Schiff v. Dickson , 2013 Ohio 5253 ( 2013 )

[Cite as Schiff v. Dickson, 2013-Ohio-5253.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99719
MARVIN H. SCHIFF, ESQ.
PLAINTIFF-APPELLEE
vs.
BLAKE A. DICKSON, ESQ., ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-701734
BEFORE: Celebrezze, P.J., E.A. Gallagher, J., and Blackmon, J.
RELEASED AND JOURNALIZED: November 27, 2013
ATTORNEYS FOR APPELLANTS
Blake A. Dickson
Mark D. Tolles, II
The Dickson Firm, L.L.C.
Enterprise Place, Suite 420
3401 Enterprise Parkway
Beachwood, Ohio 44122
Rex H. Elliott
Cooper & Elliott, L.L.C.
2175 Riverside Drive
Columbus, Ohio 43221
ATTORNEYS FOR APPELLEE
Thomas A. Barni
Benjamin D. Carnahan
Dinn, Hochman & Potter, L.L.C.
5910 Landerbrook Drive
Suite 200
Cleveland, Ohio 44124
FRANK D. CELEBREZZE, JR., P.J.:
{¶1} Appellants, Blake A. Dickson, Esq., and the Dickson Law Firm L.L.C.
(formerly Dickson & Campbell, L.L.C., and collectively “Dickson”), bring the instant
appeal challenging the trial court’s denial of their motion for sanctions made pursuant to
R.C. 2323.51 against Marvin H. Schiff, Esq. Dickson argues that the court erred in
denying their request to have Schiff turn over his trial counsel’s file and denying the
motion for sanctions without a hearing. After a thorough review of the record and case
law, we affirm.
I. Factual and Procedural History
{¶2} Schiff and Dickson were partners in a law firm they started, Schiff &
Dickson, L.L.C. They operated the firm from 1998 through 2004. Their relationship
became tumultuous, which led to Schiff ’s departure from the firm by agreement of the
parties. On February 4, 2005, the parties signed a “Redemption Agreement” whereby
some firm assets were split and its cases divided.
{¶3} Dickson continued the firm and retained most of the cases that were
previously handled by Schiff & Dickson. Included in those cases were several clients
allegedly harmed by the processing of microwave popcorn with additives that could cause
lung damage. Once a significant defendant in these “popcorn cases” settled in 2006, in
accordance with the Redemption Agreement, Dickson sent Schiff a check for each case.
The amount was computed using Dickson’s judgment about the hours spent on the case
prior to Schiff ’s departure in relation to the total hours devoted. Dickson specified that
each payment was in full satisfaction of all claims by Schiff for these cases. Dickson
also informed Schiff that future settlements by other defendants in these cases would not
result in any payments being made to Schiff. Per the Redemption Agreement, Schiff sent
a notice of dispute of the sums paid within 30 days and requested documentation and
mediation. Schiff also crossed out Dickson’s “paid in full” language on each check and
wrote in a notation indicating partial payment. The next step in the Redemption
Agreement called for the parties to work out the dispute. Dickson did not turn over any
documents and mediation was not instigated.
{¶4} A significant time after talks between the parties deteriorated, Schiff filed suit
on August 18, 2009, against Dickson and his new firm, Dickson & Campbell, L.L.C., and
Dickson filed a counterclaim. The case wound through motions to dismiss, motions for
summary judgment, and appellate review.
{¶5} Finally, on January 22, 2013, a jury trial began on Schiff ’s breach of contract
claim. Trial lasted three days and resulted in a jury verdict in Dickson’s favor. The
court then imposed the costs of trial against Schiff. Following the verdict, Dickson filed a
motion for sanctions and requested access to trial counsel’s client file relating to Schiff ’s
case. On March 25, 2013, the trial court denied Dickson’s motion for sanctions and
denied as moot the request for access to attorney files. Dickson then filed the present
appeal assigning the following three assignments of error:
I. The trial court erred in denying Defendants’ motion to compel
Plaintiff’s Counsel’s file, following the jury trial of this case, relative to
Defendants’ frivolous conduct claim against Plaintiff Marvin H. Schiff and
his counsel.
