Kennedy v. Clausing

445 P.2d 637, 74 Wash. 2d 483

• Court: Washington Supreme Court
• Decided: September 26, 1968
• Docket: 38394
• Status: Published

Opinions

Hunter, J.

This is an appeal from a jury verdict and judgment entered in favor of the plaintiff (respondent), an attorney, in an action to recover legal fees from the defendant V. D. Clausing, an osteopathic physician, and his marital community (appellants), who will be referred to as the doctor or the defendant.

The plaintiff predicated his claims upon two verbal contingent fee contracts entered into between the plaintiff and the defendant during the course of their attorney-client relationship. Alternatively, the plaintiff sought judgment for the reasonable value of his services. The doctor admitted that legal services had been performed for his marital community by the plaintiff, denied the existence and validity of any contingent fee agreements, and alleged payment in full, or willingness to pay, any reasonable balance found due.

In June, 1960, the defendant doctor engaged the services of the plaintiff to prevent an alleged building and zoning violation by property owners adjacent to the defendant’s medical clinic. Whether the plaintiff was to be compensated upon an hourly rate for his services is in dispute. Considerable time and effort were expended by the plaintiff in processing the claimed violation through two administrative agencies and in initiating proceedings for judicial review of adverse administrative rulings. A substantial fee accrued when calculated on a straight time, hourly basis. Following the first administrative hearing, the plaintiff billed the defendant in the amount of $652.50. The defendant then paid $500 and subsequent credits were allowed. The plaintiff contended the billing was for the first administrative hearing only, whereas the defendant contended the amounts paid and credited against the account fully and reasonably compensated the plaintiff for all work involved in the building and zoning violation matter. Whether all steps taken by the plaintiff were authorized by the defendant, legally prudent, or productive of a satisfactory result are the source of conflicting viewpoints under the evidence.

In the meantime, the defendant, who was a sports car enthusiast, had become financially involved in an automotive repair business partnership. He soon became dissatisfied with the business. At the outset of this venture and periodically thereafter he consulted with and sought the advice and assistance of the plaintiff. Finally, in April, 1961, and while the building and zoning violation matter was still in progress, the defendant asked the plaintiff to dissolve the partnership or otherwise extricate him from the business. Again, the way in which the plaintiff was to be compensated is in dispute. The plaintiff asserts that an hourly rate of $25 was agreed upon. The defendant, however, testified that $250 was the fee initially agreed upon, which together with additional credits against the account adequately compensated the plaintiff for his services. The partnership matter was complicated and in processing it to successful conclusion the plaintiff instituted three justice court actions and one superior court action, and otherwise devoted substantial time to the matter. The evidence is conflicting as to whether all of plaintiff’s time, activities, and proceedings were reasonably necessary to the end result.

The plaintiff alleges that by January, 1962, there had accumulated, calculating upon an hourly straight time basis, a total of approximately $7,000 in unpaid fees for both the zoning violation and the partnership matters, neither of which had yet been concluded. The defendant maintains that he was not aware of this computation of fees. Nevertheless, at this time, the defendant discussed with the plaintiff and an associate a further matter. This involved a potentially profitable sale of approximately 4% acres of land owned by the defendant in West Seattle. The testimony indicates that the defendant had acquired the property for approximately $19,000 and had been offered $102,000 for it. It appeared, however, that any sale at a substantially increased value depended upon rezoning the property from residential to business or commercial use. Prior efforts by the defendant to rezone his property had proved unsuccessful, and attorneys who the defendant contacted had refused to undertake the rezoning matter without a fixed fee contract. The plaintiff indicated that he might evolve a legal theory under which the desired rezoning could be accomplished. The defendant was interested and enlisted the plaintiff’s services. From this point on, the testimony is in conflict. According to the plaintiff’s evidence, the defendant chided him regarding fixed fee arrangements, following which the plaintiff indicated he would undertake the rezoning project on a contingent fee basis, with his fee to be one-third of the enhanced value of the property if the rezoning was accomplished. The plaintiff’s evidence then indicates that the defendant suggested that the contingent fee be 50 per cent of the enhanced value, provided the arrangement included the conclusion of all work yet to be done on the prior zoning and partnership matters together with the satisfaction of all fees involved. The plaintiff testified that he reluctantly, and at the defendant’s urging, accepted this arrangement. (There is an inconsistency between the plaintiff’s pleadings, the pretrial order, and his evidence as to the precise basis upon which the 50 per cent contingent fee was to be calculated. However, the trial court submitted the issue of the existence of this contingent fee contract to the jury on the basis of the fee being equal to 50 per cent of the increased value of the property after rezoning.) The defendant, on the other hand, denied that any discussion or arrangement relative to contingent fees took place. Instead, he asserts he understood that the plaintiff would proceed with the work and submit a bill for a reasonable sum when the services were concluded. He also maintains that the alleged contingent fee arrangement is unrealistic, unreasonable, and exorbitant considering the professional services involved.

