Court Opinion

ID: 3017374
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:17:08.495791+00
Date Added: 2024-06-11T11:47:04.588512
License: Public Domain

No. 95-2967

Joan Valentine Mohamed,           *
formerly known as Joan            *
Valentine Kerr;                   *
                                  *
         Plaintiff-Appellee;      *
                                  *
         v.                       * Appeal from the United States
Kevin Scott Kerr; Ivan S. * District Court for the
Kerr, Estate of;                  * District of Minnesota.
                                  *
      Defendants-Appellants;      *
                                  *
Unum Life Insurance Company       *
of America, a Maine               *
corporation;                      *
                                  *
                   Defendant.     *

                          Submitted:    June 12, 1996

                          Filed:    August 2, 1996

Before BOWMAN, HEANEY, and BEAM, Circuit Judges.

HEANEY, Circuit Judge.

     After summary judgment was granted in favor of his client, appellee's
counsel transferred judgment proceeds received from the court to his
client, except for a portion which he retained for himself, at least in
part, as payment of his contingent legal fee.        The summary judgment was
subsequently reversed on appeal.       Appellants seek to compel the attorney
to return that portion of the judgment which he retained.    Their motion was
denied.   We reverse.
                                       BACKGROUND

        The factual background of this litigation is set forth in detail in
our prior opinion Mohamed v. Kerr, 53 F.3d 911 (8th Cir.), cert. denied,
116 S. Ct. 185 (1995).         For purposes of this appeal, the summarized facts
                      1
are as follows.           Appellee Mohamed and Ivan Kerr were married on March 1,
1985.           In December 1986, as part of his employment compensation, Kerr
completed a benefits enrollment form designating Mohamed as the beneficiary
of a group life insurance policy.         The marriage was dissolved in December
1988 pursuant to a marriage termination agreement which provided in part:

        [E]ach of the parties shall be awarded full right, title,
        interest and equity in and to the bank accounts, stocks,
        bonds, savings accounts, pensions, retirement plans,
        combined IRAs, mutual funds, life insurance policies with
        any cash value thereon, limited and general partnership
        interests, and any other assets which are held in their
        name or for their benefit as of the date of this Marriage
        Termination Agreement, free and clear of any claim by the
        other party.

After Kerr died on January 8, 1992, Mohamed sued UNUM Life Insurance
Corporation of America seeking the proceeds from the life insurance.
Because Kerr's estate and son contested Mohamed's claim to the proceeds,
UNUM removed the action to federal court, brought a motion for judgment in
interpleader, and deposited the insurance proceeds with the court.        On July
11, 1994, Mohamed's motion for summary judgment was granted.         Pursuant to
the court's order, the clerk of court entered judgment on July 12, 1994,
and disbursed the funds ($279,012.86) to Mohamed's attorney, Mark C.
McCullough, on July 21, 1994.2          After receiving an advisory opinion from
the

        1
      We hereby grant appellants' motion to supplement the record
and deny appellee's motion to do the same.
            2
       No motion to stay execution of judgment was filed by the
appellants until August 5, 1994.

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Lawyers' Board of Professional Responsibility that he was obligated to turn
over the funds to his client, McCullough disbursed the judgment to Mohamed
on July 22, 1994, except for $93,000 which he retained as payment for his
legal services.3

        On April 27, 1995, this court reversed the grant of summary judgment
in favor of Mohamed and ordered that summary judgment be granted in favor
of the appellants.      Mohamed, 53 F.3d at 917.   On May 18, 1995, the district
court entered a judgment for the appellants and ordered Mohamed to return
the life insurance proceeds to the clerk of court.4            As part of their
efforts to recoup the insurance policy proceeds, the appellants moved to
compel McCullough to return the fees paid to him from the judgment
proceeds.       The magistrate judge declined.5    We now review that decision.

                                     ANALYSIS

        In his July 13, 1995 order, the magistrate judge framed the issue
presented as follows:       May an attorney "be compelled to return fees paid
to him by his client for services rendered in obtaining a judgment, if that
judgment is reversed on appeal."        (Order of July 13, 1995 at 3).      The
magistrate judge answered his query in the negative.          Although we agree
that the law of restitution generally will not require an attorney to repay
legal

            3
      There is a factual dispute as to what fees were covered by
the $93,000 payment.   It is clear, however, that at least two-
thirds of this amount represented the contingent fee associated
with the temporarily favorable resolution of this litigation.
        4
            Mohamed has not yet returned any of the judgment proceeds.
        5
     Pursuant to 28 U.S.C. § 636(c) (1994) and Fed. R. Civ. P. 73
(1996), the parties voluntarily waived their rights to proceed
before a judge of the United States District Court and have
consented to have a United States Magistrate Judge conduct all
proceedings in the case.

