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McKenzie Construction Inc. v. Maynard

March 25, 1985

MCKENZIE CONSTRUCTION, INC., APPELLANT
v.
DESMOND L. MAYNARD



On Appeal from the District Court of the Virgin Islands Division of St. Thomas and St. John (D.C. Civil No. 80-61).

Seitz, Gibbons, and Sloviter, Circuit Judges.

Author: Seitz

SEITZ, Circuit Judge.

Plaintiff, McKenzie Construction, Inc., appeals from a judgment of the district court refusing to set aside as unreasonable a contingent attorney fee agreement with the defendant, Desmond L. Maynard. The District Court of the Virgin Islands, as a court of general origin jurisdiction, has subject-matter jurisdiction pursuant to 48 U.S.C. § 1612 (1982). This court has jurisdiction under 28 U.S.C. § 1291 (1982).

I.

The plaintiff is a construction firm in the Virgin Islands. James H. King ("King") as president of and on behalf of plaintiff, entered into a construction contract with the government of the Virgin Islands to renovate one of the government's hospitals for the sum of $588,000.

After a substantial portion of the work had been performed, the Government of the Virgin Islands notified King that the plaintiff's contract was terminated because plaintiff, which King apparently owned, would not be financially able to continue the work and complete the contract in timely fashion.

The plaintiff then retained an attorney other than the defendant. This attorney was unable to obtain a preliminary injunction to prevent the termination of plaintiff's work on the contract. King decided to employ another attorney and went to see the defendant. King advised defendant of the history of the problems within the project and his belief that the project was approximately 60% completed and that a large sum was still owing under the contract for work completed. They discussed attorney's fees and defendant stated that if he took the case on an hourly basis his rate would be $60.00. King apparently indicated that he had no money to pay on an hourly basis.

Several days after the initial meeting, on November 24, 1978, King and defendant met again. Defendant presented a contingent fee agreement which King signed. It provided, inter alia, that plaintiff retained defendant "to prosecute on its behalf ... an action for debt and/or breach of contract," and that plaintiff would pay a contingent fee of one-third of any recovery from judgment or settlement. The district court found that King, as an experienced and knowledgeable businessman, was aware of the nature of the contingent fee agreement.

Defendant negotiated with the government for about a year in an attempt to settle. Finally, on August 27, 1979, through defendant's efforts, King, for plaintiff, and the government agreed to a settlement of $195,000. This approximated the unpaid portion of 65% of the contract price. When King and defendant met to dispose of the proceeds of the $195,000 settlement check, King saw from the settlement sheet that defendant's fee of about $65,000 plus expenses would come off the top. Next, payments to certain creditors and subcontractors were made directly by the defendant out of the settlement fund. It appeared that King had other personal creditors and the balance plaintiff was to receive apparently would not fully cover their claims.

King asked defendant to reduce his fee from some $65,000 to $16,000. Defendant refused but agreed to consider a reduction in fee. Thereafter, defendant offered to reduce his fee by about $10,000 but King reacted negatively and commenced this action to recover a portion of the fee which defendant had retained.

After a bench trial, the district court concluded that based on time sheets, if the defendant had charged his hourly rate of $60, his services would have been worth about $4,000. In fact, as the evidence indicated, the defendant devoted about 83 hours to this cause. If so, the defendant's services may have been worth about $85,000. Instead, the defendant received more than $65,000 or about $790 per hour. The court nevertheless concluded that while it was uncomfortable with the $65,000 fee due under the contingent fee agreement, it could not find under the circumstances that plaintiff had carried its burden of showing that the fee was clearly excessive. The plaintiff then appealed.

II.

At the outset we must consider plaintiff's contention that the district judge abused his discretion by failing to recuse. During the course of the trial, the district judge realized and advised counsel that, while a practicing attorney, he had instituted and participated in the settlement of an action against plaintiff for a client who ...


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