Sally Carol Grasch v. Albert Franklin Grasch Jr ( 2017 )

RENDERED: DECEMBER 14, 2017
TO BE PUBLISHED
~upr~m~ 314 S.W.3d 306, 308 (Ky. App. 2010) (Citing Heskett v. Heskett, 245
S.W.3d 222, 226 (Ky. App. 2008)). ·
2 59 S.W.3d 904, n.6 (Ky. 2001).
3Robert L. Rossi, 'Attorney's Fees, § 2: 1 Definition and Validity Generally (3d ed., June
2017 update).
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contingent-fee contract. According to First National Bank, a contingent-fee
contract is nothing more or less than a certain and specific property right-it is
the right to assert a cause of action to enforce a lien on a client's potential
recovery in order ~o secure rightfully cqntracted-for payment for legal services.4
In other words, the right is that of a chose in action. A chose in action is the
right to bring a lawsuit, whi~h the Court of Appeals in Poe v. Poe stated to be.
"undeniably a property right."5
In deciding this issue, we find ourselves drawn to the reasoning of the
Court of Appeals' analysis of a similar issue in Poe v. Poe. 6 In holding a
nonvested military pension to be marital property, the Court of Appeals first
recognized that it needed to change the way it analyzed property law as it
relates to family law.7
The Court of Appeals acknowledged the "traditional" way of thinking
about property law as it relates to family law: "[I]t is apparently reasoned ... that
. .
absent some present right to payment, future or 'immediate, a spouse's interest
4 517 S.W.2d 226, 230 (Ky. 1974) (discussing contingent-fee contract as affording
attorney a cause of action to enforce a lien on the actual contingent fee itself); See also
7A C.J.S. Attorney & Client§ 473(Dec. 2017 update) ("Generally, a contingent-fee
contract does not create an immediate property right in the possible future fee."); W.W.
Allen, Terms ofAttomey's Contingent-Fee Contract as Creating an Equitable Lien in His
Favor, 143 A.L.R. 204 (originally published in 1943, updated weekly) ("An equitable
lien arising from an attorney's contingent-fee contract ordinarily attaches ... merely as
of the time when the fund comes into existence .... Attomeys' contingent-fee contracts
are frequently construed as creating equitable liens on funds recovered by settlement
or otherwise.")
s 711 S.W.2d 849, 855 (Ky. App. 1986).
6 The Court of Appeals' analysis in Poe provided the correct groundwork for the
recognition of other forms of "nonvested" property. See McGinnis v. McGinnis, 920
S.W.2d 68 (Ky. App. 1995) (holding nonvested shares of stock as marital property).
1 711 S.W.2d at 855.
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in a nonvested pension plan such as the military plan now before us cannot be
consid€?red 'property' and is instead a mere expectancy which cannot be divided
as marital property.... " The Court of Appeals then stated, "For several reasons
we consider such reasoning, albeit traditionally accepted, to be inadequate in
the present circumstances."8
The Court of Appeals then outlined the pitfalls of applying traditional
property law concepts to the idea of marital property, including the problem
with making decisions about what constitutes marital property based on the
concept of the "vesting" of property, finally culminating in a statement that we
find to be most applicable in our analysis today: "Setting aside this [traditional]
approach for the moment, we tum to the courts of New Jersey, which have
wisely avoided the pitfall of becoming entangled in applying ancient property law
concepts to such an unusual and important marital asset."9 Taking into account
the wise reasoning of Poe, we cannot confine .ourselves to thinking about this
issue under the cloud of "ancient property law concepts," such as the "vesting"
'
of property.
The Court of Appeals applied New Jersey's rule that "vesting as it.
originated in the law of future interests has been specifically held in New.
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Jersey to have little meaning in determining the equitable distribution of the
marital estate."10 The rationale New Je.rsey uses in analyzing issues of marital
a Id.
9 Id. at 856 (emphasis added).
10 Id. (citing McGrew v. McGrew, 377 A.2d 697 (N.J. 1977) (citing Stem v. Stem, 331
A.2d 257, 262 (N.J. 1975))).
