Krippner v. Matz , 205 Minn. 497 ( 1939 )

1. If a finding that the dismissal was fraudulent as to intervener was necessary in order to sustain the judgment, we may, under our decision in Penn Anthracite Min. Co. v. Clarkson Sec. Co. 205 Minn. 517, 287 N.W. 15, affirm on that ground without such a finding below since the uncontradicted evidence compels such a finding. In the cited case we put our decision on the grounds of fraud, although fraud was not found below, upon the theory that we had the power to determine that fact if necessary to affirm. So we may do likewise in the instant case.

The whole transaction was permeated with fraud, deceit, and violation of the rules of professional conduct by counsel, to procure the dismissal and engineer the settlement. Counsel's conduct toward intervener was deceitful and misleading throughout for the purpose of putting over this deal conceived many months before it was consummated. Although counsel for Peter Krippner obtained a dismissal from Caroline as to his client on November 21, 1931, behind intervener's back, he did not advise intervener of that fact nor did he then file the dismissal and take his client out of the case. On the contrary, he maintained a silence presaging what happened later. Intervener went ahead with his preparation for trial and served notice of trial on counsel, of which he admitted service and which he returned with a letter on February 27, 1932, closing with the words "with all good wishes," despite the fact that counsel then had in his possession the dismissal, which he had been holding for over three months and was waiting the opportunity to use against intervener. The business between intervener and counsel proceeded upon the assumption that the case was to be tried, and counsel's assurances were disarming of anything to the contrary.

It was necessary to obtain a dismissal from Caroline as to the other defendant in order to carry out the plan as conceived. But to get it, that was the question. Counsel did not have the hardihood to attempt direct communication with Caroline while intervener was present. So this dismissal also was to be obtained behind his back by direct negotiation with Caroline. They went on with the trial, which was characterized by much delay and stalling, which is explainable only in the light of what happened afterwards. On the third day of the trial intervener was absent from Waseca, where the trial was held and where he had his office. That presented the occasion for putting over a fraud on Caroline, which would not have been successful if intervener had been present to advise her.

Counsel got together with plaintiff and the other parties. Caroline's uncontradicted testimony shows fraudulent representations relating to the amount of insurance coverage, their ability to settle, the amount of the settlement, and the effect of failure to settle. They told her that the total insurance coverage was $20,000. In fact it was $40,000. They told her that the cases of plaintiffs other than Caroline could not be settled for less than $25,000, whereas they could have been settled, as they were, for $13,650. She was led to believe that the amount of the settlement was $25,000 and not the lesser amount actually paid. In addition, they "scared" her and told her that if she did not settle she and her husband would lose their farm and everything. Plaintiff was credulous and ignorant of her rights. The fraudulent scheme embraced obtaining a dismissal from Caroline and nonpayment of intervener's fees.

Such settlements directly with clients represented by counsel have been condemned by us and other courts as fraudulent on counsel. In Desaman v. Butler Brothers, 118 Minn. 198, 203,136 N.W. 747, 748, 749, Ann. Cas. 1913E, 642, in speaking of a settlement and payment of a judgment by direct negotiation with plaintiff without his attorney's knowledge and consent, we said:

"It may be said that the very fact of making a settlement behind the back of the attorney suggests collusion. An attorney is the legal adviser and confident of his client. The other party to the litigation knows that. He also knows that, when it comes to such an important stage of the suit as a compromise, the client needs the advice and counsel of his attorney, especially when the question is a large reduction of a favorable verdict. He should further know that the attorney, by virtue of his lien, is entitled to be considered. Fairness and common honesty would indicate that settlements of lawsuits should not be engineered in the dark, so as to permit an irresponsible or dishonest party to get away with the fruits of the attorney's work without payment for the services."

