Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County, No. LC079051, William F. Fahey, Judge.
The Ehrlich Law Firm and Jeffrey Isaac Ehrlich; Osborne & Associates and William James Osborne, in pro. per., for Defendant and Appellant.
Law Offices of William J. Houser and William J. Houser for Plaintiffs and Respondents.
WILLHITE, J.
INTRODUCTION
Appellant William J. Osborne (Osborne), an attorney, appeals from a judgment finding that he breached his contingency fee agreement with Respondents Jay Hellinger (Jay) and Lee Hellinger (Lee) (collectively, the Hellingers). In a non-jury trial on the Hellingers’ breach of contract action, the trial court determined that Osborne wrongfully withheld 50 percent of the Hellingers’ settlement proceeds as his attorney fee, instead of the 40 percent to which the fee agreement entitled him. On appeal, Osborne contends that the trial court erred in concluding that the parties did not modify their contingency fee agreement to increase his share to 50 percent. We disagree and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Earthquake Litigation
Beginning in 1997, Osborne represented the Hellingers in claims brought against their insurance companies following the discovery of extensive damage to their home from the Northridge earthquake of 1994. The facts and procedural history in that case through 2001 are set forth in our previously-published decision Hellinger v. Farmers Group, Inc. (2001) 91 Cal.App.4th 1049. In that decision, we held that then recently-enacted Code of Civil Procedure section 340.9, which extended the statute of limitations for claims arising from the 1994 Northridge earthquake, revived Jay’s claims and required us to remand the case to the trial court for further proceedings. The California Supreme Court denied the insurance company defendants’ petition for review. (Id. at p. 1069.)
Lee was dismissed as a plaintiff because he had quit-claimed his interest in the property to his brother Jay before the litigation commenced. However, Lee remained actively involved in the suit and regularly communicated with Osborne about the case.
Jay’s case was litigated from 2002 to 2004, and ultimately settled in August 2004 for $870,000. Osborne withheld $475,000 from the settlement proceeds, for reimbursement of his costs and a 50 percent contingency fee, and provided a total of $395,000 to Jay. A dispute subsequently arose over whether Osborne was entitled to 50 percent or 40 percent of the settlement amount for his fee. The Hellingers sued Osborne, alleging a single cause of action for breach of contract. That claim was the subject of a one-day bench trial at which the only witnesses were Osborne, Jay and Lee.
II. The Evidence at Trial
The following facts presented at that trial are undisputed: In 1997, Osborne and the Hellingers entered into a retainer agreement setting forth a contingency fee arrangement for Osborne’s representation in the Hellingers’ suit against the insurance companies. If the case settled before the arbitration hearing, Osborne would be entitled to 33 and 1/3 percent of all money recovered from the insurance companies; if damages were recovered after the arbitration, Osborne would receive 40 percent of the recovery. Osborne was to pay all costs but would be reimbursed out of any recovery. Osborne was not required to participate in an appeal of the matter. Osborne, Lee and Jay all signed the agreement, which contained language intended to ensure compliance with Business and Professions Code section 6147, which governs contingency fee contracts.
After the Hellingers’ suit against the insurance companies was dismissed on summary judgment, Osborne advised them that he was willing to take their case on appeal with no increase in the attorney fee arrangement, if the Hellingers agreed to cover the costs and expert fees associated with the appeal. The Hellingers agreed, and in January 2000, Osborne and the Hellingers executed an addendum reflecting that modification to their contingency fee agreement. The attorney fee arrangement, entitling Osborne to 40 percent of any recovery, was left unchanged.
After the Hellingers prevailed on appeal and their case was remanded to the trial court, Osborne told them he believed he was entitled to an increase in attorney fees, given the extent of his work on the case. At a settlement conference that took place in July 2003, Osborne proposed to Jay that his share of the recovery be increased from 40 percent to 50 percent. Jay told Osborne he would agree to this increase if Osborne would agree that Osborne and Jay each would pay for their own costs out of their respective 50 percent shares of the recovery. Osborne testified that he did not agree to this arrangement, which would have been a departure from the parties’ original agreement to reimburse Osborne for the costs he had advanced.
