action in the name of libellant for recovery of compensation and costs where he has been defrauded by a collusive settlement?
The case of Miedreich v. Rank, 40 Ind. App. 393, 82 N.E. 117, involved a suit by the beneficiary under a life insurance policy, the attorney for the plaintiff being retained on a contingent fee basis.After suit was started, and while the action was pending, the attorneys for the defendant filed in court an instrument signed by the plaintiff directing dismissal of the action. Plaintiff's attorney thereupon objected to the dismissal and filed a motion, supported by affidavit, for leave to prosecute the suit to final judgment for his own benefit. The objection and motion were overruled; on appeal the judgment was reversed and the cause remanded for further proceedings in conformity with the opinion. The Court in its opinion said, 82 N.E. at page 119:
"It is not necessary to determine whether the contract between Mrs. Rank and appellant amounted to an equitable assignment in the latter's favor. Generally speaking, the plaintiff has full power to compromise and settle his claim out of court and without the knowledge or consent of his attorney. Hanna v. Island Coal Co., supra [5 Ind.App. 163, 31 N.E. 846, 51 Am.St. Rep. 246]; Young v. Dearborn, 27 N.H. 324; Jackson v. Stearns [48 Or. 25], 84 P. 798, 5 L.R.A., N.S., 390. 'The right of the parties to thus settle is absolute, and the settlement determines the cause of action and liquidates the claim. * * * Of course, we do not refer to dishonest settlements made to cheat attorneys, which the courts will brush aside with a strong hand.' Fischer-Hansen v. Bklyn. Heights R.R. Co., supra [173 N.Y. 492, 66 N.E. 395]. The law favors compromises, and the settlement of litigation is encouraged, but such favor does not extend to transactions which are flavored with fraud. The effect of the authorities is accurately summarized by the editor of the American State Reports as follows. 'While honest settlements between the parties to a litigation made without any intention of taking advantage of the attorneys are commendable and are to be encouraged, collusive and fraudulent settlements made for the purpose of defrauding the attorneys are, of course, reprehensible. If such are attempted, the court may interfere to protect the attorney. Its power to do so is inherent, and is founded on its right to protect its own officers against collusion and fraud practiced by the parties to the cause.' Monographic Note, 93 Am.St.Rep. 173, and cases cited.
"It is well known, although seldom stated, that the usefulness of the American judiciary depends upon the members of its bar. The judge can only decide questions presented to him for decision, and, in the absence of an independent bar, containing right-minded, fearless lawyers, the judge and the court would be of little use. The duty of courts to protect officers who are so essential to them and from whom the highest fidelity is exacted from fraud and imposition practiced or attempted by litigants is perfectly clear. It is an inherent obligation, and inherent power in the court to discharge it has always been recognized.
'Where a settlement is privately effected between the parties with the design of preventing the attorney from obtaining his costs, the court will, notwithstanding the settlement, allow the attorney to go on and collect the costs in the action that he may secure himself.' Rasquin v. Knickerbocker Stage Co., supra [21 How. Prac., N.Y., 293]. The procedure in such cases is as follows: 'Though a party may, without the consent of his attorney, make a bona fide adjustment with the adverse party, and dismiss an action or a suit before a judgment or a decree has been rendered therein, if it appears, however, that such settlement was collusive and consummated pursuant to the intent of both parties to defraud the attorney, the court in which the action or suit was pending may interfere to protect him, as one of its officers, by setting aside the order of dismissal, and permitting him to proceed in the cause, in the name of his client as plaintiff, to final determination to ascertain what sum of money or interest in the subject matter, if any, is due him for his services when fully performed."
* * * it furnishes a remedy by which the courts may compel the litigants to treat the lawyer with some measure of the honesty which he is bound to exercise in his dealing with them."
Following the principles enunciated in the Opinion of Miedreich v. Rank, supra, the Court may exercise its inherent power to protect its officers from fraud and collusion practiced by the parties to the cause, by permitting the attorney to proceed in the cause in the name of his client as plaintiff to ascertain what sum of money is due him for his services when fully performed.
Respondent contends, however, that this is an action in admiralty and that the Court has no authority to assume jurisdiction for the enforcement of the non-maritime obligation which petitioners here assert. I can see no difference between the attorneys in a law case and proctors in an admiralty case. Proctors in admiralty are as integral and necessary a part of the protective machinery of the Court as are attorneys in law cases. It is of as vital interest to Courts of Admiralty to protect the proctors in their right for compensation as it is for Courts of Law to protect attorneys in a similar manner.
The Golden Star, D.C., 9 F.Supp. 172, affirmed by the Circuit Court of Appeals for the 9th Circuit in Ayers v. Oceanic & Oriental Navigation Company, 82 F.2d 687, 688, is a case in admiralty where the precise remedy sought here was involved. In that case the libellant filed suit in personam and in rem based on a charge of negligence resulting in alleged personal injuries, for which damages were sought in the sum of $50,000. Before trial libellant settled his case with respondent without the knowledge of his proctor. Upon representation to the court that "respondents entered into a covinous, fraudulent, and collusive settlement with libelant for the sole purpose of cheating and defrauding the proctor for libelant out of his fees, costs, and disbursements and moneys advanced to libelant, * * *" an order was made permitting the proctor to prosecute the suit in the name of the libellant for recovery. Upon hearing the evidence failed to sustain the representations, and the libel was accordingly dismissed. On appeal the Circuit Court of Appeals affirmed the decree on the ground that the evidence failed to sustain collusion and fraud, but indicated that in a proper case the remedy sought would be available to the proctor. The Circuit Court, which adopted the District Court's opinion, said: "'Upon hearing, the evidence failed to sustain the representations of the proctor. The settlement was made wholly upon the initiative of libelant, and without knowledge of counsel on either side. Libelant wrote a letter to his proctor advising him of the settlement, requesting an account of his indebtedness, and promising payment, saying, "I will send you a check for it." "I always pay my debts."
"'It is unquestioned that parties to a lawsuit may settle and compromise their litigation without consulting counsel; and that, in the absence of a statute giving the attorney a lien for his fees, courts will not intervene, unless there has been collusion between the parties and an attempt to defraud the attorney out of his fees. Swanson v. Chicago, St. P. & K.B. Ry. Co., supra [ C.C., 35 F. 638]; approved in Re Baxter & Co. (C.C.A.) 154 F. 22, 24; Hilditch v. American Bumper Corporation (D.C.) 15 F.2d 451. The rule is the same in tort cases in admiralty ( Peterson v. Watson, 19 Fed.Cas. page 380, No. 11,037), although in certain wage cases the proctor has been permitted to recover costs ( The Victory, 28 Fed.Cas. page 1179, No. 16,937).
"'While I do not approve the action of respondents' claims agent in settling the case without notice to libelant's proctor, yet the facts and the law will not justify a judgment in favor of the proctor.' * * *
"Having found that there was no fraud or collusion in the settlement between libelant and respondents, the District Court rightly concluded that, as against respondents, there could be no recovery of costs, fees, or disbursements of libelant's proctor. See authorities cited in the District Court's opinion, supra."
Under the above authorities, I think the petitioners are entitled to an order permitting them to prosecute to judgment the two suits in admiralty in their own behalf for the recovery of their costs and compensation, with an opportunity first to prove the allegations in the petition and if the allegations are sustained, to prove the value of their contract with the libellant. If petitioners will prepare an Order in accordance with this Opinion and submit it to proctors for the respondent, it will be entered.