Opinion
No. 58807-9-I.
June 16, 2008.
Appeal from a judgment of the Superior Court for King County, No. 04-2-06009-5, Paris K. Kallas, J., entered August 11, 2006.
Affirmed in part, reversed in part, and remanded by unpublished opinion per Ellington, J., concurred in by Dwyer, A.C.J., and Appelwick, J.
This is an action for collection of attorney fees. When the parties modify a fee agreement after an attorney-client relationship is well established, the changed agreement is enforceable by the attorney only if it was negotiated without undue influence. Here, shortly before trial, the clients were told that unless they executed a written fee agreement, their attorney would withdraw. The written agreement in material respects modified a preexisting oral agreement. To that extent, it is unenforceable under these circumstances. An award of fees to the clients for resisting enforcement of the written contract was improper, however, because the clients did not ultimately prevail. The court also erred in denying the attorney his contractual right to interest on the unpaid balance. We affirm in part, reverse in part, and remand.
BACKGROUND
Robert and Theresa Foulon hired attorney James Ihnot to represent them in an acrimonious property dispute with their neighbors. Through their legal insurance, they paid Ihnot $60 per hour for limited representation. As the case evolved, Ihnot realized the Foulons needed an experienced litigation attorney. He introduced them to Charles Kimbrough, with whom he shared office space. Kimbrough has been practicing law for 37 years, is experienced in land disputes, and has tried hundreds of cases in Washington.
On June 18, 2001, the Foulons met with Kimbrough to discuss representation. Kimbrough explained that he was not part of the insurance plan and was not willing to be compensated under its terms. Kimbrough told the Foulons that he charged $295 per hour, billed monthly, and charged interest on outstanding balances. The Foulons accepted these terms and representation began immediately. Kimbrough was to forward a written fee agreement for the Foulons to sign.
Busy with their case, Kimbrough did not send a written agreement to the Foulons until almost five months later, in November 2001. By this time, the Foulons were already behind with their legal bills and owed Kimbrough more than $14,000.
The written agreement reiterated the rates and terms discussed at the June meeting and added two new terms: (1) in the event of termination of the agreement, Kimbrough would not release the client files until all outstanding balances were paid; and (2) in the event of a fee dispute, the nonprevailing party would pay the reasonable attorney fees and expenses of the prevailing party.
Kimbrough informed the Foulons they could have independent counsel review the agreement. Despite repeated requests from Kimbrough, neither Foulon signed the agreement for three months. By the end of January 2002, the Foulons had paid just $10,700 of a $35,000 bill.
Trial of the case was scheduled to start on April 22. In early February, after responding to a motion on their behalf, Kimbrough told the Foulons that if they did not sign the fee agreement, he would "complete the [motion] that was before the court" and withdraw. Robert Foulon signed the agreement, postdating it to April 4, 2002. Theresa Foulon never signed.
Clerk's Papers at 332.
Kimbrough concluded the matter in a successful mediation. The Foulons never paid his fees.
Kimbrough filed this action to recover his fees, alleging breach of the oral and written agreements. The Foulons moved for partial summary judgment contending the written fee agreement was unenforceable. The court agreed and awarded the Foulons attorney fees on that issue.
After trial on Kimbrough's claims under the oral agreement, the court found that the Foulons were in breach and had acted in bad faith, and awarded Kimbrough judgment of $65,400. Both parties appeal.
ANALYSIS Written Agreement
Kimbrough contends the court erred when it held the written fee agreement unenforceable. The usual standard for review of summary judgment applies.
We review a grant of summary judgment de novo, engaging in the same inquiry as the trial court and viewing the facts and the reasonable inferences from those facts in the light most favorable to the nonmoving party. Overton v. Consol. Ins. Co., 145 Wn.2d 417, 429, 38 P.3d 322, 327 (2002). Summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." CR 56(c).
We give close scrutiny to fee agreements renegotiated after the attorney-client relationship has been established. Such a contract may be considered void or voidable unless the attorney shows that the contract is fair and reasonable, made after a fair and full disclosure of the facts upon which it is predicated, and free from undue influence. The essence of undue influence is unfair persuasion.
Ward v. Richards Rossano, Inc. P.S., 51 Wn. App. 423, 428, 754 P.2d 120 (1988); Perez v. Pappas, 98 Wn.2d 835, 841, 659 P.2d 475 (1983).
Kennedy v. Clausing, 74 Wn.2d 483, 491, 445 P.2d 637 (1968); Ward v. Richards Rossano, Inc. P.S., 51 Wn. App. 423, 428-29, 754 P.2d 120 (1988) (citing id.).
In the Matter of the Welfare of J.N., 123 Wn. App. 564, 575, 95 P.3d 414 (2004).
By the time Kimbrough mailed the written agreement in November 2001, his relationship with the Foulons was well established The trial court ruled on summary judgment that Kimbrough could not show the absence of undue influence because the two additional terms modified the agreement in his favor and Kimbrough obtained his client's signature only by threatening to withdraw shortly before trial.
