Garrett v. Garrett

• Citation: 140 Ariz. 564,683 P.2d 1166
• Decision Date: 25 November 1983
• Docket Number: No. 1,CA-CIV,1
• Parties: In re the Marriage of Veronica Ann GARRETT, Petitioner-Appellee and Cross-Appellant, v. Roger Earl GARRETT, Respondent-Appellant, and Cross-Appellee. 6069.
• Court: Court of Appeals of Arizona

Page 1166

683 P.2d 1166

140 Ariz. 564

In re the Marriage of Veronica Ann GARRETT, Petitioner-Appellee and Cross-Appellant, v. Roger Earl GARRETT, Respondent-Appellant, and Cross-Appellee.

No. 1 CA-CIV 6069.

Court of Appeals of Arizona Division 1, Department D.

Nov. 25, 1983.

On Motion for Reconsideration

Feb. 23, 1984.

Review Denied May 22, 1984.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, P.A. by Philip C. Gerard, Phoenix, for petitioner-appellee and cross-appellant

John S. Schaper, Phoenix, for respondent-appellant and cross-appellee.

OPINION

JACOBSON, Chief Judge.

The basic question presented by this appeal is whether the rights flowing from an attorney-husband's contingent fee contracts entered into during marriage but which were not fully performed at the time of dissolution are community or separate property.

The trial court held that the contracts had been substantially "earned" prior to dissolution, were community property and awarded the wife one half of the fees attributable to such contracts. The trial court also retained continuing jurisdiction over these contracts to effectuate its order. The husband has appealed and the wife has cross-appealed.

The facts are not in material dispute. The respondent-appellant, Roger Earl Garrett (Husband), began practicing law in Arizona in 1967. On July 29, 1977, the husband and petitioner-appellee, Veronica Ann Garrett (Wife) were married. The husband continued to practice law and the wife continued her pre-marriage occupation as a school teacher.

While the parties were married, the husband entered into two separate contingency fee contracts representing two sets of plaintiffs in two different personal injury lawsuits. These lawsuits have been designated by the parties as the "Boyd-DeMuth litigation" and the "Yontz-McMahon litigation." Both of these contracts provided that the husband was to receive one-third of any amounts collected and in the event the plaintiffs were unsuccessful, he was to receive nothing.

At the time of the dissolution hearing, neither of these two cases had reached the point where the husband was entitled to receive a fee from his clients. However, as to the Yontz-McMahon litigation, the husband had advised his clients to accept the sum of $103,000 in settlement of two of the four claims involved in that lawsuit and had rejected offers of settlement of $250,000 and $175,000 for the remaining claims. ¹ The husband had spent 60 to 65 hours on this litigation prior to the dissolution. As to the Boyd-DeMuth litigation, the husband had logged 90 hours in the case prior to the dissolution hearing, but no demand or offer of settlement had been made and no motion to set had been filed. ²

The wife presented expert testimony at the time of hearing as to the value of the claims in both cases. In addition, the husband testified as to other cases in which he had worked prior to the dissolution which had not been billed.

As previously indicated the trial court found, as to the Yontz-McMahon litigation, that the case had progressed to a point where the contingent fee contract had been "wholly earned" by the husband. As to the Boyd-DeMuth litigation, the trial court found that "the Respondent should be much farther along with the preparation at this time; that in light of Respondent's control of past and present work in progress, the Court must find in equity that the fees in the Boyd and DeMuth cases have also been earned."

Based upon this determination, the trial court awarded one-half of any fees to be received in these two cases to the wife and reserved "jurisdiction to follow the progress of trial and settlement of the contingent fee contracts to the end that Petitioner's interest therein shall be protected."

In addition, the trial court denied the wife's request for attorney's fees and refused to allow the wife to share in fees earned but unbilled at the time of dissolution. The husband has appealed and the wife has cross-appealed.

