Thursday, July 24, 2003
C.A. Rejects Claim Agreement Provided for ‘Reverse Contingency Fee’
By DAVID WATSON, Staff Writer
A lawyer’s agreement to defend a business client and prosecute a cross-complaint for $40,000 or 40 percent of any recovery cannot be interpreted as providing for a “reverse contingency fee,” the First District Court of Appeal ruled yesterday.
Writing for Div. One, Justice William D. Stein rejected attorney Terrence A. Beard’s argument that the agreement was intended to allow him to earn 40 percent of the value of claims defeated by his defense as well as the same percentage of the cross-claim recovery.
Beard’s client, Gary Goodrich, was sued by his landlord in 1997. The landlord, Michael H. Clement Corporation, claimed Goodrich’s business had been discharging toxic waste on the leased premises.
“The circumstances would not have suggested to a reasonable person that Beard was to recover 40 percent of Clement’s unliquidated claims under a reverse contingency arrangement,” Stein wrote. “A reverse contingency arrangement is uncommon. A reasonable person would expect such an arrangement to be clearly defined.”
Beard’s agreement with Goodrich called for a “contingency fee of 40 percent of the total net recovery” and specified that term to include “the value of all consideration received or awarded Client, including, but not limited to, the forgiveness or discharge of debt.”
Clement’s suit sought damages of just over $1 million. A jury found for Goodrich and awarded him $187,233, including punitive damages, on his cross-complaint for constructive eviction and intentional infliction of emotional distress.
The trial court also awarded Goodrich $394,925 under the attorney fees provision of the lease. Clement appealed, but settled for $599,000 while the appeal was pending.
The judgment was then vacated and the entire action dismissed with prejudice. When Beard and Goodrich could not agree on how to divide the settlement proceeds, the lawyer sued and the client cross-complained.
Stein said Contra Costa Superior Court Judge Walter D. Rogers, who heard the fee dispute, properly ruled that Beard was entitled to only 40 percent of the settlement, plus costs and less the portion of the agreed retainer already received.
The justice explained:
“Beard complains that it would be unreasonable to assume that he intended to receive no compensation for a defense that avoided claims of $1,024,333.65. Goodrich testified, however, that Beard expressed to Goodrich that Goodrich was likely to recover a substantial amount of money-up to $1.5 million-on the cross-complaint, and that Beard would be entitled to 40 percent of that amount, or to 40 percent of any amount received in settlement of the case. There was also evidence that Beard and Goodrich assumed that Clement’s claims were unfounded and easily defensed, and that Goodrich paid Beard a $40,000 retainer fee. There is nothing unreasonable about a conclusion that under these circumstances, Beard was willing to risk receiving nothing over and above the retainer paid by Goodrich, when he stood to gain a substantial amount of money if Goodrich prevailed on the cross-complaint or if the parties settled the case. Since Goodrich did not have the money to pay Beard an hourly rate for his defense, it would make little sense for him to agree to pay Beard a percentage of the value of Clement’s claims. Finally, it would not have been reasonable for the parties to expect Goodrich to pay a percentage of every claim, whatever its merits, asserted by Clement, and the agreement provided no means of calculating the actual value of Clement’s unliquidated claims.”
Beard testified to Rogers that he had explained to Goodrich how the reverse contingency fee would work, but Goodrich claimed no such conversation ever took place.
Stein also rejected the lawyer’s contention that he was entitled to deduct from the settlement, and pay himself, the $394,925 in attorney fees awarded by the trial judge in the underlying action. That award, the justice pointed out, was extinguished along with the judgment when the case was dismissed after the settlement.
Justice Sandra L. Margulies and Presiding Justice James J. Marchiano concurred.
The case is Beard v. Goodrich, A100618.
Copyright 2003, Metropolitan News Company