Kimbrough first contends the court applied the wrong standard. For this argument, he relies upon the court's statement that "[a]ny modification [of a fee agreement] during representation is prima facie fraudulent." We agree that the reference to fraud overstates the test, but in its very next sentence, the court stated the test correctly: the attorney must prove the absence of undue influence. The court did not require Kimbrough to prove the absence of fraud. The court applied the proper standard.
Report of Proceedings (May 6, 2005) at 35.
Further, the court reached the correct conclusion. Kimbrough argues that nothing was renegotiated because the written agreement did not modify but only memorialized the parties' oral agreement. Kimbrough overlooks the significance of both the new terms and the circumstances.
Ordinarily an attorney must surrender papers to the client under the Rules of Professional Conduct (RPC), although the parties may agree that the lawyer owns the file when representation is terminated. The default American rule is that parties are responsible for their own attorney fees. Thus, the two new terms in the modified agreement were significant. Neither was discussed at the parties' initial representation meeting. The circumstances made both new terms particularly favorable to Kimbrough.
See former RPC 1.15(d) (2002) ("A lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.").
Cosmopolitan Eng'g Group, Inc. v. Ondeo Degremont, Inc., 159 Wn.2d 292, 296, 149 P.3d 666 (2006).
By November, the Foulons owed Kimbrough more than $14,000. The file retention and attorney fee provisions improved Kimbrough's chances of collecting and made it more difficult for the Foulons to change attorneys.
The written contract was thus not merely a memorialization of the parties' oral agreement. Kimbrough concedes he told Foulon six weeks before trial that he would withdraw if the Foulons refused to sign. He cannot show the new terms were imposed without undue influence.
Attorney Fees — Written Contract
The summary judgment court awarded the Foulons $62,400 in attorney fees for successfully defending against enforcement of the written fee agreement, which contained the following provision:
In the event either you or I engage an attorney to collect an outstanding bill or debt, or other legal action relating to non-payment of fees, expenses, charges, or costs, or collection of expenses, charges, costs, or fees, or enforce a court decision, the non-prevailing party will be required to pay reasonable attorneys' fees and the expenses of the prevailing party.
Clerk's Papers at 886.
RCW 4.84.330 defines prevailing party as "the party in whose favor final judgment is rendered." A final judgment is one that resolves the action and "'leaves nothing open to further dispute.'" When distinct and severable claims are involved, the court may apply a proportionality approach and award each party fees for the claims upon which it prevails. A defendant who successfully defends a breach of contract lawsuit by proving that the contract is unenforceable is entitled to fees when the contract would have allowed fees had the plaintiff been successful.
Samuel's Furniture, Inc. v. The Dep't of Ecology, 147 Wn.2d 440, 452, 54 P.3d 1194 (2002) (quoting Black's Law Dictionary 567 (5th ed. 1979)).
Marassi v. Lau, 71 Wn. App. 912, 918, 859 P.2d 605 (1993).
Herzog Aluminum, Inc. v. Gen. Am. Window Corp., 39 Wn. App. 188, 197, 692 P.2d 867 (1984) (interpreting RCW 4.84.330).
But here, there were two contracts on the same subject, and defending against the written contract did not resolve the action.
See Civil Rule 54(b) ("any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties").
In the cases cited by the Foulons, successfully defending against enforcement of the written contract resolved the entire dispute, or the plaintiff had distinct and severable claims and the court offset each party's fees at the conclusion of the action. In Herzog Aluminum, Inc. v. General American Window Corp. and Yuan v. Chow, for example, the court found that the parties entirely lacked any contract, written or oral. In Labriola v. Pollard Group, Inc., once the court found a noncompete agreement unenforceable, the plaintiff-employee had no further legal obligations to his employer. Mike's Painting, Inc. v. Carter Welsh, Inc. and Boeing Co. v. Sierracin Corp. were "distinct and severable claims" cases in which offsetting fees on different claims provided a more fair result.
96 Wn. App. 909, 916, 982 P.2d 647 (1999).
152 Wn.2d 828, 839, 100 P.3d 791 (2004).
95 Wn. App. 64, 68, 975 P.2d 532 (1999).
108 Wn.2d 38, 66, 738 P.2d 665 (1987).
Here there was one claim for attorney fees, with two alternative bases: the oral contract and the written contract. There was no prevailing party until both bases for the single claim were addressed. When Kimbrough proved the Foulons breached the oral agreement, he prevailed.
Kimbrough also alleged equitable theories of damages, such as quantum meruit and unjust enrichment. The court never reached those issues.
See Silverdale Hotel Assoc. v. Lomas Nettleton Co., 36 Wn. App. 762, 773-774, 677 P.2d 773 (984) (in suit on single breach of contract with damage theories, fees awarded where plaintiff substantially prevailed in contract dispute).
The Foulons were not entitled to fees.
Interest
The trial court found that the parties orally agreed interest would be due on unpaid balances and awarded Kimbrough interest on $64,400 in fees. Subsequently, the court vacated the interest award on grounds that the fees were not liquidated.