But bad as was the unprofessional conduct of obtaining the settlement from Caroline behind intervener's back, it is rendered still worse, if that be possible, by the use which was subsequently made of it. Conceding that she had the undoubted power to dismiss, subject to intervener's lien, how can it be said that this is such a case? If her dismissal was bona fide, it would have been filed and Peter Krippner would have been out of the case. But the dismissal was used to obtain dismissals and settlements of other cases, to which Caroline was not a party and which were no concern of hers. Her dismissal was not a bona fide exercise of her right to dismiss, but part of a fraudulent transaction engineered by counsel to settle all the cases. Counsel should not be permitted to use a dismissal in one case to force settlements in other cases to which the party giving the dismissal is not a party.

Of counsel for appellants, only Mr. Hoke appeared below. His firm represented defendant Matz's insurer. In his affidavit he stated that he took no part in the negotiations for the dismissal and that his only part in the transaction was dictating the dismissals, which were signed by the parties. But his affidavit also shows that his client refused to settle at all unless plaintiff's claim was made part of the settlement. It was clear to him that the settlement was made direct with plaintiff in intervener's absence. When the case is viewed in the light of all the evidence, the inference is inescapable that his client knew that the settlement was a fraud on intervener.

2. In my judgment, the question of the client's power to settle his case with his adversary without the attorney's consent is not involved here. The contract provides for such a contingency. Intervener was to have 25 per cent of any sums received in settlement if settlement were made before trial, which is the case here, and 33-1/3 per cent of any sums recovered in the action or received in settlement of any verdict recovered therein. The contract fixed intervener's compensation in the event of settlement before trial.

The agreement in question is one which the parties had a right to make. 2 Mason Minn. St. 1927, § 9470, provides: "A party shall have an unrestricted right to agree with his attorney as to his compensation for services, and the measure and mode thereof * * *." An agreement between a client and his attorney that the latter shall receive a certain percentage of any amount recovered by settlement or suit is legal and enforceable. In Johnson v. G. N. Ry. Co. 128 Minn. 365, 151 N.W. 125, L.R.A. 1917B, 1140, entirely ignored by the majority, plaintiff agreed to pay his attorneys 33-1/3 per cent of any amount recovered by settlement or suit, plus any sums advanced by them to him. Defendant settled with plaintiff for $4,500. The attorneys instituted proceedings against defendant to enforce their lien for the amount due them under the contract with their client, viz., one-third of the amount received in settlement plus the $500 advanced him, a total of $2,000. We held that the attorneys were entitled to the amount due them under the contract without showing that the settlement was fraudulent and that they had a lien under the statute against defendant for the compensation so due to them. See In re Disbarment of Greathouse, 189 Minn. 51, at page 56, 248 N.W. 735.

Even where the parties contract for stipulated sums to be paid the attorney in case the client breaks the contract, the attorney may recover the stipulated compensation upon the theory of liquidated damages. Sierzek v. Smith, 86 Okla. 79,206 P. 611. See 7 C.J.S., Attorney and Client, § 181, n. 65.

The majority opinion by denying intervener the right to be compensated under his contract in effect nullifies the statute giving him that right and overrules our decision in Johnson v. G. N. Ry. Co. supra, without even mentioning it.

3. In Johnson v. G. N. Ry. Co. supra, defendant paid the amount given in settlement directly to plaintiff. Here the payment was to the plaintiffs in the other actions with Caroline's consent. But what difference does it make? The unchallenged finding is that plaintiff's dismissal was part of the consideration for the payment of the $13,650 to the other claimants with her consent. Although payment was made to plaintiffs in the other actions the payment included settlement of Caroline's claim. The recipients were simply her nominees to receive payment. The court found upon ample evidence that plaintiff's claim was worth $5,000. That was part of the $13,650, and while the settlement itself did not show the fact by separating and segregating the amount of each claim, the finding below has done that so as to show what presumably was paid for plaintiff's claim. It is to be remembered too that affidavits for defendants show that they claimed they were not liable on any of the claims and refused to settle unless plaintiff's claim was included in the settlement. It makes no difference whether the consideration be given to the promisor or some other person. Van Eman v. Stanchfield, 10 Minn. 197 (255); Harriet State Bank v. Samels, 164 Minn. 265,204 N.W. 938; Restatement, Contracts, § 75(2).

