Title: Continental Cas. Co. v. Knowlton

State: minnesota

Issuer: Minnesota Supreme Court

Document:

232 N.W.2d 789 (1975) CONTINENTAL CASUALTY CO., Respondent, v. Clair E. KNOWLTON, Appellant, James G. Paulos, Respondent. James G. PAULOS, Third-party Plaintiff-Respondent, v. Clair E. KNOWLTON, Third-party Defendant-Appellant. No. 45172. Supreme Court of Minnesota. August 22, 1975. *791 Thiel, Sorenson & Hansing and Russell A. Sorenson, Minneapolis, for appellant. James G. Paulos, pro se. Heard before SHERAN, C. J., and MacLAUGHLIN and KNUTSON, JJ., and considered and decided by the court en banc. KNUTSON, Justice.[*] Clair E. Knowlton is designated in the briefs submitted here as defendant appellant and as appellant third-party defendant. For clarity, we will refer to him by his name, Knowlton. This is an appeal by Knowlton from a judgment and an order denying his motion for amended findings of fact and conclusions of law or, in the alternative, for a new trial. Prior to June 4, 1966, Knowlton was employed as a systems management engineer by Control Data, Inc. On that date, he was involved in an automobile accident in which, he contends, he was totally disabled. At the time, Control Data carried a group disability income benefit policy with plaintiff, Continental Casualty Company, herein Continental. Control Data also carried a group health insurance policy with Northwestern National Life Insurance Company, but liability under that policy is not involved in this appeal. After the accident, Knowlton submitted claims to both insurance companies without the assistance of counsel. Benefits were denied by Continental apparently on the grounds that Knowlton was not totally disabled and that he had failed to comply with policy provisions. Thereafter Knowlton contacted James G. Paulos, an attorney at law, designated herein as respondent defendant and as respondent third-party plaintiff. He will be referred to hereafter as Paulos. Knowlton and Paulos then executed a contract providing for a contingent fee of 40 percent. An action was brought against General Motors Corporation alleging negligence in the manufacture of the car driven by Knowlton at the time of the accident. Other actions were brought against Knowlton for medical and hospital bills, all of which were disposed of with the assistance of Paulos. The outcome of these actions is not of any material importance in this appeal. After denial of liability by Continental, Paulos, on behalf of Knowlton, commenced an action for benefits against that company on the policy of insurance carried by Control Data. After trial by jury, judgment was ordered in favor of Knowlton. However, the trial court thereafter granted Continental a new trial. Prior to the new trial, a settlement was effected between Knowlton, represented by Paulos, and Continental. A release was signed under the terms of which Knowlton was to receive a lump-sum settlement of $28,386.01 for all claims and benefits accruing prior to November 15, 1972. Knowlton thereupon executed *792 a release dated November 15, 1972, which reads as follows: The action was then dismissed with prejudice. Pursuant to this release, a check was issued by Continental, payable jointly to Knowlton and Paulos, for $28,386.01. It was endorsed by both Knowlton and Paulos and deposited in Paulos' trust account. Paulos thereafter remitted a check to Knowlton in the sum of $16,167.46, representing 60 percent of the face amount of the settlement, less costs and disbursements. Knowlton kept the check but has not negotiated it. On November 27, 1972, Paulos advised Continental that he was entitled to 40 percent of each future benefit check due Knowlton under the policy and asked that the checks be made payable to them jointly. Continental complied, issuing checks totaling $3,344.60, which represented monthly payments of $477.80 for the period from November 15, 1972, to June 15, 1973. Knowlton refused to endorse these checks. Continental sent inquiries to Knowlton, which went unanswered. It then commenced this action for a declaratory judgment to determine to whom it should make future payments. After trial without a jury, the court made findings and conclusions and ordered judgment declaring that Paulos was entitled to 40 percent of all future disability payments and requiring Continental to divide all future payments so as to pay 40 percent directly to Paulos and *793 60 percent to Knowlton. This appeal followed. The questions involved are (1) whether the trial court's finding of fact to the effect that the contingent fee contract between Knowlton and Paulos provided that Paulos was to receive 40 percent of all sums collected from Continental in connection with any claim under the disability insurance policy is clearly erroneous; (2) whether the trial court erred in failing to hold the contract void as overreaching and unconscionable; and (3) whether the trial court erred in holding that the contract was not barred by Minn.St. 550.39. 