Opinion
No. 98-2563-DJW.
August 30, 2001
MEMORANDUM AND ORDER
Pending before the Court is Plaintiff's Motion for Review of Reasonable Attorney Fees (doc. 92). More specifically, Plaintiffs request the Court review and interpret the fee contract between Plaintiffs and their former counsel with respect to the above-styled litigation. Plaintiffs further request the Court make a determination regarding the reasonableness of such fee contract.
RELEVANT BACKGROUND
In July 1998, Plaintiffs met with corporate counsel Jean Lamfers ("Lamfers") regarding a potential legal dispute with Black Veatch, L.L.P. ("Black Veatch"). See January 2, 2001 billing statement of Lamfers Associates, L.C. at page 1, attached as Exhibit 3 to Additional Statement of Horace Edwards and Edwards Associates, Inc. On August 20, 1998, Plaintiffs and Lamfers met with attorney Sam Colville regarding legal representation of Plaintiffs in Plaintiffs' dispute with Black Veatch. Id. at p. 2. Colville ultimately billed Plaintiffs $1,537.00 for legal work done from October 27, 1998 to November 23, 1998. See billing statements of Holman, Hansen Colville, P.C., attached as Exhibit 1 to April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc.
The parties appear to use the term "corporate counsel" to mean the counsel regularly used and employed by Plaintiffs in their day-to-day business dealings.
On August 21, 1998, one day after the meeting with Colville, Plaintiffs and Lamfers met with attorneys Dan Biles ("Biles") and Lawrence Gates ("Gates") regarding representation of Plaintiffs by the law firm of Gates, Biles, Shields Ryan, P.A. ("GBSR") in Plaintiffs' dispute with Black Veatch. See January 2, 2001 billing statement of Lamfers Associates, L.C. at page 2, attached as Exhibit 3 to April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc. GBSR subsequently billed Plaintiffs $7,475.00 for legal work done from October 27, 1998 to December 7, 1998. See Fee Agreement, Exhibit 18 to March 16, 2001 Position Statement of Horace Edwards and Edwards Associates, Inc.
On December 7, 1998, GBSR filed the above-styled case (hereafter "the underlying litigation") with the Court on behalf of Plaintiffs. On June 4, 1999, a written Fee Agreement was executed by Plaintiffs and GBSR regarding GBSR's legal representation of Plaintiffs in the underlying litigation. The Fee Agreement called for an hourly rate of $75 for Gates, $75 for Biles and $65 for Randy Manvitz ("Manvitz"). In addition, the Fee Agreement stated GBSR would be entitled to twenty percent (20%) of the "net recovery" from the underlying litigation, less a full credit of $7,475.00 for attorney fees billed for time expended through December 7, 1998.
The Fee Agreement defines the term "net recovery" to mean the "gross amount of recovery" less the "expenses of litigation."
On January 11, 2000, Lamfers conferred with attorney Mark Buchanan ("Buchanan") regarding representation of Plaintiffs by the law firm of Sprenger McCreight, L.C. in Plaintiffs' dispute with Black Veatch. See January 2, 2001 billing statement of Lamfers Associates, L.C. at page 15, attached as Exhibit 3 to April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc. Sprenger McCreight, L.C. subsequently billed Plaintiffs $3,634.50 for legal work done from January 11, 2000 to August 22, 2000. See billing statements of Sprenger McCreight, L.C., attached as Exhibit 2 to April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc.
The parties to the underlying litigation ultimately agreed to settle the case for $425,000.00. This settlement was to be paid by Black Veatch in three payments. The parties filed a stipulation of dismissal on December 29, 2000 and the Court dismissed the underlying litigation with prejudice on January 2, 2001. On January 2, 2001, Lamfers billed Plaintiffs $46,862.61 for legal work done from July 24, 1998 to January 2, 2001 with regard to the underlying litigation. See January 2, 2001 billing statement of Lamfers Associates, L.C. at page 15, attached as Exhibit 3 to April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc.
On that same day, Biles transmitted to Plaintiffs a spreadsheet itemizing expenses incurred by GBSR in the underlying litigation for use in calculating the twenty percent (20%) contingency fee to which the parties agreed. The expenses incurred by GBSR as set forth in the referenced spreadsheet reflect a total of $31,993.01. Two days later, and in response to the spreadsheet transmitted by Biles, Plaintiffs noted their objection to GBSR's calculations and sent to Biles a document setting forth their perception of what expenses should be used in calculating the twenty percent (20%) contingency fee. The expenses set forth in Plaintiffs' document reflect a total of $86,022.74 and include not only the $31,993.01 in expenses incurred by GBSR, but expenses and legal fees in the amount of $46,862.61 paid by Plaintiffs directly to Lamfers; expenses and legal fees in the amount of $1,537.59 paid by Plaintiffs directly to Holman, Hansen, Colville; expenses and legal fees in the amount of $3,634.50 paid by Plaintiffs directly to Sprenger McCreight; and expenses in the amount of $1,995.03 incurred by Plaintiffs themselves.
