Mclane, Graf, Raulerson & Middleton v. Rechberger
| Decision Date | 15 February 2002 |
| Docket Number | No. 00-1757.,No. 00-1758.,No. 00-1756.,00-1756.,00-1757.,00-1758. |
| Citation | 280 F.3d 26 |
| Parties | MCLANE, GRAF, RAULERSON & MIDDLETON, P.A., Plaintiff, Appellee/Cross-Appellant, v. Alfred RECHBERGER; ARC Partners, Ltd., Defendants, Third-Party Plaintiffs, Appellants/Cross-Appellees, v. Edward L. Hahn; Jon Meyer, Third-Party Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
Valeriano Diviacchi on brief for appellant Alfred Rechberger.
Douglas L. Ingersoll and Ingersoll & Sullivan, P.A. on brief for appellant ARC Partners, Ltd.
Peter G. Beeson and Devine, Milliment & Branch, P.A. on brief for appellee Jon Meyer.
James C. Wheat, Jennifer L. Murphy, Todd J. Hathaway, and Wadleigh, Starr & Peters, P.L.L.C. on brief for appellees McLane, Graf, Raulerson, & Middleton and Edward A. Hahn.
Before SELYA and LIPEZ, Circuit Judges, and DOUMAR,* Senior District Judge.
These appeals arise from protracted litigation over attorney's fees allegedly owed by Alfred Rechberger ("Rechberger") and ARC Partners, Ltd. ("ARC") to the New Hampshire law firm McLane, Graf, Raulerson, & Middleton, P.A. ("McLane"). Rechberger focuses on three rulings against him. First, he challenges the district court's partial summary judgment award of $135,157.77 to McLane on its contract claim because he believes that an attorney's allegedly erroneous initial valuation of the damages exposure from the case for which the attorney was retained should relieve him from liability for all fees generated by the matter. Second, he challenges the jury award to McLane of $39,567.50 in fees, claiming that he lost because the district court construed the surviving count of his third-party complaint and counterclaim too narrowly. Finally, he challenges the district court's summary judgment ruling against him on his third-party complaint against an attorney, Jon Meyer ("Meyer"), who handled the litigation at issue before McLane did. In its appeal, ARC challenges the district court's refusal to amend, alter, vacate or clarify the judgment entered jointly against it and Rechberger for attorney's fees.
In a cross-appeal, McLane seeks reversal of the district court's decision not to sanction Rechberger with an additional award of attorney's fees and expenses for allegedly frivolous and vexatious litigation. McLane also challenges the district court's decision to grant ARC judgment as a matter of law with respect to the $39,527.03 of fees still in dispute at the time of trial.
On this last point raised in the McLane cross-appeal, we must vacate the judgment for ARC. In all other respects, we affirm.
McLane sued Rechberger and ARC for unpaid attorney's fees in the New Hampshire Superior Court on July 7, 1997.1 On July 11, 1997, a Superior Court justice granted McLane's petition for an attachment of $300,000 held by Rechberger and ARC.2 Rechberger removed the case from state to federal court on August 13, 1997, and filed an answer on September 2, 1997. Rechberger also countersued McLane and filed a third-party complaint against attorneys Jon Meyer and Edward L. Hahn for 1) malpractice, 2) infliction of emotional distress, and 3) breach of an implied covenant to charge fair and reasonable fees. In order to understand this bitter dispute over attorney's fees, we must regrettably review the litigation which generated the fees and the tortuous course of this case to its present state.
In late 1994, Marion Jacobi, the daughter of Alfred Rechberger, filed suit against her father, alleging that he had sexually assaulted her on several occasions from 1979 to 1985. See Jacobi v. Rechberger, et al., No. 94-C-82 (N.H.Super.Ct. filed 1994) ("Jacobi"). Jacobi sued both her father and ARC, which she alleged was merely the alter ego of Rechberger. She also sued Bio-San Laboratories, Inc. ("Bio-San"), a company at which she had worked when it was owned by Rechberger, alleging that he sexually assaulted her there, and that the company was liable for assaults on its premises. Although Rechberger sold the company in 1990, he was still receiving payments from it pursuant to a stock purchase agreement.
Rechberger retained attorney Edward L. Hahn in March 1995 to handle the defense of the Jacobi lawsuit. Hahn allegedly advised Rechberger that his daughter's suit was a "$50,000 case" and that litigation costs for his defense would be "around $200,000." Attorney Hahn worked on the matter, first alone as a member of Hahn & Associates, later with Jon Meyer when he joined Meyer's law firm, Backus, Meyer, Solomon, Rood & Branch, P.A. ("Backus"), in June 1995, and finally with attorneys at McLane, which he joined in March, 1996.
