Stroud v. Tunzi

• Decision Date: 22 February 2008
• Docket Number: No. B194917.,B194917.
• Citation: 160 Cal.App.4th 377,72 Cal.Rptr.3d 756
• Court: California Court of Appeals Court of Appeals
• Parties: James T. STROUD et al., Plaintiffs and Appellants, v. Dominick A. TUNZI, Defendant and Respondent.

72 Cal.Rptr.3d 756

160 Cal.App.4th 377

James T. STROUD et al., Plaintiffs and Appellants, v. Dominick A. TUNZI, Defendant and Respondent.

No. B194917.

Court of Appeal, Second District, Division 8.

February 22, 2008.

Stroud & Do and James T. Stroud, Van Nuys, for Plaintiffs and Appellants.

Law Offices of Mark C. Sherwood and Mark C. Sherwood, for Defendant and Respondent.

RUBIN, J.

James T. Stroud, Van T. Do, and their law firm Stroud & Do, appeal from the trial court's order compelling them to release funds they wrongfully withheld from their former client, Dominick A. Tunzi, in their attempt to recover their attorney's fees. We affirm.

FACTS AND PROCEEDINGS

Respondent Dominick A. Tunzi sued his former employer and hired appellants James T. Stroud and Van T. Do to represent him in his lawsuit. In November 2002, he signed a contingency fee agreement with appellants, paying them a flat fee of $75,000 if the lawsuit settled before trial and 40 percent of any recovery if the matter went to trial. Before going to trial, he settled his lawsuit for $600,000.

After Tunzi settled his lawsuit, appellants demanded he pay them a 50 percent contingency fee of $300,000. Although appellants' original contingency fee agreement with Tunzi entitled them to a flat fee of only $75,000 if Tunzi's case did not go to trial, they claimed he had agreed before the settlement to modify their contingency fee agreement. The first purported modification was a handwritten, one-page document dated April 2, 2004. Signed by Tunzi, it stated:

"I, Dominick A. Tunzi, promise to pay the law firm Stroud & Do $75,000 out of my $450,000 portion of the settlement, should my case settle for that amount. I understand that this is contingent upon Stroud & Do being paid directly ... [$225,000 from another entity], which brings Stroud & Do's attorney's fee[s] to the total of $300,000."

Four days later, Tunzi signed another handwritten document that stated: "I, Dominick Tunzi, agree to pay Stroud & Do $300,000 out of my settlement of $600,000...." In addition to signing the two handwritten documents, Tunzi also signed a client settlement sheet prepared by appellants itemizing the anticipated distribution of the settlement proceeds, including the proposed $300,000 payment demanded by appellants.

When Tunzi refused to pay appellants more than the $75,000 he promised them under the original agreement for a pretrial settlement, the matter went to arbitration. The arbitrator found for Tunzi and rejected appellants' claim for a larger fee. Instead of accepting the arbitrator's finding, appellants sued Tunzi to recover the $300,000 they demanded. Their complaint alleged several causes of action, including breach of contract, and sought a declaratory judgment that they were entitled to recover $300,000 from Tunzi's settlement proceeds.

Appellants moved for summary adjudication of their cause of action for breach of contract. They argued the two handwritten documents from April 2004 modified the original contingency fee agreement from November 2002 and entitled them to $300,000. Tunzi opposed summary adjudication, arguing the April documents were ineffective in modifying the original contingency fee agreement because they did not comply with statutory requirements in the Business and Professions Code governing contingency fee agreements between an attorney and client.

The court denied summary adjudication. It informed the parties that appellants' motion had skirted the key issue of whether enforceability of the April 2004 modifications depended on the modifications' compliance with the Business and Professions Code. After the court shared its thoughts, counsel and the court conferred in chambers and agreed to set a hearing on the validity of the April modifications. The minute order from the hearing stated:

"Court and counsel confer in chambers. [¶] Counsel agree that the main issue in this case is the validity of the contract. [¶] The Court sets a formal hearing, with the agreement of counsel for 9-25-06 at 8:30 a.m. in this department] Counsel will brief the issue in accordance with the CCP. In essence the hearing will be a summary judgment as to the validity of the contract. [¶] As to the hearing notice [is] waived."

