Court Opinion

ID: 4228736
Source: CourtListenerOpinion
Date Created: 2017-12-14 15:09:33.383966+00
Date Added: 2024-06-11T14:16:04.544531
License: Public Domain

RENDERED: DECEMBER 14, 2017
                                                         TO BE PUBLISHED

               ~upr~m~             314 S.W.3d 306, 308 (Ky. App. 2010) (Citing Heskett v. Heskett, 245
S.W.3d 222, 226 (Ky. App. 2008)). ·
2   59 S.W.3d 904, n.6 (Ky. 2001).
3Robert L. Rossi, 'Attorney's Fees, § 2: 1 Definition and Validity Generally (3d ed., June
2017 update).
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contingent-fee contract. According to First National Bank, a contingent-fee

contract is nothing more or less than a certain and specific property right-it is

the right to assert a cause of action to enforce a lien on a client's potential

recovery in order ~o secure rightfully cqntracted-for payment for legal services.4

In other words, the right is that of a chose in action. A chose in action is the

right to bring a lawsuit,     whi~h   the Court of Appeals in Poe v. Poe stated to be.

"undeniably a property right."5

        In deciding this issue, we find ourselves drawn to the reasoning of the

Court of Appeals' analysis of a similar issue in Poe v. Poe. 6 In holding a

nonvested military pension to be marital property, the Court of Appeals first

recognized that it needed to change the way it analyzed property law as it

relates to family law.7

        The Court of Appeals acknowledged the "traditional" way of thinking

about property law as it relates to family law: "[I]t is apparently reasoned ... that
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absent some present right to payment, future or 'immediate, a spouse's interest

4 517 S.W.2d 226, 230 (Ky. 1974) (discussing contingent-fee contract as affording
attorney a cause of action to enforce a lien on the actual contingent fee itself); See also
7A C.J.S. Attorney & Client§ 473(Dec. 2017 update) ("Generally, a contingent-fee
contract does not create an immediate property right in the possible future fee."); W.W.
Allen, Terms ofAttomey's Contingent-Fee Contract as Creating an Equitable Lien in His
Favor, 143 A.L.R. 204 (originally published in 1943, updated weekly) ("An equitable
lien arising from an attorney's contingent-fee contract ordinarily attaches ... merely as
of the time when the fund comes into existence .... Attomeys' contingent-fee contracts
are frequently construed as creating equitable liens on funds recovered by settlement
or otherwise.")
s 711 S.W.2d 849, 855 (Ky. App. 1986).
6 The Court of Appeals' analysis in Poe provided the correct groundwork for the
recognition of other forms of "nonvested" property. See McGinnis v. McGinnis, 920
S.W.2d 68 (Ky. App. 1995) (holding nonvested shares of stock as marital property).
1   711 S.W.2d at 855.
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in a nonvested pension plan such as the military plan now before us cannot be

consid€?red 'property' and is instead a mere expectancy which cannot be divided

as marital property.... " The Court of Appeals then stated, "For several reasons

we consider such reasoning, albeit traditionally accepted, to be inadequate in

the present circumstances."8

        The Court of Appeals then outlined the pitfalls of applying traditional

property law concepts to the idea of marital property, including the problem

with making decisions about what constitutes marital property based on the

concept of the "vesting" of property, finally culminating in a statement that we

find to be most applicable in our analysis today: "Setting aside this [traditional]

approach for the moment, we tum to the courts of New Jersey, which have

wisely avoided the pitfall of becoming entangled in applying ancient property law

concepts to such an unusual and important marital asset."9 Taking into account

the wise reasoning of Poe, we cannot confine .ourselves to thinking about this

issue under the cloud of "ancient property law concepts," such as the "vesting"
    '
of property.

