Valparaiso Technical Institute, Inc. v. Porter County Treasurer
| Decision Date | 27 February 1997 |
| Docket Number | No. 64A04-9601-CV-9,64A04-9601-CV-9 |
| Citation | 676 N.E.2d 416 |
| Parties | VALPARAISO TECHNICAL INSTITUTE, INC., Appellant-Defendant, v. PORTER COUNTY TREASURER, Appellee-Plaintiff. |
| Court | Indiana Appellate Court |
Valparaiso Technical Institute, Inc. (the "Institute") appeals from an award of attorney's fees in favor of the Porter County Treasurer (the "Treasurer"). The trial court entered judgment against the Institute for delinquent real property taxes, penalties and interest in the amount of $28,758.17, plus a "contingent fee" for the Treasurer's attorney equal to one-third (1/3) of the judgment.
We reverse and remand.
The issue presented is whether the award of a "contingent fee" equal to one-third of the underlying judgment was a reasonable attorney's fee when added to the judgment against the delinquent taxpayer.
In 1995, the Treasurer filed a complaint against the Institute to recover delinquent real property taxes, penalties, prejudgment interest, reasonable attorney's fees and court costs based on unpaid taxes due and payable in 1993 and 1994. The parties stipulated that the taxes and penalties owed were $24,191.00. The trial court calculated interest at the rate of eight percent, equal to $4,567.17, for a total amount due of $28,758.17. The case was then submitted to the court only on the issue of attorney's fees.
The attorney for the Treasurer testified that he had practiced law since 1972 and was experienced in collection matters. In addition to the Treasurer, his firm regularly represented a bank, medical professionals and businesses in collection matters. As an attorney formerly representing the Indiana Department of Revenue, he had managed a very large caseload and developed a comprehensive tax collection system now used by Department of Revenue collection attorneys throughout the state.
The Treasurer referred its tax collection cases to the attorney's firm in bulk so that cases were not reviewed or screened in advance. The attorney testified that approximately twenty-five percent of the Treasurer's cases did not result in collection, and in those cases no attorney's fees were paid. In about one-half of the remaining Treasurer's cases, the firm did not realize fees equivalent to its customary hourly rates, and in the other half it recovered fees in an amount equal to or greater than its customary hourly rates.
The Treasurer's attorney then testified concerning the tax collection system he and his partner had designed to manage approximately 1,000 real property tax collection files for the Treasurer. He described the start-up costs, monthly overhead and staffing required to organize and maintain the system. He also described each step of work performed on the typical case from its inception to conclusion. The attorney estimated that he and his partner had spent approximately ten hours on the present case which, at their usual hourly rates, would merit a fee of $1,600.00. The Treasurer's attorney testified that a contingent fee equal to one-third of the underlying judgment, added to the judgment, was appropriate.
The court also heard testimony from the attorney for the Institute concerning his collection practice. He stated that both hourly and contingent fee arrangements are used in collection work. However, where attorney's fees are to be awarded, it is his policy to calculate the fees according to hourly rates and to add that amount to the judgment. When the client contract provides for a contingent fee, he collects one-third of the entire recovery.
The trial court made Findings of Fact concerning the attorney's experience in collection matters, his capital and overhead expenses, the systematic procedures he developed and followed in collection cases, the inability of the attorney's firm to accept other employment due to time devoted to the Treasurer's collections, and the percentage of cases which lead either to no collection or to a fee below the customary hourly rate. The court then made the following Conclusions of Law:
1. A one-third (1/3) contingent fee is a standard and customary fee in the collection practice of law.
2. A one-third (1/3) contingent fee is reasonable in this case.
Based upon these findings and conclusions, the court ordered the Institute to pay $9,586.06 in attorney's fees. This sum represented one-third of the delinquent taxes, penalties and interest and was added to the underlying judgment of $28,758.17, for a total judgment of $38,344.23. The Institute appeals from the attorney's fees award.
