Appeal from the United States District Court for the Western District of Pennsylvania (Pittsburgh).
Gibbons, Sloviter, Circuit Judges, and Green, District Judge.*fn*
At issue is the 25 percent statutory limit on attorney's fees in federal tort claims. The plaintiffs below, Alton and Karen Godwin, settled their medical malpractice claim against the United States for a cash payment of $1,125,000 and provision for lifetime medical care by the Veterans Administration (VA). Kenneth Behrend, the lawyer who represented the Godwins, appeals from the district court's orders limiting his contingent fee to 25 percent of the cash award and excluding the future medical benefits from the base upon which the fee may be calculated. We affirm.
FACTS AND PROCEDURAL HISTORY
Kenneth Behrend and the law firm of Behrend, Aronson & Morrow (jointly referred to as Behrend) were retained by the Godwins following a referral after Godwin suffered injuries while undergoing surgery by Veterans Administration physicians. During the surgery, which was performed to remove growths from Godwin's vocal cords, a laser beam ignited oxygen being administered through a tube in Godwin's throat. Godwin's entire bronchial tract was severely damaged; his left lung is totally impaired, and because scar tissue obstructs his airway Godwin must breathe through a tracheostomy and undergo frequent operations to dilate the airway. He can speak only with the aid of an electronic box. Godwin was 34 years old at the time of the surgery, was a veteran, was disabled from a job related injury, and was married with two young children.
Behrend filed an administrative claim with the Veterans Administration on August 11, 1980 alleging liability of Dr. Victor Schramm, supervising surgeon for the VA. On November 18, 1980, Godwin executed a power of attorney to Behrend that provided for a contingent fee of 40 percent in connection with the prosecution of his "claim against Brunswick and others" for the injuries. App. at 37a. In April 1981, Behrend filed a Pennsylvania state court suit against Brunswick Corporation, the seller of the endotracheal tube used in the operation. That suit was dismissed after some discovery. Behrend also filed suit in state court against Dr. Michael Duvall, the resident who performed the operation, and Dr. Schramm. In May 1981, pursuant to 38 U.S.C. 4116 (1976), the United States removed the case to the United States District Court for the Western District of Pennsylvania, substituted itself as the defendant, and later brought some third party defendants into the case.
In August 1981 Behrend sent the Godwins a letter informing them that their fee "will be limited to 25 percent of the total gross recovery." Behrend did not inform the Godwins that because the case was now a federal tort claim action, it came under 28 U.S.C. § 2678 which limits attorney's fees to 25 percent of a judgment or settlement. Instead, the letter Behrend sent stated, "We have taken this action [25% fee] after reviewing your case and coming to the conclusion that your damages are, indeed, more substantial than was understood at the time the Power of Attorney was signed." App. at 38a. There was no written acceptance by the Godwins, and there is no record of assent by them.
The matter proceeded and ultimately a settlement was negotiated for a cash payment of $1,125,000 and provision for lifetime medical care and treatment at the Veterans Administration Hospital.*fn1 Behrend counseled the Godwins to reject this proposal and to proceed to trial. He also prepared a settlement sheet which he presented to the Godwins in November 1982. This document, signed by the Godwins, authorized Behrend to approve the settlement and to make distribution in the manner set forth. The settlement sheet calculated the amount "to be received in settlement" as $2,091,000.*fn2 This sum, which is $966,000 over the cash payment, is based upon Behrend's calculation of the present value of future medical care to Godwin at $4,830,000. Since 80% of Godwin's medical costs would have been paid by the Medicare program, Behrend included 20 percent of the estimated value of that care as part of the settlement proceeds. The estimated value of medical care was based on a life expectancy 75 percent of normal, although there was no conclusive estimate of Godwin's life expectancy and predictions ranged from three or five years to normal. Behrend then added the $966,000 to the cash award to arrive at a figure for settlement proceeds of $2,091,000, and listed his fee as $522,750, or 25 percent of the total. The document provided that Behrend would be paid $350,000 upon settlement and the remainder in six annual installments of $28,791.66. The document also provided for payment upon settlement of approximately $60,000 in expenses, and stated that the signatures of the Godwins were "with the intention of being legally bound."
While Behrend was still urging the Godwins to go to trial, Mrs. Godwin telephoned the district judge. As the judge later stated on the record, Mrs. Godwin said she was confused, "she believed that they were receiving bad advice, that Mr. Behrend had recommended against the settlement, and that Mr. Behrend was charging what she concluded were unreasonable fees which would prevent the Godwins from recovering virtually any money from this case." App. at 647a. The judge stated that the Godwins "were in a quandary as to what to do," and he told her he would address the matter at the conference on Monday morning. Id. After this conversation the Godwins decided to accept the government's offer. A settlement conference was held December 13, and the events that transpired there are critical to this appeal.
