Opinion
NO. 2012 CA 0032
09-21-2012
MARY GRACE KNAPP AND LUCIO CANO v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
George R. Blue, Jr. Covington, LA Plaintiff-in-Intervention/Appellee, In Proper Person Jill L. Craft Stephen Babcock Baton Rouge, LA Attorneys for Defendant-in- Intervention/Appellant, Mary Grace Knapp Henry G. Terhoeve Baton Rouge, LA Attorney for Defendant-Appellee, State Farm Mutual Automobile Insurance Company
NOT DESIGNATED FOR PUBLICATION
On Appeal from the
19th Judicial District Court,
In and for the Parish of East Baton Rouge,
State of Louisiana
Trial Court No. 571219
Honorable Timothy E. Kelley, Judge Presiding
George R. Blue, Jr.
Covington, LA
Plaintiff-in-Intervention/Appellee,
In Proper Person
Jill L. Craft
Stephen Babcock
Baton Rouge, LA
Attorneys for Defendant-in
Intervention/Appellant,
Mary Grace Knapp
Henry G. Terhoeve
Baton Rouge, LA
Attorney for Defendant-Appellee,
State Farm Mutual Automobile
Insurance Company
BEFORE; WHIPPLE, GAIDRY, AND HIGGINBOTHAM, JJ.
HIGGINBOTHAM , J.
Defendant-in-intervention, Mary Grace Knapp, appeals the judgment of the trial court denying her motion for sanctions, awarding plaintiff-in-intervention, George R. Blue, the full amount of his contingency fee, awarding him damages for tortious interference with a contract and breach of contract, and awarding him attorney's fees for suit on an open account. For the following reasons, we affirm in part and reverse in part.
FACTS AND PROCEDURAL HISTORY
On December 5, 2006, Mary Grace Knapp, an attorney, and her friend, Lucio Cano, were injured in an automobile accident. Following the accident, Knapp and Cano retained attorney George R. Blue to represent them against the uninsured motorist carrier, State Farm Mutual Automobile Insurance Company (State Farm). Knapp and Blue had worked together previously, and she referred Cano to Blue. On November 30, 2007, Knapp and Cano entered into separate contracts for legal representation with Blue. Knapp's contract with Blue provided for a 10% contingency fee if the case settled prior to sixty days before trial. Cano's contract with Blue provided for a contingency fee of 40% if the case settled after the suit had been filed. On October 1, 2008, Blue filed suit on behalf of Knapp and Cano.
On July 14, 2009, counsel for State Farm forwarded an unconditional tender in the form of checks payable to Knapp and Cano to Blue's office. Upon receipt of the checks, Blue forwarded the settlement statement to Cano and Knapp, indicating the 40% contingency fee charged Cano per the contract. Upon receipt of the unconditional tender, a dispute arose between Knapp, Cano, and Blue regarding the percentage of Cano's fee and Knapp's entitlement to a referral fee. After disagreement regarding the fee percentage, Knapp and Cano faxed letters from Knapp's office in August 2009 terminating Blue. Knapp settled her claims with State Farm in the summer of 2010 for $145,000.00.
On October 26, 2009, Blue filed a "Petition for Intervention" against Knapp, Cano, and State Farm seeking recovery of his fees and costs. The intervention trial against Cano only was held on September 21, 2010, after which judgment was signed finding that the contingency fee contract between Blue and Cano was enforceable as written and dividing the sums between Blue and Cano's second attorney, Jesse Wimberly. Subsequently, on October 22, 2010, Blue filed an amended petition for intervention against Knapp alleging that she breached her contract with him. The petition states "Blue would never have agreed to a ten (10%) percent contingency fee contract with [Knapp] absent the referral of the case of [Cano]...". Blue requested thirty percent attorney's fees on Knapp's recovery from State Farm for Knapp's breach of contract and unjust enrichment for her reduced fee. Blue further alleged that Knapp intentionally interfered with his contract with Cano and sought damages for her tortious interference with his contract with Cano. Blue filed a motion to set these matters for hearing and included in that a request for sanctions against Knapp. On November 23, 2010, Knapp filed for sanctions against Blue alleging that Blue's amended petition was filed solely to harass her.
