Winthrop Corp. v. Lowenthal

• Decision Date: 28 August 1990
• Docket Number: Nos. 88-P-781,88-P-782,s. 88-P-781
• Parties: WINTHROP CORPORATION v. Frank LOWENTHAL.
• Court: Appeals Court of Massachusetts

Page 1138

558 N.E.2d 1138

29 Mass.App.Ct. 180

WINTHROP CORPORATION v. Frank LOWENTHAL.

Nos. 88-P-781, 88-P-782.

Appeals Court of Massachusetts Norfolk.

Argued June 13, 1989.

Decided Aug. 28, 1990.

Stephen Gordon, Boston (Vincent M. Simko, Bridgeport, Conn., with him) for plaintiff.

Leonard M. Singer, Boston, for defendant.

Before WARNER, C.J., and SMITH and FINE, JJ.

SMITH, Justice.

Frank Lowenthal entered into a contract with Winthrop Corporation (Winthrop) whereby he agreed to write a computer program for that company. The contract called for arbitration of "any disagreement ... with regard to any matter connected ... [with the contract]." It also provided, "[i]n the event that any action or proceeding is brought in connection with the Agreement, the prevailing party therein shall be entitled to recover its costs and reasonable attorney's fees." A disagreement arose between the parties concerning payment to Lowenthal for alleged extra work under the contract, and the dispute was submitted to arbitration. Mr. Leonard Singer of the law firm of Csaplar & Bok represented Lowenthal at those arbitration proceedings.

Before the hearings were completed, at the request of the arbitrator, counsel for both parties submitted affidavits and records concerning the amount of their legal fees and costs as a result of the arbitration. Mr. Singer's affidavit stated that the attached records showed "Csaplar & Bok had paid disbursements in the amount of $842.33 and that Csaplar & Bok's normal time charges for the time spent on its representation of Mr. Lowenthal would be $33,881.80." Mr. Singer estimated in the affidavit that additional time charges through the conclusion of the arbitration hearing would be $3,000. He represented that the "fair and reasonable value of the time and disbursements expended and to be expended ... is $37,624.13."

In support of that affidavit, Mr. Singer submitted records which list in detail the services that Mr. Singer and other members of the law firm had performed for Lowenthal in connection with the arbitration proceedings. The records are entitled "Billing Memorandum" and are in the name of "Frank Lowenthal." They show, in hours and portions thereof, the entire time spent on each particular task. A dollar value is listed beside the actual time spent. A running total of the dollar value is displayed on the records. In addition, most of the records carry a line item at the bottom entitled, "Fee Basis: Contingent Fee: % % % % % Current: 0." The spaces preceding the percent signs are blank.

The arbitrator found in favor of Lowenthal on the extra pay issue and awarded him $17,200 in damages. He next considered the amount of "costs and reasonable attorney's fees" to be awarded to Lowenthal as the prevailing party. Relying on Mr. Singer's affidavit and the accompanying records, the arbitrator awarded an additional sum of $35,400, which, he stated, "represents Lowenthal's legal fees and costs." ¹ A Superior Court judge confirmed the arbitrator's award. See G.L. c 251, § 11. Final judgment was entered in the amount of $72,251.46. ²

Over a year after final judgment had entered, Winthrop brought a motion to vacate the judgment, pursuant to Mass.R.Civ.P. 60(b)(3), 365 Mass. 828 (1974). In the motion, Winthrop asserted that it had recently learned that Mr. Singer, on behalf of Csaplar & Bok, had entered into a contingent fee agreement with Lowenthal prior to the arbitration proceedings. ³ That agreement set forth the legal fee that Lowenthal was to pay to Csaplar & Bok for its services in representing him at the arbitration proceeding. Mr. Singer, according to the motion, did not disclose the existence of the agreement either to the arbitrator or to the Superior Court judge who approved the arbitrator's award. Instead, Winthrop claimed, the attorney had submitted an affidavit and records which showed that Lowenthal's legal fees were based on an hourly compensation rate. Winthrop asserted that the nondisclosure of the fee agreement and presentation of misleading records constituted fraud, and, therefore, the judgment must be vacated.

At the hearing in the Superior Court on Winthrop's motion, Mr. Singer acknowledged that the existence of the contingent fee agreement had not been disclosed to the arbitrator or to the Superior Court judge who had approved the award. He argued, however, that his actions were not fraudulent because his affidavit and accompanying records did not suggest Lowenthal had any express or implied obligation to pay Csaplar & Bok's normal time charges reflected therein. He also contended that the motion was not timely. ⁴ The motion judge agreed and ruled that Winthrop's motion, as it related to rule 60(b)(3), was filed too late.

