Continental Cas. Co. v. Knowlton

• Citation: 232 N.W.2d 789,305 Minn. 201
• Decision Date: 22 August 1975
• Docket Number: No. 45172,45172
• Parties: CONTINENTAL CASUALTY CO., Respondent, v. Clair E. KNOWLTON, Appellant, James G. Paulos, Respondent. James G. PAULOS, Third-party Plaintiff-Respondent, v. Clair E. KNOWLTON, Third-party Defendant-Appellant.
• Court: Supreme Court of Minnesota (US)

Page 789

232 N.W.2d 789

305 Minn. 201

CONTINENTAL CASUALTY CO., Respondent, v. Clair E. KNOWLTON, Appellant, James G. Paulos, Respondent.

James G. PAULOS, Third-party Plaintiff-Respondent, v. Clair E. KNOWLTON, Third-party Defendant-Appellant.

No. 45172.

Supreme Court of Minnesota.

Aug. 22, 1975.

Syllabus by the Court

1. Where a client's entitlement to monthly disability insurance benefits, subject only to policy defenses, resulted from his attorney's successful prosecution and settlement of an action against the insurer, the trial court was justified in finding that the client and attorney intended the contingent fee provided in a contract between them to apply to monthly benefit payments as well as to the lump-sum settlement.

2. Although the compensation received by the attorney was large, the contingent fee contract was neither unconscionable nor overreaching, where the attorney performed numerous services in several matters for the client, substantial benefits accrued to the client from such services, the client was unable to pay fees based on time actually spent, and the client was a college graduate.

3. Minn.St. 550.39, which provides that disability insurance benefits are exempt from garnishment, attachment, or execution, does not prevent an attorney from collecting a contingent fee out of the proceeds of insurance recovered due to his work and activity, as exempt property is subject to an attorney's lien as well as to any other statutory lien.

Thiel, Sorenson & Hansing and Russell A. Sorenson, Minneapolis, for appellant.

James G. Paulos, pro se.

Heard before SHERAN, C.J., and MacLAUGHLIN and KNUTSON, JJ., and considered and decided by the court en banc.

KNUTSON, Justice. ^*

Clair E. Knowlton is designated in the briefs submitted here as defendant appellant and as appellant third-party defendant. For clarity, we will refer to him by his name, Knowlton.

This is an appeal by Knowlton from a judgment and an order denying his motion for amended findings of fact and conclusions of law or, in the alternative, for a new trial.

Prior to June 4, 1966, Knowlton was employed as a systems management engineer by Control Data, Inc. On that date, he was involved in an automobile accident in which, he contends, he was totally disabled. At the time, Control Data carried a group disability income benefit policy with plaintiff, Continental Casualty Company, herein Continental. Control Data also carried a group health insurance policy with Northwestern National Life Insurance Company, but liability under that policy is not involved in this appeal. After the accident, Knowlton submitted claims to both insurance companies without the assistance of counsel. Benefits were denied by Continental apparently on the grounds that Knowlton was not totally disabled and that he had failed to comply with policy provisions. Thereafter Knowlton contacted James G. Paulos, an attorney at law, designated herein as respondent defendant and as respondent third-party plaintiff. He will be referred to hereafter as Paulos. Knowlton and Paulos then executed a contract providing for a contingent fee of 40 percent.

An action was brought against General Motors Corporation alleging negligence in the manufacture of the car driven by Knowlton at the time of the accident. Other actions were brought against Knowlton for medical and hospital bills, all of which were disposed of with the assistance of Paulos. The outcome of these actions is not of any material importance in this appeal.

After denial of liability by Continental, Paulos, on behalf of Knowlton, commenced an action for benefits against that company on the policy of insurance carried by Control Data. After trial by jury, judgment was ordered in favor of Knowlton. However, the trial court thereafter granted Continental a new trial. Prior to the new trial, a settlement was effected between Knowlton, represented by Paulos, and Continental. A release was signed under the terms of which Knowlton was to receive a lump-sum settlement of $28,386.01 for all claims and benefits accruing prior to November 15, 1972. Knowlton thereupon executed a release dated November 15, 1972, which reads as follows:

'RELEASE

'KNOW ALL MEN BY THESE PRESENTS, that Clair E. Knowlton, in consideration of the sum of Twenty-eight Thousand Three Hundred Eighty-six and 01/100ths Dollars ($28,386.01) to him in hand paid, the receipt of which is by him acknowledged, does hereby for himself and his heirs, executors and administrators, release and forever discharge, Continental Casualty Company from any and all manner of claims, demands, damages, causes of action or suits that he may now have arising out of, or in any way connected with, any transaction, occurrence, matter or thing of any kind occurring on or prior to November 15, 1972, including, but not limited to, any and all manner of claims, demands, damages, causes of action or suits that he may now have under Group Policy No. SR 183604 issued by Continental Casualty Company, insuring employees of Control Data Corporation and its fully owned subsidiaries, for benefits or indemnity due or payable thereunder on or at any time prior to November 15, 1972.

