Renee Marie Thorpe v. ( 2018 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 17-2606
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In re: Renee Marie Thorpe,
Debtor
Joseph Q. Mirarchi Legal Services, P.C.,
Appellant
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Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-17-cv-00857)
District Judge: Honorable Wendy Beetlestone
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Submitted Under Third Circuit L.A.R. 34.1(a)
September 28, 2018
Before: AMBRO, CHAGARES, and GREENAWAY, JR., Circuit Judges
(Opinion filed: November 20, 2018)
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OPINION *
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*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
AMBRO, Circuit Judge
Joseph Mirarchi, an attorney who previously represented Renee and Dale Thorpe
(the “Thorpes”), filed a motion in the Bankruptcy Court to recover legal fees. After a
hearing, the Bankruptcy Court recommended that the District Court enter an order
concluding that Mirarchi had no contractual right to recover fees and that his wrongful
conduct barred him from recovery in equity under the theory of quantum meruit. The
District Court adopted the substance of the Bankruptcy Court’s recommendation in an
order denying his motion, and Mirarchi appeals to us.
In this non-core proceeding, we review de novo conclusions of law and “treat the
district court as the trial court, accepting its findings of fact unless clearly erroneous.”
Copelin v. Spirco, Inc., 182 F.3d 174, 180 (3d Cir. 1999) (citing 28 U.S.C. § 157).
“Mixed questions of law and fact must be divided into their respective components and
the appropriate test applied.” First Jersey Nat’l Bank v. Brown (In re Brown), 951 F.2d
564, 567 (3d Cir. 1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d
98, 101–03 (3d Cir. 1981)).
Mirarchi represented the Thorpes in a Pennsylvania state court litigation against
Nationwide Mutual Insurance Company, during which the Thorpes filed for protection
under Chapter 12 of the Bankruptcy Code. Under the representation agreement, Mirarchi
was entitled to receive a contingency fee equal to 35% of the recovery, if any. But during
his service to the Thorpes he was administratively suspended from the practice of law
because his bar membership lapsed after he failed to meet his continuing legal education
(“CLE”) requirement by a single credit. On learning of his suspension, Mirarchi
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completed his outstanding CLE obligation and, approximately one month after the
suspension began, he was reinstated to the practice of law and continued to act as the
attorney for the Thorpes.
While suspended, Mirarchi negotiated on behalf of the Thorpes a settlement with
Nationwide for $324,000. He did not proactively inform them of his suspension, but they
learned of it before deciding whether to accept the settlement he had negotiated and
started asking him questions about the suspension. Mirarchi reassured the Thorpes that
his administrative suspension was nothing to worry about, but the Thorpes, claiming that
they disagreed and were dissatisfied with his representation anyway, terminated his
representation and retained new counsel. Shortly after terminating Mirarchi, the Thorpes
took their new counsel’s advice and accepted a settlement agreement in the amount
Mirarchi negotiated. Because the Thorpes terminated Mirarchi before accepting the
settlement amount he negotiated, they refused to pay him the contingency fee stated in
his representation agreement or an amount equal to the reasonable value of his work. The
disputed funds are being held in escrow until this matter is resolved.
Mirarchi argues (A) he is entitled to the agreed contingency fee because the
Thorpes’ conduct following his reinstatement ratified his representation, and (B) even if
the fee agreement were no longer enforceable, he is entitled to recover under the
equitable theory of quantum meruit. Mirarchi’s claims against the Thorpes trace to
Pennsylvania common law. Absent a controlling decision by the Pennsylvania Supreme
Court, we must predict how that Court would rule if faced with the same issues by
looking at the decisions of the state’s intermediate appellate courts. Meyer v. CUNA Mut.
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Ins. Soc’y, 648 F.3d 154, 162 (3d Cir. 2011). We hold that Mirarchi has no entitlement to
the contingency fee, but he may have a claim in quantum meruit against the Thorpes
depending on facts the District Court and Bankruptcy Court did not reach due to the legal
analyses they employed. Accordingly, we affirm in part, vacate in part, and remand the
case for further proceedings consistent with this opinion.