1. At the outset, it will be noted that Knowlton has conceded that Paulos was entitled to 40 percent of the settlement for which the release quoted above was issued. So, the only thing involved as far as Paulos' compensation is concerned is whether he is entitled to 40 percent of the monthly payments coming due after the settlement. In appellant's brief, we find the following: In a subsequent summary, we find the following: Conclusion of law No. 2 reads: The construction of this contingent fee contract, therefore, is the main issue in litigation and on this appeal. The fee contract between Knowlton and Paulos was a preprinted contract with blanks filled in by the parties. It reads: *794 The two phrases in the contract requiring construction are: (1) "for his services rendered and to be rendered pursuant to this retainer and employment," and (2) "40% of any sum * * * which I shall recover * * * on my said claim and cause of action * * * or which I shall receive in settlement thereof." Knowlton contends that this latter phrase should be interpreted to mean that Paulos is entitled to 40 percent of the lump-sum settlement paid as a result of the release signed by Knowlton. Paulos, on the other hand, contends that the contract should be construed so that he is entitled not only to 40 percent of the lump-sum settlement, but also to 40 percent of all monthly benefit payments made to Knowlton as a result of his permanent disability claim without limitation. The trial court agreed with Paulos and construed the contract as follows: The trial court considered the question of construction of this contract to be one of fact. Ordinarily, construction of a contract for compensation of an attorney is treated no differently in this regard than is any other contract. In the case of Holt v. Swenson, 252 Minn. 510, 514, 90 N.W.2d 724, 727 (1958), we said: See, also, In re Estate of London, 218 Minn. 349, 16 N.W.2d 186 (1944). Viewing the evidence in the light most favorable to the findings, as we must, the findings should not be disturbed on appeal by this court unless clearly erroneous. Rule 52.01, Rules of Civil Procedure. While the evidence of intent of the parties is not as clear as we would wish, there is sufficient evidence, including the manner in which the original case was handled and the settlement and the language of the release, *795 from which the court could infer that Paulos was to share in the entire recovery and not only a part of it. Knowlton admitted under cross-examination that he had originally discussed a 45-percent contingent fee with Paulos and, having objected to that fee, signed the contract which provided for a 40-percent contingent fee. He testified that he did have an understanding of the meaning of the contract and understood that Paulos would be entitled to 40 percent of "all returns over and above the contractual liability or obligation of the insurance company." Of course, this claim, as the trial court implicitly found, is hard to accept. When asked how he thought Paulos would be compensated if they lost the action against Continental, Knowlton testified that he thought he would be billed for Paulos' time. The case of Blazek v. North American Life & Cas. Co., 265 Minn. 236, 121 N.W.2d 339, 99 A.L.R.2d 445 (1963), involved a contingent fee contract remarkably similar to the one in the present case. The only question in that case was whether the attorney's charging lien attached to future monthly disability insurance payments as well as to the judgment for back benefits that resulted from the action against the company. Although the construction of the contingent fee contract was not at issue, the court found it necessary to consider the nature of the future benefits in order to decide whether the lien attached to them. In deciding that future benefits were "money or property involved in or affected by any action or proceeding in which [the attorney] may have been employed," the court stated: The case of Van Dale v. Karon, 232 Wis. 27, 285 N.W. 781 (1939), also involved a contingent fee contract very similar to the one in this case. The Wisconsin court, as in Blazek, held the contingent fee contract which provided that counsel would be paid "one third of any sum or sums obtained in settlement or suit on the above claims" applied to future monthly disability benefit payments, stating that the "benefits in question flow from the judgment in favor of the plaintiff which was secured by the defendants." 232 Wis. 33, 285 N.W. 783. We think the same is true here. Establishment of eligibility for monthly disability benefits was the result of successful prosecution of the action against Continental by Paulos, and the trial court was justified in finding that under the contingent fee contract the parties intended the contingent fee would apply to all benefits resulting from the litigation or settlement of the claim against Continental. 