency fee contract for the services of a physician acting in a medico-legal expert capacity is void as against public policy and therefore unenforceable." Id. at 323.
• "We turn to the third and final question certified for our review. Dr. Swafford contends that if contingency fee contracts for the services of a physician are unenforceable, he is entitled to receive payment for the services rendered under a theory of quantum meruit." Id. at 324.
• "A quantum meruit action is an equitable substitute for a contract claim pursuant to which a party may recover the reasonable value of goods and services provided to another if the following circumstances are shown:
  1. There is no existing, enforceable contract between the parties covering the same subject matter;
  2. The party seeking recovery proves that it provided valuable goods or services;
  3. The party to be charged received the goods or services;
  4. The circumstances indicate that the parties to the transaction should have reasonably understood that the person providing the goods or services expected to be compensated; and
  5. The circumstances demonstrate that it would be unjust for a party to retain the goods or services without payment.
  Castelli v. Lien , 910 S.W.2d 420, 427 (Tenn. Ct. App. 1995); see Paschall's, Inc. v. Dozier, [407 S.W.2d 150, 154 (Tenn. 1966)]." Id.
• "The contingency fee contract for physician services is expressly prohibited by both the [AMERICAN MEDICAL ASSOCIATION CODE OF ETHICS] and the [Tennessee Code of Professional Responsibility]. For the reasons previously discussed, the violation not only subverts the doctor/patient relationship but also converts Dr. Swafford into a partisan with an economic interest in the outcome. Swafford's principal defense on appeal is that he was either unaware of the ethical provisions or did not belong to the organizations that promulgate the provisions--an explanation tantamount to suggesting he is subject to no public policy or regulatory authority whatsoever. We conclude that allowing quantum meruit under these circumstances would undermine and subvert strong public policies established to prohibit unprofessional conduct which affects the integrity of the judicial process and the administration of justice." Id. at 325.