Avco Corp v. Veronica Saltz Turner

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 21-2750
____________
AVCO CORPORATION,
Appellant
v.
VERONICA W. SALTZ TURNER
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-20-cv-04073)
District Judge: Honorable Joshua D. Wolson
____________
Argued on June 15, 2022
Before: HARDIMAN, SMITH and FISHER, Circuit Judges.
(Filed: July 22, 2022)
Nicole Benjamin [ARGUED]
John A. Tarantino
Adler Pollock & Sheehan
One Citizens Plaza, 8th Floor
Providence, RI 02903
Counsel for Appellant
Wayne A. Ely [ARGUED]
59 Andrea Drive
Richboro, PA 18954
Counsel for Appellee
OPINION*
____________
FISHER, Circuit Judge.
Lycoming Engines, a division of Avco Corporation, manufactures engines for
what are often called small or private airplanes. Attorney Veronica Saltz Turner defended
Avco and Lycoming in product liability lawsuits. But after her relationship with them
ended, she performed legal work on behalf of the plaintiffs in Torres v. Honeywell, Inc.,1
a lawsuit involving a plane with a Lycoming engine. Avco sued Turner for breach of
fiduciary duty. It sought damages, disgorgement, and declaratory and injunctive relief.
The District Court entered summary judgment for Turner. Avco appeals. We will vacate
in part and remand for further proceedings.2
Under Pennsylvania law,3 “an attorney owes a fiduciary duty to his client; [this]
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
1
No. CV2017-007542 (Ariz. Super. Ct. Maricopa Cnty.).
2
The District Court had jurisdiction under 28 U.S.C. § 1332(a)(1) (diversity). We
have jurisdiction under 28 U.S.C. § 1291 (final decisions of district courts). We review a
district court’s grant of summary judgment on a plenary basis. Bletz v. Corrie, 974 F.3d
306, 308 (3d Cir. 2020). We generally review a grant or denial of a permanent injunction
for abuse of discretion, but where an injunction is denied because of the entry of
summary judgment, “we must determine whether the District Court erred in granting
summary judgment.” Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 819 (3d
Cir.), as amended (May 5, 2006). Avco does not appeal the denial of its request for a
declaratory judgment.
3
The District Court and the parties have applied Pennsylvania law, and we will as
well. See Williams v. BASF Catalysts LLC, 765 F.3d 306, 316–17 (3d Cir. 2014) (holding
that argument regarding choice of law may be waived).
2
duty demands undivided loyalty and prohibits the attorney from engaging in conflicts of
interest.”4 “[A] lawyer [may] not undertake a representation adverse to a former client in
a matter ‘substantially related’ to that in which the lawyer previously had served the
client.”5 We have explained that the duty “is not merely a matter of revealing or using the
client’s confidences and secrets, but of a duty of continuing loyalty to the client.”6
A plaintiff bringing a claim for breach of fiduciary duty must establish: (1) a
fiduciary relationship existed, (2) the defendant “negligently or intentionally failed to act
in good faith and solely for [the plaintiff’s] benefit,” and (3) the breach caused an injury
to the plaintiff.7
The Breach of Fiduciary Duty Claim
The District Court held that, even assuming there was a genuine factual dispute
about the existence and breach of a fiduciary duty, Avco did not establish a triable issue
of fact with regard to an “actionable injury.” J.A. 16. The type of injury a plaintiff must
establish, however, depends on the type of remedy sought. We consider, in turn, the kinds
4
Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277, 1283 (Pa.
1992).
5
Id. at 1284 (quoting Consol. Theatres v. Warner Bros. Cir. Mgmt. Corp., 216
F.2d 920, 924 (2d Cir. 1954)).
6
In re Corn Derivatives Antitrust Litig., 748 F.2d 157, 161–62 (3d Cir. 1984)
(holding that, where a law firm represented two plaintiffs whose positions had become
adverse, the firm could not withdraw from representing one and continue representing the
other). Corn Derivatives concerned ABA Model Rule of Professional Conduct 1.9(a),
which is essentially identical to Pennsylvania Rule of Professional Conduct 1.9(a).
7
Snyder v. Crusader Servicing Corp., 231 A.3d 20, 31 (Pa. Super. Ct. 2020).
3
of monetary remedies at issue: disgorgement, compensatory damages, attorney’s fees and
costs, and nominal damages.
1. Disgorgement
Avco argues that under Pennsylvania law, it does not need to show a separate
injury, apart from the fiduciary breach, to be entitled to disgorgement. We agree. In
Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, the Pepper Hamilton law firm
represented Maritrans for many years and “came to know [its] complete inner[]
workings” and “competitive strategies.”8 “Armed with this information,” Pepper began
representing four of Maritrans’ competitors in similar matters.9 Maritrans sued Pepper,
requesting injunctive relief and compensatory and punitive damages.10 The Pennsylvania
Supreme Court held that Maritrans was entitled to a preliminary injunction.11
The Court went on to observe that “[c]ourts throughout the country have ordered
the disgorgement of fees paid or the forfeiture of fees owed to attorneys who have
breached their fiduciary duties to their clients by engaging in impermissible conflicts of
interests.”12 The Court quoted with approval the United States Supreme Court’s holding
that a fiduciary laboring under a conflict “may not perfect [her] claim to compensation by
8
602 A.2d at 1280.
9
Id.