In a letter dated January 6, 2001, Gates stated GBSR's position that expenses and legal fees paid by Plaintiffs to attorneys Lamfers, Colville and Buchanan should not be subtracted from the settlement monies before calculating the twenty percent (20%) contingency fee to which the parties agreed. In this letter, Gates calculated the monetary difference between GBSR's position and Plaintiffs' position regarding the fees from the January 2, 2001 settlement amount owed by Plaintiffs to GBSR as follows:
GBSR's calculations Plaintiffs's calculations 01/02/01 Settlement Amount $ 375,000.00 $375,000.00 GBSR Expenses (31,993.01) (31,993.01) Lamfers' Fees/Expenses -0- (46,862.61) Holman, Hansen Fees/Expenses -0- (1,537.59) Sprenger McCreight Fees/Expenses -0- (3,634.50) Plaintiffs' Expenses (1,995.03) (1,995.03) NET SETTLEMENT $ 341,011.96 $ 288,977.26 GBSR's 20% Contingency Fee 68,202.39 57,795.45 Less: $7,475 per fee agreement (7,475.00) (7,475.00) GBSR's Net Contingency Fee $ 60,727.39 $ 50,320.45 Given the dispute regarding fees, Lamfers entered an appearance in this case on January 19, 2001 and filed the currently pending Motion for Review of Reasonable Attorney Fees. In support of their Motion, Plaintiffs make the following assertions:
• The expenses and fees billed by attorneys Lamfers, Colville and Buchanan are legitimate litigation expenses under the terms of the fee contract and thus should be subtracted from the settlement monies before calculating GBSR's twenty percent (20%) contingency fee.
• Even if the Court does not construe the terms of the fee contract to require subtraction of these expenses before calculating the contingency fee, such expenses should be subtracted out anyway because Plaintiffs were forced to incur them in order to protect themselves from GBSR's incompetence and unethical conduct.
The Court will address each of Plaintiffs' assertions in turn.
DISCUSSION
• Fee Contract
The contingency fee arrangement in this matter is set forth in the written June 4, 1999 Fee Agreement executed by the Plaintiffs and GBSR. The parties do not dispute that the Fee Agreement is a valid contract, but only how such contract should be interpreted with regard to the contingency fee provision.
A fundamental principle of contract construction is that a court should interpret the contract so as to give effect to the mutual intentions of the parties at the time they entered into the contract. Tomkins Indus., Inc. v. Sheet Metal Workers' Int'l Assoc., 913 F. Supp. 1438, 1441 (D.Kan. 1995) (citing Butler Mfg. Co. v. Americold Corp., 841 F. Supp. 1107, 1112 (D.Kan. 1993)). "When a contract is plain and unambiguous, the parties' intent should be determined from the instrument." Id. A court may not alter a contract and ignore the plain meaning of its terms under the guise of contract construction. Id. (citing Hart v. Sprint Communications Co., 872 F. Supp. 848, 855 (D.Kan. 1994)).
If, however, the court determines a contract to be ambiguous, the intent of the parties becomes the issue. Wright v. State Farm Mut. Auto. Ins. Co., 911 F. Supp. 1364 (D.Kan. 1995). "To be ambiguous, the contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language." Clark v. Prudential Ins. Co. Of America, 204 Kan. 487, 491, 464 P.2d 253, 256 (1970). Courts should not attempt to create ambiguity in a contract where, in common sense, there is none. Pink Cadillac Bar and Grill, Inc. v. U.S. Fidelity and Guar. Co., 22 Kan. App. 2d 944, 925 P.2d 452, 456 (1996).
On page two of the Fee Agreement, the parties agree that GBSR is entitled to twenty percent (20%) of the "net recovery" from the underlying litigation. See id at p. 2. "Net recovery" is defined by the Fee Agreement as "the `gross amount of recovery' less the `expenses of litigation.'" Id.
The phrase "expenses of litigation" appears twice in the Fee Agreement:
We further agree to be responsible for all "expenses of litigation" advanced by our attorneys on our behalf. These costs will be billed to us periodically, and will be paid by us within 30 days of billing.
* * * * * * * * * *
We further agree the term "expenses of litigation" includes any and all costs incurred since August 21, 1998, in connection with the investigation, evaluation and prosecution of our claims or lawsuit including, but not limited to, fees for document reproduction, expert fees, filing fees, deposition costs, mileage fees, subpoena fees, long distance telephone charges, the expense of demonstrative exhibits, airfare and other similar and related expenses.See Fee Agreement at p. 1, Exhibit 18 to March 16, 2001 Position Statement of Horace Edwards and Edwards Associates, Inc.
