Monday, February 25, 2008
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Contingent Fee Contract Modifications Must Comply With Bar Act—C.A.
By KENNETH OFGANG, Staff Writer
A modification of a contingent fee agreement must comply with the same statutory requisites as the original contract, the Court of Appeal for this district ruled Friday.
Div. Eight, in an opinion by Justice Laurence Rubin, affirmed Los Angeles Superior Court Judge Bert Glennon Jr.’s order that the Van Nuys firm of Stroud & Do return $75,000 to former client Dominick A. Tunzi.
Tunzi retained James T. Stroud and Van T. Do to represent him in a suit against his former employer in 2002. The evidence presented in the trial court was that he signed an agreement to pay a flat fee of $75,000 if the suit settled before trial and 40 percent of the recovery if the case went to trial.
The case settled before trial for $600,000.
The firm subsequently claimed that Tunzi owed them $300,000 based on documents dated April 2004.
Client Signed Documents
One of the documents said that Tunzi would pay $75,000 “contingent upon Stroud & Do being paid directly” $225,000 from another entity, bringing the total fee to $300,000. The other document stated that Tunzi would pay $300,000 in fees; Tunzi signed both documents along with a settlement sheet that included the $300,000 fee payment.
When Tunzi objected to paying more than the $75,000 required by the original agreement, the case went to fee arbitration, with Tunzi prevailing. The firm, however, objected to the award and sued for breach of contract, among other things.
Glennon ruled that the April modifications were invalid because they did not comply with Business and Professions Code Sec. 6147. The statute, which Glennon said applies to a modification as well as to the original agreement, requires, among other things, that a contingent fee agreement be signed by the parties, that it specify the amount of the fee, that it explain how costs would affect the amount of the fee and the recovery, and that it advise the client that the fee is negotiable and not fixed by law.
Agreement Held Binding
The judge further ruled that the original agreement was binding, rejecting the attorneys’ argument that if the modification was not valid, they were entitled to $400,000 as the reasonable value of their services. Glennon ordered that all sums in excess of the $75,000 agreed to be returned to Tunzi.
Rubin said the trial judge was correct. The April modifications were ineffective, he said, because the documents were not signed by the attorneys, did not mention costs, and did not disclose the client’s right to negotiate the amount of the fee.
The justice rejected Stroud & Do’s contention that the modifications did not have to comply with Sec. 6147 because the original agreement did. Rubin cited Fergus v. Songer (2007) 150 Cal.App.4th 552, which held that a letter agreement purporting to increase a contingency fee from 45 to 50 percent was unenforceable because it was non-compliant with Sec. 6147.
Of similar import, Rubin said, is Mitchell v. American Fair Credit Assn. (2002) 99 Cal.App.4th 1345, holding that modifications to a credit service contract must comply with the Credit Services Act even though the original service contract adhered to the act’s provisions.
The attorneys’ quantum meruit argument was correctly rejected, Rubin went on to say, because there is “no authority that invalid modifications to a contract nullify the contract.”
Rubin also rejected accusations that Tunzi’s new counsel, Mark C. Sherwood, committed fraud in connection with the preparation of the order that Glennon signed. The justice noted that the order “logically flowed” from the findings the judge announced from the bench at the end of a hearing in which counsel participated, and that the judge’s willingness to sign the order over Stroud & Do’s objections indicated a rejection of their fraud claim.
Besides, Rubin pointed out, Stroud & Do filed two complaints with the State Bar regarding Sherwood’s alleged fraud, and both were rejected. “We will let the State Bar’s disposition of appellants’ complaints speak for themselves,” the jurist wrote.
The case is Stroud v. Tunzi, 08 S.O.S. 1218.
Copyright 2008, Metropolitan News Company