Wardman v. Leopold

• Decision Date: 08 June 1936
• Docket Number: No. 6636.,6636.
• Parties: WARDMAN v. LEOPOLD et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

85 F.2d 277 (1936)

WARDMAN v. LEOPOLD et al.^*

No. 6636.

United States Court of Appeals for the District of Columbia.

Decided June 8, 1936.

Rehearing Denied June 29, 1936.

Daniel Thew Wright, of Washington, D. C., for appellant.

George E. Edelin and Theodore D. Peyser, both of Washington, D. C., for appellees.

Before MARTIN, Chief Justice, and VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

VAN ORSDEL, Associate Justice.

Appellees, plaintiffs below, brought this action in the Supreme Court of the District of Columbia for the purpose of establishing an equitable lien against a certain fund recovered under a contract between them and appellant, Harry Wardman, for the appointment of a receiver, and for general relief.

It appears that plaintiffs are accountants and tax specialists engaged in representing taxpayers before the Bureau of Internal Revenue. They are copartners, operating under the firm name of Leopold & Rindler. In 1924 Wardman consulted Rindler with reference to securing a refund on his income tax for the year 1921, and the following written contract of employment was entered into between the parties:

"November 20, 1924 "Mr. Harry Wardman "1410 K Street, N. W "Washington, D. C.

"Dear Sir:

"We hereby agree to handle your 1921 income tax matter, including the filing of claims, Briefs, and all other necessary papers, and appearing at conferences in Washington, for the following consideration:

"You are to pay us thirty-three and one-third (33 1/3%) per cent of the total amount which we are successful in having refunded to you on the amount paid by you for the taxable year 1921.

"We are to incur all expenses without reimbursement from you. In the event we are unsuccessful, you are to pay us nothing, either in the way of a fee or expenses.

"Very truly yours "Leopold and Rindler "By Milton Rindler. "Accepted: Harry Wardman."

Simultaneously with the execution of this contract, Wardman executed to the plaintiffs a power of attorney, in which he constituted and appointed them "his true and lawful agents for him and in his name, place and stead to do any and all acts that he might do in the matter of adjusting his Federal Income Tax for the year 1921 * * * with full power of substitution." Plaintiffs filed this power of attorney with the Income Tax Unit of the Treasury Department, and represented Wardman before the Commissioner of Internal Revenue pursuant to their contract of employment. The Commissioner of Internal Revenue decided adversely to the contentions of the plaintiffs, and found a deficiency against Wardman of $12,074.51. Plaintiffs in the meantime had employed one Hamel, an attorney of Washington, D. C., to assist them in adjusting the matter and, under the power of substitution authorized in the power of attorney, executed and delivered their power of attorney to Hamel and the other members of his firm, constituting them as "their true and lawful attorneys for them and in their name, place and stead, to do any and all acts that they might do in the matter of adjusting before the Treasury Department the Federal Income Tax for the year 1921 of said Harry Wardman."

In pursuance of this employment Hamel, as attorney for Wardman, filed his verified petition with the United States Board of Tax Appeals for a redetermination of the deficiency found by the commissioner, and hearing on this petition was set for February 28, 1929. On February 9, 1929, because of differences which arose between plaintiffs and Hamel on the subject of a cash retainer fee, which Hamel insisted should be obtained from Wardman, the contract between plaintiffs and Hamel was terminated.

Thereafter, at the suggestion of Wardman, plaintiffs employed Meredith M. Daubin and Daniel Thew Wright to carry on the proceedings before the Board of Tax Appeals, and in the federal courts. Plaintiffs agreed to pay these attorneys one-half of the fee which they received from Wardman, less one-half of any retainer (excluding actual disbursements) received by Daubin and Wright from Wardman. Daubin entered his appearance before the board, and on hearing the decision of the commissioner was affirmed.

