D.N. Corp. v. Hammond, 7031

• Decision Date: 11 May 1984
• Docket Number: No. 7031,7031
• Citation: 685 P.2d 1225
• Parties: D.N. CORPORATION, Appellant, v. Robert HAMMOND, Benjamin O. Walters, and Mark Rowland, Appellees.
• Court: Alaska Supreme Court

Page 1225

685 P.2d 1225

D.N. CORPORATION, Appellant, v. Robert HAMMOND, Benjamin O. Walters, and Mark Rowland, Appellees.

No. 7031.

Supreme Court of Alaska.

May 11, 1984.

W.G. Ruddy, Robertson, Monagle, Eastaugh & Bradley, Juneau, for appellant.

Jeffrey M. Feldman, Gilmore & Feldman, Anchorage, for appellees.

OPINION

Before RABINOWITZ and MATTHEWS, JJ., DIMOND, Senior Justice, ^* and COOKE and TAYLOR, Superior Court Judges. ^**

RABINOWITZ, Justice.

I.

This appeal from a grant of summary judgment involves the allocation among co-counsel of attorney's fees which accrued in the settlement of a wrongful death claim. ¹ The superior court concluded that the fee distribution was in accordance with the lawyers' original agreement and with a court-approved settlement proposal in which all parties had acquiesced. We reverse and remand for further proceedings.

II.

Donald Kaatz and Ronald Lindley were killed in an accident near Petersburg, Alaska in December 1970. ² Representatives of the Kaatz estate retained Anchorage attorney Robert Hammond to prosecute its wrongful death claim. Hammond contacted William Ruddy, a member of the law firm of Robertson, Monagle, Eastaugh & Bradley (the Robertson firm), to arrange for joint representation of the Kaatz estate. ³ Ruddy agreed on behalf of the Robertson firm to assume responsibility for the liability portion of the suit; Hammond was to continue to represent the Kaatz estate on the issue of damages. Hammond was to be entitled to one-third of the estate's "net recovery" (the total award less any amount due the subrogated workers' compensation carrier). ⁴ The Robertson firm, in turn, was to receive one-third of Hammond's fee as compensation for its assistance in prosecuting the case. Shortly thereafter, Kaatz's employer's workers' compensation carrier, which had paid approximately $60,000 in benefits to Kaatz's dependents, asked the Robertson firm to represent it. Under AS 23.30.015(g), the carrier was entitled to recover this sum from any third-party tort judgment won by the estate, "in so far as the recovery [was] sufficient after deducting all litigation costs and expenses." The firm accepted the offer of representation on a contingent fee basis. It was to receive one-third of any recovery obtained by the carrier. ⁵

Hammond subsequently contacted attorneys Benjamin Walters and Mark Rowland and requested their assistance in handling the damages portion of the case. In return, each was to receive one-third of the remaining two-thirds of the fee. Thus, the distribution arrangement was as follows: the Kaatz estate was to receive two-thirds of the anticipated net recovery, the Robertson firm was to receive one-ninth of the net recovery and Hammond, Walters and Rowland were each to receive two-twenty-sevenths of the recovery. The workers' compensation carrier's subrogation rights represented the difference between the gross and net recoveries.

After a non-jury trial, the superior court found that negligence of the State had been the primary cause of the accident, but concluded that relief was barred by the doctrine of contributory negligence. Kaatz I, 540 P.2d at 1041. On appeal, the plaintiffs successfully urged adoption of the doctrine of comparative negligence. Kaatz I, 540 P.2d at 1049. The appeal was handled on behalf of the plaintiffs by the Robertson firm, as it exclusively involved issues of liability.

The case was remanded for a determination of the relative liability of the parties. Upon remand, the superior court made findings on liability and damages. The state appealed this decision. Ruddy contacted Rowland regarding their arrangements for handling the second appeal. ⁶ Rowland told Ruddy, "... go ahead and run the appeal, Bill, we'll settle up on it at the end."

The second appeal again resulted in reversal. State v. Kaatz, 572 P.2d 775 (Alaska 1977). The case was remanded to the superior court for a trial on damages. Shortly thereafter, the Kaatz estate settled the case for $1,000,000. A settlement and distribution plan prepared by Walters and approved by the probate court distributed the proceeds of the settlement as follows:

1. Reimbursement to workers' compensation carrier of $61,800.00, less $20,600.00 as pro rata share of attorney's fees and less $262.12 as pro rata share of litigation expenses for a total of $39,937.88 ⁷

2. Attorney's fees of $317,900.00 ⁸ pursuant to the contingent fee contract between the Kaatz estate and Hammond.

3. Reimbursement of litigation expenses totalling $5,837.88.

4. The remainder to the heirs of Kaatz.

Walters divided the contingent fee proceeds, allocating one-third to the Robertson firm and two-ninths each to Hammond, Rowland and Walters. ⁹

Ruddy wrote to Walters objecting to the disbursement of attorneys' fees. He requested an additional $11,760.00 for work done in connection with the second appeal and claimed that he was entitled to the full $20,600.00 withheld from the workers' compensation carrier as its pro rata share of attorney's fees. ¹⁰ Walters disagreed, contending Ruddy was entitled to no additional compensation.

