Edell & Associates, P.C. v. Law Offices of Peter G. Angelos
Docket: No. 00-2069
Court: Court of Appeals for the Fourth Circuit; August 24, 2001; Federal Appellate Court
The court affirmed in part, vacated in part, and remanded for further proceedings regarding a fee-sharing dispute between attorney Marc Edell and his law firm, Edell Associates, P.C., and the Law Offices of Peter G. Angelos. The case stems from their joint representation of the State of Maryland in a lawsuit against the tobacco industry, which resulted in a $4.4 billion settlement. The Angelos Firm, having limited experience in tobacco litigation, sought Edell's expertise, leading to a proposal that assured the Maryland Attorney General (AG) Edell would serve as co-lead counsel. While the Angelos Firm was contracted to receive 25% of the recovery, no separate fee agreement was established with Edell's firm.
The dispute centers on the Angelos Firm's alleged promises to share a portion of the contingency fees from the settlement. Edell and his firm claim they were promised a fair share of the estimated $1.1 billion contingency fee and assert that they would not have participated without these assurances. The Angelos Firm, however, denies any agreement to share the contingency fee and has only paid Edell's firm $798,218 in fees based on hourly rates. Edell and his firm are pursuing claims for breach of contract and breach of the covenant of good faith and fair dealing, as well as intentional misrepresentation, if it is found the Angelos Firm did not intend to honor the alleged promises.
The Angelos Firm denies allegations of intentional misrepresentation and has successfully obtained summary judgment on three claims from Edell and his law firm: common law breach of contract, breach of the covenant of good faith and fair dealing, and intentional misrepresentation. Edell's motion to amend the complaint to include a claim for negligent misrepresentation was denied. On appeal, Edell challenges both the summary judgment and the denial of the amendment. The appellate court affirms the summary judgment on the breach of the covenant claim, vacates the judgments for the breach of contract and intentional misrepresentation claims, and remands those for further proceedings. Additionally, the court vacates the denial of Edell's motion to amend, instructing the district court to grant it.
In 1995, the Maryland Attorney General sought proposals for legal representation against the tobacco industry for recovering Medicaid payments. The Angelos Firm, with limited experience in tobacco litigation, sought Edell's expertise and promised to share any contingency fees from the case. Edell accepted the invitation to join the litigation team, despite unclear compensation terms. The litigation proposal submitted by the Angelos Firm highlighted Edell's qualifications as co-lead counsel, emphasizing his reputation in tobacco litigation to enhance the proposal’s appeal. Following this, negotiations regarding Edell's compensation began, with Edell proposing a flat annual fee and a percentage of the contingency fee.
Smouse communicated with Edell a few days later, expressing no objection to the overall structure of Edell's proposal but indicating that the suggested 20% contingency fee was too high. Edell then submitted a revised proposal on January 25, 1996, which included a larger flat fee and a tiered structure for contingency fees: 10% for the first $100 million recovered and 5% for amounts above that. However, by March 1996, compensation negotiations between Edell, his law firm, and the Angelos Firm remained unresolved. Consequently, at the Angelos Firm's suggestion, Edell and his law firm agreed to a limited role in the Maryland AG Action, formalized in a signed compensation agreement on March 4, 1996. This agreement stipulated that Edell would provide fifteen hours of work per month and supply relevant documents, in exchange for a payment of $10,000 per month, totaling a guaranteed minimum of $500,000, while the Angelos Firm would cover litigation expenses with reimbursement contingent upon recovery.
After the Maryland AG accepted the Angelos Firm’s proposal on March 19, 1996, the press release identified Edell as a key player in the litigation, despite his reduced role. A subsequent representation contract between Peter Angelos and the Maryland AG established a 25% contingency fee for the Angelos Firm and restricted any changes to the litigation team without the AG's consent. In April 1996, as New Jersey sought proposals for tobacco litigation counsel, Edell was approached by both the Angelos Firm and other New Jersey attorneys for participation in separate proposals. Edell informed Smouse of these inquiries, who reassured him of a promising partnership and encouraged him to reject other offers. Relying on Smouse's assurances, Edell and his law firm chose to collaborate with the Angelos Firm on the New Jersey proposal, declining the other opportunities.
