Ruby v. Abington Memorial Hosp.

• Decision Date: 01 August 2012
• Citation: 2012 PA Super 114,50 A.3d 128
• Court: Pennsylvania Superior Court
• Parties: Justin RUBY, Individually and as Administrator of the Estate of Kathleen A. Ruby, Deceased, and Kathleen Cahill v. ABINGTON MEMORIAL HOSPITAL; Woman's Health Care Group; Mary T. Greybush, D.O.; Stacy W. Lexow, M.D.; and Jeanette West, M.D. Appeal of Young Ricchiuti Caldwell & Heller, LLC.

50 A.3d 128

2012 PA Super 114

Justin RUBY, Individually and as Administrator of the Estate of Kathleen A. Ruby, Deceased, and Kathleen Cahill

v. ABINGTON MEMORIAL HOSPITAL; Woman's Health Care Group; Mary T. Greybush, D.O.; Stacy W. Lexow, M.D.; and Jeanette West, M.D.Appeal of Young Ricchiuti Caldwell & Heller, LLC.

Superior Court of Pennsylvania.

Argued March 13, 2012.

Filed May 30, 2012.

Reargument Denied Aug. 1, 2012.

Thomas Finarelli, Philadelphia, for appellant.

Dionysios G. Rassias, Philadelphia, for appellee.

BEFORE: GANTMAN, SHOGAN and LAZARUS, JJ.

OPINION BY SHOGAN, J.:

Appellant, Young, Ricchiuti, Caldwell & Heller, LLC (“YRCH”), appeals from the trial court's May 26, 2011 order denying YRCH's Petition for Determination of Attorneys' Fees and ordering that an earlier attorneys' fee award be apportioned such that Appellee, The Beasley Firm, LLC (“Beasley”), receives 75% of the fees and YRCH receives the remaining 25%. We affirm.

The trial court set forth the factual and procedural history of this matter as follows:

Mr. Keith Erbstein, Esquire worked at the Beasley Firm, LLC., a Philadelphia-based personal injury law firm, for approximately 35 years. During the course of his employment with the Beasley Firm (hereinafter: Beasley or the Beasley Firm), Mr. Erbstein signed two separate employment contracts. The Undersigned ultimately found the two aforementioned contracts controlled the determination of the Petition for Determination of Attorneys' Fees.

This Court is convinced that Mr. Erbstein was a highly intelligent, skilled and knowledgeable attorney at the time that he signed the employment contracts material hereto. The record reveals that in 1996 Mr. Erbstein signed an “Employment Agreement” with Beasley, wherein Mr. Erbstein specifically agreed to immediately reimburse the Beasley Firm any outstanding case costs and pay 75% of any fees recovered thereon should he leave the firm for any reason. ( See, 1996 Employment Agreement, ¶ 8.) Thereafter, in 2004, Mr. Erbstein signed the “Operating Agreement,” a second employment contract, with Beasley, wherein Mr. Erbstein once again confirmed his willingness to comport with the Firm's employment terms.

To elucidate matters for the Appellate Court, the record confirms that Mr. Erbstein committed himself to the terms of the 2004 Operating Agreement in August 2004.¹ The Undersigned found that Mr. Erbstein agreed to the following material terms. First, “Withdrawal Require[d] by Firm” in § 9.2 of the 2004 Operating Agreement holds:

Subject to the provisions of Section 9.4 [‘Obligations to Withdrawn Member’] below, the Management Committee may at any time require a Member to withdraw from the Firm at any specified date by giving not less than three (3) months' prior written notice to such Member [...]

Second, the record reflects that Mr. Erbstein also agreed to § 9.5 governing the future handling of ‘Client Files' and holds:

(i) As to all client files which a withdrawing Member may take, pursuant to the written direction to the Firm by the respective Client, the withdrawing Member shall, prior to withdrawal from the Firm, bill each such file; accurately account for time dedicated to a client file; provide an accounting to the Firm for all files, fees owed thereon and unreimbursed expenditures due and owing, up through the date of withdrawal; and all such fees and unreimbursed expenditures shall be payable to and remain the sole property of the Firm. (emphasis added).

[...]

(iii) Other provisions of this Agreement notwithstanding, with reference to all ‘contingency fee’ cases succeeded to by the withdrawing Member pursuant to the terms of this Agreement, unless otherwise established by the Managing Member, the withdrawing Member shall account to the Firm for all fee arrangements on all such files in accordance with the provisions of Exhibit ‘C’ [which is ‘Form–Employment Agreement’ confirming the aforementioned split fee agreement] hereto ² (emphasis added).

Thereafter, in October 2004, Mr. Erbstein brought the above-captioned negligence case into the Beasley Firm. The Plaintiffs in the Ruby matter signed a contingency fee agreement with the Beasley Firm and Mr. Erbstein. The record indicates that the action was instituted shortly thereafter. The case continued through the normal uneventful litigation course while Mr. Erbstein was at Beasley.

