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Gorham v. Amusements of Rochester, Inc.

United States District Court, M.D. North Carolina

May 22, 2015

KISHA GORHAM, et al., Plaintiffs,
v.
AMUSEMENTS OF ROCHESTER, INC., et al., Defendants.

REDACTED PUBLIC MEMORANDUM OPINION AND ORDER

CATHERINE C. EAGLES, District Judge.

In the fall of 2013, the plaintiffs were exiting a ride at the North Carolina State Fair when the ride began moving again. All four plaintiffs were injured, and they soon brought suit against the parties they claimed negligently owned, repaired, or operated the ride. The plaintiffs have settled their claims against three of these defendants, and the parties seek court approval of those settlements as to the minor and the incompetent plaintiffs. The Court will approve the settlements and direct disposition of the settlement funds as set forth herein.

PROCEDURAL BACKGROUND

The parties have filed joint motions seeking approval of the settlements between the settling defendants, Family Attractions Amusement, L.L.C., Joshua Macaroni, and Timothy Tutterrow, and the guardian ad litem, Kisha Gorham, on behalf of her son, minor-plaintiff J.H., and between the same defendants and the general guardian, also Ms. Gorham, on behalf of her husband, incompetent-plaintiff Anthony Gorham, Jr. ( See Docs. 46, 47.)[1] In both motions, the parties stated that they would provide the Court with a "Closing Statement" in support of each settlement at the January 21, 2015, hearing on the motions. ( See Doc. 46 at 2; Doc. 47 at 2; see also Text Order Dec. 15, 2014.) Attached to the motions were copies of the state-court guardianship orders and proposed orders for this Court to approve the settlements.[2] ( See Docs. 46-1, 47-1.)

The day before the January 21 hearing, the parties submitted by e-mail a copy of a "Confidential Mediated Settlement Agreement, " since filed under seal. (Doc. 76.) At the hearing, the Court approved the total settlement amounts based on the parties' representations, but neither party presented the Court with the promised Closing Statements. ( See Minute Entry Jan. 21, 2015; Doc. 46 at 2; Doc. 47 at 2; see also Doc. 52 at 1.) After inquiry by the Court, defense counsel handed up a summary of the plaintiffs' medical bills. Plaintiffs' counsel was unprepared to discuss the requested attorneys' fees, the amount of liens or expenses, or what would happen to the balance of the settlement proceeds. The Court specifically identified these deficiencies in open court and, being unable to approve the settlements, held the matter open to give the parties a chance to supplement the record. ( See Minute Entry Jan. 21, 2015.)

In their second-chance submissions, plaintiffs' counsel filed proposed Closing Statements for each plaintiff. ( See Docs. 50, 50-1; see also Doc. 49 at ¶ 5.) Each Closing Statement listed the total settlement amount, the amounts due various medical providers and other vendors to be paid from the settlement proceeds, the amount of the requested attorneys' fee, and the "balance" after paying attorneys' fees, costs, and expenses. ( See Doc. 50 at 1-3; Doc. 50-1 at 1-4.) Attached to each Closing Statement were copies of an addendum to each plaintiff's settlement agreement that listed the amounts of "Up Front Monies" and the amounts and details of the structured settlements. ( See Doc. 50 at 4-6; Doc. 50-1 at 5-7.)

Plaintiffs' counsel submitted no affidavits or other information in support of the requested attorneys' fees and no copies of the bills the plaintiffs sought to have paid out of the settlement proceeds. The materials before the Court - the Closing Statements, the settlement agreement, and the addenda - contained no plan or proposal for what would happen to the settlement balances after payment of any court-approved expenses and fees. In a related motion to seal, the plaintiffs appeared to propose that all the remaining money should be paid to Ms. Gorham. ( See Doc. 49 at ¶ 6.) Even though the Court explicitly invited further information during the January 21 hearing, ( see Minute Entry Jan. 21, 2015), no party submitted any authority on the standard to apply in evaluating a settlement and approving disbursements of the proceeds beyond a citation to Local Rule 17.1(f). ( See Doc. 49 at ¶ 6; Docs. 50, 50-1.) The Closing Statements also reflected that plaintiffs' counsel had already removed the amounts of the requested attorneys' fees from their trust account. ( See Doc. 50 at 1; Doc. 50-1 at 1.)

