Parents Against Drunk Drivers v. Graystone Pines Homeowners' Ass'n

• Decision Date: 07 March 1990
• Docket Number: No. 880430-CA,880430-CA
• Citation: 789 P.2d 52
• Parties: PARENTS AGAINST DRUNK DRIVERS, Assignee of Robert J. Debry, Plaintiff and Appellant, v. GRAYSTONE PINES HOMEOWNERS' ASSOCIATION, Counterclaimant and Respondent, v. John WEBSTER, Roy Nielson, Florance Lewon, Carlos Croft, and Louise Mallonee, as the Board of Managers of the Graystone Pines Homeowners' Association, on behalf of the owners of all units in Graystone Pines Condominiums, Intervenors, Counter-plaintiffs and Respondents.
• Court: Utah Court of Appeals

Page 52

789 P.2d 52

PARENTS AGAINST DRUNK DRIVERS, Assignee of Robert J. Debry, Plaintiff and Appellant, v. GRAYSTONE PINES HOMEOWNERS' ASSOCIATION, Counterclaimant and Respondent, v. John WEBSTER, Roy Nielson, Florance Lewon, Carlos Croft, and Louise Mallonee, as the Board of Managers of the Graystone

Pines Homeowners' Association, on behalf of the owners of

all units in Graystone Pines Condominiums, Intervenors,

Counter-plaintiffs and Respondents.

No. 880430-CA.

Court of Appeals of Utah.

March 7, 1990.

Edward T. Wells, William F. Bannon, and Robert J. Debry, Salt Lake City, for plaintiff and appellant.

L.R. Gardiner, Jr., and Thomas R. Vuksinick, Salt Lake City, for counterclaimant and respondent Graystone Pines Homeowners' Ass'n.

Before DAVIDSON, BILLINGS and ORME, JJ.

BILLINGS, Judge:

Robert J. Debry ("Debry"), ¹ appeals from an order granting partial summary Graystone retained Debry as its attorney to prosecute claims against the developers of Graystone Pines for faulty construction of 36 condominium units. Debry initially agreed to charge fifty dollars per hour for his legal services. Debry received more than $15,000 in legal fees and reimbursement for out-of-pocket expenses under this fee agreement.

judgment in favor of Graystone Pines Homeowners' Association ("Graystone"), limiting Debry's attorney fees to the amount set in the parties' contingency fee agreement. Graystone cross-appeals, claiming the court improperly awarded prejudgment interest to Debry. We reverse and remand.

In response to Graystone's concerns over the substantial costs of the litigation, Debry offered to change his fee structure from an hourly rate to a contingency fee. In a letter, which contains the provisions of the contingency fee agreement, Debry states that a "reasonable contingent fee for this type of case would be 60% of any recovery." Debry then reduced this 60% fee by one-half because of his estimate that the litigation was about half completed. Debry in the letter also required Graystone to give him full control over the settlement of the lawsuit.

This contingency fee agreement was accepted by Graystone in March of 1980, and litigation of the case continued. We do not discuss the details of the underlying lawsuit as they are irrelevant to this appeal. Graystone finally settled its claim against the developers in June of 1983 for $61,000. Debry refused to approve the settlement and accept a contingency fee of $18,300 as he believed the settlement was unreasonably low.

Debry then filed this action claiming, among other things, Graystone breached the fee agreement between the parties. The trial court granted Graystone's motion for partial summary judgment limiting Debry's attorney fee to thirty percent of the settlement obtained by Graystone or $18,300. The court also awarded Debry prejudgment interest on his fees from the date of the settlement of the underlying lawsuit.

Summary judgment should be granted "only when it is clear from the undisputed facts that the opposing party cannot prevail." Lach v. Deseret Bank, 746 P.2d 802, 804 (Utah Ct.App.1987). When reviewing an appeal from summary judgment, we construe the facts and view the evidence in the light most favorable to the losing party. Geneva Pipe Co. v. S & H Ins. Co., 714 P.2d 648, 649 (Utah 1986); Lucky Seven Rodeo Corp. v. Clark, 755 P.2d 750, 752 (Utah Ct.App.1988). "If ... we conclude that there is a dispute as to a genuine issue of material fact, we must reverse the grant of summary judgment and remand for trial on that issue." Atlas Corp. v. Clovis Nat'l Bank, 737 P.2d 225, 229 (Utah 1987). "Moreover, 'because a summary judgment is granted as a matter of law rather than fact, we are free to reappraise the trial court's legal conclusions.' " Bergen v. Travelers Ins. Co., 776 P.2d 659, 662 (Utah Ct.App.1989) (quoting Atlas, 737 P.2d at 229)). See also Lucky Seven, 755 P.2d at 752.

ATTORNEY'S RIGHT TO CONTROL THE SETTLEMENT OF A LAWSUIT

The existence of an attorney/client relationship is governed in Utah by both the ethical rules governing attorney conduct ² and contract law.