A. Contract claim
In Pennsylvania, “a client has a right to terminate his relationship with an attorney
at any time, regardless of whether there exists a contract for fees.” Meyer, Darragh,
Buckler, Bebenek & Eck, P.L.L.C. v. Law Firm of Malone Middleman, P.C., 179 A.3d
1093, 1099 (Pa. 2018) (“Meyer Darragh II”). Here, the Thorpes terminated Mirarchi’s
representation before the contingency fee was triggered. Under a contingency agreement,
“[w]here the contingency has not occurred, the fee has not been earned.” Mager v.
Bultena, 797 A.2d 948, 958 (Pa. Super. Ct. 2002). Because the contingency did not occur
during his representation of the Thorpes, Mirarchi is not entitled to collect the fee. We
affirm the District Court’s ruling on this ground.
B. Quantum meruit claim
The Bankruptcy Court concluded that Mirarchi was not entitled to recovery in
quantum meruit because the way he handled his administrative suspension constituted
“wrongful conduct” that precluded recovery in equity. In re Thorpe, 563 B.R. 576, 605
(Bankr. E.D. Pa. 2017). The District Court reached the same conclusion. We thus begin
with whether Mirarchi’s conduct was “wrongful” such that he is precluded from a
recovery in quantum meruit.
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1. “Wrongful conduct”
To reach the conclusion that his conduct was “wrongful” enough to preclude
recovery in equity, the Bankruptcy Court first inquired whether Mirarchi materially
breached his representation agreement with the Thorpes. Thorpe, 563 B.R. at 603. It
concluded that occurred when Mirarchi failed to disclose his administrative suspension,
engaged in the unauthorized practice of law, and was not forthcoming about his
suspension. Id. at 604. Because the Bankruptcy Court viewed a “material breach” to bar
any recovery—even for quantum meruit—it concluded that Mirarchi was foreclosed from
recovery. Id. The District Court adopted this component of the Bankruptcy Court’s
opinion. (A29 (“In this case, Mirarchi failed to fulfill his professional responsibilities,
and his subsequent conduct provided just cause for termination. . . . The Court . . . adopts
the Bankruptcy Court’s finding that Mirarchi’s termination was the result of his own
wrongful acts, and concludes that he is thereby barred from recovery in quantum
meruit.”).)
We believe the Bankruptcy Court and the District Court went too far in concluding
that the termination here was “for cause” or based on a “material breach.” Moreover,
even were there a material breach, an attorney is not barred completely from recovering
in quantum meruit in this context. The Courts’ conclusion appears to be based in large
part on the Superior Court of Pennsylvania’s decision in Lampl v. Latkanich, cited also
by the parties, which observed that the rule “appears to be that an attorney is entitled to
no compensation whatever . . . if he is discharged because of his own wrongful acts.”
231 A.2d 890, 894 (Pa. Super. Ct. 1967). But is missing one CLE credit a “wrongful act”
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for equitable purposes? Is that focus too rigid or can it be more practical? As we
observed in Pearson v. Tanner, “[n]o Pennsylvania court has addressed whether a
suspended or disbarred attorney is entitled to recover from a former client,
in quantum meruit, the value of legal services rendered pursuant to a contingency-fee
contract prior to the attorney’s suspension or disbarment.” 513 F. App’x 152, 155 (3d
Cir. 2013).
And even in the face of a material breach, in Lancellotti v. Thomas the Superior
Court of Pennsylvania adopted the Restatement (Second) of Contracts § 374 (1979),
which sets out the “modern” rule of restitution in favor of a party that breaches a contract:
if one party terminates a contract based on the other party’s material breach, “the party in
breach is entitled to restitution for any benefit that he has conferred by way of part
performance . . . in excess of the loss that he has caused by his own breach.” 491 A.2d
117, 119 (Pa. Super. Ct. 1985). Based on this principle, the Court sustained a claim of
restitution brought by a party that materially breached an agreement after the non-
breaching party exercised its right to terminate the agreement based on the breach. Id. at
119–21.
We generally adopt the rulings of the Superior Court of Pennsylvania on matters
of state law unless we are aware of “other persuasive data that the highest court of the
state would decide otherwise.” Edwards v. HOVENSA, LLC, 497 F.3d 355, 361 (3d Cir.
