Estate of Markheim v. Markheim

• Decision Date: 04 September 2008
• Docket Number: Docket: Yor-07-733.
• Citation: 2008 ME 138,957 A.2d 56
• Parties: ESTATE OF Anna L. MARKHEIM, by G. Charles SHUMWAY II, Special Administrator v. Ryan MARKHEIM et al.
• Court: Maine Supreme Court

957 A.2d 56

2008 ME 138

ESTATE OF Anna L. MARKHEIM, by G. Charles SHUMWAY II, Special Administrator v. Ryan MARKHEIM et al.

Docket: Yor-07-733.

Supreme Judicial Court of Maine.

Submitted on Briefs: May 29, 2008.

Decided: September 4, 2008.

Dylan Smith, Esq., Verrill Dana, LLP, Portland, ME, for Ryan Markheim and Heather Markheim.

G. Charles Shumway, II, Esq., Childs, Rundlett, Fifield, Shumway & Altshuler, Portland, ME, for the Estate of Anna L. Markheim.

Panel: SAUFLEY, C.J., and CLIFFORD, ALEXANDER, LEVY, SILVER, MEAD, and GORMAN, JJ.

GORMAN, J.

[¶ 1] Ryan Markheim and Heather Markheim appeal from a decision of the Superior Court (York County, Fritzsche, J.) denying their motion to disqualify G. Charles Shumway II, Esq., from representing the Estate of Anna L. Markheim in this action to collect a debt allegedly owed to the Estate by Ryan and Heather. Ryan and Heather contend pursuant to M. Bar R. 3.4(d)(1)(i) that Shumway should have been disqualified because he previously represented them in litigation that was substantially similar and in which he was privy to confidential information. Although the Markheims concede that the appeal is interlocutory, they contend that the appeal fits within the death knell exception to the final judgment rule. We agree, and vacate the order denying the motion to disqualify.

I. FACTUAL BACKGROUND

[¶ 2] Chaim Markheim allegedly engaged in a series of fraudulent transactions in California, and purportedly shared the proceeds of those transactions with his wife, Anna Markheim, and to a lesser extent with his son Ryan and daughter-in-law Heather Markheim. Chaim and Anna divorced in 2003. Chaim has reportedly fled the country, and Anna died in 2006.

[¶ 3] In 2001, Anna and Chaim gave Ryan and Heather $50,000 toward the purchase and renovation of a home in Saco. Anna also lent Ryan and Heather $70,000 towards the purchase of the property. Shumway claims that Anna, Ryan, and Heather had an agreement that the $70,000 would be repaid to Anna when the house was eventually sold. Anna was a grantee on the deed to the property along with Ryan and Heather.

[¶ 4] In 2004, a committee of unsecured creditors of a bankrupt company called Helionetics, Inc., brought suit in Maine against Chaim and Anna Markheim in an attempt to collect a $5 million judgment Helionetics had secured in California against Chaim. The committee alleged that Chaim had fraudulently transferred at least $2 million to Anna. Shumway represented Anna in that lawsuit. The Helionetics creditors ultimately added Ryan and Heather as defendants, seeking any funds Chaim may have fraudulently transferred to them, including the funds given and lent to them to buy the house in Saco. Shumway represented Ryan and Heather in that lawsuit for a time, and actually prepared Ryan for and represented him at his deposition. At the deposition, Ryan was questioned about his purchase of the house, including the $70,000 loan from Anna. Eventually, Ryan and Heather retained another attorney and entered into a settlement with the Helionetics creditors.

[¶ 5] During the Helionetics litigation, Ryan and Heather refinanced the Saco house and used part of the proceeds to pay Shumway for fees incurred by Anna. They contend this was done at Shumway's suggestion because Anna could no longer fund her defense. Shumway asserts it was their idea to mortgage the house, but acknowledges that he gave them advice regarding the consequences of refinancing.

[¶ 6] Anna eventually settled with the Helionetics creditors, consenting to the entry of a $950,000 judgment against her. At the end of that litigation, Anna owed Shumway over $50,000 in legal fees.

[¶ 7] After Anna died in 2006, Ryan was appointed administrator of Anna's Estate. The Helionetics creditors filed a claim against the Estate in the amount of the consent judgment, and Shumway filed a claim against the Estate for his attorney fees. It was apparently contemplated that the Helionetics creditors' claim would be paid out of the proceeds from the Estate's main asset, real property that Anna owned in York County. The property was originally listed for $3,100,000, but has not sold, and is now listed for less than $1 million. Shumway therefore looked to other assets of the Estate to recover his attorney fee claim, specifically, the loan Anna made to Ryan and Heather to purchase the Saco property. When Ryan refused to pay the debt or sue himself or his wife on behalf of the Estate to recover the debt, Shumway petitioned the Probate Court to have Ryan removed and to have a special administrator appointed. The Probate Court granted the petition, and appointed Shumway special administrator for the limited purpose of collecting on any claims the Estate has against any person owing money to the Estate "pursuant to any mortgage, note or loan, whether secured or unsecured."

