Daynard v. Ness

• Decision Date: 03 December 2001
• Docket Number: CIV.A.No. 01-10099-WGY.
• Citation: 178 F.Supp.2d 9
• Parties: Richard A. DAYNARD, Plaintiff, v. NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE, P.A.; Ronald Motley; Scruggs, Milette, Bozeman & Dent, P.A.; and Richard F. Scruggs, Defendants.
• Court: U.S. District Court — District of Massachusetts

178 F.Supp.2d 9

Richard A. DAYNARD, Plaintiff, v. NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE, P.A.; Ronald Motley; Scruggs, Milette, Bozeman & Dent, P.A.; and Richard F. Scruggs, Defendants.

CIV.A.No. 01-10099-WGY.

United States District Court, D. Massachusetts.

December 3, 2001.

Edward J. Barshak, Sugarman, Rogers, Barshak & Cohen, Boston, MA, for plaintiff.

Michael E. Mone, Esdaile, Barrett & Esdaile, Boston, MA, Mark A. Pogue, Edwards & Angell, LLP, Providence, RI, for defendants.

MEMORANDUM

YOUNG, Chief Judge.

Several years ago the tobacco industry settled numerous lawsuits, thus producing enormous attorneys' fees for the lawyers involved. Confirming the adage that "victory has a thousand fathers," a professor of law in Massachusetts, licensed to practice law in New York, now wants to enforce an oral fee-splitting agreement allegedly formed in Illinois with lawyers from South Carolina and Mississippi who profited from the tobacco settlement. This memorandum considers three issues: (i) the effect of an alleged release, (ii) what law governs this dispute, and (iii) the extent to which the rules of professional conduct permit lawyers to avoid their own oral fee-splitting agreements.

I. INTRODUCTION

The plaintiff, Professor Richard A. Daynard ("Daynard") of Northeastern University School of Law, has spent much of his academic career studying how to defeat the tobacco industry in court. Compl. ¶¶ 21-29. The defendants — the Ness law firm and one of its partners, Mr. Motley (together "the South Carolina defendants"), and the Scruggs law firm and one of its partners, Mr. Scruggs (together "the Mississippi defendants") — were among the many law firms representing state governments in the titanic battle against the tobacco industry ("the State Tobacco Litigation"). Id. ¶¶ 15-19.

Between 1993 and 1997, Daynard provided advice to the defendants. Daynard Aff. ¶¶ 1-2. No written contract detailed how Daynard would be compensated, but Daynard alleges that he and one of the Mississippi defendants shook hands in Chicago, Illinois in 1996 on an agreement whereby he would receive 5% of any attorneys' fees paid to the defendants as a result of the State Tobacco Litigation. Id. ¶ 4. In 1997 and 1998, the tobacco industry agreed to settle the State Tobacco Litigation for billions of dollars. Since then, the defendants have received millions of dollars in attorneys' fees and Daynard has received nothing. Answer ¶¶ 65-66.

Daynard filed a complaint in state court, which the defendants properly removed to this Court. 28 U.S.C. §§ 1332(a)(1), 1441(a). The complaint seeks, among other things, enforcement of the oral fee-splitting agreement or, in the alternative, recovery on a quantum meruit basis. The Mississippi defendants contested personal jurisdiction and did not answer the complaint. After extensive briefing, jurisdictional discovery, and two hearings, this Court dismissed the Mississippi defendants for want of personal jurisdiction and immediately entered partial judgment in their favor, Fed.R.Civ.P. 54(b). The South Carolina defendants consented to personal jurisdiction, answered the complaint, and promptly sought summary judgment, Fed. R.Civ.P. 56(b). This memorandum addresses the South Carolina defendants' motion for summary judgment.

II. DISCUSSION

Rather than engage Daynard's complaint on the facts, the South Carolina defendants instead based their motion on three purely legal defenses: (i) Daynard agreed to release the defendants from all liability, (ii) the alleged oral agreement is unenforceable because it would violate the rule of professional conduct that prevents the division of fees among attorneys except with the consent of the client, and (iii) quantum meruit is not available for unenforceable contracts. The first and third arguments do not withstand scrutiny, but the second argument raises difficult questions that the parties need to explore further, an exploration the Court ordered at a hearing on September 13, 2001. The following discussion addresses the arguments in order of complexity.

