Grasch v. Grasch
| Decision Date | 23 September 2016 |
| Docket Number | NO. 2015-CA-000294-MR,NO. 2015-CA-000336-MR,2015-CA-000294-MR,2015-CA-000336-MR |
| Parties | SALLY CAROL GRASCH APPELLANT/CROSS-APPELLEE v. ALBERT FRANKLIN GRASCH, JR. APPELLEE/CROSS-APPELLANT |
| Court | Kentucky Court of Appeals |
TO BE PUBLISHED
APPEAL AND CROSS-APPEAL FROM FAYETTE CIRCUIT COURT
As the facts are more fully developed within each of the issues analyzed below, a brief overview of the marriage is presented here. Husband and Wife married on September 20, 1980, shortly after completing college. Each was employed and had a bachelor's degree. However, early in the marriage, Husband quit his job and went to law school. Wife continued to work and provide funds for Husband's education. Husband graduated law school and began practicing law. Wife then obtained her Master's in Business Administration. She also gave birth to the parties' two children. Each child was emancipated prior to the dissolution.
In the early 1990s, Husband opened a law firm. Wife was the law firm's business manager. She received a token sum of money for her work, while Husband reaped the lion's share of the firm's proceeds. The parties lived well off of these funds, building a million-dollar house, traveling often, eating at restaurants, and the like.
After 32 years of marriage, however, Husband and Wife separated. Wife would ultimately file for dissolution after Husband removed her from the law practice. The parties litigated the marital property division for approximately 4 years before appealing and cross-appealing the trial court's orders to this Court.The case now stands ripe for a decision, and each of the parties' issues are discussed in turn below.
During the marriage, Husband had a law practice where he executed contingency fee contracts with some clients. Wife sought during the dissolution to have the contingency fee contracts divided as marital property. Husband sought to have them declared income and moved the trial court for summary judgment on the issue of whether the contingency fee cases were income or part of the marital estate. The trial court granted summary judgment inasmuch as it found the funds received from contingency fee cases were income, not marital property. Wife appeals the trial court's order on this issue and makes two arguments: (1) the trial court prematurely granted summary judgment as material issues of fact still existed; and, (2) contingency fee cases are marital property. We address her arguments in reverse order.
Wife argues that the trial court erred by finding as a matter of law that contingency fee cases were not marital property subject to division pursuant to KRS 403.190. The trial court's reasoning in its order on this issue was brief, "The contingency fee cases of Grasch Law, PSC, are a component of [Husband's]income when received and are not property of the marital estate and therefore are not subject to division by the Court." (Order of Partial Summary Judgment, p.1). We review this decision de novo. Caniff v. CSX Transp., Inc., 438 S.W.3d 368, 372 (Ky. 2014) (citing 3D Enterprises Contracting Corp. v. Louisville & Jefferson Cnty. Metro. Sewer Dist., 174 S.W.3d 440, 445 (Ky. 2005)). Summary judgment is appropriate "where the movant shows that the adverse party could not prevail under any circumstances." Caniff, 438 S.W.3d at 372 (quoting Pearson ex rel. Trent v. Nat'l Feeding Sys., Inc., 90 S.W.3d 46, 49 (Ky. 2002)). Thus, if as a matter of law the contingency fee cases are income rather than marital property, summary judgment was proper on this issue.
Whether the contingency fee cases are marital property or income appears to be an issue of first impression in Kentucky. Under KRS 403.190(2), marital property "means all property acquired by either spouse subsequent to the marriage[,]" excepting out certain gifts, inheritances, and the like, none of which is applicable here. "Property" is not defined in KRS Chapter 403. It is defined by "its ordinary meaning[;]" to wit, property is "a determinate thing or an interest in a determinate thing." Travis v. Travis, 59 S.W.3d 904, 909 fn. 6 (Ky. 2001). Thus, we must determine whether contingency fee contracts are either "determinate thing[s]" or interests in determinate things.