In preparation for the summary judgment hearing, the parties submitted points and authorities that supplemented the papers the parties filed for the earlier motion for summary adjudication. Tunzi's papers argued the April documents were ineffective attempts to modify the original fee agreement because they did not comply with the Business and Professions Code requirements that certain disclosures be made in contingency fee agreements. Appellants argued, on the other hand, that such modifications need not comply with the Business and Professions Code because the original contingency fee agreement did so. Appellants also argued in the alternative that the April modifications replaced the November fee agreement and without them no agreement existed, meaning they were entitled under quantum meruit to a reasonable fee of $400,000 for their services.

At the hearing, the court found the April modifications were invalid because they did not comply with section 6147 of the Business and Professions Code governing contingency fee agreements. It further found the original November contingency fee agreement governed appellants' fees. The court observed that in light of its ruling that the November fee agreement controlled, it did not "know what this litigation is all about" and urged the parties to meet and confer.

After the hearing, Tunzi submitted a proposed order to the court to reflect its rulings. On October 23, 2006, the court signed the order. The order stated the purported April modifications were invalid and the November fee agreement governed. Ruling in favor of Tunzi on appellants' cause of action for declaratory relief, the court ordered appellants "to immediately release all previously disputed funds held in Trust" to Tunzi. Appellants appeal from the court's order.

DISCUSSION

1. April Modifications Ineffective

The trial court found the purported modifications from April 2004 were ineffective because they did not comply with Business and Professions Code section 6147 (§ 6147). That statute imposes several preconditions on the enforceability of a contingency fee agreement. First, both the attorney and client must sign the agreement. Second, the agreement must state the contingency fee rate, and address how costs affect the attorney's fees and the client's recovery. And finally, the agreement must state that the attorney's fees are negotiable and not set by law. (§ 6147, subd. (a)(1)-(4).)¹ If a contingency fee agreement does not comply with these requirements, the agreement is voidable at the client's election. (§ 6147, subd. (b).)

The April documents did not comply with section 6147. First of all, Appellants did not sign the documents. In addition, the documents did not state the contingency rate and did not discuss costs. And finally, they did not disclose that appellants' fees were negotiable and not established by law.²

Appellants contend the April documents did not need to comply with section 6147 because the original November contingency fee agreement did. The recent decision in Fergus v. Songer (2007) 150 Cal.App.4th 552, 59 Cal.Rptr.3d 273 (Fergus), held otherwise. In that decision, a letter agreement between an attorney and client purported to increase the attorney's contingency fee from 45 percent to 50 percent. The Fergus court refused, however, to enforce the agreement because it did not comply with section 6147. It explained that the "letter agreement was in effect a 50 percent contingency fee agreement that was also voidable for failure to comply with [section 6147]."³ (Id. at p. 570, 59 Cal.Rptr.3d 273; accord Mitchell v. American Fair Credit Assn. (2002) 99 Cal. App.4th 1345, 1351, 1353-1354, 122 Cal. Rptr.2d 193 (Mitchell) [modifications to credit service contract must comply with Credit Services Act even though original service contract adhered to the act's provisions].) Following Fergus, the trial court did not err in finding the purported April modifications did not change the November agreement.

In Mitchell the First District reached a similar outcome involving another consumer protection statute, the Credit Services Act. (Civ.Code, § 1789.10 et seq.) As in this case, the defendant in Mitchell argued only the original contract must comply with the signature provisions governing credit service agreements. Thus, the defendant asserted, modifications to the original contract did not require the consumer's signature. The Mitchell court rejected the argument. It noted the act's signature requirements applied to "every contract" under its provisions. (Civ.Code, § 1789.16.) Reasoning that material modifications to a contract produced in essence a new contract, the Mitchell court held that such modifications fell within the meaning of "every contract." (Mitchell, supra, 99 Cal.App.4th at pp. 1353-1354, 122 Cal.Rptr.2d 193.) Hence, such modifications required the consumer's signature to be valid.

Here, in contrast, the provisions of section 6147 apply "at the time the contract is entered into." (§ 6147, subd. (a).) Appellants contend such language is narrower than "every contract," meaning the requirements of section 6147 apply only to the original contingency fee agreement. We disagree. First, as a matter of statutory construction, we see little difference between the two provisions. If an amendment essentially creates a new "contract" according to Mitchell, it follows that an amendment is a contract "entered into" under section 6147. We also reject appellant's constricted interpretation of section 6147's scope for more fundamental reasons of public policy: it would too easily allow an attorney to frustrate the statute's purpose. Sounding a caution that extends beyond credit services to cover all manner of...