2007) (quoting West v. AT&T Co., 311 U.S. 223, 237 (1940)). Aware of no such
persuasive data, we conclude that the Supreme Court of Pennsylvania would adopt the
modern approach to restitution in favor of a breaching party for service contracts, as
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articulated in § 374 of the Restatement (Second). 1 We also believe that § 374 applies in
full force to claims by a service provider brought under the label of “quantum meruit”
given the Pennsylvania Supreme Court’s understanding that “[a]n action in quantum
meruit sounds in quasi-contract or contract implied in law and seeks the equitable remedy
of restitution where one person has been unjustly enriched by the services of another.”
Meyer, Darragh, Buckler, Bebenek & Eck, P.L.L.C. v. Law Firm of Malone Middleman,
P.C., 137 A.3d 1247, 1250 n.4 (Pa. 2016).
For these reasons, we part with our District Court colleague’s ruling that
Mirarchi’s supposedly “material breach” of the agreement precluded him from recovering
in quantum meruit. 2 We believe the Supreme Court of Pennsylvania, when presented
with a case in which a party seeking quantum meruit is shown to have acted wrongfully,
would evaluate the conduct under the rubric of unclean hands. See Stauffer v. Stauffer,
351 A.2d 236, 244 (Pa. 1976); A.E.V., Inc. v. M.L. Harrold, Inc., No. 1106 WDA 2013,
2014 WL 10979711, at *7 (Pa. Super. Ct. Mar. 3, 2014). Thus rather than asking
whether Mirarchi committed a “material breach,” we should determine whether
Mirarchi’s equitable claim is barred under the doctrine of unclean hands.
1
We note that courts in our Circuit have predicted that the Supreme Court of
Pennsylvania will adopt § 374 of the Restatement. See, e.g., Alstom Power, Inc. v. RMF
Indus. Contracting, Inc., 418 F. Supp. 2d 766, 779–80 (W.D. Pa. 2006) (collecting cases).
2
We express some doubt about the sincerity of the Thorpes’ claim that Mirarchi’s brief
administrative suspension for missing a single CLE credit was important to them, given
that they accepted the very settlement amount he negotiated soon after they terminated
him. It appears to us that the Thorpes’ claim of interest in Mirarchi’s continuing legal
education may have been motivated by the significant sum they stood to gain by using his
administrative suspension to deny his agreed fees.
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With the issue so framed, the resolution of the quantum meruit issue in this appeal
largely follows from the Supreme Court of Pennsylvania’s decision in In re Estate of
Pedrick, 482 A.2d 215 (Pa. 1984). There, the Court considered whether an attorney was
barred by the doctrine of unclean hands from recovering under a will he obtained by
visiting the decedent (Pedrick) alone on his deathbed, drafting a new superseding will
that would give the attorney Pedrick’s entire estate (including his federal pension),
obtaining Pedrick’s signature without any witnesses (despite having plenty of time to do
so), testifying as the sole witness to the will in probate court, and then having Pedrick’s
body cremated because it was cheaper than a burial. Id. at 220–22.
On its way to holding the attorney was barred from recovery, the Court made
pronouncements that are relevant here. To begin, it expressly rejected the notion that an
attorney’s violation of the Pennsylvania ethical rules governing lawyers would
automatically trigger the doctrine of unclean hands. Id. at 222–23. Indeed, it issued a
broad proclamation stating that the Pennsylvania Code of Professional Responsibility
“does not have the force of substantive law” and generally is not “a basis for altering the
rules of law, including evidentiary rules, presumptions and burdens of proof, which
would otherwise apply to a case.” Id. at 217, 221. The Court continued that
while it may be appropriate under certain circumstances for
trial courts to enforce the Code of Professional Responsibility
by disqualifying counsel or otherwise restraining his
participation or conduct in litigation before them in order to
protect the rights of litigants to a fair trial, we are not inclined
to extend that enforcement power and allow our trial courts
themselves to use the [American Bar Association] Canons
[of Professional Ethics] to alter substantive law or to punish
attorney misconduct.
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Id. at 221. Pedrick noted that its application of the Code is consistent with “Article V,
Section 10(c) of our Constitution which places disciplinary power in [the Supreme Court
of Pennsylvania].” Id.
After clarifying that a violation of the attorney ethical rules was not necessarily a
sufficient ground to find unclean hands, Pedrick explained why that doctrine barred
recovery in the particular circumstances of its case. The attorney did not just violate a
rule of professional conduct while he was representing a client; rather, he attempted to
use a court process (the probate process) “to secure a benefit from the very conduct
which the accepted standards of the profession preclude.” Id. at 222. Moreover, that
conduct was so far beyond the pale of acceptable attorney behavior, and so harmful to the
individuals involved, that it was “unconscionable” and “shock[ed] the conscience” of the
Court. Id. at 223 & n.14.
