Keyworth v. Israelson

²⁹³ Oppenheimer, J., delivered the opinion of the Court. This appeal involves the rights of attorneys and client in a settlement fund under a fee agreement and the right of a creditor of the client to an equitable lien against the fund. The client, Charles E. Keyworth (Keyworth) has appealed from an order of the Circuit Court No. 2 of Baltimore City directing that one-third of the fund (after expenses and costs) be paid to the attorneys, Max R. Israelson (Israelson) and Stafford H. Plimack (Plimack) and from a decree of that court ordering the amount advanced to Keyworth by his employer, Industrial Sales Co., Inc. (the Employer) retained from the proceeds of the fund pending the final determination of a law suit between the Employer and Keyworth. On September 29, 1959, Keyworth, while in the employ of the Employer, sustained serious injuries when an automobile which he was operating in the course and scope of his employment was struck by a truck operated by Stephen Brown while on business of Brown’s employer, Fleet Transfer Company.

Some three days after the collision, Plimack who, it is claimed, was the attorney for the Employer, came to see Keyworth and was employed by him, under circumstances to which reference will be made hereafter. Keyworth and his wife signed an agreement under which Plimack undertook to represent the Keyworths in connection with their claim against Brown and Fleet Transfer Company. This agreement provided for a fee to Plimack of twenty-five per cent of any amount received, if the case were to be settled out of court, and one-third of any recovery in litigation. On October 10, 1959, Keyworth executed a claim for compensation, which was filed for him by Plimack with the Maryland Workmen’s Compensation Commission on October 16, 1959.

On November 9, 1959, the Commission ordered that Keyworth receive temporary total disability benefits of $40 a week, which he received from the date of the injury through June 19, 1960. He also received temporary partial disability benefits from June 20, 1961 through September 24, 1961, and medical and hospital expenses under the Employer’s compensation insurance. The temporary total and temporary partial disability benefits amounted to $3201.43, and the ²⁹⁴ medical and hospital expenses totaled $1030. While Plimack had requested a hearing on behalf of Keyworth to determine the nature and extent of permanent disability, no hearing was held on this issue until April 21, 1964, after Keyworth’s present counsel had entered the case and Plimack’s name, at Key-worth’s request, had been removed as Keyworth’s attorney from the compensation proceedings.

On April 27, 1964, the Commission found that Keyworth had sustained a permanent partial disability under “Other Cases” amounting to fifty per cent industrial loss of the use of his body and ordered compensation at the rate of $25 a week beginning September 25, 1960, not to exceed the sum of $6250. The Employer and its insurer, in another case, have appealed this order of the Commission. On March 8, 1960, Plimack filed suit on behalf of Keyworth against Brown and Fleet Transfer Company as third-party tortfeasors. On May 28, 1962, on Plimack’s recommendation, Key-worth agreed to employ both Plimack and Israelson as his attorneys to try this case.

This agreement expressly provided that it superseded the original fee agreement between Keyworth and Plimack. Under the 1962 agreement, Keyworth authorized Plimack and Israelson to carry on the suit or compromise it and agreed to pay them one-third of the amount recovered; he also authorized the attorneys to pay the necessary medical and hospital and other expenses out of his share of any recovery. The trial of the third-party case concluded on December 3, 1962 and resulted in a jury verdict in Keyworth’s favor for $15,000, an amount which was disappointingly low to Keyworth and his attorneys. It is agreed that the main reason for what is claimed to be the relatively small judgment was that the defendants produced and showed motion picture films depicting Keyworth’s movements prior to the trial, which contradicted Keyworth’s claims of disability resulting from the collision.

An appeal was immediately discussed, a motion for a new trial was made and denied, and Israelson ordered the transcript written up. In February, 1963, Keyworth raised and gave to Israelson the necessary monies to perfect the appeal. Israelson was pessimistic as to the chances on appeal. Key-worth was convinced there was something wrong with the films.

