Hotel Assocs., Inc. v. Rieves

2014 Ark. 254

435 S.W.3d 488

HOTEL ASSOCIATES, INC., Appellant

v.RIEVES, RUBENS AND MAYTON, an Arkansas General Partnership; Michael R. Mayton; Elton Allison Rieves, III; and Belinda E. Rubens, Individually and in Her Capacity as Administratrix of The Estate of Kent J. Rubens, Appellees.

No. CV–13–1114.

Supreme Court of Arkansas.

May 29, 2014.

Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., by: John Keeling Baker, Alex T. Gray, and Brian A. Pipkin, for appellant.

Williams & Anderson PLC, by: Philip E. Kaplan, Stephen A. Hester, and Bonnie Johnson, for appellees.

COURTNEY HUDSON GOODSON, Justice.

Appellant Hotel Associates, Inc. (Hotel) appeals an order entered by the Pulaski County Circuit Court upholding the validity of an oral contingency-fee agreement for legal services rendered by attorney Kent J. Rubens, deceased, when he was a general partner in the law firm of appellee Rieves, Rubens and Mayton (RRM). As a result of this ruling, the circuit court granted judgment in the amount of $2,295,756.70 in favor of RRM and the other appellees, Michael R. Mayton, Elton Allison Rieves, III, and Belinda E. Rubens, individually and in her capacity as the administratrix of the estate of Kent J. Rubens.¹ For reversal, Hotel contends that the circuit court erred in ruling that oral contingency-fee agreements are enforceable under Arkansas law. As an alternative argument, it asserts that the circuit court erred in granting RRM's motion for summary judgment because material issues of genuine fact remain in dispute. In its final point, Hotel maintains that the circuit court erred in granting RRM's motion for prejudgment interest. We affirm the circuit court's grant of summary judgment and award of prejudgment interest.²

Our review of the record discloses that, in 2005, J.O. “Buddy” House retained Rubens to represent Hotel, one of House's companies, in bringing a civil lawsuit against Holiday Inn Franchising, Inc. Rubens and House had enjoyed an attorney-client relationship for many years. By all accounts, the two men were close, and as was their practice, the engagement for Rubens's services was not reduced to writing. However, it is undisputed that Hotel agreed to pay Rubens a contingency fee amounting to one-third of any recovery obtained in the lawsuit. Thereafter, Rubens enlisted attorney Timothy Dudley to assist in the representation of Hotel. As per oral agreement, Rubens and Dudley were to divide equally the one-third contingency fee to be paid by Hotel in the event that the litigation was successful.

Rubens died of a sudden illness on November 5, 2008. With House's consent, Dudley continued to represent Hotel in the Holiday Inn litigation, and he retrieved the files from RRM on November 18, 2008. RRM later disbanded in January 2009. The case against Holiday Inn went to trial in July 2009. A jury in Crittenden County awarded Hotel $13,000,000 in compensatory damages and $12,000,000 in punitive damages. Upon Holiday Inn's motion, the circuit court reduced the compensatory-damages award to $10,056,000 and the punitive-damages award to $1,000,000. Holiday Inn appealed, and Hotel filed a cross-appeal. As pertinent here, the Arkansas Court of Appeals upheld the reduction of compensatory damages but reinstated the award of punitive damages. Holiday Inn Franchising, Inc. v. Hotel Assocs., Inc., 2011 Ark. App. 147, 382 S.W.3d 6.

On or about October 21, 2011, Holiday Inn paid the compensatory-damages award with interest to Hotel via Dudley in the amount of $11,287,930. From that award, Hotel authorized Dudley to retain his share of one-sixth of the award and to remit to RRM its fee of one-sixth of the award. However, in authorizing the payment of fees to RRM, Hotel did so under a reservation of rights. Thereafter, Holiday Inn sought a writ of certiorari to the United States Supreme Court to challenge the award of punitive damages. When the Court denied the writ, Holiday Inn paid the punitive-damages award with interest in the amount of $13,800,000. Upon Dudley's receipt of the funds, Hotel authorized Dudley to deduct his one-sixth fee, but it instructed Dudley not to transmit any fee to RRM. Anticipating litigation over RRM's portion of the attorney's fee, Dudley retained RRM's putative share of the fee to be deposited into the registry of the court.

