Litster Frost Injury Lawyers, PLLC v. Idaho Injury Law Grp., PLLC, Docket No. 48359

Docket NumberDocket No. 48359
Decision Date02 September 2022
Citation518 P.3d 1
Parties LITSTER FROST INJURY LAWYERS, PLLC, an Idaho professional limited liability company, Third Party Plaintiff-Respondent-Cross Appellant, v. IDAHO INJURY LAW GROUP, PLLC, an Idaho professional limited liability company ; Melissa G. Gryder, individually, Third Party Defendants-Appellants-Cross Respondents. Melissa G. Gryder, individually, Plaintiff, v. James L. Wood, individually; Ryder Truck Rental, Inc., a Florida corporation, Defendants.
CourtIdaho Supreme Court

Idaho Injury Law Group, PLLC, Boise, for Appellants/Cross-Respondents. Seth Diviney argued.

McFarland Ritter, PLLC, Meridian, for Respondent/Cross-Appellant. Ryan McFarland argued.

BRODY, Justice.

This appeal involves a dispute over the division of a personal injury settlement between a predecessor law firm, a successor law firm, and a client who was subjected to unfair and deceptive trade practices. Litster Frost Injury Lawyers ("Litster") represented Melissa Gryder for approximately three years before Idaho Injury Law Group ("IILG") took over representation and settled Gryder's case roughly two months later for $120,000. Gryder had followed her attorney, Seth Diviney, from Litster to his newly formed firm, IILG. After the personal injury claim was settled, Litster sued IILG and Gryder, claiming a portion of the settlement for attorney's fees and costs it incurred. Gryder, through Diviney as her attorney, counterclaimed that Litster violated the Idaho Consumer Protection Act ("ICPA") and could not recover against the settlement fund. The district court ruled on a motion for partial summary judgment that Litster committed an unfair and deceptive trade practice in violation of the ICPA. However, by the time of the bench trial, the district court understood, based on representations by Diviney, that only Litster and IILG had a stake in the disputed portion of the fund—not Gryder. From this, the district court divided the disputed portion of the fund between Litster and IILG. For the reasons discussed below, we reverse the district court's decision after the bench trial and remand this case for further proceedings so the district court may balance the equities between Litster, IILG, and Gryder . We also direct the district court to determine, after a hearing on remand, the appropriate sanction for Diviney engaging in an impermissible concurrent conflict of interest since the start of this dispute.

A. Factual Background

In August 2016, Gryder was injured in a car wreck and contacted Litster about representing her. Two days after the wreck, Quentin Brown, a Litster intake specialist, went to Gryder's home to intake interview her.

During that interview, Brown summarized the written contingency fee agreement (the "Agreement"). Gryder did not read the Agreement. Instead, she relied on Brown's summary of each section in the Agreement.

Sections 1 and 2 of the Agreement provide the scope of Litster's representation. Those sections also explain how Litster's attorney fees would be calculated and explained that costs are deducted after the fees are taken out of a settlement:

[1] Scope of Employment: .... If no settlement or judgment is obtained Client will owe Attorney no fee. If a settlement or judgment is obtained, Client will pay Attorney fees and costs as follows:
[2] Attorney's Fees: Attorney's fees shall be calculated as follows from the gross settlement or judgment amount before any deductions for costs and expenses outlined below:
33?% if settled prior to filing a Complaint
40% if settled after the filing of a Complaint/Arbitration or Mediation
45% if settled, or if judgment obtained, after the commencement of trial

Section 6 of the Agreement addresses what would occur if Gryder terminated Litster's services before a settlement or judgment was obtained by Litster:

[6] Termination by Client: Client retains the right to terminate the services of Attorney at Client's discretion. Should Client exercise this right, Attorney retains a lien on any recovery obtained by Client, whether by settlement, judgment or otherwise, equal to the reasonable value of Attorney's services which are based on quantum meruit or the agreed percentage of any offer obtained by Attorney prior to termination. Attorney shall also retain a lien for any costs advanced at Attorney's discretion.

While summarizing Section 6, Brown incorrectly told Gryder that Litster "would not charge [her] anything" if she fired Litster before it obtained a settlement offer in her case. Gryder alleged that this representation induced her into signing the Agreement. According to Brown, there was no mention of an attorney charging lien on any recovery based on "quantum meruit" or as otherwise agreed.

