First Union v. MEYER, FALLER ET AL

• Decision Date: 04 February 1999
• Docket Number: No. 420,420
• Parties: FIRST UNION NATIONAL BANK OF MARYLAND v. MEYER, FALLER, WEISMAN & ROSENBERG, P.C.
• Court: Court of Special Appeals of Maryland

723 A.2d 899

125 Md. App. 1

FIRST UNION NATIONAL BANK OF MARYLAND v. MEYER, FALLER, WEISMAN & ROSENBERG, P.C.

No. 420, Sept. Term, 1998.

Court of Special Appeals of Maryland.

February 4, 1999.

Douglas S. Reinhart (Matthew E. Kiely and Gebhardt & Smith LLP, on the brief), Baltimore, for appellant.

Dale A. Cooter (Elizabeth A. McFarland and Cooter, Mangold, Tompert & Wayson, PLLC, on the brief), Washington, DC, for appellee.

Argued before MOYLAN, ADKINS and THEODORE G. BLOOM (Ret., Specially Assigned), JJ.

MOYLAN, Judge.

The appellant, First Union National Bank of Maryland, challenges the Orders issued in the Circuit Court for Montgomery County granting the appellee's Motions to Dismiss. The sole issue on appeal is whether the trial court erred in concluding that the appellant failed to state a claim upon which relief could be granted.

The Factual Background

In its Complaints¹ against the appellee, Meyer, Faller, Weisman and Rosenberg, P.C., the appellant set forth the following factual allegations:

1. The appellant was a secured creditor of the law firm Katz, Frome, Slan and Bleecker, P.A. ("the first law firm").

2. In September 1995, an involuntary Chapter 7 bankruptcy petition was filed against the first law firm. The firm exercised its right to convert the Chapter 7 proceeding to a proceeding under Chapter 11 of the United States Bankruptcy Code. During these proceedings the firm authorized the appellant, in accordance with the terms and conditions of the Loan Documents, to take all steps necessary to collect and/or pursue the collections of the firm's receivables.

3. Following the break-up of the first law firm in September 1995, Lorin Bleecker, one of the three former shareholders of the firm, became employed as an attorney by the appellee, Meyer, Faller, Weisman and Rosenberg, P.C. ("the second law firm").

4. Prior to the break-up of the first law firm, Bleecker performed legal services in two contingency fee cases.

5. Bleecker took the files for both contingency cases with him to the second law firm which was thereafter retained to handle and conclude the matters.

6. The second law firm subsequently settled those two cases and received substantial attorneys' fees.

7. The appellant demanded payment of a portion of those fees from the second law firm.

8. The second law firm refused to make payment.

Based on those facts, the appellant, in an effort to collect receivables owed to the first law firm, set forth three alternative theories of recovery. Count I of the Complaint alleged that the first law firm was entitled to a proportionate share of the contingency fees for the percentage of the total work performed in each case by the first firm prior to the settlement of the cases by the second law firm. Count II alleged that the first law firm was entitled to 74.88% of the contingency fees based on the principles of partnership law.² Count III alleged that the first law firm was entitled to recover in quantum meruit for the reasonable value of legal services rendered by the first law firm in both cases.

In response to each of the Complaints, the appellee filed a Motion to Dismiss for failure to state a claim upon which relief could be granted. A joint hearing on the motions was held on December 17, 1997. On January 12, 1998, by separate orders, the trial court granted both Motions to Dismiss. This appeal is taken from those dismissals.

The standard of review is clear. As Chief Judge Murphy explained for the Court of Appeals in Faya v. Almaraz, 329 Md. 435, 443, 620 A.2d 327 (1993):

In determining whether the trial court erred in granting the motions to dismiss, we must accept as true all well-pleaded facts and allegations in the complaints, together with reasonable inferences properly drawn therefrom. Dismissal is proper only if the facts and allegations, so viewed, would nevertheless fail to afford plaintiff relief if proven.

Two Working Assumptions

To simplify to some extent the analysis that follows we are going to make two working assumptions. Notwithstanding the appellee's argument to the contrary, the appellant in this case (the creditor First Union Bank) and the first law firm will be treated by us as "one and the same." First Union was acting under a Consent Order issued by the United States Bankruptcy Court which authorized it to take all steps necessary to collect and pursue the collection of the first law firm's receivables. In the Complaint, it was stated that:

First Union, in accordance with the terms and conditions of the Loan Documents, the Consent Order and applicable law, has commenced enforcement of its rights and remedies against KFB and its respective assets, including, without limitation, undertaking steps to collect KFB's Receivables and to pursue KFB's choses in action for the purpose of applying the proceeds arising therefrom to reduce the indebtedness owed to First Union under the Loan Documents.