The motion judge recognized, however, that there is no time limitation which would bar a court from granting relief if there has been fraud on the court. MacDonald v. MacDonald, 407 Mass. 196, 202 n. 10, 552 N.E.2d 533 (1990). He consequently considered whether Mr. Singer's nondisclosure of the contingent fee agreement and the contents of his affidavit and accompanying records amounted to such fraud, ruling that Mr. Singer's conduct did not constitute fraud on the court because "[a]t no time did [Mr. Singer] state that Lowenthal was liable on an hourly billing rate." ⁵ The motion judge interpreted the fee provision not to "require Lowenthal to have incurred, or have been personally liable for, the fees." He concluded that, in any event, the amount of legal fees awarded to Lowenthal was reasonable even if the arbitrator had known of the contingent fee agreement. Winthrop has appealed the denial of its motion.

We agree with the motion judge that Winthrop's motion seeking relief under rule 60(b)(3) was not timely filed. We also agree--although for somewhat different reasons, which we proceed to explain--that Mr. Singer's conduct did not amount to fraud on the court.

Traditionally, a court has the inherent power to vacate a judgment that has been obtained by fraud on the court. Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 244, 64 S.Ct. 997, 1000, 88 L.Ed. 1250 (1944). The adoption of the Rules of Civil Procedure did not in any respect reduce that power, and rule 60(b) specifically states that "[the] rule does not limit the power of a court ... to set aside a judgment for fraud upon the court."

Fraud on the court implies corrupt conduct and embraces " 'only that species of fraud which does, or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication....' " Pina v. McGill Dev. Corp., 388 Mass. 159, 165, 445 N.E.2d 1059 (1983), quoting from Lockwood v. Bowles, 46 F.R.D. 625, 631 (D.D.C.1969). MacDonald v. MacDonald, 407 Mass. at 202, 552 N.E.2d 533. "Generally speaking, only the most egregious misconduct, such as bribery of a judge or members of a jury, or the fabrication of evidence by a party in which an attorney is implicated, will constitute a fraud on the court. Less egregious misconduct, such as nondisclosure to the court of facts allegedly pertinent to the matter before it, will not ordinarily rise to the level of fraud on the court." United States v. International Tel. & Tel. Corp., 349 F.Supp. 22, 29 (D.Conn.1972) (citations omitted). Also see Kerwit Med. Prod., Inc. v. N. & H. Instruments, Inc., 616 F.2d 833, 837 (5th Cir.1980); Pina v. McGill Dev. Corp., 388 Mass. at 165-168, 445 N.E.2d 1059; Reilly v. Local 589, Amalgamated Transit Union, 22 Mass.App.Ct. 558, 571, 495 N.E.2d 856 (1986). Further, fraud on the court cannot "embrace [just] any conduct of an adverse party of which the court disapproves; to do so would render meaningless the one-year limitation on motions [brought] under [rule] 60(b)(3)." Kupferman v. Consolidated Research & Mfg. Corp., 459 F.2d 1072, 1078 (2d Cir. 1972). Great Coastal Exp. v. International Bhd. of Teamsters, 675 F.2d 1349, 1356 (4th Cir.1982). Thus, not all fraud is fraud on the court. 11 Wright & Miller, Federal Practice & Procedure § 2870, at 253 (1973).

Here, the source of the award of legal fees is the provision in the contract between Winthrop and Lowenthal stating that the prevailing party in any action or proceeding "shall be entitled to recover its costs and reasonable attorney's fees " (emphasis added). In order to consider whether Mr. Singer's conduct constituted fraud on the court, we first determine if he was required to disclose the existence of the contingent fee agreement.

Winthrop contends that the fee provision reflects the parties' intention that the prevailing party be made whole by any arbitration award by receiving the actual damages it had incurred, its costs, and those legal fees, provided that they were reasonable, that it would be obligated to pay in connection with the action or proceeding. Therefore, according to Winthrop, Mr. Singer was required to disclose the existence of the contingent fee agreement because it set out the obligations of Lowenthal to his attorney.

Mr. Singer disagrees with Winthrop's interpretation of the fee provision, as did the motion judge. Mr. Singer claims that the provision did not restrict the fee award to the amount the prevailing party actually pays or is obligated to pay its attorney. Rather, the prevailing party, according to Mr. Singer, is entitled to receive, in the form of damages, an amount determined by the fact finder to be a reasonable attorney's fee, even if that amount exceeds the amount that the prevailing party would have been obligated to pay its attorney. He argues the existence of the contingent fee agreement plays no part in the determination of a "reasonable" fee and, therefore, did not have to be disclosed.

We reject Mr. Singer's interpretation. Based upon the language used and the obvious purpose of the provision in the contract between ...