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fees paid by a client from a judgment that is subsequently reversed on
appeal, restitution by the attorney is appropriate where such a payment is
made pursuant to a contingent fee.

     It is a long-standing legal principle that "[a] person who has
conferred a benefit upon another in compliance with a judgment, or whose
property has been taken thereunder, is entitled to restitution if the
judgment is reversed or set aside, unless restitution would be inequitable
. . . ."       Restatement of Restitution § 74 (1937); accord Atlantic Coast
Line R.R. v. Florida, 295 U.S. 301, 309 (1935).          But this general rule is
not without exceptions.       The considerations behind these exceptions were
discussed by Justice Cardozo in Atlantic Coast Line:

     A cause of action for restitution is a type of the
     broader cause of action for money had and received, a
     remedy which is equitable in origin and function. The
     claimant to prevail must show that the money was received
     in such circumstances that the possessor will give
     offense to equity and good conscience if permitted to
     retain it. The question no longer is whether the law
     would put him in possession of the money if the
     transaction were a new one. The question is whether the
     law will take it out of his possession after he has been
     able to collect it.

Id. at 309-10 (citations omitted).         As such, restitution is not a matter
of right, but a matter of equity.          See United States v. Bedford Assocs.,
548 F. Supp. 732, 736 (S.D.N.Y. 1982), aff'd in part, 713 F.2d 895 (2d Cir.
1983).

     As    a    consequence   of   these   interests,   equity    will   not   compel
restitution from a third party who receives monies, in good faith, from the
initial judgment creditor in payment of a debt.         Restatement of Restitution
§ 74 cmt. h (1937); accord Bedford Assocs., 548 F. Supp. at 736 (refusing
to require repayment from the initial judgment creditor's assignee, an
"innocent payee" who received money to satisfy debt).            Similarly, where a
judgment creditor pays her attorney for legal services rendered from the

                                           4
judgment proceeds, the attorney is under no duty to repay the money if the
judgment is subsequently reversed.     Restatement of Restitution § 74 cmt.
h, illus. 20.     Thus, were the proceeds retained by McCullough simply
payment for services rendered--and therefore, a tangible debt owed to him
by Mohamed--requiring repayment would not be appropriate.

     The relevant fact that distinguishes this case from the protection
normally afforded payments to attorneys, as innocent payees, is the nature
of the fee arrangement:      a contingent legal fee.6     In other words,
McCullough was to be paid a set percentage of any recovery made on behalf
of Mohamed.     The contingent fee is dependent on success; the attorney
assumes, along with the client, the inherent risks of litigation.   Although
McCullough was initially successful in his endeavor to recover the life
insurance proceeds on behalf of Mohamed, the award was not final.      As a
result of this court's reversal of that original determination, Mohamed
collects nothing and McCullough is entitled to no fee.      Although not a
party to the litigation, like the initial judgment creditor, McCullough was
a beneficiary of the trial court's error.       Benefit from a compulsory
judgment in error is a basis for the

     6
      The cases relied on by the magistrate judge, Wall v. Johnson,
80 So. 2d 362 (Fla. 1955), Holland v. McGill, 145 So. 210 (Fla.
1932), and Rickert v. Pollack, 92 N.Y. Supp. 89 (1905), are all
distinguishable on this basis. Pocius v. Halvorsen, 195 N.E.2d 137
(Ill. 1963), distinguished from the present case by the magistrate
judge because it was an action by the initial judgment creditor
against her attorney for a return of his contingent fee, is more
relevant to the present case. The litigation there revolved around
real property. Id. at 138. After initial success, the plaintiff
paid her attorney a portion of his contingent fee, based on the
value of the property. Id. at 139. Upon reversal of the lower
court decree, the defendants took possession of the property. Id.
Although the factual background is distinguishable from the present
case, insofar as the initial judgment creditor, and not the initial
judgment debtor, was left to recover the unearned, contingent legal
fee, Poicus does stand for the proposition that a contingent fee
must be returned to its source if the litigation is ultimately
unsuccessful on appeal.

                                     5
equitable remedy of restitution.   See Bedford Assocs., 713 F.2d at 901.
In this type of case, McCullough's relationship to the litigation's outcome
is analogous to that of a real party in interest, and he is similarly under
a   duty to restore the amount received by him.         See Restatement of
Restitution § 74 cmt. k.

         Therefore, we hold that restitution of a contingent fee is
appropriate where the initial judgment is reversed.   Accordingly, we remand
this case to the magistrate judge for a factual determination of what
portion of the retained proceeds represents payment of a contingent fee.

      A true copy.

         Attest:

              CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                    6