COMES NOW the plaintiff and sets forth this brief in support of plaintiff's claim for recovery of attorney fees.

I. ISSUES

The issues to be determined in this case are as follows:

A. Is plaintiff entitled to recover attorney fees pursuant to the agreement signed by defendant?

B. If so, what is the amount of the fee that should be allowed?

II. FACTS

A. The defendant rented a vehicle from plaintiff pursuant to an agreement signed by defendant. A copy of the agreement signed by the defendant (the "Agreement") is attached hereto as Exhibit "A".

B. The Agreement provided in pertinent part the following:

"4. RENTER EXPRESSLY AGREES TO PAY TO OWNER ON DEMAND:

...(h) All expenses incurred by Owner in the collection of monies due Owner per this agreement, or in regaining possession of car or in enforcing any term or condition of this agreement, including attorney's fees and costs."

C. The rental vehicle was wrecked while under rent to defendant, causing a loss to plaintiff in the amount of $11,975.62. Plaintiff filed suit against defendant for recovery of the amount due under the Agreement in the principal amount of $11,975.62 and for attorney fees in the amount of $3,951.95, plus interest and costs.

D. Plaintiff has a contingent fee agreement with its attorney for the handling of this matter which provides that said attorney is entitled to receive as his fee one third (1/3) of all amounts collected in this matter. The amount that plaintiff seeks to recover as attorney fees from the defendant is equal to one third (1/3) of the principal balance sued for.

E. The Petition was filed herein on August 28, 1997, and Summons was issued requiring the defendant to appear or plead on or before September 18, 1997. Service of the Petition and Summons was properly and timely made on the defendant as reflected by the return filed herein.

F. The Petition provided in pertinent part the following:

"3. That plaintiff is entitled to judgment against defendant(s) in the principal amount of $11975.62 and for attorney fees in the amount of $3951.95, which is 33.33% of the principal due hereunder..."

G. A copy of the Petition was served on the defendant along with the Summons. Defendant did not appear or plead at or before the time required in the Summons and is in default.

III. ARGUMENT AND AUTHORITY

A. Case Law

Traditionally, courts in Kansas have held that the prevailing party in a lawsuit is not entitled to recover attorney fees unless the fees are specifically authorized by statute or agreement. This is the so called "American Rule" as contrasted with the "English Rule" under which the prevailing party in a lawsuit is entitled to recover its attorney fees as a matter of right. If an agreement provides for the recovery of attorney fees, there must not be a statute specifically prohibiting such provision. Oak Park Inv. Co. v. Lundy's, Inc., 6 Kan. App. 2d 133, 626 P. 2d 1236 (1981) and several cases cited therein.

In Oak Park, supra, the court found that a provision allowing recovery of attorney fees in a commercial lease agreement was valid and enforceable in the absence of any statutory prohibition against such provision. The court did not find any statute prohibiting this provision and hence, allowed the prevailing party to recover its attorney fees pursuant to the agreement.

The court in Oak Park, supra cited a law review article in Vol. 18 Washburn Law Journal, p. 535 (1979), entitled Recovery of Attorney Fees in Kansas. In Appendix A to the article, the author listed 90 Kansas statutes which refer in some way to the recovery of attorney fees and six statutes which either restrict or prohibit agreements for recovery of attorney fees. None of the six related to a commercial lease which was before the court in Oak Park, supra.

B. Statutes

Of the six statutes noted in the article cited above, the following four have nothing to do with the type of agreement signed by the defendant in this case:

K.S.A. 7-121b - fee in civil action against health care provider must be approved by court;

K.S.A. 44-536 - limits amount attorney can charge in worker's compensation case;

K.S.A. 50-112 - prohibits contract attempting to fix attorney fee charges;

K.S.A. 58-2547 - provision for attorney fees in residential lease unenforceable.

