Davis Adv. Sh. No. 4
S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
In the Matter of the
Estate of Frank Preston
Jones, Jr., Deceased
In Re: Claim of
Leatherwood, Walker,
Todd & Mann, P.C.,
Attorneys, Estate File
56, Drawer 548, Respondent
v.
The Estate of Frank
Preston Jones, Jr. Petitioner
ON WRIT OF CERTIORARI
TO THE COURT OF APPEALS
Appeal From Greenwood County
Charles B. Simmons, Jr., Special Circuit Judge
Opinion No. 24748
Heard December 16, 1997 - Filed January 19, 1998
REVERSED
- C. Rauch Wise, of Greenwood, and Ken Suggs, of
- Suggs & Kelly, of Columbia, both for petitioner.
- J. D. Todd, Jr., of Leatherwood, Walker, Todd &
- Mann, P.C., of Greenville, for respondent.
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THE ESTATE OF JONES
TOAL, A.C.J.: The Court of Appeals affirmed in result the award of
attorneys' fees to Leatherwood, Walker, Todd & Mann, P.C. ("Law Firm").
We granted a writ of certiorari to review the question of whether the express
fee contract was contingent on the successful recovery of a tax refund in
federal court. We now reverse.
Factual/Procedural Background
Frank P. Jones, Jr. died in 1979. Elliott, Davis & Company ("Account-
ing Firm") represented the Jones estate in filing estate tax returns with
federal and state authorities. Accounting Firm claimed a marital deduction
for the estate because a woman named Eleanor Stickles lived with Jones.
This deduction was disallowed by the Internal Revenue Service ("IRS") and
the S.C. State Tax Commission. The estate paid the taxes due.
The estate then petitioned a probate court to determine the marital
status of Stickles. The court found a valid common law marriage between
Jones and Stickles. After this determination, Accounting Firm prepared, on
the basis of a marital deduction, a claim for a refund from both the IRS and
the S.C. Tax Commission. The claims were denied. The state refund was
denied because it was not filed within three years of the due date of the
return.
Accounting Firm then contacted Law Firm with which it had a
longstanding professional relationship. Correspondence between the two
firms indicates that Law Firm was handling two different matters for
Accounting Firm: (1) initially representing Accounting Firm against a
potential professional liability suit in relation to the Jones estate; and (2)
seeking a refund for the estate. Law Firm did pursue these matters, by
writing letters to Accounting Firm's carrier reporting the potential
professional liability claim, and seeking a refund from the S.C. Tax
Commission and the IRS. On October 20, 1987, Law Firm argued the refund
matter before the S.C. Tax Commission. On December 22, 1987, the
Commission ordered a $30,695 refund.
The record contains copies of bills sent by Law Firm to Accounting
Firm detailing fees owed. The final bill is dated August 9, 1988 and reflects
over $14,500 in fees. As of August, no part of Law Firm's bill for services
regarding the processing of the refund had been paid. On August 23, 1988,
Law Firm wrote to the administrator of the estate, proposing a contract to
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THE ESTATE OF JONES
proceed with litigation in federal court. The letter provides, in part:
- We are willing to go forward with preparing the case and
- handling it in United States District Court on a, contingent fee
- basis. We think that a contingent fee of one-third of the total
- amount recovered (including both principal and interest) would
- be reasonable. In setting this contingent fee, we will agree for it
- to include the total amount of our charges for all legal services
- rendered to this date. We will file the suit and pursue it through
- the Fourth Circuit (if the District Court opinion is appealed) for
- one-third of the total amount recovered (taxes plus interest) from
- the IRS and SCTC. Of course, the Estate would reimburse us for
- all costs and expenses incurred in the representation (including
- those already paid or incurred, i.e. $310.38).
The administrator did not respond, so on September 27, 1988, Law
Firm again wrote him: "After having done considerable work in behalf of
your brother's estate (the Estate) with no compensation, we cannot and will
not do any further work without a contract for specific compensation signed
by you as Administrator of the Estate." An attorney for the estate contacted
Law Finn a few days later to discuss the federal action. Law Firm wrote a
letter to the administrator on October 11, 1988, confirming the initiation of
an action in federal court: "As you are well aware and in accord with your
direction, [attorney for the estate] telephoned me on yesterday, . . . and
advised your request that we proceed with filing suit in United States
District Court for the District of South Carolina by you as Administrator of
the Estate of Frank P. Jones, Jr. against the United States of America."
Law Firm initiated the action in federal court against the IRS. The
action was not successful. ln communicating with the administrator about
the adverse results, Law Firm stated the chances of success on appeal would
be "nil." It further advised the administrator of the time for appeal. The
administrator did not respond, and there was no appeal of the matter to the
Fourth Circuit Court of Appeals.