The litigation continued for another year. Jay then agreed to settle with the insurance company defendants in the amount of $870,000, and a settlement agreement was executed in mid-August 2004. Because Jay was going to be on vacation when the settlement proceeds were disbursed, he gave Lee power of attorney to act in his absence. Osborne drafted the Power of Attorney, which provided as follows: “I, Jay Hellinger, do hereby grant this Power of Attorney to my brother, Lee Hellinger, to enter into full and final settlement and to execute my name to the settlement distribution regarding my case, Hellinger v. Farmer Group Inc., et al, ; LASC Case No. PC 018040 W. This authorization is granted due to my vacation and travel plans which prevents [sic] me from being able to execute the closing documents in this matter. Lee Hellinger is therefore freely authorized and empowered to negotiate any and all matters contained in the retainer agreement, including the power to decide the issue of the total amount of the settlement distribution as among all counsel, experts, consultants and myself.” Both Jay and Lee Hellinger signed the document on August 15, 2004, and then Jay left for his vacation.
On August 27, 2004, Lee came to Osborne’s office, picked up a check with the settlement proceeds, and signed a document entitled “Settlement Distribution.” The document sets forth the total settlement amount of $870,000 and includes line items for the attorney fees and costs that reduced the Hellingers’ total recovery to $395,000. These line items reflect: (i) a $435,000 payment to Osborne and his co-counsel for “attorney fees (at 50%)”; (ii) a reduction for costs advanced by Osborne; and (iii) a “Voluntary Reduction” of Osborne’s share in the amount of $8,357.19. Above signature blocks for Jay and Lee, the document contains a statement in bold that “[w]e have examined and approve the above accounting.” Lee signed on behalf of himself and Jay. Osborne did not sign the document.
At trial, the parties presented conflicting accounts of how Lee came to sign the “Settlement Distribution.” Osborne testified that before the settlement check from the insurance companies cleared the bank, Lee told Osborne that he needed money and requested two advances from Osborne. According to Osborne, once the settlement check had fully cleared, he told Lee to come to his office to review the closing documents and to discuss the resolution of all the matters in the case. Lee came to Osborne’s office on August 27, 2004, and Osborne presented him with a draft of the Settlement Distribution. After reviewing the document, which noted that Osborne would collect 50 percent of the proceeds, Lee said he was not satisfied with the amount of money the Hellingers would receive. After some negotiation, Osborne agreed to a “voluntary reduction” in the amount of $8,357.19, which increased the Hellingers’ recovery to an even $395,000. Lee then signed a revised Settlement Distribution that reflected the additional $8,357.19 the Hellingers would receive, and Osborne gave him a check for $395,000.
Lee, however, testified to a different version of events. According to Lee, he went to Osborne’s office on August 27 for the sole purpose of picking up the check containing the settlement proceeds, and he did not recall any negotiations taking place with respect to the portion of the settlement proceeds that Osborne would keep. Osborne told him he needed to sign the Settlement Distribution in order to get the check, and so he did. Lee did not recall reviewing a draft of the document and did not know why the Settlement Distribution reflected a “voluntary reduction” of $8,357.19. He did not believe the Settlement Distribution was a final agreement regarding the disbursement of the settlement monies or an agreement that Osborne could keep 50 percent of the settlement proceeds rather than 40 percent.
III. The Trial Court’s Decision
The trial court found that the parties entered into a retainer agreement in 1997, and modified it in January 2000 as to cost sharing only. The court found that despite discussions at the 2003 settlement conference about a further modification of that agreement to increase Osborne’s share of the recovery to 50 percent, “the credible evidence is that no new agreement was entered into by the parties. The so-called 50/50 deal was always contingent on a different cost sharing agreement, which Mr. Osborne never agreed to.” Therefore, the court found, the 1997 retainer agreement, as modified for cost sharing by the January 2000 agreement, set forth the parties’ agreement at the time of the settlement in 2004.
