Opinion ID: 1731936
Heading Depth: 1
Heading Rank: 2

Heading: the fee disbursement issues

Text: In order to understand the respective arguments advanced by the parties concerning the fee allocation, we must understand the relationship between Gardner and LWL & J. In 1977, Gardner was representing plaintiffs, under contingent fee contracts, in four medical malpractice cases. Because Gardner felt he needed help in handling these cases, Gardner made an arrangement with LWL & J pursuant to which Gardner would continue to act as local counsel, while principal responsibility for preparation and trial of the cases was turned over to LWL & J. They agreed to divide whatever fees were earned from these cases. The fee-sharing arrangements between LWL & J and Gardner went through several stages. First, the parties operated under a letter agreement to share fees one-third to Gardner, and two-thirds to LWL & J. In May 1978, Gardner's financial situation worsened and LWL & J began to make advances to Gardner to fund the operation of Gardner's law office. A letter from LWL & J dated June 7, 1978, undertook to state the terms on which these funds were advanced: It is our understanding that this sum... is a demand loan from this firm to your firm. In the event that our respective firms are able to enter an agreement concerning a joint-venture type relationship for the several medical malpractice and personal injury cases for which you have sought our assistance, then these sums mentioned herein shall be considered an advance to you and are to be subtracted from your portion of the attorney fees. Thereafter, LWL & J prepared a comprehensive joint-venture agreement covering the details of their arrangement with Gardner, and sent the final draft to Gardner in September 1980. Under this agreement, Gardner was to devote at least 80% of his total billable time to the joint-venture cases; LWL & J was to fund the operation of Gardner's law office to the extent of approximately $5,500 per month; and Gardner's share of anticipated fees was reduced from one-third to five percent, while LWL & J's share was increased from two-thirds to ninety-five percent. Significantly, the agreement further provided that Gardner was not to repay LWL & J's advances if the joint venture failed to realize a profit. Gardner executed and returned the agreement, although he raised questions as to the ethical propriety of some provisions. While LWL & J never formally executed the agreement, and some provisions remained blank, the record shows both firms operated in accordance with at least some of the agreement's major provisions from June 1978 through November 1978. For example, Gardner devoted substantially all of his time to the joint venture cases and submitted weekly time reports to LWL & J. In turn, LWL & J advanced funds totalling over $38,000 for the operation of Gardner's office in amounts contemplated by the agreement. When the first case tried under the joint-venture agreement produced no recovery, LWL & J stopped making advances, Gardner stopped submitting time reports, and neither LWL & J nor Gardner operated under the joint-venture agreement thereafter. No subsequent agreement was reached concerning reimbursement of the advances. The parties to this appeal strongly dispute the effect of this joint-venture agreement on the ultimate respective fee shares of LWL & J and Gardner from the Abernathy settlement. LWL & J contends: 1) the document which purports to be a joint-venture agreement was merely a draft proposal which was never validly executed, and thereby never governed the relationship between the parties; 2) all payments made to Gardner were demand loans which the parties anticipated would be repaid from Gardner's portion of the fees to be earned in one or more of the malpractice cases. On the other hand, FNBT contends: 1) the joint-venture agreement became valid upon Gardner's signing and return of the document to LWL & J; 2) the agreement lasted until the first case was tried, yielding no recovery, and this abandonment did not change the status of the advances made under the agreement while it was in effect; 3) monies advanced to Gardner in connection with the other cases were capital contributions to the joint venture rather than demand loans, and were swallowed up in the agreement; and 4) attorneys' fees generated by the Abernathy settlement were available for Gardner's one-third participation, this percentage being reasonable, and therefore subject to garnishment. After close examination of the evidence appearing of record, we are convinced sufficient evidence existed from which the trial court could conclude: 1) a joint-venture agreement existed which controlled the reimbursement of advances made pursuant to that agreement; 2) that conditions prescribed by the agreement under which LWL & J might be entitled to receive reimbursement for the advances made have not materialized, abandonment of the agreement notwithstanding; and 3) that Gardner's appropriate share of the Abernathy fee is one-third, no other agreement between LWL & J and Gardner having been reached before FNBT's garnishment attached. Even if we assume, arguendo, that, as LWL & J contends, a debtor/creditor relationship existed as to the advance payments made to Gardner, we perceive no reason why LWL & J should be in a favored disbursement position over FNBT, also a creditor, who garnished Gardner's share of the fee in aid of judgment. The parties to this appeal fail to clearly delineate the sequential analysis necessary to determine appropriate fee distribution. First, Gardner is entitled to some fee from the Abernathy settlement alone based on some agreement between the parties. This entitlement does not disappear or change just because Gardner may owe more than this amount from prior advances in other cases. The following hypothetical situation will illustrate the point: A loans B $200, and B promises to repay this loan from lottery proceeds if B wins in the state lottery; B wins $150 in the lottery. B would still be entitled to $150 from the state, although he owes this sum to A. Thus, if both FNBT and LWL & J loan money to Gardner prior to his bankruptcy, we see no reason why they should not be on equal footing regarding repayment of debt from income to which Gardner is entitled, absent garnishment of that income. Because FNBT garnished Gardner's income first, in April 1982, priority attaches from that date and cannot be impaired by subsequent agreement between Gardner and LWL & J whereby Gardner disclaimed any interest in the funds available for distribution.