10
Id. at 1279.
11
Id. at 1287.
12
Id. at 1285 (collecting cases from state courts in Florida, Minnesota, New York,
and California and federal courts in the District of Columbia).
4
insisting that although [she] had conflicting interests, [she] served [her] several masters
equally well.”13 In other words, an attorney may not argue that she should be paid
because her conflict of interest did not hurt her client. Avco is correct that in such a
situation, the client is entitled to “disgorgement or forfeiture of fees for services
rendered.”14 The client need not show injury beyond the breach of fiduciary duty itself.15
In Maritrans, only the preliminary injunction was at issue, so the disgorgement
discussion could be characterized as dicta. If so, it is “considered dicta.”16 The
Pennsylvania Supreme Court was not musing about hypotheticals, but explaining the
remedies available to Maritrans on remand. This is persuasive evidence of how the Court
would rule on damages here.17
Turner argues Avco is not entitled to disgorgement because it did not pay her for
13
Id. at 1286 (quoting Woods v. City Nat’l Bank & Trust Co. of Chi., 312 U.S.
262, 269 (1941)).
14
Id. at 1285.
15
See Maritrans, 602 A.2d at 1285, citing, among other cases, Perl v. St. Paul
Fire & Marine Ins. Co., 345 N.W.2d 209, 212 (Minn. 1984) (“[I]f the attorney breaches
his or her fiduciary duty to the client, the client is deemed injured even if no actual loss
results” and “is entitled to recover, as damages, the compensation paid [to the
attorney].”); Zeiden v Oliphant, 54 N.Y.S.2d 27, 28–29 (N.Y. Sup. Ct. 1945) (“It is true
that plaintiff suffered no real injury or damage for she had no valid claim . . . . [and] the
information disclosed would not seem particularly secret or confidential for the matter
was a public court record . . . .” But because the lawyer “did, at least technically, pre-
empt to himself an opportunity for profit that plaintiff herself might conceivably have
utilized,” he was “not . . . permitted to retain any personal profit.”).
16
McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 663 (3d Cir. 1980).
17
See id. (when forecasting state law, we consider “any . . . reliable data tending
convincingly to show how the highest court in the state would decide the issue at hand,”
including “relevant state precedents, analogous decisions, [and] considered dicta”).
5
her work in the Torres case and “[a] party cannot seek disgorgement of monies it has not
paid.”18 But disgorgement need not be a refund of fees paid; it can, for example, consist
of an accounting of profits wrongfully made.19 According to its definition, after all,
disgorgement centers on the wrongdoer’s gain, not the plaintiff’s loss: it is “[t]he act of
giving up something (such as profits illegally obtained) on demand or by legal
compulsion.”20
Thus, the District Court erred by holding Turner was entitled to summary
judgment on the breach of fiduciary duty claim without addressing disgorgement.
2. Compensatory Damages
The District Court did not err in holding that Avco failed to create a triable issue
with regard to compensatory damages. In Maritrans, the Pennsylvania Supreme Court
held that a client may receive compensatory damages “for an attorney’s breach of his
18
Appellee’s Br. 17.
19
See, e.g., Boyd v. Cooper, 410 A.2d 860, 861 (Pa. Super. Ct. 1979). One of
Avco’s key cases supports the conclusion that disgorgement is not limited to a refund of
fees to the client. In that case, the Reed Smith law firm had a conflict of interest because
it represented first Axcan and later a party adverse to Axcan. Axcan Scandipharm, Inc. v.
Reed Smith, LLP, 2007 Phila. Com. Pl. LEXIS 78, at *2 (Pa. Com. Pl. Mar. 26, 2007).
Axcan sued, demanding disgorgement of Reed Smith’s fees. Id. However, the fees had
been paid on Axcan’s behalf by a third party. Id. at *12-13. Disgorgement of the entire
fee would result in a windfall to Axcan, so Axcan was entitled to disgorgement only of
“Reed Smith’s net profit resulting from its alleged breach of fiduciary duty.” Id. at *15.
We generally do not look to trial court decisions to determine state law. See
Crystallex Int’l Corp. v. Petróleos De Venezuela, S.A., 879 F.3d 79, 84 (3d Cir. 2018).
We mention Axcan because Avco relies on it heavily and the District Court discussed it.
20
Disgorgement, Black’s Law Dictionary (11th ed. 2019).
6
fiduciary duties by engaging in conflicts of interest.”21 In support, the Court cited two
California cases where clients suffered identifiable financial losses due to their attorneys’
fiduciary breaches.22 Avco similarly would be entitled to compensatory damages if it
could demonstrate pecuniary harm due to Turner’s alleged breach.
Avco argues there is a genuine issue of material fact on compensatory damages
because Turner “was provided with a wide array of confidential and trade secret
information,” “worked with [Avco’s] experts,” and “prepared . . . motions submitted on
behalf of the plaintiffs in Torres.”23 Those facts create the possibility of injury and
damages. But “summary judgment is essentially ‘put up or shut up’ time.”24 It is not
enough for Avco to say it “cannot know the full extent of the harm caused by Ms.