These matters came before the trial court on March 21, 2011, after which a judgment was signed on April 12, 2011, denying both parties' motions for sanctions, awarding Blue $14,500.00 representing his 10% of Knapp's total recovery, awarding $10,535.50 to Blue for having to prosecute the intervention against Knapp, awarding damages totaling $28,200.00 for tortious interference with a contract, awarding $5,800.00 in attorney's fees pursuant to La. R.S. 9:2781, suit on an open account, and casting all costs of the intervention suit against Knapp. It is from this judgment that Knapp appeals citing several assignment of error.
This amount is based on $12,900.00 representing fees for prosecuting the intervention against Cano, and $15,300.00 representing the amount lost by Blue that was paid to Wimberly in the intervention suit against Cano.
Blue answered the appeal citing two assignments of error, but in brief he dismissed his answer and requested that the court affirm the trial court's award.
LAW AND ANALYSIS
Generally, a court of appeal may not set aside a trial court's or jury's finding of fact in absence of "manifest error" or unless it is "clearly wrong." Evans v. Lungrin, 97-0541 (La. 2/6/98), 708 So.2d 731, 735 (citing Rosell v. ESCO, 549 So.2d 840, 844 (La. 1989)). However, if a legal error interdicts the fact finding process, the manifest error standard of review is no longer applicable, and, if the record is otherwise complete, the appellate court should make an independent de novo review of the record and determine which party should prevail by a preponderance of evidence. Id. There is a legal error when a trial court applies incorrect principles of law and these errors are prejudicial. Id. Legal errors are prejudicial when they deprive a party of substantial rights and materially affect the outcome. Id. When a prejudicial error of law skews the trial court's finding of a material issue of fact and causes it to pretermit other issues, the appellate court must, if it can, render judgment on the record by applying the correct law and determining the essential material facts de novo. Id.
In her first assignment of error, Knapp contends that the trial court was in error in awarding Blue the entire contractual rate of 10% provided for in the contingency fee contract when there was cause for his termination and when the settlement recovered was as a result of much legal work done by her and her staff post termination of Blue. Further, she noted she received significant medical treatment related to the accident after terminating Blue.
Ascertaining whether termination was with or without cause is a factual determination and will only be disturbed on appeal upon a finding of manifest error. Stobart v. State, DOTD, 617 So.2d 880, 882 (La. 1993). The trial court clearly believed the testimony of Blue and his wife, who was also his paralegal, that Knapp had no issues with the representation of Blue before the unconditional tender was given by State Farm. According to the record, the discord did not begin until the dispute arose about the fee percentage, and Knapp's entitlement to a percentage because of her referral of Cano. Our review of the record in its entirety shows that the trial court's finding that Blue's dismissal was not for cause was not clearly wrong or manifestly erroneous, and the trial court's conclusion with regard to cause was reasonable.
Although we find no error in the court's determination regarding cause, we must determine whether the amount of attorney's fees awarded to Blue was proper. When an attorney is discharged without cause, the amount of the fee is to be determined according to the highest ethical contingency percentage to which the client contractually agreed in any of the contingency fee contracts which he executed. Solar v. Griffin, 554 So.2d 1324, 1327 (La. App. 1st Cir. 1989), writ denied, 558 So.2d 582 (La. 1990). The amount prescribed in the contingency fee contract, not quantum meruit, is the proper frame of reference for fixing compensation for the attorney prematurely dismissed without cause. A trial judge has great discretion in setting an attorney fee. This award should not be modified on appeal absent a showing of abuse of discretion. Id. at 1328. The fee should be apportioned between the attorneys according to the respective services and contributions of the attorneys for work performed and other relevant factors which are set forth in the Rules of Professional Conduct. Saucier v. Hayes Dairy Products, Inc., 373 So.2d 102, 118 (La. 1978). A client has the absolute right to discharge his attorney and after being discharged the attorney cannot recover in full measure the contracted-for fee provided in the contingency contract without providing all or substantially all of the legal services contemplated by the contract. Id. at 116.
