Opinion
Attоrney Terrance A. Beard appeals from a judgment resolving an attorney fee issue between Beard and his former client, Gary Goodrich.
We affirm.
BACKGROUND
On December 31, 1997, Goodrich, doing business as Antioch Alloy and Pacific Rims, Inc., was sued by his lessor, Michael H. Clement Corporation (Clement), who claimed that Goodrich had been discharging toxic waste materials on the leased premises. Clement sought damages of $1,024,333.65. Goоdrich apparently took the position that Clement’s suit lacked merit, had been instituted in retaliation for Goodrich’s refusal to do business with Clement and was simply the last of a number of acts of harassment and retaliation. Goodrich hired Beard to defend him from Clement’s suit and to file a cross-complaint on his behalf against Clement. As relevant here, Goodrich and Beard agreed that Goodrich would pay Bеard a retainer of $20,000, an amount that later was increased to $40,000. The remainder of their fee agreement was stated in the following language:
“Contingency Fee: Client agrees to pay Attorney a contingency fee of 40 percent of the total net recovery obtained by Client, less that portion of the retainer actually paid by Client. The term ‘net recovery’ means the total of all аmounts received by
The matter went to trial. A jury returned a verdict that Clement take nothing on its complaint, finding that Goodrich did not breach his lease with Clement. It awаrded Goodrich $77,873 on a theory of constructive eviction and $50,000 for intentional infliction of emotional distress, plus $59,360 in punitive damages, for a total damages award of $187,233.
The lease agreement between Goodrich and Clement contained an attorney fee provision, and Goodrich therefore moved for an award of attorney fees as costs under Civil Code section 1717. The court ruled thаt Goodrich, as the prevailing party, was entitled to $394,925 in attorney fees. It then entered judgment in favor of Goodrich in the amount of $187,233 in damages, and awarded costs, including attorney fees, in the amount of $407,086.99.
Clement appealed from the judgment. On October 18, 2000, Clement and Goodrich entered into a settlement agreement. Clement and his insurer agreed
to pay a total of $599,000 to Goodrich and Beard and to abandon the appeal. Clement and
After settlement, Beard sent Goodrich a letter outlining his theory for division of the settlement money. The letter points out that Goodrich аlready had paid $40,000 towards attorney fees and $25,795.33 in costs. There were unpaid costs of $10,021.76. The court had awarded Beard $394,925 in attorney fees. Beard proposed that he disburse to himself the amount of the outstanding costs plus the full amount of fees awarded, and disburse the remaining funds, $194,053.24, to Goodrich. Goodrich disagreed, contending that the amount claimed by Beard exceeded that to which he was entitled undеr the fee agreement.
The parties were unable to agree on the division of the settlement proceeds. Beard, however, disbursed $194,052 to himself and a like amount to Goodrich, as these amounts were not disputed. He retained the remaining settlement funds of $210,895.52, and on April 17, 2001, filed a complaint in the superior court, seeking a declaration that he was entitled to payment of the full amount of attоrney fees awarded in the underlying action plus the costs incurred in that action. Goodrich cross-complained for failure to pay sums due under the contingency fee contract, claiming entitlement to 60 percent of the settlement funds. The trial court agreed with Goodrich, entering judgment in his favor in the amount of $210,085.77. It found that under the terms of the parties’ fee agreement, Beard was entitled to 40 percent of the settlement amount of $599,000, after a deduction of $7,103.32 for unpaid costs. Beard, therefore, was entitled to $236,758.67. Goodrich already had paid Beard $40,000, so the amount due Beard was reduced to $196,758.67. As Beard earlier had disbursed $194,052.24 to himself, he was due only $2,706.43. The court also awarded Beard $24,375 on a theory of quantum meruit for services performed after judgment was entered in the Clement matter, and awarded prejudgment interest to both parties.
DISCUSSION
I.
Attorney Fees
Beard asserts two somewhat conflicting theories in support of his claim that the trial court erred in limiting his fees to 40 percent of the settlement amount, less costs. First, he points out that the trial court in the underlying
litigation had awarded attorney fees of $394,925. Beard contends that those fees were awarded to
him
and not to Goodrich. He contends it follows that by limiting his fees to 40 рercent of the settlement amount, the trial court effectively gave Beard’s fees to Goodrich, a result that, according to Beard, is inconsistent with the decision in
Flannery
v.
