Swafford v. Harris

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
FILED
March 16, 1998
FOR PUBLICATION
GREG SWAFFORD, M.D., ) Cecil W. Crowson
) Filed: March 16, 1998 Court Clerk
Appellate
)
Plaintiff/Appellee, )
) Certified Question of Law
) from U.S.D.C., Western
Vs. ) District of Tennessee
)
)
ROBERT G. “GREG” HARRIS, and ) Hon. Jerome Turner,
DARRELL R. RYLAND, ) U.S.D.C. Judge
Individually and “P.C.”, )
)
)
Defendants/Appellants. ) No. 01S01-9612-FD-00248

For Plaintiff-Appellee: For Defendant-Appellant, Harris:
William J. Simmons William L. Bomar
Memphis, Tennessee GLANKLER BROWN, PLLC
Memphis, Tennessee

For Defendant-Appellant, Ryland:
George T. Lewis, III
Bradley E. Trammell
BAKER, DONELSON, BEARMAN &
CALDWELL
Memphis, Tennessee

FOR AMICUS CURIAE, FOR AMICUS CURIAE, TENNESSEE
TENNESSEE MEDICAL DEFENSE LAWYERS ASSOCIATION:
ASSOCIATION: Dale H. Tuttle
Marc E. Overlock Memphis, Tennessee
Nashville, Tennessee

OPINION

ANDERSON, C.J.
 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:

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.

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.

BACKGROUND

1
“The Supreme Court may, at its discretion, answer questions of law certified to it by the
Supreme Court of the United States, a Court of Appeals of the United States, a District Court of
the U nited State s in T enn ess ee, o r a Un ited S tates Ban krup tcy Co urt in T enn ess ee. T his ru le
may be invoked w hen the certifying court determines that, in a proceeding before it, there are
questions of law of this state which will be determinative of the cause and as to which it appears
to the certifying court there is no controlling precedent in the decisions of the Supreme Court of
Tennessee.” Tenn. Sup. Ct. R. 23, § 1.

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 On June 21, 1990, the defendant, Robert G. Harris, a resident of

Mississippi, was injured in an automobile accident occurring in Louisiana and

subsequently filed a lawsuit against several defendants in connection with the

accident. Harris went to the plaintiff, Dr. Greg Swafford of Memphis, Tennessee,

for treatment of a cold and his injuries.

The injured Harris and the physician Swafford entered into two

contractual agreements. The first was an oral agreement between Harris and

Dr. Swafford whereby Dr. Swafford would act as medico/legal consultant and

assist with the preparation of Harris’s personal injury suit in return for 15a

percent of any monetary recovery received by Harris. The agreement was

reduced to writing on April 16, 1995.

The second agreement, entitled “Medical Reports and Doctor’s

Lien,” was entered into in August of 1994. This agreement, which was signed by

Harris and his attorney, Darrell Ryland, required Ryland to pay Dr. Swafford any

money owed to him for medical services provided to Harris. This agreement,

according to the District Court’s order of certification, was not contingent on the

outcome of the personal injury litigation.

In preparation for the trial, Dr. Swafford testified at one deposition

relating to Harris’s personal injury claim and also, according to the complaint,

provided medical consultation, treatment, and services. When Harris’s personal

injury claim settled for $625,000, Dr. Swafford demanded 15a percent as

provided in the first contract. When he was not paid, Dr. Swafford filed suit for

breach of contract against Harris and his attorney Ryland, as well as a suit for

inducement to breach a contract against Ryland. The suit was subsequently

removed to the United States District Court for the Western District of

Tennessee.

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 The parties dispute the nature of the contractual agreements.

Harris and Attorney Ryland contend that the agreement for medico-legal services

was a contingency fee contract, while the agreement for medical treatment was

not a contingency fee contract. Dr. Swafford, on the other hand, argues that the

contingency fee contract included medico-legal services as well as medical

treatment services. He also contends that if the contingency fee contract is

unenforceable, he is entitled to recovery under a quantum meruit theory.

The District Court, finding that a response to the questions of law

set forth above would “substantially dispose” of the case, certified the questions

to this Court pursuant to Rule 23 of the Tennessee Supreme Court. We agreed

to review these important questions of first impression.

CONTINGENCY FEE FOR CONSULTING AND EXPERT TESTIMONY

The defendants, Harris and his attorney Ryland, relying on

extensive authority in Tennessee and elsewhere, contend that a contingency fee

contract for the expert services of a physician is contrary to sound public policy

and void. Dr. Swafford, although not challenging this authority, contends that “at

the time of contracting, there was no existing law in Tennessee, and no

guidelines applicable to him, which [gave] notice [of] any public policy against

contingency fee contracts.”