The New Jersey Attorney General (AG) rejected a proposal from Edell and his law firm, along with the Angelos Firm, because the latter was only willing to cover 50% of litigation expenses, whereas the AG required full coverage. The AG instead accepted a proposal from another group of New Jersey attorneys. After this decision, a representative from the AG's office invited Edell to join the selected litigation team, but Edell declined at the request of Smouse, who emphasized their partnership and a unified team approach. On May 1, 1996, the Angelos Firm and the Maryland AG filed a lawsuit against major tobacco companies, prompting Edell to commit over fifteen hours per month to this case.
Edell proposed a new compensation structure on June 4, 1996, seeking $25,000 monthly for dedicating 80% of his time to the Maryland AG Action, along with a percentage of fees based on the amount recovered. Negotiations ensued, during which Edell's firm continued to invest significant time and resources into the case. The work performed included strategic litigation memos, expert witness retention, reviewing pleadings, legal research, discovery requests, training Angelos Firm attorneys, and developing databases for trial preparation. Edell's contributions also involved meetings, depositions, and extensive communication with the Angelos Firm's attorneys, demonstrating a commitment to the case and collaboration despite the initial rejection by the AG.
Edell actively engaged in case management conferences and significant motions during the Maryland AG Action litigation. Due to increasing responsibilities, he proposed an hourly rate of $325 for his services beyond the fifteen hours per month stipulated in the March 1996 Compensation Agreement, and $75 for his paralegal, in a letter dated February 14, 1997. The letter also referenced ongoing discussions regarding the Contingency-Fee Issue, which pertains to the fee percentage Edell and his firm would receive from any contingency fee awarded to the Angelos Firm.
Edell continued to dedicate significant time to the case, and the Angelos Firm compensated him as per the February 1997 Compensation Agreement. In a June 4, 1997, conversation, Smouse indicated that Peter Angelos assured Edell of generous compensation upon resolution of the case. Edell, expressing trust in Smouse, agreed to proceed without a formal agreement. Despite a face-to-face discussion on June 17, 1997, regarding the Contingency-Fee Issue, no resolution was reached, although Smouse agreed to draft an agreement on their compensation terms.
By July 29, 1997, Smouse had not drafted the agreement, prompting Edell to send a reminder letter detailing hours worked and costs incurred from March to June 1997, while cautioning that this did not include the contingency fee. In an August 4, 1997, letter, Smouse claimed he was unaware of an agreement to draft the compensation terms but was open to further discussion. Smouse did not dispute Edell's assertion regarding the fee calculations. As the trial approached in April 1999, Edell's firm diverted resources from other matters to focus on the Maryland AG Action, rejecting new business opportunities. Throughout this period, Edell's invoices reminded the Angelos Firm that they did not reflect the contingency fee component of their compensation.
On May 12, 1998, Smouse contacted Edell regarding the contingency fee referenced in an April 20, 1998 invoice, marking the first inquiry from the Angelos Firm about their entitlement to share in any contingency fee since discussions began over a year earlier. In a follow-up letter dated May 15, 1998, Edell clarified that, although they had agreed on Edell receiving a contingent fee in addition to hourly compensation, they had not finalized the specific percentage for that fee. Edell expressed trust in Peter Angelos's assurance that he would fairly compensate him if a fee was generated. For the next two months, the Angelos Firm did not contest Edell’s statements, instead increasing his responsibilities in the Maryland AG Action. On July 10, 1998, as settlement negotiations intensified, Smouse reassured Edell that they would be compensated for their work but denied any agreement on sharing a contingency fee, while still expressing confidence that Peter would treat Edell fairly. Subsequently, the settlement talks stalled, and the Angelos Firm requested Edell to commit more time to the case. In a letter dated July 26, 1998, Edell proposed terms for expanding his role, requiring a move to Maryland, and requested 10% of any potential contingency fee. Smouse, after reviewing this proposal, reiterated that Edell would receive compensation beyond hourly rates and impliedly reaffirmed the commitment to fair compensation, even questioning if the 10% figure was negotiable.
On August 3, 1998, Edell submitted an invoice to the Angelos Firm for services rendered in July 1998, explicitly excluding a component of his fees related to future remuneration contingent on litigation outcomes. The Angelos Firm paid this invoice without objection. Edell was informed by Smouse that Peter Angelos would meet with him on August 10, 1998, to discuss the Contingency-Fee Issue; however, the meeting was postponed until August 13, 1998. On August 12, Edell sent a letter to Smouse clarifying their agreement regarding his expected additional compensation upon recovery, emphasizing that the terminology used to describe this remuneration was irrelevant as it reflected a mutual understanding of their arrangement.