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property is the same rationale we apply to support our hold1ng, as the Court of
Appeals did in Poe to support its holding:
While the uncertainty of enjoying benefits may be a factor to be
considered in awarding distribution, the failure of the property
interest to have vested in the sense essential to the alienability of
real estate cloes not disqualify it as property acquired durin'g the
marriage· for purposes of equitable distribution. Of greater
importance .. .is "the nature of the interest and defendant's control
over it."11 Although some question exists as to when or whether the
retirement benefits will be enjoyed, the consideration critical to the
issue of distribution is the extent to which the anticipated benefits
will have been generated by the mutual effort of the parties. Thus,
the court's focus must rest upon the equities which are relevant to
the claims asserted upon the proceeds, when, as, and if they
materialize.12
The Court of Appeals also recognized that:
[Plan-holding spouse] does, at least in one sense, have a 'vested'
interest in the retirement plan. Upon his employment and
rendition of services, [plan-holding] spouse has a vested interest to
participate in the plan, which if wrongfully denied by his employer
would be the proper basis for a suit at law to enforce his
contractual rights. 13 This interest has been described to be in the
nature of a chose in action which is undeniably a property right.
Thus, while [plan-holding spouse]'s rights in his military pension
plan may not be fully vested so as to inalienably entitle him to
payment at some later time, he does have a vested interest in
participating in the pension plan. This is a vested interest then
which [non-plan-holding spouse], through her support as
homemaker and helpmate, enabled [plan-holding spouse] to
acquire and continue throughout their marriage.14
So while the right to the actual funds from the pension had not vested yet,
what did vest was the plan-holding spouse's right to participate in the pension
and bring a cause of action if denied that participation. This is exactly the
u Citing Blitt v. Blitt, 353 A.2d 144, 147 (N.J. Ch. Div. 1976).
12 Poe, 711 S.W.2d at 856.
13 Id. at 885.
14 Id.
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interest that an attorney spouse has in a contingent-fee case-although the
attorney does not possess a vested right to the actual contingent fee itself until
the case is won or settled, when the attorney and client sign a contract for a
contingent-fee case, the attorney does possess the right to work on that case
for that client and to bring suit if the client unjustly interferes with that right.15
The Court of Appeals in Poe went on to recognize nonvested military pensions
as marital property.16
Like a nonvested military pension, the "~ature of the interest" of a
contingent-fee contract is that of a chose in action, and, like the military
employee, the attorney possesses full control over that chose in action. While
the attorney spouse may put forth work, for the benefit of the marriage, on the
contingent-fee case itself, the non-attorney spouse, through that spouse's work
and efforts elsewhere for the benefit of the marriage, anticipates receipt of the
benefits resulting from the attorney spouse's work on that case. This is just
like the plan-holding spouse's receipt of the benefits of the plan because of the
direct work performed, for the benefit of the marriage, for the entity issuing the
plan, and the non-attorney spouse's entitlement to those same benefits
because of that spouse's work and efforts elsewhere, for the benefit of the
marriage.
is See Baker v. Shapero, 203 S.W.3d 697, 699 (Ky. 2006) ("(W]hen an attorney
employed under a contingency fee contract is discharged without cause before
completion of the contract, he or she is entitled to fee recovery on a quantum meruit
basis .... ").
16 Id. at 857.
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W.e fail ·to see a material distinction betWeen a nonvested military pension
and a contingent-fee contract so as to hold that nonvested military pensions
are marital property and, at the same time, that contingent fee contracts are
. .
not. Instead, we hold that contingent-fee contracts do c·onstitute marital
property under KRS 403.190(2). This holding is consistent with :the trend in
other states that hold contingent-fee contracts constitute marital property,
although admittedly· some states have held the opposite.17
Understanding the practicalities of our holding, we now provide guidance
as to the procedure for the division of this property in a dissolution proceeding.
