EAGAN BY KEITH v. Jackson, Civ. A. No. 92-533.

Decision Date13 June 1994
Docket NumberCiv. A. No. 92-533.
PartiesSharon EAGAN, an incompetent, by Eugene KEITH, her guardian, Plaintiffs, v. Barbara JACKSON, Cooperative For American Relief Everywhere, a/k/a C.A.R.E., John Doe (name being fictitious) and ABC CORP. (name being fictitious), Defendants.
CourtU.S. District Court — Eastern District of Pennsylvania

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Sheldon Bross, Bross, Strickland, Cary & Grossman, P.A., Newark, NJ, for plaintiff.

Richard A. Kraemer, Marshall, Dennehey, Warner, Coleman and Goggin, John F. Kent, Marks, Kent & O'Neill, P.C., Philadelphia, PA, Edwin R. Matthews, Cuyler, Burk & Matthews, Florham Park, NJ, for defendants.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

Presently before the Court is plaintiff Sharon Eagan's Motion for Approval of the Settlement Agreement and Counsel Fees, filed on her behalf by Eugene Keith, her brother and court-appointed guardian, as well as a Rule to Show Cause issued by the Court. Though approval of the settlement in this case at first appeared to be a relatively uncomplicated exercise, with the plaintiff represented by experienced trial counsel, and with an able guardian in the person of her brother, a licensed, practicing attorney, this case proved once again that things are not always what they seem. The Court will approve the settlement reached by the parties to this action, but not in the form originally proposed, and not without first examining the lapses of both counsel for Plaintiff and the guardian and enforcing the Rule to Show Cause. The Court concludes that: 1) the guardian breached his fiduciary duty of loyalty and, therefore, has forfeited any compensation to which he was entitled under the referral fee agreement between him and counsel for plaintiff, and 2) counsel for the plaintiff breached his duty of candor to the Court and, therefore, his pro hac vice admission will be revoked. The Court will set the maximum appropriate amount of legal fees to which counsel for plaintiff is entitled under New Jersey law and pursuant to the contingency fee agreement between the estate and counsel, but will refer the matter to the New Jersey court with general superintendency over the administration of the estate of Sharon Eagan to consider whether counsel's conduct in: 1) initially entering into an oral contingent fee agreement, 2) promising to pay the guardian a referral fee, and 3) appearing before the New Jersey court and undertaking the representation of the estate in this litigation without disclosing to that court the existence of the referral fee agreement, breached the New Jersey Court Rules and/or the New Jersey Rules of Professional Conduct and, if so, to determine in light of counsel's conduct what fee, if any, counsel should receive in this case, up to the maximum allowed as an appropriate fee by this Court, and whether counsel should be referred to the New Jersey Supreme Court Office of Attorney Ethics. Mr. Keith shall also be referred to the New Jersey court for substantially the same reasons, i.e., his conduct as an attorney prior to the institution of this case.

I. BACKGROUND

Sharon Eagan was seriously injured in a motor vehicle accident that occurred in Guatemala City, Guatemala, on September 6, 1990.1 The motor vehicle was owned by defendant Cooperative for American Relief Everywhere ("C.A.R.E."), a New York corporation with its principal place of business in New York, and operated by defendant Barbara Jackson, allegedly a citizen of Pennsylvania.2 Ms. Eagan suffered severe trauma to her head, resulting in significant cognitive sequelae and some difficulty with physical activities. Her brother, Eugene Keith, traveled to Guatemala to care for her, and accompanied her back to New Jersey, where she and Mr. Keith resided at the time. In New Jersey, Mr. Keith arranged for her medical care and handled her affairs, in consultation with their mother and their brother. Mr. Keith, an attorney licensed by the states of New Jersey and Colorado with over thirty years in practice, had previously represented Ms. Eagan in various legal matters, including motor vehicle cases, landlord-tenant matters, and tax questions. Based on these episodic representations, Mr. Keith believed after Ms. Eagan's accident that he was authorized to act initially as her attorney even prior to formal court appointment of a guardian.

In November or December of 1990, Mr. Keith met with Sheldon Bross, a lawyer licensed to practice in New Jersey and a member of the firm of the New Jersey law firm of Bross, Strickland, Cary & Grossman, P.A. ("Bross, Strickland"), whose practice concentrated in personal injury litigation and who had been an acquaintance of Mr. Keith's for over thirty years since they had attended law school together. Though it is unclear in what capacity Mr. Keith was acting, i.e., lawyer, guardian, or family member, the result of this initial meeting was that Mr. Bross was orally "retained" to represent Ms. Eagan's interests in connection with the personal injury action arising from the events in Guatemala.3 Mr. Bross and Mr. Eagan agreed that Mr. Bross would be recompensed on a contingency basis, based upon the permissible fee percentages authorized by New Jersey Court Rule 1:21-7.4 No written fee agreement was executed by Mr. Bross or Mr. Eagan at that time. See id. 1:21-7(g) (requiring a signed fee agreement when the maximum fee percentages outlined in the Rule are used); N.J.R.Prof.Conduct 1.5(c) (requiring that a contingent fee agreement be in writing) hereinafter N.J.R.P.C..