The other two statutes, which could apply here, are K.S.A. 58-2312 and K.S.A. 16a-2-507. Prior to 1994, these two statutes read as follows:

"58-2312. Hereafter it shall be unlawful for any person or persons, company, corporation or bank, to contract; for the payment of attorney's fees in any note, bill of exchange, bond or mortgage; and any such contract or stipulation for the payment of attorney's fees shall be null and void; and that hereafter no court in this state shall render any judgment, order or decree by which any attorney's fees shall be allowed or charged to the maker of any promissory note bill of exchange, bond, mortgage, or other evidence of indebtedness by way of fees, expenses, costs or otherwise. Provided, That in all existing mortgages wherein no amount is stipulated as attorney's fees, not more than eight percent on sums of two hundred and fifty dollars or under, and not more than five percent on all sums over two hundred and fifty dollars, shall be allowed by any court as attorney's fees; And provided further, That this act shall not apply to existing mortgages wherein any sum has been stipulated as attorney's fees.

16a-2-507. With respect to a consumer credit transaction, the agreement may not provide for the payment by the consumer of attorney's fees. A provision in violation of this section is unenforceable."

In 1994, the legislature amended these two statutes to allow for the recovery of attorney fees in the types of agreements covered by each. These statutes as amended now read as follows:

"58-2312. Except as otherwise provided by law, any note, mortgage or other credit agreement may provide for the payment of reasonable costs of collection, including, but not limited to, court costs, attorney fees and collection agency fees, except that such costs of collection: (1) May not include costs that were incurred by a salaried employee of the creditor or its assignee; and (2) may not include the recovery of both attorney fees and collection agency fees.

16a-2-507. With respect to a consumer credit transaction, the agreement may provide for the payment by the debtor of reasonable costs of collection, including, but not limited to, court costs, attorney fees and collection agency fees, except that such costs of collection: (1) May not include costs that were incurred by a salaried employee of the creditor or its assignee; (2) may not include the recovery of both attorney fees and collection agency fees; and (3) shall not be in excess of 15% of the unpaid debt after default. A provision in violation of this section is unenforceable."

A computer check of the current Kansas statutes indicates that there are not any other statutes which restrict or prohibit agreements for the recovery of attorney fees.

C. Legislative History

The legislative history to the 1994 amendments indicates that it was the intent of the legislature to broaden the rights of creditors. Journal of the Senate, February 23, 1994, Page 1480. The undersigned participated in the drafting and passage of the 1994 amendments and recalls that Professor Barkley Clark testified before the Senate in support of the amendments. Professor Clark noted that passage of the amendments would bring Kansas in line with the majority of other states which allow recovery of attorney fees by agreement.

D. Conclusion

It is clear that the provision contained in the Agreement cited above allowing recovery of attorney fees from the defendant is valid and enforceable in Kansas following the 1994 amendments noted above. The provision meets the test of the American Rule followed in Kansas that there be a written agreement providing for recovery of attorney fees and that there not exist any statute prohibiting such agreement.

In conclusion, the provision in the Agreement allowing recovery of attorney fees is valid and enforceable under Kansas law and should be upheld by this court.

A. Introduction

Any attorney fee that is recoverable by plaintiff pursuant to the Agreement must be reasonable. That is required by the terms of K.S.A. 58-2312 and 16a-2-507, by the decisions of our courts dealing with the recovery of attorney fees (though there have been no Kansas cases construing these two statutes since the 1994 amendments), and by the terms of Rule 1.5 of the Model Rules of Professional Conduct, which is a part of Kansas Supreme Court Rule 226.

B. Legislative History

The legislative history to the 1994 amendments to K.S.A. 58-2312 and 16a-2-507 does not indicate what the legislature had in mind as to the amount of attorney fees that could be recovered pursuant to these statutes, other than the fees are to be reasonable. The undersigned testified before the Senate in support of these amendments and advised the Senate Judiciary Committee that he believed the amendments would allow creditors to be made whole by allowing them to recover the full amount of attorney fees incurred by them when collecting debts founded on an agreement which allowed recovery of attorney fees.