Prentice
(2001)
Court-Awarded Fees
The lease agreement between Goodrich and Clement provided: “Should any action be instituted to enforce any of the provisions of this lease, the prеvailing party shall be entitled to recover reasonable expenses of such proceedings, including reasonable attorneys’ fees.”
Clement instituted an action, and Goodrich prevailed at trial. The trial court, therefore, entered judgment awarding attorney fees to Goodrich as an element of Goodrich’s costs. The parties then, however, settled the case, and as part of their settlement vacated the judgment and dismissed the entire matter. The court’s award of fees was vacated along with the rest of the judgment, and for all practical purposes, therefore, the terms of the settlement superseded the terms of the judgment. As the terms of the settlement did not include an award of attorney fees, Beard’s entitlement to fees was defined not by the judgment nor by the settlement agrеement, but by his contract with Goodrich.
Beard contends that the settlement of the case and vacation of the judgment had no effect on his right to court-awarded fees. In support of this argument, Beard cites two insurance cases,
City of Laguna Beach v. Mead Reinsurance Corp.
(1990)
Since the present сase does not involve issues of insurance coverage, the cited cases have no application here. Moreover, at the most, the cases stand for the argument that a party is bound by a factual finding in an action notwithstanding that the judgment entered on that finding has been vacated. The factual finding here is that Beard did work valued at $394,925; however, that finding cannot establish a legal right to recover fees in that amount. The right to recover the fees was established by the judgment and was extinguished when the judgment was vacated. Beard’s only right to recover fees, therefore, was defined by his contract with Goodrich, which was limited to the right to recover from Goodrich a contingency fee of 40 percent of the total net recovery.
Flannery
v.
Prentice, supra,
Contractual Fees
Beard contends that the court erred in finding that the fee agreement did not provide for an award of 40 percent of the unrecovered damages claimed by Clement. The merits of this contention turn on the meaning of the contractual provision defining Goodrich’s net recovery as including “the forgiveness or discharge of debt.”
The interpretation of a contract involves a two-step process. “ ‘First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties’ intentions to determine “ambiguity,” i.e., whether the language is “reasonably susceptible” to the interpretation urgеd by a party. If in light of the extrinsic evidence the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract. [Citation.]’ [Citation.] The trial court’s determination of whether an ambiguity exists is a question of law, subject to independent review on appeal. [Citation.] The trial court’s resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict. However, where the parol evidence is in conflict, the trial court’s resolution of that conflict is a question of fact and must be upheld if supported by substantial evidence.”
(WYDA Associates v. Merner
(1996)
The trial court ruled that the phrase “forgiveness or discharge of debt” was not ambiguous and that undetermined and unrecovered claims do not constitute the forgiveness or discharge of debt. As this determination was based on a consideration of extrinsic evidence, the question on appeal is whether substantial evidence supports the trial court’s ruling, or whether the evidence compelled a finding that the phrase is reasonably susceptible of the meaning attributed to it by Beard—that “debt” includes unrecovered claims.
Beard produced evidence, in the form of his own testimony, that he believed and intended the phrase to include unrecovered claims. The trial court apparently accepted Beard’s representations as to his subjective intent as true. Beard also testified that Goodrich told him that he lacked the funds to pay Beard on an hourly basis, and that Beard ultimately аgreed to represent Goodrich on a “reverse contingency” arrangement under which he would receive a contingency fee based on the value of any claims Goodrich avoided through a successful defense, in addition to a percentage of any funds recovered through a cross-complaint. Beard testified that he explained to Goodrich that the “reverse contingеncy” arrangement provided a basis
Goodrich testified that Beard never spoke of working under a reverse contingency arrangement or suggested that he would be entitled to fees over and above the retainer if there was no recovery on Goodrichs cross-complaint. To the contrary, according to Goodrich, Beard agreed to take the $20,000 (and later $40,000) retainer and to litigate “the whole ball of wax,” meaning defend the underlying suit and prosecute the cross-complaint, for 40 percent of the net recovery. For example, if the case settled, Beard would get 40 percent of the settlement. Goodrich also testified that Beard believed that Goodrich had a very strong case, pointing out that Clement had been involved in numerous lawsuits and had engaged in unlawful business practices. Beard stated a belief that Goodrich would be awarded $1.5 million or more, explaining that he would get 40 percent of that amount. In addition, Beard’s postsettlement letter to Goodrich claimed entitlement to 40 percent of the settlement amount, but did not mention any entitlement tо 40 percent of the value of unrecovered claims.
