Court Opinion

ID: 9785639
Source: CourtListenerOpinion
Date Created: 2023-08-30 22:14:48.064652+00
Date Added: 2024-06-11T07:36:00.981916
License: Public Domain

Lockett, J.,
concurring and dissenting: This is the most difficult statement I have made in my years on this court. First, I will agree *306that the majority in deciding the issue raised by the parties has correctly interpreted the statutes. I will then criticize the majority’s twisted path to reach a result it desired. Under the guise of public policy, die majority disregards the legislature’s enactment it has just determined and, by use of the Rules of the Kansas Supreme Court, creates a separate cause of action based on the same fraudulent act.
I concur with the majority’s ruling that the legislative purpose in enacting K.S.A. 44-5,120 through 44-5,125 was to provide a remedy to those who are damaged by an individual or individuals who commit fraudulent acts or practices as stated in the Workers Compensation Act. In reaching its decision, the majority declares that the provisions of K.S.A. 44-5,120 et seq. punish only those who commit fraudulent or abusive acts and concludes that an attorney who does not commit a fraudulent act is not Hable under K.S.A. 44-5,121 or 44-5,125. The majority then asserts “such an interpretation of 44-5,125(b) [is] against public poHcy, [and] contrary to a fundamental rule of statutory construction.” I agree.
After ruHng that the fee paid the attorney who had not acted fraudulently was not subject to reimbursement under K.S.A. 44-5,121 or 44-5,125, the majority departs from the issues raised by the parties and announces as a matter of poHcy that the Kansas Supreme Court will not permit an attorney, because of the unique status an attorney holds as an officer of the court, to retain a contingent fee that is precluded by statutory provisions and is the fruit of a chent’s fraud. This statement is puzzhng and misleading because the majority had just determined the fee was not precluded by the legislative act or the common law.
The Limited Role of the Court
The Kansas Constitution grants the power to enact new laws and to amend existing laws exclusively to the legislative branch of government. Kan. Const. Art. 2, § 1. All governmental sovereign power is vested in the legislature, except such as is granted to the other branches of government, or expressly withheld from the legislature by constitutional restrictions. Samsel v. Wheeler Transport Services, Inc., 246 Kan. 336, Syl. ¶ 1, 789 P.2d 541 (1990), overruled *307in part on other grounds 248 Kan. 824, 844, 811 P.2d 1176 (1991). It is the primary duty of the courts to safeguard the declaration of rights and remedies guaranteed by constitutional provisions. Samsel v. Wheeler Transport Services, Inc., 246 Kan. 336, Syl. ¶ 2.
Courts in Kansas are vested with judicial power, which is the “power to hear, consider and determine controversies between rival litigants.” State, ex rel., v. Mohler, 98 Kan. 465, 471, 158 Pac. 408 (1916), aff'd 248 U.S. 112, 63 L. Ed. 153, 39 S. Ct. 32 (1918); see also U.S.D. No. 380 v. McMillen, 252 Kan. 451, Syl. ¶ 5, 845 P.2d 676 (1993) (“The judiciary interprets, explains, and applies the law to controversies.”). Courts are limited to the exercise of judicial power in interpreting statutes or applying the common law and may not usurp the legislative power of determining policy matters or the executive power of implementing such policy. State v. Brady, 156 Kan. 831, 843, 137 P.2d 206 (1943) (court’s role in implementing death penalty and clemency issues); see Tomasic v. Unified Government of Wyandotte County/Kansas City, Kan., 264 Kan. 293, 337-38, 955 P.2d 1136 (1998).
With a clear stated purpose, the majority violates the Kansas Constitution’s restrictions and legislates a cause of action that requires Goertz, as an officer of the court, to reimburse to the insurance carrier that portion of the contingent fee obtained due to the fraudulent act of a client. To reach the desired result, the majority founded its new cause of action on the rule adopted by our Supreme Court in KRPC 1.5(f)(3) (1999 Kan. Ct. R. Annot. 313-14), which provides: “A lawyer shall not enter into an arrangement for, charge, or collect ... a contingent fee in any other matter in which such a [contingent] fee is precluded by statute.”
The majority’s rationale in creating a cause of action is based on the Kansas Supreme Court’s responsibility of supervising Kansas attorneys, pursuant to K.S.A. 7-103. That statute provides:
“The supreme court of this state may make such rules as it may deem necessary for the examination of applicants for admission to the bar of this state and for the discipline and disbarment of attorneys .’’(Emphasis added.)
This case does not concern the examination of applicants for admission to the bar, attorney discipline, or attorney disbarment. *308Therefore, K.S.A. 7-103 does not provide authority for the Supreme Court to order Goertz to reimburse Excel under the guise of supervision of Goertz as an officer of the court.