We begin our analysis by determining whether the contingent fee

contract violated existing Tennessee public policy and if so, how such policy was

established.

We first examine the American Medical Association Code of Ethics,

§ 6.01, which condemns contingency fees for the provision of medical services:

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 Contingent Physician Fees: If a physician’s fee for
medical services is contingent on the successful
outcome of a claim, such as a malpractice or worker’s
compensation claim, there is the ever present danger
that the physician may become less of a healer and
more of an advocate or partisan in the proceedings.
Accordingly, a physician’s fee for medical service
should be based on the value of the service provided
by the physician to the patient and not on the
uncertain outcome of a contingency that does not in
any way relate to the value of the medical service.

Similarly, although the Code of Ethics recognizes that “as a citizen and as a

professional with special training and experience, the physician has an ethical

obligation to assist in the administration of justice,” it again prohibits the use of a

contingency fee by a medical witness:

[t]he medical witness must not become an advocate
or a partisan in the legal proceeding. The medical
witness should be adequately prepared and should
testify honestly and truthfully. The attorney for the
party who calls the physician as a witness should be
informed of all favorable and unfavorable information
developed by the physician’s evaluation of the case.
It is unethical for a physician to accept compensation
that is contingent upon the outcome of litigation.

American Medical Association Code of Ethics, § 9.07 (emphasis added).

The AMA Code has been adopted as a regulatory policy by the

Tennessee Board of Medical Examiners, the Tennessee statutory agency

charged with the licensing and supervision of physicians in this jurisdiction. The

Board of Medical Examiners has the statutory responsibility and authority to

deny, suspend, or revoke a license for, among other things, “unprofessional,

dishonorable or unethical conduct.” Tenn. Code Ann. §63-6-214(b)(1)(1997).2

2
Relying on these provisions, the Tennessee Medical Association, proceeding as amicus
curiae, asserts that the contingency fee contracts used for medical services or medical-legal
con sultin g are void a s aga inst p ublic p olicy. It furth er as serts that th e har m in suc h con tract s is
that the inherent pecuniary interest diverts the physician’s attention from the paramount interest of
providing q uality health ca re.

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Accordingly, a violation of the AMA Code constitutes unprofessional conduct and

violates public policy established by the Tennessee Board of Medical Examiners.

The Supreme Court, under its inherent and statutory authority,

governs the admission and discipline of attorneys in this State. See, e.g.,

Dockery v. Bd. of Professional Responsibility, 937 S.W.2d 863 (Tenn. 1996).

The Code of Professional Responsibility and Disciplinary Rules governing the

conduct of attorneys are a part of the Rules of the Supreme Court. Tenn. Sup.

Ct. R. 8. Disciplinary Rule 7-109(C) of the Code of Professional Responsibility

provides that a lawyer “shall not pay, offer to pay, or acquiesce in the payment of

compensation to a witness contingent upon the content of the witness’s

testimony or the outcome of a case.” (Emphasis added). Similarly, ethical

consideration 7-28 provides:

Witnesses should always testify truthfully and should
be free from any financial inducements hat might
tempt them to do otherwise. A lawyer should not pay
or agree to pay a non-expert witness an amount in
excess of reimbursement for expenses and financial
loss incident to being a witness; however, a lawyer
may pay or agree to pay an expert witness a
reasonable fee for services as an expert. But in no
event should a lawyer pay or agree to pay a
contingent fee to any witness. . . .

(Emphasis added). In our view, these provisions of the Code of Professional

Responsibility, promulgated by the Supreme Court and authorized by the

Tennessee Constitution and statutes, reflect public policy, just as it is reflected

in the American Medical Association Code of Ethics. See, e.g., Spiegel v.

Thomas, Mann & Smith, P.C., 811 S.W.2d 528, 531 (Tenn. 1991)(holding that a

contract which violated sections of the Code of Professional Responsibility was

“void as against the public policy of Tennessee.”).

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 Accordingly, the medical and legal communities share the ethical

prohibition against the use of contingency fees for expert witnesses which is

contained in the respective professional codes for each profession and adopted

by the State as the public policy of Tennessee. This public policy is re-enforced

by the actions of the Tennessee Bar Association and the Tennessee Medical

Association in adopting the Interprofessional Code of Cooperation, which

provides in part that “[u]nder no circumstances may a physician charge or accept

compensation for any service which is contingent upon the outcome of a

lawsuit.” Article VI, § 2.

