Perez v. Pappas

• Decision Date: 17 February 1983
• Docket Number: No. 48203-9,48203-9
• Citation: 98 Wn.2d 835,659 P.2d 475
• Parties: Richard D. PEREZ and Charlotte A. Perez, his wife, Appellants, v. John D. PAPPAS and Jane Doe Pappas, his wife, Respondents.
• Court: Washington Supreme Court

Page 835

98 Wn.2d 835

659 P.2d 475

Richard D. PEREZ and Charlotte A. Perez, his wife, Appellants, v. John D. PAPPAS and Jane Doe Pappas, his wife, Respondents.

No. 48203-9.

Supreme Court of Washington,

En Banc.

Feb. 17, 1983.

Carney, Stephenson, Siqueland, Badley, Smith & Mueller, Timothy Parker, Basil L. Badley, Seattle, for appellants.

Cogdill, Deno & Millikan, James E. Deno, Everett, for respondents.

DIMMICK, Justice.

This is an action brought by appellants, Richard Perez and his wife Charlotte, against respondent, John Pappas, an attorney who had represented them in a personal injury suit. Appellants seek recovery, for breach of fiduciary duty, of all or a portion of the fee respondent received. The trial court acknowledged said breach but held it had been cured by repayment of funds prior to trial. We affirm the trial court but on an alternative theory of accord and satisfaction.

Appellant Richard Perez was seriously injured in 1975 while banding a flatbed load of steel pipe using a ratchet manufactured by Signode Corporation. He is now a paraplegic due to those injuries. Very shortly after the accident Mrs. Perez engaged attorney Malcolm McLeod to represent the couple in an action against Signode. A contingent fee agreement was entered into but Mr. McLeod did very little work as the relationship with appellants deteriorated and was terminated within a few weeks. Appellants then hired the law firm of Schroeter, Goldmark and Bender to represent them and a contingent fee agreement was entered into. Appellants became dissatisfied because the firm allegedly did not keep them well enough informed and made too many decisions regarding the case without their approval. There also was friction regarding Mr. Perez' decision to become an unpaid Jehovah's Witness minister rather than seeking retraining and paid work. The Schroeter firm represented appellants for a period of nearly 2 years and their records indicated that they had worked approximately 115 hours on the case.

In the fall of 1978 appellants and respondent agreed that respondent would be substituted as appellants' attorney. Respondent presented a contingent fee agreement to appellants but Mr. Perez disapproved of several provisions. Accordingly, no written agreement was reached but the parties orally agreed to a 35 percent contingent fee.

The success of the case was questionable as appellant's fellow employees had disposed of the Signode ratchet shortly after the accident, the manufacturer of the banding material was unknown, and appellant had been misusing the tool by employing a "cheater" bar to gain extra leverage which may have contributed to or caused the accident. Additionally, Mr. Perez' decision not to seek paid employment posed problems in proving damages. In spite of these facts, and within a matter of months from the time Pappas took the case, Signode's insurers began making settlement offers, apparently as a result of depositions taken by respondent in Chicago.

A favorable structured settlement offer was finally accepted in January 1979. The settlement had the following components:

(1) $360,000 in cash;

(2) life insurance benefit of $100,000;

(3) $25,000 yearly lifetime annuity for 10 years certain;

(4) $5,000 to be paid annually on the 18th, 19th, 20th and 21st birthdays of each of the six Perez children (for a total of $120,000); and

(5) payment in satisfaction of the $71,000 medical lien held by Sea-Land (which had already been settled by the insurance company for $35,000).

James Pappas, respondent's brother and an economist calculated the present cash value of the various components for respondent for the purpose of determining the proper value of the total settlement. There is a conflict in testimony as to whether respondent informed appellants of the present cash value; however, the court found that respondent did discuss the information with appellants. Respondent admits that he never submitted to appellants a full accounting which included the settlement reduced to a present cash value figure.

The parties agreed that Pappas would take $350,000 cash payment, rather than the 35 percent originally agreed upon as a fee and would pay all fees due McLeod and the Schroeter law firm from the $350,000. Respondent testified at trial that he took $350,000 and did not compute the 35 percent figure because he was assuming the risk of paying a greater amount to the other attorneys than expected and because of tax consequences to himself. Mr. Perez testified that he believed respondent took $350,000 because it reflected 35 percent of the settlement. He testified he was thus led to believe the settlement was worth $1 million.