On February 10, the Court entered an order ruling on certain aspects of the motions, offering the parties a third chance to supplement the record as to other aspects of the motions, and requiring counsel to return the amounts taken as attorneys' fees to their trust account. ( See Doc. 52.) Specifically, the Court again found the total settlement amounts to be fair and reasonable and approved some of the proposed expenditures from settlement funds to pay various personal and litigation-related expenses. ( See Doc. 52 at 1, 3, 5, 7-8.) The Court found that the Closing Statements did not adequately explain or justify some of the expenses, nor did they propose an appropriate plan for disposition of the settlement proceeds after approval. ( See Doc. 52 at 3-8.) The Court approved an attorneys' fee of 10% for counsel's representation of J.H. and held open the amount of the attorneys' fee for Mr. Gorham's case pending submission of additional information and briefing. ( See Doc. 52 at 4-5, 7-10.)

In their third-chance supplementary submissions, the plaintiffs and their attorneys filed the requested additional information and briefing in support of the settlements, explained their views on what should be done with the settlement proceeds, and asked the Court to revisit its decision as to the amount of the attorneys' fee for J.H.'s claims. ( See Docs. 57, 58, 67, 67-1 to 67-15, 69, 69-2 to 69-15); see also discussion infra. The Court has entered various orders concerning the parties' requests to seal the settlement amounts and supporting documents. ( See Docs. 66, 71, 74, 75; see also Docs. 49, 72.) The Court held a brief telephone conference with counsel on May 5 to clarify a few factual matters related to the motions to approve the settlements and the related motions to seal. ( See Minute Entry May 5, 2015.)

ANALYSIS

1. The Minor Child's Settlement

The parties seek court approval of the settlement of J.H.'s claims pursuant to Local Rule 17.1 and well-established federal and North Carolina practice. ( See Doc. 52 at 2 (collecting cases)); In re Abrams & Abrams, P.A., 605 F.3d 238, 243-44 (4th Cir. 2010). Courts have "inherent authority over the property of infants and will exercise this jurisdiction whenever necessary to preserve and protect children's estates and interests. The court looks closely into contracts or settlements materially affecting the rights of infants." Sigmund Sternberger Found., Inc. v. Tannenbaum, 273 N.C. 658, 674, 161 S.E.2d 116, 128 (1968). The investigation and examination of a proposed minor settlement includes a review not only of the total settlement amount, but also of the disposition of the settlement proceeds, including requested payments to others, such as attorneys or medical providers. E.g., Pryor v. Merten, 127 N.C.App. 483, 484-86, 490 S.E.2d 590, 591-92 (1997) (reviewing an attorney's claim to be paid out of a minor's settlement proceeds); see also Abrams, 605 F.3d at 243 (noting that the district court's supervisory jurisdiction over contingent fee agreements is well-established). Just as a minor is not competent to enter into a binding contract to settle a case, a minor also cannot enter into a binding contract with attorneys, court reporters, medical care providers, and the like. See Creech ex rel. Creech v. Melnik, 147 N.C.App. 471, 476-78, 556 S.E.2d 587, 590-92 (2001).

As noted in open court at the January 21 hearing and in the Court's February 10 Order, the total settlement amount of J.H.'s claims appears to be fair and reasonable.[3] ( See Minute Entry Jan. 21, 2015; Doc. 52 at 1, 3.) The specific structured settlement presented is, as previously noted, appropriate. ( See Doc. 52 at 6; see also Doc. 50 at 4-6.) The Court has already approved payment of certain expenses and costs from settlement proceeds. ( See Doc. 52 at 5.) The only issues remaining are whether and in what amount the Court should grant plaintiffs' counsel's requests to pay certain other items from the settlement proceeds and what should be done with the remaining settlement proceeds.

Attorneys' Fee: At the January 21 hearing, the guardian ad litem and plaintiffs' counsel made no fee request and submitted no information in support of a fee request. ( See Minute Entry Jan. 21, 2015; see also Doc. 47; Doc. 52 at 4-5.) Despite the Court's request during that hearing for additional information about the attorneys' fee, counsel's second-chance submission set forth only the amount of the attorneys' fee, determined as a contingent percentage of the settlement. ( See Minute Entry Jan. 21, 2015; Doc. 50 at 1; see also Doc. 49.) On February 10, the Court entered an order approving a 10% fee rather than the 33% that plaintiffs' counsel sought. ( See Doc. 52 at 5; Doc. 50 at 1.)