Eventually, Law Firm elected to file a claim against the estate for
attorneys' fees in connection with the procurement of the state tax refund.
It sought one-third of the $30,650 state tax refund. The estate denied it was
liable for any attorneys' fees. Law Firm presented four alternate theories to
the probate court to justify its claim to attorneys' fees: (1) an express
contract was created through the correspondence to the administrator (August
23, 1988; September 27, 1988) and the call of the attorney for the estate to
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THE ESTATE OF JONES
Law Firm; (2) an implied contract was created by notice to the estate through
Law Firm's correspondence which evidenced its efforts to secure a refund, and
the failure of the estate to object to such actions: (3) Law Firm acted as
authorized agent of Accounting Firm, which had began given a power of
attorney by the estate; and (4) Law Firm was owed fees under the equitable
doctrine of quantum meruit.
The probate court disallowed the claim. First, it found that the express
contract included the contingency of success in federal district court. Law
Firm was not successful in that action; therefore, it could not seek to reform
the contract.
Second, the probate court found that Law Firm should not be allowed
to recover on an implied contract basis. Nearly all of Law Firm's
correspondence about this matter was directed to Accounting Firm, not to the
estate. Moreover, there was a potential conflict between the interests of the
estate and those of Accounting Firm. The court noted that a lawyer may
represent clients with adverse interests only with the consent of each client
after full disclosure of the possible effects of such representation. See In re
Anonymous Member of the S.C. Bar, 315 S.C. 141, 432 S.E.2d 467 (1993).
This conflict was not disclosed to the estate.
Third, the probate court considered Law Firm's power of attorney
arguments The estate had given a power of attorney to Accounting Firm to
act on its behalf. Accounting Firm in turn had given Law Firm a power of
attorney to act on its behalf. After analyzing the relevant documents, the
probate court concluded that the power of attorney given to Accounting Firm
did not authorize it to hire anyone else; nor was the estate aware that its
power of attorney was being used to hire Law Firm.
Finally, the probate court found that the elements of quantum meruit
had not been satisfied: The services were not performed under such
circumstances as would have reasonably notified the estate that Law Firm
expected to be paid for its services by the estate, as opposed to Accounting
Firm. Accordingly, the court disallowed Law Firm's claim for attorneys' fees.
Law Firm appealed to the circuit court, which then reversed the
holding of the probate court. The circuit court's order addressed only one
issue, namely, quantum meruit. The court did not consider Law Firm's other
theories for seeking fees. The estate appealed, and in an unpublished
opinion, the Court of Appeals affirmed in result. In re Estate of Frank
Preston Jones, Jr., Op. No. 96-UP-330 (S.C. Ct. App. filed October 29, 1996).
p. 16
THE ESTATE OF JONES
It found that there was not a basis for awarding fees under quantum meruit;
however, it held that the parties had entered into an express contract, the
terms of which were set out in the August 23, 1988 letter to the
administrator. This Court granted the estate's petition for a writ of certiorari
to review a single question:
- Did the Court of Appeals err in failing to find the express
- contract was contingent upon the successful recovery of a tax
- refund in federal court?
Law/Analysis
The estate argues that the contract between Law Firm and the estate
was contingent on the recovery of a tax refund in federal court. We agree.
The contractual provision between the parties must be read within the
broader context of Law Firm's August 23, 1988 letter to the estate. The
letter, authored by Law Firm's senior partner Wesley Walker, states that Mac
Walters, an attorney with Law Firm, has done considerable work on and was
instrumental in obtaining the refund from the S.C. Tax Commission. It
further states:
- You are aware that Mac Walters submitted a statement for
- services to the interested parties but no one appears to have any
- interest in making payment. I will not belabor in this letter all
- the work that has been done but I must say that -- like any
- other law firm or individual lawyer practitioner would be -- we
- are not very happy about not being compensated for our services.
- In lieu of recounting cur labors and services, I propose in this
- letter a plan for further procedure which will please everyone if
- we are successful in a refund action against the United States
- (IRS) in Federal District Court.
- In view of the extensive work previously done by Mac Walters in
- this case, we feel that we are in a position. to recommend
- proceeding with a ref',and action in the United States District
- Court . . . .We believe that we are well qualified to go forward
- with this matter and with an appropriate compensation
- agreement, we are prepared to proceed forthwith.