The Jacobi litigation spawned another legal dispute. In June, 1995, Hahn filed suit on behalf of Rechberger and ARC against Bio-San. Rechberger et al. v. Bio-San Laboratories, Inc., No. 96-44-JD (D.N.H. filed 1996). Rechberger had owned several vitamin pill businesses purchased by Bio-San in 1990. The stock-purchase agreement provided for Bio-San to pay Rechberger certain moneys, but Bio-San stopped these payments in 1995. Bio-San gave several reasons for stopping the payments, including Marion Jacobi's suit against Bio-San. Bio-San averred that Rechberger's failure to disclose the alleged abuse in connection with the sale of the business amounted to a violation of the stock purchase agreement, which required the seller to disclose all significant liabilities of the purchased entity.
Hahn worked on the Bio-San and Jacobi litigation, and more general corporate matters for Rechberger at his own firm, at Backus, and at McLane. Both Backus and McLane assigned other attorneys to work with Hahn. Rechberger paid nearly all of the fees billed by Hahn, Backus, and McLane before January 1997.
Jacobi's suit against Rechberger settled in May 1997 when he agreed to pay her $1.35 million. Rechberger's suit against Bio-San was settled in arbitration in July 1997 when Bio-San agreed to pay Rechberger $1.85 million. At the conclusion of this litigation, Rechberger had incurred approximately $849,000 in legal fees, and had paid approximately $625,000. About $191,000 of McLane's unpaid bills stemmed from the Jacobi litigation (which Hahn, Wilbur Glahn, and other McLane attorneys had worked on), and about $28,000 stemmed from general corporate work which Hahn did for Rechberger. The Backus firm claimed $4,000 from the Jacobi litigation.
When Rechberger stopped paying fees to McLane in January 1997, McLane attorneys repeatedly requested payment. Rechberger initially gave no reason for not paying. At the subsequent trial, one partner testified that Rechberger first claimed that he was not paying simply because of a "cash flow problem." Losing all patience, McLane filed suit against Rechberger in the summer of 1997 in the New Hampshire Superior Court. After removing the case to the United States District Court for the District of New Hampshire on the basis of diversity of citizenship, Rechberger filed an answer to McLane's suit, a counterclaim and a third-party complaint against attorneys Meyer and Hahn. In his counterclaim and third-party complaint, he alleged malpractice, infliction of emotional distress, and breach of an implied covenant to charge fair and reasonable fees. Subsequently, the district court granted the motions of McLane, Meyer, and Hahn for summary judgment on the malpractice and emotional distress counts when Rechberger failed to oppose these motions.
In the surviving count of his counterclaim, Rechberger asserted that McLane charged unfair and unreasonable fees for the services it provided. McLane filed a motion for partial summary judgment on this remaining count and on its own claim for fees, noting that Rechberger admitted in his answer that McLane did legal work for him and ARC and that he agreed to pay reasonable fees for those services. McLane averred that Rechberger provided no factual basis for disputing the validity of a number of his debts to the firm. McLane also argued that Rechberger's own expert witness (Finis Williams) did not find the fees charged by McLane attorney Wilbur Glahn unreasonable, and did not evaluate the fees of McLane associate Mark Whitney. Williams's report also did not challenge expenses incurred by the McLane firm.
In response, Rechberger claimed that there was no written fee agreement. He asserted that Hahn's allegedly erroneous valuation of his exposure in the Jacobi case made Rechberger immune from liability for all subsequent fees and expenses. Finding this and other arguments unconvincing, the district court granted McLane partial summary judgment on its contract claim and Rechberger's counterclaim, thereby awarding McLane nearly all the fees and expenses it requested on partial summary judgment. These fees and expenses included:3
1. Bio-San fees: $316.97
2. Corporate expenses: $1,254.21
3. Corporate fees: $27,303.00
4. Jacobi expenses: $27,185.09
5. Jacobi fees generated by Wilbur Glahn and Mark Whitney: $79,050.084
At this point in the case (late April of 1999), a substantial portion of the fees and expenses claimed by McLane had been adjudged proper and due to McLane. McLane asked the district court to sanction Rechberger's counsel, Valeriano Diviacchi, for disputing these fees despite his alleged awareness that he had no grounds for doing so. Crediting a brief submitted by Diviacchi which explained his litigation tactics, the district court declined to impose any sanctions.
As the trial approached on the remaining $83,755.03 of fees in dispute, the parties sought to clarify the types of evidence which Rechberger could present on his third-party complaint against Hahn and his counterclaim against McLane. Seeking to prove that Hahn and McLane had breached an implied covenant to charge fair and reasonable fees, Rechberger...
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