Bank of America, N.A. v. Prestige Imports, Inc.

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15-P-248 Appeals Court
BANK OF AMERICA, N.A. 1 vs. PRESTIGE IMPORTS, INC., & others. 2
No. 15-P-248.
Norfolk. January 11, 2016. - July 20, 2016.
Present: Grainger, Rubin, & Milkey, JJ.
Attorney at Law, Attorney-client relationship, Lien, Contingent
fee agreement, Withdrawal. Damages, Quantum meruit.
Civil action commenced in the Superior Court Department on
February 1, 1991.
A motion to adjudicate an attorney's lien, filed on
December 9, 2013, was heard by Patrick F. Brady, J.
Steven J. Bolotin for George Deptula.
Timothy J. Fazio (Jennifer L. Morse with him) for the
defendants.
RUBIN, J. In 1992, attorney George Deptula agreed to
represent Prestige Imports, Inc., and its principals, Helmut
1
The original plaintiff in this action was South Shore
Bank. A motion to substitute Bank of America, N.A., was allowed
in this court.
2
Helmut Schmidt and Renate Schmidt.
2
Schmidt and his wife Renate Schmidt 3 (collectively, Prestige), on
a contingent fee basis in litigation with South Shore Bank and,
later, its acquirer, Bank of America, N.A. (Bank of America), in
exchange for a nonrefundable retainer and a percentage of any
recovery on Prestige's counterclaims. 4 After victories at two
trials and a reversal of those victories by this court, see Bank
of America, N.A. v. Prestige Imports, Inc., 75 Mass. App. Ct.
741 (2009) (Prestige Imports), Deptula withdrew from the case
without Prestige's consent in April, 2010. Represented by
different counsel, Prestige won a judgment of $27,031,568.12,
including statutory interest, at a third trial. While that
judgment was on appeal at this court, Deptula filed a notice of
attorney's fees lien pursuant to G. L. c. 221, § 50. Prestige
brought a motion to adjudicate this lien, arguing that Deptula
forfeited it by withdrawing without Prestige's consent and
without good cause. After a jury-waived trial, a Superior Court
judge -- who was also the trial judge for the third trial in the
underlying litigation -- ordered the entry of judgment for
3
Because Renate Schmidt does not play any role in the facts
relevant to this dispute, we will follow the parties and the
judge below in referring to Helmut as "Schmidt."
4
Although the 1992 fee agreement was revised during the
course of the representation, there always was a significant
contingent component. Specifically, the April, 1992, and
October, 1999, versions of the fee agreement both provided that
Deptula would receive fifteen percent of the first $1.5 million
recovered, twenty percent of the next $1.5 million, and twenty-
five percent of any balance more than $3 million.
3
Prestige. Deptula appealed that judgment and, for the reasons
stated infra, we reverse.
Background. The litigation between Bank of America and
Prestige involved claims by Bank of America for repayment of
loans, and counterclaims by Prestige chiefly alleging Uniform
Commercial Code violations, violation of G. L. c. 93A, and
negligence, arising out of Bank of America's handling of certain
checks and its issuance of treasurer's checks by which the
comptroller of Prestige embezzled substantial funds from
Prestige. Detailed facts about that litigation are set forth in
Prestige Imports, supra at 742-752. We summarize here only the
facts relevant to the attorney-client relationship between
Deptula and Prestige. We take the facts as found by the judge,
supplemented by uncontested facts in the record. Denver St. LLC
v. Saugus, 462 Mass. 651, 653 (2012).
After Deptula agreed to represent Prestige in April of
1992, he spent nine years conducting extensive discovery and
opposing two motions for summary judgment filed by Bank of
America. In 2001, Deptula asked Schmidt to allow him to bring
in an attorney named Richard Grahn to help him try the case.
Deptula proposed that Grahn would be compensated by sharing the
contingent fee. Schmidt agreed to hire another attorney, but
did not hire Grahn. Instead, he hired an attorney of his own
choosing, Thomas Francis, whom Schmidt arranged to pay on an
4
hourly basis. In 2002 and 2003, Deptula and Francis succeeded
at two different trials, the first on liability and the second
on damages. Although it was a difficult case, they obtained a
net damages award of approximately $8 million, including
statutory interest. Bank of America appealed these jury
verdicts and, due primarily to delays in the preparation of the
trial transcripts, this court did not hear the appeal until
2008. Prestige Imports, supra at 741.
During the sixteen-year period following Prestige's
retention of Deptula, there were a number of attempted revisions
to the fee agreement. In 1999, Deptula requested and received a
revision that provided him with additional upfront cash and
required Schmidt to hold additional money in escrow for the
payment of experts. In 2001, Deptula and Schmidt discussed, but
apparently never formalized, another amendment to the fee
agreement. In 2003, Deptula stated that hiring Francis on an
hourly basis was Schmidt's choice, and Deptula proposed minor
modifications to the fee agreement. Schmidt responded that the
increased upfront payment requested by Deptula be offset by a
portion of the fees he was paying to Francis. It appears that
the two never memorialized any of these suggested changes. In
April and December of 2004, and in November of 2007, Schmidt
again unsuccessfully requested a change to the fee agreement in
light of the money he was spending on Francis.
5
During the period between the damages trial in 2003 and the
2008 oral argument in Prestige Imports, Schmidt expressed
significant frustration with Deptula's performance. On a number
of occasions, Schmidt stated or implied that the delays were
Deptula's fault. Often, Schmidt drew connections between
Deptula's flaws and the hiring and payment of Francis. For
instance, in 2004, Schmidt wrote a letter to Deptula stating
that his failure to return telephone calls showed "disrespect"
and "lack of care and attention towards my case," and that "[i]t
was exactly this behavior and attitude which forced me three
years ago, two month[s] prior to our first scheduled trial, to
hire additional legal help." Schmidt also repeatedly returned
to the issue of Francis's fees, expressing his belief that
Deptula was procrastinating and producing inferior work product,
and then overutilizing Francis to make up for these
deficiencies.
Schmidt's frustrations became even more pronounced during
the preparation of a brief opposing Bank of America's petition
for direct appellate review and the preparation of Prestige's
appellate briefs. During this period, Schmidt wrote Deptula
another letter stating that he "remember[ed] that [Deptula was]
very negative prior to the first trial about our chances to
succeed with the bad faith argument" and that "[t]hat attitude
is what drove me to seek additional legal advice from Tom
6
Francis." Schmidt stated that Deptula was once again displaying
this negative attitude, which "ma[de] me feel helpless and
without adequate legal representation." A few months later,
Schmidt wrote an electronic mail message (e-mail) to Deptula
expressing frustration about his progress in preparing a reply
brief, stating that "[i]t appears again that your lack of
commitment forces me to engage Tom to complete the job."
These tensions came to a head after the 2008 oral argument
in this court. In the hallway outside the court room, Schmidt
expressed -- either by "screaming and yelling" or just "in a
somewhat angry voice" -- that he thought that Deptula had failed
to make the argument they had agreed he would make. Schmidt put
his feelings into writing in a letter dated April 17, 2008, and
titled "WHAT A DISAPPOINTMENT!!!" There, Schmidt once again
expressed his belief that Deptula had failed to make the
argument they had agreed upon. He concluded, "In light of our
preparation for this hearing this demonstrates complete
disregard for your client's interest and preferences. . . . I
do not know whether your presentation was a result of your
overriding determination not to create grounds for a new trial
or if you have other ulterior motives. . . . Until the Appeals
Court has made its decision, the final consequences of what I
perceive[d] to be a perplexing misrepresentation cannot be
assessed." Deptula replied with a lengthy letter explaining
7
that he needed to focus on the issues about which the justices
asked questions. Schmidt responded to that letter with an e-
mail that repeated his earlier accusations. He wrote, in
relevant part, "Again, I believe[d] that you intentionally
avoided these issues to be put in the foreground [sic] in order
not to create the possibility of a retrial."
This court issued an opinion on November 19, 2009, that
reversed large portions of the jury verdicts in favor of
Prestige and remanded the case for a new trial on the issue of
liability under a standard less favorable to Prestige. Prestige
Imports, 75 Mass. App. Ct. at 772. After that, Schmidt began
consulting his son-in-law, attorney Joseph (Ted) Killory, for
legal advice. Killory assisted in the preparation of a motion
for rehearing before the Appeals Court and an application for
further appellate review. However, at that time, Killory made
clear that he would only be able to work on the case on a part-
time basis in a supporting role, with Deptula remaining lead
counsel.
While the petitions for rehearing and further appellate
review were pending, Deptula wrote Schmidt several times
suggesting that they discuss a new fee agreement for retrial.
In a letter dated January 19, 2010, Deptula stated, in part,
"[W]e need to have further discussions about if and how I can
handle, with or without assistance, any form of retrial." In an
8
e-mail dated February 25, 2010, after further appellate review
was denied, Deptula stated, "[A]s you saw, unfortunately the
[Supreme Judicial Court] denied further review, therefore we
should try to agree on a new fee arrangement, if we can, discuss
the costs and need for experts, and then discuss next steps."