Upon consideration of the contract in dispute, the Court finds that the Fee Agreement between the parties is not ambiguous with regard to the phrase "expenses of litigation." The Fee Agreement discusses the phrase "expenses of litigation" in the context of costs advanced by GBSR on Plaintiffs' behalf and goes on to set forth numerous examples of the types of expenditures that qualify as such costs. Expenses and attorney fees incurred by Plaintiffs for supplemental advice and legal work with regard to the underlying litigation is not specifically set forth as an example of the type of expenditure that qualifies as an "expense of litigation" and the Court finds that such costs are neither "similar" nor "related" — as those terms are used in the contract — to the examples set forth by the parties in the Fee Agreement.
Although the language immediately preceding the examples — "including, but not limited to" — could be construed to include costs "dissimilar" and "unrelated" to the examples set forth, the Court finds that there is no genuine uncertainty as to what was meant by the parties. To find ambiguity on this issue would require the Court to create ambiguity where no genuine controversy exists.
Accordingly, the court finds as a matter of law that the contract is not ambiguous and that the parties did not intend expenses and attorney fees incurred by Plaintiffs for supplemental advice and legal work with regard to the underlying litigation to be the kind of expenditure that qualifies as an "expense of litigation" subtracted from the settlement monies before calculating GBSR's twenty percent (20%) contingency fee.
• Reasonableness of Fee
Plaintiffs argue that even if the Court does not construe the terms of the fee contract to require subtraction of expenses incurred by Plaintiffs for supplemental advice and legal work before calculating the contingency fee, such expenses should be subtracted out anyway because Plaintiffs were forced to incur them in order to protect themselves from GBSR's incompetence and unethical conduct.
With regard to Plaintiffs' request for review of the reasonableness of the fee owed to GBSR under the contract, Rule 1.5(e) of the Kansas Rules of Professional Conduct states: "Upon application by the client, all fee contracts shall be subject to review and approval by the appropriate court having jurisdiction of the matter and the court shall have the authority to determine whether the contract is reasonable." Notably, "[i]f the court finds the contract is not reasonable, it shall set and allow a reasonable fee." Id.
The Kansas Rules of Professional Conduct are applicable here. See D.Kan. Rule 83.6.1(a) (adopting Kansas Rules of Professional Conduct).
Rule 1.5 lists eight factors to be considered in evaluating the reasonableness of an attorney fee:
• The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
• the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
• the fee customarily charged in the locality for similar legal services;
• the amount involved and the results obtained;
• the time limitations imposed by the client or by the circumstances;
• the nature and length of the professional relationship with the client;
• the experience, reputation, and ability of the lawyer or lawyers performing the services; and
• whether the fee is fixed or contingent.
Applying MRPC 1.5 to the matter before it, the Court concludes
• this case involved a matter of some complexity involving a number of witnesses and fairly difficult legal theories, thus requiring a skilled attorney to provide the appropriate legal services;
• Plaintiffs knew GBSR's acceptance of their case would preclude other employment by GBSR. See April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc. at p. 3;
• The alleged damages in this matter involved a significant amount of money and the case ultimately settled in favor of Plaintiffs for a total sum of $425,000.00;
• "The time limitations on the attorneys imposed by the Court's scheduling were somewhat stringent." April 16, 2001 Additional Statement of Horace Edwards and Edwards Associates, Inc. at p. 3;
• The professional relationship with the client was in the nature of "a longstanding friendship between Mr. Edwards and Mr. Gates." Id.;
• Plaintiffs' experience with, and the reputation of, GBSR were the reasons Plaintiffs engaged GBSR in the first place. Id.; and
• "The fee was a blended hourly/contingency fee agreement, which provided both sides with some risks and some benefits." Id.
GBSR states, and Plaintiffs do not dispute, that it expended a total of 793.8 attorney hours in this litigation from August 21, 1998 through December 29, 2000. The total fee earned under the Fee Agreement is $128,563.14. This fee comprises four elements: (a) $57,835.75 paid already from the hourly arrangement; (b) $50,320.45 paid March 2, 2001 from settlement proceeds; (c) $10,406.94 — the amount in dispute; and (d) $10,000.00 due on receipt of Defendant's final settlement payment on January 2, 2002. Given the hours expended and the total fees earned, the resulting hourly rate for attorney time expended is $161.96.
Based on the Court's conclusions as set forth above with regard to each of the Rule 1.5 factors to be considered in evaluating the reasonableness of an attorney fee, the Court finds the $128,563.14 total fee earned under the Fee Agreement is reasonable.
CONCLUSION
The Court grants Plaintiffs' Motion for Review of Reasonable Attorney Fees (doc. 92) and finds
(1) that the contract is not ambiguous and that the parties did not intend expenses and attorney fees incurred by Plaintiffs for supplemental advice and legal work with regard to the underlying litigation to be the kind of expenditure that qualifies as an "expense of litigation" subtracted from the settlement monies before calculating the contingency fee to be paid to GBSR; and
(2) the fee earned by GBSR under the Fee Agreement is reasonable.
IT IS SO ORDERED.