Turner’s representation of the Torres plaintiffs.”25 With discovery complete, Avco must
“point to some evidence in the record that creates a genuine issue of material fact”
regarding identifiable compensatory damages.26 It has not done so.
21
602 A.2d at 1286.
22
See Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg,
216 Cal. App. 3d 1139, 1146–49, 1154 (1989) (law firm bought real estate it knew the
client wanted to acquire); David Welch Co. v. Erskine & Tulley, 203 Cal. App. 3d 884,
889 (1988) (law firm competed with its former client to win collections contracts),
overruled by Lee v. Hanley, 354 P.3d 334, 343–44 (Cal. 2015).
23
Appellant’s Br. 30.
24
Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir. 2006).
25
Reply Br. 10.
26
See Berckeley, 455 F.3d at 201.
7
3. Attorney’s Fees and Costs
The District Court did not err in holding that Avco may not recover, as
compensatory damages, the attorney’s fees and costs it has incurred in this litigation.
Avco attacks this holding by citing state cases from outside Pennsylvania and a few
federal court cases. But “reliance on cases from non-Pennsylvania jurisdictions . . . is
misplaced, as those cases . . . do not bind the Pennsylvania Supreme Court.”27 Indeed, the
Pennsylvania Supreme Court has “consistently reaffirmed” the American Rule: “in this
Commonwealth, a litigant cannot recover counsel fees from an adverse party unless there
is express statutory authorization, a clear agreement of the parties, or some other
established exception.”28 Avco’s four federal district court cases do not show otherwise.
One of them, Fidelity Bank v. Commonwealth Marine & General Assurance Co., awards
attorney’s fees without citing any authority.29 The other three cases cite Fidelity or one
another.30
In sum, there is no indication that, in a case like this, the Pennsylvania Supreme
Court would depart from its faithful adherence to the American Rule.
27
Hunt v. U.S. Tobacco Co., 538 F.3d 217, 227–28 (3d Cir. 2008).
28
Lavelle v. Koch, 617 A.2d 319, 323 (Pa. 1992).
29
592 F. Supp. 513, 529–30 (E.D. Pa. 1984).
30
Airgas, Inc. v. Cravath, Swaine & Moore LLP, 2010 WL 3046586, at *6 (E.D.
Pa. Aug. 3, 2010) (citing Fidelity); Tress v. AXA Advisors, LLC, 2013 WL 12248219, at
*4 (E.D. Pa. June 6, 2013) (citing Airgas); NBN Broad., Inc. v. Sheridan Broad.
Networks, Inc., 2015 WL 1489902, at *4 (W.D. Pa. Mar. 31, 2015) (citing Airgas and
Fidelity).
8
4. Nominal Damages
Avco argues that an attorney’s breach of fiduciary duty creates an entitlement to
nominal damages. Avco did not plead entitlement to such damages in its complaint or
address their availability at summary judgment. “[A]rguments asserted for the first time
on appeal . . . are not susceptible of review in this Court absent exceptional
circumstances,” such as when “the public interest requires that the issue[] be heard or
manifest injustice would result from the failure to consider [it].”31 Avco has not argued
there are exceptional circumstances, and we do not perceive any.
The Permanent Injunction
Avco requested an injunction prohibiting Turner from “provid[ing] legal services
to any person . . . materially adverse to Avco in matters” involving issues “substantially
related or similar to [those raised in] Turner’s past representation of Avco.”32 To obtain a
permanent injunction, a party must (among other requirements) prevail on the merits.33
Before the District Court, Avco lost on its injunction request for the same reason it lost
on summary judgment: because the District Court concluded it had not shown a material
factual issue regarding injury. On appeal, Avco argues that the Court “erred in
determining that Ms. Turner was entitled to summary judgment on both Avco’s claim for
31
Brown v. Philip Morris Inc., 250 F.3d 789, 799 (3d Cir. 2001).
32
J.A. 47.
33
TD Bank N.A. v. Hill, 928 F.3d 259, 278 (3d Cir. 2019) (citing eBay Inc. v.
MercExchange, LLC, 547 U.S. 388, 391 (2006)).
9
breach of fiduciary duty and its related claim for injunctive relief because Avco had not
‘established an actionable injury.’”34 Since we will vacate the summary judgment, we
will also vacate the permanent injunction ruling that flowed from it.
Conclusion
To survive summary judgment, Avco needed to demonstrate a factual dispute
regarding each element of its claim: a fiduciary relationship, a breach, and an injury. The
District Court reached only the injury prong and granted summary judgment because it
concluded Avco had not suffered a cognizable injury. That was error. The District Court
will need to consider, on remand, the claim for disgorgement and whether Avco has
carried its burden on the other two elements of the claim.
For the reasons explained, we will vacate the entry of summary judgment on the
breach of fiduciary duty claim, vacate the denial of injunctive relief, and remand for
further proceedings.
34
Appellant’s Br. 16 (quoting J.A. 16).
10