Whether an amount is liquidated is relevant to prejudgment interest, which is awardable as an element of damages for two types of claims: (1) liquidated claims (when damages are easily computed by reference to objective sources); and (2) unliquidated claims where the amount is determined by computation with reference to a fixed standard contained in a contract, without reliance on opinion or discretion. Because attorney fee awards are subject to the court's determination of reasonableness, they are usually unliquidated and ineligible for prejudgment interest.
Flint v. Hart, 82 Wn. App. 209, 225, 917 P.2d 590 (1996).
Id. at 226; but see Taylor v. Shigaki, 84 Wn. App. 723, 732, 930 P.2d 340 (1997) (attorney fee award liquidated where parties disputed which of two contractual payment clauses applied and both clauses provided an amount that could be computed without exercising discretion).
But where interest is reserved expressly in the contract, it is part of the debt and recoverable as of right. The rules for prejudgment interest do not apply, and whether the amount is liquidated is not the question. The original award of interest was proper, and we reverse the court's decision to vacate its award.
Farm Credit Bank of Spokane v. Tucker, 62 Wn. App. 196, 201, 813 P.2d 619 (1991).
Attorney Fees on Appeal
Because the written agreement is unenforceable, there is no basis for fees on appeal.
Cross-Appeal
Kimbrough sought fees of $70,442.41. The court reduced that amount by $5,671.25 for some unnecessary or unproductive work, double billing for staff and attorney time, and clerical services. The Foulons contend this reduction proved that Kimbrough violated RPC 1.5, the rule requiring attorneys to charge reasonable fees. Consequently, argue the Foulons, Kimbrough breached a fiduciary duty and his fees should be disgorged as a penalty.
The Foulons present no legal authority for the proposition that an ethical violation is invariably established when a court awards less than the requested amount of attorney fees. This is hardly surprising. Such a rule would mean that any time a court exercises its discretion under the lodestar method and disallows some part of a fees request, the request itself could be challenged as unethical. Even were there such authority, however, the court expressly rejected the Foulons' allegations of billing improprieties:
The cases cited by the Foulons to support their position that any attorney billing irregularities necessarily violate RPC 1.5 are inapposite. Each involves severely unethical conduct. The attorney in Eriks v. Denver, 118 Wn.2d 451, 461, 824 P.2d 1207 (1992), represented multiple clients when he knew it was very likely they would have claims against each other and did not reveal the conflict to all of the clients, even when it changed from potential to actual. The attorney in In the Matter of the Disciplinary Proceeding against Norman W. Cohen, 149 Wn.2d 323, 328-29, 67 P.3d 1086 (2003), failed to substantively respond to a summary judgment motion and to a court order, a client's case was dismissed with prejudice as a result, and the attorney did not tell the client and attempted to charge the client for filing the resulting appeal. In In the Matter of the Disciplinary Proceeding Against Arthur Boelter, 139 Wn.2d 81, 84, 88, 985 P.2d 328 (1999), the attorney charged the client 10 times more than was reasonable and threatened to reveal client confidences if the client did not pay the fee.
The Court has found no instances of billing compound interest, applying payments to the most recent billings to the prejudice of the client, or marking up contract lawyer payments. Prof's Strait's accusation about billing secretarial work fails as Kimbrough had established convincingly that this was limited to overtime. . . . At present, charging for secretarial work is a matter of contract and the Court found that this was part of the oral fee agreement.
Clerk's Papers at 2888.
This finding is supported by the record, and the Foulons point to no evidence suggesting otherwise. There was no basis for the court to require Kimbrough to disgorge his fees. The court's refusal to do so was not an abuse of discretion. In fact, the evidence showed exactly the opposite. The court found the Foulons "breached the implied covenant of good faith and fair dealing . . . by using Kimbrough's services while never intending to pay him according to their oral agreement."
The Foulons argue that because the trial court held Kimbrough did not breach any fiduciary duties, it did not exercise its discretion in determining whether disgorgement was proper. This argument ignores conclusions of law 23 and 24, which expressly consider disgorgement.
See Kelly v. Foster, 62 Wn. App. 150, 157, 813 P.2d 598 (1991) (court did not find factors justifying disgorgement despite jury finding that attorney breached fiduciary duty to client).
Clerk's Papers at 2880.
Finally, the Foulons contend the evidence does not support the finding that they agreed to pay Kimbrough $295 per hour. But Kimbrough testified he told the Foulons he charged $295 per hour, and his bills beginning in June 2001 charged his time at that rate. The evidence amply supports the court's finding.
We reverse the award of fees to the Foulons and the denial of interest to Kimbrough. We otherwise affirm. We remand for an award of interest and correction of the judgment.
This appeal generated numerous statements of additional authority (appellants filed three; respondents filed six), a motion to strike one such statement and for terms, and a motion in one brief to disregard portions of the other. All such motions are denied.
Affirmed in part, reversed in part, and remanded.
WE CONCUR: