Head v. Head

ROSALYN B. BELL, Judge. Joan Head appeals the decision of the Circuit Court for Baltimore City awarding Howard Head attorneys’ fees pursuant to a 1981 antenuptial agreement executed between the parties. Appellant presents three propositions for our resolution: “I. The trial court erred in finding that in seeking a judicial determination that the marital settlement agreement was induced by fraud, Joan had defaulted on the agreement. “II. The trial court erred in finding that Joan’s defense was made in bad faith and without substantial justification when Joan had presented a plausible and colorable claim of fraud. “HI.

The trial court erred in tripling the reasonable fee of Howard’s counsel and in allowing an award of which two-thirds amounted to a contingent fee which is improper in a domestic relations case.” The details of the controversy that brought Joan Head and Howard Head to this Court can best be gleaned by returning to this Court’s opinion in Head v. Head, 59 Md.App. 570 , 477 A.2d 282 , cert. denied, 301 Md. 471 , 483 A.2d 754 (1984). We will not retrace that lengthy tour beyond the briefest summary. Before marrying Joan Head, Howard Head had had both substantial net worth and a previous unpleasant divorce. Consequently, he and his future wife entered into an ante-nuptial agreement.

Following their marriage, Mr. Head ⁶⁶⁰ developed and patented the oversized “Prince” tennis racquet. He also purchased an interest in and reorganized Prince Manufacturing, Inc. to produce the racquet. Unfortunately, “[t]he marriage was markedly less successful than the Prince racquet.” Head, supra at 573 , 477 A.2d 282 . Mrs. Head sued for divorce in the Circuit Court for Baltimore City and sought to set aside the antenuptial agreement.

Subsequently, in December of 1981, the parties entered into a new agreement. There the matter rested until Mr. Head moved for summary judgment based upon the December 1981 agreement. Mrs. Head opposed, alleging that the 1981 agreement was fraudulent because her husband’s assets were seventeen times greater than he had represented. The chancellor rejected the argument of Mrs. Head and entered a decree upholding the 1981 agreement.

Mrs. Head appealed that decision. Head v. Head, supra. While that appeal was pending, Mr. Head filed a petition for counsel fees under a provision in the 1981 agreement which contained a mutual waiver of counsel fees, except for any reasonable fees incurred in effecting compliance with the agreement in the event of a default. Mr. Head contended that his wife’s defaults under that agreement necessitated counsels’ services to enforce compliance with the agreement.

That petition lay idle until the appeal process was completed, at which time Mr. Head filed a supplemental motion adding a request for the fees rendered in the appeal. An answer was filed and a hearing on fees was held before the same chancellor who handled all other aspects of the case. At this hearing, testimony revealed that Mr. Head had paid his counsel $50,000 for their work in connection with the trial. Counsel had not billed for the appeal, claiming they were looking to the court for “some guidance in setting the fee.” The court accepted evidence on the value of counsels’ services.

At the conclusion of this hearing, the chancellor ordered a fee of $120,000 including a result-obtained ⁶⁶¹ amount. It was under the provision in the December 1981 agreement that payment by appellant to appellee for his attorneys’ fees was awarded. I. DEFAULT Right to Litigate Validity of Agreement Appellant first contends that fees were not properly awarded to appellee because she did not default under the agreement. She asserts that “litigating a defense that the Agreement was induced by fraud cannot constitute a default.” Appellant concludes that attorneys’ fees were not incurred in effecting compliance with the agreement because she was seeking to have the agreement set aside as a fraud.

We do not concur. The word default is defined as the “omission or failure to perform a legal or contractual duty.” Black’s Law Dictionary 376 (5th ed. 1979). We cannot imagine any closer nexus between renouncing all responsibility under a contract and a default or failure to abide by its terms than what occurred here. The second prong of appellant’s position superficially has more substance.

She points out that if her claim that the agreement was fraudulently induced is deemed a default, her right to challenge the agreement is abrogated. She concedes there is no Maryland case on point, but refers us to Locke Paddon v. Locke Paddon, 194 Cal. 73 , 227 P. 715 (1924) and Nacht v. Nacht, 167 Cal.App.2d 254 , 334 P.2d 275 (1959), to support her claim. Both Locke Paddon, supra and Nacht, supra, however, are inapposite. In both cases there were releases and waivers of fees and costs in the respective agreements.

In Locke Paddon, supra the wife sought to set aside the agreement based on fraud. The chancellor had not decided the ultimate issue, but awarded alimony pendente lite, counsel fees and costs. The California Supreme Court affirmed the award on appeal, holding that the basis for ⁶⁶² awarding costs and fees to the wife to adjudicate her rights was inherent in the marital relationship. The Court then opined: “It is, of course, also necessary for the court to determine that the necessities of the wife warrant the making of the order and that the husband is able to pay.” Id. 227 P. at 718 .

The relevant issue presented in Nacht, supra was also the right of the wife to costs and fees on appeal. The Nacht Court held that “[w]hen the wife in good faith challenges the continued existence of the property settlement, or its validity, regardless of whether she is right or wrong, where she is unable to finance the appeal, she must have suit money to prosecute the appeal or she will lose her right to challenge the continued existence of the agreement.” Id. 334 P.2d at 284 . The cases on which appellant relies did award costs and fees despite the prior agreement to the contrary, but did so based partly on the wife’s need. The case at bar is not a case of a spouse without resources being precluded from litigating her rights.

Appellant is not dependent upon the largesse of appellee for support. Of even more significance, both Locke Paddon, supra and Nacht, supra require that the wife’s suit must be and was in fact brought in good faith. In the instant case the chancellor found appellant’s “actions ... in trying to upset the agreement were without substantial justification. In fact, they were without any justification at all as far as I can see____” This is scarcely the good faith which was deemed a prerequisite in the precedents relied on by appellant.

As we stated, appellant suggests that she is being penalized through the imposition of fees and thus her right to litigate the fraud defense was infringed. We think not— chilled perhaps, but not infringed. The right to fees in case of default was a contract term appellee insisted be included in the contract based on his experience. Appellant seeks to ⁶⁶³ avoid that term of the contract.

The object of the provision was to deter non-compliance. Wilfull non-compliance amounts to a default and that is what occurred here. Instances of Default The 1981 agreement provided in part: “As of the date of this Agreement, the parties have mutually agreed voluntarily to live separate ... with the intention of terminating the marriage.” * * * jj! * K¡ “2. VOLUNTARY SEPARATION, NON-MOLESTATION.

The Parties agree to separate and from the date of this Agreement voluntarily to live separate and apart ... with the intention of terminating their marriage.” * A * # sfc * “11. INDEPENDENT COUNSEL-FAIRNESS OF TERMS. This Agreement is being made without full and complete financial disclosure by Husband to Wife. It has been explained to Wife and she understands that such full disclosure is available to her if she should desire it, but she has expressly waived such disclosure for the reasons hereinafter set forth:” “B. This Agreement provides significantly more than the Wife would have received under the [earlier] Ante-Nuptial Agreement and is in her judgment more than sufficient to care for her needs now and in the future. “C. Wife recognizes that there may be no proportionality in the relationship of the amount herein provided for her and the total assets and resources of Husband, and further recognizes that the consideration passing to her under this Agreement may not be a substantial part or may be a relatively insignificant fraction of Husband’s total worth.” The chancellor found by clear and convincing evidence that appellant defaulted under the agreement in numerous ways.

He specified two. ⁶⁶⁴ —Prince Stock— Appellant sought to set the agreement aside alleging fraud because the Prince stock owned by appellee was represented to have a book value of $2,551,000 at the time the contract was signed, but sold for $45,000,000 approximately six months later. She claims the evidence was overwhelming that appellant knew the stock was undervalued. The chancellor found that this defense to the agreement was clearly aimed at forestalling the purposes and provisions of that contract. He concluded that since the litigation was without justification, her claims amounted to a default.

We concur. —Voluntary Separation— Appellant knowingly signed the agreement which in part stated that the parties voluntarily and mutually agreed to live separate and apart. She denied that averment in the litigation. The chancellor concluded that appellant defaulted by denying the representation made in the agreement. We agree.

In summation, the chancellor found and we agree that there were numerous defaults under the agreement. Thus, he did not err in concluding that reasonable fees should be awarded against the defaulting party under the terms of the 1981 agreement.

II

BAD FAITH Under Rule 1-341, the chancellor may award litigation fees in the appropriate case. That Rule provides: “In any civil action, if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification the court may require the offending party or the attorney advising the conduct or both of them to pay to the adverse party the costs of the proceeding and the reasonable expenses, including reasonable attorney’s fees, incurred by the adverse party in opposing it.” ⁶⁶⁵ The chancellor utilized this Rule in conjunction with the 1981 agreement when awarding fees to appellee. Appellant urges upon us, however, that she did not bring this case “in bad faith or without substantial justification” and hence Rule 1-341 should not be applied against her. In view of our affirmation of the chancellor’s finding that appellant defaulted, thus permitting the award of counsel fees under the agreement, her argument as to the Rule is only of academic interest.

Accordingly, it need not and will not be addressed.

III

REASONABLE FEES The 1981 agreement attempted, albeit unsuccessfully, to resolve the financial differences between the parties, but instead gave rise to an escalation of the controversy. The fee dispute centers around the following provision in the agreement: “10. COUNSEL FEES. [In consideration of the payment of a designated fee to appellant’s then attorneys by appellee] [t]he parties release each other from the payment of any other counsel fees for services, past, present or future, for any matter or thing whatsoever on behalf of either of them, except ... (2) any reasonable fees for services which either party may incur in effecting compliance with this Agreement in the event of a default by the other which shall be paid by the defaulting party ...” At the hearing on counsel fees, appellant stipulated to the time spent by appellee's counsel in preparation of the case —227 hours.

She did not present any evidence or expert testimony as to the reasonable value of those services. Appellee presented James G. Beach, Jr., an attorney, testifying as an expert in domestic relations fees. Mr. Beach reviewed and disclosed appellee’s counsels’ entire file of the trial and appeal at this hearing. He announced that he “took into account the fact that [appellant’s] attorneys, according to the records, were paid a counsel fee of $100,-000” which the chancellor pointed out “was in accordance ⁶⁶⁶ with the agreement and before there was even any fighting.” 1 Mr. Beach concluded that a fair and reasonable fee for the services rendered by appellee’s counsel would be $125,-000.

He applied three different approaches in arriving at this result. First, he looked at the time spent by each of appellee’s two attorneys which he opined was nonduplicative except for the time spent in open court. He then assessed a basic $200 hourly rate, which was, in his opinion, “well within the realm of hourly rates charged in this area for this type of case” for “the work ... done and the reputation that ... [appellee’s counsel] have at the Bar.” He rounded the hours to 200 giving “a fee based on an hourly rate, of $40,000.” He related that he “looked at the file in detail ... and it is my opinion that the average practioner or practioners could not have performed the work that was performed in that file in 200 hours, so I looked at it first ... on a quantum meruit for the work performed at that time without assessing a result factor to it, and this would be my first method of arriving at the fee.” He concluded that $75,000 would be the fee on a quantum meruit basis and had “no problem attributing a result factor ... of $50,000,” arriving at the sum of $125,-000. His second approach computed the actual time spent at the hourly rate of $200.

To this $40,000 plus figure, he added a result bonus of $85,000 based on the tremendous financial exposure of appellee if appellant had succeeded on her claims. Mr. Beach’s third approach was to start with the basic time charge of approximately $40,000 “and again looking at the many ways that I have in the past used to arrive at a result factor I simply doubled your hourly rate, and again I ⁶⁶⁷ would be comfortable in saying a result factor of 80 would be fair and reasonable. That would give me $120,000 but I really believe $125,000 is a fair and reasonable fee.” The chancellor found that the services of appellee’s counsel could be reasonably valued at $125,000. He reduced the $125,000 figure to $120,000 because of possible duplicative effort by the two attorneys. 2 In awarding that amount, the court stated: “You can’t have [contingent fees] properly or ethically, but there is nothing wrong with parties getting $200.00 an hour and if the result warrants to come back and talk about a higher fee at the end of the case, so ... $120,000 that certainly is a reasonable fee for what was done.” 3 Appellant asserts that the chancellor erred in awarding a fee which (1) was unreasonable and (2) amounted to a contingent fee which is improper in a domestic relations case.

We will first consider appellant’s second contention. Contingent Fee Appellant contends that the award was result-based and thus is, in effect, a contingent fee. As the Code of Professional Responsibility recognizes, contingent fees are rarely