The plaintiff promptly prepared a petition for rezoning the West Seattle property, collected data in support of the petition, and processed it through the city planning commission and the city council. The petition was denied. Thereafter, in early 1963, the defendant, who was then recovering from a nervous breakdown suffered in November, 1962, prepared and presented a second petition to the city planning commission without the plaintiff’s knowledge. This petition was denied by the planning commission and review was scheduled before the city council in March, 1963. Shortly before the review was to be heard, the defendant, still undergoing psychiatric treatment for his nervous condition, requested the plaintiff’s assistance. At about this time, according to the plaintiff, the contingent fee arrangement was again discussed and reaffirmed. The plaintiff obtained a continuance of the scheduled review hearing and, working with other interested persons, aided in collecting and assembling data to support a rezoning. The material was presented to the city council on May 8, 1963, and the rezoning was granted. Thereafter, the plaintiff maintained that he was entitled to his contingent fee. The jury, as above indicated, found in favor of the plaintiff on this issue in the sum of $47,250, inherently including appropriate allowances for credits against the amount.

Meanwhile, during the latter part of 1961 and the early part of 1962, the defendant had reorganized and revitalized his automotive repair business. He acquired a new partner, a business associate, and a controlling share in a corporate structure. The business seemingly prospered until November, 1962, when internal dispute and distrust erupted. The defendant immediately recruited the plaintiffs services and was then hospitalized for the nervous breakdown mentioned above.

The plaintiff, working with the defendant’s brother, devoted substantial time during November and December, 1962, and the early part of 1963, to salvaging the defendant’s interest and investment in the business. A lawsuit was commenced in furtherance of this objective. It is agreed that the plaintiff initially undertook the work for a fee to be calculated upon an hourly basis; however, the hourly rate is in dispute and the reasonableness of the time expended is challenged. By March, 1963, and despite various credits to the account, a considerable fee had accrued when computed on an hourly basis. The financial picture of the defunct business, from the standpoint of recouping the defendant’s investment, was still not free of doubt, although the physical plant had been leased to another operator in January, 1963. Likewise, the lawsuit, which had engendered a cross complaint against the defendant, was unresolved although a favorable settlement was pending. Why the lawsuit had not been earlier settled and whether the defendant was fully advised of the settlement negotiations are the subject of conflict in the evidence.

On or about March 15, 1963, following a consultation with his psychiatrist, the defendant advised the plaintiff that his mental health required that he forego business interests and responsibilities outside of his medical practice. He then stated he would give the plaintiff the remaining partnership and corporate interests in the automotive repair business if the plaintiff would assume all liabilities in connection, with the business. The plaintiff testified that in response, he informed the defendant that if he could have a free rein in liquidating the business, and a contingent fee of 50 per cent of all moneys realized over and above the liabilities, he would wind up its affairs and hold the defendant harmless from any outstanding liabilities. At the defendant’s request, a written agreement to this effect was prepared by the plaintiff and delivered to the defendant. The evidence is not clear as to whether the defendant and his wife signed the agreement. No signed document was offered or introduced in evidence. Following this conversation the plaintiff settled the pending lawsuit, dissolved and liquidated the partnership and corporate interests, participated or assisted in leasing or selling the remaining assets, and paid off the liabilities. Approximately $30,000 then remained.

With respect to this second asserted contingent fee arrangement, the defendant contended that the minds of the parties did not meet, that the plaintiff did not fully and fairly advise him of the status of the pending lawsuit or of his rights with respect to the liquidation of the business, that the plaintiff acquired an adverse and conflicting interest in the business, and that the plaintiff had received and retained from various collections sufficient amounts to fully and reasonably compensate him for such necessary and effective time as he expended in concluding the transaction.

The claimed adverse interest, to which the defendant adverts, arose in late November, 1962. One of the defendant’s associates in the corporate-partnership arrangement was arrested and jailed on a criminal charge. He was needed on the premises of the business to assist in untangling the confused financial and auto repair obligations. The plaintiff testified that, with the defendant’s knowledge and acquiescence, he was specifically requested by the defendant’s brother to attempt to obtain the associate’s release from jail at the associate’s expense. This the plaintiff did, and as his fee for the service accepted an assignment of a claim against the corporate enterprise which the associate was threatening to assert. This action, the plaintiff contends, relieved the business enterprise of a potentially thorny liability, which was thereafter merged in the contingent fee arrangement and was never collected from or charged against the defendant. The defendant’s evidence disputed the plaintiff’s version of this event.

By pretrial order the issues were essentially reduced to the existence and validity of either or both of the alleged contingent fee contracts, and alternatively, to whether the defendant had fully paid the reasonable value of the services performed. The ensuing jury trial was a protracted one, consuming some 16 trial days. More than 140 exhibits were introduced, and the testimony of witnesses represents some 1,365 pages of the statement of facts.

The jury returned a verdict with special interrogatories finding the existence of the asserted contingent fee contracts and awarding plaintiff the sum of $47,250 on the first contract, as heretofore stated, and the sum of $12,352 on the second contract. The defendant appeals from the judgment entered upon the jury verdict. The plaintiff cross-appeals from the trial court’s disallowance of interest on the contracts from the date of completion.

The defendant’s first contention is that the jury was improperly instructed concerning the burden of proof to be borne by the plaintiff in establishing the enforceability of the contingent fee contracts. The defendant challenges the correctness of the following instruction given by the trial court:

If you find that:

1. Due to the defendant’s mental condition or the relationship of trust and confidence between the attorney and client, the defendant was acting under duress, undue influence or coercion; or

2. That the plaintiff failed to fully and fairly apprise the defendant as to his legal and economic position, respecting a particular contract for legal services, then such express contract cannot be enforced and you will not bring in a verdict based on such an agreement.

The defendant has the burden of proving the foregoing by a fair preponderance of the evidence. The defendant likewise has the burden of proving payment by a fair preponderance of the evidence. (Instruction No. 5.)

The rule as to the burden of proof in an action to enforce a fee contract entered into after the attorney-client relationship exists has not been heretofore clearly enunciated by this court. However, in Albert v. Munter, 136 Wash. 164, 239 Pac. 210 (1925), we indicated the view this court would adopt in such cases; the rule followed in most states and recognized by current text authorities. In Albert v. Munter, we said at 175:

Nevertheless it is true that, even in a jurisdiction where attorneys and parties are authorized by statute to make contracts for compensation of the attorneys during the existence of the relation of attorney and client, the contract may be considered void, or voidable, until it is shown by the attorney that the contract with his client was fair and reasonable, free from undue influence, and made after a fair and full disclosure of the facts upon which it is predicated.

To clarify our past decisions, we now adopt the foregoing language from the Albert v. Munter case as the rule in this jurisdiction. See also Fein v. Schwartz, 404 S.W.2d 210 (Mo. App. 1966); Rupp v. Cool, 147 Colo. 18, 362 P.2d 396 (1961); In re Schanzer’s Estate, 7 App. Div. 2d 275, 182 N.Y.S.2d 475, aff’d 8 N.Y.2d 972, 204 N.Y.S.2d 349, 169 N.E.2d 11 (1959, 1960); 10 Williston on Contracts § 1285 (3d ed. 1967). Instruction No. 5, supra, is in error insofar as it places the burden upon the defendant to prove undue influence and lack of fair and full disclosure by the attorney. However, we are convinced that, had the instruction on the burden of proof on . these issues been given in strict conformity with the rule announced herein, there can be no question under this record and the other instructions given but what the result would have been the same. Accordingly, the defendant was not prejudiced by the instruction as given. An erroneous instruction which is not prejudicial is harmless error and will not justify awarding a new trial. State v. Martin, 73 Wn.2d 616, 440 P.2d 429 (1968), and cases cited.

The trial court correctly instructed the jury, under instruction No. 4, that the plaintiff attorney was required to prove that the two contracts were fair and reasonable:

For the plaintiff to recover on an express contract for legal services performed by the plaintiff on behalf of the defendant, the plaintiff has the burden of proving, by a fair preponderance of the evidence:

1. That the parties had a meeting of the minds resulting in a contract between them as to

(a) the work to be done by the plaintiff, and

(b) the compensation to be paid, and

2. That the agreement was fair and reasonable.

The finding that the plaintiff proved that the contracts were fair and reasonable thus inheres in the jury verdict. This finding, in our opinion, negates the possibility that the jury could have determined that the evidence showed duress, undue influence, coercion, or failure by the attorney to disclose necessary facts. Moreover, by instruction No. 5, as given, the issues of duress, undue influence, coercion and failure to disclose were clearly before the jury; and by its verdict it found against the defendant on these issues.

The verdict demonstrates that the jury believed the testimony of the plaintiff, which, considered in the light of the defendant’s high level of intelligence, familiarity with the legal profession, and extraordinary business acumen, reasonably resulted in the conclusion that the defendant was fully aware and informed of all that was involved in forming the contracts, and that the defendant was not coerced, deceived or overborne by the plaintiff in any manner. As an example of the defendant’s singular talents as a man of affairs, the record shows that while he was hospitalized recuperating from a nervous breakdown, he dictated 13 pages of instructions to the plaintiff attorney concerning the conduct of matters in the plaintiff’s hands. Thereafter, in early 1963, as heretofore stated, the defendant prepared and presented his own petition to the city planning commission in the rezoning matter, without consulting the plaintiff. The record is also replete with examples of the defendant’s widespread and ambitious business ventures, and his past involvements in litigation.

