Case Title: Schroeder v. Schaefer

Citation: 477 P.2d 720

Docket Number: 

State: oregon

Court: Oregon Supreme Court

Date: 1970-12-09T00:00:00Z

Document:
477 P.2d 720 (1970)
W.F. SCHROEDER and D.S. Denning, Jr., S. Ben Dunlap, Herbert W. Rettig and Richard Rosenberry, Respondents,
v.
Elizabeth Rose SCHAEFER and Dennis Schaefer, Appellants.

Supreme Court of Oregon.
Argued and Submitted May 4, 1970.
Decided December 9, 1970.
Harold A. Fabre, Pendleton, argued the cause for appellants. On the brief were Fabre & Ehlers, Pendleton.
W.F. Schroeder, Vale, argued the cause for respondents. With him on the brief were D.S. Denning, Jr., Vale, Or., S. Ben *721 Dunlap, Herbert W. Rettig, and Richard Rosenberry, Caldwell, Idaho.
Before McALLISTER, P.J., and SLOAN,[*] O'CONNELL, DENECKE, HOLMAN, TONGUE and HOWELL, JJ.
Argued and Submitted at Pendleton May 4, 1970.
HOLMAN, Justice.
This was a suit brought to secure a judgment on a contract for attorneys' fees and to foreclose an attorney's lien on real property. Defendants have appealed from a decree of the trial court awarding judgment to plaintiffs in the sum of $31,275 and foreclosing the lien in that amount upon the real property of defendants.
The defendant Elizabeth Rose Schaefer was the youngest daughter of Tom Bailey, who died a resident of Idaho and who left an estate in both Idaho and Oregon. The defendant Dennis Schaefer is her husband. Mr. Bailey and his wife had executed identical wills, without any disclaimer that they were reciprocal, which left all of their property to the other, and to their five living children and the descendants of a deceased child in six equal shares upon the death of the survivor. Mrs. Bailey predeceased Mr. Bailey. Subsequent to her death, Mr. Bailey executed a new will in which he left to Mrs. Schaefer extensive Oregon real estate which constituted the largest part of his estate. The balance was left to his heirs in six equal shares as before.
Some of the heirs instituted a suit against the executrix and the Schaefers to invalidate the will. This suit subsequently became two suits: one asserting a breach by Mr. Bailey of a contract between him and his wife to leave wills treating the children equally; and the other asserting that Mr. Bailey was mentally incapacitated at the time of the execution of the will.
The will had been drawn by Dunlap, Rettig and Rosenberry, a firm of Idaho lawyers who are among the plaintiffs in the present case. They represented the executrix in the probate of the will in Idaho. Ancillary probate was commenced in Oregon by the same executrix in which she was represented by an Oregon lawyer. The litigation to invalidate the will was also commenced in Oregon, presumably, because this was the situs of the real property which was the subject of the specific devise to Mrs. Schaefer.
In the meantime, the Idaho firm of attorneys had been representing Mr. and Mrs. Schaefer in various matters. Mr. and Mrs. Bailey had deeded to Mrs. Schaefer other property in Idaho in which they reserved a life estate. The Idaho firm brought a statutory proceeding to establish the death of the Baileys and to clear Mrs. Schaefer's title to the property. They were negotiating a lease for the Schaefers on part of this property. They represented them also in an action on a check which the Schaefers had received from one of Mrs. Schaefer's brothers and which represented the purchase price of some horses belonging to Mrs. Schaefer. Admittedly, an attorney-client relationship existed between the Idaho firm and the Schaefers at the time of the commencement of the litigation to invalidate the will.
After the litigation concerning the will was filed, the Idaho attorneys informed the Schaefers of it, and told them that they, together with the lawyer for the Oregon estate, were representing the executrix in the defense of the litigation. The Schaefers, by telephone, asked the Idaho firm to do whatever was necessary to protect their interests. No agreement was made at that time, however, concerning fees. Shortly thereafter, the Idaho firm wrote to the Schaefers and suggested the hiring of the other plaintiffs, Schroeder and Denning, a firm of Oregon lawyers, to represent the Schaefers in the will litigation in Oregon. The Schaefers acceded to this, and a fee was subsequently negotiated by the Idaho firm which was to be paid by the Schaefers to the Oregon firm. The fee was contingent upon the *722 successful defense of the specific devise and was 25% of the value of the Oregon real estate specifically devised to Mrs. Schaefer, plus 25% of the income she actually received therefrom during the periods of probate and litigation. The Oregon and Idaho firms had an agreement that any fee which was received for the defense of the law suits by the Oregon firm would be divided equally between them.
The two cases contesting the validity of the will were subsequently consolidated for trial. They were tried in two days' time in Malheur County, Oregon, and resulted in the will's being upheld. Thereafter, there was a lapse of a long period of time during which both the Idaho and Oregon firms attempted to secure the distribution of Mr. Bailey's Oregon estate and to exempt the income of the specifically devised real property from the cost of administration and the taxes upon the estate. In June 1967, prior to the settlement of the estate, a new arrangement was entered into between the Oregon attorneys and the Schaefers for the dollar value of the fees which would be paid to the Oregon firm for the successful defense of the litigation. It set the fees at $31,275, which was 25% of the value at which the Oregon real estate devised to Mrs. Schaefer was appraised in Mr. Bailey's estate. It also set a specific amount for the work thus far done in attempting to salvage the income from the devised property and in attempting to secure an order of distribution. It set an hourly fee for further services in this connection. The Oregon lawyers waived any interest in the income from the specifically devised property accruing during litigation or probate. All sums have been paid under that agreement except for the amount of $31,275.
