Sears, Roebuck & Co. v. Goldstone & Sudalter

• Decision Date: 03 September 1997
• Docket Number: No. 97-1216,97-1216
• Citation: 128 F.3d 10
• Parties: SEARS, ROEBUCK & CO., Plaintiff, Appellee, v. GOLDSTONE & SUDALTER, P.C., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 10

128 F.3d 10

SEARS, ROEBUCK & CO., Plaintiff, Appellee, v. GOLDSTONE & SUDALTER, P.C., Defendant, Appellant.

No. 97-1216.

United States Court of Appeals, First Circuit.

Heard Sept. 3, 1997.

Decided Oct. 22, 1997.

David G. Hanrahan, with whom Ross D. Ginsberg, Gilman, McLaughlin & Hanrahan, LLP, Boston, MA, were on brief, for defendant, appellant.

Allan E. Taylor, with whom Elizabeth C. Sackett, Taylor, Duane, Barton & Gilman, LLP, Boston, MA, were on brief, for plaintiff, appellee.

Before STAHL, Circuit Judge, BOWNES, Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

This case raises issues of Massachusetts law concerning the obligations that attorneys owe clients in their billing practices.

Attorney Daniel Goldstone formed Goldstone & Sudalter, P.C. to purchase the practice of the late Eldon Sudalter, a collection attorney. Goldstone & Sudalter then billed Sears, Roebuck & Co. in excess of one million dollars for past work Goldstone said Attorney Sudalter had performed on Sears's cases. Sears at first paid most of the bills, but eventually sued Goldstone & Sudalter for an accounting, asking for a judicial determination of its total liability, if any, for the past work. Goldstone & Sudalter, in turn, counterclaimed for the unpaid balance.

Following Goldstone's admission that he had no personal knowledge concerning Sudalter's billing practices to support his interpretation of the records which formed the basis for his bills, Sears amended its complaint to include common-law claims for breach of contract and breach of fiduciary duty, and a statutory claim of "unfair and deceptive trade practices" under Mass. Gen. Laws ch. 93A. Sears sought reimbursement for bills it had previously paid and an award of attorney's fees. The district court granted Sears's motion for summary judgment, and awarded it $833,409--the entire amount of Sears's payments on the disputed bills--and $112,000 in attorney's fees.

Although our analysis varies from that of the district court, the summary judgment record reveals that Goldstone & Sudalter has not met its burden of substantiating its bills under Massachusetts law and that Sears has met its burden of showing unfair and deceptive practices. We affirm.

I. The Facts

We state the facts in the light most favorable to Goldstone & Sudalter, the party opposing summary judgment. Swain v. Spinney, 117 F.3d 1, 2 (1st Cir.1997).

In 1991, Daniel Goldstone, then a lawyer with three years of experience, began negotiations with Mrs. Janice Sudalter to purchase the law practice of her late husband Eldon Sudalter. Eldon Sudalter was a solo practitioner and had been the primary collection attorney for Sears in eastern Massachusetts for the previous fifteen years. Mrs. Sudalter had worked in her husband's office for most of that time and her regular duties included preparing the monthly billings for Sears and other clients.

In mid-1991, Goldstone and Mrs. Sudalter signed a letter of intent, and Goldstone formed Goldstone & Sudalter to purchase the assets of the practice and continue the business. In late 1991, the relationship broke down amid mutual recriminations, and Goldstone sued Mrs. Sudalter in state court over the terms of their agreement.

By early 1992, Goldstone was in possession of the files of the Eldon Sudalter practice and was servicing its clients, although Goldstone and Mrs. Sudalter did not finally settle the state court litigation until January 1993. The settlement provided for a total purchase price of $150,000 for all of the assets, tangible and intangible, of the Eldon Sudalter practice. Goldstone had not actually worked with Attorney Sudalter, and had not discussed with him the firm's billing practices. Goldstone had no personal knowledge of whether particular cases in Sudalter's files had been billed or were uncollectible, or had been formally closed, whether or not billed or uncollectible.

Like many collection attorneys, the late Eldon Sudalter operated on a contingency fee basis. Before 1987, Sears paid Attorney Sudalter one-third of his recovery and reimbursed him for all court costs. That changed. On September 8, 1987, Attorney Sudalter executed a form "Attorney Retention Agreement" prepared by Sears for its collection attorneys throughout the United States.

