Tuesday, September 28, 2010
C.A. Rejects Claimed Modification of Contingency Fee Agreement
By KENNETH OFGANG, Staff Writer
A settlement statement reflecting a 50 percent contingency fee for the attorney who sued an insurance company for not paying a valid claim did not modify the parties’ original agreement for a 40 percent fee, the Court of Appeal for this district has ruled.
Div. Four Friday affirmed Los Angeles Superior Court Judge William J. Fahey’s ruling, after a bench trial, that Jay and Lee Hellinger are entitled to $127,000 in additional payments from their former lawyer, William James Osborne. The panel agreed with Fahey that the settlement statement did not alter the original agreement because it did not include the recitations required of a contingency agreement by the State Bar Act.
Osborne, of Osborne & Associates in Sherman Oaks, was retained by the Hellingers in 1997 to pursue their claims against Farmers Group resulting from the damage to their home from the Northridge earthquake. They claimed several thousand dollars in damage, but the company rejected the claim on the ground the Hellingers failed to comply with the policy’s one-year limitations period.
The Hellingers signed a retainer agreement, entitling Osborne to a fee of 33 and 1/3 percent or 40 percent of their recovery, depending on whether the case was resolved before or after an arbitration hearing. The agreement specified that Osborne would be reimbursed for costs out of any recovery, and that he was not obligated to handle any appeal.
The Hellingers’ suit was dismissed on summary judgment. Osborne agreed to handle their appeal, with the contingency remaining at 40 percent, provided the Hellingers paid the costs of the appeal.
The summary judgment was reversed in Hellinger v. Farmers Group, Inc., (2001) 91 Cal.App.4th 1049, in which the court held that a then-recent statute had abrogated the limitations period and revived the Hellingers’ claim.
According to testimony in the later fee litigation between the Hellingers and Osborne, Osborne proposed in 2003 that his fee be increased to 50 percent. Jay Hellinger, who by this time had acquired his brother’s interest in the recovery, offered to accept the increase if all of the costs were not taken out of his share, but Osborne refused.
A year later, in August 2004, the insurance companies agreed to a settlement of $870,000, with Lee Hellinger given a power of attorney so that he could execute settlement documents, and collect the proceeds, while Jay Hellinger was traveling. When he appeared at Osborne’s office, Lee Hellinger was given a settlement statement reflecting attorney fees of $435,000, less a “voluntary reduction” of about $8,000, and costs of over $40,000, leaving $395,000 for the client.
Lee Hellinger accepted the check for $395,000 and signed the settlement statement, including a statement in bold letters declaring “[w]e have examined and approve the above accounting,” on behalf of himself and his brother.
Osborne testified that the net $395,000 was agreed to after Lee Hellinger expressed dismay at the figure originally quoted by Osborne, who then agreed to take the extra $8,000 out of his share, while Hellinger testified that he merely went to pick up the check and that no negotiations took place, and that he did not believe that by signing the statement he was agreeing to an increase in Osborne’s fee.
‘Meeting of the Minds’
Fahey, after a one-day trial at which Osborne and the Hellingers were the only witnesses, held that the parties did not agree to modify the 40 percent contingency agreement. The settlement statement, he said, did not “reflect a meeting of the minds” and did not comply with Business and Professions Code Sec. 6147’s requirement.
The evidence, Fahey said, suggested that Osborne took advantage of the Hellingers by attempting to “force a new 50-percent deal” on them at a time they “had a serious need for settlement proceeds.”
Justice Thomas Willhite, in an unpublished opinion for the Court of Appeal, said the trial judge correctly applied Sec. 6147’s requirements that a contingency fee agreement be in writing and signed, that it disclose the rate and the fact that the fee is negotiable and not set by law, and that it describe the effect of costs on the client’s recovery.
Willhite cited Stroud v. Tunzi, (2008) 160 Cal.App.4th 377, holding that a modification of a contingency agreement must meet the same requisites as an original agreement and is otherwise voidable at the option of the clients.
The settlement statement, the justice said, did not state that the increase in the contingency fee was negotiable and was thus voidable by the Hellingers under Stroud.
Willhite rejected the argument that Stroud created new law and should not be applied because it was decided subsequent to the date Lee Hellinger signed the settlement statement.
Stroud, the jurist noted, was not inconsistent with any prior decision and thus did not create a “new rule of law,” which would constitute an exception to the general principle that appellate decisions apply to subsequent cases involving prior events.
Jeffrey I. Ehrlich was co-counsel with Osborne on appeal, while William J. Houser represented the Hellingers.
The case is Hellinger v. Osborne, B214216.
Copyright 2010, Metropolitan News Company