II. The trial court erred in denying Defendants’ motion for an award of
court costs, reasonable attorney’s fees and other reasonable expenses
incurred in connection with defending this frivolous case, pursuant to
O.R.C. § 2323.51.
III. The trial court erred in denying Defendants’ motion for an award of
court costs, reasonable attorney’s fees and other reasonable expenses
incurred in connection with defending this frivolous case, without first
conducting a hearing.
II. Law and Analysis
{¶6} Dickson’s assignments of error will be addressed out of order.
A. Motion for Costs
{¶7} In his second assignment of error, Dickson argues that the trial court erred in
denying his R.C. 2323.51 motion for costs based on frivolous conduct.
{¶8} According to R.C. 2323.51(A)(2)(a), “frivolous conduct” means, in pertinent
part, conduct of a party or counsel of record that satisfies any of the following:
i) It obviously serves merely to harass or maliciously injure another party to
the civil action or appeal or is for another improper purpose, including, but
not limited to, causing unnecessary delay or a needless increase in the cost
of litigation.
(ii) It is not warranted under existing law, cannot be supported by a good
faith argument for an extension, modification, or reversal of existing law, or
cannot be supported by a good faith argument for the establishment of new
law.
(iii) The conduct consists of allegations or other factual contentions that
have no evidentiary support or, if specifically so identified, are not likely to
have evidentiary support after a reasonable opportunity for further
investigation or discovery.
(iv) The conduct consists of denials or factual contentions that are not
warranted by the evidence or, if specifically so identified, are not
reasonably based on a lack of information or belief.
{¶9} The standard of review under R.C. 2323.51 is a mixed question depending on
the types of arguments raised. The Ninth District has noted,
the initial decision of whether a party’s conduct was frivolous requires a
factual determination. This is particularly true if a court must determine if
conduct “serves merely to harass or maliciously injure another party to the
civil action.” Section 2323.51(A)(2)(a). Under this prong of the definition
of frivolous conduct, the trial judge has “the benefit of observing the entire
course of proceedings and will be most familiar with the parties and
attorneys involved.” Consequently, a finding that certain conduct was
engaged in to harass or injure another party is entitled to substantial
deference by a reviewing court.
A determination, however, that conduct “is not warranted under
existing law and cannot be supported by a good faith argument for an
extension, modification, or reversal of existing law,” requires a legal
analysis. Section 2323.51(A)(2)(b). As such, whether conduct is
“warranted under existing law or can be supported by [a] good faith
argument for extension, modification, or reversal of existing law is a
question of law, ‘peculiarly within the competence of an appellate court.’”
(Citations omitted.) Lable & Co. v. Flowers, 104 Ohio App.3d 227, 233, 661 N.E.2d 782(9th Dist.1995). “In determining whether the claim itself is frivolous, the test is whether
no reasonable lawyer would have brought the action in light of the existing law.” Hardin
v. Naughton, 8th Dist. Cuyahoga No. 99182, 2013-Ohio-2913, ¶ 17, citing James Lumber
Co. v. Nottrodt, 8th Dist. Cuyahoga No. 97288, 2012-Ohio-1746, ¶ 25, citing Orbit
Elecs., Inc. v. Helm Instrument Co., 167 Ohio App.3d 301, 2006-Ohio-2317, 855 N.E.2d
91 (8th Dist.).
i. Harassment or Malicious Injury
{¶10} Conduct that evidences an intent to harass or maliciously injure generally is
a factual determination best suited for the trial court. Therefore, we give deference to the
lower court’s judgment regarding such issues. Lable & Co. at 233. The judge sat
through trial, heard the evidence, Schiff ’s case, and the tactics used to prosecute it fully.
The trial court found that Schiff ’s case was not brought to harass or maliciously injure.
