KENNETH H. BAKER AND WO SIN CHIU v. CARL FREDERICK AND RICHARD SHAPERO AND RICHARD SHAPERO AND CARL D. FREDERICK v. WO SIN CHIU; KENNY H. BAKER; AND AUTO-OWNERS INSURANCE COMPANY
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RENDERED: July 16, 2004, 2:00 p.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-000124-MR
KENNETH H. BAKER
AND WO SIN CHIU
v.
APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JUDITH E. MCDONALD-BURKMAN, JUDGE
ACTION NO. 98-CI-006240
CARL FREDERICK AND
RICHARD SHAPERO
APPELLEES
AND
NO. 2003-CA-000139-MR (CROSS-APPEAL)
RICHARD SHAPERO AND
CARL D. FREDERICK
v.
CROSS-APPELLANTS
CROSS-APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JUDITH E. MCDONALD-BURKMAN, JUDGE
ACTION NO. 98-CI-006240
WO SIN CHIU; KENNY H. BAKER;
AND AUTO-OWNERS INSURANCE COMPANY
CROSS-APPELLEES
OPINION
AFFIRMING ON DIRECT APPEAL (NO. 2003-CA-000124-MR)
AND VACATING AND REMANDING ON CROSS-APPEAL
(NO. 2003-CA-000139-MR)
** ** ** ** **
BEFORE:
GUIDUGLI, JOHNSON AND MINTON, JUDGES.
GUIDUGLI, JUDGE.
This appeal and cross-appeal arise from the
Jefferson Circuit Court’s December 17, 2002, Findings of Fact,
Conclusions of Law and Judgment entered following a bench trial
regarding the enforcement of an attorney’s lien.
Wo Sin Chiu
(hereinafter “Chiu”) and Kenneth H. Baker (hereinafter “Attorney
Baker”) have directly appealed from the judgment, asserting that
the lien should not be enforced and that the attorneys who filed
the lien are not entitled to a fee.
Richard Shapero
(hereinafter “Attorney Shapero”) and Carl Frederick (hereinafter
“Attorney Frederick”) have cross-appealed from the same
judgment, arguing that they were entitled to the contracted-for
fee, which was higher than that which the trial court awarded.
Having reviewed the parties’ arguments in their briefs and at
oral argument, the record and the applicable law, we must affirm
on the direct appeal and vacate and remand on the cross-appeal.
We shall first briefly summarize the facts underlying
these appeals.
On March 27, 1998, Chiu was involved in a motor
vehicle accident when the vehicle he was driving was hit by a
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car driven by James H. Dennison III.
Chiu sustained serious
injuries, and was hospitalized for fifteen days.
During his
hospital stay, Chiu retained the services of Attorney Shapero,
who had also been retained to represent the interests of Chiu’s
passenger, David Detrana.
The Employment Agreement Chiu signed,
with his sister as a witness, indicated that Attorney Shapero
would represent him on a 40% contingency fee basis.
Attorney
Shapero referred Chiu’s case to Attorney Frederick, who shortly
thereafter began to work on the case.
A month later, Chiu,
apparently dissatisfied that his case was being shuffled from
attorney to attorney, sought and retained new legal counsel, and
discharged Attorney Shapero and Attorney Frederick.
Attorney
Frederick persuaded Chiu to resume representation from him a few
days later.
Under Attorney Frederick’s supervision, attorney
Paul Hershberg began much of the legwork in the investigation of
Chiu’s case.
During this time, Attorney Frederick received a
letter from Allstate Insurance Company, the primary liability
carrier, tendering policy limits of $25,000 for Chiu’s bodily
injury claim.
Contact had also been made with Auto-Owners
Insurance Company (hereinafter “Auto-Owners”) to notify it
regarding the $25,000 settlement offer from Allstate and to pay
policy limits on Chiu’s underinsured motorist claim.