Shortly after the oral agreement retaining Mr. Bross was entered into, Mr. Keith received an unsolicited letter from Bross, Strickland, signed by Mr. Bross and dated January 2, 1991, informing Mr. Keith that as a result of having referred the case to Bross, Strickland, he was to receive a referral fee:

Dear Mr. Keith:
Thank you for the referral of Sharon Eagan. As certified civil trial attorneys, we are permitted to forward a one-third referral fee to you upon conclusion of this matter. If at any time you would like to know the status of the case, or have any questions, please feel free to call.
Again, thank you for your kind referral.

Very truly yours BROSS, STRICKLAND CARY & GROSSMAN, P.A. /s/ Sheldon Bross

Response of Sheldon Bross and Bross, Strickland to the Court's Order to Show Cause exhibit 4 hereinafter "Bross Response".5 While both Mr. Keith and Mr. Bross have certified that there was no discussion of a referral fee at their initial meeting, both acknowledge that the initial meeting was in the manner of a referral. See Bross Response exhibit 1, ? 5 (Affidavit of Eugene Keith) (the "Third Keith Aff.") ("When I initially referred the case to Mr. Bross there was no discussion of a referral fee."); Bross Response exhibit 2, ? 7 (Affidavit of Sheldon Bross) (the "Second Bross Aff.") ("As a Certified Civil Trial Attorney, I am authorized to pay a 33 1/3 % referral fee when a case is referred to me by an attorney. Mr. Keith did not ask for a referral fee."). In short, the result of the initial meeting and subsequent letter between Mr. Bross and Mr. Keith was that Mr. Bross was to receive the fee percentages allowed under New Jersey Court Rule, and Mr. Keith, the referring attorney and apparent de facto guardian, would receive one-third of the fees earned by Mr. Bross.

In October of 1991, nearly a year after the initial Bross-Keith meeting, and as required under New Jersey law, an application for guardianship was filed by Mr. Bross in the Chancery Division of the Superior Court of New Jersey, seeking to have Mr. Keith appointed as Ms. Eagan's guardian. See Third Keith Aff. ?? 6-7 (describing Mr. Bross's involvement in the guardianship application process); Second Bross Aff. ? 8 (same). The court appointed Joseph Bottitta, Esq., to represent Ms. Eagan in the incompetency proceedings as guardian ad litem. On October 29, 1991, after a hearing at which Mr. Keith did not personally appear, the New Jersey Superior Court declared Sharon Eagan to be an incompetent, and appointed Mr. Keith as guardian of her person and property. The court retained jurisdiction over the estate, ordering that Mr. Keith apply for a bond, with notice to Mr. Bottitta, upon an increase or decrease of the estate's assets. See Bross Response exhibit 5 (Judgment for Appointment of Guardian entered by the New Jersey Superior Court). Neither Mr. Keith nor Mr. Bross, who represented Mr. Keith at the hearing, disclosed to the New Jersey court or to Mr. Bottitta the pre-existing referral fee arrangement. Both Messrs. Bross and Keith have explained that at the time, they thought there was no need to make a disclosure of their referral fee arrangements because they assumed that the New Jersey court would review any fees at the conclusion of the litigation before the disbursal of any funds, and that the arrangement could be disclosed at that time. See Second Bross Aff. ? 8; Third Keith Aff. ? 8; see also id. ? 7 ("The guardian ad litem, then appointed by the New Jersey Superior Court, never raised any issues regarding my compensation."). On November 25, 1991, Mr. Keith signed a written contingent fee agreement memorializing the initial oral agreement retaining Bross, Strickland to represent Sharon Eagan in the current personal injury action. See Bross Response exhibit 3.

The instant case was filed in this Court in January of 1992. Over the ensuing twenty months, Mr. Bross dutifully pursued the litigation, eventually spending approximately 300 hours on the litigation. Mr. Keith also performed legal tasks on behalf of the estate.6 After some discovery was taken, a settlement in the amount of $1.2 million was reached between Mr. Keith and C.A.R.E. in the summer of 1993. Mr. Bross has now submitted to the Court as an uncontested matter the instant motion, seeking approval of the settlement agreement and the planned disbursement of the $1.2...

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