Bailey v. Butcher , 240 N.Y. 323 ( 1925 )

Plaintiffs, a firm of lawyers practicing in the city of Syracuse, bring this action against the defendants, a firm of lawyers practicing in the city of New York, for services alleged to have been performed upon the defendants' retainer.

Plaintiffs' firm represented the Travelers Insurance Company which had issued a policy of insurance to the American La France Fire Engine Company, covering liability for accidents. This policy was in the sum of $10,000. Defendants' firm represented the Underwriters at Lloyd's, London, who had written a policy for the excess over the $10,000 that was to be paid by the Travelers Insurance Company as primary insurer. One Leiter sued the assured company, first in West Virginia and afterwards, when the earlier suit failed for lack of jurisdiction, in New York. This action was defended by the plaintiffs, the attorneys for the Travelers, the latter company as primary insurer having assumed the burden of the defense. Leiter recovered a judgment of $15,000, which the Travelers Company ordered its attorneys to appeal. At this point, the defendants learned that some settlement was in prospect. They wrote to the plaintiffs inquiring about the situation, and asking what the plaintiffs would recommend. The upshot was the negotiation by the plaintiffs of a settlement for $11,000 and costs, of which the primary insurer paid $10,000 and costs, and the defendants' clients paid $1,000. The plaintiffs thereupon sent a bill for $500 to the defendants on the theory that the latter had retained them as counsel. Upon the defendants' disclaimer of liability, there ensued a litigation, which resulted in a verdict in favor of the plaintiffs. The Appellate Division unanimously affirmed.

The case was submitted to the jury upon an erroneous and misleading theory. The complaint was not for breach of warranty of authority. It was for services rendered at the defendants' request. Despite this, the judge told the jury that the only theory on which the plaintiffs could recover was that defendants had assumed to bind their principals and failed. In so ruling, he substituted a new cause of action for the one stated in the pleadings and litigated upon the trial. After thus submitting the case to the jury on the erroneous theory of a failure of authority, he told them that the burden was not upon the plaintiffs to prove the failure, but upon the defendants to disprove it. This was clearly error (White v. Madison,26 N.Y. 117; Taylor v. Nostrand, 134 N.Y. 108; 1 Mechem on Agency [2d ed.], §§ 1395-1398).

The foregoing rulings, having been challenged by appropriate exceptions, are open to review in this court, and require a reversal of the judgment. We are precluded by the unanimous affirmance at the Appellate Division from basing our reversal upon the refusal to direct a verdict (Const., art. VI, § 9). None the less, since a new trial will be necessary, we think it is our duty for the guidance of the trial court to interpret the letters which make out the employment, if employment there was. We find nothing in any of them to justify the inference that the plaintiffs were retained as counsel either by the defendants or by the defendants' clients. The first letter of the series is dated July 12, 1922. The defendants there say: "We are the attorneys for the Underwriters at Lloyd's, London, with whom the above named assured carried a policy for the excess of the policy carried with the Travelers Insurance Company. We understand that you are the attorney for the Travelers, and the attorney of record for the defendant in the above entitled action." The defendants write thus as attorneys for a named principal, and address the plaintiffs as already the attorneys for the Travelers, and not as counsel whom they desire to retain for themselves. The letter concludes: "We understand that the plaintiff has made a proposition of settlement for $13,500, and that you are considering making a counter offer. We should be glad to take this matter up with you at any time."

We turn to the answering letter, and nothing in it suggests that the exchange of views between the attorneys is to go forward on a different footing. The writer points out the slim chance of success upon appeal, and concludes: "I have a letter from the Travelers Insurance Company home office dated the 19th suggesting that the question of settlement is one primarily for discussion between your office and the writer, so that I shall be awaiting an early reply giving me your opinion as to what we should do." Again the implication is that the plaintiffs are acting as the representative of their own company, and not as counsel for defendants.

We should expand this opinion without profit by a statement and analysis of the letters of later date. It is enough to say of them that they maintain the same tone. In one, the plaintiffs do indeed say that if a trip to West Virginia becomes necessary in the negotiation of the settlement, the expense will be chargeable to defendant's clients. The trip was not made, and the insistence upon compensation for a service which was thought to be special or unusual was by implication an exclusion of a charge for anything else.

Viewing the correspondence as a whole, we find in it, not a contract of employment, but co-operation between attorneys who had a common interest in a lawsuit. True, of course, it is that the Travelers Insurance Company had little, if anything, at stake for itself, apart from its interest in avoiding the expense of an appeal, when once its own limit of liability, $10,000, had been passed. None the less, it had undertaken the conduct of the defense, and it owed a duty to the assured to reduce the verdict if it could. The plaintiffs did no more in their ensuing treaties for a settlement than fealty to their own client required them to do.

The judgment of the Appellate Division and that of the Trial Term should be reversed, and a new trial granted, with costs to abide the event.

HISCOCK, Ch. J., McLAUGHLIN, CRANE, ANDREWS and LEHMAN, JJ., concur; POUND, J., absent.

Judgments reversed, etc.