According to Blue, he is entitled to the ten percent on the entire amount recovered by Knapp because any work done post-termination was done by Knapp and she is not entitled to attorney's fees for representing herself. In support of his position he relies on Lamz v. Wells, 05-1497 (La. App. 1st Cir. 6/9/06), 938 So.2d 792, 798, which states recovery of attorney's fees is not available for one who represents himself because he has incurred no out-of-pocket expenses. Blue's reliance on this case is misplaced. In that case the attorney was representing himself on a special motion to strike which under La. C.C.P. 971 provides for a reasonable attorney fees and costs for a prevailing party. Lamz followed the case of Lambert v. Byron, 94-854 (La. App. 3 Cir. 2/8/95), 650 So.2d 1201, which did not award attorney's fees to an attorney representing himself on a promissory note when the note had a provision for attorneys fees if the note was referred to an attorney. In Lambert, the court stated that the purpose behind an award of attorney's fees is so a successful litigant's recovery might not be diminished by the expense of legal representation. Id. at 1203. Lamz and Lambert are not applicable to the facts in the case sub judice, as they contemplate an award of attorney's fees as provided for by statute or contract. In the instant case, Knapp is not seeking an award of attorney's fees for representing herself. She is contending that it was in error for Blue to receive in full 10% of her recovery because the services the parties contracted for were not completely performed. According to the record, Blue was terminated nearly a year prior to the case being mediated and finally settled and Knapp contends that much effort was expended in seeking settlement post-termination of Blue.
The trial court did not determine what portion of the 10% contingency fee Blue earned, because it stated it agreed with the First Circuit's position on the recoverability of attorney's fees by an attorney who represents himself and awarded 10% on the total amount recovered by Knapp. This ruling misapplies the First Circuit's position. In the instant case, Blue did not perform substantially all of the services contemplated by the contract, and is therefore not entitled to recover in full measure the contracted-for fee.
Having found legal error in the trial court's determination, we review the matter de novo to consider what portion of the 10% contingency fee provided for in the contract Blue earned. See Evans, 708 So.2d at 735. Knapp provided a detailed description of the work that was done to settle her claim with State Farm after the termination of Blue. Blue filed an itemization of services rendered in furtherance of Knapp's personal injury claim. After careful review of the documents presented and the testimony of Blue and Knapp regarding the work that they had done we determine Blue has earned 65% of the 10% fee provided for in the contract, which totals $9,425.00. Accordingly, we find merit to Knapp's assignment of error and amend the judgment to reflect that Blue is entitled to $9,425.00 for his portion of the fee.
10% of the total amount recovered is $14,500.00; 65% of $14,500.00 is $9,425.00.
In her second assignment of error, Knapp argues that the trial court committed legal error in awarding Blue attorney's fees for pursing his intervention claim against Knapp, because there is no legal authority for an award of attorney's fees unless expressly granted by statute. The judgment determined that Knapp terminated her contingency fee contract with Blue without cause, breached her contingency fee contract with Blue, and is therefore liable for damages in the amount of $10,353.50 representing Blue's attorney's fees and costs in prosecuting the intervention against Knapp. Blue contends that this award was for damages for breach of contract and not an award of attorney's fees.