After the intake meeting, the first attorney Litster assigned to Gryder was Warren Dowdle. Litster also assigned Gryder a "case manager." For the next seven months, Gryder mainly dealt with her case manager. During this time, Gryder's case manager gathered medical records, received treatment updates, and managed the worker's compensation aspect of Gryder's case. Ten months after she hired Litster, Gryder spoke to Dowdle about a "demand package" to the at-fault driver's insurance company. Dowdle sent the demand in July 2017. After receiving no settlement offer in return, Dowdle filed a complaint in November 2017. Dowdle represented Gryder for approximately two years.

In about January 2019, Seth Diviney, who was working for Litster (there is a disputed allegation that he was a managing attorney for Litster), began representing Gryder. About eight months later, Diviney left Litster and formed a new law firm, IILG. Prior to his departure, Diviney and Laurie Litster Frost, owner of Litster, had been in negotiations for Diviney to purchase Litster. However, the negotiations were unsuccessful and on September 15, 2019, apparently unbeknownst to Diviney, Laurie Litster Frost sold a portion of her ownership interest in Litster to attorneys Dan Jenkins, Paul Swainston, and Evan Mortimer. Diviney resigned from Litster the next day.

Approximately one week after Diviney resigned, Litster received a letter signed by Gryder terminating Litster's representation. At that point, Litster had not received any offers to settle Gryder's case. After firing Litster, Gryder signed a new contingency fee agreement with Diviney, now at IILG, to represent her. Notwithstanding Brown's oral representation to Gryder that she would not be charged "anything" if she terminated Litster before a settlement offer was received, Litster notified IILG and Gryder of its attorney charging lien pursuant to Section 6 of the Agreement and Idaho Code section 3-205 against any settlement or judgment in Gryder's personal injury case. Less than two months after leaving Litster and forming IILG, Diviney settled Gryder's personal injury case for $120,000.

During this time, Diviney and other former Litster employees—including members of Diviney's family—asserted a series of demands against Litster totaling hundreds of thousands of dollars. The district court noted Diviney, "[s]eemingly embittered by the circumstances prompting his departure, [ ] posted on Facebook that he is ‘consumed with the need for justice’ and ‘ready to wield [his] focused revenge at those who devastated [his] kindly village.’ " For example, in February 2020, Diviney filed a complaint against Litster under the Idaho Consumer Protection Act with the Office of the Attorney General for the State of Idaho. Diviney cited the conflict between Section 6 of the Agreement and Litster's intake specialists, who, like Brown, were trained to tell prospective clients that Litster would not charge them "anything" if the client terminated Litster before receiving a settlement offer.

The Attorney General's Office later recommended that Litster implement "certain policies to ensure it complies with the Idaho Consumer Protection Act," one of which was to make sure intake specialists are trained to "better explain ... [Section 6]." The Attorney General also concluded that the language in Section 6 of the Agreement should be changed. The Attorney General noted Section 6 "is of particular concern" due to its use of legalese "that consumers may not fully understand" and the "contradictory statements" between Sections 1 and 6. Under Section 1, "consumers pay nothing if Litster Frost fails to obtain a settlement or judgment." But under Section 6, "consumers must pay Litster Frost's fees even when another attorney obtains a settlement or judgment for the consumer."

B. Procedural Background

In December 2019, approximately one month after Gryder reached an agreement to settle her personal injury case, Litster intervened in the suit and filed a third-party verified complaint against Gryder and IILG to foreclose Litster's attorney charging lien against the settlement fund. Litster's lien included attorney fees in the amount of $48,000 (representing the previously agreed upon forty percent of the $120,000), plus costs of $2,825.46, for a total of $50,825.46 in attorney fees and advanced costs.

On December 30, 2019, IILG and Gryder answered Litster's complaint, and Gryder asserted a counterclaim against Litster. Approximately one month later, Gryder amended her counterclaim, specifically pleading that Litster was not entitled to any attorney fees or costs because of its violation of the Idaho Consumer Protection Act. During this time, Diviney placed the disputed portion of the settlement fund—$50,825.46—in trust. At all times during this case, Diviney concurrently represented both IILG and Gryder in their competing claims to Gryder's settlement fund. Diviney, principal and founder of IILG, represented IILG's claim to the fund by virtue of IILG's forty percent contingency fee agreement with Gryder. Diviney also purportedly represented Gryder pro bono on her ICPA...

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