The Court's February 10 Order did not authorize plaintiffs' counsel to submit new evidence in support of the attorneys' fee for J.H.'s claims. ( See Doc. 52 at 4-5.) Indeed, the Court explicitly said it "w[ould] not allow a third round of submissions on this issue." (Doc. 52 at 5.) The Court did allow any party to file a short brief if the party believed that the Court misapprehended the applicable law or wished to provide additional legal authority for the Court's consideration. ( See Doc. 52 at 10.)

Thereafter, plaintiffs' counsel filed two briefs, (Docs. 56, 57), and a motion for in camera review of some fifteen exhibits, including seven new affidavits and numerous additional documents. ( See Docs. 58, 59, 67-1 to 67-15 (sealed exhibits), 69-2 to 69-15 (redacted copies of certain sealed exhibits filed at Doc. 67-1 to 67-15).) In their briefs, plaintiffs' counsel relied upon Abrams, cited a few other cases, and asked the Court to increase the approved fee; they contended that the Court "misapprehend[ed] the applicable law" and that it would be an abuse of discretion to limit the fee to 10% in light of newly submitted evidence. ( See Doc. 56 at 2-5; Doc. 57 at 2-6.)

Plaintiffs' counsel has not shown that the Court misapprehended the law when it set the attorneys' fee at 10%. They have identified no evidence before the Court at the time it set the 10% fee that the Court did not consider. Nor has plaintiffs' counsel satisfied the Court that it should reconsider its decision.

Counsel's first argument, that the settlement is fair and reasonable, does not even purport to show an error of law. ( See Doc. 57 at 2.) Indeed, it merely begs the question, as the Court would not approve the settlement at all if it was not fair and reasonable. The Fourth Circuit in Abrams rejected the argument that plaintiffs' counsel are entitled to have their contingent fee agreement approved in a case involving a minor unless the resulting fees are "clearly excessive." See Abrams, 605 F.3d at 243-44. Instead, the fee will be approved, as the Abrams court held, only to the extent it is reasonable. See id. (holding that "the review of fee arrangements is for reasonableness").

In their remaining arguments, plaintiffs' counsel concede that they provided inadequate information to the Court and then blame the Court for their own failures. ( See Doc. 57 at 3-6.) They take the contradictory positions that the Court should not have relied upon its own experience on the one hand and that it should have known more about contingent fees as a result of its experience on the other. ( See Doc. 57 at 3-6.)

For example, plaintiffs' counsel contend that the Court should not have relied upon its experience in evaluating the reasonableness of the fee request because "[t]he Court's experience with this case was limited." ( See Doc. 57 at 5-6.) That argument implicitly concedes that plaintiffs' counsel failed to provide enough information to the Court, despite two opportunities to do so.[4] To the extent the information provided by the litigants at the January 21 hearing was inadequate to support the request for a 33% fee, that is the fault of plaintiffs' counsel, not of the Court. ( See Minute Entry Jan. 21, 2015.)

Similarly, plaintiffs' counsel contends that the Court "fail[ed] to recognize" that the 33% contingent fee as to J.H. is the customary fee for such work. ( See Doc. 57 at 3-4.) Because the Court, according to plaintiffs' counsel, is not supposed to consider its own experience, it is difficult to understand how the Court should have known this in the face of a silent record. ( See Minute Entry Jan. 21, 2015; Doc. 52 at 4-5; Doc. 57 at 5-6.) In any event, the obvious fact that such fee agreements are common does not mean such agreements are always enforced where the plaintiff is a minor, nor does it mean that it is an error of law to set a lower fee. Implicit in the Court's carefully limited statement that it did not recall ever approving a 33% contingent fee "when the case settled early for policy limits and with little dispute over liability" is the recognition that such approval might well be appropriate in other circumstances. ( See Doc. 52 at 4.) Plaintiff's counsel has the burden to show that the requested fee was reasonable and failed to do so. See Abrams, 605 F.3d at 243-44.

Plaintiffs' counsel also contends that the Court inadequately considered the nature of the contingent fee and the risk assumed by counsel. ( See Doc. 57 at 2-5.) That contention is belied by the Court's February 10 Order, which explicitly acknowledged the need to take risk into account. ( See Doc. 52 at 4 (noting that "the Court appreciates the need to compensate counsel for risk").) Nothing in Abrams requires a court to approve a requested fee merely because it is contingent, and nothing in Abrams dictates that ...


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