Howard WEINER and Katherine A. Garrison, Appellants,
BURR, PEASE & KURTZ, P.C., an Alaska Professional Corporation, Appellee.
Charles E. Tulin, Anchorage, for Appellants.
Richard A. Helm, Bookman & Helm, LLP, Anchorage, for Appellee.
Before : FABE, Chief Justice, EASTAUGH, CARPENETI, WINFREE, and CHRISTEN, Justices.
This appeal involves a dispute over the modification of a law firm's contingent-fee agreement. The main questions presented are whether the modified contingent-fee agreement is valid and whether the court erred in construing the disputed phrase-" further substantial litigation" -to mean more than just in-court proceedings and filings. Because the modified fee agreement is valid and the superior court's interpretation of " further substantial litigation" was not erroneous, we affirm the grant of summary
judgment for the law firm. The issue of costs was not Before the superior court; it did not err by not addressing costs. Finally, the court's Civil Rule 68 fee award was not an abuse of discretion.
II. FACTS AND PROCEEDINGS
In September 2004 Howard Weiner and Katherine Garrison (collectively " the clients" ) retained Burr, Pease & Kurtz, P.C. (" BPK" ) to represent them in a personal injury lawsuit against Katmai Lodge, Ltd. and its owner Anthony Sarp. The facts of the underlying lawsuit are undisputed: the clients sustained injuries when the stairs to their respective rooms at Katmai Lodge collapsed. Per the legal services contract, the clients agreed to pay BPK " 25% if a resolution of the claim is made Before filing a complaint; 33% if a resolution of the claim is made after the filing of a complaint; 40% if a resolution of the claim is made after the filing of an appeal."
BPK filed the complaint on behalf of the clients against Katmai Lodge and Sarp in June 2005. By then, Katmai Lodge had filed for bankruptcy. BPK sought funds from the bankruptcy estate on behalf of the clients and hired counsel in Washington to represent the clients in the bankruptcy proceedings. BPK treated this expense as a client cost.
In August 2005 BPK sent the clients a letter advising them to agree to make a policy limits settlement offer. BPK warned the clients " that your expectations about the value of your case may not translate well to an Anchorage jury." BPK estimated that if the insurer agreed to settle for policy limits, the total recovery for the clients would be $1,122,109.85, including prejudgment interest, costs (estimated at $3,222.35) and fees.
The clients responded that month by offering to agree to settle their claims for policy limits, on the condition that the insurer pay within sixty days. They also asked BPK to reduce its fees if this policy limits settlement occurred, stating the clients were " proposing that [BPK] accepts a total of $250,000 legal fees plus any remaining unpaid costs."
In a series of written communications, the parties negotiated the clients' request that BPK reduce its fees. BPK proposed the following modifications to the contingent-fee agreement:
After consulting with the firm's executive committee we have agreed to your proposal. We will try to obtain a policy limits settlement of your claims. Should we succeed without requiring further substantial litigation we will be paid 1) our out-of-pocket costs and 2) $250,000.
If our efforts at an early settlement do not succeed and it becomes necessary to litigate the matter in a substantive way, we will revert back to our previous written fee agreement and the percentages written there.
Two days later the clients replied by e-mail that they " agree[d] to the fees as outlined" by BPK. By this time, the clients had also agreed to make the policy limits settlement offer. The parties did not reduce the modified fee agreement to one comprehensive writing, define its terms, or establish any procedures for " revert[ing] back" to the original fee agreement.
BPK made a policy limits demand on October 27, 2005. Katmai and Sarp rejected it on May 10, 2006. Both Before and after the settlement offer was rejected, BPK was preparing for trial, scheduled for February 2007. BPK also prepared for and participated in a December 2006 mediation. In November and December 2006 BPK again informed the clients of the stages and risks of trial, and the reasons for pursuing a policy limits settlement. BPK listed hypothetical recoveries if the case settled for policy limits, if it went to a jury trial, and if it was appealed. In each of these hypothetical scenarios, BPK listed what the distribution of the recovery would be after deducting fees and costs. Each scenario reflected BPK's fees as thirty-three percent of the recovery and estimated its costs, including the Washington bankruptcy attorney's fees, as being at least $35,000. For instance, in a letter dated November 17, 2006, BPK predicted that if the case settled for policy limits without going to trial, the distribution would be as follows:
| Gross Settlement or award: || $1,000,000 |
| Attorneys fee (33%) || $ 333,333 |
| Medical Liens (less 33% fee): || $ 55,666 |
| Costs advanced by BPK: || $ 35,000 |
| Net to clients: || $ 576,001 |
BPK calculated its fees as being thirty-three percent of the total recovery five times, in five different settlement scenarios. The clients did not raise any objection to BPK's use of a thirty-three percent contingency fee in these scenarios.
In January 2007 the underlying case settled for policy limits, which amounted to $1,231,025.31. BPK sent the clients a letter showing how the funds would be distributed. In this letter, BPK again calculated its fee as thirty-three percent of the recovery, or $406,238.34. The next day the clients sent BPK an e-mail objecting to the contingency fee. They complained that they understood that under the modified fee agreement, if the case settled for policy limits at any point, BPK would receive a flat fee of $250,000 plus costs. In the following days and weeks BPK expressed its disagreement with the clients' understanding of the fee contract and placed the settlement proceeds in an interest-bearing trust account until resolution of the fee dispute.
In February 2007 BPK and the clients agreed to distribute the undisputed settlement funds but keep the disputed fees ($156,238.34) in the trust account. BPK then sent the clients a letter with calculations for disbursing the settlement funds-including the clients' recovery after deducting BPK's total disputed and undisputed fees ($406,238.34) and costs advanced ($40,679.43). BPK also clarified it did " not intend to pay [its] costs advanced" until it received permission to do so from the clients, included a print-out of costs, and invited the clients to express any concern over those costs.
In September 2007 the clients filed a complaint for recovery of the disputed attorney's fees, and several months later moved for summary judgment. The clients argued that the parties did not dispute the facts surrounding contract modification and that the only question presented was one of contract interpretation. On that issue, the clients argued that " further substantial litigation" should be interpreted as " meaning that a flat fee of $250,000 would be paid to [BPK] unless the parties engaged in a considerable amount of in court filings and proceedings after October 19, 2005." According to the clients, " [b]ecause the parties did not engage in any court proceedings or considerable in court filings after that date, but prepared for and participated in mediation and an out of court settlement, the ‘ further substantial litigation’ provision was not triggered and defendants are bound by the $250,000 flat fee agreement."
In a cross-motion for summary judgment and in its opposition to the clients' summary judgment motion, BPK quoted the language of the fee proposal to which the clients had agreed: " If our efforts at an early settlement do not succeed and it becomes necessary to litigate the matter in a substantive way, we will revert back to our previous written fee agreement and the percentages written there." It argued " litigation" includes more than in-court proceedings and filings, and that " as a matter of law, the case was litigated in a substantive way following the amendment to the [fee] contract" and thus, it " is entitled to its full 33% contingent fee."
After oral argument, the court issued an oral ruling on the record. Because the parties did not dispute any extrinsic evidence, the court addressed only the legal question of contract interpretation. The court looked to dictionary definitions of the relevant terms-" further," " substantial," " litigation," " to litigate," and " early." Based on these definitions, the court interpreted " further substantial litigation" to mean " additional considerable efforts in carrying on the legal contest." The court construed the parties' modified fee agreement as follows:
[S]hould the firm succeed in obtaining the policy limits without undergoing additional considerable efforts in carrying on the legal contest, the firm will be paid out of pocket expenses and a flat fee of $250,000. And if efforts of the settlement near the beginning of ...