The trial court held that the Settlement Distribution was “not a new retainer agreement between the parties, ” but rather was merely a “disbursement memorandum, ” and “[i]t does not reflect a meeting of the minds between the plaintiffs and their former attorney” to increase Osborne’s contingency fee. In addition, the court held, the Settlement Distribution document did not comply with Business and Professions Code section 6147. The court noted Osborne’s concession that in each of his contingency cases, he prepares a disbursement memorandum like the Settlement Distribution, and such a document is not a substitute for a retainer agreement.
The court added that Osborne presented the Settlement Distribution to Lee “as a take-it-or-leave-it proposition, ” knowing that Lee “had a serious need for settlement proceeds” that led him to sign the Settlement Distribution. In doing so, Osborne took advantage of the Hellingers by attempting to “force a new 50-percent deal” on them.
The trial court entered judgment in the Hellingers’ favor in the amount of $127,753.20. Osborne timely appealed.
DISCUSSION
Osborne contends that the trial court erred in finding that he breached the contingency fee agreement by keeping 50 percent of the settlement proceeds for his attorney fee instead of the 40 percent guaranteed by the original contingency agreement. In particular, Osborne argues that the Settlement Distribution constitutes an agreement to modify the fee agreement to increase his fee from 40 percent to 50 percent. We disagree.
Determining the validity of a contract “‘is solely a judicial function unless it turns upon the credibility of extrinsic evidence; accordingly, an appellate court is not bound by a trial court’s construction of a contract based solely upon the terms of the instrument without the aid of evidence.’ [Citation.]” (Duffens v. Valenti (2008) 161 Cal.App.4th 434, 443.) However, we review the trial court’s factual findings for substantial evidence. (North American Capacity Ins. Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 285.) “‘[A]ny conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision. [Citations.]’” (Estate of Young (2008) 160 Cal.App.4th 62, 76.) “We may not reweigh the evidence and are bound by the trial court’s credibility determinations. [Citations.] Moreover, findings of fact are liberally construed to support the judgment.” (Ibid.)
Here, it is true that the Settlement Distribution – signed by Lee at the time he received the settlement proceeds from Osborne – includes a line item for “attorney fees (at 50%)” amounting to $435,000. Further, Lee signed this document on his own behalf and on behalf of his brother Jay, pursuant to the Power of Attorney Jay had given Lee, which included the power to negotiate the distribution of the settlement proceeds among counsel and others. But the Settlement Distribution does not constitute a valid modification to the contingency fee agreement because it fails to comply with Business and Professions Code section 6147 (section 6147), which dictates the form of contingency fee contracts and “imposes several preconditions on the enforceability of a contingency fee agreement.” (Stroud v. Tunzi (2008) 160 Cal.App.4th 377, 381 (Stroud).)
Section 6147 provides, in part, that a contingency fee agreement must be in writing and signed by both the attorney and the client; it must disclose the contingency rate agreed upon and state that the attorney fees are negotiable and not set by law; and it must describe how costs incurred will affect the contingency fee and the client’s recovery. (§ 6147, subd. (a) and (a)(1), (a)(2), (a)(4).) “If a contingency fee agreement does not comply with these requirements, it is voidable at the option of the client and the attorney is then entitled to a reasonable fee for services performed.” (Alderman v. Hamilton (1988) 205 Cal.App.3d 1033, 1037 (Alderman); see § 6147, subd. (b).)
The decision in Stroud, supra, is instructive. There, two attorneys entered into a contingency fee agreement with a client guaranteeing the attorneys a flat fee of $75,000 if the lawsuit against a third party settled before trial, or 40 percent of any recovery if the matter went to trial. (Stroud, supra, 160 Cal.App.4that p. 379.) Before trial, the client settled the suit for $600,000. The attorneys demanded that their client pay a 50 percent contingency fee of $300,000, because they claimed that the fee agreement had been modified. They relied upon two handwritten documents signed by the client, one of which plainly stated that the client “agree[d] to pay [the attorneys] $300, 00 out of my settlement of $600,000, ” as well as a settlement sheet signed by the client that itemized the anticipated distribution of the settlement proceeds, including the proposed $300,000 payment to the attorneys. (Id. at pp. 379-380.)