Following Edell's letter, on August 13, Smouse sent a letter to Edell denying any agreement for additional compensation beyond the agreed hourly rates and requested written confirmation that no contingent fee agreement existed. Edell replied, expressing disappointment and reiterating the documented facts supporting his position. On August 15, Smouse indicated that Peter Angelos would meet with Edell on August 17, provided Edell withdrew his previous fee-sharing proposal. Edell complied by faxing his withdrawal the next day. However, on August 17, Smouse deemed Edell's withdrawal insufficient, insisting that Edell confirm, in writing, that neither he nor his firm were entitled to a contingency fee related to their contributions to the Maryland AG Action before the meeting could occur.
Smouse communicated that the Angelos Firm believed Edell and his law firm were entitled only to hourly fees, leading Edell to refuse a confirmation letter. Despite this, Edell's firm continued to represent Maryland in the Maryland AG Action, anticipating a resolution of the compensation issue after the case. The defendants settled the action for approximately $4.4 billion, resulting in the Angelos Firm potentially earning around $1.1 billion in attorneys’ fees, while Edell's firm received $798,218 in hourly fees. Subsequently, Edell's firm initiated a diversity action against the Angelos Firm in the District of New Jersey, which was later transferred to the District of Maryland. The district court denied Edell's motion to amend the complaint to include a negligent misrepresentation claim and granted summary judgment in favor of the Angelos Firm. Edell's firm appealed the summary judgment, arguing that a contract existed entitling them to share in contingency fees beyond their hourly fees, supported by oral and written communications from Smouse and the Angelos Firm's lack of response to their invoices. The appeal seeks to vacate the summary judgment and remand for further proceedings.
Edell and his law firm assert that the evidence supports the equitable estoppel of the Angelos Firm from denying the existence of a contingency fee-sharing agreement. They reference Maryland’s highest court ruling that Rule 1.5(e) of the Maryland Lawyers’ Rules of Professional Conduct (MLRPC) establishes a public policy applicable to fee-sharing agreements, which is enforceable beyond disciplinary actions. MLRPC 1.5(e) stipulates that fees can only be divided if they are proportional to services rendered, all lawyers involved are disclosed and approved by the client, and the total fee is reasonable.
Edell's firm contends that the Angelos Firm's agreement to share in any contingency fee from the Maryland AG Action, in exchange for their significant involvement, implies that the fee division must align with the services performed, as mandated by MLRPC 1.5(e). They argue that Maryland law's preference against voiding contracts due to uncertainty supports their position, emphasizing that contracts should be interpreted to reflect the parties' reasonable intentions.
In response, the Angelos Firm argues that no reasonable jury could conclude that they agreed to share contingency fees with Edell’s firm, highlighting that Edell failed to copy Peter Angelos on prior communications and pointing out the significant financial risk disparity: Edell received guaranteed hourly fees while the Angelos Firm assumed all litigation expenses on a contingent basis.
The Angelos Firm asserts that its fee agreement with Maryland prohibited the assignment or transfer of rights under that agreement without prior written consent from the Maryland Attorney General (AG). The Firm contends that any oral agreement to assign a percentage of recoverable fees to Edell and his law firm would be unenforceable due to this prohibition. It argues that Edell's breach of contract claim must fail because a crucial term—namely, the percentage of the contingency fee—was not specified, citing Maryland law requiring all material terms to be agreed upon for a contract to be enforceable. The Angelos Firm also claims that Edell and his law firm waived their right to argue equitable estoppel on appeal by not raising it in lower courts and that their argument lacks merit due to insufficient evidence of a clear promise of fee sharing from the Firm. Lastly, the Firm argues that Edell and his law firm waived their right to challenge the application of MLRPC 1.5(e) by failing to do so earlier and that their argument incorrectly assumes an agreement on fee sharing. However, the analysis concludes that Edell and his law firm provided adequate evidence for a reasonable jury to find that the Angelos Firm agreed to compensate them with a share of any potential contingency fee, supported by their significant participation in the Maryland AG Action and an assertion made by the Firm during a conversation in 1997 regarding future compensation.