This decision is not an abuse of discretion, especially in light of the fact that Dickson’s
firm received a settlement from another defendant in the “popcorn cases” and flat out
refused to provide any portion of the fees to Schiff, even though, under the Redemption
Agreement, he was entitled to a portion of them. The triggering event for payments to
Schiff was the removal of fees from the firm’s client account (“IOLTA”) to the firm’s
account, not as Dickson claimed in his letters, the termination of the entirety of the
litigation. Dickson claims that the case was brought merely so that he would have to
expend fees defending the litigation, but there are legitimate issues of dispute between the
parties that were resolved in Dickson’s favor at trial.
{¶11} Both parties created the situation that resulted in this lawsuit, and the trial
court’s determination that the suit was not brought to harass or maliciously injure was not
an abuse of its discretion.
ii. Warranted Under Existing Law and Factually Supported
{¶12} This case is a matter of contract interpretation and whether Schiff’s reading
of the contract and theory of the case at trial is reasonable. The payments made for the
“popcorn cases” were based solely on Dickson’s calculation based on records to which
Schiff did not have access. Schiff ’s theory at trial was that the act of signing up these
clients resulted in significantly more value than other work done, and Dickson should
have considered this under the totality-of-the-circumstances language used in Section
9(E) to calculate payment. Schiff ’s argument, distilled, is that, without him signing
these clients, Dickson would not have these cases. Schiff claims the act of retaining this
business entitles him to more than two to three percent of the fees received by Dickson.
He also attempted to show that the addition of new lead, outside counsel experienced in
this type of litigation meant that Dickson’s firm did not participate a great deal in the
litigation. Finally, Schiff argued that Dickson’s refusal to pay any future portion of
attorney fees to Schiff based on additional settlements from the same cases is a clear
violation of the Redemption Agreement. Dickson refused to provide documentation
about his calculations and refused to participate in mediation, requiring Schiff to bring
this suit.
{¶13} In this case, Dickson calculated the fees owed to Schiff from several cases
related to employee exposure to butter flavoring at a processing plant. Schiff testified that
he signed several of these clients before leaving the firm. These cases eventually settled,
earning the attorneys of record millions of dollars in fees, a portion of which was paid to
Dickson’s firm. Schiff sought access to information to determine if the calculations
employed by Dickson were reasonable in calculating the portion of the fees that were
earned prior to Schiff’s departure. Schiff claims the act of signing the clients in these
cases created much more value than the two to three percent that Dickson calculated.
This is not an obviously fallacious argument or one not supported by a reading of the
Redemption Agreement. The agreement called for Dickson to calculate those fees using
good faith and reasonable judgment based on the totality of the circumstances. Section
9(E) of the agreement states:
[U]pon receipt by LLC of fees generated by the cases and client matters
listed on Exhibit D attached hereto and incorporated herein (“Work in
Process”), the lead attorney on such Work in Process shall determine and
set forth in writing (the “Percentage Certificate”) the percentage (the
“Shared Percentage”) of the total fee that was earned with respect to such
Work in Process through the Closing Date considering the totality of the
circumstances, using reasonable and good faith judgment. If no member of
LLC does any work on Work in Process after the Closing Date, the Shared
Percentage shall be 100%. LLC shall pay to Schiff an amount equal to
one-half of the Shared Percentage of net fees. * * *.
This broad standard was rife for dispute and did in fact foster the instant litigation.
{¶14} Dickson has failed to show that there was no reasonable basis in the law for
Schiff ’s reading of the Redemption Agreement or his argument about the value provided
to the firm regarding these cases prior to dissolution. The act of signing those clients
may have more value than conducting a deposition or other task related to the litigation.
However, the Redemption Agreement set forth a method of calculation that the jury found
was observed by Dickson. Schiff may have been overreaching at trial, but that does not
mean Schiff ’s arguments are frivolous.
{¶15} Dickson also claims that Schiff failed to abide by the dispute resolution
procedure in the agreement, and in doing so breached it. Examining letters exchanged
between the parties prior to trial, it was Dickson’s interpretation of the Redemption
Agreement that any claim for payment of fees must be objected to within 30 days. Schiff
did send letters of objection to Dickson requesting mediation. The Redemption
Agreement also sets forth such a procedure for disputing fees, but it does not include an
exact time period within which a demand for mediation or arbitration must be brought.
