Monday, May 7, 2007
Attorney’s Spouse Not Bound by Ethics Rules—Court of Appeal
Defect in Retainer Agreement Held Not to Bar Enforcement of Separate Partnership Agreement With Lawyer’s Wife
By KENNETH OFGANG, Staff Writer
Alleged violations of legal ethics rules do not preclude the enforcement of a business agreement between the attorney’s non-lawyer spouse and the attorney’s client, the Court of Appeal for this district has ruled.
“Non-attorney wives and husbands of attorneys retain their individual rights to enter into enforceable contracts after marriage,” Justice Kenneth Yegan wrote Thursday for Div. Six.
The panel reinstated a $1.2 million verdict that now-retired Santa Ana attorney Clark Fergus and his wife, Sue Fergus, obtained against Joseph A. Songer, whom Clark Fergus represented in a difficult judgment collection.
The judgment debtor, Lawrence Bordan, was the owner of the Pismo Beach Hotel when Songer sued him for assault. Claiming that Bordan had thrown a chuck of concrete at him, Songer won a judgment for more than $300,000.
In 1995, more than 14 years after obtaining judgment, Songer retained Fergus to collect, a process requiring a sheriff’s sale, an action to cancel a deed of trust for more than $500,000, and a quiet title action. The retainer agreement provided that Fergus, an experienced collections lawyer, would receive 45 percent of the recovery.
Eventually, the property was sold at sheriff’s sale to Songer, who by then was owed more than $1 million on the judgment, including interest.
Fergus succeeded in having the deed of trust canceled and in quieting title in Songer. But Songer had less than $15,000 in assets and needed at least $300,000 to refurbish the hotel.
According to evidence later presented at trial in Clark and Sue Fergus’ suit against Songer, the Ferguses agreed to become “in effect 50%-50% partners.” Under an agreement that the plaintiffs said was agreed upon by that Songer may not have signed, the contingency would be increased to half the recovery and the Ferguses would advance “limited but substantial” funds to keep the hotel operating.
At a subsequent meeting, according to the plaintiffs’ testimony, Sue Fergus agreed that costs of refurbishing the hotel, and operating it pending a sale, would be advanced from the plaintiffs’ community funds, which would be obtained by taking out a home equity loan. Songer was in no position to provide any funds, Clark Fergus said, because he “was broke.”
Sue Fergus said she “had no alternative to advancing the money because of all the time and energy that Mr. Fergus had put into the lawsuit and the hotel had to be fixed up before it could be sold.”
The property was eventually sold for $4.8 million, none of which went to the Ferguses, who sued for breach of written and oral contract.
Before trial, the judge ruled that the contingency fee agreement was unenforceable because it did not contain the advisement required by Business and Professions Code Sec. 6147 that the amount of the fee was negotiable and not set by law. He also ruled that the alleged oral partnership agreement between Sue Fergus and Songer was unenforceable because there was “no way to adequately sever” that agreement from the contingency fee agreement.
At trial, Clark Fergus testified that he had created or recreated time records showing that he worked 1,826.5 hours but had actually put in “far more” time than that, and that his hourly billing rate since 1993 had been $320. Jurors awarded $1.2 million as the reasonable value of his legal services, along with more than $100,000 that the Ferguses loaned to Songer.
The jury rejected Songer’s claim for legal malpractice.
San Luis Obispo Superior Court Judge Martin Tangeman, however, granted Songer’s motion for new trial, saying the award was excessive because it was at least double the amount determined by multiplying the hours reflected in the time records by Fergus’ hourly billing rate.
Yegan, however, said the order was both procedurally and substantively defective.
The justice explained that the order granting new trial was entered in the minutes on April 6, 2005, without a specification of the reasons for the order; and that a written order stating the grounds on which a new trial was granted was entered 15 days later.
Because the written specification of reasons was filed more than 10 days after the operative order, the justice said, the order was a nullity.
The order was substantively defective, the justice went on to say, because the verdict was not contrary to law. Taking into account all of the factors that go into determining a reasonable fee, including all of the hours that Fergus worked—including those that he testified were not covered by the time records—as well as the results he obtained, and the necessity that he forego other employment because of the demands of the plaintiff, the verdict was reasonable, Yegan said.
The justice also said the trial judge was wrong in not allowing the jury to consider Sue Fergus’ claim of a valid, enforceable partnership agreement independent of the contingency fee agreement with her husband. He noted that Songer was anxious to enter into a partnership, since he had no money of his own, and that the terms of that agreement were highly favorable to him.
Sue Fergus, he said, was not bound by the State Bar Act or the Rules of Professional Conduct and “was innocent of any wrongdoing.”
Clark Fergus told the MetNews yesterday that the case was something that “should never have happened” and could have been completely averted if he had not made a computer error that caused the Sec. 6147 language, which was part of his standard retainer agreement, to be omitted from the agreement with Songer.
His former client, he added, claimed to hold a law degree and tried to take advantage of the fact that he suffered a severe stroke in 2001, which was “part of the personality and the character” of Songer, he said.
“But I fooled him,” Fergus said. “I lived “
Songer’s attorney, Roy Ogden of San Luis Obispo, did not return a MetNews phone call.
The case is Fergus v. Songer, 07 S.O.S. 2242.
Copyright 2007, Metropolitan News Company