Opinion
Civ. Nos. 85-2011-AS, 85-2012-AS, 86-296-AS
December 7, 2000
OPINION AND ORDER
The matters before the court are Fred Smith's amended petition for leave to intervene to enforce attorney's lien (doc. # 841) and petitioner Fred Smith's motion for summary judgment or, alternatively, for partial summary judgment (doc. # 825). The court heard oral argument on petitioner's motion for summary judgment on Monday, November 27, 2000.
Smith's petition seeks judgment against a subgroup of the plaintiffs, the Safley and Van plaintiffs (hereafter "Safley plaintiffs"), in the total amount of $765,967.75 as attorney's fees for services rendered through settlement and additional attorney's fees associated with this petition. Smith has received from the Safley plaintiffs his contingent fee related to the settlement with the FDIC, but has not received fees from the Safley plaintiffs for the settlements with the two defendant law firms.
The Safley plaintiffs have filed an answer with affirmative defenses and counterclaims, naming plaintiffs' counsel Brad Shiley and John Crowell as additional third-party defendants and asserting counterclaims against all three for breach of fiduciary duty, breach of contract and legal malpractice. The Safley plaintiffs request a jury trial on their counterclaims.
Smith has filed a motion for summary judgment on the claims asserted in the petition or partial summary judgment on the Safley plaintiffs' affirmative defenses and counterclaims; he also opposes the Safley plaintiffs' request for a jury trial. Because I have concluded that there are significant fact issues involved in the present controversy, both the motion for summary judgment and the motion in the alternative for partial summary judgment are denied.
Smith alleges in his petition that he was retained by the Safley plaintiffs in October 1985. The terms of the fee agreement were that the Safley plaintiffs would pay Smith 25% of their gross recovery and 14.82% of additional fees, to be billed at $60 an hour, for time spent by Smith's office staff on the case. The fee agreement was amended in September 1995 to provide Smith with 33.3% of the gross recovery. However, in June 1998, the agreement was amended again to reinstate the 25% figure with respect to two of the Safley plaintiffs, Michael Safley and MJS Real Properties Ltd.
In July 1998, after the plaintiffs' settlement with FDIC, but before the law firm settlements, the attorney-client relationship between the Safley plaintiffs and Smith was terminated. In June 1999, the relationship between the Van plaintiffs and Smith was terminated.
In November 1999, all the plaintiffs settled with the law firm of Pike, Urland and Morello. The Safley plaintiffs received a total of $249,881.37 from that defendant, and Smith claims $79,146.19 of that. In September 2000, the plaintiffs settled their claims with the law firm Schwabe Williamson Wyatt. Under the terms of that agreement, the Safley plaintiffs were to receive a total of $2,165,467.00, and Smith claims $685,821.56 of that amount.
Smith's claims are based on both contract and quantum meruit.
The Safley plaintiffs assert both affirmative defenses and counterclaims, including waiver and estoppel, breach of fiduciary duty, breach of contract and legal malpractice. On the counterclaims, they seek: 1) attorney's fees and costs incurred in defending the Schwabe contribution claims after Smith ceased to be their lawyer; 2) the damages the Safley plaintiffs would have recovered from Schwabe after trial, minus the amount the Safley plaintiffs obtained from the FDIC and Pike settlements or, alternatively, the amount for which the Safley plaintiffs would have settled their claim against Schwabe had their counsel not breached their fiduciary duties; 3) recovery of all attorney's fees previously paid to Smith, Shiley and Crowell in the form of a constructive trust, plus prejudgment interest on attorney's fees already paid; and 4) punitive damages.
The Safley plaintiffs allege that they were the first to approach Smith about representing them in this case, and that Smith was aware from the beginning that there was a possible conflict of interest in representing both Safley and the other plaintiffs because Safley's close participation in the stock transactions left him exposed to a contribution claim by the defendants if the other plaintiffs recovered. Nevertheless, they allege, Smith assured Safley that there was no basis for a contribution claim against him and asked him to recruit the other West Park plaintiffs for inclusion in Smith's lawsuits. Smith denies this version, asserting that Safley did not fully inform him of the factual circumstances and that his legal advice was sound based on the facts as Safley had revealed them.
The Safley plaintiffs also allege that in February and March 1991, when the law firm defendants filed motions to amend their answers to assert counterclaims for contribution against Safley and some of the other Safley plaintiffs, Smith Shiley and Crowell opposed the motion on the ground that it would create a conflict of interest between themselves and their opposing groups of clients. However, the Safley plaintiffs allege that they were not told about the proposed counterclaims or told of the conflict of interest. The counterclaims later became moot after the plaintiffs filed a subsequent complaint.
The Safley plaintiffs also allege that in June 1998, during negotiations to settle with the FDIC for nearly $5 million, Smith found a pretext to resign as the Safley plaintiffs' counsel to avoid the conflicts of interest among the various plaintiffs. Smith denies that his resignation was pretextual, asserting that he was forced to resign for ethical reasons.
The Safley plaintiffs assert that in negotiating the FDIC settlement, Smith, Shiley and Crowell settled the claims in the aggregate without seeking the plaintiffs' consent; the three also allegedly convinced the Safley plaintiffs to agree to a covenant not to sue which proved detrimental to their interests because it limited their ability to defend against a contribution claim. And the Safley plaintiffs allege that when the Pike and Schwabe defendants filed a motion for summary judgment on the measure of damages, the plaintiffs opposed the motion even though opposition was detrimental to their own legal position.
The Safley plaintiffs allege that they settled their claims against Schwabe for less than their reasonable value because of the exposure to contribution, of which they were not fully aware until December 1999.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is not proper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995), cert. denied, 116 S.Ct. 1261 (1996).
Lawyer and client have a fiduciary relationship, Marston v. Myers, 217 Or. 498, 510 (1959), and a lawyer owes his client a duty of loyalty. Lee v. Mitchell, 152 Or. App. 159, 176-77 (1998). A fiduciary who has breached his duty of loyalty may, in the court's discretion, be denied compensation. Taylor v. Berkheimers, Inc., 48 Or. App. 901, 907 (1980).
In Kidney Ass'n of Oregon, Inc. v. Ferguson, 315 Or. 135, 141 (1992), the Oregon Supreme Court said:
[A] court . . . that has authority to set or approve the award of reasonable attorney fees [,] may consider whether the lawyer has breached a fiduciary duty owed to the client in determining the appropriate fee. A breach of fiduciary duty may be the result of a lawyer's simultaneously representing two or more clients with a conflict of interest, the consequence of which could be a reduction of a fee or outright denial of a fee.
The court characterized such a reduction or denial as a "reflection of the limited value that a client receives from the services of an unfaithful lawyer." Id. In Ferguson, the court set out a test for determining whether a lawyer with a conflict is entitled to recover attorney's fees: the factors to be considered are whether the breach was intentional, negligent or without fault, whether the breach related to all or part of the lawyer's services, and whether the lawyer's services had been of value. Id.
The briefing and the arguments demonstrate to the court that there are a number of factual issues, material to the affirmative defenses and counterclaims, which preclude summary judgment. Among them are: 1) the circumstances under which Smith became the attorney for the plaintiffs; 2) whether Safley fully informed Smith of facts which might expose Safley to liability as a participant in the stock transactions; 3) what legal advice Smith gave Safley about his exposure; 4) whether the Safley plaintiffs knew of the contribution counterclaims asserted against Safley in 1991, and whether a potential conflict of interest arising from those counterclaims was disclosed to them; 5) whether the aggregate FDIC settlement, and the covenant not to sue in that agreement, represented breaches by Smith; 6) whether Smith was obligated to resign as Safley's lawyer for ethical reasons or whether his resignation was pretextual so that he could continue to represent the other plaintiffs without a conflict of interest; 7) whether, in 1998, Smith took a legal position on damages adverse to the Safley plaintiffs but helpful to the other plaintiffs; and 8) whether the Safley plaintiffs consented to continued representation by Smith after Smith had resigned as their attorney.
Because Smith has not carried his burden of showing the absence of a genuine issue of material fact, the motions for summary judgment and partial summary judgment (doc. # 825) are DENIED.
IT IS SO ORDERED and DATED this 7th day of December, 2000.