Where releases are given by A and B in settlement of their separate causes of action against C, who with A's consent pays the entire consideration for the releases to B, A is deemed to have received the benefit of the payment. West v. Kidd,184 Minn. 494, 239 N.W. 157; Hanson v. Northern States Power Co.198 Minn. 24, 268 N.W. 642.

In both of the cases cited a husband and wife gave releases of their causes of action, and the entire consideration was paid to the husband with the wife's consent. We held that payment to the husband was a consideration to the wife. In West v. Kidd, we said that by joining with her husband in releasing both causes of action she obtained for her husband a settlement of the defendant's alleged liability and the payment to the husband was [184 Minn. 496, 239 N.W. 158] "not less a consideration sufficient to support the release than would be a benefit running directly to her."

Furthermore, that is what the parties intended. Caroline's uncontradicted testimony is that she brought up the matter of intervener's fees and that she was told: "Well, you can put all the money together, you all got a little money, and you can pay your attorney out of that." The view there expressed accords with the legal view that the money paid was chargeable with intervener's fees. Since defendants failed to respect the attorney's lien, it should be enforced against them as it was in the Johnson case.

4. Attorneys at law are required to conform to the ethics of the profession in order that the courts and those who participate in the administration of justice may command that confidence and respect which is essential to the performance of that function. Failure to observe the prescribed standards of conduct is bound to bring reproach upon both the bar and the courts which tolerate the unethical conduct. In the cases of In re Disbarment of Greathouse, 189 Minn. 51, 248 N.W. 735, and In re Disbarment of McDonald, 204 Minn. 61, 282 N.W. 677,284 N.W. 888, we disciplined attorneys for professional misconduct consisting of the solicitation of legal business solely upon the grounds that such conduct violated accepted standards of ethical conduct. In each case, quite different from the conduct involved here, there was no claim of fraud, overreaching, or dishonesty, but, on the contrary, it was conceded that the attorney was able, honest, and loyal and that his services were entirely beneficial to those whom he represented. In the Greathouse case the attorney was severely censured. We said [189 Minn. 61, 248 N.W. 740]: "A continuation and approval of such conduct dooms the destiny of the legal profession." In McDonald's case the attorney was disbarred.

If the Greathouse and McDonald cases hold anything they hold that the canons of legal ethics so far partake of the nature of law that attorneys will be compelled to obey and that courts will discipline them for disobedience. While these cases involved a consideration only of the ethics relating to solicitation of business by lawyers, other courts have adopted the canons of ethics as the standard of conduct of counsel in respect to the matter of direct communication with a party represented by counsel and making settlement of a case with the party without the knowledge and consent of his counsel. There is no reason why the canons of ethics should not apply in the one case as in the other.

Perhaps no rule is better established than that attorneys should not communicate or directly deal with a party who is represented by counsel. He who violates the rule thereby puts his conduct under a cloud. In Desaman v. Butler Brothers,supra, we said that the very fact of making a settlement behind the back of an attorney suggests collusion. In In re Oliver, 2 Ad. Ell. 620, Lord Denman held that the mere fact that an attorney obtained the signature of a woman 75 years old to a paper by direct communication with her while she was represented by counsel was sufficient ground for ordering him to surrender the paper. He said [2 Ad. Ell. 622]:

"When it appeared that Mrs. Oliver had an attorney, to whom she referred [as is the fact here], it was improper to obtain her signature, with no attorney present on her part. If this were permitted, a very impure, and often a fraudulent, practice would prevail."

The Canons of Professional Ethics of the American Bar Association proscribe not only direct communication with a party represented by counsel, but an attorney's permitting his clients and their agents to do so. Canons 9 and 16 read:

"9. Negotiations with opposite party. A lawyer should not in any way communicate upon the subject of controversy with a party represented by counsel; much less should he undertake to negotiate or compromise the matter with him, but should deal only with his counsel. It is incumbent upon the lawyer most particularly to avoid everything that may tend to mislead a party not represented by counsel, and he should not undertake to advise him as to the law."