The legislature did put a cap on the attorney fees allowed under consumer credit agreements under K.S.A. 16a-2-507 of 15% of the unpaid debt after default. No such cap was put in K.S.A. 58-2312 which covers agreements which are not consumer credit agreements under the Uniform Consumer Credit Code.

At the legislative hearing, Professor Clark told the Senate that the distinction between the two statutes could be justified because of the typically higher amount of debt involved in such consumer credit agreements as bank notes and real estate mortgages as compared with the lower amounts involved in agreements not constituting consumer credit agreements.

In testimony before the Senate Judiciary Committee, I was specifically asked by a member of the Committee if the proposed change to K.S.A. 58-2312 would allow, for instance, a doctor to recover attorney fees from his patient and the question was answered in the affirmative. In further explanation, I offered my opinion that it would also allow lawyers, accountants, hospitals, utilities and hardware stores to do the same. The amendments were subsequently passed by the Senate by a vote of 26 to 14. Journal of the Senate, February 23, 1994, Page 1480. They subsequently passed the House by a vote of 97 to 26. Journal of the House, March 25, 1994, Page 2076.

C. Model Rules of Professional Conduct

Rule 1.5 of the MRPC states eight factors which should be considered in determining the reasonableness of an attorney fee. Those eight factors are as follows:

"(a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:

(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent."
 
 

D. Application of facts to Rule 1.5

Counsel for plaintiff would submit that the above eight factors can be applied to the facts of this case in the following manner:

Factor 1. Time. Although many hours have not been spent on this matter to date, a surprisingly large number of things have been done. The claim was received and reviewed by plaintiff's counsel and entered into the computer. A demand letter was prepared and mailed to the defendant and noted in the computer. When that letter produced no results, counsel wrote plaintiff requesting payment of the filing fees. A check for the filing fees was received by counsel, noted in the computer and deposited to counsel's trust account. A petition and summons was prepared, reviewed and sent to the court house for filing and service on the defendant, and noted in the computer. The return on service was received by counsel, reviewed and noted in the computer. The docket report was received by counsel, reviewed and noted in the computer. A Journal Entry of Judgment was prepared, reviewed and sent to the court house for filing, and noted in the computer. A letter was sent to the defendant and noted in the computer, advising that the court would soon enter default judgment and calculating the amount due under the judgment.

Many times a defendant in a collection case cannot even be located for service of summons. An increasing amount of time is spent by plaintiff's attorney and his staff just to find where defendants live.

Although not done in this matter, many other things could have been done if the matter were disputed by the defendant. A verification of the debt would have been required to be given to the defendant which could involve a letter to the plaintiff to request additional information. This information would have to be copied and mailed to the defendant. All of this would be noted in the computer. If the defendant appeared in response to the summons and disputed the matter, a trial would have been scheduled. Counsel could then have sent discovery to the defendant which could have included requests for admission, interrogatories and request for production of documents. Again, all of this would be noted in the computer. Response times would have to monitored and the responses when submitted reviewed by counsel and sent to plaintiff for further review and comment. A motion for summary judgment could have been prepared, filed and served on defendant. Appearance and possible argument at the hearing on the motion would be required by counsel. All of this would be noted in the computer. And finally, there could have been a trial in the matter which would have involved a substantial amount of time for counsel in reviewing the file with plaintiff and preparing the appropriate witnesses for appearance, possible interviews with other witnesses, copying of exhibits, preparation of trial notes, and finally appearance and participation at the trial. Again, all of this would be noted in the computer.

All or many of the items noted in the paragraph immediately above are typical in the usual collection case handled by the undersigned, both in other matters handled for the plaintiff and for other clients.

All of the items noted above simply bring the matter to the stage where judgment is entered against the defendant. To date, that is the only result obtained in the matter. No money has been collected for plaintiff on the claim. The real work lies ahead.

