This case arises out of a wrongful death lawsuit, in which appellant Herzog, Yuhas, Ehrlich & Ardell, APC (Herzog) represented plaintiffs and respondents Silke Schulz and her four young children.
FACTS AND PROCEEDINGS BELOW
At the time of his death, Rаiner was the president and co-owner with Silke of Asia Today. Silke had previously worked alongside Rainer at Asia Today, but she left the business in 2010 when her first son Lukas was born. In 2011, the family expanded to add triplets. The triplets were born prematurely, and two suffered serious, permanent disabilities. At the time of his death, Rainer was primarily responsible for the financial support of Silke and the four children. Rainer also had two adult daughters from a prior marriage, both of whom had been receiving financial support from him at the time of his death.
On March 1, 2012, Rainer was piloting a small Cessna jet aircraft owned by Asia Today with a co-pilot and three other passengers onboard on their way to Egelsbach airport near Frankfurt, Germany. As the plane began its final approach, it struck a grove of trees on a hilltop approximately two miles from the runway, crashing and killing everyone on board.
Before hiring Herzog, Silke consulted with aviation experts to determine the cause of the crash. Two experts consulted the preliminary report from the BFU, the German government agency responsible for investigating air accidents, and concluded that pilot error was the primary cause of the crash.
Herzog agreed to represent Silke, her sons, and Asia Today on a contingency basis. Herzog hypothesized that the Cessna's enhanced ground proximity warning system was not functioning properly, and that as a result, a "[p]ull-up" warning sounded only two seconds before impact. Herzog beliеved that if the warning system had been functioning properly, it would
Silke, together with Klaus Hoffman, the chief executive officer of Asia Today, negotiated the terms of Herzog's representation, with the participation of Asia Today's corporаte attorneys. According to Herzog, Silke and Hoffman considered several attorneys to represent them in the case; they had the resources to pay for legal representation on an hourly basis, but chose a contingency arrangement because of, among other reasons, the risk that the plaintiffs might not be able to recover enough to warrant the expense of hourly fees. According to Herzog, the other attorneys Silke spoke with would not take the case on a contingency basis. In addition to the causatiоn risk, Silke was aware that the defendants might attempt to remove the case to Germany. Rainer and Silke were German nationals, the chart manufacturer was a German entity, and the accident had occurred in Germany. According to Herzog, removal to Germany would likely reduce the potential value of the case to the plaintiffs, as damages awards in Germany are typically smaller than in United States courts. Respondents do not challenge this assertion.
The fee agreement that Herzog negotiated with Hoffman and Silke called for Herzog to receive 31 percent of any settlement funds if the case settled at least 30 days before trial, and 40 percent if it settled later. In discovery, plaintiffs learned that the chart manufacturer had surveyed the area where the crash took place a few months before the accident, but had not revised its charts until after the crash. Herzog also discovered that the manufacturer of the plane's guidance software had released a software update shortly after the sale of the aircraft, but the update was never installed on Asia Today's plane. The Cessna service bulletin listed the software update as "[o]ptional" rather than "[r]ecommended" or "[m]andatory," and did not describe the safety enhancements in the update. Herzog's experts claimed that, if the update had been installed, the guidance system would have issued visual and audio warnings 16 seconds before the crash, allowing Rainer time to abort the landing. Flight records indicated that the guidance system did not issue any such warnings until two seconds before the crash.
After approximately 18 months of litigation, and a few days before trial was scheduled to begin, the parties agreed to settle the case for an unallocated $18,125,000.
In the case of any wrongful death award, including one obtained through settlement, the trial court must apportion the award among the claimants. ( Code of Civ. Proc., § 377.61 ; Corder v. Corder (2007)
Herzog proposed that the court allocate 65 percent of the proceeds, or $11,781,250, to Silke and Asia Today,
The daughters did not know about the wrongful death suit until the case was well underway. They did not contest the settlement, but did disagree with their exclusion from the allocation of the proceeds. Silke reached a settlement with the daughters for their claims, which the court accepted.
The court ultimately rejected Herzog's proposed allocation and, in April 2016, issued a statement of decision apportioning all of the settlement proceeds to the four children, less one dollar, which the court allocated to Silke. The court rejected Herzog's claim for 31 percent of the children's share of the settlement and instead awarded Herzog 10 percent. The court acknowledged that Herzog had done "a good job in investigating [the] case" and realized "a substantial sum." On the other hand, the court noted that "the case did not have to be tried" and faulted Herzog for failing to notify the adult daughters of the case earlier. The court concluded that this "was either negligent or a highly questionable tactical decision, which caused much unnecessary litigation and delays."
After the trial court issued its statement of decision, Herzog withdrew from representation of Silke and her children due to the conflict of interest regarding the fee. Herzog moved for a new trial on the issue of attorney fees, alleging that the court had not made adequate findings to support the reduction in its attorney's fees. Silke and the children opposed the motion, arguing that Herzog had forfeited this argument by failing to object to the statement of decision. The trial court denied the motion.