Israelson obtained an offer of an additional $1600 to settle the ²⁹⁵ appeal. Israelson contends, and Keyworth denies, that Key-worth authorized the dismissal of the appeal in view of the offer totalling $16,600. Keyworth refused to sign the settlement papers and Israel-son filed an order with the court clerk to have the judgment entered to his and Plimack’s use to the extent of the agreed fee, in accordance with the express authorization contained in the fee agreement of May 28, 1962, and a judgment was entered to their use to the extent of their one-third attorney’s fees. Thereafter, Israelson and Plimack petitioned for the appointment of a trustee to execute settlement papers and to hold and disburse the funds and, after an answer had been filed by Key-worth, the case was transferred by consent to the Circuit Court No. 2 of Baltimore City and an order signed appointing the clerk of that court trustee to hold the settlement fund subject to further order.

On December 31, 1959, the Employer and Keyworth entered into an agreement which recited that while Keyworth was then receiving $40 a week under the Commission’s order of November 9, 1959 as compensation for temporary total disability, he had been earning approximately $100 a week take-home pay and wished to receive weekly advances from the Employer in the amount of $100. The agreement, which was prepared by Plimack, provided that the Employer would pay Keyworth $100 a week from the time of the accident until he returned to work on a full-time basis; that Keyworth would maintain his suit against Brown and the Fleet Transfer Company through his attorney, Plimack, and that, upon the successful conclusion of the case, he authorized Plimack to issue a check to the Employer for the amount to be advanced by the Employer, excluding any bonuses or presents. The Employer made advances to Key-worth under this agreement in the total amount of $7200. After the court below had appointed the clerk as trustee of the sum of $16,600, the Employer filed a petition in the proceedings alleging that the sum on deposit was subject to an assignment-lien in its favor in the amount of $7200 under its agreement with Keyworth and asking that the court order payment of this sum to the Employer out of the fund.

Keyworth answered this petition denying that the Employer was entitled to the re ²⁹⁶ lief it prayed; the Employer thereupon filed a petition to intervene and was authorized to do so on September 23, 1964. On September 11, 1964, the date the Employer filed its petition to intervene in the proceedings in the Circuit Court No. 2, it filed a lawsuit against Keyworth in the Baltimore City Court for the sum of $7200 under its agreement, asking for summary judgment. After the taking of testimony and the filing of an opinion, Judge Harris, in the court below, entered an order, on October 14, 1964, awarding to Israelson and Plimack a one-third fee of the $16,600, less the cost of the transcript and the cost of the appeal, in the net amount of $5292.12. The order also awarded to the Employer’s compensation carrier the sum of $2697.41, representing its lien of $4231.43 less its proportionate share of approximately twenty-five per cent chargeable under Code (1957), Article 101, Section 58, and ordered $7200 held in escrow pending the outcome of the civil action brought by the Employer against Keyworth in the Baltimore City Court.

The order awarded Keyworth $723.65 as reimbursement for costs advanced and provided that the balance of the fund, $668.82, be held in escrow pending the outcome of the compensation appeal with respect to the award of permanent partial disability. Judge Harris had also provided for the retention of the sum of $7200 pending the final determination of the suit of the Employer against Keyworth in his decree dated October 9, 1964. Keyworth’s first contention is, that the lower court erred in awarding any counsel fee to Plimack and Israelson because they had dismissed the appeal in the third-party case without Keyworth’s consent. He contends, second, that, in any event, the fee should be substantially reduced because Keyworth’s compensation remedies had not been prosecuted to conclusion before the third-party action was tried and that, if he had received his award for permanent partial disability before the trial, there would have been a substantial benefit to him as to the amount of fees to be charged against him out of the fund.

Third, Key-worth contends that the lower court erred in retaining the $7200 from the proceeds of recovery pending final determination of the law action brought by the Employer against Key-worth, because there was no equitable lien. ²⁹⁷ I In this appeal from the order of the Chancellor, Keyworth first contends that Plimack and Israelson should have been allowed no counsel fee whatsoever because they dismissed the appeal from the judgment in the third-party case against Brown and Fleet Transfer Company contrary to Keyworth’s express instructions. Keyworth recognizes that the issue here involved is entirely one of fact. He recognizes, further, the purport of Maryland Rule 886 a. that when an action has been tried by a lower court without a jury, the judgment of the lower court will not be set aside on the evidence unless clearly erroneous and due regard will be given to the opportunity of the lower court to judge the credibility of the witnesses. Keyworth argues, however, that on the issue here involved, in the light of the testimony, the finding of the lower court was clearly erroneous.

