Culhane v. Thovson: Withdrawal After Rejected Settlement Bars Contractual Contingent Fee; Recovery Limited to Quantum Meruit if Good Cause Exists

Introduction

Culhane v. Thovson (2026 S.D. 23) arises from a wrongful-death representation following a fatal North Dakota motor-vehicle crash that killed Paula Thovson. Paula’s husband, Bill Thovson (client), retained Seamus Culhane/Turbak Law Office, P.C. and later Thomas Dickson/Dickson Law Office (collectively, “Attorneys”) under contingent-fee legal services agreements. The agreements contained a disputed withdrawal-and-lien clause allowing Attorneys to withdraw if the client refused a settlement offer Attorneys deemed “fair and reasonable,” and to claim a lien for the full contingent fee computed on that offer.

The key issues were:

  • Choice of law: whether South Dakota or North Dakota law governed the enforceability/validity of the fee agreements.
  • Fee entitlement after withdrawal: whether Attorneys could enforce a contractual lien for the full contingent fee after withdrawing before settlement.
  • Client counterclaims: including rescission under North Dakota statutes, breach of fiduciary duty, and deceit.

Summary of the Opinion

The Supreme Court of South Dakota affirmed in part, reversed in part, and remanded.

  • South Dakota law applies to the dispute.
  • The Court rejected enforcement of the contract clause purporting to allow Attorneys—after withdrawal—to collect the full contractual contingent fee based on a settlement offer the client initially rejected.
  • The Court held Attorneys withdrew for good cause and may recover a reasonable fee in quantum meruit for services provided prior to withdrawal; the case was remanded to determine that amount.
  • The Court affirmed summary judgment dismissing Thovson’s counterclaims (including North Dakota statutory rescission, breach of fiduciary duty theory as argued on appeal, and deceit).

Analysis

Precedents Cited

1) Choice-of-law framework and contract formation

  • Burhenn v. Dennis Supply Co.: Cited for the de novo standard of review for choice-of-law determinations; it frames the appellate posture and confirms the Court’s independent assessment.
  • Dunes Hosp., L.L.C. v. Country Kitchen Int'l, Inc. and State ex rel Meierhenry v. Spiegel, Inc.: Used to reiterate that parties may select governing law by contract; their absence here forced application of default choice-of-law principles.
  • Chambers v. Dakotah Charter, Inc.: Raised by the parties, but the Court clarified that Chambers applied the Restatement (Second) approach in a tort context (Restatement § 145), whereas contract validity is treated under a different Restatement set (notably §§ 186–188 and § 196).
  • Restatement (Second) Conflict of L. § 187: Reinforces the primacy of party autonomy when a contract includes a choice-of-law clause (not present here).
  • Restatement (Second) of Conflict of L. § 186, § 188, and § 196: These provisions supplied the Court’s core analytic structure for contract issues and services contracts; § 188’s “contacts” and § 196’s “services rendered” focus supported applying South Dakota law.
  • Anderson v. Tri State Constr., LLC: Cited to show the Court has used Restatement §§ 188 and 196 before, reinforcing legitimacy of the approach.
  • Briggs v. United Services Life Insurance Co. and Green v. Clinic Masters, Inc.: Addressed to rebut the client’s reliance on “intent” where the contract lacks a choice-of-law clause; they did not, in the Court’s view, convert this dispute into a North Dakota performance-intent analysis.
  • Gonzales v. Markland: Supports affirmance “right for any reason,” allowing the Supreme Court to uphold the choice-of-law conclusion even though the circuit court’s rationale was not fully explained.

2) Summary judgment standards

  • Betty Jean Strom Tr. v. SCS Carbon Transport, LLC, Bialota v. Lakota Lakes, LLC, and McGee v. Spencer Quarries, Inc.: Provide the Court’s summary judgment framework—no genuine issues of material fact and entitlement to judgment as a matter of law.

3) Professional regulation of attorneys and client settlement authority

  • In re Discipline of Ravnsborg: Anchors the Court’s “inherent power” to supervise attorneys and frames fee-agreement enforceability as implicating professional regulation, not merely private contract.
  • In re Discipline of Dorothy: Cited to underscore that fee agreements are not ordinary contracts and must be assessed with heightened concern for the client’s interests (a point the majority also uses to critique the dissent’s approach).
  • Nehad v. Mukasey: Persuasive authority for the proposition that attorneys generally may not structure representation to burden a client’s settlement choice by threatening withdrawal or financial penalty.