{¶16} Section 14 of the agreement governs the resolution of disputes. Section
14(A) requires delivery of a notice contesting payments made pursuant to the agreement
within 30 days of the receipt of such payment. Section 14(B) requires the paying party to
contact the disputing party and make reasonable efforts to resolve the issue. Section
14(C) then sets forth that the parties “shall promptly initiate a voluntary, non-binding
mediation * * *.” (Emphasis added.) The other provisions contain generally short,
30-day time frames for action. However, the period within which to initiate mediation is
not so limited. Therefore, a possible interpretation of this agreement could mean that
Dickson breached the agreement when Schiff ’s attorney attempted to instigate mediation
with Dickson and he refused. This comes down to how one interprets “promptly” in
Section 14(C) of the agreement.
{¶17} Dickson also asserts that Schiff agreed to accept the proffered payments in
each of those cases as a complete resolution of all fees in the respective case. Dickson
claims that the defense of accord and satisfaction bars Schiff ’s claims.
{¶18} “An accord is a contract between a debtor and a creditor in which the
creditor’s claim is settled in exchange for a sum of money other than that which is
allegedly due. Satisfaction is the performance of that contract.” Allen v. R.G. Indus.
Supply, 66 Ohio St.3d 229, 231, 611 N.E.2d 794 (1993), citing Air Van Lines, Inc. v.
Buster, 673 P.2d 774, 777, 42 A.L.R. 4th 1 (Alaska 1983). But this is an affirmative
defense that must be shown by the debtor. Id.; Fanous v. Ochs, 8th Dist. Cuyahoga No.
98649, 2013-Ohio-1034, ¶ 24.
{¶19} The usual elements necessary for contract formation are required for a
subsequent agreement discharging the debt. These four elements are “proper subject
matter, competent parties, mutual assent, and consideration.” Warner Storage, Inc. v.
Systemation, Inc., 64 Ohio App.3d 1, 4, 580 N.E.2d 490 (8th Dist.1989), citing State ex
rel. Shady Acres Nursing Home, Inc. v. Rhodes, 7 Ohio St.3d 7, 8, 455 N.E.2d 489(1983).
{¶20} Section 9(E) of the Redemption Agreement requires Dickson to make
payments to Schiff on the same day fees are earned and removed from its IOLTA
account. Dickson’s letter placing conditions on the acceptance of fees would appear to
violate the terms of the Redemption Agreement and constitute a new agreement. Schiff
retained the funds sent by Dickson while maintaining a dispute about those sums.
Dickson claims he offered Schiff a larger percentage of a smaller recovery or a smaller
percentage of a larger recovery, but not both. But this may have been a false choice.
Schiff ’s disagreement that this constituted a valid accord and satisfaction is not
unreasonable or unsupported by existing law or a reasonable extension thereof. Schiff
promptly sent a notice of dispute and attempted to refute Dickson’s attachment of new
terms to the payments he was already required to make. At least from Schiff ’s point of
view, this could indicate a lack of a meeting of the minds and a failure of consideration in
the transaction. As explained earlier, the triggering event for payment was not the
resolution of all litigation, but the entitlement of the firm to fees and its deposit of these
fees into the firm’s own account. Therefore, when one defendant settled and the case
was still pending against other defendants, there may have been no valid reason for Schiff
to accept Dickson’s payment in lieu of all payments to which he was entitled under the
agreement. While consideration can generally be found in a transaction, Dickson’s
accord and satisfaction argument is not so clearly correct that Schiff ’s suit is obviously
without merit.
B. Failure to Hold a Hearing
{¶21} In this third assignment of error, Dickson argues the trial court was required
to hold a hearing on the motion for costs. The trial court did not err in overruling
Dickson’s motion without a hearing.
{¶22} In cases where frivolous conduct is not apparent, it is within the trial court’s
discretion to hold a hearing. Huddy v. Toledo Oxygen & Equip. Co., 6th Dist. Lucas No.