Smouse's letter to Edell on July 10, 1998, reveals his belief that Peter Angelos would deal fairly with Edell and his law firm upon the conclusion of their case. In this correspondence, Smouse expressed hope that Edell would maintain trust in Angelos' fairness. Additionally, on July 26, 1998, Smouse reaffirmed that Edell's firm would receive compensation beyond the hourly fees agreed upon in prior Compensation Agreements and inquired about the negotiability of a proposed 10% contingency fee. Under Maryland law, contract acceptance can occur through actions rather than formal agreements, making Edell’s decision not to copy Angelos on letters to Smouse a matter for the jury to consider, particularly given Smouse's senior role at the Angelos Firm and his representation of Angelos in negotiations. The Angelos Firm’s argument regarding the obligation to cover case expenses and the proposition that a fee-sharing agreement would violate contractual assignment prohibitions were deemed unconvincing. The court clarified that there was no assignment of rights from the Angelos Firm to Edell's firm; rather, Edell's position was that the Angelos Firm had a duty to compensate him and his firm fairly from any contingency fees received. Lastly, the court concluded that Edell's firm satisfactorily demonstrated that the Angelos Firm was aware of the service terms involving both hourly fees and a share in any contingency fee from the Maryland AG Action.
The Angelos Firm accepted the services provided by Edell and his law firm without objection until it became likely that the Maryland Attorney General Action would lead to a higher settlement than expected. Under Maryland law, silence can indicate acceptance of an offer when a party benefits from services rendered and has had a reasonable opportunity to reject the offer. Acceptance of a contract may occur through actions rather than formal words, and parties can modify agreements through conduct. The doctrine of equitable estoppel allows a party's silence to be interpreted as acceptance in situations where they understand the terms and continue to receive benefits. The evidence shows that the Angelos Firm did not deny the existence of an agreement regarding fee sharing until summer 1998, and they had previously encouraged reliance on representations from Edell’s firm about fee-sharing intentions. The court rejected the Angelos Firm’s claims against the invocation of equitable estoppel, clarifying that Edell’s firm did argue for it and distinguishing between equitable estoppel and promissory estoppel, which have different requirements.
Promissory estoppel allows for the enforcement of a promise lacking consideration if the plaintiff relied on that promise to their detriment, making it unconscionable not to enforce it. A critical component of a promissory estoppel claim is a clear and definite promise from the defendant. In contrast, equitable estoppel involves misrepresentations of fact or omissions.
Edell and his law firm argue, referencing MLRPC 1.5(e) and the case of Post v. Bregman, that although they did not reach an express fee-sharing agreement with the Angelos Firm, the firm’s agreement to share any contingency fee implies that the sharing would be proportionate to the services provided. They contend that once the Angelos Firm acknowledged a fee-sharing arrangement, MLRPC 1.5(e) necessitated an ethical payment structure based on their contributions.
However, the Angelos Firm counters this by asserting that there was no actual fee-sharing agreement that could violate its non-assignment obligation under its fee agreement with Maryland, as an enforceable contract requires consensus on all material terms. They argue that the situation regarding MLRPC 1.5(e) is hypothetical since no agreement existed.
The Post case illustrates a similar context, where an attorney sought a declaratory judgment on a fee-sharing agreement, claiming it violated MLRPC 1.5(e) due to insufficient work performed to justify the specified fee. The referring attorney contested this, maintaining that the fee was appropriate given his contributions and asserted that MLRPC 1.5(e) is an ethical rule enforceable solely through the attorney grievance system.
A two-count counterclaim was filed by the referring attorney for declaratory judgment and breach of contract, leading to an appeal in the Court of Appeals of Maryland after the Maryland Court of Special Appeals affirmed the circuit court’s summary judgment favoring the referring attorney. The court upheld the breach of contract claim while dismissing the opposing declaratory judgment claim as moot. It chose not to address the referring attorney's denial regarding the violation of MLRPC 1.5(e) by the fee-sharing agreement. Instead, the court determined that MLRPC 1.5(e) serves as a public policy governing private agreements among lawyers, asserting that any fee-sharing agreement violating this rule could be unenforceable unless the violation is “merely technical, incidental, or insubstantial.” The court characterized violations of Rule 1.5(e) as equitable defenses, stating that allowing enforcement of unethical agreements would be anomalous. Consequently, the court reversed the lower court's judgment and remanded the case for further proceedings. The legal principles established in Post were deemed applicable to the current case, allowing Edell and his law firm to assert MLRPC 1.5(e) as an equitable defense against the Angelos Firm's claim of lack of material agreement. Notably, while the parties in Post had agreed to specific fee-splitting percentages, the current case lacks such an agreement. Nevertheless, it was determined that a reasonable jury could find an implied contract concerning fair fee-sharing between Edell’s firm and the Angelos Firm, thereby preventing the latter from avoiding an implied obligation to split fees proportionally, which would be unethical otherwise.