HUSBAND'S APPEAL

The husband argues that as to the contingent fee contracts, based upon the nature of these contracts and the case of In re Estate of Monaghan, 60 Ariz. 342, 137 P.2d 393 (1943), the fees flowing from such contracts are his separate property as they will be received after dissolution and therefore the trial court lacked jurisdiction to award one half of these fees to the wife. In the alternative, the husband argues that if the wife has an interest in the fees to be received under these contracts the trial court erred in not considering the tax liabilities flowing to the parties and that in any event the wife's interest must be valued as to what the husband would have been entitled to receive from his client at the time of dissolution--the reasonable value of the services rendered at that time. We turn first to the husband's contention concerning the separate property nature of these contracts. The husband's argument is that contingent fee contracts are truly "contingent" that is, any fees due under such contracts are "earned" only after the contingency upon which the fee is based is realized. See State Farm Mutual Insurance Co. v. St. Joseph's Hospital, 107 Ariz. 498, 489 P.2d 837 (1971); Neale v. Hinchcliffe, 21 Ariz. 452, 189 P. 1116 (1920). Moreover, the husband argues that the peculiar nature of this type of contract was recognized in In re Estate of Monaghan, supra, where the Supreme Court held that fees received under the wife's/attorney's contingent fee contract prior to separation were community property, but the balance of those fees received after separation were her separate property. (Under former § 63-301, A.C.A. 1939, income earned by a wife while living separate and apart from her husband was the wife's separate property.)

While we agree that In re Estate of Monaghan appears to support the husband's position, we are not convinced that this case is controlling. First, the nature of the contingent fee contract was not discussed. Second, there existed a property settlement agreement in that case which would have supported the court's finding that moneys received after the separation belonged to the wife. Finally, because of the lack of any legal analysis as to how the court reached its decision, we tend to agree with the dissent that "it is not possible to say on which ground it is based." (Ross, J., dissenting, 60 Ariz. at 346, 137 P.2d at 394.)

Moreover, while it is true that an attorney is not entitled to the full benefit of his contract until the contingency upon which it is based is fulfilled, this does not mean that valid enforceable contract rights do not exist regardless of its fulfillment. For example, an attorney under a contingency fee contract who is discharged prior to fulfillment of the contract is entitled to reimbursement for the reasonable value of his services. State Farm Mutual Insurance Co. v. St. Joseph's Hospital, supra, or his heirs are so entitled in the event death of the attorney precluded fulfillment of the contract. Neale v. Hinchcliffe, supra; see also Annot., 33 A.L.R.3d 1375 (1970). It is therefore clear that a contingency fee contract does not involve a mere expectancy in which no enforceable rights exist in the holder of the expectancy. In re Marriage of Brown, 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561 (1976). Based upon these considerations, we hold that an attorney's contingency fee contract is a valuable property right, though the contingency upon which it is based has not been fulfilled.

The question then becomes whether the community is entitled to an interest in that property right and if so, the value of that community interest. In answering this question, we reject the husband's contention that since the ultimate fee may not be acquired until after the dissolution, this automatically makes the fee separate property under A.R.S. § 25-213 as property "acquired" while the husband is single. We have previously noted that a contingency fee contract has enforceable rights prior to its full performance. Therefore, considering the nature of a contingency fee contract (the performance of continuing services), it is not the existence of rights under that contract which must abide a future event, but an assessment of the value of those rights. This principle is recognized in those cases which hold that where community labor is expended in the acquisition of future pension benefits, whether the right to those benefits is vested or non-vested at the time of dissolution, the community is entitled to share in those benefits to the extent which community labor contributed to their acquisition. Van Loan v. Van Loan, 116 Ariz. 272, 569 P.2d 214 (1977); Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981).

We believe the underlying rationale of these cases to be applicable here. That rationale is that the community is entitled to be reimbursed for the community labor expended in perfecting or protecting a future asset. In this regard, we reject a per se rule as to the ultimate character of the property being separate or community based upon when the contract was made. The community is not entitled to the services expended by one of its partners either before marriage or after the marriage has terminated. Warren v. Warren, 2 Ariz.App. 206, 407 P.2d 395 (1965); A.R.S. § 25-211. However, the community is entitled to such labors expended during marriage. Everson v. Everson, 24 Ariz.App. 239, 537 P.2d 624 (1975). Carrying these principles to their logical conclusion, it is theoretically immaterial if the contingency fee contract was entered into prior to marriage, if after marriage community labor was expended to bring it to fruition. For the same reasons, it is immaterial if the contract was entered into during marriage, but no community labor was expended to fulfill the contract. When the nature of the asset requires continuing services to reap an ultimate benefit (such as contingency fee contracts and pension plans) it...