Approximately 6 months after the settlement, appellants were referred to economist Dr. Silberberg by an attorney. Dr. Silberberg calculated the present cash value of the settlement from figures supplied by appellants. The calculations of Silberberg and the accounting later submitted by respondent indicated that respondent's fee substantially exceeded 35 percent of the actual present cash value of the settlement. Appellants complained to respondent regarding the fee. Respondent thereupon suggested that his brother, the other economist in this matter, discuss the present dollar value of the settlement with Silberberg. He would then repay appellants any money he had received exceeding 35 percent of that agreed upon value. After some compromises, both economists agreed on a dollar value for the settlement, and calculations revealed that respondent owed appellants $37,500, which he agreed to pay, plus interest. Pappas testified that he specifically told Mr. Perez, "I want you to be satisfied, and is this something that is going to satisfy you in your position and condition?" and that Mr. Perez answered "yes" to the question. Mr. Perez testified he was never happy with the fee. However, he did accept the money. Unfortunately, no written document was entered into reflecting the parties' agreement. The trial judge, who had the witnesses before him, made a specific finding that Mr. Perez' testimony was not credible. Thus, we accept as the true rendition of the facts Pappas' testimony that Mr. Perez was satisfied at the time of the agreement.

After consulting new legal counsel, appellants filed a complaint praying in the alternative for complete forfeiture of the attorney fee received by respondent, repayment of the fees less those based on quantum meruit, or repayment of a dollar amount that would allow appellants to recover what they were promised, 65 percent of $1 million.

The trial court found that the parties had orally agreed to a 35 percent contingent fee and concluded:

The defendant John Pappas did breach his fiduciary duty with regard to his dealings with the plaintiff Richard Perez in failing to render a prompt accounting and re-negotiating his fee upward at the time of the settlement of the Signode action, which breach was cured by the subsequent agreement and payment of $37,500 plus interest.

The trial judge specifically rejected the theory that the payment of $37,500 represented an accord and satisfaction because there was no dispute as to what the fee should be but only a dispute as to the cash value of the settlement. Appellants appealed. Respondent did not appeal the conclusion that he breached his fiduciary duties.

We affirm the result reached by the trial court, but do so on different grounds. We hold that although respondent did a commendable job in negotiating a settlement for appellants, he did in fact breach his fiduciary duties in renegotiating the fee for his services without full disclosure and in failing to give a written accounting. We disagree with the trial court that a breach of fiduciary duty can be "cured." It is well settled that restitution is no defense to an attorney's violation of the Code of Professional Responsibility, In re Pennington, 73 Wash.2d 601, 440 P.2d 175 (1968), and this appears to us to be an analogous situation. However, this is not an attorney discipline case and we can see no legal or public policy reasons which prevent an attorney and client from availing themselves of the contract remedy of accord and satisfaction. There was a genuine dispute in the instant case as to the fees and the basis of calculating those fees. We hold that the parties resolved the dispute regarding the fees to which respondent was entitled by agreement. Therefore respondent's repayment of $37,500 constituted an effective accord and satisfaction.

I

Oftentimes, structured settlements do not readily lend themselves to the usual course of calculating fees pursuant to contingent fee agreements. Therefore, when a structured settlement is reached the attorney and client may have to reconsider and discuss the calculation of fees. ¹ However, in doing so an attorney must continually be aware that the attorney-client relationship is a fiduciary one as a matter of law and thus the attorney owes the highest duty to the client. See Liebergesell v. Evans, 93 Wash.2d 881, 890, 613 P.2d 1170 (1980); McCutcheon v. Brownfield, 2 Wash.App. 348, 356-57, 467 P.2d 868 (1970). We agree with a well recognized principle that:

Once the attorney-client relationship is established, any modification of the fee arrangement becomes subject to the fiduciary obligations and the well-established presumptions. The courts have generally given particular attention and scrutiny to fee contracts made or altered during the attorney-client relationship.

(Footnote omitted.) R. Mallen & V. Levit, Legal Malpractice § 132, at 235 (2d ed. 1981). Additionally, if the renegotiation results in greater compensation than counsel was entitled to under the original agreement, courts may refuse to enforce the renegotiation unless it is supported by new consideration. 7 Am.Jur.2d Attorneys at Law § 251 (1980).

Accordingly, respondent's renegotiation of his fee after settlement must be carefully scrutinized. The trial court...