King & Kelleher v. Carpenter

Filed 1/21/09 King & Kelleher v. Carpenter CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Defendants Kenneth Carpenter and William Gay appeal a judgment following a jury verdict that found a breach of contract and awarded plaintiffs King & Kelleher, LLP and Edward King, Jr. over $160,000 in unpaid attorney fees, plus prejudgment interest and statutory fees and costs.^[1] Carpenter contends the court misinstructed the jury on the meaning of the attorney fee agreement between the parties and on the elements of an account stated theory of recovery. Additionally, he asserts the court abused its discretion when it bifurcated the trial so that his offset defense was tried after a verdict was returned on the contract claims. We find no error and affirm.

BACKGROUND

In May 2001, Carpenter retained King to pursue an inverse condemnation action against the California Department of Transportation (Caltrans) for damages to his carwash business allegedly caused by Caltranss earthquake retrofit work on the nearby San Francisco-Oakland Bay Bridge. Carpenter and King entered into a written fee agreement under which King was to provide legal services on an hourly fee basis plus costs, with all bills payable within 10 days of billing.

King knew, and counseled his client from the outset, that there was a real possibility it would cost more to litigate the case than Carpenter might ultimately recover against Caltrans if the case were to proceed to trial. Settlement attempts failed, and as the trial date approached the fees and costs began to escalate.

Carpenter paid his legal bills on time through April 2002, without complaint. The parties attended a mandatory settlement conference on April 26, 2002. Carpenter demanded $407,000 to settle the case; Caltrans made a settlement offer of $12,000. The settlement judge told Carpenter that he might be able to get Caltrans as high as $25,000. The judge also pointed out the weaknesses in Carpenters case and warned him that Caltrans would appeal if he were to prevail at trial. King advised Carpenter that he thought he might be able to negotiate a settlement for $30,000 or $40,000. Carpenter refused.

Kings May 2002 bill, for $47,740 in fees and several thousand more dollars in costs, reflected charges for 204 hours of work in April to prepare for trial. Carpenter told King the litigation was getting too expensive, he did not want to pay the bill, and that he wanted everything to stop. King reiterated that it might be possible to settle the case for $30,000 or $40,000, but that if Carpenter simply dismissed the case at that point he would be liable for Caltranss costs and, unless the dismissal was with prejudice, potentially its attorney fees as well. Carpenter was still unwilling to settle.

The parties gave conflicting testimony about what happened next. According to King, Carpenter wanted King to change their hourly billing arrangement to a contingency agreement. King says he refused to do so, but to accommodate Carpenters cash flow problems he offered to carry the fees through the end of trial if Carpenter paid his then outstanding bills in full. Carpenter, on the other hand, testified that King agreed to proceed with the rest of the case on a contingency basis if Carpenter paid the costs and half of the May 2002 bill.

Carpenter gave King a check for half of the May bill, but insisted on a written agreement confirming modifications to the fee agreement they had reached before he would pay the remaining $26,641.10. As a result, King drafted a letter dated May 28, 2002, modifying the original fee agreement. It states: This letter is to review the status of our fee agreement in the above-described matter. Our agreement provides for you to pay hourly charges within ten days of billing. You have determined that you will not pay full hourly fees. As an accommodation, this office agrees that it will carry attorneys fees incurred in the month of May and thereafter through the end of trial. You agree to pay outstanding balances through April 2002 and to pay promptly all expenses billed for expenses incurred during the trial. [] This modification to the fee agreement does not apply to any appeal of this matter.

On May 29, Carpenter approached King during a break in the trial and presented him with a check for the outstanding balance and the modification letter, to which he had added the words for our account and risk after carry. After Carpenters addition, the letter read: As an accommodation, this office agrees that it will carry for our account and risk attorneys fees incurred in the month of May and thereafter through the end of trial. Carpenter did not explain what he intended by his change and refused to pay the balance until King signed the letter. When he was asked why he did not simply insert the words contingency fee agreement to the letter, Carpenter testified as follows: Q: But you didnt type up the word contingency on this document even though you knew what contingency meant when Mr. King told you about it; correct? [] A: This was a very tight situation. [] . . . [] Q: And you knew that Mr. King had agreed to it; correct? [] A: He had proposed it, yes. [] Q: And yet you didnt type it up into the very document that you wanted him to agree to, a contingency fee agreement, you didnt use the word, did you? [] A: I had a piece of paper that came as close as you could come to a contingency agreement. Had it been a contingencya true contingency agreement it would have just erupted into more problems.