4) Contingent fees, withdrawal, forfeiture, and quantum meruit (persuasive authority)

  • Forest Pres. Dist. of Cook Cnty. v. Cont'l Cmty. Bank & Tr. Co.: Supports the majority’s conceptual point: once the attorney-client relationship under a contingent contract ends, the contingent contract cannot be enforced as though still in effect.
  • Bell & Marra, pllc v. Sullivan and Ausler v. Ramsey: Provide the doctrinal template: withdrawal without good cause bars contingent fee; withdrawal with good cause permits recovery in quantum meruit.
  • Jenkins v. Dist. Ct. In & For Eighth Jud. Dist. and Kannewurf v. Johns: Support the proposition that justifiable withdrawal can still allow compensation, generally via quantum meruit rather than enforcement of the contingent fee percentage.
  • Crisman v. Determan Chiropractic, Inc.: Imported as a South Dakota reasonableness framework for attorney fees, informing the remand inquiry into the reasonable value of services.
  • Faircy L. Firm, P.A. v. API, Inc. Asbestos Settlement Tr., Dikmen v. Peoples Gas Light & Coke Co., and L. Offices of J.E. Losavio, Jr. v. L. Firm of Michael W. McDivitt, P.C.: Illustrate how other courts assess quantum meruit and treat the contingent fee contract as a factor, not the measure, of recovery.
  • Sutherland v. Hammers and Lewis v. Haskell Slaughter Young & Rediker, LLC: Reinforce that quantum meruit considers both work performed and benefit conferred/results achieved.

5) Counterclaims: preservation and misrepresentation doctrine

  • Hall v. State ex rel. S.D. Dep't of Transp.: Applied to decline review of a new fiduciary-duty theory raised for the first time on appeal.
  • W. Townsite Co. v. Novotny: Used to reject deceit premised on predictions/promises about future events; actionable fraud/deceit generally requires misrepresentation of existing fact.

6) Additional authorities discussed in writings

  • Special concurrence referenced Melstad v. Kovac (client controls settlement) and L. Cap., Inc. v. Kettering (public policy sources). It also referenced Egan v. Waggoner and Davenport v. Waggoner to illustrate the forfeiture principle when an attorney cannot complete an “entire” contingency contract.
  • The partial dissent relied on contract-interpretation and public-policy authorities including Carstensen Contracting, Inc. v. Mid-Dakota Rural Water Sys., Inc., Domson, Inc. v. Kadrmas Lee & Jackson, Inc., Bartron v. Codington Cnty., Balt. & Ohio Sw. Ry. Co. v. Voight, and Black Hills Excavating Servs., Inc. v. Retail Constr. Servs., Inc., to argue Section 8 should be enforced as written under the case’s “unique” facts.

Legal Reasoning

A. Choice of law: South Dakota law governs

The Court emphasized that without a contractual choice-of-law clause, it must select governing law using default principles. It analyzed both SDCL 53-1-4 and the Restatement’s contract provisions, concluding the outcome is the same: the agreements were “made” in South Dakota because the “last act” necessary to complete the contract—Culhane’s signature on LSA 2—occurred in South Dakota, and LSA 1 was signed in Watertown, South Dakota. The Court also highlighted that much of the work was performed by Culhane’s South Dakota firm.

B. The new rule on fee entitlement after withdrawal under a contingent agreement

The core holding is regulatory and structural: a fee-agreement clause that allows a lawyer to (i) withdraw based on the lawyer’s unilateral view of settlement reasonableness and (ii) then claim the full contractual contingent fee via lien unduly infringes the client’s settlement authority under Rule 1.2 and is incompatible with the contingent-fee risk allocation.

The Court’s reasoning proceeded in three linked steps:

  1. Client settlement autonomy is non-waivable in practice: The Court relied on Rule 1.2 (“A lawyer shall abide by a client's decision whether to settle a matter”) and concluded the withdrawal/lien clause functioned as a penalty that “impermissibly abrogates” the client’s right by allowing the lawyer’s opinion to control the economic consequences of refusing a settlement.
  2. Contingent fees are earned only upon the contractual contingency: The majority and the special concurrence both stressed that the contract’s own language tied completion/earning to settlement or judgment while the attorney was representing the client. Because Attorneys withdrew long before Thovson later accepted the settlement, the contractual contingency did not occur during the representation; therefore, enforcing the full contingent percentage after withdrawal contradicted the nature of the bargain.
  3. Proper remedy is quantum meruit when withdrawal is justified: The Court adopted the widely used approach: withdrawal without good cause forfeits fees, but withdrawal for good cause permits recovery of the reasonable value of services. The Court found “good cause” on undisputed facts—extensive work performed, a fully tendered limits settlement, an irreparable breakdown over settlement, no demonstrated prejudice, and ultimate settlement for the same amount—thus remanding to calculate a reasonable fee in quantum meruit.

