Schneider v. Kaiser Foundation Hospitals

• Decision Date: 21 November 1989
• Docket Number: No. D007543,D007543
• Citation: 264 Cal.Rptr. 227,215 Cal.App.3d 1311
• Court: California Court of Appeals Court of Appeals
• Parties: Jacob SCHNEIDER, et al., Plaintiffs and Respondents, v. KAISER FOUNDATION HOSPITALS, et al., Defendants and Respondents. Friedman, Collard & Poswall, Movant and Appellant.

Page 227

264 Cal.Rptr. 227

215 Cal.App.3d 1311

Jacob SCHNEIDER, et al., Plaintiffs and Respondents, v. KAISER FOUNDATION HOSPITALS, et al., Defendants and Respondents Friedman, Collard & Poswall, Movant and Appellant.

No. D007543.

Court of Appeal, Fourth District, Division 1, California.

Nov. 21, 1989.

As Modified on Denial of Rehearing Dec. 15, 1989.

Review Denied Feb. 15, 1990.

Allan J. Owen, Morton L. Friedman and Friedman, Collard & Poswall, Sacramento, for movant and appellant.

Allan Lame, Palm Springs, for plaintiffs and respondents.

No appearance, for defendants and respondents.

WIENER, Acting Presiding Justice.

Business and Professions Code section 6146 ¹ enacted as a part of the Medical Injury Compensation Reform Act of 1975 (MICRA) limits the amount of fees an attorney may obtain in a medical malpractice action when representing a party on a contingency fee basis. If periodic payments are awarded to the plaintiff under section 667.7 of the Code of Civil Procedure, section 6416(b) requires the court to determine the "total value" of such payments based upon the projected life expectancy of the plaintiff and to use this amount to compute the total award from which attorney's fees are to be calculated. The principal issue here is whether the "total value" of periodic payments means the arithmetic sum of all payments required by the award, i.e. the award's face value or the present value of the stream of future payments. For the reasons set forth below we decide the value of an award of periodic payments for the purpose of calculating a contingent attorney's fee is the present value of the periodic payments, normally best represented by the cost of the annuity purchased to fund the payments. We also hold a plaintiff's attorney discharged before the court makes this determination has standing to participate at the hearing to establish the award's value.

I

The questions presented in this appeal arise from a series of rather unusual procedural events occurring over a substantial period of time. We recite that history for the sole purpose of presenting the issues before us. ²

Plaintiffs Marcia and Randy Schneider on behalf of their minor son, Jacob, sought to recover damages due to the negligence of defendant Kaiser Foundation Hospitals at and following Jacob's birth. Pursuant to a contract between the Schneiders and Kaiser, their dispute was submitted to binding arbitration. An arbitration panel awarded Jacob $3,624,000: (1) a $1,000,000 lump sum payment; and (2) $2,624,000 in periodic payments pursuant to a purchased annuity at a rate of $3,650 per month until Jacob's death or the fund is exhausted, whichever occurs first.

At the time of the arbitration award, the Schneiders were represented by attorney Morton L. Friedman and the firm of Friedman, Collard & Poswall (collectively Friedman). Following receipt of the award, Friedman requested a further hearing before the arbitration panel to clarify, among other things, the total value of the award for the purpose of calculating his contingent fee. As a result of that hearing, the panel amended the award to specify that the sum of $3,624,000 "is the total value of payments for purposes of computing fees."

Friedman then petitioned the court to confirm the amended arbitrators' award. Before the petition could be heard, the Schneiders discharged Friedman and retained new counsel who moved to vacate the amended award and to confirm the original award. Friedman appeared at the hearing and successfully argued in favor of confirming the amended award.

Several weeks later, however, following the filing of papers concerning the propriety of the court's awarding fees and costs to Friedman, the court entered an order stating that Friedman lacked standing to argue the question of attorney's fees. The Schneiders sought reconsideration of the court's earlier order amending the award after which the court vacated the amended award and confirmed the original based on its inherent power to correct erroneous rulings. (See Greenberg v. Superior Court (1982) 131 Cal.App.3d 441, 445, 182 Cal.Rptr. 466.)

Friedman moved to vacate the judgment confirming the original award. In the ensuing hearing, consolidated with the evidentiary hearing on the Schneiders' request for a determination that Kaiser had not complied with the arbitrators' award, the court denied Friedman's motion and imposed sanctions of $1000 against him pursuant to Code of Civil Procedure section 128.5 on the ground Friedman had no standing to bring the motion to vacate. Friedman appeals this order.