L-91-328, 1992 Ohio App. LEXIS 2390 (May 8, 1992) (“a hearing is not required where
the court has sufficient knowledge of the circumstances for the denial of the requested
relief and the hearing would be perfunctory, meaningless, or redundant”). Reversal of a
decision denying sanctions pursuant to R.C. 2323.51 is only warranted where the decision
is arbitrary, unconscionable, or unreasonable. Blakemore v. Blakemore, 5 Ohio St.3d
217, 450 N.E.2d 1140 (1983). Such is the case where frivolous conduct is obvious on
the record. Where such evidence exists, the trial court is required to hold a hearing on
the motion. This court has held that,
[a]lthough ordinarily a trial court does not have to hold a hearing if it denies
a motion for attorney fees and costs under R.C. 2323.51 or Civ.R. 11, Ohio
courts have recognized that a trial court abuses its discretion when it
“arbitrarily” denies a request for attorney fees. Turowski v. Johnson (1990),
68 Ohio App.3d 704, 589 N.E.2d 462 [(9th Dist.)]; Mitchell v. Western
Reserve Area Agency on Aging, 8th Dist. [Cuyahoga] Nos. 83837 and
83877, 2004-Ohio-4353, ¶ 27. Compare Pisani v. Pisani (1995), 101 Ohio
App.3d 83, 654 N.E.2d 1355 [(8th Dist.)] (recognizing that a hearing is not
required when the court determines, upon consideration of the motion and
in its discretion, that the motion lacks merit). An arbitrary denial occurs
when (1) the record clearly evidences frivolous conduct and (2) the trial
court nonetheless denies a motion for attorney fees without holding a
hearing. Id. Similarly, if an arguable basis exists for an award of sanctions
under Civ.R. 11, a trial court must hold a hearing on the motion.
Fitworks Holdings, L.L.C. v. Pitchford-El, 8th Dist. Cuyahoga No. 88364,
2007-Ohio-2517, ¶ 14, citing Capps v. Milhem, 10th Dist. Franklin No. 03AP-251,
2003-Ohio-5212.
{¶23} The trial court heard the arguments Schiff raised at trial and concluded that
the arguments were rational and not warranting sanction. There is no evidence on the
face of the record that Schiff engaged in frivolous conduct.
C. Access to Attorney-Client Files
{¶24} In the first assignment of error, Dickson argues that the trial court erred
when it did not require Schiff to turn over trial counsel’s files related to the case. The
only reason given to the court for this invasion of the closely-guarded confidential
relationship was that the record may contain information that would show the suit was
brought for an improper purpose.
{¶25} The attorney-client relationship enjoys a special protected status at common
law and by statute. R.C. 2317.02(A); State ex rel. Leslie v. Ohio Hous. Fin. Agency, 105
Ohio St.3d 261, 2005-Ohio-1508, 824 N.E.2d 990, ¶ 18.
{¶26} R.C. 2317.02(A)(2) provides the circumstances under which the information
sought by Dickson is discoverable:
An attorney, concerning a communication made to the attorney by a
client in that relationship or the attorney’s advice to a client, except that if
the client is an insurance company, the attorney may be compelled to testify,
subject to an in camera inspection by a court, about communications made
by the client to the attorney or by the attorney to the client that are related to
the attorney’s aiding or furthering an ongoing or future commission of bad
faith by the client, if the party seeking disclosure of the communications has
made a prima-facie showing of bad faith, fraud, or criminal misconduct by
the client.
(Emphasis added.)
{¶27} There are also several common law exceptions to the general rule, including
those applicable here — the “Cooperation with Wrongdoing (Crime-Fraud) Exception” or
the “Lack-of-Good-Faith Exception.” See Squire, Sanders & Dempsey, L.L.P. v.
Givaudan Flavors Corp., 127 Ohio St.3d 161, 2010-Ohio-4469, 937 N.E.2d 533. The
work-product doctrine also provides a sphere of confidentiality in which attorneys may
operate to develop their theories and strategies for a given case. Id. at ¶ 55. This
doctrine is governed by Civ.R. 26(B)(3) and requires a showing of “good cause” before
discovery may be allowed.