Despite the client’s apparently explicit agreement in one of the handwritten documents to pay a 50 percent contingency fee, the appellate court agreed with the trial court that none of the attempts to modify the fee agreement was effective because they did not comply with section 6147. In particular, the documents were not signed by the attorney, did not state the contingency rate and how costs were to be allocated, and did not disclose that the attorney fees were negotiable. (Stroud, supra, 160 Cal.App.4th at p. 382.) The appellate court rejected the attorneys’ argument that the modification need not strictly comply with section 6147 so long as the original contingency agreement satisfied the statute, finding that this “would too easily allow an attorney to frustrate the statute’s purpose.” (Id. at p. 383.) All “material changes” to such an agreement, the court held, must comply with section 6147. (Ibid.; see also Fergus v. Songer (2007) 150 Cal.App.4th 552, 558, 570 (Fergus) [contingency retainer agreement guaranteeing attorney 45 percent of all recoveries made, and attempted modification of agreement, were both voidable because they did not include a statement that the fee was negotiable as required by section 6147].)
As in Stroud, the original fee agreement in this case complied with section 6147, but the purported modification – the Settlement Distribution – did not: it was not signed by Osborne and it did not state that the contingency fee was negotiable. Because the alleged modification to the fee agreement – increasing Osborne’s attorney fee by $87,000 – was a material change, the failure of the agreement to comply with section 6147 rendered it voidable at the option of the Hellingers. (Stroud, supra, 160 Cal.App.4th at p. 382.) Therefore, the trial court correctly determined that the Settlement Distribution was not a valid modification to the fee agreement.
Osborne argues that the Stroud decision made new law in 2008 in holding that modifications to retainer agreements must comply with section 6147, and at the time the Hellingers signed the Settlement Distribution in 2004, the law did not require modifications to contingency fee agreements to comply fully with section 6147. He essentially contends that Stroud should not be applied retroactively. Osborne’s argument is not well-taken.
“‘The rule that judicial decisions are generally applied retroactively is well established. [Citations.]’” (Rose v. Hudson (2007) 153 Cal.App.4th 641, 653.) While in very limited circumstances a court may decline to apply a judicial decision retroactively when the decision announced a new rule of law, “[a] court decision does not announce a new rule of law if it does not ‘overrule or disagree with any unanimous and unquestioned body of California decisional authority.’ [Citation.]” (Ibid.) In interpreting section 6147 to require modifications to fee agreements to comply with the requirements of the statute, Stroud did not disagree with any prior decisions. Osborne has not demonstrated that Stroud created a new rule that should not be applied to his case.
Osborne further contends that even if the Settlement Distribution did not comply fully with section 6147, the document was legally sufficient to modify the contingency agreement because it “substantially complied” with the requirements of section 6147. He is mistaken.
The requirements that section 6147 sets forth for contingency fee agreements are not excusable. (See Stroud, supra, 160 Cal.App.4th at p. 383 [material changes must strictly must strictly comply with section 6147]; Fergus, supra, 150 Cal.App.4th at p. 572 [“Irrespective of whether the client has knowledge of the information required to be in the contingency fee agreement, the agreement is voidable if it fails to set forth that information in writing]”.) In any event, even if the doctrine of substantial compliance could sometimes excuse non-compliance of a fee agreement with section 6147, the trial court’s factual findings preclude its application in this case. Indeed, the circumstances here demonstrate precisely why strict adherence to the requirements of section 6147 is necessary to protect clients in contingency arrangements.
“The rules governing the doctrine of substantial compliance are well settled. [Citation.] As it is used in the decisions of this state, the doctrine excuses literal noncompliance only when there has been ‘actual compliance in respect to the substance essential to every reasonable objective of the statute.’ [Citations.]” (Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1430.)
While Osborne suggests that the applicable standard for substantial compliance was set forth in Carol Gilbert, Inc. v. Haller (2009) 179 Cal.App.4th 852, that decision enunciated a standard specifically for determining when a defective service of process may be excused. (Id. at pp. 862-866.) It has little applicability here.