Thereafter Daubin filed a motion to set aside the decision and to reopen the case. After the hearing of this motion, the board vacated its order and directed the case to be placed on the day calendar of April 14, 1930, "for the introduction of evidence relative to the net income and invested capital of the petitioner for the year 1921." Upon such hearing, the board found that there was an overpayment for the year 1921 in the amount of $22,437.09. An appeal from that decision was taken by the General Counsel for the Commissioner of Internal Revenue to this court, where the decision of the Board was affirmed. Helvering v. Wardman, 62 App.D.C. 371, 68 F.(2d) 418. Accordingly, a refund was ordered to Wardman of the amount of the overpayment, together with interest thereon, the total amounting to approximately $37,800. Wardman then refused to pay plaintiffs for their services, whereupon they brought this action to establish a lien against the sum due Wardman. After the filing of the bill in the court below, plaintiffs and defendant Wardman, on February 21, 1934, entered into a stipulation in which it was agreed that Wardman "shall execute to Meredith M. Daubin a written power of attorney authorizing him to receive, endorse and collect the proceeds of the check or warrant drawn or to be drawn by the officials of the United States in payment of the tax refund referred to in the pleadings," with the further provisions that Daubin should cash the check and deposit $8,000 of the proceeds in the Riggs National Bank, to the joint account and credit of George E. Edelin and Meredith M. Daubin, to be held by them pending the final outcome of this suit. The stipulation further provided that in the event plaintiffs prevailed in this suit, Edelin and Daubin "shall first pay out of the said $8,000 the costs of the suit, and devote the balance to the satisfaction of the amount if any so decreed to the plaintiffs. If any balance remains, it shall be paid to Daniel Thew Wright. In no event shall the plaintiffs claim or have a decree for more than $7,500 together with interest if any that the court may allow."

At the conclusion of the trial the court below entered a final decree for plaintiffs in the sum of $6,302.28, with interest thereon at 6 per cent. per annum from June 6, 1934, and costs of suit, which sum Edelin and Daubin, as trustees, were directed to pay out of the $8,000 held by them, the remainder to be paid to Daniel Thew Wright. From the decree this appeal was taken.

Appellant insists that the contract is void and unenforceable at law because it is a contract of champerty and maintenance; that the lien claimed by the plaintiffs is void and of no effect, being contrary to the provisions of section 3477, Rev.St. (as amended May 27, 1908, 31 U.S.C.A. § 203), and that prior to February 25, 1929, plaintiffs abandoned said contract and the prosecution of said claim, and that defendant Wardman discharged them and employed Daubin and Wright in their stead.

Taking up the last contention first, it is sufficient to say that on the record the court below found that there was no discharge of plaintiffs or abandonment of their contract. With this finding we agree. This contention merits no further consideration.

With respect to the charge of champerty and maintenance, it will be noted that the contract provides: "We are to incur all expenses without reimbursement from you. In the event we are unsuccessful, you are to pay us nothing, either in the way of a fee or expenses." It appears that Wardman paid the $10 filing fee for the petition in the action before the Board of Tax Appeals. It would appear that the term "expenses," as used in the contract and as construed by the parties, had reference to the personal expenses of the plaintiffs, and not to court costs and other legal fees.

There is a well-defined distinction between contracts for bringing suit in court, where the compensation of the attorney is to be derived from the amount recovered, and in the event of defeat he is to be without any compensation whatever, and contracts where the claim is sought to be recovered against the government or agencies of the government.

In Taylor v. Bemiss, 110 U.S. 42, 3 S. Ct. 441, 28 L.Ed. 64, Taylor and Wood, attorneys at law, were engaged to prosecute a claim before the Southern Claims Commission upon an agreement that they should be paid 50 per cent. of the amount recovered. Pending the litigation, the attorneys advanced $800 to their client. When a recovery was had, payment of the compensation agreed upon was contested on the ground that the contract was champertous. The court, in the course of its opinion, said (110 U.S. 42, at page 45, 3 S.Ct. 441, 443, 28 L.Ed. 64): "It was decided in the case of Stanton v. Embry, 93 U.S. 548 23 L.Ed. 983, that contracts by attorneys for compensation in prosecuting claims against the United States were not void because the amount of it was made contingent upon success, or upon the sum recovered. And the well-known difficulties and delays in obtaining payment of just claims which are not within the ordinary course of procedure of the auditing officers of the government, justifies a liberal compensation in successful cases, where none is to be received in case of failure."

The distinction between a contract for a contingent fee in a case where it relates to a lawsuit, and in a case where it relates to the recovery of a claim against the government, is clearly pointed out in the case of Manning v. Sprague, 148 Mass. 18, 18 N.E. 673, 1 L.R.A. 516, 12 Am.St.Rep. 508, where the court stated that it had "no occasion to consider whether the contract would have been voidable by reason of champerty if the services to be rendered or advances to be made, which it contemplated, were to have been rendered or made in a...