The trial court entered special findings pursuant to Indiana Trial Rule 52(A), and this court may not set aside the judgment unless clearly erroneous. Ind. Trial Rule 52(A); Quillen v. Quillen, 671 N.E.2d 98, 102 (Ind.1996). When the trial court has made special findings of fact, its judgment is clearly erroneous only if its findings of fact do not support its conclusions of law or its conclusions of law do not support its judgment. Quillen, 671 N.E.2d at 102.
We have applied a similar standard of review to attorney's fees. The amount of attorney's fees awarded is within the trial court's sound discretion, and we will reverse only where an abuse of discretion is apparent. Stepp v. Duffy, 654 N.E.2d 767, 775 (Ind.Ct.App.1995), trans. denied. An abuse of discretion may occur if the trial court's decision is clearly against the logic and effect of the facts and circumstances before the court or if the court has misinterpreted the law. McCullough v. Archbold Ladder Co., 605 N.E.2d 175, 180 (Ind.1993). Where the amount of the fee is not inconsequential, there must be objective evidence of the nature of the legal services and the reasonableness of the fee. Posey v. Lafayette Bank and Trust Co., 583 N.E.2d 149, 152 (Ind.Ct.App.1991), trans. denied.
The Institute asserts that the trial court erred when it determined that $9,586.06 constituted a reasonable attorney's fee in this case. Specifically, the Institute contends that it cannot be charged with a contingent fee when it was not a party to a contingent fee agreement and that the court erred when it based the attorney's fee award upon the attorney's entire collection practice rather than upon the work required to handle this particular case. We agree.
The Treasurer was entitled to a money judgment against the Institute which included reasonable attorney's fees under the following statutory provision:
A person who is liable for property taxes under I.C. 6-1.1-2-4 is personally liable for the taxes and all penalties, costs, and collection expenses, including reasonable attorney's fees and court costs, resulting from late payment of the taxes.
IND. CODE § 6-1.1-22-10(a) (emphasis added). Our Rules of Professional Conduct provide a non-exclusive list of factors to be considered when determining the reasonableness of a fee. These include:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
Ind. Professional Conduct Rule 1.5. While these factors provide useful guidelines to determine the reasonableness of an award of attorney's fees, evidence is not required on each factor. Posey, 583 N.E.2d at 152. When there is no prior contract for contingent fees, subsection (8) of the Rule, whether the fee is fixed or contingent, is inapplicable to the consideration of fees. See Waxman Indus., Inc. v. Trustco Dev. Co., 455 N.E.2d 376, 382 (Ind.Ct.App.1983) ().
"Contingent Fee" Absent Prior Agreement
Here, the Porter County Treasurer employed the attorney, but the record does not include the terms of employment; therefore, we cannot determine whether the contingent fee sought by the attorney was based on a prior agreement. 1 A "contingent fee" is defined as an "[a]rrangement between attorney and client whereby attorney agrees to represent client with compensation to be a percentage of the amount recovered...." BLACK'S LAW DICTIONARY 614 (6th ed. 1990). 2 A true "contingent fee" has two components: (1) payment is contingent on the outcome, and (2) the fee is a percentage deducted from the client's recovery. Here, while payment of the attorney's fee was contingent upon the Treasurer's receipt of the delinquent taxes, penalties and interest, the fee was added to the judgment rather than deducted from the recovery. Thus, use of the term "contingent fee" in this case is only partially correct.
Indiana courts recognize the freedom of parties to enter into contracts and presume that contracts represent the freely bargained agreement of the parties. Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1129 (Ind.1995). This reflects the principle that it is in the best interest of the public not to restrict unnecessarily the freedom to contract. Id. Accordingly, Indiana has adhered to the rule that contracting parties may enter into any agreement they desire so long as it is not illegal or contrary to public policy. Pigman v. Ameritech Publ'g, Inc., 641 N.E.2d 1026, 1029 (Ind.Ct....
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