A. The Release

Eleven months before Daynard filed his complaint, a certain Wendell Gauthier signed a "Mutual Release" on behalf of a certain Castano Plaintiffs' Legal Committee ("Castano Committee"), of which Daynard is identified as a member. Motley Aff. Ex. D. The words of the release are as clear as they are broad: the Castano Committee "and each and every law firm and lawyer now or formerly comprising part of it" released the South Carolina and Mississippi defendants from "any and all claims ... that may arise out of or relate in anyway to (i) [the South Carolina and Mississippi defendants'] association, membership and relationship whatsoever with the [Castano Committee] and (ii) any claim for fees or reimbursements of costs paid to or to be paid to [the South Carolina and Mississippi defendants] by virtue of fee arbitrations and liquidations pursuant to the [State Tobacco Litigation settlement] or Previously Settled States which have occurred or occurs in the future." Id. at 3-4.¹

As matter of law, a clear and unambiguous contract must be enforced according to its terms. As matter of fact, however, this broadly-worded release apparently applied only to the relationship between the Castano Committee and the South Carolina and Mississippi defendants, not the individual relationships that might have formed outside the context of the Castano Committee. The dispute giving rise to the release apparently was a case in San Diego, California named Ellis v. R.J. Reynolds Tobacco Co., No. 706458 (Cal.Super. Ct. filed July 24, 1996). The South Carolina defendants give no reason to believe that Daynard's complaint, which is based on his individual work for the South Carolina and Mississippi defendants dating back to 1993, has any relationship to Ellis in particular or the Castano Committee in general. Accordingly, the South Carolina defendants give no reason to believe that the broadly-worded release, when read in context, has any bearing on the dispute before this Court.

Daynard concedes the release absolves the South Carolina and Mississippi defendants from some liability; he simply contends that the release does not pertain to his individual claim. Daynard's affidavit is clear on this point:

I never authorized Mr. Gauthier to release my individual claim against the defendants for which the present suit is brought. I never had any discussion with Mr. Gauthier, or anyone else in the Castano [Committee] about releasing such a claim or authorizing Mr. Gauthier to do so .... The disputes between the defendants and the Castano [Committee] ... could not have involved my present claim against the defendants since my claim is based upon an agreement and relationship between me and the defendants which is and was separate from the functions of the Castano [Committee].

Daynard Aff. ¶ 9 (emphasis added).

The Court suspects the release is a red herring, but that determination can wait for another day. For now, it will suffice to say that a genuine issue of material fact precludes judgment as matter of law. Fed.R.Civ.P. 56(c).

B. The Rules of Professional Conduct

Seizing upon the bar's traditional hostility toward the division of attorneys' fees, the South Carolina defendants argue that this Court should refuse to enforce the alleged oral fee-splitting agreement as matter of public policy and should refuse to allow recovery even on a quantum meruit basis.

1. Quantum Meruit

Even if the South Carolina defendants are correct that the alleged oral fee-splitting agreement is unenforceable as matter of public policy, they overreach in arguing that the Court should refuse to allow recovery even on a quantum meruit basis.

As discussed more fully below, see infra p. 10, any one of five different jurisdictions — New York, Massachusetts, Illinois, Mississippi, and South Carolina — might supply the governing law for this case. The choice-of-law question is not important at the moment, however, because the five jurisdictions are in harmony on the issue of quantum meruit. Although the South Carolina defendants are correct that equity should not enforce an illegal contract, the South Carolina defendants fail to distinguish between (i) a contract which, if carried out, would violate a strong public policy and (ii) a merely unenforceable contract. A contract for murder — or, in the case cited by the South Carolina defendants, a promise by a man to support a woman if she divorced her husband, Capazzoli v. Holzwasser, 397 Mass. 158, 160, 490 N.E.2d 420 (1986) — cannot be enforced at law or equity because performance of the agreement is repugnant to public policy. The contract alleged by Daynard, on the other hand, is perfectly benign and certainly could be enforced at law. A feesplitting agreement violates no public policy per se.

"[S]hould a fee contract be unenforceable a lawyer can obtain quantum meruit recovery ... unless the lawyer's conduct warrants fee forfeiture...." Restatement (Third) of the Law Governing Lawyers § 39 cmt. e (2000). Fee forfeiture is warranted only in the case of a "clear and serious" violation of the rules of professional conduct. Id. § 37. New York and Illinois have specifically allowed recovery on a quantum meruit basis in Daynard's situation,² and Massachusetts, Mississippi, and South Carolina have all allowed recovery on a quantum meruit basis in similar situations.³ Accordingly, Daynard may recover on a quantum meruit basis even if the alleged oral fee-splitting agreement is unenforceable as matter of public policy.

2. Imperfect Fee-Splitting Agreements

The real question is whether the alleged agreement is enforceable. The South Carolina defendants present a deceptively simple argument against enforcement: the oral agreement was made in Illinois, so Illinois law governs, but the Illinois Rules of Professional Conduct prevent enforcement of the agreement as matter of public policy because no client...