In March 2011, Hotel filed suit.³ In its third amended complaint, Hotel asserted a claim of unjust enrichment and sought a declaration that RRM abandoned its representation of Hotel following Rubens's death. Further, Hotel contended that the contingency-fee agreement had not been fulfilled and that the agreement contravened public policy because it was not in writing. As relief, Hotel sought the return of the fee paid RRM in 2011 from the compensatory-damages award and to preclude its receipt of fees out of the punitive-damages award. RRM answered the complaint and asserted a counterclaim for breach of contract. By agreement of the parties, the circuit court entered an order permitting Dudley to deposit the disputed fee into the registry of the court.

Hotel subsequently filed a motion for partial summary judgment asserting that RRM's counterclaim for breach of contract should be dismissed as a matter of law because an oral contract for a contingency fee is unenforceable as against public policy, as set forth by Rule 1.5 of the Arkansas Rules of Professional Conduct. In response, RRM maintained that the rules of professional conduct do not establish public policy for the purpose of bringing or defending legal claims; that Arkansas courts routinely enforce oral contracts, even when a statute or rule requires them to be in writing; and that the agreement was otherwise enforceable under the facts of this case.

RRM also filed a motion for summary judgment on Hotel's claims and its counterclaim for breach of contract. It argued that RRM and Hotel had entered into a valid, enforceable contract for legal services based on terms that are not in dispute; that the contract survived Rubens's death because Rubens and Dudley were partners in a joint venture; that the rules of professional conduct cannot be used to support a cause of action or defense; that the contract is not unethical or otherwise unenforceable; and that it would not be unjustly enriched by receipt of the fee and that it was, in fact, Hotel that would be unjustly enriched if permitted to disavow the contract. In response, Hotel maintained its position that the oral contingency-fee agreement was unenforceable, and it also argued that material facts remained in dispute, so as to preclude a grant of summary judgment.

After a hearing, the circuit court denied Hotel's motion for partial summary judgment. The court, however, granted RRM's motion for summary judgment on all of Hotel's claims and on RRM's counterclaim. Thereafter, RRM filed a motion for prejudgment interest pursuant to article 19, section 13 of the Arkansas Constitution. Hotel resisted this motion by arguing that this provision of the Arkansas Constitution was repealed by Amendment 89 to the constitution, which became effective on January 1, 2011. In reply, RRM argued that a six-percent rate of prejudgment interest was established by Arkansas Code Annotated section 4–57–101(d) (Supp.2013), as pertaining to contracts with no specified rate of interest. The circuit court found that the applicable interest rate was six percent and awarded prejudgment interest in the amount of $212,079.92.⁴ This appeal followed, wherein Hotel challenges the granting of RRM's motion for summary judgment and the order awarding prejudgment interest.

This case comes to us from an order of summary judgment. A circuit court may grant summary judgment only when it is apparent that no genuine issues of material fact exist requiring litigation and that the moving party is entitled to judgment as a matter of law. Berryhill v. Synatzske, 2014 Ark. 169, 432 S.W.3d 637. Once the moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. Kolbek v. Truck Ins. Exch., 2014 Ark. 108, 431 S.W.3d 900. In reviewing a grant of summary judgment, an appellate court determines if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion left a material question of fact unanswered. GSS, LLC v. CenterPoint Energy Gas Transmission Co., 2014 Ark. 144, 432 S.W.3d 583. We view the evidence in the light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. Arloe Designs, LLC v. Ark. Capital Corp., 2014 Ark. 21, 431 S.W.3d 277.

As its primary issue on appeal, Hotel contends that the circuit court erred in ruling that oral contingency-fee agreements are enforceable in Arkansas. As support for this argument, Hotel relies on Rule 1.5(c) of the Arkansas Rules of Professional Conduct, which provides that “a contingent fee agreement shall be in writing.” It asserts that this rule is an expression of public policy, as espoused by this court under our constitutional authority to regulate the practice of law under Amendment 28. RRM responds that this court has held that no cause of action arises from a violation of the rules of professional conduct and that, in any event, the oral agreement should be upheld under the facts of this case.

A number of courts that have addressed the issue decline to enforce oral contingency-fee agreements when their rules require such agreements to be in writing. See, e.g., Mullens v. Hansel–Henderson, 65 P.3d 992 (Colo.2002); Chandris, S.A. v. Yanakakis, 668 So.2d 180 (Fla.1996); Starkey, Kelly, Blaney & White v....