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District Court of Appeal, First District, Division 2, California.


Civ. 10305.

Decided: June 16, 1937

Clyde C. Sherwood, of San Francisco, for appellant. Perry Evans, of San Francisco, for respondents Lawrence & Tuttle. Hart H. North, of San Francisco, for respondent Pitt.

Plaintiff, an importer, filed his complaint for declaratory relief. The defendants Lawrence and Tuttle were attorneys at law and defendant Pitt was a customs house broker. Defendants filed separate answers and in addition thereto the defendant attorneys filed a cross–complaint. The cause was tried by the court sitting without a jury and judgment was entered in favor of defendants and cross–complainants as follows: That the defendant attorneys have and recover against plaintiff the sum of $1,348.60; that the refunds due upon duties paid by plaintiff to the United States government belonged to the defendant attorneys “to the extent of the said recovery against the said plaintiff”; and that one–third of the amount recovered by the defendant attorneys belonged to the defendant broker. Plaintiff appeals from said judgment.

The record on this appeal is not wholly satisfactory as the findings of fact, which are referred to in the briefs, are not included in the transcript. It is conceded by defendants, however, that the trial court made a finding that “all of the allegations of the answers of the defendants and of the cross–complainants are true” and this admitted finding appears sufficient for the purposes of this discussion.

The complaint alleged a controversy between the parties concerning the compensation claimed by the defendant attorneys for services rendered in connection with the recovery of certain refunds upon duties paid to the government upon the importations by plaintiff of cotton rags. In their cross–complaint defendant attorneys alleged that in 1930 they were employed by plaintiff as attorneys to prepare and file the necessary protests, to appear for plaintiff before the United States Customs Court and the Treasury Department, and to do all things necessary and advisable to obtain refunds from the government upon the duties paid upon said importations. They further alleged that defendant attorneys entered upon their employment and rendered all necessary services and had ultimately obtained stipulations for the entry of judgments against the government for refunds to plaintiff in the sum of $2,697.20. It was then alleged that the reasonable value of said services was the sum of $1,348.60, which sum plaintiff had refused to pay upon demand. There was ample evidence to sustain the trial court's findings that said allegations were true and therefore the portion of the judgment awarding said sum to the defendant attorneys finds ample support.

The parties, however, have devoted their briefs largely to the consideration of other points. It appeared from the evidence that the defendant broker had acted as the custom house broker for plaintiff for many years; that when it became necessary to go into the United States Customs Court to attempt to recover their refunds, the defendant broker advised plaintiff that he could not handle the cases before said court and that it would be necessary to employ an attorney; that plaintiff authorized the defendant broker to do all things necessary for that purpose and said broker thereupon employed the defendant attorneys; that pursuant to a general understanding between said broker and said attorneys, all cases referred to said attorneys by said brokers were to be handled by them on a 50 per cent. contingent basis and the said broker was to receive 33 1/3 per cent. of said 50 per cent.; that plaintiff did not know who were employed as attorneys until several years later when the stipulations were finally obtained; that plaintiff had not theretofore been advised of the agreement between said broker and said attorneys regarding the fee to be charged the plaintiff or of the agreement for the broker's participation therein. It further appeared from the evidence that a 50 per cent. contingent fee was a reasonable and customary fee for handling of said cases, but that in particular cases, a smaller fee was sometimes agreed upon.

The main points raised by plaintiff are based upon the theory that under the pleadings and evidence, no recovery could be had against plaintiff except upon an express contract of employment and that the judgment must be reversed in its entirety as the express contract was invalid. These points are all related to plaintiff's first main point, which is stated as follows: “The contract of employment between the attorneys and the client is not binding upon the client and cannot be made the basis of an action for attorneys' fees on the part of the attorneys, because it is illegal, void and contrary to public policy.” In support of his contentions, plaintiff cites and relies upon Auerbach v. Curie, 119 App.Div. 175, 104 N.Y.S. 233; Id., 126 App.Div. 836, 111 N.Y.S. 327; Reilly v. Beekman (C.C.A.) 24 F.(2d) 791; Alpers v. Hunt, 86 Cal. 78, 24 P. 846, 9 L.R.A. 483, 21 Am.St.Rep. 17; 3 Cal.Jur. 689, § 89 and other authorities. We deem it unnecessary to discuss those points, for even assuming that the express contract was invalid because of the provision providing for payment of a portion of the fee to the broker, the attorneys were nevertheless entitled to recover upon a quantum meruit. 2 R.C.L. 1046.

We now come to a consideration of plaintiff's contentions with respect to the second and third portions of the judgment as entered. The second portion reads as follows: “And it is hereby further ordered, adjudged and decreed that all refunds due from the United States Government of duties paid by the said plaintiff upon the importations mentioned in the said complaint belong to said Lawrence & Tuttle as copartners as aforesaid, and they are entitled to receive the same, to the extent of the said recovery against the said plaintiff hereinabove mentioned, and said refunds shall be applied by the said Lawrence & Tuttle upon the said recovery, as received by them, until this judgment has been satisfied.” The third portion reads as follows: “And it is hereby further ordered, adjudged and decreed that one–third of all said sums received by said Lawrence & Tuttle shall, upon such receipt, belong to said George H. Pitt, who shall thereupon become entitled to receive the same.”

Plaintiff contends that the trial court erred in including said second and third portions in the judgment herein and in our opinion this contention must be sustained. Even if there was a valid express contract for the payment to the attorneys of a contingent fee, it is conceded that such contract would not give rise to a lien upon or an interest in the judgment or the subject–matter of the litigation. McGown v. Dalzell, 72 Cal.App. 197, 236 P. 941; Gage v. Atwater, 136 Cal. 170, 68 P. 581; Hogan v. Black, 66 Cal. 41, 4 P. 943; Mansfield v. Dorland, 2 Cal. 507. But defendants attempt to justify these portions of the judgment upon the ground that the express contract was valid and that “plaintiff having sought equitable relief (declaratory judgment) the door was open for the court to do equity.” This position is untenable. The refunds belonged to plaintiff and the declarations in the judgment to the contrary were not proper even in this action for equitable relief. While a court of equity may exercise broad powers in applying equitable remedies, it may not create new substantive rights under the guise of doing equity.

The judgment is modified by striking therefrom the second and third portions thereof which are above set forth and as so modified, the judgment is affirmed. The parties will bear their own costs on this appeal.

SPENCE, Justice.

I concur: STURTEVANT, J.

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