Date: 01-26-2002

Case Style: Pezold, richey, Caruso and Barker v. Cherokee Nation Industries, et al.

Defendant's Attorney: Lloyd E. Cole, Jr., Ralph F. Keen, Jr., Stilwell, Oklahoma, and Lee I. Levinson, Tulsa, Oklahoma, for Appellant

Description: 1 Defendant/Appellant, Cherokee Nation Industries, Inc. (CNI), seeks review of the trial court's order granting judgment against it in an attorney fee dispute with its former attorneys. We affirm because the trial court's order is not against the weight of the evidence or contrary to law.

2 Plaintiff/Appellee, Pezold, Richey, Caruso, & Barker (Firm), is a law firm in Tulsa. CNI hired Firm in January 1996 to represent it in a contract dispute with Stewart & Stevenson Industries, Inc. (S&S). S&S had a contract with the United States Army to build military vehicles. It subcontracted with CNI for the construction of a part of the vehicles called the wiring harness and dash harness assemblies. The subcontract called for S&S to place annual purchase orders over five years; however, it failed to place the annual orders and terminated the subcontract. On May 8, 1996, Firm filed a suit on CNI's behalf in the U.S. District Court for the Eastern District of Oklahoma, seeking damages against S&S for breach of contract.

3 The attorneys handling the matter for Firm were Third-Party Defendant/Appellee Terry Barker, a partner, and Piper Willhite, an associate attorney. Barker is the brother-in-law of then-Chief Joe Byrd of the Cherokee Nation. Cherokee Nation is the sole shareholder of CNI. At the beginning of the litigation, Meredith Frailey, an attorney, was the interim chief executive officer (CEO) of CNI. In August 1996, Hiram McFarland, previously the controller for CNI, became its president and CEO, and Frailey became a vice-president.

4 Firm began its representation of CNI under an hourly-rate agreement, but the parties later entered a contingency fee agreement (CFA). The parties dispute who first proposed the CFA, when the CNI board of directors first discussed it, whether Barker misrepresented the likelihood of settlement, and whether the parties intended the CFA to excuse the hourly fees previously earned. On the morning of October 24, 1996, McFarland executed a CFA under which Firm would receive 37½ percent of any recovery from S&S. That evening, at a court-ordered settlement conference before a federal magistrate, CNI and S&S reached a settlement agreement under which S&S would pay CNI $1.5 million dollars plus the cost of certain inventory CNI had purchased for the contract.

5 Following the settlement conference, CNI and S&S memorialized the settlement agreement. S&S executed the agreement on October 29, 1996, and McFarland executed it for CNI on November 11, 1996. The agreement provided for S&S to make the settlement check payable to Firm's trust account for the benefit of CNI. After S&S audited CNI's unused inventory, it paid the total sum of $1,866,137.12 to settle the case.

6 Firm withheld from the settlement proceeds its contingency fee of $699,801.42, $52,240.50 in costs including a finance charge of $6,097.50, $88,254.75 in unpaid hourly fees, $1,542.40 in other charges, and $59,163.53 for outstanding billings to other Cherokee Nation entities. On January 21, 1997, Firm distributed to CNI the sum of $972,067.75, which included the settlement balance of $965,134.52 as well as earned interest of $6,933.23. CNI retained counsel and objected to the distribution on January 23, 1997. The following day, Firm filed this action seeking a declaratory judgment. CNI counterclaimed for rescission of the CFA, breach of contract, and conversion. On February 14, 1997, Firm released to CNI under protest the $59,163.53 it had withheld for billings to other Cherokee Nation entities. That sum is the subject of other claims which the trial court bifurcated for separate trial.

7 After the trial court denied CNI's motion to amend its pleadings, CNI filed a separate action for fraud and misrepresentation against Firm and Barker in the District Court of Adair County. The two cases were consolidated in Tulsa County on February 17, 1999.

8 The parties tried the CFA issues before an advisory jury. Following CNI's case-in-chief, the trial court granted Barker's motion for a directed verdict on the claims against him as third-party defendant. After the close of all evidence, the trial court submitted the following special interrogatories to the advisory jury:

1. Do you find that CNI has proven by clear and convincing evidence that [Firm] made false representations, statements or omissions with the intent to induce CNI to enter into the Contingency Fee Agreement and that CNI relied on such false representations, statements or omissions in entering into the contract?

2. Do you find by the greater weight of the evidence that [Firm] and CNI reached an understanding or agreement that all of [Firm's] hourly attorney fees due and owing would be forgiven upon the signing of the Contingency Fee Agreement?

The advisory jury answered "No" to both questions.

9 The trial court agreed with the advisory jury, and after making extensive findings of fact and conclusions of law, entered judgment for Firm and Barker. It declared Firm was entitled to receive its hourly fees for legal services rendered to CNI through September 30, 1996. However, the trial court reduced the amount of such fees from $88,254.75 to $54,566.90 because Firm had increased its hourly billing rates without notifying CNI. The trial court denied CNI's counterclaims for fraud, breach of contract, undue influence, and rescission.

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10 CNI first contends the trial court erred in failing to determine the $699,801.42 contingency fee retained by Firm was overreaching, excessive, unreasonable, and in violation of public policy. It argues (1) under State ex re. Burk v. City of Oklahoma City, 1979 OK 115, 598 P.2d 659, $699,801.42 for one-day's work is unreasonable, (2) allowing Firm to collect both hourly fees and a contingency fee for the same legal matter violates public policy and constitutes an unreasonable fee, (3) the CFA was unenforceable because Firm never executed it, (4) the CFA represents an improper and unreasonable measure of compensation because there was no realistic risk of non-recovery, and (5) the lack of new consideration for the CFA renders it unenforceable.

11 Attorneys and clients are free to contract between themselves for contingency fees. State ex rel. Howard v. Okla. Corp. Com'n, 1980 OK 96, 614 P.2d 45, 49. However, courts may refuse to enforce a contingency fee contract if the fee is excessive. Abel v. Tisdale, 1980 OK 161, 619 P.2d 608, 611. The upper limit for a contingency fee in Oklahoma is set by statute at 50 per cent of the net amount of the judgment recovered. 5 O.S.1991 §7. The Oklahoma Supreme Court has applied this limitation in interpreting the meaning of "reasonable fee" and "clearly excessive" as used in DR 2-107(A) and (B), now covered by Rules 1.5(a) and 1.8(j)(2) of the Rules of Professional Conduct, 5 O.S.1991, Ch. 1, App. 3-A. State ex rel. Oklahoma Bar Ass'n v. Watson, 1994 OK 32, 897 P.2d 246, 251 n.11, and 252. The only cases we find in which the Court has refused to enforce a bargained-for contingency fee within the statutory limit are those in which the contingency fee contract was "obtained by fraud, mistake, undue influence, or suppression of facts on the part of the attorney or in a manner contrary to public policy." Oklahoma Turnpike Authority v. New Life Pentecostal Church of Jenks, 1994 OK 9, 870 P.2d 762, 766 n.17.

12 CNI does not assert Firm's total fee exceeded 50 percent of the net recovery. The issues raised in CNI's first proposition of error are fact issues relating to its rescission claim. Accordingly, our review of the reasonableness of the amount of the contingency fee necessarily involves consideration of the same fact issues that were tried in connection with CNI's rescission claim. Whether the trial court's fact findings are against the clear weight of the evidence is discussed in Part II below.

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Click the case caption above for the full text of the Court's opinion.

Outcome: ¶37 For the foregoing reasons, the judgment of the trial court is AFFIRMED.

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None