To support his contention, Keyworth relies on various aspects of the testimony. He points to the undisputed fact that, despite Israelson’s feeling that the appeal was weak, he, Keyworth, wrote a formal letter to Israelson on July 1, 1963 stating that “[a]fter serious deliberation, I insist that you continue with the appeal.” Despite this letter, Israelson testified that his alleged authority from Keyworth to dismiss the appeal was given in a telephone conversation in the first week of September and that he, Israelson, had no written memorandum in his file to indicate when the final authorization was given and did not confirm the alleged conversation by letter. Keyworth had consulted a film expert, in an endeavor to show distortion in the moving pictures which proved so disastrous at the trial to Keyworth’s claim of disability, and had received a written report from the expert as late as August 23, 1963 which confirmed his suspicions about the film. Keyworth stresses some inconsistencies in the testimony of Israelson as to the extent and manner in which Israelson consulted Melvin Sykes, a highly respected member of the bar who does much appellate work, as to the chances on appeal and Sykes’ own recollection of what transpired.

To rebut Israelson’s testimony that he was always faced with the spectre of a new trial in which Keyworth might get less, Keyworth points to the fact that, as a result of the order of the lower court, without a new trial, he will get nothing ²⁹⁸ in any event. Keyworth refers to other phases of the testimony to support his contention that the dismissal of the appeal by Israelson was clearly unauthorized, was an act of bad faith in the performance of his professional duties to his personal advantage to save the necessity of further endeavor and that, therefore, neither Israelson nor Plimack is entitled to any compensation for their services. In his opinion, Judge Harris reviewed and analyzed the conflicting testimony as to whether or not Keyworth had authorized the dismissal of the appeal. He referred to Keyworth’s testimony that, after Israelson had told him in June, 1963 that the chances of success on the appeal, in his opinion, were slight, he, Keyworth, talked to a number of “influential people” concerning the appeal, but, when pressed on recross-examination as to the identity of the persons to whom he had talked, his testimony was extremely vague and, to Judge Harris, unconvincing.

The judge was impressed by the fact that if Keyworth was unable to recall the identity of any of the “influential people” with whom he discussed his case during the summer of 1963 (apart from his present counsel), it is probable that he could not accurately recall the details of his telephone conversation with Israelson in September, 1963. The judge had examined the transcript of the trial in the third-party case and referred to the fact that Israelson is “an experienced, skilled, and reputable trial attorney of known ability in personal injury negligence cases” and found that an examination of the transcript and the actions taken by Israelson following the trial showed no evidence of any malpractice on his part. As to Israelson’s consultation with Sykes and Israelson’s alleged failure to show Sykes a part of the transcript containing alleged erroneous trial rulings in the refusal to allow Keyworth to testify in rebuttal on the motion pictures, Judge Harris pointed out that Israelson. was under no obligation to consult Sykes in the first place and that, at the most, it is debatable as to whether Israelson' should have shown Sykes the portion of the transcript which Keyworth contends was important. Sykes had testified he could not give any advice as to the merit of the appeal without some prior,legal research.

Judge Harris stressed the fact that, Israelson,' in good faith," did seek to obtain “an ²⁹⁹ objective, expert appraisal of the chances of the appeal’s success, when he was under no duty to do so.” We have examined the entire record extract in the light of Keyworth’s contentions. In our opinion, the findings of Judge Harris that Israelson had properly performed his professional duties in the conduct of the trial and thereafter and that Key-worth had expressly authorized Israelson to dismiss the appeal are not clearly erroneous and, therefore, will not be set aside. II Keyworth contends that even if this Court finds, as it has, that the lower court was not clearly in error in holding that Keyworth authorized the dismissal of the appeal, nevertheless the amount of the fee allowed to Plimack and Israelson should be reduced because of their alleged failure to prosecute Key-worth’s compensation remedies to a conclusion before trying the third-party action against Brown and Fleet Transfer Company. Keyworth argues that, if Plimack or Israelson had caused Keyworth’s claim to compensation for permanent partial disability to be heard before the Workmen’s Compensation Commission and an award made before the trying of the third-party action, then the resulting fees to Israelson and Plimack would have been, less and the benefit to Keyworth substantially greater.