Under our rules an attorney may contract with a client to provide legal services for a fee contingent and calculated upon the amount recovered or preserved, so long as the contract does not restrict the client's right with or without cause to discharge the attorney, or grant as a fee to the attorney without requirement of commensurate services an immutable proprietary percentage of the client's claim, or result in an attorney collecting a "clearly excessive" fee which has not been "earned" as defined by the rules. Saucier, 373 So.2d at 117 (La. 1978). Even when a client is obligated by a contract, the client has a right to discharge the attorney (and terminate the contract) at any time, with or without cause, subject to liability for payment for reasonable attorney's fees. Francis v. Hotard, 00-0302 (La. App. 1st Cir. 3/30/01), 798 So.2d 982, 985, writ not considered, 01-1323 (La. 6/22/01), 793 So.2d 1263. A contingency fee agreement governs compensation. It does not and cannot prohibit clients from discharging their attorneys. Therefore, to the extent Blue's claim is grounded in the allegation that Knapp breached her contingency contract with him by termination of his services, it cannot stand. Blue conceded that the $10,353.50 were damages for Knapp's breach of contract. Therefore, as we determined there was no breach of contract by Knapp, the award of damages was in error. Having so found, the portion of the judgment awarding damages for breach of the contingency fee contract is reversed.
In her third assignment of error, Knapp argues that the trial court erred in finding the theory of tortious interference applicable in this case and therefore, was in error in finding Knapp liable for $12,900.00 for fees for prosecuting the intervention against Cano, as well as for $15,300.00 representing the amount lost by Blue that was paid to Wimberly in the intervention suit against Cano.
Historically, a cause of action for tortious interference with a contract was not available in Louisiana. See Kline v. Eubanks, 109 La. 241, 33 So. 211 (1902). However, in 9 to 5 Fashions, Inc. v. Spurney, 538 So.2d 228 (La. 1989), the Louisiana Supreme Court, relying on "the fundamental civil law principle that obliges a person to repair damage caused another by his fault" pursuant to La. C.C. art. 2315, recognized a narrowly defined cause of action for intentional interference with a contract. 9 to 5 Fashions, 538 So.2d at 233-234. The Court, thus overruled jurisprudence which barred "absolutely any action based on a tortious interference with a contract" to the extent that the jurisprudence conflicted with the Court's holding in 9 to 5 Fashions. 9 to Fashions, 538 So.2d at 234.
Although it recognized the availability of this cause of action in Louisiana, the Court specifically limited the scope of the cause of action. The Court noted that it did not intend to adopt "whole and undigested the fully expanded common law doctrine of interference with contract, consisting of 'a rather broad and undefined tort in which no specific conduct is proscribed and in which liability turns on the purpose for which the defendant acts, with the indistinct notion that the purposes must be considered improper in some undefined way.' " 9 to 5 Fashions, 538 So.2d at 234 (quoting W. Prosser & P. Keeton, The Law of Torts Sec. 129 (5th ed. 1984)). Instead, under the facts presented therein, the Court recognized "only a corporate officer's duty to refrain from intentional and unjustified interference with the contractual relation between his employer and a third person." 9 to 5 Fashions, 538 So.2d at 234.
The Supreme Court has noted its intention to proceed with caution in expanding this cause of action, See Great Southwest Fire Insurance Company v. CNA Insurance Companies, 557 So.2d 966, 969-970 (La. 1990). Furthermore, the courts of appeal have been reluctant to extend the cause of action to many factual scenarios outside of that presented in 9 to 5 Fashions. See, e.g., Guilbeaux v. Times of Acadiana, Inc., 96-360 (La. App. 3rd Cir. 3/26/97); 693 So.2d 1183, 1186-1187, writ denied, 97-1840 (La. 10/17/97), 701 So.2d 1327; Gulf South Business Systems and Consultants, Inc. v. State, Through Department of Environmental Quality, 625 So.2d 697, 701-702 (La. App. 1st Cir. 1993); Tallo v. Stroh Brewery Company, 544 So.2d 452, 453-455 (La. App. 4th Cir.), writ denied, 547 So.2d 355 (La. 1989). Inasmuch as this cause of action is based upon La. C.C. art. 2315, the courts have not recognized a cause of action for tortious interference with contracts unless a duty exists on the part of the defendant to refrain from interfering with the contract. See, e.g., Spencer-Wallington, Inc. v. Service Merchandise, Inc., 562 So.2d 1060, 1063-1064 (La. App. 1st Cir.), writ denied, 567 So.2d 109 (La. 1990); Tallo, 544 So.2d at 453-455. The requisite duty in 9 to 5 Fashions arose out of a corporate officer's narrowly defined duty to refrain from intentional and unjustified interference with the contractual relation between his employer and those with whom his corporation contracts. 9 to 5 Fashions, 538 So.2d at 234.