Defendants contend the original agreement with the Oregon lawyers for fees was not valid. They claim that the Idaho attorneys made misrepresentations to them and failed to disclose relevant information to them. They also claim the fee was exorbitant.
We will dispose of some of the issues summarily. First, there is no basis in the evidence for the defendants' contention that the seriousness of the litigation was overemphasized to them. Neither do we believe there is any basis for the defendants' complaint that the possibility of a set fee, rather than of a contingent fee, was not discussed with them. The Idaho attorneys and the defendants were aware, because of the past dealings between them, that the defendants were familiar with the set and contingent methods of hiring attorneys. The evidence also indicates that defendants were without ready funds with which to pay a set fee of the size that could be anticipated for the type of litigation involved. We conclude also that the amount of the fee alone is not per se unconscionable.
Defendants' other contentions concerning misrepresentation and withholding information are not so easily disposed of. Defendants contend the fee was represented to them as being under that normally required in cases of this kind by the provisions of the Oregon State Bar Schedule of Minimum Fees and that this representation was not true. In addition, they also assert they were not told by the Idaho firm that it had a 50% interest in the fee they were negotiating for the Oregon firm.
All agree that at the time of the negotiations, the relationship of attorney and client existed between the defendants and the Idaho firm. Such a relationship existed not only because of unrelated business but because the Idaho firm had undertaken to protect the Schaefers' interest in the present case. The Oregon attorneys had no part in negotiating with the defendants for the fee. After consulting with the Idaho firm concerning a fee which they considered to be reasonable, the Oregon lawyers left to the Idaho firm all negotiations with the defendants concerning compensation.
Before considering the evidence, we will review the law relative to a lawyer's *723 duty to a client when advising the client concerning a subject matter in which the lawyer has an interest. The following language from Allstate Insurance Company v. Keller, 17 Ill. App.2d 44, 149 N.E.2d 482, 486 (1958) is appropriate:
Also, the following language is found in canon number six of the American Bar Association Canons of Professional Ethics:
While the illustration given in the canon concerns the attorney acting for the conflicting interest of a third party, the language is equally applicable where the lawyer is acting in his own interests.
The majority rule is that a fee contract may be made between an attorney and his then-client. However, in such circumstances, the lawyer has the burden of showing that he used no undue influence, made no misrepresentation, and that he gave his client all of the information necessary to a fair decision by the client. See cases cited in Annotation entitled Validity and Effect of Contract for Attorneys' Compensation made after Inception of Attorney-Client Relationship, 13 A.L.R.3d 701, 731 (1967). It is clear that if misrepresentations were made as to the propriety or usualness of the fee, or if the Idaho firm did not inform the Schaefers that they had an interest in the fee which they were negotiating with the Schaefers for the Oregon firm, the standards of conduct for an attorney as above set forth were not complied with.
We will now review the evidence, most of which was written corespondence, in an attempt to apply the above rules to it. Both the Idaho firm and the Schaefers were aware that litigation of some kind to invalidate the effect of the will was imminent. One of the heirs had called the Schaefers and had asked if they would consent to setting the will aside. A lawyer for one of the heirs had been to see the Idaho firm concerning the circumstances surrounding the execution of the will which the Idaho firm had drawn.
Prior to the filing of the litigation questioning the will, the Idaho firm had written to the Schaefers concerning the collection of the check which had been given to the Schaefers by another of the heirs in payment for horses belonging to Mrs. Schaefer:
After the litigation challenging the will had been filed in Oregon, the Idaho firm wrote to the Schaefers, as follows:
Subsequent to this communication, there was a telephone conversation between the Idaho firm and the Schaefers. Mr. Schaefer told the Idaho firm to "* * * do whatever has to be done to keep it [the will] from being broken * * *." Thereafter, a member of the Idaho firm wrote to the Schaefers:
There then was the following exchange:
Letter to Idaho firm from Schaefers:
Letter to Schaefers from Idaho firm:
Subsequently, the Idaho firm wrote to the Schaefers a long, three-page letter, reviewing a hearing on preliminary matters that transpired in the Oregon litigation and *725 the firm's participation therein in which "our opponents" are mentioned. Then there is the first mention of a fee.
The Schaefers accepted the proposal, as follows:
Accompanying this letter was a note from Mrs. Schaefer, telling about a conversation concerning the property which she had had with her parents prior to their death. The contract, drawn as proposed, was then forwarded to the Schaefers with the following letter from the Idaho firm.
