Fitzpatrick v. Kenneth J. Allen and Assoc.

• Decision Date: 10 September 2009
• Docket Number: No. 64A03-0811-CV-545.,64A03-0811-CV-545.
• Citation: 913 N.E.2d 255
• Court: Indiana Appellate Court
• Parties: David J. FITZPATRICK d/b/a David J. Fitzpatrick and Associates, Appellant-Cross/Defendant, v. KENNETH J. ALLEN AND ASSOCIATES, P.C., Appellee-Cross/Plaintiff.

913 N.E.2d 255

David J. FITZPATRICK d/b/a David J. Fitzpatrick and Associates, Appellant-Cross/Defendant, v. KENNETH J. ALLEN AND ASSOCIATES, P.C., Appellee-Cross/Plaintiff.

No. 64A03-0811-CV-545.

Court of Appeals of Indiana.

September 10, 2009.

Michael A. Wilkins, Brian J. Paul, Jenny R. Wright, Ice Miller, LLP, Indianapolis, In, Attorneys for Appellant.

Kenneth J. Allen, William Lazarus, Kenneth J. Allen & Associates, P.C., Valparaiso, IN, Attorneys for Appellee.

OPINION

VAIDIK, Judge.

Case Summary

John Hill was seriously injured during the course of a hospitalization. Several law suits arose out of this injury, including a products liability suit against pharmaceutical companies and a medical malpractice suit against Hill's physicians. Attorneys Kenneth J. Allen, David J. Fitzpatrick, and Mitchell Iseberg entered into a fee-sharing contract under which Fitzpatrick agreed to handle the products liability suit and Allen would handle the medical malpractice suit. Allen, Fitzpatrick, and Iseberg, with the approval of Hill and his wife, agreed that Allen would receive 50% of any attorney fees generated by the two suits and Fitzpatrick and Iseberg would split the other half. The clients later discharged Allen from the products liability suit shortly before it settled for a large sum of money, generating over two million dollars in attorney fees, which Fitzpatrick distributed to himself and Iseberg and did not share with Allen. Allen subsequently withdrew from the medical malpractice suit. During protracted litigation over the fees, the trial court repeatedly ordered Fitzpatrick to disclose the settlement amount. Ultimately, Allen filed a motion for default judgment against Fitzpatrick, which the trial court granted due to Fitzpatrick's disobedience of its discovery orders. The trial court later entered judgment in Allen's favor in the amount of $1,350,000, reflecting what the court believed to be 50% of the attorney fees. Fitzpatrick filed a combined motion to correct error and motion for relief from judgment, which the trial court denied. Fitzpatrick now appeals, raising a number of issues, which we restate as: (1) whether the trial court erred by entering default judgment against him, (2) whether the trial court erred by awarding contractual, rather than quantum meruit, damages, and (3) whether the trial court incorrectly calculated the damages to which Allen is entitled from Fitzpatrick under the contract. We conclude that the trial court did not abuse its discretion by entering default judgment against Fitzpatrick due to his contumacious disregard for the trial court's discovery orders and that neither case law nor the Indiana Rules of Professional Conduct entitle Allen only to quantum meruit damages rather than contractual damages. We further conclude that, while the trial court did not err by calculating damages without a damages hearing, the trial court abused its discretion by failing to subtract from the attorney fees a sum that was paid to Lewis. We affirm in part and reverse in part.

Facts and Procedural History

The relevant facts are as follows. In 1999, Hill was hospitalized for cardiac bypass surgery in Fort Wayne, Indiana. During the course of his treatment, Hill developed a condition known as Heparin Induced Thrombocytopenia II that necessitated the amputation of both legs and an arm below the elbow and caused multiple organ failures. Hill and his wife, Susan, retained attorney Neal Lewis, who helped them successfully settle their claims against the hospital.

Lewis was engaged in work related to products liability claims against pharmaceutical companies on behalf of the Hills, pursuant to a contingency fee arrangement, see Appellant's App. p. 131, when the Hills hired Illinois attorneys Fitzpatrick and Iseberg on November 19, 2001. Fitzpatrick notified Lewis that the Hills had retained him, and the Hills terminated Lewis's representation.

Fitzpatrick, who is not licensed to practice law in Indiana, contacted attorney Allen¹ about handling a medical malpractice suit in Indiana state court against Hill's physicians. Fitzpatrick, Iseberg, and Allen entered into a contract whereby they agreed that Fitzpatrick would handle a products liability suit for the Hills and Allen would handle the Hills' Indiana medical malpractice suit. Id. at 87. The Hills signed a retainer agreement with Fitzpatrick, Iseberg, and Allen, agreeing to pay the attorneys 33 1/3 % of any judgments or settlements in their law suits and approving the following fee-sharing agreement:

[T]he Law Firm of David J. Fitzpatrick & Associates, Mitchell M. Iseberg and Kenneth J. Allen & Associates, P.C., will divide the Thirty-three and One-third Percent (33 1/3 %) fee, representing their division of work and responsibility from my suit or claim, in the following manner; Fifty percent (50%) to the Law Firm of David J. Fitzpatrick & Associates and Mitchell M. Iseberg and Fifty percent (50%) to the Law Firm of Kenneth J. Allen & Associates.