The Robertson firm ¹¹ filed suit against Hammond, Rowland, and Walters, demanding the additional fees. Both parties moved for summary judgment. The superior court concluded that the Robertson firm's fee award was in accordance with the attorneys' original fee agreement, that the agreement had not been modified prior to the second appeal to increase Ruddy's ¹² share of an attorney's fee award, and that recovery in quantum meruit was not available since the parties had entered into a formal contract. This appeal followed.

III.

We first consider the question of whether the superior court erred in concluding that the attorney's fees withheld from the recovery of the workers' compensation carrier were properly allocated. The superior court found that Ruddy had acquiesced in the distribution of these fees and cannot now challenge the fact that all of them were not paid to him. We disagree. But we hold that Ruddy's right to these fees depends on a question of fact which the superior court did not answer, and we remand so that Ruddy's rights can be determined.

When Hammond and Ruddy agreed that Ruddy would help represent the Kaatz estate, Alaska law did not require a subrogated workers' compensation carrier to contribute towards the attorney's fees of a successful tort claimant. This meant that the carrier was often able to receive a "free ride" and that the attorneys' share of any recovery would be taken from what remained after the carrier's subrogation rights were satisfied. If the carrier wished to lend legal help to the lawsuit, it could hire its own counsel and pay him or her out of its own recovery. Not long after Ruddy began to represent the Kaatz estate, the carrier hired Ruddy to represent its interests. We need not address in detail the potential conflict of interest this circumstance involved. ¹³ What is important here is that Ruddy was already legally committed to prosecute the case on behalf of the estate and his acceptance of the carrier's offer may have added very little to that commitment.

The possibility that the carrier might have to bear a pro rata share of the Kaatz estate's attorney's fees was raised when this Court decided Cooper v. Argonaut Insurance Companies, 556 P.2d 525 (Alaska 1976). In that case we held that a compensation carrier is required to pay its pro rata share of litigation expenses (including attorney's fees) incurred by an employee in recovering from a third-party tortfeasor. Ruddy's co-counsel explicitly relied upon Cooper in altering their original fee arrangement. They deducted one-third of the carrier's $61,800.00 subrogated claim as attorney's fees incurred in prosecuting the Kaatz claim. The carrier thus received $41,200.00 (less a small amount for pro rata expenses) and the $20,600.00 withheld from the carrier was distributed to Ruddy, Rowland, Walters and Hammond in accordance with the inter-attorney arrangements. Ruddy claims that Cooper does not apply to cases in which the carrier hires its own counsel and that the carrier should have received its full $61,800.00 lien, part of which would have been paid to him under his own one-third fee agreement with the carrier.

In footnote 12 of Cooper, we observed that "[n]othing said herein is intended to imply that a sharing of legal costs is required when the employer or compensation carrier seeks recovery against the third-party tort-feasor." The question before us is whether the carrier's act of hiring Ruddy--who was already obligated to represent the Kaatz estate--constitutes the sort of action which renders the Cooper cost-sharing rule inapplicable. Before answering this question we note that some states have drawn a distinction between "active" and "passive" representation of an employer or carrier: if the carrier's attorney does no more than monitor the case, the carrier is still required to contribute to the claimant's litigation expenses. See generally Larson, The Law of Workmen's Compensation § 74.32(b), at 14-462--14-464 (1983) (citing cases and statutes from Maryland, Minnesota, Nebraska, Texas and Utah). We think this distinction is a sound one. If a compensation carrier's attorney does no more than monitor the activities of the claimant's attorney, the fact that the carrier has chosen to hire its attorney on a contingent-fee basis should not be permitted to obscure the fact that the carrier's attorney has not actually assisted in obtaining a recovery against a third party tort-feasor. Thomas v. Aetna Casualty and Surety Co., 473 F.2d 164, 166, 167 (D.C.Cir.1972) (Maryland law).

Ruddy correctly notes that he was the lead counsel in this case. In no sense can his efforts be characterized as "passive." Yet his agreement with Hammond committed him to this effort some months before he accepted the carrier's offer of employment. It is possible that Ruddy's position as counsel for the carrier did...