"16. Restraining clients from improprieties. A lawyer should use his best efforts to restrain and to prevent his clients from doing those things which the lawyer himself ought not to do, particularly with reference to their conduct towards courts, judicial officers, jurors, witnesses and suitors. If a client persists in such wrongdoing the lawyer should terminate their relation."

Rule VII(a) of Professional Ethics of the Minnesota State Bar Association is the same in substance as Canons 9 and 16. Hoffman's Resolution XLIII was:

"I will never enter into any conversation with my opponent's client, relative to his claim or defense, except with the consent and in the presence of his counsel."

In the case of In re O'Neil, 228 A.D. 129,239 N.Y. S. 297, 300, the attorney was president and general counsel of an insurance company. He was charged with violating Canons 9 and 16 of Professional Ethics of the American Bar Association by approving settlements through agents and employes of his company directly with claimants represented by counsel. The court found the charges not proved, but it held that a lawyer who goes into business must so far as he discharges any duties in connection with the employment of a legal nature conform his conduct to the canons of ethics and that a violation of the rules renders him subject to discipline. Dowling, P.J. said [228 A.D. 131]:

"Apparently, however, some of the company's employees undertook to determine not only the fact of the retainer of an attorney by the claimant, but also the extent to which such a retainer should be recognized or respected, if there was a chance to settle the claim for a small amount. Of course they had no such right. Where a claimant had retained an attorney to the knowledge of the company, and particularly if its files disclosed notice of suit brought by such attorney or of the fact of his retainer, no one was entitled to disregard it. And if this record showed that respondent had personal knowledge of an improper practice in that regard, he would be answerable, whether as an attorney who was general counsel to his company, or as an attorney who became president thereof and directed its affairs."

An attorney representing a plaintiff was held subject to discipline and reprimanded for settling an action directly with the defendant, who was represented by counsel, without his counsel's knowledge and consent, in the case of In re Atwell,232 Mo. App. 186, 115 S.W.2d 527. I have been unable to find any case that adopts a contrary view. See 7 C.J.S., Attorney and Client, § 23, p. 751, n. 62.

We cannot give approval to the conduct here involved without turning our backs on our declarations in the Greathouse and McDonald cases, that the basis of our decisions was the maintenance of the rules of professional ethics. After all, the rules are adopted and enforced for the protection of the courts and the bar as a whole and not for a particular class or group. We enforce the canons against solicitation not to protect those against whom solicited cases are brought, but to maintain professional standards indispensable to the administration of justice. But it is just as essential that all the rules be observed. All professional misconduct is evil. As declared in the preamble to the Canons of Professional Ethics of the American Bar Association: "It is peculiarly essential * * * that the public shall have absolute confidence in the integrity and impartiality of its administration." But how can we say that the rules of ethics shall apply in some cases and not in others without rendering ourselves subject to the charge that we have not been impartial in the matter? We should not make fish of some and fowl of others. The rules of ethics should be rigidly enforced against the most able or prominent as well as the least able and most insignificant members of the bar. Only in that way can the practice of law retain its professional, as distinguished from a business, status. There are some who say that the practice of law is a mere business and not a profession. When we become convinced that this is true, we should candidly admit the fact. Then adherence to the canons of ethics will become, as I believe professed adherence without impartial enforcement now is, so much false pretense and formal cant.

The judgment should be affirmed on the authority of Johnson v. G. N. Ry. Co. supra, alone. Attorneys should be protected in rendering honest service, which is indispensable to the protection of private and public rights and the administration of justice. They should not be made outlaws in the courts wherein they serve and which they uphold. Nor should rules of ethics be enforced as to one group and not as to others. Intervener honestly earned his fee under his contract, which is explicitly authorized by statute. The right to the fee is protected by the attorneys' lien statute. I see no good reason why his rights should not be respected and enforced.

MR. CHIEF JUSTICE GALLAGHER took no part in the consideration or decision of this case.

MR. JUSTICE HILTON, being incapacitated by illness, took no part.