        The Court of Appeals applied New Jersey's rule that "vesting as it.

originated in the law of future interests has been specifically held in New.
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Jersey to have little meaning in determining the equitable distribution of the

marital estate."10 The rationale New Je.rsey uses in analyzing issues of marital

a Id.
9 Id. at 856 (emphasis added).
10 Id. (citing McGrew v. McGrew, 377 A.2d 697 (N.J. 1977) (citing Stem v. Stem, 331
A.2d 257, 262 (N.J. 1975))).
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property is the same rationale we apply to support our hold1ng, as the Court of

Appeals did in Poe to support its holding:

           While the uncertainty of enjoying benefits may be a factor to be
           considered in awarding distribution, the failure of the property
           interest to have vested in the sense essential to the alienability of
           real estate cloes not disqualify it as property acquired durin'g the
           marriage· for purposes of equitable distribution. Of greater
           importance .. .is "the nature of the interest and defendant's control
           over it."11 Although some question exists as to when or whether the
           retirement benefits will be enjoyed, the consideration critical to the
           issue of distribution is the extent to which the anticipated benefits
           will have been generated by the mutual effort of the parties. Thus,
           the court's focus must rest upon the equities which are relevant to
           the claims asserted upon the proceeds, when, as, and if they
           materialize.12

The Court of Appeals also recognized that:

           [Plan-holding spouse] does, at least in one sense, have a 'vested'
           interest in the retirement plan. Upon his employment and
           rendition of services, [plan-holding] spouse has a vested interest to
           participate in the plan, which if wrongfully denied by his employer
           would be the proper basis for a suit at law to enforce his
           contractual rights. 13 This interest has been described to be in the
           nature of a chose in action which is undeniably a property right.
           Thus, while [plan-holding spouse]'s rights in his military pension
           plan may not be fully vested so as to inalienably entitle him to
           payment at some later time, he does have a vested interest in
           participating in the pension plan. This is a vested interest then
           which [non-plan-holding spouse], through her support as
           homemaker and helpmate, enabled [plan-holding spouse] to
           acquire and continue throughout their marriage.14

So while the right to the actual funds from the pension had not vested yet,

what did vest was the plan-holding spouse's right to participate in the pension

and bring a cause of action if denied that participation. This is exactly the

u Citing Blitt v. Blitt, 353 A.2d 144, 147 (N.J. Ch. Div. 1976).
12   Poe, 711 S.W.2d at 856.
13   Id. at 885.
14   Id.
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interest that an attorney spouse has in    a contingent-fee case-although the
attorney does not possess a vested right to the actual contingent fee itself until

the case is won or settled, when the attorney and client sign a contract for a

contingent-fee case, the attorney does possess the right to work on that case

for that client and to bring suit if the client unjustly interferes with that right.15

The Court of Appeals in Poe went on to recognize nonvested military pensions

as marital property.16

         Like a nonvested military pension, the   "~ature   of the interest" of a

contingent-fee contract is that of a chose in action, and, like the military

employee, the attorney possesses full control over that chose in action. While

the attorney spouse may put forth work, for the benefit of the marriage, on the

contingent-fee case itself, the non-attorney spouse, through that spouse's work

and efforts elsewhere for the benefit of the marriage, anticipates receipt of the

benefits resulting from the attorney spouse's work on that case. This is just

like the plan-holding spouse's receipt of the benefits of the plan because of the

direct work performed, for the benefit of the marriage, for the entity issuing the

plan, and the non-attorney spouse's entitlement to those same benefits

because of that spouse's work and efforts elsewhere, for the benefit of the

marriage.

is See Baker v. Shapero, 203 S.W.3d 697, 699 (Ky. 2006) ("(W]hen an attorney
employed under a contingency fee contract is discharged without cause before
completion of the contract, he or she is entitled to fee recovery on a quantum meruit
basis .... ").
16   Id. at 857.
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      W.e fail ·to see a   material distinction betWeen a nonvested military pension

and a contingent-fee contract so as to hold that nonvested military pensions

are marital property and, at the same time, that contingent fee contracts are
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not. Instead, we hold that contingent-fee contracts do c·onstitute marital

property under KRS 403.190(2). This holding is consistent with :the trend in

other states that hold contingent-fee contracts constitute marital property,

although admittedly· some states have held the opposite.17

      Understanding the practicalities of our holding, we now provide guidance

as to the procedure for the division of this property in a dissolution proceeding.