[¶ 8] "A special administrator appointed by order of the court in any formal proceeding has the power of a general personal representative except as limited in the appointment and duties as prescribed in the order." 18-A M.R.S. § 3-617 (2007). That power includes the power to "[p]rosecute or defend claims, or proceedings in any jurisdiction for the protection of the estate. . . ." Id. § 3-715(22).

[¶ 9] Shumway brought suit against Ryan and Heather in the Probate Court,¹ listing himself, the Estate's special administrator, as plaintiff, to recover the $70,000 loan. The caption reads: "ESTATE OF ANNA L. MARKHEIM, by G. CHARLES SHUMWAY II, Special Administrator v. RYAN MARKHEIM and HEATHER MARKHEIM." The complaint is signed by Shumway for his law firm, and lists his bar number.

[¶ 10] The Markheims removed the action to Superior Court, and filed a motion to disqualify Shumway from acting as an attorney for the Estate in this action pursuant to M. Bar R. 3.4(d)(1)(f). That rule provides:

Except as permitted by this rule, a lawyer shall not commence representation adverse to a former client without that client's informed written consent if such new representation is substantially related to the subject matter of the former representation or may involve the use of confidential information obtained through such former representation.

The trial court denied the motion, likening this case to one in which an attorney acts pro se to collect a debt owed to him, which is permissible under the Rule.

[¶ 11] The Markheims also filed a motion for sanctions against Shumway, which was denied, and a motion to remove him as special administrator, which was dismissed because it was outside the Superior Court's jurisdiction. Finally, the Markheims filed a motion requesting that the trial court report the issue of whether Shumway should have been disqualified to this Court pursuant to M.R.App. P. 24(c). They filed a timely notice of appeal before the court could rule on that motion.

II. DISCUSSION

A. Final Judgment Rule

[¶ 12] The Markheims concede that the order denying their motion to disqualify is interlocutory. An appeal from an interlocutory order is "eligible for immediate review only if [it falls] within a judicially-created exception to the final judgment rule, including one of the three, well-established exceptions: the `death knell' exception, the judicial economy exception, or the collateral order exception." Passalaqua v. Passalaqua, 2006 ME 123, ¶ 8, 908 A.2d 1214, 1217.

[¶ 13] The Markheims contend that the order denying their motion to disqualify fits within the "death knell" exception. "The `death knell' exception allows an immediate appeal from an interlocutory order when substantial rights of a party will be irreparably lost if review is delayed until final judgment." Id. ¶ 9, 908 A.2d at 1217 (quotation marks omitted). "A right is irreparably lost if the appellant would not have an effective remedy if the interlocutory determination were to be vacated after a final disposition of the entire litigation." Id. (quotation marks omitted).

[¶ 14] The Markheims assert that M. Bar R. 3.4(d)(l)(i) is designed to protect both individual interests and the integrity of the judicial system. They argue that they should not be forced to defend claims prosecuted by an attorney who not only represented them in a substantially related matter, but also obtained confidential information that he can now use to his advantage.

[¶ 15] We have routinely held that an order granting a motion to disqualify an attorney is immediately appealable. Hurley v. Hurley, 2007 ME 65, ¶ 6, 923 A.2d 908, 910 (stating "We have determined that disqualifying an attorney involves a disadvantage and expense that cannot be remedied after the conclusion of the case." (quotation marks omitted)); Casco N. Bank v. JBI Assocs., Ltd., 667 A.2d 856, 859 n. 3 (Me.1995) (determining that the order granting the motion to disqualify was immediately appealable pursuant to the death knell exception).

[¶ 16] We have addressed the issue of whether an order denying a motion to disqualify is likewise immediately appealable on two prior occasions. Recently, in a divorce action, we stated summarily that the appeal from an order denying a motion to disqualify fits within the death knell exception because the party seeking disqualification stood to irreparably lose substantial rights absent an immediate appeal. Butler v. Romanova, 2008 ME 99, ¶ 10, 953 A.2d 748, 750. We ultimately affirmed the denial of the motion to disqualify in that case because the husband's only contact with the wife's attorney was a phone call to her firm making an inquiry about representation, and no attorney-client relationship had been formed. Id. ¶¶ 11-12, 953 A.2d at 750-51.

[¶ 17] In Tungate v. MacLean-Stevens Studios, Inc., MacLean-Stevens moved to disqualify the plaintiffs' attorney in a class action lawsuit, pursuant to M. Bar R. 3.4(g)(1)(i), 3.5(b)(1), and 3.4(f)(1), which prohibit an attorney from beginning a representation when he or a member of his firm will be a witness, or when he has a...