The Louisiana Supreme Court has implicitly expressed a willingness to entertain tortious interference claims regarding legal services contracts, at least in some cases. In Chaffin v. Chambers, this court declined to extend the tortious interference cause of action to a plaintiff attorneys claim that "the defendant attorney solicited the representation of the plaintiff attorney's client and intentionally interfered with the plaintiff attorney's employment contract with his client." 577 So.2d 1125, 1129 (La. App. 1st Cir. 1991). Because improper client solicitation implicates ethical standards governing law practice, and because the Louisiana Supreme Court has plenary power to regulate the practice of law, the court refused to "recognize a tort cause of action arising from the violation of the [Louisiana Rules of Professional Conduct]." See Id. at 1129-30. Subsequently, and without written reasons, the Louisiana Supreme Court reversed the judgment of the appellate court, reinstated the trial court's judgment overruling the defendant attorney's exception of no cause of action, and remanded the case to the trial court for further proceedings. See Chaffin v. Chambers, 584 So.2d 665 (La.1991). No further history of the case is reported.
This court in Krebs v. Mull, 97-2643 (La. App. 1st Cir. 12/28/98), 727 So.2d 564, writ denied, 99-0262 (La. 3/19/99), 740 So.2d 119, determined that Chaffin clearly establishes that in some circumstances a tort action may lie for unwarranted interference by an attorney with the attorney-client contract of another attorney. In Krebs, the court found an attorney stated a cause of action against co-counsel for intentional interference with contract based on allegations that co-counsel interfered with attorney's relationship with jointly-represented clients. Krebs, 727 So.2d at 568. Krebs was subsequently overruled by Scheffler v. Adams and Reese, L.L.P., 06-1774 (La. 2/22/07), 950 So.2d 641. In Scheffler, the court stated "[t]o the extent that Krebs deviates from the bright-line rule announced herein that no cause of action will exist between co-counsel based on the theory that co-counsel have a fiduciary duty to protect one another's prospective interest in a fee, it is disapproved." Id. at 653, n. 10.
It is with this jurisprudential history of tortious interference with contract that we consider the facts as presented in this case. Blue's claim for tortious interference is based on his allegation that Knapp was aware of the contract between him and Cano, and after his refusal to pay a referral fee to Knapp, she intentionally caused Cano to fire Blue. He further alleged that the parties had orally contracted for a reduced contingency fee for Knapp in exchange for her referral of Cano. In oral reasons for judgment, the trial court determined "Knapp interfered consciously and intentionally with the contract that Blue had with Mr. Cano" and awarded damages. Cano testified in the intervention suit against him that he discharged Blue because he did not honor an oral contract between the parties to charge him a lesser percentage. Knapp testified that she and Cano had been friends for over twenty-five years. Unlike the Chaffin case, Knapp did not convince Cano to discharge Blue in order to become his attorney. She never assumed representation of Cano or benefited in any way from his future representation. She was acting in her capacity as a friend and not as an attorney. Therefore, we find the cause of action for tortious interference with contract is applicable in only limited circumstances, and the facts presented in this case do not warrant application of the theory of tortious interference with contract. The portion of the trial court judgment awarding damages for tortious interference with contract is reversed.