In a letter dated March 3, 2010, Deptula suggested that he take
the case on his "current standard fee agreement" for "partial
contingency cases" of $175 per hour plus twenty-five percent of
the total recovery including interest. The record does not
reveal whether Schmidt ever responded to any of this
correspondence.
On March 25, 2010, Deptula met with Killory alone. On
Killory's account, which the judge credited, Deptula used this
meeting as an opportunity to probe Killory about Schmidt's
finances and to discuss the possibility of restructuring the fee
agreement. Deptula proposed to Killory that Schmidt either pay
Deptula $50,000 to $100,000 more upfront, or increase the
contingency percentage to thirty-eight percent so Deptula could
bring in another attorney to take the lead in trying the case.
Deptula expressed his opinion that the case was a "loser" and
said that if he could not restructure the fee agreement his
other option would be to resign from the case and file a lien
for the value of his services. He said that he thought he had a
fifty-fifty chance of success on a lien claim.
9
On March 31, 2010, Deptula met with Killory and Schmidt.
On Killory and Schmidt's account, which again the judge
credited, at this meeting Deptula proposed restructuring his fee
agreement along the same lines described to Killory earlier.
Schmidt said that he would consider increasing the contingency
percentage but would not increase it to thirty-eight percent,
and that he did not want a different lawyer trying the case.
When Schmidt said that he could not afford to pay any more money
upfront, Deptula asked how that could be, given that Schmidt had
paid Francis $400,000. Schmidt responded that Francis's charges
were only so high because Deptula delegated so much work to him.
The judge concluded that this statement about Francis's
fees was not an explicit or implicit threat of a malpractice
suit nor an attempt to hold Deptula responsible for Francis's
fees. The judge reached this conclusion on the ground that
making such a threat would have been unreasonable given the lack
of legal basis for such a claim and the degree to which Schmidt
needed Deptula to participate in the case. The judge also
found, in a footnote, that the division of labor between Deptula
and Francis was reasonable given the difficulty of the case.
At the March 31 meeting, the parties also discussed Bank of
America's most recent offer to settle the case for $2 million.
Deptula said that he would not let Schmidt settle the case for
that amount unless Deptula received a fee of between $400,000
10
and $500,000; this was more than he was entitled to receive
under the existing fee agreement. Killory responded that it was
unethical to try to prevent a client from settling a case. At
some point -- the judge found that it was this one -- Deptula's
receptionist heard Deptula and one of the other people at the
meeting "yelling and swearing" at each other. Shortly
afterward, the meeting ended.
In a letter dated April 12, 2010, Deptula stated to Schmidt
that he was withdrawing from the case. He explained in this
letter that "[t]he trust and confidence necessary for an
effective attorney-client relationship [were] not present" for a
variety of reasons. The relevant portions of the two paragraphs
stating his reasons for withdrawal are as follows:
"Throughout my representation, you have frequently
questioned my strategy decisions, rejected my input and
work product, and hampered me from exercising independent
professional judgment. Instead of following my advice you
relied on the opinions of others . . . .
"Subsequent to the Appeals Court's decision, you
seemed to steadfastly reject any ideas I had or anything I
wrote. In a series of meetings, you criticized my
diligence. Then, at our March 31 meeting, the tenor of
your critique changed and your second-guessing went further
than it had before. You unfairly accused me of engaging in
unethical conduct, inadequate past performance, showing a
lack of proper diligence, and being greedy. You attributed
any past trial success to Tom Francis'[s] preparation and
asserted that your payments to him were caused by my lack
of preparation."
Before sending this letter, Deptula had notified his malpractice
insurer of the possibility that a malpractice claim or a
11
disciplinary complaint would be filed against him. After April
12, Schmidt and Deptula each sent an additional letter, the
contents of which are not relevant here, except insofar as the
letters made clear that Deptula was withdrawing without
Schmidt's consent.
On September 27, 2011, Prestige, represented by Killory and
Francis, prevailed at the third trial and obtained a judgment of
$27,031,568.12 including statutory interest. On July 8, 2013,
Deptula filed a notice of attorney's fees lien pursuant to G. L.
c. 221, § 50. In December of 2013, Prestige filed a motion to
adjudicate the lien. After the judgment was affirmed in an
unpublished decision pursuant to our rule 1:28 dated August 6,
2013, see Bank of America, N.A. v. Prestige Imports, Inc., 84
Mass. App. Ct. 1106 (2013), a five-day, jury-waived trial was
held on the lien claim, during which the judge had the
opportunity to hear witnesses and assess their credibility. In
a decision dated August 15, 2014, the judge ruled that Deptula
had forfeited his lien by withdrawing from the case without good
cause.