Courts from other jurisdictions have likewise relied upon

professional codes in concluding that contingency fees for expert medical

witnesses are unenforceable as against sound public policy. For example, in

Dupree v. Malpractice Research, Inc., 445 N.W.2d 498 (Mich. Ct. App. 1989),

contracts were executed whereby the defendant, Malpractice Research, Inc.,

provided expert testimony and advice in connection with the plaintiff’s medical

malpractice action in exchange for payment of costs and 20% of the plaintiff’s

recovery. The Court of Appeals, citing professional codes in the medical and

legal professions, ruled that the contracts were against public policy because

they “threaten[ed] the legitimate recoveries of injured plaintiffs” and “imperil[ed]

defendants and the fundamental truth-seeking mission of our court system.” Id.

at 502. The Court also reasoned:

The [expert’s] interest in the amount of the damages
furnished a powerful motive for exaggeration,
suppression, and misrepresentation, a temptation to
swell the damages so likely to color his testimony as
to be inimical to the pure administration of justice, and
therefore invalid.

Id. (quoting, Sherman v. Burton, 165 Mich. 293, 130 N.W. 667 (1911)).

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 In a New Jersey case, Polo v. Gotchel, 225 N.J. Super 429, 542

A.2d 947 (1987), the plaintiffs contracted with a “medical-legal consulting

service” that was to locate medical experts to provide opinions and testimony as

to medical aspects of the plaintiff’s malpractice suit. In return, the defendant was

to receive a contingency fee of 6 percent of the plaintiff’s gross recovery. In

deciding the enforceability of the contract, the New Jersey Supreme Court

considered the AMA Code of Ethics provisions that condemn contingency fees, a

New Jersey statute that prohibited the use of contingency fees by physicians,

and sections of the Code of Professional Responsibility that prohibit an attorney

from sharing a contingency fee with a non-lawyer. After observing that the 6

percent fee invaded the plaintiff’s right of recovery and that the defendant’s

service would not exist but for the participation of doctors, the Court concluded

that the contract was void as against public policy. Id. at 948-49.

Similar public policy concerns have been emphasized by courts

and commentators with regard to contingency fee contracts with other types of

experts as well. For example, in Belfonte v. Miller, 212 Pa. Super. 508, 243 A.2d

150 (1968), the court invalidated a 10 percent contingency fee for the services of

a real estate appraiser, stating that “improper conduct or bias can be predicted

easily when the compensation of the witness is directly related to the absolute

amount of an award which may in turn be dependent to a great degree on the

testimony of that same witness.” Id. at 153; see also New England Telephone

and Telegraph Co. v. Board of Assessors, 392 Mass. 865, 468 N.E.2d 263, 265

(1984)(“the majority rule in this country is that an expert witness may not collect

compensation which by agreement was contingent on the outcome of the

controversy.”); Restatement of Contracts §552(2)(“a bargain to pay an expert

witness for testifying to his opinion. . . is illegal. . .if the agreed compensation is

contingent on the outcome of the controversy.”); cf. Ojeda v. Sharp Cabrillo

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Hospital, 8 Cal. App. 4th 1, 10 Cal. Rptr. 2d 230 (1992)(contingency fee contract

with medical consulting service not per se void).3

Given this overwhelming weight of authority, we disagree with Dr.

Swafford’s contention that no controlling public policy existed or that the public

policy was not applicable simply because he is not a member of the American or

Tennessee Medical Associations. On the contrary, it 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.

CONTINGENCY FEE FOR MEDICAL TREATMENT

Much of the foregoing authority and discussion is pertinent to the

issue of a contingency fee for medical treatment as well. In particular, the

American Medical Association Code of Ethics, § 6.01, emphasizing “the ever

present danger that the physician may become less of a healer and more of an

advocate or partisan,” states that a “physician’s fee for medical services should

be based on the value of the service provided by the physician to the patient and

not on the uncertain outcome of a contingency that does not in any way relate to

the value of the medical service.”

The prohibition in the American Medical Association Code of

Ethics, which has been adopted by the Tennessee Board of Medical Examiners,

is a clear reflection of public policy. As the New Jersey Supreme Court said in

Polo v. Gotchel, supra,

3
We note that a few commentators, while acknowledging the legitimate public policy
goals of the majority rule against contingency fee contracts for experts, have propos ed alternative
arrangements based on the competing policy of providing expert services for litigants who may
not otherwise be able to afford expert services . See J. Park er, Contingent Expert Witness Fees:
Access and Legitimacy, 64 S. Cal. L. Rev. 1363 (1991)(proposing contingency fee based on
hours w orked rather tha n am ount of p laintiff’s recov ery); Note, Contingent Fees for Exp ert
Witnesses in Civil Litigation, 86 Yale L.J. 1680 (1977)(proposing extensive court supervision of
contingency fee contract).

