Archives for June 2014

Fired Pittsburgh Law Firm Entitled to Over $500K In Attorneys’ Fees for Pre-Settlement Services (PA Court Rules)

 

A special thanks to Adam Brandolph (Twitter: @brandolph_trib) of the Pittsburgh Tribune-Review for alerting me to this one.

In In re Estate of Schaab, a Pennsylvania court awarded over $500K in legal fees to a law firm that negotiated the settlement of a planned wrongful death suit  on behalf of the parents of a murder victim.  The plaintiffs’ son was a counselor at a Pittsburgh mental hospital and was killed during a patient’s shooting spree in May 2012.

The plaintiffs retained a law firm (the First Firm) under a contingency fee agreement that provided a 35% recovery in the event formal litigation ensued or a 33% recovery if no litigation was filed.  

The First Firm negotiated a $1.5M settlement after mediation with the University of Pittsburgh – the entity that sponsored the psychiatric facility and the plaintiffs’ son’s employer.  The parties documented the $1.5M settlement at the mediation.

After the parties reached the settlement, the First Firm sent a release to the plaintiffs for them to sign.  Before the plaintiffs signed the release, the First Firm agreed to reduce its contingent fee from $500,000 to $350,000 so that the plaintiffs could pay some of the settlement funds to their deceased son’s fiancé. 

The plaintiffs then did an about-face and decided they wanted to sue the shooter’s parents and estate (they previously said they didn’t want to).  The First Firm then referred plaintiffs to their current firm (the “Second Firm”) to sue the shooter’s parents and his estate.  The plaintiffs fired the First Firm and hired the Second Firm.

Plaintiffs finally signed the release in May 2013 – about eight months after the First Firm first presented it to them.  About six months later, plaintiffs received about $1M in settlement funds and the remaining $500,000-plus was put into escrow pending resolution of the fees issue. 

When the Second Firm claimed the right to the entire half a million in fees, the First Firm intervened and claimed the fees belonged to it since the First Firm’s efforts culminated in the $1.5M settlement agreement.

Incredibly, the Second Firm argued that the First Firm wasn’t entitled to any fees since the plaintiffs terminated the First Firm before the settlement was paid.  The Court quickly rejected this argument and held that under Penn. law, where a law firm’s services result in the creation of a fund, that firm is entitled to be paid from the fund. 

Here, the First Firm clearly created the settlement fund in July 2012 when the parties memorialized the $1.5M settlement at mediation.  As a result, it was entitled to a third of the settlement payout  under the contingency fee agreement it reached with the plaintiffs.

The Court held that the Second Firm’s argument that no “recovery” was had while the First Firm was representing the plaintiffs was absurd.  The plaintiffs’ right to receive the funds accrued in July 2012 when the $1.5M settlement agreement was signed. 

The fact that the funds weren’t paid until over a year later was irrelevant.  The plaintiffs received $1.5M from the University based on the skilled services and negotiating acumen of the First Firm. As a result, the Court awarded the First Firm over $500,000 and the remaining funds went to the decedent’s estate.

Afterword: A fair, common sense result.  Where a fired attorney plays a crucial role in consummating a settlement agreement before his termination, he should share in the proceeds; even where the settlement  isn’t paid until after a new lawyer is hired.

 It’s clear the First Firm was the procuring cause of the $1.5M settlement.  The Court properly held that it was unfair to prevent the First Firm from receiving any of the proceeds based solely on the defendant paying the settlement after he fired the First Firm.

See link to opinion here: Judge O’Toole’s Decision

 

Trump Tower Condo Buyer’s Bait-and-Switch Claim Defeated – Seventh Circuit

The Seventh Circuit recently affirmed the District Court’s trial verdict in favor of some Trump-controlled entities in a consumer fraud suit filed by a purchaser of some Trump Tower condominium units. 

In Goldberg v. 401 North Wabash Investor, LLC, 2014 WL 2579939 (7th Cir. 2014), an eighty-something real estate investor sued on a bait-and-switch theory after a condominium developer unilaterally removed certain hotel facilities from the project’s common elements before the closing. 

She sued for consumer fraud, breach of contract, violation of the Illinois Condominium Property Act and filed another count under Illinois securities law.  After a trial, a jury returned a verdict in the seller’s favor and in a later bench trial, the court found for the seller on the plaintiff’s breach of contract and Condominium Act claims.  The plaintiff appealed.

Held: Affirmed

Reasons:

The Seventh Circuit upheld the jury’s verdict for the seller on the plaintiff’s consumer fraud count.  The plaintiff’s case centered on the seller’s removal of certain hotel facilities from the common elements pursuant  to a “change clause” in the underlying sale documents.

The sale documents’ change clause gave the seller complete discretion to modify any condominium documents.

When the seller removed the hotel facilities (food and beverage operations, meeting rooms and certain health club use), the plaintiff sought return of the approx. $500K in earnest money she paid.  The seller said no and plaintiff sued.

Consumer Fraud: Bait-and-Switch

Plaintiff’s consumer fraud claim alleged classic bait-and-switch: where a seller promotes a specific product knowing that he won’t sell it.  Instead, the customer shows up, the seller tells him the product is sold out and the seller pulls a “switch” – he tries to get the unwitting consumer to pay a higher price for a different product.