In Kentucky, contingency fee contracts do not give the attorney property interests in the client's funds. "Contingent fee contracts owe their very existence to the principle that the attorney does not gain any share in the title of thething he has engaged himself to recover." First Nat. Bank of Louisville v. Progressive Cas. Ins. Co., 517 S.W.2d 226, 230 (Ky. App. 1974). Thus, even though it is "customary for insurance companies" to make settlement drafts payable to a client and his or her attorney, the attorney gains "no real ownership interest" in the draft, as the attorney "is not entitled to a fee for money collected until he delivers it over to his client." Id. These contingency fee contracts, then, are not property interests owned by attorneys. Instead, they are income-generation devices that permit attorneys to determine their fee based on a client's recovery. Cf. Young v. C.I.R., 240 F.3d 369, 378 (4th Cir. 2001) ( ).
An attorney's lack of property interest in a contingency fee case is clearly seen in how Kentucky treats an attorney's interest in such cases when representation terminates before the case resolves. For example, an attorney who is discharged without cause before a contingency fee contract is completed is entitled to recover on a quantum meruit basis only. Baker v. Shapero, 203 S.W.3d 697, 699 (Ky. 2006). Furthermore, without good cause to withdraw representation, and even then in some cases where good cause is shown, an attorney may not recover fees at all, even under a quantum meruit theory of recovery, when he or she withdraws from representing a client. Lofton v. Fairmont Speciality Ins. Managers, Inc., 367 S.W.3d 593, 598 (Ky. 2012). Thus, an attorney whowithdraws or is terminated from representing a client under a contingency fee contract may at best seek recovery through quantum meruit.
Such recovery in quantum meruit is not due to a property interest. Instead, "[q]uantum meruit is an equitable remedy invoked to compensate for an unjust act, whether it is harm done to a person after services are rendered, or a benefit is conferred without proper reimbursement." Lofton, 367 S.W.3d at 597. "The right to recover in quantum meruit does not grow out of the contract, but is independent of it and is based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted." Bradley v. Estate of Lester, 355 S.W.3d 470, 472 (Ky. App. 2011) (quoting 17A Am. Jur. 2d Contracts § 200).
That quantum meruit recovery is not a contractual right is best seen by the fact that one can even recover in quantum meruit even in the absence of a contract. Bradley, 355 S.W.3d at 472 (citing Kruse's Administrator v. Corder, 258 Ky. 774, 81 S.W.2d 600, 601 (1935)). Accordingly, the fact that an attorney has at best a quantum meruit right to recovery on a contingency fee contract when the attorney's representation is terminated or ends before the case resolves diminishes any claim that the contracts constitute marital property. In this sense, a contingency fee contract is neither "a determinate thing [n]or an interest in a determinate thing." Travis v. Travis, 59 S.W.3d 904, 909 fn. 6 (Ky. 2001).
The marital property claim is further diminished because the contracts' values are not determinate: there may be no recovery; the contracts as written may be declared unenforceable by a trial court; or the contracts may bevoid. First, contingency fee contracts run a real risk of having a zero or negative value. "[F]or a contingent fee to be appropriate, there must be a realistic risk of nonrecovery." In re Combustion, Inc., 968 F.Supp. 1116 (W.D.La. 1997) (citing In re Quantum Health Resources, Inc., 962 F.Supp 1254, 1256 (C.D.Cal. 1997)). Second, trial courts may find the terms of the contingency fee contracts unenforceable, as "courts are not necessarily bound by a contingent fee agreement executed between a plaintiff and counsel." In re Orthopedic Bone Screw Products Liability Litigation, 176 F.R.D. 158, 183 (E.D.Pa. 1997) (citing Jenkins v. McCoy, 882 F.Supp. 549 (S.D.W.Va. 1995)). Thus a contingency fee contract's value may again be null by operation of law. Finally, a court may declare a contingency fee contract void due to a public policy violation. In Kentucky, contingency fee contracts in marital dissolution cases violate public policy and are void, even after the attorney's services have been completed. Overstreet v. Barr, 255 Ky. 82, 72 S.W.2d 1014 (1934).
Therefore, because contingency fee cases run the risk of having zero or negative value, and because contingency fee contracts give the attorney no...
To continue reading
Request your trial