The majority states that Goertz, an officer of the court who had a contingent fee agreement with a client, is different from the other professionals covered by K.S.A. 44-5,120 et seq. It concludes that as a matter of public policy, the Kansas Supreme Court cannot approve Goertz’ retention of that portion of the fee obtained through his client’s fraud and orders Goertz to return the disputed $1,588.46 of his fee. Unlike other professionals, Goertz, an officer of the court, is now subject to a separate court-created civil action, and, although he did not violate a legislative act, he is subject to disciplinary measures if he fails to obey the rule of the court.
The court has no right to enlarge the scope of the statute or to amend it by judicial interpretation. Coe v. Security National Ins. Co., 228 Kan. 624, 629, 620 P.2d 1108 (1980). Pursuant to K.S.A. 44-5,120, Excel’s cause of action is against those who committed fraudulent acts, i.e., the workers compensation claimant, not her attorney who was innocent of fraud and legally earned compensation commensurate with the award he obtained for his client.
Other Jurisdictions
In creating the cause of action, the majority first disregards relevant decisions of other states. In Wall v. Johnson, 80 So. 2d 362 (Fla. 1955), the Florida Supreme Court determined that an attorney who acted in good faith in obtaining a judgment which is later set aside is not obligated to make restitution of attorney fees.
In Wall, attorneys obtained a final decree adjudicating Leonard Wall as the father of his client’s child. The decree required Wall to pay the client $50 per month and the attorney a $500 fee. On appeal, the judgment was reversed because of the statute of limitations. Wall then sought restitution from the attorneys of the $500 fee he had paid under the court’s decree. The Florida court noted:
“ ‘The general rule is that even though the attorney retains as payment for his services, or for some other debt owing by his client, under an agreement with the latter, part or all of the proceeds of a judgment recovered by the client which is subsequently reversed, he is not obliged to make restitution to the judgment *309debtor provided he acted in good faith in prosecuting tire action in which the judgment was recovered. But if the judgment was void, or if the attorney knew if was obtained by fraud or he otherwise did not act in good faith in retaining the money, he is liable to make restitution.’ ” 80 So. 2d at 363.
“Said judgment was not secured by fraud, error or deception. There is every showing of good faith on the part of counsel who secured it; there is no showing in equity to support restitution, in fact under the showing made, it would be most inequitable to require it. If ever a court was warranted in leaving a plaintiff where it found him to ’stew in his own juice,’ this is it.” 80 So. 2d at 364.
The Wall court held that even though a judgment is subsequently reversed, an attorney is not obligated to make restitution to the other party if the attorney acted in good faith in prosecuting the action in which the judgment was originally recovered. Because the attorney had not acted in bad faith or committed fraud in prosecuting the action, the attorney was not ordered by the Wall court to return the fee.
In 1995, the Florida Supreme Court reaffirmed Wall in Martin v. Lenahan, 658 So. 2d 119 (Fla. Dist. App. 1995). In Martin, Douglas Martin, M.D., and his insurance company appealed from an adverse final order on their claim for restitution of contingent attorney fees which had been paid from a settlement on behalf of clients who had fraudulently won the award from the doctor. The patient, William Lenahan, claimed the doctor’s malpractice caused severe and debilitating physical and mental injuries. At trial, the jury returned a verdict of $2,488,000 in damages and found that Dr. Martin’s negligence caused several definite and distinct injuries to Lenahan. A settlement was subsequently negotiated for $2,250,000 as full and complete satisfaction of the judgment. The attorney received $750,000 in fees, of which $250,000 was paid to referring attorneys.
Dr. Martin suspected that Lenahan’s claims were grossly exaggerated. After the settlement and exchange of funds, Dr. Martin’s investigation of Lenahan’s claims continued and culminated in the filing of criminal fraud charges against the Lenahans. The Lena-hans’ attorney withdrew from the representation of the Lenahans in the civil matter after the fraud was uncovered.
Lenahan and his wife were convicted of the criminal charges. Subsequently, the Lenahans entered into a settlement with Dr. *310Martin and his insurance company. The settlement agreement specifically stated that it would not affect Dr. Martin’s right to recover attorney fees and costs paid from the $2,250,000 settlement. Based on the stipulation, the trial court granted relief from the judgment. Because the attorney was not a party to the settlement, the trial court refused to order restitution from the Lenahans’ attorney. Dr. Martin and his insurance company appealed.