In Poe, the Court of Appeals applied the "delayed division" method to distribute
the actual pension fund once the plan-holding spouse started receiving
payments.ls We adopt this method to determine the distribution of this marital
property, adhering to our consistent use of this method in Kentucky law:
In the delayed division method, a formula is used to determine. the
division at the time of the decree, but the actual distribution of
monies is delayed until payments ... are received. Each party then
receives the appropriate percentage of the ... payments as they are
paid out in accordance with the formula. The use of this method
~as long been approved in the Commonwealth.19
This method not only affords the non-attorney ex-spouse the rightfuily
obtained property interest created during the marriage, but also protects the
11For a brief overview of this discussion, see Charles W. Davis, Divorce and
Separation: Attorney's Contingent Fee Contracts as Marital Property Subject to
Distribution, 44 A.L.R.Sth 671 (originally published in 1996 but continuously
updated).
1s Poe, 711 S.W.2d at 856.
19 Young v. Young, 314 S.W.3d 306, 309 (Ky. App. 2010) (citing Poe V. Poe, 711 S.W.2d
849 (Ky. App. 1986); Duncan v: Duncan, 724 S.W.2d 231 (Ky. App. 1987); Foster v.
Foster, 589 S.W.2d 223 (Ky. App. 1979)). .
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attor~ey ex-spouse from distributing to the non-attorney ex-spouse anything
until the case is settled or won, because the attorney ex~spouse may ultimately
prove to be unsuccessful in the case and receive nothing .. We wish to highlight
that ~e formula must take into account the fact that the non-attorney ·ex-
spouse is only entitled to a share of the contingent fee attributable to the. work
done by the attorney spou~e before the dissolution, as is usually the case with
the application of the delayed-division method. Lastly, the trial court, by order,
should require the attorney ex-spouse to notify the trial court and the non-
attorney ex-spouse of ·receipt of the contingent fee to be divided when the
contingent fee is earned or lost in order for the trial court to enter such
additional orders as necessary to complete the delayed distribution.
This method also captures the modern relationship between property law
and family law. Admittedly, affording the non-attorney ex-spouse property
rights in the actual contingent fee, instead of that ex-spouse's share of the
value of the chose in action to recover that fee, does not conform with
traditional notions of property law-only the right to the chose in action has
vested, not the contingent fee itself. But, as ,stated, the Court of Appeals in Poe
and other states that have recognized contingent-fee contracts as marital
property correctly note that marriage and its dissolution must be treated
equitably, focusing on the contribution of the non-attorney ex-spouse to the
marriage through work both outside and inside the home. While the right to
the proceeds from the fund had not yet vested for theplart-holding spouse in
Poe, the Court of Appeals recognized that the efforts by both ex-spouses during
the marriage contributed to some of the proceeds from the pension, and that
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the non-plan holding spouse was entitled to the portion of the fund that the
non'-plan holding spouse contributed work and efforts towards during the
marriage. We apply the san:;ie line of thought to dismiss any notion of "vesting"
as a limitation on a non-attorney ex-spouse's right to recover that ex-spouse's
fair share of the contingent fee earned during the marriage.
III. CONCLUSION.
We reverse the Court of Appeals and hold that a contingent-fee contract
in existence during the· marriage does constitute marital property to be divided
· in a dissolution proceeding. Additionally, we hold that trial courts shall apply
the delayed-division method to determine the distribution to the attorney and
non-attorney ex-spouses. Accordingly, we remand this case to the trial court
for further proceedings consistent with this opinion.
Minton, C.J.; Cunningham, Hughes, Keller, Venters and Wright, JJ.,
sitting. Minton, C.J.; Cunningham, Hughes, Keller, Venters and Wright, JJ.,
concur. VanMeter, J., not sitting.
COUNSEL FOR APPELLANT:.
· Suzanne Marie Baumgardner
Valerie S. Kershaw
Kershaw & Ba~mgardner, LLP
COUNSEL FOR'APPELLEE:
Kara Read Marino
Meredith Fannin·
Henry Watz Raine & Marino, PLLC
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