In Poe, the Court of Appeals applied the "delayed division" method to distribute

the actual pension fund once the plan-holding spouse started receiving

payments.ls We adopt this method to determine the distribution of this marital

property, adhering to our consistent use of this method in Kentucky law:

      In the delayed division method, a formula is used to determine. the
      division at the time of the decree, but the actual distribution of
      monies is delayed until payments ... are received. Each party then
      receives the appropriate percentage of the ... payments as they are
      paid out in accordance with the formula. The use of this method
      ~as long been approved in the Commonwealth.19

This method not only affords the non-attorney ex-spouse the rightfuily

obtained property interest created during the marriage, but also protects the

11For a brief overview of this discussion, see Charles W. Davis, Divorce and
Separation: Attorney's Contingent Fee Contracts as Marital Property Subject to
Distribution, 44 A.L.R.Sth 671 (originally published in 1996 but continuously
updated).
1s Poe, 711 S.W.2d at 856.
19 Young v. Young, 314 S.W.3d 306, 309 (Ky. App. 2010) (citing Poe V. Poe, 711 S.W.2d
849 (Ky. App. 1986); Duncan v: Duncan, 724 S.W.2d 231 (Ky. App. 1987); Foster v.
Foster, 589 S.W.2d 223 (Ky. App. 1979)).            .
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attor~ey    ex-spouse from distributing to the non-attorney ex-spouse anything

until the case is settled or won, because the attorney    ex~spouse   may ultimately

prove to be unsuccessful in the case and receive nothing .. We wish to highlight

that   ~e   formula must take into account the fact that the non-attorney ·ex-

spouse is only entitled to a share of the contingent fee attributable to the. work

done by the attorney    spou~e   before the dissolution, as is usually the case with

the application of the delayed-division method. Lastly, the trial court, by order,

should require the attorney ex-spouse to notify the trial court and the non-

attorney ex-spouse of ·receipt of the contingent fee to be divided when the

contingent fee is earned or lost in order for the trial court to enter such

additional orders as necessary to complete the delayed distribution.

       This method also captures the modern relationship between property law

and family law. Admittedly, affording the non-attorney ex-spouse property

rights in the actual contingent fee, instead of that ex-spouse's share of the

value of the chose in action to recover that fee, does not conform with

traditional notions of property law-only the right to the chose in action has

vested, not the contingent fee itself. But, as ,stated, the Court of Appeals in Poe

and other states that have recognized contingent-fee contracts as marital

property correctly note that marriage and its dissolution must be treated

equitably, focusing on the contribution of the non-attorney ex-spouse to the

marriage through work both outside and inside the home. While the right to

the proceeds from the fund had not yet vested for theplart-holding spouse in

Poe, the Court of Appeals recognized that the efforts by both ex-spouses during

the marriage contributed to some of the proceeds from the pension, and that
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 the non-plan holding spouse was entitled to the portion of the fund that the

 non'-plan holding spouse contributed work and efforts towards during the

 marriage. We apply the san:;ie line of thought to dismiss any notion of "vesting"

as a limitation on a non-attorney ex-spouse's right to recover that ex-spouse's

fair share of the contingent fee earned during the marriage.

                               III.      CONCLUSION.

       We reverse the Court of Appeals and hold that a contingent-fee contract

in existence during the· marriage does constitute marital property to be divided

· in a dissolution proceeding. Additionally, we hold that trial courts shall apply

the delayed-division method to determine the distribution to the attorney and

non-attorney ex-spouses. Accordingly, we remand this case to the trial court

for further proceedings consistent with this opinion.

       Minton, C.J.; Cunningham, Hughes, Keller, Venters and Wright, JJ.,

sitting. Minton, C.J.; Cunningham, Hughes, Keller, Venters and Wright, JJ.,

concur. VanMeter, J., not sitting.

COUNSEL FOR APPELLANT:.

· Suzanne Marie Baumgardner
  Valerie S. Kershaw
  Kershaw & Ba~mgardner, LLP

COUNSEL FOR'APPELLEE:

 Kara Read Marino
 Meredith Fannin·
 Henry Watz Raine & Marino, PLLC

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