Unfortunately, for reasons not disclosed to this Court, on November 17, 2005, Mr. Erbstein was notified in writing that he was going to be released from the Beasley Firm on February 17, 2006, three (3) months notice, in accordance with § 9.2 of the 2004 Operating Agreement. Thereafter, Mr. Erbstein obtained employment with the law firm of Young, Ricchiuti, Caldwell & Heller, LLC (hereinafter: YRCH). Mr. Erbstein worked his last day at Beasley on January 26, 2006.

On January 28, 2006, Mr. Erbstein notified the Rubys about his change in employment. In line with the terms of the employment agreements, Mr. Erbstein gave the Rubys the choice to continue their relationship with Beasley or to follow him to his new practice. The Rubys opted to have their case litigated by Mr. Erbstein as opposed to the Beasley Firm. As such, at the direction of Mr. Erbstein, the Rubys severed their relationship with the Beasley Firm and signed an almost identical contingency fee agreement with YRCH. Importantly, the record reveals that Mr. Erbstein maintained control of the file until sometime in the summer of 2008, when he contracted a severe illness. ( See, YRCH Memorandum of Law in Support of Petition for Attorneys' Fees filed 3.11.11). Thereafter, other members of the YRCH Firm handled the case and brought it to its ultimate resolution in January 2011. ( See, YRCH Memorandum of Law in Support of Petition for Attorneys' Fees filed 3.11.11). Subsequent to the settlement, a dispute arose regarding the distribution of the $643,333.32 in attorneys' fees between YRCH and Beasley. The matter was transferred from Montgomery County Orphans Court to the Undersigned for resolution. The Undersigned entertained several memorandums of law and oral argument on the dispute. Thereafter, this Court entered its May 20, 2011 Order determining that the Appellant, the law firm YRCH is only entitled to 25% of the attorneys' fees and the Appellee, the Beasley Firm, shall receive 75% of the fee, pursuant to the contract(s) which Mr. Erbstein signed while working at the Beasley Firm.

Given the facts of this case, though [the client] had a right to terminate the contract with RM & S and hire C & R, C & R could not avoid what was tantamount to a conflict of interest-i.e., the fiduciary duty it owed to RM & S.

[The client's] purported discharge of RM & S is irrelevant to the issue of C & R's breach of their fiduciary duty to the remaining partners of RM & S. [ ]A partner's fiduciary duty to complete unfinished business on behalf of the dissolved partnership arises on the date of dissolution and governs each partner's future conduct regarding this business. [ ]Since the [client's] action remained exactly the same case before and after RM & S's dissolution, C & R's liability for failing to complete the [client's] case for the dissolved RM & S and for entering into a contract personally to profit from the unfinished business of the dissolved RM & S survived execution of the C & R-[client] agreement and [client's] discharge of RM & S.

Id. at 219, 194 Cal.Rptr. 180 (internal headnotes omitted).

In Jewel v. Boxer, 156 Cal.App.3d 171, 203 Cal.Rptr. 13 (1984), as in the case at bar, departing law partners contacted clients whose cases had been handled by the old firm. Jewel, 156 Cal.App.3d at 175, 203 Cal.Rptr. 13. At issue before the Court of Appeals was the proper allocation of attorneys' fees received from those cases originating with the old firm but transferred to and resolved by the new partnership. Id. The appellants argued that “the substitutions of attorneys transformed the old firm's unfinished business into new firm business and removed that business from the purview of the Uniform Partnership Act,” thereby limiting the old firm's recovery to quantum meruit damages based on services rendered by the old firm. Id. at 176, 203 Cal.Rptr. 13. The Court of Appeals disagreed and concluded that recovery should be based on the partners' respective interest in the old firm. Of particular relevance to the matter before us, the Court of Appeals offered the following discussion:

[W]e must look to the circumstances existing on the date of dissolution of a partnership, not events occurring thereafter, to determine whether business is unfinished business of the dissolved partnership. Thus, in Rosenfeld a client's retention of a new firm consisting of two former partners of the dissolved firm that previously handled the client's case did not transform the case into new partnership business: ‘It is clear that a partner completing unfinished business cannot cut off the rights of the other partners in the dissolved partnership by the tactic of entering into a ‘new’ contract to complete such business.' Accordingly, the substitutions of attorneys here did not alter the character of the cases as unfinished business of the old firm. To hold otherwise would permit a former partner of a dissolved partnership to breach the fiduciary duty not to take any action with respect to unfinished partnership business for personal gain.

Id. at 177–179, 203 Cal.Rptr. 13 (internal citations omitted and emphasis added).

It is critical to note that Jewel, unlike the present case, did not involve a written agreement with respect to the allocation of attorneys' fees. Therefore, the Court of Appeals analyzed the Uniform Partnership Act as the default rule to be applied in the absence of a written agreement between the parties. Notwithstanding that distinction, the Court of Appeals acknowledged the role the Uniform Partnership Act played in the absence of a written agreement between the parties:

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