Two months after returning to Attorney Frederick’s
representation and apparently still dissatisfied with the
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shuffling of his case, Chiu retained Attorney Baker, whose fee
would be one-third of any recovery Chiu received.
Chiu
eventually received $10,000 in PIP benefits as well as the
$25,000 to settle his bodily injury claim.
After filing suit,
Auto-Owners agreed to settle the underinsured claim for the
policy limits of $150,000.
Upon their discharge, Attorney Frederick and Attorney
Shapero filed an attorney lien to protect their right to collect
a fee from Chiu’s recovery.
Once the case was settled, they
sought and were granted leave to file an Intervening Petition to
enforce their lien and collect 40% of Chiu’s recovery.
Auto-
Owners also filed a motion to recover the $25,000 held in escrow
that it had advanced to Chiu so that it could protect its
subrogation rights.
A bench trial on the attorney lien
enforcement was held over three days on April 26, July 2, and
August 9, 2002.
In their post-trial brief, Attorney Frederick
and Attorney Shapero argued that they were entitled to 33 1/3%
of the $175,000 recovery, as Attorney Baker had added no real
value to Chiu’s recovery.
On the other hand, Attorney Baker
argued that Chiu’s former attorneys did not have a valid and
enforceable fee agreement with Chiu, and that in any event Chiu
discharged them for cause, eliminating their right to recover a
fee.
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On December 17, 2002, the trial court entered its
Findings of Fact, Conclusions of Law and Judgment.
Its factual
findings were as follows:
Chiu1 sustained extensive injuries from
an auto collision on March 27, 1998. He
remained in the hospital for fifteen (15)
days, seven (7) of those in intensive care.
Shapero received a call that Chiu
wished to retain his services; a paralegal
was sent to the hospital to secure Chiu’s
signature on an Employment Agreement.
Though Chiu’s sister, Yuen Chiu denies
initiating the contact, she signed the
Agreement and assisted her brother in
signing it as well. (Respondent’s Exhibit
2). This occurred on April 1, 1998.
On May 7, 1998, Chiu discharged Shapero
and Frederick to hire other counsel
(Respondent’s Exhibit 5). Then on May 11,
1998, Chiu discharged other counsel and
returned to Shapero and Frederick for
representation. Thereafter, on July 14
1998, Chiu again discharged Shapero and
Frederick (Chiu Exhibit 8) and engaged the
services of Kenneth Baker (Chiu Exhibit 7).
A review of the testimony and exhibits
indicate[s] that Shapero and Frederick
rendered services to Chiu including the
following:
1.
April 22, 1998 – Letter to AutoOwners demanding PIP benefits;
2.
April 27, 1998 – Investigation
into rental car issue;
3.
April 30, 1998 – Letter to AutoOwners to notify of underinsured
claim;
1
We have corrected the spelling of Chiu’s name throughout the trial court’s
judgment.
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4.
Investigation of possible product
liability claims; hired a
professional engineer; viewed
scene and inspected Chiu’s
vehicle;
5.
Set up and conducted police
interviews;
6.
May 8, 1998 – Letter to Allstate
demanding replacement vehicle;
7.
May 15, 1998 – Letter to AutoOwners requesting lump sum No
Fault payment for lost wages;
requesting Allstate pay the
property damage part of the claim;
8.
May 15, 1998 – Letter to Allstate
requesting policy limits payment
($25,000.00). Determined AutoOwners underinsured coverage was
$150,000.00;
9.
Represented Chiu’s father
regarding a rental car;
10.
June 30, 1998 – Letter to Allstate
(enclosing Chiu’s medical records)
demanding limits of $25,000.00;
11.
July 6, 1998 – Discussion with
Allstate (demand again);
12.
July 9, 1998 – Allstate agrees to
pay its $25,000.00 policy limit;
13.
July 9, 1998 – Letter to AutoOwners inquiring as to its
subrogation interest.