The judge found that Deptula's subjective motivation for
withdrawing was his belief that the case would not be
profitable. In particular, the judge found that "[t]he reason
that [Deptula] quit is that the case, following the
disappointing Appeals Court decision of November 19, 2009,
12
looked very bleak and he did not see a realistic chance of
obtaining another favorable jury verdict . . . . Unless the fee
agreement could be modified to enhance his economic prospects,
as he had expressed several times before the [March 31, 2010,]
meeting, he simply was unwilling to continue with a very
difficult case and a demanding and critical client." The judge
ruled that this financial reason did not constitute good cause
for withdrawal. The judge found that Schmidt's statements to
Deptula at the March 31, 2010, meeting did not rise to the level
of an express or implied threat of a malpractice suit, and so
also did not constitute good cause for withdrawal.
Discussion. "Upon appeal, we accept a trial judge's
findings of fact unless they are 'clearly erroneous,' and do not
review questions of fact if any reasonable view of the evidence
and the rational inferences to be drawn therefrom support the
judge's findings. We uphold the findings of a judge who saw and
heard the witnesses unless we are of the 'definite and firm
conviction that a mistake' has been made. Our review of a trial
judge's conclusions of law, however, is de novo." Martin v.
Simmons Properties, LLC, 467 Mass. 1, 8 (2014) (citations
omitted).
"From the . . . appearance in any proceeding . . . , the
attorney who appears for a client in such proceeding shall have
a lien for his reasonable fees and expenses upon his client's
13
cause of action, counterclaim or claim, upon the judgment . . .
in his client's favor entered or made in such proceeding, and
upon the proceeds derived therefrom." G. L. c. 221, § 50, as
appearing in St. 1945, c. 397, § 1. However, "an attorney must
establish a substantive contractual or quantum meruit basis to
recover fees from the client as a prerequisite to filing a lien
[under G. L. c. 221, § 50]." Boswell v. Zephyr Lines, Inc., 414
Mass. 241, 249 (1993).
Neither party argues that Deptula has any contractual basis
to recover fees. Thus, his only basis to recover fees, and thus
for asserting a lien, is quantum meruit. The general rule
applicable to cases of this sort is that "[w]hen a lawyer who
has entered into a contingent fee agreement with a client is
later discharged or withdraws from the case before the
contingency occurs, . . . the attorney may be paid only the
reasonable value of his services under principles of quantum
meruit, rather than recover the contingent fee prescribed by the
agreement itself." In the Matter of the Discipline of an
Attorney, 451 Mass. 131, 142 (2008). This rule applies at least
when, as here, the contingency –- here, Prestige winning a
judgment -- has been met. See Liss v. Studeny, 450 Mass. 473,
481 (2008). See also Curly Customs, Inc. v. Pioneer Financial,
62 Mass. App. Ct. 92, 97 (2004) ("[T]he lien exists only on
14
proceeds obtained by the client in the underlying proceeding;
consequently, if there are no such proceeds, there is no lien").
The general rule allowing a lien in these circumstances is
qualified, however, by the longstanding principle that a lawyer
who voluntarily withdraws from a case without good cause
forfeits any claim to an attorney's lien. See Phelps Steel,
Inc. v. Von Deak, 24 Mass. App. Ct. 592, 594 (1987), citing
Powers v. Manning, 154 Mass. 370, 375-377 (1891); Kourouvacilis
v. American Fedn. of State, County & Mun. Employees, 65 Mass.
App. Ct. 521, 527-528 (2006). "Whether withdrawal works a
waiver of the attorney's lien depends on whether the attorney
had good cause to withdraw." Phelps Steel, Inc., supra. The
court in Phelps Steel, Inc. held that the "[b]reakdown of the
lawyer-client relationship serves as good cause for withdrawal,
without waiver of the attorney's lien. The lawyer-client
relationship is founded on trust and confidentiality. When
those foundations deteriorate, it is not only impractical to
persist in the relationship, it diminishes the integrity of the
bar to do so." Ibid. (citations omitted).
The facts found by the judge demonstrate a breakdown of the
attorney-client relationship and the trust that must underlie
it; therefore, good cause for withdrawal existed. Schmidt's
statement that he had to pay Francis $400,000 because Deptula
delegated so much work to him was just the latest in a long line
15
of similar accusations against Deptula. As described supra,
these accusations dated back to 2004, but had intensified after
the 2008 oral argument in this court. The accusations included
allegations of laziness, unprofessionalism, lack of commitment
to the case, failure to provide adequate legal representation,
ulterior motives, and intentional sabotage. Schmidt had
degraded and humiliated Deptula in e-mails, in letters, and,
after oral argument in this court, in public, over the course of
several years. In light of this history, Schmidt's statement
amounted to a renewal of these accusations, which confirmed the
continued existence of a longstanding breakdown of the attorney-
client relationship. Phelps Steel, Inc. does not require either
that Schmidt's statement rise to the level of an express or
implied threat of a malpractice suit, or that Deptula's
withdrawal was mandated by the Rules of Professional Conduct.