II

We first address the standing issue.

The Schneiders answer Friedman's claim that he has standing by directing us to Fracasse v. Brent (1972) 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9 as indicating that a client may discharge an attorney retained on a contingent fee basis at any point in the case, subject only to the client's obligation to compensate the attorney for the reasonable value of any services rendered. (Id. at pp. 790-791, 100 Cal.Rptr. 385, 494 P.2d 9.) The Schneider's argument is valid only if the attorney's quantum meruit compensation were calculated without reference to the total value of the award eventually recovered by the plaintiff. As Fracasse makes clear, however, an attorney discharged shortly before the conclusion of a case may be able to assert entitlement to the entire contingent fee as the appropriate quantum meruit recovery. (Id. at p. 791, 100 Cal.Rptr. 385, 494 P.2d 9.) Moreover, as explained in Cazares v. Saenz (1989) 208 Cal.App.3d 279, 256 Cal.Rptr. 209, the appropriate quantum meruit recovery for an attorney discharged even at an earlier point in the proceedings may be measured by a percentage of the originally agreed-upon contingent fee. (Id. at pp. 288-289, 256 Cal.Rptr. 209.) Obviously in such circumstances, the attorney with a substantial interest in the proper calculation of the total award from which his fee is calculated has standing. Because the court's decision to award sanctions against Friedman was based on its determination that he did not have standing, we strike the order.

III

His standing established, Friedman argues the court's order vacating the amended arbitration award and confirming the original award was unauthorized, claiming the court's power to vacate or correct an arbitration award is strictly limited and does not extend to areas of law of the sort allegedly involved in this case. ³ Friedman is correct in saying that a trial court's power to vacate or correct an arbitration award is limited. Code of Civil Procedure section 1286.2(d) provides that an award may be vacated if "[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision...." Correspondingly, section 1286.6(b) provides that an award may be corrected if "[t]he arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; ..."

In a series of cases interpreting these two sections, the courts of appeal have concluded that a trial court may vacate or correct an arbitration award due to an error of law where such error appears on the face of the award. (See, e.g., Abbott v. California State Auto. Assn. (1977) 68 Cal.App.3d 763, 770-771, 137 Cal.Rptr. 580; Hirsch v. Ensign (1981) 122 Cal.App.3d 521, 529, 176 Cal.Rptr. 17; National Football League Players' Assn. v. National Football League Management Council (1986) 188 Cal.App.3d 192, 199, 233 Cal.Rptr. 147.) Here, if the arbitrators' selection of $3,624,000 as the value of the award for the purpose of calculating Friedman's fee is legally erroneous, it is an error which is manifest on the face of the arbitration award and the court had the power to correct it. Thus the basic question before us is how a court should establish the value of an award for purposes of calculating attorney's fees under section 6416(b).

Whether the "total value" of periodic payments under section 6416(b) means the arithmetic sum of all payments to be received or the present value of the stream of future payments is a question of law which, to our knowledge, has yet to be answered by any California court. The reason may simply be the fortuity of the common law process. Case-by-case adjudication of legal issues presupposes that some questions will take longer to reach the appellate courts than others. Alternatively, the absence of appellate authority may only reflect that in the marketplace the answer is well-known to experienced practitioners and courts, with virtual unanimity among them that the manner of calculating attorney's fees under section 6416(b) is to determine the present value of the stream of future payments. The Schneiders impliedly say the latter is true, asserting that before they discharged Friedman they "checked with two medical malpractice attorneys in San Diego to see how they computed their fees when periodic payments were involved, [and] found that they ... based their fee upon the present cash value of the stream of payments, rather than on the lump sum award." That this may be the accepted manner of setting contingent fees in this type of case is not surprising in light of the apparent unanimity in the literature on this subject. For example, in a recent issue of the California Lawyer, the rule is categorically stated as follows:

"If the structured settlement annuity is purchased from a third party insurance company, attorney's fees should be based on the cost of the annuity to the defendant. The cost of the annuity is simply what the insurance company spent to purchase it. Any other method of calculation, such as the annuity's hypothetical present value, would produce attorney's fees probably considered excessive under rule 2-107, ABA Model Rule 1.5 and DR2-106 of the ABA Code." ⁴ (Meyer, Settling In Your Client's Interest (July 1988) Cal.Law., at p. 55.)

Although the foregoing refers to a ...