The Martin court found Wall controlling. The Florida court, in accordance with Wall, held that the attorney was not liable for restitution, as there was no evidence of any complicity in the fraud perpetrated by the Lenahans and because the attorney was not a party to the malpractice proceeding, but rather was a third party paid for valuable services who did not engage in any known wrongdoing.
In addition to the Wall case, the Martin court relied on Restatement of the Law of Restitution § 74, Comment h (1936). As quoted in the opinion, the section provides:
“ ‘h. Restitution from attorney or agent of judgment creditor. An attorney or other agent of the judgment creditor who receives payment from the judgment debtor or who receives the proceeds of sale of the debtor’s things and who pays it to the judgment creditor before reversal is not liable if the judgment was valid before reversal and if he had no knowledge of any fraud used in securing it. Underthe same conditions he is under no duty to repay money which he received on account of the judgment creditor and which he retains as payment for services or for a debt owed by the judgment creditor to him (see Illustration 20) since he received the money as a bona fide purchaser. On the other hand, the attorney of the judgment creditor who conducted tire proceedings is not entitled to retain property which he purchased on execution sale under the judgment subsequently reversed (see Illustration 21). For this purpose he is in the position of the judgment creditor. If the judgment reversed was void (see § 73) and he directed the sale of tlie debtor’s property, or if he knew that the judgment was obtained by fraud, he was a participant in a tort and cannot retain the proceeds of a sale or escape liability for having dealt with the debtor’s things.’ ” 658 So. 2d at 121.
The Martin court concluded that the malpractice plaintiffs attorney, an innocent third-party creditor, recovered a judgment to which he was legally entitled. The court stated that the contingency which gave rise to the Lenahans’ debt to their attorney occurred when the settlement of the malpractice claim was negotiated, and *311none of the subsequent proceedings could affect the original $2,250,000 settlement voluntarily entered into between the Len-ahans, Dr. Martin, and his insurance company. 658 So. 2d at 122.
The Martin case contains several points applicable to this case. The Martin court’s statement that the contingency which gave rise to the Lenahans’ debt to their attorney occurred when the settlement was negotiated, speaks to the majority’s interpretation of K.S.A. 44-536(a). The majority emphasized the language in K.S.A. 44-536(a), which provides that attorney fees rendered in connection with workers compensation claims shall not exceed a reasonable amount or 25 percent of the amount of compensation recovered. Under Martin, the amount of recovery is measured at the time of judgment, and subsequent proceedings do not affect that amount.
Martin also observed that the attorney was a third-party creditor of the client who received a judgment for which he was legally entitled. As an innocent third-party creditor, the attorney was similar to a bona fide purchaser who is not Hable if the judgment was valid before reversal, providing he or she had no knowledge of the fraud perpetrated in securing the judgment.
Kansas Statutes
To support its determination that pubHc pohcy requires the court to create a cause of action that regulates the legal profession, the majority relies on Mohamed v. Kerr, 91 F.3d 1124 (1996), and the Restatement of the Law of Restitution § 74, Comment k. Neither apply to our factual situation.
Mohamed v. Kerr, 91 F.3d 1124 (1996), cited by majority, is not an action to recover money damages for a neghgent or fraudulent act; it is an interpleader action in the federal court similar to K.S.A. 60-222. Persons having claims against the plaintiff/insurer were joined as defendants. The individuals having claims for the insurance proceeds were required to interplead their claims against the insurer who was subject to multiple HabiHty.
Unlike the federal procedures available in Mohamed, in a Kansas interpleader action where an appeal is taken, the appellant, by giving a supersedeas bond, may obtain a further stay of execution of *312the judgment. K.S.A. 1999 Supp. 60-262(d). A supersedeas bond is not required where defendant’s money is paid into court awaiting final judgment for distribution. Where money is paid to the court, the portion of the judgment which on appeal is determined to be the client’s interest in the deposit, is by statute subject to an attorney’s lien. The statutory procedures in Kansas protecting a judgment pending appeal demonstrate why the majority’s reliance on Mohamed is misplaced. In Kansas, under the circumstances set out in Mohamed, the contested amount of the judgment would not be distributed to those having claims prior to a final judgment.
Attorney Lien
Since 1868, Kansas has provided that an attorney has a hen for his or her services upon money due his or her client in the hands of the adverse party, in any matter, action, or proceeding in which the attorney was employed from the time of giving notice of the hen to the adverse party. K.S.A. 7-108. The attorney hen statute provides:
“An attorney has a lien for a general balance of compensation upon any papers of his or her client which have come into the attorney’s possession in the course of his or her professional employment, upon money in the attorney’s hands belonging to the client, and upon money due to the client and in the hands of the adverse parly, in any matter, action or proceeding in which the attorney was employed, from the time of giving notice of the lien to the party; such notice must be in writing, and may be served in the same manner as a summons, and upon any person, officer or agent upon whom a summons under the laws of this state may be served, and may also be served upon a regularly employed salaried attorney of the party.” K.S.A. 7-108.