We approach the record and issues in this case in the same manner as we did in Albert v. Munter, supra. In that case the trial court made no finding as to the issues of duress, coercion or disclosure. Yet this court did not invalidate the contract, but affirmed the trial court. We there said at 176:

In this case, as the lower court found, and on the whole record, we have no doubt whatever that the contract in question was entered into fairly and understandingly, was acted upon by respondents with great skill, energy and fidelity, that their services were multifarious and valuable, that they could not have foreseen the ultimate result of their activities in behalf of appellant, and that a contingent contract for their attorney’s fee on his and their part was almost unavoidable. We are, therefore, well satisfied to sustain the findings of the trial court as to the reasonableness, good faith and enforcibility generally of the contract.

There is a much stronger basis for enforcing the contracts in the instant case than the contract in Albert v. Munter, supra. Here, the jury has found by its verdict that there was no duress, undue influence, coercion or failure to disclose, in addition to finding that the plaintiff has proved the contracts to be fair and reasonable. Further, the plaintiff attorney in this case was unusually successful in the representation of his client, and his services pursuant to the contracts were remarkably valuable. All of the foregoing reasons make it inconceivable to us that the defendant was prejudiced by instruction No. 5, given in this case.

The defendant further contends that it was error to refuse to give his offered instructions Nos. 3, 4 and 5. We will not set out these instructions here. It suffices to say that they substantially reflect the correct rule as to burden of proof, but are infected with repetition and overemphasis to such a degree that we could not approve them as written, and accordingly, we do not find error in the trial court’s refusal to give them.

The defendant also assigns error to the trial court’s refusal to give his additional requested instruction No. 3, which reads:

If you find that:

1. Due to the defendant’s mental condition or the relationship of trust and confidence between the attorney and client, the defendant was acting under duress, undue influence or coercion; or

2. That the plaintiff failed to fully and fairly apprise the defendant as to his legal and economic position, respecting a particular contract for legal services, then such express contract cannot be enforced and you will not bring in a verdict based on such an agreement.

The plaintiff has the burden of proving the foregoing by a fair preponderance of the evidence. The defendant likewise has the burden of proving payment by a fair preponderance of the evidence.

It was proper to refuse this instruction because it is obviously incoherent and incorrect, in that it requires the plaintiff to prove the affirmative defenses of the defendant. The defendant’s contention is without merit.

The defendant next contends that the evidence was insufficient to warrant submission to the jury of the two contingent fee contracts. We do not agree, because the record does contain direct, corroborative and circumstantial evidence which considered together supports the formation and execution of the alleged contracts. Further, there is substantial evidence in this record from which the jury could determine the amounts due if the contracts were found to exist.

The defendant contends that the trial court erred in giving its instructions Nos. 4 and 16, relating to the elements of a contract, and also in refusing the defendant’s additional requested instructions Nos. 4 and 5. We think that the instructions given were proper, and that there was no error committed in refusing the instructions proposed by the defendant.

The defendant next contends that the trial court erred in refusing to give his proposed instruction No. 6:

The law of the State of Washington makes it unethical for an attorney to represent a party with adverse interest to.his client or to represent his own interests against those of his client and for the attorney to do so is a breach of the fiduciary duty owed by the attorney to his client, and the attorney is not entitled to any compensation from his. client during the period he is representing others with adverse interests to his client or representing his own interests rather than his clients. . .

It is argued that there was evidence to establish that the plaintiff, in taking an assignment of a, business claim from an associate of the defendant in the defendant’s auto repair business, had acquired an adverse or conflicting interest in violation of Canon of Professional Ethics 6, RCW vol. 0. The trial court refused the offered instruction on the ground that the evidence in the case established the defendant’s knowledge of and consent to the transaction. Our review of the record persuades us that the trial court did not err in so ruling.

The defendant finally contends that the trial court abused its discretion by improperly limiting the scope of the cross-examination of the plaintiff by the defendant’s counsel. We find no merit in this contention.

The plaintiff, pursuant to ROA 16, cross appeals from the trial court’s refusal to allow interest on the amounts found due under the contingent fee contracts from the date of completion of the contracts. The trial court based its ruling on the fact that the plaintiff’s fees under the contracts were unliquidated until verdict and judgment. We find that the ruling is supported by the record, and hold that interest is chargeable against the defendant only from the time that the fees became liquidated. Smith v. Saulsberry, 157 Wash. 270, 288 Pac. 927 (1930).

The plaintiff makes seven assignments of error which we need not discuss, in view of our disposition of this case.

The judgment is affirmed.

Finley, C. J., Weaver, Hale, Neill, and McGovern, JJ., concur.