King initialed the letter after satisfying himself that Carpenters addition said nothing about a contingent fee. He thought the new language was meaningless and felt Carpenter was pressuring him to sign the revised letter in order to get paid. Thereafter, King continued to bill Carpenter on an hourly basis for work done on trial and posttrial matters.

The trial concluded in a defense verdict for Caltrans in July 2002. King continued to send Carpenter monthly invoices until December 2002, to no avail. By December, the unpaid balance for fees and costs was $160,644.50.

In November 2003, King sued Carpenter for breach of contract and payment on an open book account to recover $160,644.50 in unpaid fees and costs. In response, Carpenter for the first time claimed he owed nothing under the modified agreement. He cross-complained against King for malpractice, fraud, breach of contract, rescission and elder abuse. After some of the cross-claims were eliminated as a result of pretrial motions, in the first phase of a bifurcated trial the jury rejected Carpenters remaining cross-claims, found that he breached his contract with King, and awarded King $160,644.50. In a second phaseof trial the juryrejected Carpenters claim for an offset based on allegations of malpractice and breach of fiduciary duty. After an award of prejudgment interest and fees and costs under Business and Professions Code section 6204, subdivision (d),^[2]an amended judgment for King was entered in the total

amount of $331,951.58. These appeals timely followed.^[3]

DISCUSSION

I. The Court Appropriately Instructed the Jury on the Modification

to the Fee Agreement

Carpenter asserts the court committed legal error when it interpreted the modification to the fee agreement.^[4] Both parties agree that there was no extrinsic evidence concerning its meaning and, accordingly, that interpretation of the modification was strictly a question of law for the court. (See Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 866.) According to Carpenter, the words for our account and risk unambiguously changed the parties attorney fee arrangement from an hourly fee to a contingency agreement under which King would be compensated only if he were to win the case and then collect statutory fees. Carpenter obtusely referred to this new arrangement at trial as a left-handed contingency agreement. King asserts that the modification continued the hourly billing agreement as before, but allowed Carpenter to defer payment during the trial. The trial court adopted Kings view. Reviewing its determination de novo (Parsons, supra, at p. 866-867; Sayble v. Feinman (1978) 76 Cal.App.3d 509, 512), so do we.

A. Background

The trial court instructed the jury on the meaning of the modification letter as follows: Exhibit 217 is a letter dated May 28, and signed by Mr. King. It was modified by Mr. Carpenter, and Mr. King initialed the modification. The whole of Exhibit 217 is a modification of the fee agreement, Exhibit 10. [] In pertinent part, Exhibit 217 states: [] Our agreement provides for you to pay hourly charges within 10 days of billing. You have determined that you will not pay full hourly rates. As an accommodation, this office agrees that it will carry FOR OUR ACCOUNT AND RISK attorney fees incurred in the month of May and thereafter through the end of trial. You agree to pay the outstanding balances through April 2002 and to pay promptly all expenses billed for expenses incurred during the trial. This modification to the fee agreement does not apply to any appeal of the matter. []The language means that King & Kelleher agree to carry, that is keep on their books, through the end of the trial, the attorney fees incurred in the month of May and after May, and the client agree [sic] to pay promptly all expenses billed that were incurred during the trial. Nothing in Exhibit 217 provides what will happen after the carrying period ends.

The jury asked the court for a clarification of the instruction in a written note that read: The court interpretation of Exhibit 217 says nothing of for our account and risk. Does that mean the court found no meaning to the term for our account and risk or do we the jury need to interpret for account and risk. ^[5] The court responded: The Courts interpretation was of the whole of Ex 217 and considered the modification as well as the original text.

B. Analysis

These instructions made it sufficiently plain to the jury that the phrase for our account and risk added by Carpenter to the modification did not materially alter its meaning.^[6] The interpretation is a reasonable one. (See Sayble v. Feinman, supra, 76 Cal.App.3d at p. 512.) It is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation. [I]t is now a settled principle of the law of contract that the undisclosed intentions of the parties are. . . immaterial; and that the outward manifestation or expression of assent is controlling.  (Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1127.) Carpenters undisclosed intent to create a left-handed contingency agreement by inserting for our account and risk into the letter therefore lacks legal effect, and the court properly disregarded it when it construed the modification.