The 1987 Agreement increased Attorney Sudalter's fee to forty-five percent, but he was now to be responsible for all costs that were not reimbursed by debtors. According to Mrs. Sudalter, under the new agreement, "[W]e take 45 percent of what we collect. If we can recover the costs [from debtors], great. If we can't recover the costs, that's just part of the agreement; that's why they're [Sears] paying us the 45 percent." Goldstone offered no evidence to contradict Mrs. Sudalter's testimony that the forty-five percent contingency fee was intended to take into account all court costs.

According to the 1987 Agreement, the collection attorney was to send all monies collected to Sears on a monthly basis, accompanied by a report; Sears would then pay the attorney's contingency fee. The 1987 Agreement provided: "Attorney will be accountable for all monies collected on any of the accounts and will submit at least monthly a report to Sears listing the accounts on which collections were made and amount collected, together with a check payable to Sears for all monies collected." (emphasis supplied). The 1987 Agreement also states, "Attorney waives any attorney's lien on Sears accounts and agrees not to assert such lien against Sears."

Sears did not send individual checks to the Sudalter firm for the particular matters for which they paid Attorney Sudalter his legal fees or costs over the years. Likewise, Attorney Sudalter did not customarily record his receipt of the contingency fee or costs from Sears on each debtor's file. Rather, Attorney Sudalter regularly deposited money from debtors in a Sears client trust account and remitted a single check each month to Sears from the account for the total amount of that month's collections. Sears then remitted the contingency fee for that amount and for any amounts that debtors sent directly to Sears. Before 1987, Sears would reimburse court costs in a single monthly check if Sudalter could not collect them from debtors. After 1987, Sears was not responsible for those costs, although it would still occasionally send Sudalter costs that debtors had sent to Sears instead of Sudalter, again in a single check for that month.

The agreement set forth a separate compensation arrangement if Sears terminated the agreement or withdrew customer accounts. In that event, Sears would pay Sudalter $60 per hour for his time and reimburse his court costs, although it would pay no such fees if Sudalter terminated the agreement or was in breach of the agreement. According to an employee for a collection agency that Sears uses, withdrawing accounts is seen as a "drastic" step because of these fees and costs and for that reason is rarely employed in the collection industry.

In early 1992, Goldstone called Karen D'Angelo, a special accounts manager at Sears, to ask why Sears had stopped sending cases to the Sudalter firm, now operating as Goldstone & Sudalter. D'Angelo was a low-level Sears employee who had been in her present job in Massachusetts for two years and had first spoken to Attorney Sudalter only shortly before he died in 1991. D'Angelo informed Goldstone that Sears rated its collection attorneys by comparing the amounts the attorneys collected monthly as a percentage of their total portfolios. According to Goldstone, D'Angelo informed him that the law practice had "never closed a file in fifteen years," and urged the firm to close these accounts to make its percentage appear more competitive.

Goldstone began "closing" the old files, informing Sears that he would attempt no more collections on such cases. At the same time, he implemented the billing practices at issue in this lawsuit. Goldstone began by reviewing thousands of old files contained in "dead storage" in the basement of the late Eldon Sudalter's former office, many of which had red stickers on them. Some file folders contained handwritten notations of court costs paid by Sudalter and some indicated whether those costs had been reimbursed by debtors or Sears. Goldstone prepared a letter for signature by a Sears representative, "acknowledg[ing] the assignment to Goldstone & Sudalter, P.C. of the contract executed by Eldon B. Sudalter, P.C." in 1987. The letter also referred to that contract, stating, "Specifically, with regard to the 'pre-1992 closed cases,' Sears will be responsible for costs expended and attorneys' fees at the rate of $60.00 per hour in accordance with Exhibit 'B' annexed to the 1987 contract." Emma Scott, an in-house attorney for Sears, signed the letter.

Goldstone states that he regarded this letter as "completely consistent with the earlier Attorney Retention Agreement" and that he did not believe that Scott's signing of the letter was intended to alter the terms of the 1987 Agreement in any way. According to Goldstone's interpretation of the agreement, his "closing" of cases, which he did after his conversation with D'Angelo, triggered Sears's obligation to pay for court costs and work performed on an hourly basis under the contract's provisions regarding cases "withdrawn" by Sears. There is some evidence that Sears's in-house attorneys, at least initially, agreed with Goldstone's interpretation.

From February 1, 1992 until February 23, 1996, Goldstone billed Sears for costs and attorney's fees on each of over 15,000 files. He derived his cost figures from the handwritten notations on the outside of the folders. He assumed that Sudalter had not been reimbursed by Sears or debtors unless there was a handwritten note to that effect on the folder. He derived his figures for attorney's fees by estimating the amount of time that Sudalter had spent on each file by...