Id. at 88. Fitzpatrick, Iseberg, and Allen also signed this agreement. Id.

Fitzpatrick and Allen actively pursued their respective law suits for the Hills. Fitzpatrick filed a products liability suit on the Hills' behalf against various pharmaceutical companies in federal district court in Illinois and pursued discovery in that case. Meanwhile, Allen undertook a medical malpractice administrative claim against Hill's physicians, which included a successful appeal to this Court that allowed the Hills to proceed in their claim against the physicians. See Csicsko v. Hill, 808 N.E.2d 80 (Ind.Ct.App.2004), trans. denied.

In early June 2004, Fitzpatrick and Allen communicated regarding the prospect of settlement in the products liability case. Appellant's App. p. 156. Around that time, Fitzpatrick proposed adopting a different fee-sharing agreement, a proposal which Allen rejected on June 8, 2004. Id. at 163. The next day, the Hills sent a letter to Allen containing the following:

Please be advised that effective immediately this will serve as our notification to you that we have terminated you and your firm as our legal counsel relative to the products action against the pharmaceutical companies responsible for the injuries suffered by us in this matter in December of 1999. Please note that this termination does not apply to the medical negligence action that you and your firm are prosecuting on our behalf in Indiana.

Id. at 164. Twenty days later, the federal court dismissed the products liability suit with prejudice because the parties settled the case. Id. at 165-66. The settlement was subject to a confidentiality agreement. Id. at 282.

Meanwhile, Lewis filed a complaint in late 2003 in Porter Superior Court against Fitzpatrick, Allen, Hill, and Conseco Life Insurance Company.² Id. at 125-30. Lewis's complaint alleged that Fitzpatrick tortiously interfered with his contract to represent the Hills and sought a lien for attorney fees against funds already collected and any future recovery in the Hills' products liability action, as well as other damages. Id. at 127-30. Lewis subsequently dismissed Allen as to any claims of tortious interference. Appellee's Supp. App. p. 1. Lewis served discovery on Fitzpatrick, seeking, in part, information about the total amount of the products liability settlement. See Appellant's App. p. 204. While that discovery was pending, the trial court held a telephonic conference, during which Conseco and Lewis asked that the amount of the settlement be disclosed. Id. at 173. On August 19, 2004, the trial court issued the following order requiring the disclosure of the settlement amount: "Defendants shall disclose all settlement amounts from the Illinois action on or before October 1, 2004, and the Court orders all parties to whom such amounts have been disclosed to treat them as, and they hereby are, confidential[.]" Id. at 171. Conseco later moved to vacate the disclosure order because it had resolved its subrogation interest and no longer needed to know the amount of the settlement. Id. at 172-74. Fitzpatrick also filed a motion to vacate the disclosure order and a motion for leave to seek an interlocutory appeal. See id. at 210. Lewis and Allen opposed vacating the disclosure order, id. at 173, but Allen later withdrew his opposition, id. at 202. The trial court denied the motions to vacate the disclosure order and Fitzpatrick's motion for interlocutory appeal. Id. at 210. Allen then filed a cross-claim against Fitzpatrick, alleging that Fitzpatrick had unlawfully withheld attorney fees owed to Allen from the settlement. Id. at 213-30; see also id. at 342 (order granting Allen's motion for leave of court to assert a cross-claim).

On November 30, 2004, in response to a motion to compel filed by Lewis, id. at 204-05, the trial court again ordered Fitzpatrick to comply with discovery requests, id. at 242. After Lewis filed another motion to compel on December 10, 2004, the trial court ordered Hill to disclose the amount and location of settlement funds that had been released to him. Appellee's Supp.App. p. 3.

On December 30, 2004, because neither Fitzpatrick nor Hill had disclosed the settlement amount pursuant to the trial court's orders, Lewis filed a request for a default judgment for failure to obey discovery orders and failure to follow the Indiana Rules of Trial Procedure. Appellant's App. p. 253-56. Allen later joined in the request for a default judgment as to Fitzpatrick. Id. at 265-269. In Allen's verified motion to join the request for a default judgment, he cited Fitzpatrick's failure to follow the trial court's August 19 order and asked that the court enter default judgment against Fitzpatrick on Allen's cross-claim. Id.

Upon the Hills' request, Allen's law firm withdrew its appearance for the Hills in the Lewis matter. Id. at 243, 270-72. Although the Hills informed Allen that their request that his firm withdraw as their counsel in the Lewis...