'The Undersigned Agrees and Acknowledges that Continental Casualty Company admits no liability to the undersigned or others whatsoever, particularly any liability or obligation to pay to the undersigned any benefits or indemnity under the aforesaid insurance policy by reason of any incident, circumstance, matter or thing whatsoever occurring at any time after November 15, 1972. The undersigned further agrees and acknowledges that, with respect to any claim or demand the Undersigned may hereafter make for benefits or indemnity under the aforesaid insurance policy by reason of any incident, circumstance, matter or thing whatsoever occurring at any time after November 15, 1972, Continental Casualty Company does not waive and shall not be estopped or otherwise barred from asserting any and all of its rights or defenses under the terms and provisions of the aforesaid insurance policy, which rights and defenses are expressly reserved, including, but not limited to, its right to examine the person of the undersigned when and so often as it may reasonably request during the pendency of any claim by the undersigned under the aforesaid insurance policy.

'IN WITNESS WHEREOF, I have hereunto set my hand and seal this 15th day of November, 1972.

/s/ CLAIR E. KNOWLTON'

The action was then dismissed with prejudice.

Pursuant to this release, a check was issued by Continental, payable jointly to Knowlton and Paulos, for $28,386.01. It was endorsed by both Knowlton and Paulos and deposited in Paulos' trust account. Paulos thereafter remitted a check to Knowlton in the sum of $16,167.46, representing 60 percent of the face amount of the settlement, less costs and disbursements. Knowlton kept the check but has not negotiated it.

On November 27, 1972, Paulos advised Continental that he was entitled to 40 percent of each future benefit check due Knowlton under the policy and asked that the checks be made payable to them jointly. Continental complied, issuing checks totaling $3,344.60, which represented monthly payments of $477.80 for the period from November 15, 1972, to June 15, 1973. Knowlton refused to endorse these checks. Continental sent inquiries to Knowlton, which went unanswered. It then commenced this action for a declaratory judgment to determine to whom it should make future payments. After trial without a jury, the court made findings and conclusions and ordered judgment declaring that Paulos was entitled to 40 percent of all future disability payments and requiring Continental to divide all future payments so as to pay 40 percent directly to Paulos and 60 percent to Knowlton. This appeal followed.

The questions involved are (1) whether the trial court's finding of fact to the effect that the contingent fee contract between Knowlton and Paulos provided that Paulos was to receive 40 percent of all sums collected from Continental in connection with any claim under the disability insurance policy is clearly erroneous; (2) whether the trial court erred in failing to hold the contract void as overreaching and unconscionable; and (3) whether the trial court erred in holding that the contract was not barred by Minn.St. 550.39.

1. At the outset, it will be noted that Knowlton has conceded that Paulos was entitled to 40 percent of the settlement for which the release quoted above was issued. So, the only thing involved as far as Paulos' compensation is concerned is whether he is entitled to 40 percent of the monthly payments coming due after the settlement. In appellant's brief, we find the following:

'It is submitted by defendant Knowlton that the settlement expressly precludes and Excludes the subsequent monthly payments made by Continental Casualty Co. to Knowlton.' (Italics supplied.)

In a subsequent summary, we find the following:

'* * * That the compensation to which Mr. Paulos is entitled for the results of his efforts in obtaining a settlement of the litigation with Continental Casualty Co. is covered in finding two which are not appealed.'

Conclusion of law No. 2 reads:

'That defendant Paulos was, and is, entitled to an amount equal to forty percent (40%) of the aforementioned $28,386.01 paid to defendant Knowlton by Continental Casualty Company, plus costs and disbursements incurred by him in the amount of $864.15, or $12,218.55.'

The construction of this contingent fee contract, therefore, is the main issue in litigation and on this appeal. The fee contract between Knowlton and Paulos was a preprinted contract with blanks filled in by the parties. It reads:

'I hereby retain and employ James G. Paulos, attorney at law, to bring suit upon and to represent me in the prosecution, recovery, or settlement of my claim or cause of action against Continental Casualty Co. for damages arising from certain...