The contract was signed and returned to the Idaho firm by the Schaefers.
It is our conclusion from the foregoing evidence that the Idaho firm did not make a full and complete disclosure required of their fiduciary relationship with the Schaefers. The correspondence is ambiguous because it was known by all that the Idaho firm was representing the executrix in contesting the litigation. There is nothing that makes it clear to the Schaefers that the Idaho firm was acting as attorneys in the litigation for the Schaefers in addition to acting as counsel for the executrix and, therefore, would expect to have an interest in the fee which they were negotiating for the Oregon firm. The fee arrangement was held out to the Schaefers as an advantageous one. It may have been. However, in judging the extent to which they could rely on that recommendation and in deciding whether they should seek a more advantageous arrangement, the Schaefers were entitled to know of the Idaho firm's interest in the contract which it was recommending. In addition, in judging whether they would accept the Idaho firm's assessment of Mr. *727 Schroeder's ability, the defendants were entitled to consider whether the recommendation stemmed from the fact that the Idaho firm had a fee arrangement with him or whether this was their actual assessment of his ability. Mr. Schaefer, on cross-examination, testified as follows:
We do not believe that the plaintiffs carried their burden of demonstrating that such was not the case.
In view of our conclusion, it is unnecessary to decide whether the recommended contingency rates specified in the Oregon State Bar Minimum Fee Schedule were intended to apply to the defense of cases of the present kind and thus whether a misrepresentation in this respect was made to the Schaefers.
The foregoing determination does not completely solve the problem. After approximately 2 1/2 years of attempting unsuccessfully to prevail upon the attorney probating the Oregon estate to set aside to the Schaefers the considerable income from the real property specifically devised to Mrs. Schaefer, a new contract for attorneys' fees was entered into between the Oregon firm and the Schaefers. This contract is the basis for the present suit. The plaintiffs contend that any deficiency in the Schaefers' knowledge of the Idaho firm's interest is now irrelevant because the Schaefers entered into the second agreement with knowledge that the Idaho firm had an interest in the fee which the agreement covered.
The evidence discloses that at the time of the second agreement, the Schaefers, beyond any doubt, were aware that the Idaho firm had an interest in the Oregon firm's fee. A mortgage had been submitted to the Schaefers for their signature, the purpose of which was to secure the fee. This mortgage named as mortgagees both the Oregon and Idaho attorneys. The Schaefers declined to sign the mortgage until there was an order of the court distributing the property to them and because they thought that they could borrow money at a cheaper rate of interest than the instrument provided. The defendants contend that the second agreement was no better than the first unless the Schaefers were aware at the time of the second agreement that they were entitled to have the first agreement invalidated.
The evidence discloses that when the Schaefers were sent the mortgage, which they refused to sign, they took it to a lawyer in South Dakota and discussed with him the propriety of the fee and whether the mortgage should be signed. The lawyer told them not to sign the mortgage until the real property had been distributed to them and, in addition, he told them that he could not advise them on the propriety of the fee because he was not familiar with the Oregon fees, law or procedure applicable to the litigation. There was no indication that there was any discussion with the lawyer concerning the effect of the Idaho firm's failure to disclose their interest in the fee or that the lawyer was even aware that such was the case. When the second contract was sent to the Schaefers for their signature, they were invited to take it to their South Dakota lawyer and to discuss it with him, but they did not do so.
We hold that the second agreement is no better than the first, absent a showing that at the time the second agreement was entered into the Schaefers were aware of the original agreement's vulnerability. *728 There is no such proof and the burden of so proving is upon the plaintiff.
The facts in this case are similar to those in the case of Boyle v. Beltzhoover, 119 W. Va. 626, 196 S.E. 503 (1938). Boyle hired Beltzhoover, an attorney, to assist him in the reorganization of a venture to operate a race track. After the enterprise was embarked upon, they entered into a contract for Beltzhoover's compensation which resulted in an agreement to transfer to Beltzhoover stock in the enterprise. The contract was not enforceable by Beltzhoover because of advantage taken by him of his position as Boyle's attorney. Boyle brought a suit to recover the stock and Beltzhoover contended that Boyle had subsequently ratified the transaction by issuing the stock to him. The court rejected the contention with the following language:
The burden was upon plaintiffs in the instant case to show that the Schaefers realized the weakness of the original contract at the time they entered into the second agreement. We do not believe such a burden was carried.
This opinion is without prejudice to the rights, if any, which the plaintiffs may have to recover upon quantum meruit.
The judgment of the trial court is reversed.
[*]  SLOAN, J., resigned September 30, 1970.