2. The next question is whether the contingent fee contract was so unconscionable *796 and overreaching that it should be held to be against public policy. It is true that on the face of it the compensation that will ultimately be received by Paulos seems large. In addition to the 40 percent of the original amount of the settlement, he will receive 40 percent of all future monthly benefit payments, which amounts to approximately $2,300 for each year that Knowlton lives and remains disabled. Knowlton is 47 years of age. His life expectancy is such that this could amount to a sizable sum. However, whether a contract between client and attorney is overreaching and unconscionable is generally a question of fact for the trial court. In the case of Kittler & Hedelson v. Sheehan Properties, Inc., 295 Minn. 232, 203 N.W.2d 835 (1973), we said that the right to enter into fee arrangements with an attorney is protected by Minn.St. 549.01, which provides, in part, that "[a] party shall have an unrestricted right to agree with his attorney as to his compensation for services, and the measure and mode thereof * *." We also stated: We do agree that where a fee contract seems to provide for more than the ordinary charge as does this one, it should be closely scrutinized to see that there is no overreaching. In Kittler, we also said: While there is no evidence in this case that Knowlton was familiar with attorney-client relationships, it is true that he was a college graduate. We must also take into consideration the fact that after the accident in which he was disabled, he brought an action against General Motors Corporation for negligence in the manufacture of the car. He was also sued by the people with whom he collided. Other actions were brought against him by doctors and the hospital where he was treated. Paulos apparently handled all of these matters and was paid nothing for them, so that his whole compensation came out of his recovery against Continental. The burden of proving that a fee charged by an attorney is unconscionable or unreasonable rests upon the party asserting it. In the case of Blazek v. North American Life & Cas. Co., 265 Minn. 236, 241, 121 N.W.2d 339, 343, 99 A.L.R.2d 445, 451, we referred with approval to Van Dale v. Karon, supra, in the following language: *797 It should also be kept in mind that at the time Knowlton was sued by the people with whom he collided, he had no liability insurance. While the record is not clear, we assume he was also financially unable to respond to any damages recovered against him or to pay attorneys fees based upon the time actually spent on all the matters handled for him by Paulos. Thus, a contingent fee contract was his only practical solution. In Hollister v. Ulvi, 199 Minn. 269, 276, 271 N.W. 493, 497 (1937), we said: When we take into consideration all of the work done for Knowlton by Paulos, we conclude that the contract was neither unconscionable nor unreasonable. In Kittler & Hedelson v. Sheehan Properties, Inc. supra, we sought to establish some factors that should be taken into consideration in determining whether a fee is unreasonable. We included the following: In Eriksson v. Boyum, 150 Minn. 192, 197, 184 N.W. 961, 963 (1921), we said: The same is true here. 3. The final question is whether the trial court erred in holding that the contract was not barred by Minn.St. 550.39. That statute reads: While the trial court held that Knowlton was estopped from asserting this statute because he had voluntarily accepted, though never negotiated, a check from Paulos for 60 percent of the lump-sum settlement, we doubt that this conduct could be the basis of an estoppel or a waiver. One can claim an estoppel only if he can show that he was led to change his position to his detriment by the other party's conduct. See, Kavalaris v. Cordalis, 219 Minn. 442, 18 N.W.2d 137 (1945). There is nothing in the record to show that Paulos in any way changed his position as a result of Knowlton's acceptance of the check. Nevertheless, we think the trial court reached the right result. This statute, obviously, should not be construed so as to prevent an attorney from collecting a contingent fee out of *798 the proceeds of insurance which were recovered due to his work and activity. We do not think the legislature so intended the statute, and if that were to be the construction, no attorney would ever undertake litigation involving accident or disability insurance on a contingent fee arrangement. This court has in other areas uniformly held that the lien statutes are to be construed as exceptions to the exemption statutes and that exempt property is nevertheless subject to statutory liens. See, McPherson v. University Motors, Inc., 292 Minn. 147, 193 N.W.2d 616 (1972); Halsey v. Svitak, 163 Minn. 253, 203 N.W. 968 (1925); Flint v. Luhrs, 66 Minn. 57, 68 N.W. 514 (1896). We conclude that this rule should apply as well to an attorney's lien action brought against an insurance company as to any other lien. Affirmed. [*] Retired Chief Justice acting pursuant to Minn.St. 2.724. [1] In the actual contract, a printed figure "331/3%" was scratched out and "40%" was written in in ink.