DISCUSSION
Herzog contends that the trial court abused its discretion when it awarded attorney fees of only 10 percent of the total value of the settlement
I. Background on Approving a Settlement Involving Minors
In any case in which a trial court approves a settlement involving the payment of funds to a minor, the court must make an order for the payment of reasonable attorney fees. (See Prob. Code, §§ 3600 - 3601.) Rule 7.955 of the California Rules of Court establishes the procedure the court must follow and factors it may consider in determining whether an attorney's proposed fee is reasonable. We review the trial court's decision regarding attorney fees for abuse of discretion. ( Thayer v. Wells Fargo Bank (2001)
California Rules of Court, rule 7.955(a) provides that, in the absence of a fee agreement previously approved by the court, "the court must use a reasonable fee standard when approving and allowing the amount of attorney's fees payable from money or property paid or to be paid for the benefit of a minor." ( Cal. Rules of Court, rule 7.955(а)(1).) In determining whether a proposed fee is reasonable, "[t]he court must give consideration to the terms of any representation agreement made between the attorney and the representative of the minor ... and must evaluate the agreement based on the facts and circumstances existing at the time the agreement was made." ( Cal. Rules of Court, rule 7.955(a)(2).)
Rule 7.955(b) of the California Rules of Court also provides a "nonexclusive" list of factors the court may consider in determining a reasonable attorney's fee. The first of these factors is "[t]he fact that a minor ... is involved and the circumstances of that minor." ( Cal. Rules of Court, rule 7.955(b)(1).) The remaining factors pertain mostly to the nature of the legal work involved. Thus, a court may consider "[t]he amount of the fee in proportion to the value of the services performed" ( Cal. Rules of Court, rule 7.955(b)(2) ), "[t]he novelty and difficulty of the questions involved and the skill required to perform the legal services properly" ( Cal. Rules of Court, rule 7.955(b)(3) ), and "[t]he amount involved and the results obtained" ( Cal. Rules of Court, rule 7.955(b)(4) ). Other factors pertain to other aspects of the
II. Application to this Case
California Rules of Court, rule 7.955 does not dictate a presumptively reasonable percentagе or mathematical method of determining the appropriate attorney fees under a contingency agreement. Indeed, in adopting the rule, the Judicial Council explicitly preempted local rules regarding attorney fees for minors, many of which had established a baseline recovery of 25 percent.
Here the trial court's full statement on the matter is as follows: "Turning to the issue of attorney's fees, the Court is not bound by a contingency agreement when considering the best interests of the minors. Attorney fees must be carefully scrutinized and adjusted if warranted. Here, the attorneys hired by Silke did a good job in investigating this case. And, with the tremendous assistance of a settlement judge, a substantial sum was realized. On the other hand, the case did not have to be tried. Moreover, the attorneys' failure to notify [the adult daughters] of their claims until the eve of trial-some 18 months after the case was filed-was either negligent or a highly questionable tactical decision, which caused much unnecessary litigation and delays. The Court concludes that a 10% award of contingency fees is fair аnd proper." The court went on to suggest that Silke was free to pay Herzog "whatever sum she feels is reasonable. But paying these attorneys their requested $5 million in fees out of the settlement proceeds would be excessive, to the substantial detriment of Rainer's sons and contrary to this Court's duty [to] assure that no injustice is done to them."
We conclude the trial court gave too little consideration to California Rules of Court, rule 7.955(a)(2), which required it to take into account the terms of Herzog's representation agreement with Silke from the рerspective of when the agreement was signed. In addition, the court did not acknowledge the factors listed in California Rules of Court, rule 7.955(b). Although these factors are not mandatory, they provide a guide to the considerations relevant to determining whether a fee protects the interests of a minor while allowing an attorney to obtain a fair recovery. Instead of balancing the relevant factors, the court gave overwhelming weight to a single concern, the expense of the children's extensive medical needs.
California Rules of Court, rule 7.955 requires a trial court, in determining reasonable attorney fees, to balance an attorney's interest in fair compensation with the protection of the interests of a minor client. Thus, a trial court "must give consideration to the terms of any representation
All of these factors support a recovery greater than 10 percent. One of the two attorneys who primarily worked on the case, Ian Herzog, had 47 years of experience in aviation accident cases, and the other, Thomas Yuhas, had 37 years of experience. Both attorneys also have many years of experience as pilots, which undoubtedly gave them insight as to the causes of the crash. In this case, both sides agree that the risk of loss was substantial. When viewed from the perspective of the time it was signed, the representation agreement thus realistically evaluated the high risk that there could be no recovery at all or one substantially lowеr than was achieved.
Herzog increased its risk by advancing more than $300,000 in costs in the case. Silke and Asia Today reimbursed some of those expenses many months later, but Herzog incurred at least $83,829.53 in expenses for which the firm was not entitled to reimbursement if it did not win a recovery. And very importantly, all parties agree that Herzog obtained a very good recovery for its clients considering the circumstances of the case.
