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Pennsylvania Justices Side With Law Firm in Fee Dispute

May 2, 2016 | Posted in : Contingency Fees / POF, Ethics & Professional Responsibility, Fee Agreement, Fee Dispute, Quantum Meruit

A recent Legal Intelligencer story, “Pa. Justices Side With Firm in Fee Dispute,” reports that the Pennsylvania Supreme Court has ruled a law firm cannot be held liable for breach of contract under a fee agreement a nonpartner entered into before he joined the firm.

The decision in Meyer Darragh Buckler Bebenek & Eck v. Malone Middleman reverses a ruling from the Superior Court, which had said that, even though the successor firm, Malone Middleman, was not a party to the contract at issue, its share of attorney fees from the underlying case should be limited by the terms of the contract between the initial firm, Meyer Darragh Buckler Bebenek & Eck, and attorney William Weiler Jr., who had switched firms during the pendency of the underlying suit.

Justice Max Baer, who wrote the unanimous decision issued, said the Superior Court's ruling had improperly expanded to nonpartners precedent that allows breach of contract claims in similar circumstances involving partners.

The Superior Court had based its ruling on its 2012 decision in Ruby v. Abington Memorial Hospital, which Baer determined to be inapplicable.

"The Ruby decision was based exclusively upon the fiduciary duty owed by a departing partner under the Uniform Partnership Act to the predecessor law firm during the winding up process of a dissolving partnership, which is absent in the instant case," Baer said.  "Here, attorney Weiler was not a partner at Meyer Darragh and thus, the Eazor estate litigation did not constitute unfinished business of a partnership."

According to Baer, the damages would only be recoverable through a quantum meruit action.

The underlying case stems from a single automobile accident in which Richard Eazor was killed and Lynn Sharp was injured.  Eazor's estate and Sharp sued each other, and Weiler entered his appearance for Eazor's estate in March 2005.

Later that year, Eazor joined Meyer Darragh, and entered into a contract agreeing that all legal work would be deemed work on behalf of the firm.

Meyer Darragh attorney Scott Millhouse became primarily responsible for the case.  Although he drafted a proposed settlement agreement in May 2007, it was never signed and attorneys continued working on the case for another 19 months.

Weiler left Meyer Darragh and agreed the firm would receive two-thirds of the attorney fees from the litigation.  However, after Weiler joined Malone Middleman, the Eazor estate decided to discharge Meyer Darragh and have Weiler and Malone Middleman represent it.

Following the change in representation, Meyer Darragh told Malone Middleman it was entitled to two-thirds of the fees, which Malone Middleman contested, arguing it was not bound by the agreement between Weiler and Meyer Darragh.

The Eazor estate litigation subsequently settled for $235,000 after 343 hours of legal work, and Malone Middleman received $67,000 in attorney fees.

Meyer Darragh sued both the Eazor estate and Malone Middleman, alleging breach of contract against the firm and quantum meruit against both defendants.

According to Baer, Meyer Darragh "abandoned" its quantum meruit claim against the Eazor estate, acknowledging the estate paid its full attorney fees to Malone Middleman.

The trial court eventually entered a verdict for Meyer Darragh on the quantum meruit claim for nearly $15,000, but denied the firm's breach of contract claim.

On appeal, Malone Middleman challenged the finding on quantum meruit, and Meyer Darragh contended that the trial court erred in denying its breach of contract claims.

The Superior Court, relying on Ruby, vacated the trial court on both grounds, and entered judgment for Meyer Darragh on the breach of contract claim for two-thirds of the contingent fee.

Along with finding that the Superior Court "erroneously extended" the application of Ruby, Baer rejected the argument from Meyer Darragh that it was entitled to breach of contract claims under agency law.

Baer noted that the contract at issue was entered into before Weiler had any affiliation with Malone Middleman, and so Weiler could not have entered the agreement with any authority on behalf of Malone Middleman.

Baer also rejected Meyer Darragh's argument that the situation was analogous to a landlord-tenant relationship, in which possessor rights of tenants are enforced against subsequent owners of the real estate.

"Aside from failing to cite any governing authority applying such law to attorney fee disputes, Meyer Darragh fails to acknowledge that it held no possessory right to contingent fees relating to the Eazor estate litigation at the time the clients discharged the firm from the case, as no settlement had yet been realized," Baer said.  "Consistent with this jurisprudence, we hold that under the specific facts presented, any recovery that may have been due to Meyer Darragh would lie in quantum meruit, and not breach of contract."

In a concurring opinion, Chief Justice Thomas G. Saylor noted some drawbacks under the quantum meruit claims.

Saylor said a firm can only proceed with a quantum meruit claim against a former client, but not against a successor firm, according to case law.

"The difficulty, as I see it, is that this puts clients in an untenable position where, as here, the client has already paid the attorney fee in full to the successor law firm," Saylor said.  "I would be particularly cautious about a quantum meruit framework under which an excessive payment obligation was ultimately imposed upon the client."

Justice Debra Todd said there were drawbacks to appellate guidelines discouraging parties from briefing issues not accepted on appeal or filing protective cross-claims.  She wrote Meyer Darragh relied on those guidelines when not pursuing a quantum meruit claim.  She said she would allow the firm to file a nunc pro tunc petition on the issue, and she would further refer the issue to the appellate rules committee.