Thereafter, on July 14, 1998, Chiu
discharges counsel via letter (Intervening
Petitioners Exhibit 31) without addressing
specific reasons. Frederick then notified
Allstate, counsel for Auto-Owners, and Baker
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of his and Shapero’s attorneys lien on the
proceeds of any recovery.
Chiu’s major complaint in this case was
his feeling that he was “shuffled from
attorney to attorney to attorney.”
The services Baker provided Chiu from
July 14, 1998 to early 2000 are outlined in
Baker’s Itemization of Work attached as
Exhibit 2 to his Memorandum. Included in
the services are investigation by accident
reconstructionists and a seat belt expert,
preparation and filing of Complaint and
discovery normally conducted in such cases.
The trial court first addressed the legality of the Employment
Agreement, noting that the allegation of unethical solicitation
was not developed before finding the agreement to be valid and
enforceable at least as of May 11, 1998.
The trial court then
held that Attorney Shapero and Attorney Frederick were not
discharged for cause, and that they were entitled to a fee
pursuant to LaBach v. Hampton, Ky.App., 585 S.W.2d 434 (1979).
Based upon the recovery obtained for Chiu, the trial court
awarded Shapero and Frederick 25% of the $25,000 payment from
Allstate and 12.5% of the $150,000 settlement with Auto-Owners
for a total fee of $25,000.
The trial court also addressed
Auto-Owners’ motion for the release of its escrowed funds,
finding that its agreement with Chiu and Attorney Baker to
indemnify it of attorney lien claims from Attorney Shapero and
Attorney Frederick did not absolve it of its duty to honor their
lien.
Therefore, the trial court denied Auto-Owners’ motion to
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release the $25,000 in escrow.
This appeal and cross-appeal
followed.
On direct appeal, Chiu and Attorney Baker argue that
the circuit court erred in awarding fees despite Attorney
Shapero’s and Attorney Frederick’s violations of the Rules of
Professional Conduct, in finding that they were not discharged
for cause, and in finding that they were entitled to receive a
fee for the underinsured motorist settlement.
In their
responsive brief, Attorney Shapero and Attorney Frederick point
out that Chiu and Attorney Baker limit their arguments to their
disagreement with the trial court’s factual findings.
However,
they argue that the trial court’s factual findings are not
clearly erroneous and should not be set aside.
On cross-appeal,
Attorney Shapero and Attorney Frederick argue that they are
entitled to their contracted-for fee, less a reasonable cost for
the successor counsel, although they assert that Attorney Baker
added no value to Chiu’s case.
In total, they request a
judgment against Attorney Baker and Auto-Owners in the amount of
$58,327.50, subject to a credit for the funds held in escrow,
along with interest and court costs.
Our standard of review in this case is enunciated in
CR 52.01, which provides, in pertinent part:
In all actions tried upon the facts
without a jury or with an advisory jury, the
court shall find the facts specifically and
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state separately its conclusions of law
thereon and render an appropriate judgment.
. . . Findings of fact shall not be set
aside unless clearly erroneous, and due
regard shall be given to the opportunity of
the trial court to judge the credibility of
the witnesses.
In utilizing this standard of review, the Supreme Court of
Kentucky has held:
[F]or purposes of appellate review, a
finding of fact of a trial judge ranks in
equal dignity with the verdict of a properly
instructed jury, i.e., if supported by
substantial evidence, it will be upheld,
otherwise, it will be set aside as “clearly
erroneous” . . . In this jurisdiction,
“substantial evidence” means evidence of
substance and relevant consequence having
the fitness to induce conviction in the
minds of reasonable men. . . . Thus, even
though the decision of the trial judge is
accorded presumptive correctness on appeal,
the appellate court still must review the
evidence to determine whether that decision
was clearly erroneous.
Owens-Corning Fiberglas Corp. v. Golightly, Ky., 976 S.W.2d 409,
414-15 (1998)(Citations omitted).