Against this background, we hold that the doctrine of unclean hands does not bar
the quantum meruit claim of Mirarchi. We acknowledge that he was placed on
administrative suspension due to his own failure, although seemingly negligent, to obtain
the requisite CLE credits to continue practicing law in Pennsylvania. We also
acknowledge that Mirarchi’s failure to disclose his administrative suspension violated the
Pennsylvania Rules of Disciplinary Enforcement, see Pa. R.D.E. 217(b), and that his
work on behalf of the Thorpes during his one-month administrative suspension
constituted the unauthorized practice of law, see 42 Pa. C.S.A. § 2524; Pa. R.D.E. 217(j).
We do not applaud the manner in which Mirarchi handled his representation of the
Thorpes once he was placed on administrative suspension. Nonetheless, we do not
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believe his conduct shocks the conscience such that he should be completely denied
recovery based on the doctrine of unclean hands.
We note also that our holding is consistent with one of the concerns in the
preamble to the Pennsylvania Rules of Professional Conduct:
[T]he purpose of the Rules can be subverted when they are
invoked by opposing parties as procedural weapons. The fact
that a Rule is a just basis for a lawyer’s self-assessment, or for
sanctioning a lawyer under the administration of a
disciplinary authority, does not imply that an antagonist in a
collateral proceeding or transaction has standing to seek
enforcement of the Rule. Accordingly, nothing in the Rules
should be deemed to augment any substantive legal duty of
lawyers or the extra disciplinary consequences of violating
such a duty.
Pa. R.P.C. Preamble ¶ 19; see also Pedrick, 482 A.2d at 221–22 (favorably citing similar
language in a prior draft version of the preamble). Although the professional conduct
rules that Mirarchi violated are formed in the Pennsylvania Rules of Disciplinary
Enforcement (not the Rules of Professional Conduct), we believe the same concern exists
in this context and are troubled by the incentives created where a litigant adverse to an
attorney can escape its liability by establishing the attorney’s noncompliance with
professional rules governing lawyers and not directly their relations with clients.
2. Prima facie claim
The District Court held that Mirarchi was completely precluded from recovery
based on his wrongful conduct, and thus did not address in detail whether he has a viable
prima facie claim for quantum meruit. (A26–29.) To win such a claim, Mirarchi must
show (1) the benefits conferred by him on the Thorpes, (2) appreciation of these benefits
by them, and (3) “acceptance and retention of [those] benefits under such circumstances
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that it would be inequitable for [the Thorpes] to retain the benefit without payment of
value.” Meyer Darragh II, 179 A.3d at 1102 (quoting Shafer Elec. & Constr. v. Mantia,
96 A.3d 989, 993 (Pa. 2014)). The record facts as to each of these elements are clear:
the Thorpes benefitted from Mirarchi’s negotiating a settlement on their behalf, and after
they terminated him, they accepted a settlement in the same amount he negotiated. We
have no trouble concluding that Mirarchi has a viable quantum meruit claim of at least
some amount.
But this is as far as we can go on appeal in sustaining Mirarchi’s quantum meruit
claim. We leave it to the Bankruptcy Court and the District Court to determine in the
first instance the proper amount of Mirarchi’s recovery in quantum meruit. 3 We also
leave to the courts the question—which is suggested but not presented by the record on
this appeal—of whether Mirarchi’s claim of quantum meruit is properly asserted against
the Thorpes or instead must be brought against their subsequent attorney after that
attorney is paid. See Meyer Darragh II, 179 A.3d at 1105 (“[P]redecessor counsel may
recover damages in quantum meruit against successor counsel in a contingent fee dispute
. . . where the facts demonstrate unjust enrichment . . . which would be unjust to retain
without some payment to predecessor counsel.”).
For these reasons, we affirm in part, vacate in part, and remand the case for further
proceedings consistent with this opinion. We leave to our District Court colleague
whether to refer the case back to the Bankruptcy Court.
3
There is arguably another thorny question related to the computation of his quantum
meruit amount—namely, whether Mirarchi can recover for legal services rendered while
he was administratively suspended.
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