Novelty. Except for the question of attorney fees, there is nothing novel or difficult in the issues presented in this matter.

Skill. There is a reasonably high degree of skill involved necessary to properly perform the legal service in this matter. The service to be performed is not simply the filing of the suit and the obtaining of judgment. That, frankly, is a small part of the job. The job for which plaintiff's attorney was hired to do was to collect the amount due the plaintiff. In this and most matters like this, that effort will require far more than simply filing suit and obtaining judgment.

Once judgment is obtained in this matter, a letter will be sent to the defendant advising of the amount due under the judgment and inviting the defendant to contact counsel to discuss payment or failing that, that further court proceedings will be initiated to collect the judgment.

To determine what assets the defendant may have to satisfy the judgment, one or more orders to appear may be prepared, filed and served on the defendant. If the defendant appears in response to this, counsel and one or more of his assistants will appear in court to interview the defendant. If defendant does not appear in response, a contempt citation will be prepared, filed and served on the defendant. An appearance by defendant in response to this will require counsel to appear in court to interview the defendant. All of this will be noted in the computer.

If assets of the defendant are found, wage and non-wage garnishments can be prepared, filed and served on the defendant. Wage garnishments are particularly time consuming as they involve the periodic monitoring and review of answers filed by employers, frequent contact with employers, the preparation and filing of pay in orders directed to the employer, and the receipt and handling of payments received as a result of garnishments.

It may be necessary to prepare, file and serve on the defendant a writ of execution to seize other non-exempt property of the defendant to satisfy the judgment. Although not normally done, this is particularly time consuming because this often involves consultation with and the hiring of a special process server and extensive time to advertise the sale of any property seized and court hearings after the sale to confirm the sale.

Finally, it may be necessary to prepare and file a bench warrant if the defendant absolutely refuses to respond to the process of the court and it becomes necessary to have the defendant arrested by the sheriff and brought before the court to answer for contempt.

Again, each of the above is noted in the computer.

At some point, an agreement may be reached with the defendant whereby defendant will agree to make small, periodic payments to satisfy the judgment. Although not required to do so under the law or the terms of the judgment to be entered herein, the plaintiff may find it advantageous to enter into such an agreement. Of all the things that the undersigned does in the handling of collection matters, the monitoring, review and enforcement of payment agreements is the single most time consuming activity.

Whether payments are made voluntarily or through court process, each payment received is entered into the computer and periodically remitted to the plaintiff and counsel. If and when the judgment amount is paid, a satisfaction is prepared and filed at the courthouse and a copy mailed to the defendant.

Each letter sent, each document prepared and filed, each payment received, and each phone call made and received is noted in the computer. And again, all or many of the items noted above are necessary in the typical collection case.

Factor 2. Preclude Employment. It is not likely the counsel's employment in this matter will preclude other employment. Frankly, in a practice devoted almost entirely to debt collection, employment in a great number of cases must be taken to generate sufficient fees to support the large clerical staff, computer system and other resources required in a collection practice.

Factor 3. Custom. Counsel for plaintiff would submit that a contingent fee of one third (1/3) is a customary fee in this locality for the handling of this type of case.

Factor 4. Amount and results. Although the amount involved in this matter is not tremendously high, it does involve several thousand dollars and is considerably higher than the average collection case handled by the undersigned. As noted above, the results obtained to date in this matter are to put the case in a posture for the granting of default judgment, and to the extent the matter will not be disputed in the future, counsel has been successful in the matter. However, as noted above, the bulk of the work to be done lies ahead and this is typical in the usual collection case.

Factor 5. Time limitations. There were no unusual time limitations imposed by plaintiff or by the circumstances.

Factor 6. Relationship. The undersigned has handled several similar matters for plaintiff for a period of approximately five years, all of which have been handled on the same basis that this matter is to be handled.

