State Farm Mut. Ins. Co. v. St. Joseph's Hospital

• Decision Date: 07 October 1971
• Docket Number: No. 10343,10343
• Citation: State Farm Mut. Ins. Co. v. St. Joseph's Hospital, 489 P.2d 837, 107 Ariz. 498 (Ariz. 1971)
• Parties: STATE FARM MUTUAL INSURANCE COMPANY, and Gene C. Stevens, Appellants, v. ST. JOSEPH'S HOSPITAL et al., Appellees.
• Court: Arizona Supreme Court

Page 837

489 P.2d 837

107 Ariz. 498

STATE FARM MUTUAL INSURANCE COMPANY, and Gene C. Stevens, Appellants, v. ST. JOSEPH'S HOSPITAL et al., Appellees.

No. 10343.

Supreme Court of Arizona, In Banc.

Oct. 7, 1971.

Lewis & Roca by John P. Frank, Michael J. LaVelle, P. Robert Moya, Phoenix, for appellants.

Hughes, Hughes & Conlan by John C. Hughes, Phoenix, for appellees.

UDALL, Justice:

This is an appeal by defendant, State Farm Insurance Company, from a jury verdict in favor of the plaintiffs, Dr. Lee P. Davis and St. Joseph's Hospital for compensatory damages and in favor of plaintiff, Hughes & Hughes for compensatory and punitive damages resulting from the tortious interference with a contract.

The facts as are necessary for a determination of this matter on appeal are as follows: In July of 1965, plaintiff, John C. Hughes of Hughes & Hughes, was retained as counsel to represent one Nellie Silverheels for a personal injury claim incurred as a result of an automobile accident. A one-third contingent fee agreement was entered into at that time. Treatment of Mrs. Silverheels' injuries was rendered by plaintiffs, St. Joseph's Hospital and Dr. Lee Davis, and resulted in a hospital bill of $1,153 and a doctor's bill of $392. Subsequently, all the plaintiffs and Mrs. Silverheels entered into an agreement, separate and distinct from the contingent fee agreement. Since the nature of this agreement is in issue, its text is herein reprinted below.

'I, the undersigned, in consideration of medical services rendered by Dr. Lee P. Davis (St. Joseph's Hospital) for treatment of injuries sustained in an automobile accident which occurred on or about May 16, 1965, and for the treatment of which I am indebted to said Doctor, do hereby authorize attorney John C. Hughes, of Hughes & Hughes, to deduct and pay over to the said doctor the sum of Three Hundred Ninety Two Dollars ($1,024.95) out of my money that may become payable by reason of the claim, suit or settlement brought to recover damages.'

Mrs. Silverheels, through her attorney John Hughes, then instituted suit. The law firm of Lewis, Roca, Beauchamp & Linton, by William Grainger appeared for the defendant in that case, and the insurance carrier was State Farm. Defendant herein, Gene Stewens, was the Claims Superintendent and was, in fact, an attorney licensed to practice law in the State of Arizona. The adjuster in the matter was Lawrence Bauer.

The defendants knew Mrs. Silverheels was represented by counsel and were on notice of the agreement between the plaintiffs and Mrs. Silverheels. During the course of negotiations with Hughes, offers of $1400 and $1750 were made, both authorized by Mr. Stevens. The first was rejected and before any decision on the second was reached, a letter of discharge signed by Mrs. Silverheels was received by Mr. Hughes. On the same day, July 6th, a letter was sent to Mr. Bauer verifying the discharge of Mr. Hughes. Mrs. Silverheels testified that these two letters were written by her landlady, Mrs. Baum, in the presence of Mr. Bauer. Mr. Bauer denied this, and testified that Mr. Silverheels had on numerous occasions sought to directly negotiate her claim with him, but he refused since she was represented by counsel. It was only after receiving confirmation of Hughes' discharge, Bauer stated, that he pursued direct negotiations with her. Plaintiffs contend Bauer supervised the writing of these discharge letters while Mrs. Silverheels was very ill and point to the fact that one of the letters referred to Mrs. Silverheels' insurance claim number which was not readily known by or available to her. On July 7th, a draft in the amount of $1325 was issued in favor of Mrs. Silverheels, who on the same day executed a release and stipulation of dismissal with prejudice. The stipulation was prepared by defendant, Stevens, although he was not the attorney of record. As to these papers, Mrs. Silverheels recalled signing them but testified she was unaware of their significance because she was very ill at that time and in fact had to be helped out of bed by Mr. Bauer to sign them. Thereafter Mr. Bauer and Mrs. Baum escorted Mrs. Silverheels to the bank and the was cashed. Defendant Stevens testified he prepared the stipulation of dismissal while Mr. Hughes was attorney of record in spite of the fact that he admitted he was familiar with Rule 12(c), Uniform Rules of Practice, 17 A.R.S. and Rule 80(e), Rules of Civil Procedure, 16 A.R.S. providing that no attorney shall be substituted as attorney of record except by order of the court and that an attorney is responsible for the conduct of the action until withdrawn by the court.