Once the trial court makes
appropriate factual findings, those facts must be considered in
light of the applicable law.
Pursuant to Sherfey v. Sherfey,
Ky.App., 74 S.W.3d 777, 782-83 (2002), the resulting decision,
will not be disturbed unless it constitutes
an abuse of discretion.[] “‘Abuse of
discretion in relation to the exercise of
judicial power implies arbitrary action or
capricious disposition under the
circumstances, at least an unreasonable and
unfair decision.’” . . . “The exercise of
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discretion must be legally sound.”[]
(Footnotes omitted.)
We shall now review the trial court’s judgment with this
standard in mind.
As to the trial court’s findings of fact, we must hold
that there is substantial evidence in the record to support the
factual findings, and that as such those findings are not
clearly erroneous.
It is apparent from the record that the
trial court had to examine very contradictory testimony and make
its findings based upon the credibility of the witnesses.
However, it is the province of the trial court in matters tried
without a jury to determine witness credibility and make
appropriate findings.
CR 52.01.
In the present matter, these
findings relate to the improper solicitation issue, which the
trial court ultimately found was not sufficiently developed to
support a finding of improper action, and to whether Attorney
Shapero and Attorney Frederick were discharged for cause.
The
trial court chose to rely upon Attorney Shapero’s testimony that
someone had contacted his office regarding representation,
despite Chiu’s sister’s testimony that neither she nor any
member of her family called Attorney Shapero’s office.
Furthermore, Chiu himself testified that he did not make his
complaints known to either Attorney Shapero or Attorney
Frederick, and that his only real complaint was that his case
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was not being handled by one attorney.
Based upon our review of
the record in conjunction with the trial court’s judgment, we
must hold that the trial court’s findings are not clearly
erroneous.
We must also hold that the trial court did not abuse
its discretion in applying the applicable law to its findings.
Attorney Baker and Chiu first argue that the trial court erred
in awarding fees despite improper client solicitation.
This
argument is based upon SCR 3.130, Rule 7.09(1), which provides,
“[n]o lawyer directly or indirectly through another person
shall, in-person or by live telephone, initiate contact or
solicit professional employment from a prospective client with
whom the lawyer has no family or direct prior professional
relationship.”
If illegal or unethical solicitation is
established, all fees are deemed waived and are forfeited.
3.130, Rule 7.10.
SCR
However, Attorney Baker and Chiu’s argument
as to this issue must fail because we have already determined
that the trial court’s finding that no improper solicitation
took place is supported by substantial evidence.
Attorney Baker and Chiu next argue that the trial
court erred in finding that the dismissal of Attorney Shapero
and Attorney Frederick was not for cause.
Although we agree
that “the client has the right to discharge his attorney at any
time, with or without cause,” Henry v. Vance, 111 Ky. 72, 63
-11-
S.W. 273, 276 (1901), Chiu’s proffered reason, that he felt he
was being shuffled from attorney to attorney, is clearly not
enough to make the discharge for cause.
In addition, Attorney
Baker and Chiu continue to advance as grounds for this argument
that there was improper solicitation, that Attorney Shapero’s
Employment Agreement did not include Attorney Frederick’s name,
and that there was improper contact with Chiu after the first
discharge.
We must agree with the trial court that there was no
violation of SCR 3.130 Rule 1.5, which concerns, in part, the
splitting of fees between attorneys in different firms.
Attorney Shapero’s Employment Agreement states that other
attorneys would be working on the case, and Attorney Frederick
immediately introduced himself to Chiu as one of the attorneys
who would be working on his case.
Likewise, we agree that there
was no violation of SCR 3.130 Rule 7.09(2)(a), which prohibits
an attorney from soliciting a client when that client has made
it known that he does not wish to be solicited by that attorney.
Although Chiu did discharge Attorney Shapero and Attorney
Frederick, the record does not reflect that he at any time
indicated that he did not wish to be contacted by them.