Factor 7. Experience, reputation and ability. An opinion on the experience, reputation and ability of the undersigned is perhaps best left to others. Plaintiff's attorney has practiced law in Kansas for 24 years and has specialized in debt collection law for about 10 years. Said attorney now practices exclusively in the area of debt collection and is currently handling about 2,000 new cases each year.

Factor 8. Fixed or contingent fee. Counsel has a contingent fee agreement of one third (1/3) with plaintiff. As in most collection matters, this fee remains constant throughout the duration of this matter and whether all, none or part of the amount due is collected, and regardless of the amount of work necessary to be done. All matters handled by the undersigned are handled on a contingent fee basis and no time records are kept of work done by counsel and his staff in the handling of these matters.

E. Case Law

No cases in Kansas have construed consumer debt agreements allowing recovery of attorney fees following the 1994 amendments to K.S.A. 58-2312 and 16a-2-507. Very few cases exist prior to 1994 and they are of little value today because of the 1994 amendments.

There are several cases which construe K.S.A. 40-256 which reads as follows:

"40-256. Attorney fees in actions on insurance policies; exception. That in all actions hereafter commenced, in which judgment is rendered against any insurance company as defined in K.S.A. 40-201, and including in addition thereto any fraternal benefit society and any reciprocal or interinsurance exchange on any policy or certificate of any type or kind of insurance, if it appear from the evidence that such company, society or exchange has refused without just cause or excuse to pay the full amount of such loss, the court in rendering such judgment shall allow the plaintiff a reasonable sum as an attorney's fee for services in such action, including proceeding upon appeal, to be recovered and collected as a part of the costs; Provided, however, That when a tender is made by such insurance company, society or exchange before the commencement of the action in which judgment is rendered and the amount recovered is not in excess of such tender no such costs shall be allowed."

Although this statute does not deal with recovery of attorney fees by agreement, the cases are of value in resolving the issues in this matter.

In Evans v. Provident Life & Accident Ins. Co., 249 Kan. 248, 815 P. 2d 550 (1991), our court said that K.S.A. 40-256 requires that the total fee charged be "reasonable". The purpose of the statute is not to punish an insurance company but to award fair and reasonable compensation to the attorney for the insured who is compelled to sue to enforce the policy and is successful in that effort.

The real test in the allowance of reasonable attorney fees is the value of the services performed by the attorney on behalf of his client. Barnes v. Mid-Continent Casualty Co., 192 Kan. 401, 388 P. 2d 642 (1964); Attebery v. M.F.A. Mutual Ins. Co., 191 Kan. 178, 380 P. 2d 327 (1963).

The fixing of attorney fees should be done with a view of common-sense realism. Vanier v. Ponsoldt, 251 Kan. 88, 833 P. 2d 949 (1992). While the court can and should give consideration to any expert testimony and the arguments of counsel as to the value of legal services, it is not controlled by such, and the court itself is an expert as to the value of attorney's services and may apply its own knowledge and professional experience in determining the value of the services rendered, or to be rendered. City of Wichita v. B G Products, Inc., 252 Kan. 367, 845 P. 2d 649 (1992); Vanier, supra; Evans, supra; Epp v. Hinton, 102 Kan. 435, 170 P. 987 (1918).

There are four cases particularly of note that have construed K.S.A. 40-256.

In Wolf v. Mutual Benefit Health & Accident Association, 188 Kan. 694, 366 P. 2d 219 (1961), the Court cited and quoted from 3 Appleman, Insurance Law and Practice, Sec. 1646, pp. 242-42:

"...[the fee] should never be based on a contingent contract, such as might exist between the claimant and his attorney, but would be a reasonable fee for the services actually performed..." (p. 713)

The Court further stated:

"... The personal reasons why one insured may enter into a contingent fee contract should not lead a court into making an award of attorneys' fees by taking such contract into consideration. It would be erroneous, therefore, for the trial court to consider the contingent fee contract for any reason other than to establish the employment of counsel and the purpose for which counsel were employed." (p. 714)

The trial court in Wolf, supra had awarded a fee of $7,500 which was slightly less than one third of the amount of benefits recovered by the attorney for the plaintiff. The trial court relied on substantially the same factors that are now contained in Rule 1.5 of MRPC. The Supreme Court upheld the award and found it to be reasonable, notwithstanding the principles stated in the opinion.