Impairment of a Contract and Lien
The legislature also enacted K.S.A. 44-536(b), which states:
“(b) All attorney fees in connection with the initial or original claim for compensation shall be fixed pursuant to a written contract between the attorney and the employee or the employee’s dependents, which shall be subject to approval by the director in accordance with this section. Every attorney, whether the disposition of the original claim is by agreement, settlement, award, judgment or otherwise, shall file the attorney contract with the director for review in accordance with this section. The director shall review each such contract and the fees claimed thereunder as provided in this section and shall approve such contract and fees only if both are in accordance with all provisions of this section. Any claims for *313attorney fees not in excess of the limits provided in this section and approved by the director shall be enforceable as a lien on the compensation due or to become due. The director shall specifically and individually review each claim of an attorney for services rendered under the workers compensation act in each case of a settlement agreement under K.S. 44-521 and amendments thereto or a lump-sum payment under K.S. 44-531 and amendments thereto as to the reasonableness thereof.” (Emphasis added.)
In reaching its conclusion, the majority disregards the fact that the attorney was a preferred creditor in the workers compensation award and by statute had a lien on the award and the right to satisfy the lien out of the monthly payments of the judgment.
I agree that reversal of a judgment on appeal is an inherent risk of litigation, and contingent fees are subject to the final judgment obtained. However, the case before this court does not concern a reversal of a judgment appealed; it concerns an award granted in a workers compensation case which was later modified because the worker perpetrated fraud to increase the award. An eventual finding that a client committed fraud in securing a workers compensation award or a judgment in a civil action is- not an inherent risk of a secured creditor. Requiring an attorney to insure a fee granted in a workers compensation action until the statute of limitations has expired for fraud of another individual is unreasonable. Under the guise of the responsibility to supervise Kansas attorneys, the majority has ignored the legislative acts and exceeded its constitutional power by creating a cause of action based solely upon the fee arrangement and the public policy of the court.
Since this state was admitted into the Union, the common law, as modified by constitutional and statutory law, judicial decisions, and the conditions and wants of the people, shall remain in force in aid of the General Statutes of this state; but the rule of the common law, that statutes in derogation thereof shall be strictly construed, shall not be applicable to any general statute of this state, but all such statutes shall be liberally construed to promote their object. K.S.A. 77-109. Although the common law is subject to modification by judicial decision in light of changed conditions, the declaration of public policy is normally the function of the legislative branch of government. Ling v. Jans Liquors, 237 Kan. *314629, Syl. ¶ 5, 703 P.2d 731 (1985). This case does not concern the examination of applicants for admission to the bar, attorney discipline, or attorney disbarment. Therefore, K.S.A. 7-103 does not provide authority for the Supreme Court to order Goertz to reimburse Excel under the guise of supervision of Goertz as an officer of the court.
Kansas lawyers, beware of the contingent fee contract. The fee you honestly earned in obtaining a judgment for your client is not final but subject to reimbursement in a separate court-created action until the statute of limitations for the possible fraudulent acts of your client has expired. You, not the honest doctor whose expert testimony swayed the jury to award your client the judgment, stand alone as an insurer of your client’s honesty.
To my colleagues in the majority: Please note that this court’s new responsibility to supervise attorneys who enter into contingent fee contracts is not limited to workers compensation awards. There are other laws and codes enacted by the legislature to protect individuals who have been defrauded. And finally, a simple thought: Are judicially-created laws outside the United States Constitution’s prohibition of state government impairing the obligation of contracts? Here, pursuant to legislative acts, the attorney had a contract approved by the director and had exercised his right to obtain a statutory hen on the amount paid as compensation to the worker in the original action! The statutory contract and hen have been abohshed by a judicial decree of public pohcy.
“ ‘In a well-ordered society it is important that people know what their legal rights are, not only under constitutions and legislative enactments, but also as defined by judicial precedent, and having conducted their affairs in reliance thereon, ought not to have their rights swept away by judicial decree. And this is especially so where rights of property are involved .... And it should be left to the legislature to make any change in the law, except perhaps in a most unusual exigency.’ ” F. Arthur Stone & Sons v. Gibson, 230 Kan. 224, 233, 630 P.2d 1164 (1981) (quoting Freeman v. Stewart, 2 Utah 2d 319, 322, 273 P.2d 174 [1954]).
Allegrucci, J., joins the foregoing concurring and dissenting opinion.