The Court found that the jury could properly find there was no bait-and-switch.  The condominium sale documents clearly allowed the seller to make changes to the condo common elements at its sole discretion.

So, by the seller telegraphing to a buyer (like plaintiff) that it had an unqualified right to modify the common elements, there was no bait-and-switch.  The plaintiff, an experienced real estate investor, was essentially on notice that the seller could amend the declaration at any time.

Breach of Contract – Why No Jury?

On the plaintiff’s breach of contract count, the Seventh Circuit agreed with the District Court that plaintiff wasn’t entitled to a jury trial.  The Court looked beyond the cause of action’s title and instead viewed its substance.

Plaintiff’s contract claim really sought rescission – she wanted her half a million in earnest money back.  Since rescission is an equitable remedy, a jury trial isn’t allowed.  (*5).  The fact that the plaintiff sought monetary interest didn’t convert her claim from an equitable one to an action at law (for money damages).

Take-away: This case is post-worthy for both its current events and celebrity quotient.  Aside from that, the case serves as a good illustration of a time-honored consumer fraud theory (bait and switch) adapted to a modern-day complex real estate contractual setting.

Goldberg also provides a dramatic example of a court looking beyond a cause of action’s label (breach of contract) and discerning the substantive relief sought (rescission) by a party to determine whether a given claim is legal (and triable to a jury) or equitable (no jury trial) in nature.

Illinois Fraud and Civil Conspiracy Basics – Illinois Law

In Al Maha Trading v. Darley, 2014 WL 2459674 (N.D. Ill. 2014), the plaintiff brought fraud and civil conspiracy claims in connection with a fire truck sales contract.  The plaintiff, a Saudi Arabia-based fire and rescue services company, ordered six fire trucks and related equipment from the  Illinois-based defendant.

The plaintiff claimed the defendant submitted inflated invoices for the trucks and paid nearly $500k in secret kickbacks to plaintiff’s agent.

The Northern District denied defendant’s motion to dismiss and summarized Illinois fraud and civil conspiracy law in the process.

Fraudulent Misrepresentation and Omission

The elements of common law fraud are: (1) a false statement of material fact, (2) knowledge that the statement was false, (3) intent to induce the defendant to act, (4) reliance on the statement by the plaintiff; and (5) damages.

Fraudulent concealment has the same elements with the additional requirement that the plaintiff show the defendant omitted or concealed a material fact when it had a duty to disclose it.

The Court held that plaintiff’s claims of inflated invoices and bribes to plaintiff’s agent sufficiently alleged a misrepresentation (the false invoices) and concealment (failure to alert plaintiff to defendant’s bribe payments).

The plaintiff also adequately pled that the defendant knew the invoices were false, that plaintiff relied on them and sustained monetary damages by paying several million dollars for the trucks.

Civil Conspiracy

The Court also sustained the plaintiff’s civil conspiracy claim.  The plaintiff alleged that the defendant and plaintiff’s Fire  Chief conspired to submit excessive equipment price lists to the plaintiff so that defendant could make truck sales and cover the secret kickbacks to plaintiff’s agent.

To plead and prove a civil conspiracy in Illinois, the plaintiff must demonstrate (1) a combination of two or more persons, (2) for the purpose of accomplishing either an unlawful purpose or a lawful purpose by unlawful means, (3) concerted action, and (4) an overt tortious or unlawful act to further the plan.  (*8).

The Court found that plaintiff alleged all of these elements.  The combination consisted of defendant and the plaintiff’s agent who received the secret kickbacks.  The unlawful means consisted of defendant submitting swollen invoices and paying secret bribes to the agent.

While a conspiracy claim will normally not lie against a corporation acting through one of its officers based on agency rules (because the corporation can only act through its agents), that rule doesn’t apply in cases where the corporate officer actively participates in the tortious conduct.

Here, the plaintiff’s agent actively participated in the kickback scheme – an unlawful act taken in connection with accomplishing a lawful purpose – the sale of the fire trucks.  (*9).  As a result, the Fire Chief’s actions in arranging the bribes were separate from his role as a corporate agent.

Consumer Fraud Act – Can A Foreign Corporation Sue Under the Act?

The Court answered “yes.”  To determine whether a non-resident can invoke protections of the Illinois consumer fraud statute, the Court considers (a) the parties’ residence, (b) location of the transaction and of plaintiff’s contacts with defendant, (d) the place where the contracts were executed and performed, (e) where the deceptive statements were made, and (f) where payments were sent to and from. (*10).

The Court held that the plaintiff alleged enough of a connection with Illinois to allow it to sue for consumer fraud.  Plaintiff’s contacts with Illinois were initiated by defendant (an Illinois corporation) and the subject matter of the contract – the fire trucks – originated in and were shipped to plaintiff from Illinois.  Taken together, these factors led the Court to uphold the consumer fraud claim despite plaintiff’s foreign company status. (*10).

Afterwords:

– a foreign company can utilize the Illinois consumer fraud statute against an Illinois company – at least at the pleading stage;

–  a corporate officer who participates in a fraudulent scheme can be personally liable on a civil conspiracy claim.