See Pearlmutter v. Alexander, 97 Cal. App. 3d Supp. 16, 20
(1979) (entitlement to lien not waived where attorney
permissibly withdrew "where the client's conduct . . .
render[ed] it unreasonably difficult for the attorney to carry
out his employment effectively"), cited with approval in Phelps
Steel, Inc., supra at 594. 5 In the circumstances of this case,
5
We disagree with Prestige's contention that Deptula was
not permitted to withdraw under the Rules of Professional
Conduct. See Minkina v. Frankl, 86 Mass. App. Ct. 282, 293
(2014), quoting from Mass.R.Prof.C. 1.16(b)(5), (6), 426 Mass.
16Deptula's withdrawal did not work a waiver of his statutory
right to an attorney's lien for the value of the work he
performed during his seventeen-year representation of Prestige.
Accord Phelps Steel, Inc., 24 Mass. App. Ct. at 594 (in
determining whether there has been waiver, "[i]t is also a
factor in favor of [the law firm] that it had rendered
substantially all the services required to obtain a favorable
result for [the client] at the trial level. Thus . . . there
was, assuming some good cause for withdrawal, a solid basis for
the statutory lien, which attaches '[f]rom the authorized
commencement of an action.' G. L. c. 221, § 50").
Prestige argues, and the judge found, that whatever the
objective case with respect to the presence of good cause,
Deptula's subjective motivation for withdrawal was financial; in
essence Deptula had made a calculation that continued
representation of Prestige was no longer a good bet in light of
his contingent fee agreement. The proper method for assessing
good cause in determining the applicability of the attorney's
1435 (1998) ("According to the Massachusetts Rules of
Professional Conduct, 'a lawyer may withdraw from representing a
client if withdrawal can be accomplished without material
adverse effect on the interests of the client, or if . . . the
representation . . . has been rendered unreasonably difficult by
the client . . . [or] other good cause for withdrawal exists'").
We need not and do not determine whether the standard for
permissive withdrawal under the rules is coextensive with the
good cause standard required to avoid waiver of an attorney's
lien in a contingent fee case.
17
lien statute in a contingency fee case, however, does not
involve determining the withdrawing attorney's subjective
motivation, something that would be difficult to do with any
confidence. Rather, as indicated in Ambrose v. Detroit Edison
Co., 65 Mich. App. 484, 488-489 (1975), on which we relied in
Phelps Steel, Inc. in initially adopting the good cause rule,
the proper inquiry is whether, viewed objectively, the facts
demonstrate the existence of good cause for withdrawal. In
Ambrose, supra at 487, the withdrawing attorneys put forth four
different grounds that they asserted supported their claim of
good cause for withdrawal. Rather than exploring which among
them was the actual, subjective reason for withdrawal, the court
concluded simply that "[s]ince the record here shows good cause
for the attorneys to withdraw, we hold that the trial judge
properly imposed an attorneys' lien in this case." Id. at 488.
Similarly here, where the objective facts demonstrate the
existence of good cause for withdrawal, we conclude Deptula is
entitled to an attorney's fees lien.
This result is supported by broader considerations about
the role of contingency fee agreements in our justice system.
As other jurisdictions have recognized, allowing attorneys to
withdraw from contingent fee agreements and still retain
compensation risks undermining the viability of the arrangements
altogether. See, e.g., Augustson v. Linea Aerea Nacional-Chile
18
S.A. (LAN-Chile), 76 F.3d 658, 664 (5th Cir. 1996); Bell &
Marra, PLLC v. Sullivan, 300 Mont. 530, 538-539 (2000); Ausler
v. Ramsey, 73 Wash. App. 231, 237-238 (1994). However, an
attorney who agrees to bear the risk of losing a case is not
thereby forced to bear the risk that his client's behavior will
cause a breakdown in the attorney-client relationship. When an
attorney withdraws due to the behavior of the client, he is thus
entitled to the reasonable value of services rendered, even
while losing the opportunity for a larger payoff if, as occurred
here, another attorney is able to win a significant judgment.
The judgment is reversed, and the case is remanded for a
determination of the reasonable value of Deptula's services
under principles of quantum meruit, and for entry of a judgment
granting him a lien in that amount. 6
So ordered.
6
We deny Prestige's request for double costs and appellate
attorney's fees.