This contention is based upon an alleged conflict of interest as well as failure to perform professional duties. Keyworth testified in the proceedings below, without contradiction, that after his accident he employed Plimack as his attorney because of the insistence of the Employer. He stated that he talked with Mr. Louis Schloss, the president of the Employer, on the telephone after the accident and it was agreed that Keyworth needed an attorney and Schloss said he would send his attorney down. Judge Harris accepted as a fact that Keyworth employed Plimack on the insistence of the Employer.

Keyworth testified that when Plimack came to see him at his home, about three days after the accident, Plimack said that “he would take care of the compensation bit.” In fact, on October 10, 1959, about two weeks after the accident, Key-worth executed a claim for compensation, which was filed by Plimack as Keyworth’s attorney, with the Maryland Work ³⁰⁰ men’s Compensation Commission on October 16, 1959. Plimack immediately requested a hearing before the Commission on behalf of Keyworth to determine the nature and extent of permanent disability. The order of the Commission for the payment of temporary total disability to Keyworth at $40 a week was passed on November 9, 1959; Plimack did not press any claim for counsel fee for the securing of this order or the payment of medical expenses. The Commission advised Plimack on May 14, 1962 that Keyworth’s case was set for hearing on the nature and extent of permanent disability on May 25th but the file of the Commission, which was made part of the record below, shows that the hearing was postponed and the file was noted on May 24, 1962 “Ho not reset until requested.” The hearing on the claim for permanent partial disability was not held until April 21, 1964 when Keyworth was represented by his present counsel; as a result of this hearing, Keyworth received a total of $6250 additional compensation.

At the hearing before Judge Harris, counsel for Keyworth made the following proffer in connection with this phase of the case: “I want to show that Mr. Keyworth employed Mr. Plimack at the insistence of his employer, that was obvious conflict of interest. Mr. Plimack was the employer’s lawyer and representing Mr. Keyworth. Now, he did file a claim for compensation and was paid some compensation for some period. The conflict was very apparent because rather than permit Mr. Keyworth to get his compensation, all the compensation to which he was entitled, which might have increased his employer’s insurance premium because of the loss ratio, Mr. Plimack elected on his own to file suit on behalf of Mr. Keyworth.

And although the records will show, the records of the commission will show the case was set for a hearing on numerous occasions to determine the nature and extent of Mr. Keyworth’s injury whereby he would get an award for permanent partial, the obtaining of which would cost him a whole lot less in counsel fees than it would ³⁰¹ be by obtaining it in the third party suit, Mr. Plimack misrepresented this man in so doing, that is in continuing those hearings and not pursuing the hearings before the commission, and letting it go to trial against the third party proceeding.” The trial judge did not permit Keyworth to offer testimony pursuant to the proffer because it related largely to conversations between Keyworth and Plimack out of the hearing of Israelson and prior to the time that Israelson had been employed by Keyworth. Under the provisions of Code (1964 Repl. Vol.) Article 101, Section 58, when there is an injury for which compensation is payable under the Article, caused by circumstances creating a legal liability in a third person, and there is a recovery against the third person, the employer and his insurance company have a right to be reimbursed for compensation paid or awarded and for any amounts paid for medical services, except court costs and counsel fees. Court costs and counsel fees are to be paid by the injured employee and his employer and the compensation insurance carrier in the proportion that the amount received by each shall bear to the whole amount paid in settlement or satisfaction of any judgment obtained in the case.

Key-worth contends that, if his award for compensation for permanent partial disability had been made prior to the third-party litigation, the compensation insurer would have been chargeable with a larger share of Plimack’s and Israelson’s counsel fees and the court costs. The compensation insurer would have had to pay counsel fees and costs to cover its share of the supplemental award of April 27, 1964 which it would have received in subrogation against the money recovered from the third parties, in the same manner in which the Chancellor reduced the compensation insurer’s reimbursement from the third-party settlement for its payments under the original award of November 9, 1959. Keyworth’s net