- Naturally, we will not undertake the litigation without an
- appropriate compensation agreement. Such an agreement will
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THE ESTATE OF JONES
- properly take into consideration the work already done which
- resulted in the refund by the SCTC. We are willing to go
- forward with preparing the case and handling it in United States
- District Court on a contingent fee basis. We think that a
- contingent fee of one-third of the total amount recovered
- (including both principal and interest) would be reasonable.
- setting this contingent fee, we will agree for it to include the
- total amount of our charges for all legal services rendered to this
- date. We will file the suit and pursue it through the Fourth
- Circuit (if the District Court opinion is appealed) for one-third of
- the total amount recovered (taxes plus interest) from the IRS and
- SCTC. Of course, the Estate would reimburse us for all costs
- and expenses incurred in the representation (including those
- already paid or incurred, i.e. $310.38).
"A contingent fee is one which is made to depend upon the success or
failure in the effort to enforce a supposed right, whether doubtful or not."
Adair v. First Nat. Bank, 139 S.C. 1, 5, 137 S.E. 192, 193 (1927); see also
City of Burlington v. Dague, 505 U.S. 557, 560-61, 112 S. Ct. 2638, 2640, 120
L. Ed. 2d 449, 455 (1992)("Fees for legal services in litigation may be either
'certain' or 'contingent' for some hybrid of the two). A fee is certain if it is
payable without regard to the outcome of the suit; it is contingent if the
obligation to pay depends on a particular result's being obtained."); Alexander
v. Inman, 903 S.W.2d 6861 696 (Tenn. Ct. App. 1995)("Most jurisdictions
would agree that a contingent fee arrangement is an agreement for legal
services under which the amount or payment of the fee depends, in whole or
in part, on the outcome of the proceedings for which the services were
rendered."); Martin v. Buckman, 883 P.2d 185, 192 (Okla. Ct. App. 1994)("In
simple terms, a contingent fee contract is one in which a client engages an
attorney to represent her in the recovery of, say, a certain sum of money she
claims is owed to her, and the attorney agrees to accept for his services a
certain percentage of what he recovers either by settlement or by judgment.");
Black's Law Dictionary 614 (6th ed. 1990)(defining "contingent fees" as
"[a]rrangement between attorney and client whereby attorney agrees to
represent client with compensation to be a percentage of the amount
recovered . . . .").
If we assume, in the present case, that the parties entered into a
contract1 through the August 23, 1988 letter, then the contractual language
1The question before this Court assumes a valid contract between the
parties. Here, we have not been directly presented with the issue of whether
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THE ESTATE OF JONES
clearly evidences a contingent fee agreement. As the above authorities
explain, a contingent fee agreement necessarily requires that a successful
result be achieved before the fee is paid. In this case, the contract and other
evidence in the record reveal that the contingency was success in procuring
a refund in the federal litigation and that if that action was not successful,
then there would be no fee paid. For example, the letter itself declares:
"... I propose in this letter a plan for further procedure which will please
everyone if we are successful in a refund action against the United States
(IRS) in Federal District Court." (emphasis added). Moreover, an inter-office
memo between members of Law Firm states: "In the final analysis, we will
not file suit against Bill Jones as Administrator even though the failure to
pursue an appeal will jeopardize our chances of collecting the fee on the
South Carolina refund."
Law Firm argues that the prosecution of the claim was itself the
fulfillment of the contingency; the one-third fee had already been earned, and
it should have been paid by the estate when Law Firm proceeded with the
federal action. This is an untenable position because under this
interpretation, there would, in fact, be no contingency; the prosecution of the
action, regardless of the results, would trigger the contingency. If the
outcome of the suit is irrelevant to the fee to be extracted, then the
agreement would not be contingent, but would be certain. Because the
contractual language here set forth a contingency -- one which ultimately was
not fulfilled -- Law Firm is entitled to no fee under the contract.
CONCLUSION
Based on the foregoing, we REVERSE the holding of the Court of
Appeals inasmuch as the contingency of the contingent fee agreement was not
satisfied. Accordingly, Law Firm is not entitled to the award of attorneys'
fees.
WALLER and BURNETT, JJ., and Acting Associate Justices
George T. Gregory Jr., and L. Casey Manning, concur.
a contract in fact existed. Accordingly, our decision should not be read to
sanction the legal arrangement between Law Firm and the estate in the
present case. The fact that an attorney's services have inured to the benefit
of others does not necessarily give rise to a contractual relationship, absent
a clear agreement between the parties. See Rankin v. Superior Auto. Ins.
Co., 237 S.C. 380, 117 S.E.2d 525 (1960); see also Bowen & Smoot v.
Plumlee, III, 301 S.C. 262, 391 S.E.2d 558 (1990).
p. 19