In Knapp's fourth assignment of error, she contends that the trial court committed legal error in awarding attorney's fees based on open account, because the disputed legal fee was not an "open account" per the statute. Louisiana Revised Statute 9:278 ID states that an open account "includes any account for which a part or all of the balance is past due." Blue argues that in the judgment rendered on September 21, 2010, regarding Cano's intervention only, the trial court determined Blue was not terminated for cause by Knapp and therefore the attorney's fees were due and payable on September 21, 2010. He subsequently sent a demand letter on October 29, 2010, demanding payment of his fees. Blue's cause of action against Knapp was not before the court on the day of his intervention suit against Cano. Thus any determinations made by the trial court regarding the intervention against her were improper. The fee between Knapp and Blue was still in dispute when the demand letter was sent by Blue and was not finally determined until judgment was rendered on March 21, 2011 finding he was not terminated for cause. Therefore, the money could not be considered due and owing when the demand letter was sent because the amount was still in dispute. Further, the suit arises out of a contractual obligation (a contingency fee contract) and is therefore not an open account as contemplated by La. R.S. 9:2781. Jumonville v. White, 2007-2589 (La. App. 1st Cir. 5/8/08), 992 So.2d 1044, 1048. Accordingly, we find the award of attorney's fees under the open account statute unwarranted and that portion of the trial court judgment is reversed.
In Knapp's fifth and sixth assignment of error, she contends that the trial court erred in casting all of costs of the intervention suit to her. The trial court is vested with great discretion to assess costs against any party as it may deem equitable, even against a party who prevails on the merits; however, the general rule is that costs are to be paid by party cast in judgment. Stockstill v. C.F. Industries, Inc., 1994-2072 (La. App. 1st Cir. 12/15/95), 665 So.2d 802, 821-822, writ denied, 1996-0149 (La. 3/15/96), 669 So.2d 428. Louisiana Code of Civil Procedure 2164 governs the scope of appeal and the assessment of costs and provides as follows:
The appellate court shall render any judgment which is just, legal, and proper upon the record on appeal. The court may award damages, including attorney fees, for frivolous appeal or application for writs, and may tax the costs of the lower or appellate court, or any part thereof, against any party to the suit, as in its judgment may be considered equitable.
Considering that we are reversing the trial court's award for damages for breach of contract, tortious interference with contract, and attorney's fees for suit on an open account, Blue is no longer the prevailing party on all of his claims. Under these circumstances, we conclude that the most equitable assessment of costs is for each party to bear his or her own costs of the trial court proceedings. Accordingly, the judgment of the trial court is reversed, and each party is responsible for his or her own costs.
In her final assignment of error, Knapp challenges the trial court's denial of her request for sanctions against Blue. In her rule for sanctions, Knapp alleges that Blue's supplemental petition seeking additional damages was filed solely to harass her. The trial court denied her request for sanctions. Louisiana Code of Civil Procedure article 863 authorizes the imposition of sanctions upon an attorney or party for violation of the standards of pleading set forth in the article, including certification that the pleading is not presented for an improper purpose, that its assertions are warranted by law, and that its factual allegations have evidentiary support. Article 863 does not empower a trial court to impose sanctions simply because a particular argument or ground for relief is subsequently found to be unjustified; failure to prevail does not trigger an award of sanctions. The article is intended to be used only in exceptional circumstances; where there is even the slightest justification for the assertion of a legal right, sanctions are not warranted. Stroscher v. Stroscher, 01-2769, p. 8 (La. App. 1st Cir.2/14/03), 845 So.2d 518, 526. A trial court's determination regarding the imposition of sanctions is subject to the manifest error or clearly wrong standard of review. Id. Although we have determined that several of Blue's requests for relief are unjustified, we do find justification for the assertion of the right and not that he filed the supplemental petition for the sole purpose of harassing Knapp. Thus, we find no error in the trial court's denial of the award of sanctions.
CONCLUSION
For the foregoing reasons, we amend the April 12, 2011 judgment to reduce the amount of the fee awarded to Blue to $9,425.00, and affirm the trial court's denial of the award of sanctions. In all other respects, the judgment of the trial court is reversed. All costs of the appeal are to be divided equally between George R. Blue and Mary Grace Knapp.
REVERSED IN PART; AMENDED IN PART; AND AS AMENDED, AFFIRMED.