Therefore, we hold that the trial court’s findings of
fact were supported by substantial evidence and that it did not
abuse its discretion in determining that Attorney Shapero and
Attorney Frederick were entitled to recover attorney fees.
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On cross-appeal, Attorney Shapero and Attorney
Frederick argue that they were entitled to the full amount of
the fee they contracted for, which they then limited to
$58,327.50, equaling the one-third fee Attorney Baker collected.
In its judgment, the trial court relied upon this Court’s
holding in LaBach v. Hampton, Ky.App., 585 S.W.2d 434 (1979),
which provides that fees in such cases should be determined on a
quantum meruit basis.
The LaBach Court cited the earlier
decision in Henry v. Vance, 63 S.W. at 276, in stating that “the
recovery should be the amount of the contingent fee ‘less such
proportion of that sum as is reasonably represented by the labor
and attention and expense that would have been required of
plaintiffs to complete their undertaking, but which they did not
do.’”
LaBach, 585 S.W.2d at 436.
The LaBach Court concluded,
“our courts have used the term quantum meruit to indicate that
the discharged attorney cannot rely upon the contract to collect
a full fee but must deduct from the contract fee the reasonable
cost of services of other attorneys required to complete the
contract.”
Id.
In the present matter, the trial court properly stated
that it was relying upon the holding in LaBach and determined
that Attorney Shapero and Attorney Frederick were entitled to a
fee.
However, the trial court failed to completely follow
LaBach and award them the requested fee, less the value Attorney
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Baker added to the case.
Instead, the trial court relied in
part upon Attorney Frederick’s admission at the hearing that
they most likely would have reduced their contracted-for 40% fee
to a 25% fee, and awarded them a fee of $25,000, representing
25% of the $25,000 recovery from Allstate and 12.5% of the
$150,000 recovery from the UIM claim.
Therefore, we must hold
that the trial court abused its discretion in awarding a fee of
$25,000 without first having held a hearing to determine the
value of the services Attorney Baker provided, which would then
be deducted from the fee2 Attorney Shapero and Attorney Frederick
have claimed.
Although this issue was argued in the briefs, we
shall allow the trial court to make its own determination as to
what value Attorney Baker’s services added to Chiu’s recovery,
if any.
We further note that because Attorney Shapero and
Attorney Frederick are asserting that Attorney Baker added no
value to Chiu’s recovery, the burden will be upon Attorney Baker
to establish the worth of his services.
Lastly, Attorney Shapero and Attorney Frederick state
in the conclusion of their brief that they are entitled to a
judgment against Auto-Owners as well as Attorney Baker, with a
credit for the $25,000 held in escrow.
2
Obviously, the trial
We note that in their brief, Attorney Shapero and Attorney Frederick have
claimed that they are entitled to the one-third contingency fee Attorney
Baker received, while at the hearing they indicated that they would most
likely have reduced their contracted for 40% contingency fee to a 25%
contingency fee.
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court’s ruling on this matter, in which Auto-Owners’ motion to
release the funds to it was denied, shall stand as Auto-Owners
did not perfect an appeal as to that ruling.
At this point, we
shall decline to alter the trial court’s ruling in this regard
as Attorney Shapero and Attorney Frederick were awarded a
judgment against Attorney Baker and Chiu for the fee awarded on
their attorney lien.
For the foregoing reasons, the Jefferson Circuit
Court’s Findings of Fact, Conclusions of Law and Judgment is
affirmed in part as to the direct appeal and vacated in part and
remanded as to the amount of the fee awarded in the crossappeal.
ALL CONCUR.
BRIEF FOR AND ORAL ARGUMENT
APPELLANTS/CROSS-APPELLEES:
BRIEF AND ORAL ARGUMENT FOR
APPELLEES/CROSS-APELLANTS:
Kenneth Baker
Louisville, KY
Peter L. Ostermiller
Louisville, KY
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