{¶28} In either case — attorney-client privileged materials or attorney work
product — good cause must be shown by the party seeking discovery of those materials.
For attorney-client privileged material in this case, good cause means a prima-facie
showing of fraud, bad faith , or criminal misconduct (R.C. 2317.02(A)(2)); for work
product, it means “a showing of substantial need, that the information is important in the
preparation of the party’s case, and that there is an inability or difficulty in obtaining the
information without undue hardship.” Grace v. Mastruserio, 182 Ohio App.3d 243,
2007-Ohio-3942, 912 N.E.2d 608, ¶ 30 (1st Dist.).
{¶29} Dickson has failed to carry either burden. There are no substantial
allegations of fraud or illegal conduct. There are allegations of misconduct that would
implicate R.C. 2317.02(A). However, Dickson’s broad, general allegations relating to
misconduct are insufficient to make a prima-facie showing. His reliance on Givaudan is
misplaced because that case involved a fee dispute between a law firm and its client.
Ohio recognizes the common-law self-protection exception to the
attorney-client privilege, which permits an attorney to testify concerning
attorney-client communications where necessary to establish a claim for
legal fees on behalf of the attorney or to defend against a charge of
malpractice or other wrongdoing in litigation between the attorney and the
client.
Givaudan at ¶ 48. In those instances, an attorney or client has particular interest in
access to the case file to determine if fees were earned or appropriate, and the file is the
only place where such evidence can be found. The evidence of proper billing is
contained within the case file. That is not similar to a broad, unsubstantiated claim of
need to hunt through the entire case file on the off-chance that it may contain evidence of
improper motive to bring suit.
{¶30} Dickson maintains that “[t]he contents of Plaintiff’s counsel’s file are
directly at issue, relative to whether Plaintiff Schiff and/or his counsel engaged in
frivolous conduct in filing and prosecuting this case, pursuant to [R.C. 2323.51(A)(2)].”
But, R.C. 2323.51
applies an objective standard in determining frivolous conduct, as opposed
to a subjective one. State Farm Ins. Co. v. Peda, 11th Dist. [Lake] No.
2004-L-082, 2005-Ohio-3405. The finding of frivolous conduct under
R.C. 2323.51 is determined without reference to what the individual knew
or believed. Ceol v. Zion Indus., Inc., 81 Ohio App.3d 286, 289, 610
N.E.2d 1076 (9th Dist.1992).
Hardin, 8th Dist. Cuyahoga No. 99182, 2013-Ohio-2913, at ¶ 14.
{¶31} Because there is an objective standard applied in this case, Schiff ’s
knowledge or understanding is not “highly relevant” pursuant to Civ.R. 26(B)(3), as
Dickson argues. Much of the case turned on questions of law related to contract
interpretations, whether an accord and satisfaction had been reached, and whether a
reasonable attorney would have brought the claims involved.
{¶32} Here, Dickson offers nothing more than the remote possibility that
examination of the client file may lead to information supporting his motion for costs.
That is insufficient to invade the sanctity of the attorney-client relationship. The trial
court did not abuse its discretion in denying Dickson’s request to examine the attorney
case file.
III. Conclusion
{¶33} The denial of Dickson’s motion for costs filed pursuant to R.C. 2323.51 was
not an abuse of discretion where Schiff asserted a breach of contract cause of action
supported by reasonable contract interpretation and actions by Dickson that may show a
breach of the agreement. The trial court determined that the evidence adduced at a
three-day trial demonstrated that there was no improper purpose to the suit and that
legitimate arguments were raised and supported by facts and evidence admitted therein.
The trial court was not required to hold a hearing in order to deny the motion. Finally,
the trial court did not abuse its discretion when it denied Dickson’s request to review
Schiff ’s attorney’s trial case file without limitation.
{¶34} Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to the common pleas court to carry this
judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
FRANK D. CELEBREZZE, JR., PRESIDING JUDGE
EILEEN A. GALLAGHER, J., and
PATRICIA A. BLACKMON, J., CONCUR