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 Section 8.04 . . . This section clearly enunciates the
public policy that doctor’s fees should not be based
on an uncertain outcome of a contingency, the
underlying public policy being the danger of the
physician becoming more of an advocate and less of
a healer. A doctor’s fee should be calculated only on
the value of the medical services provided, in
accordance with accepted standards of fee payment
for services rendered.

542 A.2d at 948 (emphasis added).

The same public policy is contained in the Interprofessional Code

of Cooperation adopted by the Tennessee Medical Association and the

Tennessee Bar Association, which states that under no circumstances may a

physician receive a contingency fee “for any service.” Article VI, § 2. Simply put,

contingency fees for medical services not only imperil the sanctity of the

doctor/patient relationship but also create the potential that pecuniary interests

may influence professional judgment.

In this case the contracts indicate that the parties contemplated the

legal action and also Dr. Swafford’s role in the proceedings. With the financial

incentives already in place, it is immaterial whether the contingency fee contract

was for medico-legal expert services and/or for medical treatment. Under the

authority discussed above, a contingency fee for either is against sound public

policy and therefore void and unenforceable.

QUANTUM MERUIT

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. The defendants, Harris and his

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attorney Ryland, argue that a quantum meruit recovery is not appropriate where

the underlying contract is void as against public policy.4

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, 219 Tenn. 45, 54, 407 S.W .2d 150, 154 (1966).

With regard to the first factor, we observe that the parties dispute

the scope of the contingency fee contract. Harris and Attorney Ryland contend it

was solely for medico-legal expert services and that a separate, non-contingency

fee agreement existed for the medical treatment. Dr. Swafford, on the other

hand, contends that the contingency fee contract included expert services and

medical treatment and that, if void, he is entitled to quantum meruit recovery for

both.

4
The Tennessee Medical Association, proceeding as amicus curiae, agrees that a
recovery under quantum meruit is not appropriate under the facts of this case.

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 We need not dwell on this factual dispute because our decision

with respect to recovery under quantum meruit rests principally upon the fifth

factor. Although we have not addressed this issue before under these

circumstances, we have held on at least one prior occasion that quantum meruit

was not available where the underlying contract was found void as against public

policy. For example, in White v. McBride, 937 S.W.2d 796 (Tenn. 1996), a

contract provided that an attorney would receive a contingency fee plus a $2,500

retainer. The trial court found that the contingency fee was clearly excessive in

relation to the work performed by the attorney in violation of Code of

Professional Responsibility, Disciplinary Rule 2-106, but awarded the attorney

$12,500 based on quantum meruit. We held that although attorneys should not

be unfairly penalized for innocent errors in drafting that might render a contract

unenforceable, the violation of Disciplinary Rule 2-106 was “an ethical

transgression of the most flagrant sort as it goes to the heart of the fiduciary

relationship that exists between attorney and client.” Id. at 803. We therefore

reversed the trial court’s award of quantum meruit.

The Michigan Court of Appeals reached a similar conclusion with

respect to a contingency fee contract for physician services in Dupree, supra.

After holding that the contingency fee contract was void as against public policy,

the court said:

While it is not necessarily the case that quantum
meruit is an inappropriate consideration where the
underlying contract is void as against public policy,
where a contract violates strong, established public
policies quantum meruit will not be given in aid of or
to encourage unprofessional conduct infringing the
integrity of judicial proceedings. In this case, we find
contingent fee contracts of the type at issue so
repugnant to established. . .public policy, as
expressed by statutes, court rules, and court
opinions, that to permit recovery on a quantum meruit
basis would defeat or subvert those policies and
threaten the integrity of the judicial system.

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445 N.W.2d at 500 (emphasis added; citations omitted).

In our view, White and Dupree are applicable in this case. 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.

CONCLUSION

Based on the foregoing authority and discussion we conclude that

a contract requiring a party to pay a fee for medico/legal expert services and/or

medical treatment that is contingent on the outcome of litigation is against public

policy and unenforceable. We also conclude that a quantum meruit recovery is

not appropriate under the facts of this case.

Costs of this appeal are taxed to the plaintiff, Dr. Greg Swafford, for

which execution may issue if necessary.

________________________________
RILEY ANDERSON, CHIEF JUSTICE

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CONCUR:

Birch, Drowota, Reid, and Holder, JJ.

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