A. The First Working Assumption:

We will operate on the working assumption that there is no distinction material to the outcome of this appeal between the literal appellant (First Union) and the first law firm itself. As such, the appellant will be entitled to recover if, but only if, the first law firm, had it been the appellant, would have been entitled to a portion of the ultimate fees under any one of the three theories of recovery set forth in the complaints.

We are concerned, in effect, with the respective rights and obligations of three parties: 1) the first law firm, 2) Bleecker (former partner in the first law firm and later employee of the second law firm), and 3) the second law firm. Although we are literally concerned with two fees generated by two lawsuits involving two clients, we will, as a linguistic convenience, refer simply to "the client."

B. The Second Working Assumption:

The first law firm, including Bleecker, was technically a professional services corporation rather than a partnership. Our second working assumption is that on the departure of Bleecker from the law firm, the continuing obligations of Bleecker to his former colleagues (to the firm) and of them to him would be those of partnership law spelled out by Resnick v. Kaplan, 49 Md.App. 499, 505-09, 434 A.2d 582 (1981). Indeed, this is more than a working assumption. It was so held by us in Langhoff v. Marr, 81 Md.App. 438, 448-52, 568 A.2d 844 (1990), vacated on other grounds by Marr v. Langhoff, 322 Md. 657, 589 A.2d 470 (1991). As Judge Bishop there noted for this Court, 81 Md.App. at 451, 568 A.2d 844:

Again, we are dealing with professional firms, professional organizations, professional entities. There is a very substantial value in having rules applicable equally, regardless of the form of the entity, be it partnership or professional service corporation.... Resnick v. Kaplan is the law of Maryland. Policy is well served to have the same rule applicable to all firms regardless of the form and this is separate and apart from the fact that almost all of the cases refer to the corporate form as merely a tax advantage decision as opposed to any real difference in the organization and operation of the firm.

Although the Court of Appeals did not find it necessary to resolve this issue in Marr v. Langhoff, 322 Md. at 667, 589 A.2d 470, the decision of this Court in that regard is binding authority unless and until the Court of Appeals declares otherwise. See also the thorough analysis of this issue in Fox v. Abrams, 163 Cal.App.3d 610, 615-17, 210 Cal.Rptr. 260 (1985).

The Holding In a Nutshell

Notwithstanding the fact that our first working assumption, putting the creditor bank in the shoes of the first law firm, operates to the advantage of the appellant, we nonetheless affirm the decision of the trial court to grant the appellee's motion to dismiss both the first and second counts of the complaint because of their failure to state viable claims. We do, however, hold that the motion to dismiss should not have been granted with respect to the third count, based on the first law firm's claim to quantum meruit compensation for the work performed by it.

Our analyses of why the first two counts did not state viable claims but why the third count may possibly have done so are closely intertwined. Our discussion with respect to the viability or non-viability of any of the three counts, therefore, may well have pertinence to the other two counts. What follows is for that reason an omnibus discussion rather than three separate discussions in three respective vacuum chambers.

The Contingency Fee Claim Based on Percentage of Work Done

The first count alleged that the first law firm was entitled to a stated percentage of the contingency fee ultimately received by the second law firm because the first law firm had performed, prior to its dissolution, that precise percentage of the total work. Under no interpretation of what happened when the first law firm was dissolved, however, does the first count represent a viable claim. The first law firm, of which Bleecker was then a partner, went into bankruptcy and ceased its operations as a law firm at sometime in September or October of 1995. Two clients, who had earlier retained the first law firm on a contingency fee basis, in some fashion followed Bleecker to the second law firm, where he became employed simply as an attorney working for the firm. After the September-October 1995 dissolution of the first law firm, it ceased to have any formal contractual relationship with the client, although, as will be discussed, the first law firm may have continued to have a legal relationship with its former member, Bleecker.

With respect to the representation of the client at the time of the ultimate settlement, two possibilities are at least inferrable. The more likely scenario is that the second law firm was independently retained by the client by virtue of a subsequent and sequential contract for representation. Indeed, the Complaint, after...