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