However, the remaining three cases decided since Wolf, supra have modified the force and effect of the principles stated therein.

In Service v. Pyramid Life Ins. Co., 201 Kan. 196, 440 P. 2d 944 (1968), the Supreme Court said:

"The trial judge acknowledged...that the provisions of any contingent fee contract between the appellee and her counsel should not be enforced against the insurance company..., but that there was nothing to prevent the court from considering the terms of such contingent fee contract in making its determination as to a reasonable fee in a case of this kind." (p. 221)

"We cannot say on the basis of the whole record presented the trial court erred in making the foregoing fee allowance to counsel for the appellee. In reviewing the matter we adhere to the rules stated in Wolf v. Mutual Benefit Health & Accident Association..." (p. 222)

In Farmco, Inc. v. Explosive Specialists, Inc., 9 Kan. App. 2d 507, 684 P. 2d 436 (1984), the trial court assessed $30,652.68 in attorney fees against two insurance carriers. The amount of the award was equal to 25% of the amount recovered in the action. The plaintiff's fee agreement with its attorney was for a 25% contingent fee. In approving the award, the Court of Appeals stated:

"The contingency fee arrangement is some evidence of the value of the attorneys' services in the community."

"Obviously the trial court could not use the contingency fee contract as its sole criteria. We cannot say with certainty that the trial court did not consider the factors set forth in DR2-106."

In Hawkins v. Dennis, 258 Kan. 329, 905 P. 2d 678 (1995), the amount of $474,864.65 was recovered in the action and the trial court assessed attorney fees in the amount of $316,576.43 pursuant to K.S.A. 40-456. The plaintiff's fee contract with his attorney was a 40% contingent fee contract. The Supreme Court reduced the amount of the trial court's attorney fee award and said:

"If the district court's intention was to award the fee for which Hawkins was contractually obliged, the award should have been a straightforward 40 percent of $474,864.65... Forty percent of the amount of the default judgment is $189,945.86."

"Considering, among other things, the contingency fee agreement, the amount of the recovery, and the time involved in this case, we conclude $189,945.86 is a reasonable sum as an attorney fee." (pp. 349-50)

F. Conclusion

Plaintiff is contractually obligated to pay its attorney as a fee in this matter, one-third (1/3) of all amounts collected from the defendant. Plaintiff contends that it was the intent of the legislature when making the changes in 1994 to K.S.A. 58-2312 and K.S.A. 16a-2-507 to make a creditor like plaintiff whole when collecting its accounts. The only way to do this is to allow plaintiff to recover from the defendant the same attorney fee it is contractually obligated to pay its attorney.

Clearly the contract allowing attorney fees is not a consumer credit agreement as that term is defined by the Uniform Consumer Credit Code in Kansas. Hence, there is no cap on the amount of fees that can be recovered pursuant to the Agreement, except that the amount be reasonable.

When applying the eight factors in Rule 1.5 of the MRPC, no one would argue that the fee contract between plaintiff and its attorney is unreasonable. The same factors can be applied to the provision under the Agreement with the same result.

Our Kansas Courts have not hesitated to award attorney fees in an amount equal to the contingent fee contract, and have stated that the contingent fee contract should be considered when setting the fees.

The court should allow plaintiff to recover attorney fees from defendant pursuant to the Agreement in the amount of $3,951.95 which is one-third (1/3) of the principal balance due under the Agreement. That is the amount that was plead in the Petition of which the defendant is now in default of for failure to appear or plead as required by law.

Respectfully submitted,
 
 
 
 
 
 

_______________________________

BRUCE C. WARD, SC# 8453

Attorney for Plaintiff