A provision in a fee agreement giving an attorney control over the settlement of the case was contrary to the Utah Code of Professional Responsibility. Ethical consideration 7-7 provided, in pertinent part: "In certain areas of legal representation In an early case, the Utah Supreme Court held a contractual provision granting an attorney control over the settlement of a lawsuit void as against public policy. Potter v. Ajax Mining Co., 22 Utah 273, 61 P. 999, 1003 (1900). The court found such settlement control provisions run afoul of the policy to encourage settlements of causes and differences between persons. 61 P. at 1003.

                not affecting the merits of the cause or substantially prejudicing the rights of a client, a lawyer is entitled to make decisions on his own.  But otherwise the authority to make decisions is exclusively that of the client and if made within the framework of the law, such decisions are binding on his lawyer." 3  Id
                

Utah law which voids fee agreements giving control over settlement to the attorney is consistent with the view of a majority of jurisdictions. Mattioni, Mattioni & Mattioni, Ltd. v. Ecological Shipping Corp., 530 F.Supp. 910, 913 (E.D.Pa.1982) (federal court found under Pennsylvania law that provision in fee agreement giving control over settlement to attorney void as against public policy); Giles v. Russell, 222 Kan. 629, 567 P.2d 845, 850 (1977) ("employment contract which prevents the client from settling without the consent of the attorney is void as against public policy"); Cummings v. Patterson, 59 Tenn.App. 536, 442 S.W.2d 640, 642 (1968) (counsel for appellant conceded that provision in contract requiring approval by counsel before securing settlement void and unenforceable as against public policy). See generally Annotation, Validity of Stipulation, in Contract Between Attorney and Client, Prohibiting or Restricting Right of Latter to Compromise without Former's Consent, and Effect of Invalid Stipulation in that Regard upon Rest of Contract, 121 A.L.R. 1122 (1934) (hereinafter "121 A.L.R. 1122").

The relevant provision in the parties' attorney fee contract gives Debry complete control over settlement:

Clients are sometimes overly optimistic because they are not paying anything to their attorney. Thus, they may turn down reasonable settlement offers because it costs them nothing to gamble on the results of a trial. Therefore, I would accept the contingent fee only if I had complete and unfettered control over any settlement.

Based upon the foregoing, we agree with the trial court that the provision of the parties' contingency fee agreement giving Debry absolute control of the settlement of the underlying lawsuit is void. However, this does not resolve the issue before us. We must also determine what effect the voiding of this provision has on the remainder of the parties' fee agreement.

The courts do not agree on what effect the voiding of a provision in an attorney/client fee agreement which gives the attorney control over the settlement of a client's claim has on the remaining provisions of the fee agreement. See 121 A.L.R. 1122, 1127-29. Utah's courts have not directly analyzed this issue. ⁴

Courts which find that the entire attorney fee contract is invalidated adhere to the general contractual doctrine of severability. These jurisdictions focus on the intentions of the parties. Generally, they conclude that the provision granting control over settlement of claims to the attorney was fundamental to the attorney's decision to enter into the fee structure and consequently it is not severable from the fee agreement. Mattioni, 530 F.Supp. at 913-14; Cummings, 442 S.W.2d at 643. In Cummings, the court found the provision A number of jurisdictions, on the other hand, have held a fee agreement valid despite the striking of a void provision limiting a client's right to settle. Calvert v. Stoner, 33 Cal.2d 97, 199 P.2d 297, 300-01 (1948); ⁵ Davis v. Webber, 66 Ark. 190, 49 S.W. 822, 824-25 (1899).

                restricting a client's right to settle its claims was not severable from the fee agreement because "[t]he attorneys drew the contract and apparently regarded as very material to their rights the provisions against settlement."  Cummings, Id.   In Mattioni, the court noted that the attorney viewed the provision as "one of the sharpest and straightest arrows in its quiver" and therefore found it nonseverable.  Mattioni, 530 F.Supp. at 914
                

We find no sound reason for departing from general contract principles in determining this contractual question. We are persuaded that attorney fees contracts, in the first instance, should be governed by the contractual doctrine of severability. However, the fiduciary relationship between attorney and client must also be considered in any decision as to whether the void attorney control provision is severable and thus whether the remaining portions of the attorney fee contract can be enforced.

In Utah, a provision of a contract is severable depending on the intent of the parties at the time they entered into the contract. Management Servs. Corp. v. Development Assocs., 617 P.2d 406, 408 (Utah 1980); Brown v. Board of Educ., 560 P.2d 1129, 1131 (Utah 1977).

This intent should be ascertained first from the four corners of the instrument itself, second from other contemporaneous writings concerning the same subject matter, and third from the extrinsic parol evidence of the intentions.

Management Servs., 617 P.2d at 408 (quoting Continental Bank & Trust Co. v. Bybee, 6 Utah 2d 98, 306 P.2d 773, 775 (1957)).

In making the determination of severability, extraneous evidence as to the circumstances surrounding the execution of the agreement is also important. Brown, 560 P.2d at 1131; Thomas J. Peck & Sons, Inc. v. Lee Rock Prods., Inc., 30 Utah 2d 187, 515 P.2d 446, 448 (1973).

If, after considering...