California Rules of Court, rule 7.955 also contains protections to ensure that attorneys do not take advantage of thеir minor clients. A court considering attorney fees may take into consideration "[t]he informed consent of the representative of the minor" ( Cal. Rules of Court, rule 7.955(b)(9) ) and "[t]he relative sophistication of the attorney and the representative of the minor or person with a disability" ( Cal. Rules of Court, rule 7.955(b)(10) ). The record demonstrates that Silke, who after Rainer's death took a major role in the management of Asia Today, was sophisticated. She also was assisted by corporate counsel and the chief executive officer of Asia Today in negotiations with Herzog. She had options other than using a contingent fee lawyer because she had sufficient resources to hire attorneys by the hour. According to Herzog, the clients elected to hire an attorney on a contingency basis because of the significant risk involved in the case, and because they wanted an attorney who had "skin in the game."
As justification for reducing Herzog's fee, the trial court cited the needs of Silke's children, in particular those suffering from severe disabilities. Thus, the court noted that according to one expert, the children would likely incur medical expenses totaling $76 million over the course of their lives, and that the total value of the settlement would not be sufficient to cover all these expenses. The court concluded that it "must assiduously рrotect these minors to the extent possible given the amount of settlement proceeds to be allocated."
We accept that a child's needs are a relevant and important factor in determining a reasonable attorney fee- California Rules of Court, rule 7.955(b)(1) states that the court may consider "[t]he fact that a minor ... is involved and the circumstances of that minor." This single factor, however, cannot overwhelm all other considerations. Indeed, an overly strong emphasis on the client's medical needs when determining attorney fees could have the perverse effect of reducing access to the courts to the neediest. If attorneys know that courts are likely to drastically reduce their contingency fee awards irrespective of the other considerations in California Rules of Court, rule 7.955, it will be difficult or impossible for those most in need to find qualified attorneys to handle their cases.
The court's only criticism of Herzog's representation was that the firm failed to notify Rainer's adult daughters about the existence of the lawsuit until a relatively late stage, which may have contributed to the animosity between the daughters and Silke and led to more drawn out litigation regarding the settlement distribution. But even accepting that as a valid criticism, it did not justify so low an award when so many other considerations suggested a significantly higher fee award.
The arbitrariness of the trial court's award of only 10 percent for attorney fees was compounded by the court's allocation of the settlement dollars. More specifically, the apportionment of the proceeds between Silke and the children directly affected Herzog's recovery because the court has authority to reduce attorney fees only with respect to those portions of an award payable to a minor. In this case, if the trial court had apportioned even one-fifth of the settlement funds to Silke-an amount that would not seem unreasonable-it would have meant about $750,000 in additional fees to Herzog under the retainer agreement with Silke.
III. Forfeiture
Silke, as guardian ad litem, contends that Herzog forfeited its objection to the distribution of settlement proceeds by failing to file an objection to the statement of decision. In support of this position, Silke cites In re Marriage of Arceneaux (1990)
The Court's decision in Arceneaux was based on its interpretation of Code of Civil Procedure sections 632 and 634. As the Court explained, "When the court announces its tentative decision, a party may, under section 632, request the court to issue a statement of decision explaining the basis of its determination, and shall specify the issues on which the party is requesting the statement; following such a request, the party may make proposals relating to the contents of the statement. Thereafter, under section 634, the party must state any objection to the statement in order to avoid an implied finding on appeal in favor of the prevailing party." ( Arceneaux , supra ,
In this case, the trial court did resolve the issue of attorney fees and stated its reasoning clearly. Herzog's objections are not about the court's factuаl findings, but rather about the court's exercise of its discretion in reducing Herzog's award. The only inference to be drawn from the court's failure to discuss the factors of California Rules of Court, rule 7.955 in its statement of decision is that the court found those factors unimportant in this
DISPOSITION
The judgment of the trial court is reversed. Appellant is awarded its costs on appeal.
We concur:
JOHNSON, J.
BENDIX, J.
Notes
Herzog also represented Rainer Schulz's company, Asia Today, which claimed indemnity based on its settlement with the estate of Rainer's co-pilot, who also died in the crash. The primary plaintiff in the case, Steven Spector, was appointed to act as administrator of Rainer's estate. Spector is not a party to this appeal. Throughout this opinion, we refer to Rainer and Silke Schulz by their first names in order to distinguish them. No disrespect is intended.
The BFU report itself did not reach a conclusion regarding the cause of the crash. The record includes one expert report, but it does not specify whether the report came from Silke's experts or from those hired by the estate of the aircraft's co-pilot, whose representatives sued Asia Today and ultimately settled their claims in a separate case.
The proposed settlement does not specify the percentage to be paid to Asia Today, as opposed to Silke.
Even if there is no benchmark starting point for attorney fees in cases under California Rules of Court, rule 7.955, a court may of course reasonably determine that 25 percent is an appropriate percentage in a given case.