While we resolve all factual disputes in the extrinsic evidence in favor of the trial court’s determination, the evidence that Beard may have intended, subjectively, for the phrase “forgiveness or discharge of debt” to include the value of unrecovered claims, is irrelevant. “ ‘A contract must be interpreted to give effect to the mutual, expressed intention of the parties. Where the parties have reduced their agreement to writing, their mutual intention is to be determined, whenever possible, from the language of the writing alone.’ [Citations.] ‘Contract formation is governed by objective manifestations, not the subjective intent of any individual involved. [Citations.] The test is “what the outward manifestations of consent would lead a reasonable person to believe.” [Citation.]’ [Citation.]”
(Allen v. Smith
(2002)
We turn first to the words of the provision at issue. The words of a contractual provision will be interpreted in their ordinary and popular sense, unless used by the parties in a technical sense or given a special meaning by usage. “Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning. [Citations.]”
(Santisas v. Goodin
(1998)
The circumstances would not have suggested to a reasonable person that Beard was to recover 40 percent of Clement’s unliquidated claims under a reverse contingency arrangement. A reverse contingency arrangement is uncommon. A reasonable person would expect such an arrangement to be clearly defined. Beard complains that it would be unreasonable to assume that he intended to receive no compensation for a defense that avoided claims of $1,024,333.65. Goodrich testified, however, that Beard expressed to Goodrich that Goodrich was likely to recover a substantial amount of money—up to $1.5 million—on the cross-complaint, and that Beard would be entitled to 40 percent of that amount, or to 40 percent of any amount received in settlement of the case. There was also evidence that Beard and Goodrich assumed that Clement’s claims were unfounded and easily defended, and that Goodrich paid Beard a $40,000 retainer fee. There is nothing unreasonable about a conclusion that under these circumstances, Beard was willing to risk receiving nothing over and above the retainer paid by Goodrich, when he stood to gain a substantial amount of money if Goodrich prevailed on the cross-complaint or if the parties settled the case. Since Goodrich did not have the money to pay Beard an hourly rate for his defense, it would make little sense for him to agree to pay Beard a percentage оf the value of Clement’s claims. Finally, it would not have been reasonable for the parties to expect Goodrich to pay a percentage of every claim, whatever its merits, asserted by Clement, and the agreement provided no means of calculating the actual value of Clement’s unliquidated claims.
On this evidence, the trial court was justified in concluding that the phrase “forgiveness or discharge of debt” is not reasonably susceptible of a meaning that includes “unrecovered unliquidated claims.” The trial court, therefore, correctly ruled that Beard had not shown that the phrase was ambiguous. 2
As an alternative argument, Beard claims that the undisputed evidence shows that there was “no meeting of the minds” as to the contingency fee provisions of the agreement, and that no cоntract, therefore, was formed. The assertion is based, again, on Beard’s asserted subjective intent that the contract provide for fees on a reverse contingency basis. It is true that mutual consent is an essential element of any contract, and that mutual consent means the parties must assent to the same thing in the same sense.
(Civ. Code, § 1580;
Banner Entertainment, Inc.
v.
Superior Court
(1998)
II., III. *
CONCLUSION
The judgment is affirmed.
Marchiano, R J., and Margulies, J., concurred.
Appellant’s petition for review by the Supreme Court was denied October 15, 2003. Baxter, J., did not participate therein.
Notes
Merriam-Webster’s Collegiate Dictionary (10th ed. 2001) page 296, for example, defines “debt” as “something owed.”
Even were we to conclude that the phrase is ambiguous, all the evidence discussed above would compel us to conclude that any ambiguity would have to be resolved in favor of Goodrich.
See footnote, ante, page 1031.