The district court began the conference by reviewing the settlement agreement, and ruled that the only viable claims were those for the Godwins and not for their children. He then turned to the matter of lawyers' fees, referred to the statutory limit of 25 percent, stated that "no claim or demand for counsel fees may be made for any service rendered by the Veterans Administration in the future," and stated that counsel fees would be $281,250, or 25 percent of the cash settlement of $1,125,000. App. at 609a. Behrend did not object nor did he make any reference to the settlement sheet which had been signed the month before. The participants discussed the purchase of an annuity by the government for the Godwins with some of the proceeds. Behrend then stated that he didn't want to take any responsibility for the enforcement of the agreement because it failed to give the Godwins the "unfettered right to go to civilian medicine." The court stated the agreement was enforceable by an injunction against the Veterans Administration if necessary. A significant colloquy then took place, quoted in full in the appendix to this opinion, during which the district court asked:
Now, are you satisfied with your lawyer?
MRS. GODWIN: My understanding is he will be paid off in full?
App. at 619a. The judge reiterated that the Godwins should not pay any fee beyond the amount that had been stated. Behrend said that "we are abiding by, of course, the statute, the $281,250," and asked the court whether he would be able to collect approximately $60,000 in expenses. The judge instructed Behrend to file a petition and stated he would decide if any such expenses are recoverable. During this second discussion of fees and expenses, Behrend again failed to mention the settlement sheet. In an order dated December 15, 1982, the court directed payment of $281,250 to Behrend, Aronson & Morrow.
On December 20 Behrend notified the court that he intended to press a claim for $522,750. Shortly thereafter the Godwins discharged him as their counsel. At a second settlement conference on December 30, 1982, the Godwins expressed their confusion over the amount of the fee. The Godwins referred to letters they had been getting from Behrend. The district court stated its recollection "that before our last conference I directed a question to Mr. Behrend, inquiring whether he intended to charge a fee on the future medical expenses. And it is my recollection that he answered that question in the negative." Behrend replied, "Judge Ziegler, we are not charging on future medical expenses; we are charging on the present worth of those medical expenses," and stated, "I make it very clear that we are going to assert a claim in the amount of some $521,000." App. at 644a. The Assistant United States Attorney confirmed his recollection that Behrend told the court at the earlier conference there was never any agreement to compute attorney's fees on the value of future medical benefits, and the attorney for the third party defendants also stated he "had the impression that [the court was] under the impression that he said there was no such agreement." App. at 645a. The court directed that the order of December 15 awarding counsel fee at $281,250 would stand.
Behrend filed a motion for reconsideration of attorney's fees and a petition for assessment of costs. Both were denied by an opinion and orders dated January 18, 1983.
In its opinion sur Behrend's motion for reconsideration, the trial court held that the only power of attorney of record, that dated November 18, 1980, was void, or at least voidable by plaintiffs, because the provision that counsel shall receive 40 percent of any recovery violated the mandate by Congress in 28 U.S.C. § 2678 that no fee under the federal tort claims statute shall exceed 25 percent. The court held that counsel had not shown that the letter of August 3, 1981 (reducing the fee to 25%) had been accepted, and that the settlement sheet, the only document which referred to the need to pay a fee based on the average value of the medical care to be provided, could not be considered an enforceable contract because it lacked valuable consideration.
The court also held that even if the settlement sheet constituted a contract, it was unenforceable on grounds of public policy, illegal, and obtained in violation of DR 2-106(A) of the Code of Professional Responsibility. The court characterized counsel's conduct as the most "egregious example of overreaching by a lawyer" encountered by the court "in 10 years of public service and 22 years at the bar," App. at 14a, and also criticized the caliber of representation by counsel, giving specific examples. App. at 20a-21a.
In addition to limiting counsel fees to 25 percent of the cash payment, the court denied counsel's motion for an award of costs in the sum of $62,015.19 both because counsel had no contract for reimbursement of costs with Godwin in the letter of August 3, 1981, and because the denial "is an appropriate sanction for a lawyer who intentionally attempts to extract an illegal fee from a person to whom Congress and the Supreme Court have accorded special consideration."
Behrend appealed from the district court's three orders, and the appeals were consolidated before this court. The Godwins and the United States have each filed a brief as appellees in support of the orders of the district court. The Pennsylvania Trial Lawyers ...