Plaintiff Hughes instituted this action against the defendants alleging the tort of wrongful interference of his contract with his client, Mrs. Silverheels. Plaintiffs St. Joseph's Hospital and Dr. Davis seek to recover for the tortious interference with their contract with Mrs. Silverheels authorizing Mr. Hughes to act as a collecting agent for them. The jury returned a verdict in favor of St. Joseph's, Dr. Davis and Mr. Hughes for compensatory damages in the amounts of $1,024.95, $392.00 and $461.30 respectively. In addition Mr. Hughes was awarded punitive damages in the amount of $5,000. The trial court held that Hughes had waived the compensatory damages in his closing argument to the jury but held the waiver not applicable to the punitive damages.

For purposes of this appeal the defendant raises two main questions for this Court to consider:

1. 'May an attorney, retained on a contingent fee basis to represent a plaintiff in a personal injury case, recover his fees and punitive damages from the defendant's insurance company if his client dismisses him and settles with the insurance company?

2. 'May a doctor or a hospital recover from an insurer for interference with contractual relationships when the insurance company pays the claimant directly rather than a third party who was authorized to use the money to pay the claimant's doctor and hospital bills?'

Defendant argues that a client has absolute right to dismiss his attorney at any time, with or without cause, and that this right to discharge is not affected by the existence of a contingent fee agreement between the attorney and client. Defendant argues further that it is the policy of this state to encourage settlement and that the client can settle his claim at any time, whether or not he is represented by counsel, citing Millsap v. Sparks, 21 Ariz. 317, 188 P. 135 (1920); and Employers Cas. Co. v. Moore and Romley, 60 Ariz. 544, 142 P.2d 414 (1943) as authority for this proposition. In the Moore case, the firm of Moore and Romley was retained on a contingent fee basis to represent the plaintiffs in a personal injury action. The plaintiffs, in that case, after suit had been filed, but before discharging their attorney, settled with the insurance company of the alleged tortfeasor. Moore and Romley then instituted suit against the company for their fees. This Court, in reversing the trial court's judgment for plaintiffs, Moore and Romley, held that the plaintiffs were not the owners of an equitable lien on the proceeds of settlement since '(i)t is difficult to conceive of an equitable lien on a 'mere expectancy, or inchoate right, not a debt, and not assignable. " Employers Cas. Co. v. Moore & Romley, 60 Ariz. at 550, 142 P.2d at 416. Since the attorney who prosecutes a suit has no lien until after final judgment, the court reasoned he cannot recover his fees from the insurance company who induced the client to settle. The court further held:

'* * * even though it (defendant's acts) might have interfered with appellees' contract with the Damrons (the clients), it certainly gave the appellees No right of action to recover attorney fees from the appellant.' (Emphasis supplied)

This holding, the defendants reason, precludes recovery in the case at bar. We agree with the holding in Moore, and hold there is no cause of action in contract for fees against the insurance company where settlement is before judgment and no lien arises which can be enforced. But we further hold that Moore does not control the case at bar. The plaintiffs here are suing in tort and not on contract and thus are not bound by Moore. While this is not altogether clear from plaintiffs' complaint, it became evidence during trial when the court in trying to determine the issues involved queried:

'The Court: * * * Do I understand your cause of action then is what--inducing wrongfully (sic) inducing a breach fo contract?

'Mr. Hughes: Yes, your Honor. The act lies in breaching a contract.

The Court: Inducing a breach of contract?

'Mr. Hughes: Yes.'

* * *

* * *

'The Court: * * * Is the gravamen of the claim that you are asserting is that a contract has wrongfully been breached and a contract has wrongfully been induced by the plaintiff(sic) to be breached?

Mr. Hughes: That's the heart of it.'

Likewise, this case is different from and not bound by Linder v. Lewis, Roca, Scoville & Beauchamp, 85 Ariz. 118, 333 P.2d 286 (1958) which has been cited by the plaintiffs. There, the action was begun as a garnishment suit by one of the debtors of Louis Marches, an individual whom Lewis & Roca had successfully represented in an action resulting in a verdict and judgment in favor of Marches. Lewis & Roca intervened and were awarded their fees. It is important to note here that the case was pursued to judgment. This resulted in a charging lien in favor of Lewis & Roca which the judgment creditor, their client, attempted to assign. Clearly there was no judgment in the case at bar on which plaintiffs' lien could arise and thus Linder is inapplicable.

The question we must resolve then is whether suc a cause of action in tort in relation to the attorney-client contract exists in law. While no Arizona case is cited involving the tortious interference with the attorney-client relationship, we hold such a cause of...