Carpenters other arguments do not persuade us that the parties mutually intended his cryptic phrase to mean that King could no longer look to his client for fees, but was relegated to a contingent source of recovery such as statutory fee shifting. Carpenters assertion that [e]very attorney understands, and most clients understand his words to have such meaning is bare of legal or factual support, leaving a void which he attempts to fill with the claim that account and risk is accepted in the securities field as meaning a charged partys acceptance of allrisk of loss. (See, e.g., Liberman v. McDonnell (1929) 97 Cal.App. 171, 177; LaGrange v. Commissioner of Internal Revenue (1956) 26 T.C. 191, 197.) But [t]he common or usual meaning will be ascribed to words used in a contract unless the context or the circumstances indicate that in a particular case a special meaning should be attached to them. (Reliance Life Ins. Co. v. Jaffe (1953) 121 Cal.App.2d 241, 245; Civ. Code,  1644; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts,  745, pp. 833-834.) Here, there is no evidence that the parties mutually intended Carpenters terms to convey a technical meaning imported from a different context.

Carpenter contends that even if the disputed phrase is ambiguous, it must be construed as creating a contingency fee agreement because ambiguities in fee agreements are always strictly construed against the attorney. But the rule of interpretation in favor of the client and against the attorney is not so inflexible that it may be invoked to perpetrate a palpable injustice that would frustrate the parties mutual contractual intent. (Provident Land Corp. v. Bartlett (1946) 72 Cal.App.2d 672, 682.) Construing the modificationas Carpenter suggests, to convey a meaning he concealed from his attorney, would violate this principle. Carpenters argument also overlooks the fact that he, not his attorney, inserted the disputed language. Although that fact alone does not absolve King of responsibility for the contents of the modification that he signed, we think it materially distinguishes this situation from those in the cases Carpenter cites interpreting attorney fee agreements drafted, as is standard, by the attorney. (See Reynolds v. Sorosis Fruit Company (1901) 133 Cal. 625, 630; Bennett v. Potter (1919) 180 Cal. 736, 740; Lane v. Wilkins (1964) 229 Cal.App.2d 315, 323; Severson & Werson v. Bolinger (1991) 235 Cal.App.3d 1569, 1572; and see also Civ. Code,  1654 [the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist].)

In summary, the trial court fairly and reasonably rejected Carpenters assertion that the phrase for our account and risk converted the modified hourly fee agreement into a contingency agreement and reasonably found, to the contrary, that Carpenters phrase had no material impact on the meaning of the modification. We, likewise, reject Carpenters interpretation of the modified agreement and find the court properly instructed the jury on its meaning.

II. The Account Stated Jury Instruction

Carpenter next contends an omission in thejury instruction on the account stated claim was reversible error. Again, we disagree.

The jury was instructed on two theories of recovery: breach of contract and account stated. On the breach of contract claim, the court instructed the jury as follows: To recover damages from Kenneth Carpenter and William W. Gay for breach of contract, King & Kelleher must prove all of the following: [] 1. That King & Kelleher, and Kenneth Carpenter and William W. Gay entered into a contract; [] That King & Kelleher did all, or substantially all of the significant things that the contract required it to do. [] That all conditions required for Kenneth Carpenter and William W. Gays performance had occurred. [] That Kenneth Carpenter and William W. Gay failed to do something that the contract required them to do; and [] 5. That King & Kelleher was harmed by that failure. The jury was also instructed that [a]s a second theory of recovery for breach of contract King & Kelleher made claim for account stated. To recover on his claim for account stated, Mr. King must prove both of the following facts: [] 1. That Carpenter and Gay received from King & Kelleher an invoice for attorney fees showing the balance[] owed by Carpenter and Gay to King & Kelleher, and [] 2. That Carpenter and Gay indicated agreement with King & Kellehers statement of the balance due. If Carpenter and Gay received the invoice and failed to object to it within a reasonable time, that is circumstantial evidence that Carpenter and Gay agreed the bill was owed. The weight you give this evidence is up to you to decide in light of other evidence explaining Carpenters and Gays conduct.

Although Carpenter did not object at trial, he now contends the account stated instruction erroneously failed to inform the jury that such a claim must be based upon a valid antecedent obligation. We need not decide whether Carpenters argument has legal merit because there can be no doubt the same verdict would have been returned even without the claimed error. (Murphy v. Atchison, T. & S. F. Railway (1958) 162 Cal.App.2d 818, 822-823.) The jurys special verdict form replicated the breach of contract instructions. It asked: 1. Did King & Kelleher and Mr. Carpenter and Mr. Gay enter into a contract? [] . . . [] 3. Was the contract modified by a written agreement between the parties? [] . . . [] 4. Did King & Kelleher do all, or substantially all, of the significant things that the contract as modified required him to do? [] . . . [] 6. Did all the conditions occur that were required for Mr. Carpenter and Mr. Gays performance? [] . . . [] 7. Did Mr. Carpenter and Mr. Gay fail to do something that the contract required them to do? [] . . . [] 8. Was King & Kelleher harmed by that failure? The jury answered each question in favor of King and against Carpenter. Plainly, then, no matter what it made of the account stated claim, the jury found for King on the breach of contract claim as instructed.