C. Counterclaims: why they failed

  • North Dakota rescission statutes (N.D.C.C. §§ 9-08-08 and 9-08-09): Failed because South Dakota law governs; the Court therefore affirmed dismissal without needing to enforce North Dakota’s rescission window policy arguments.
  • Breach of fiduciary duty: The client changed theories on appeal (to a North Dakota statutory-notice theory). Under Hall v. State ex rel. S.D. Dep't of Transp., the Court declined to consider an unpreserved argument.
  • Deceit (SDCL 16-18-26(1) and 16-18-28): The Court held the alleged statements were (i) contradicted by Thovson’s written communications showing he sought representation and understood fees before the meeting and (ii) largely predictions/promises about future events, which are generally not actionable misrepresentations under W. Townsite Co. v. Novotny.

Impact

1) Drafting and enforcement of contingent-fee agreements in South Dakota

Culhane v. Thovson sharply limits contingent-fee contract provisions that attempt to convert a client’s refusal to settle into an immediate right to the full contingent fee. Even if a contract purports to authorize withdrawal and a “full fee” lien upon refusal of a “reasonable” offer, the Court’s decision signals that such provisions are professionally suspect because they pressure the settlement decision and reallocate the contingent-fee risk back onto the client.

2) Litigation posture in fee disputes after withdrawal

The practical center of gravity moves from “enforce the percentage” to “prove reasonable value”: lawyers who withdraw before settlement can still recover if they establish good cause, but the recovery is a quantum meruit valuation tied to work performed and benefit conferred, not the contract’s contingent percentage.

3) Attorney lien practice

The special concurrence emphasizes a conceptual boundary: an attorney’s lien secures compensation that is owed; it does not create an entitlement to fees that were never earned under the contingency. This will likely influence how lower courts evaluate lien amounts and the predicate showing required before enforcing liens in contingent-fee cases.

4) Choice-of-law clarity for multi-state representations

The decision reinforces that where a fee agreement lacks a choice-of-law clause, courts may focus on where the contract was made (the “last act” rule) and on Restatement contract contacts (§ 188) and services rules (§ 196). Multi-jurisdictional practitioners should expect that merely litigating or investigating in another state will not automatically import that state’s law into the fee-contract dispute.

Complex Concepts Simplified

  • Contingent fee: A fee paid only if there is a recovery (typically settlement or judgment), usually calculated as a percentage of the recovery. The lawyer assumes the risk of receiving no fee if the case yields no recovery.
  • Quantum meruit: Latin for “as much as he deserved.” In this context, it means the lawyer is paid the reasonable value of services actually provided (often based on time, labor, complexity, benefit to the client, and results achieved), rather than the contingent percentage.
  • Attorney’s lien: A legal mechanism to secure payment of fees from a client’s recovery. The Court (especially in the special concurrence) treats it as a security device, not an independent generator of fee rights.
  • Good cause to withdraw: A professionally recognized justification under Rule 1.16(b) (e.g., fundamental disagreement, client fails to fulfill obligations, or other good cause). If the lawyer withdraws without good cause, fee recovery may be denied.
  • Choice of law: The process courts use to determine which state’s law governs a dispute. Here, despite the underlying accident occurring in North Dakota, the fee-contract dispute was governed by South Dakota law because of where the agreements were made and the contract contacts.
  • Rescission: A remedy that voids a contract and returns parties to their pre-contract positions. Thovson attempted rescission under North Dakota statutes, but those statutes did not apply once South Dakota law governed.

Conclusion

Culhane v. Thovson establishes a significant rule for South Dakota fee disputes: an attorney who withdraws before the contingency occurs generally cannot enforce a contingent-fee percentage through a contractual “reasonable settlement refusal” withdrawal-and-lien clause, because such a mechanism improperly burdens the client’s settlement authority and undermines the risk structure of contingent fees. Where withdrawal is supported by good cause, the lawyer’s remedy is quantum meruit—a reasonable fee for services rendered—requiring a case-specific valuation on remand. The decision also clarifies that absent a choice-of-law clause, South Dakota courts may apply Restatement contract principles and the “last act” rule to conclude South Dakota law governs even when the underlying injury occurred elsewhere.