The Legislature’s objective in enacting section 6147 – to assure that contingency fee agreements are fair and understood by clients (Alderman, supra, 205 Cal.App.3d at p. 1037) – was not satisfied here. The trial court concluded that the Settlement Distribution did not reflect a “meeting of the minds” with respect to an increase of Osborne’s attorney fee. The court found that the Hellingers never agreed to the arrangement for fees and costs that was reflected in the Settlement Distribution. Rather, the parties’ discussions about increasing Osborne’s fee to 50 percent were always expressly contingent on Osborne agreeing that he would not be reimbursed for his costs. The Settlement Distribution does not shift responsibility for the costs to Osborne as per the parties’ discussions; rather, it suggests that Osborne would both keep 50 percent of the proceeds for his fee, and be reimbursed for all his costs. Osborne relies on a December 9, 2004 letter written by Jay, suggesting (according to Osborne) that the Hellingers agreed to the modification. But that letter was never admitted into evidence at trial, and thus cannot be considered on appeal.
The trial court also determined that the Settlement Distribution was not intended to be a modification to the retainer agreement. Rather, it was merely a memorandum describing the disbursement of settlement proceeds, typical of the memoranda that Osborne prepared in each of his contingency fee cases in addition to the retainer agreement. Viewed in the light most favorable to the judgment in the Hellingers’ favor, the evidence disclosed that Lee did not believe he was signing a modification to the retainer agreement when he signed the Settlement Distribution, and he only signed it because Osborne told him he needed to do so before he could get the check with the settlement proceeds. Had the document adhered to the requirements of section 6147 for the substance and form of contingency fee agreements, there would have been no ambiguity as to its objective. But assuming the Settlement Distribution was intended to increase Osborne’s fee, it failed to convey properly such a purpose, and thus fell far short of the goal of section 6147 to ensure that clients understand their contingency fee agreements.
Because we find that the Settlement Distribution was unenforceable against the Hellingers for failure to comply with section 6147, we need not consider Osborne’s argument that the trial court wrongly concluded that Lee signed it under duress.
Osborne also contends that Evidence Code section 622, which provides that “[t]he facts recited in a written instrument are conclusively presumed to be true as between the parties thereto” (Evid. Code, § 622), precludes the Hellingers from contesting that Osborne is entitled to 50 percent of the proceeds as attorney fees. According to Osborne, the Settlement Distribution’s reference to 50 percent attorney fees is a “fact” that the Hellingers, as parties to the agreement, cannot dispute.
The argument fails for two reasons. First, because the Settlement Distribution was an invalid effort to modify the fee arrangement, the attempted modification recited in the document is not a “fact” to be presumed true. Second, the conclusive presumption of section 622 does not apply to “recital[s] of a consideration.” (Evid. Code, § 622.) The percentage of attorney fees to be recovered by Osborne is plainly the “consideration” for the contingency fee arrangement. (See Stoneridge Parkway Partners, LLC v. MW Housing Partners III, L.P. (2007) 153 Cal.App.4th 1373, 1382 [recitals in loan agreement relating to interest on loan were not entitled to conclusive presumption of truth, because interest rate on loan was a consideration for the loan agreement].) Thus, Osborne’s reliance on Evidence Code section 622 is misplaced.
Finally, in his reply brief, Osborne asserts for the first time that, even assuming the court correctly found a breach of the retainer agreement, the trial court’s calculation of the damages in the amount of $127,753.20 was in error, and resulted in an overpayment to the Hellingers in the amount of $49,110.19. Osborne failed to raise this argument in his opening brief, and accordingly he has forfeited the argument. (Inyo Citizens for Better Planning v. Inyo County Bd. of Supervisors (2009) 180 Cal.App.4th 1, 14, fn. 2.)
DISPOSITION
The judgment is affirmed. Osborne to bear costs on appeal.
We concur: EPSTEIN, P. J., SUZUKAWA, J.