We find unpersuasive Carpenters contention that it is impossible to tell exactly what contract the jury thought had been breached, i.e., whether it based its verdict on the written fee agreement, or . . . the billing statements, or perhaps some combination of both.^[7] The jury explicitly found in its special verdict that the parties entered into a contract and that the contract was modified by a written agreement between them. The only contract modified by a written agreement was, of course, the original written attorney fee agreement, and the only written modification was the May 28, 2002, letter, executed long before the November 2002 bill on which the account stated claim was premised. The instruction presents no basis for reversal.

III. Bifurcation Was Within the Courts Discretion

After the jury returned its verdict in the first phase of the trial, Carpenters affirmative defense of offset for malpractice and breach of fiduciary duty was tried to, and rejected by, the jury. Carpenter contends the courts decision to bifurcate the trial in this manner was a prejudicial abuse of discretion. The contention is meritless.

Code of Civil Procedure section 1048, subdivision (b) authorizes a court to order a separate trial of any separate causes of action or issues in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy. The decision to bifurcate is firmly within the trial courts discretion and will not be disturbed on appeal absent a clear abuse of discretion. (Downey Savings & Loan Assn. v. Ohio Casualty Ins. Co. (1987) 189 Cal.App.3d 1072, 1086.) Here, the trial court stated two reasons for its decision to bifurcate. First, a verdict for Carpenter on the contract claim would obviate any need to try the malpractice and breach of fiduciary duty issues. Second, the court was concerned that trying the malpractice offset in the main action would create juror confusion about the relationship between the proof requirements for malpractice and those for fraud, one of Carpenters cross-claims in the main trial. These were valid considerations, and the courts decision to bifurcate the trial was well within its discretion.

DISPOSITION

The judgment is affirmed. King is to recover costs on appeal pursuant to California Rules of Court, rule 8.278. Should King claim fees and costs associated with this appeal pursuant to Business and Professions Code section 6204, subdivision (d), the claim shall be presented in the first instance to the superior court; we express no opinion as to the potential merits thereof.

_________________________

Siggins, J.

We concur:

_________________________

McGuiness, P.J.

_________________________

Pollak, J.

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^[1] For simplicity, we will adopt the parties convention of referring to Carpenter and Gay jointly as Carpenter and to King and King & Kelleher, LLP, as King.

^[2] Business and Professions Code section 6204, subdivision (d), which pertains specifically to arbitrations of attorney fee disputes, provides that: The party seeking a trial after arbitration shall be the prevailing party if that party obtains a judgment more favorable than that provided by the arbitration award, and in all other cases the other party shall be the prevailing party. The prevailing party may, in the discretion of the court, be entitled to an allowance for reasonable attorneys fees and costs incurred in the trial after arbitration, which allowance shall be fixed by the court. In fixing the attorneys fees, the court shall consider the award and determinations of the arbitrators, in addition to any other relevant evidence.

Before trial Carpenter rejected an arbitration award that ultimately proved to be more favorable than the judgment, thereby enabling King to obtain a discretionary fee award under Business and Professions Code section 6204.

^[3] Carpenter also filed a timely appeal from the original judgment, No. A113780, which was entered before the award of interest, fees and costs. Pursuant to the parties stipulation, we ordered the two appeals consolidated for all purposes.

^[4] Carpenter also makes the convoluted argument that the trial court seemingly carried out its judicial function of interpreting the modification, but in fact presented the jury (in a virtual charade) with an instruction that falsely appeared to ask them to choose between King and Carpenters competing interpretations. Since the court created a false impression of allowing the jury to interpret the contract, the argument goes, the jury should have been allowed to interpret the meaning of Carpenters addition to the letter. Not surprisingly, Carpenter cites no authority for this creative proposition. In any event, we need not wade into these murky waters because Carpenter correctly concedes that interpretation of the modification agreement is a legal question for the court.

^[5] The jury also asked for and was given exhibit 217 and the unmodified May 28 letter.

^[6] They also make it clear that the court did not ignore the phrase, as Carpenter repeatedly claims, but considered it and determined that it did not materially alter the agreement to carry the remainder of Kings fees until the end of the trial.

^[7] The award itself, $160,644.50, was the exact sum sought under each of Kings two theories.