Post recognizes the incorporation of MLRPC 1.5(e) into contracts as a means for a party to assert it as an equitable defense. Sufficient evidence supports the essential elements of MLRPC 1.5(e). The contract in question involves a fee division between lawyers from different firms, where Edell and his law firm lack a written agreement with the client, Maryland. MLRPC 1.5(e) permits fee division only when it reflects the services performed or if there is a written agreement that assigns joint responsibility for representation. Maryland, the client, was informed of Edell’s participation in the Maryland AG Action and raised no objections. Ongoing litigation will determine a reasonable contingency fee per MLRPC 1.5(e)(3). Allowing Edell to assert MLRPC 1.5(e) as a defense does not conflict with Maryland's contract enforceability principles because the missing term is implied by law, and the fee-sharing requirement is sufficiently definite for enforcement. Disputes regarding the proportion of services can be resolved factually. Consequently, the district court’s summary judgment favoring the Angelos Firm regarding Edell’s breach of contract claim is vacated, and the case is remanded for further proceedings.
Regarding Edell’s claim of breach of the implied covenant of good faith and fair dealing, Maryland law recognizes this covenant but limits it to preventing one party from obstructing the other’s performance. Edell's claim, which focuses on the Angelos Firm's lack of good faith in fulfilling its obligations, does not allege obstruction of performance and is thus not valid under Maryland law. The district court's ruling on this claim is affirmed.
Edell and his law firm argue that the district court incorrectly granted summary judgment favoring the Angelos Firm on their intentional misrepresentation claim. The court has vacated this judgment and remanded the case for further proceedings. The claim asserts that the Angelos Firm misled Edell's firm into increasing their legal work on the Maryland AG Action by falsely promising a fair share of any potential contingency fees, in addition to hourly payments. This claim serves as an alternative to their breach of contract claim.
To succeed in an intentional misrepresentation claim under Maryland law, a plaintiff must prove five elements by clear and convincing evidence: (1) a false representation by the defendant; (2) the defendant's knowledge of the falsity or reckless indifference to the truth; (3) the representation was made to defraud the plaintiff; (4) the plaintiff relied on the misrepresentation, having the right to do so; and (5) the plaintiff suffered compensable injury as a result. Notably, clear and convincing proof of statements made with no intention to fulfill them can satisfy the first two elements.
The reliance requirement is met if the misrepresentation significantly induced the plaintiff's actions, without needing to be the sole motivation. The Angelos Firm contends that the assurances from Edell's firm were merely predictive and that they were not bound to materialize, citing changes in Peter Angelos's stance. They argue that Edell's firm failed to show that assurances from Smouse reflected false intentions, and that reliance on these assurances was unreasonable due to timing and contractual clauses. However, Edell and his firm provided sufficient evidence to withstand summary judgment on their intentional misrepresentation claim.
Evidence viewed favorably towards Edell and his law firm indicates that the Angelos Firm engaged in a deceptive scheme to exploit Edell's reputation and expertise in tobacco litigation. They allegedly misled Edell and his firm into believing they would receive a fair share of any contingency fees from the Maryland AG Action, in addition to agreed hourly-rate fees. These false assurances, made after the March 1996 Compensation Agreement, were crucial in persuading Edell and his firm to invest significantly more time in the case than originally planned. The Angelos Firm's claim that Smouse lacked exclusive control over Peter Angelos’s decisions is deemed irrelevant for closing arguments. Furthermore, the Angelos Firm's assertion regarding the non-assignment clause in its fee agreement does not apply, as Edell and his firm never contended that the Angelos Firm would assign any rights under that agreement.
The court vacates the district court's summary judgment favoring the Angelos Firm concerning the intentional misrepresentation claim and remands for further proceedings. Additionally, Edell and his law firm argued that the district court improperly denied their request to amend their complaint to include a negligent misrepresentation claim. The court agrees, stating that under Federal Rule of Civil Procedure 15(a), amendments should be granted freely unless they are prejudicial, made in bad faith, or deemed futile. The district court's denial was based on its belief that the evidence was insufficient to support the necessary elements of a negligent misrepresentation claim under Maryland law. However, the appeals court has previously determined that adequate evidence exists to support these elements in the context of the intentional misrepresentation claim, thus undermining the district court's rationale for denying the amendment.
The district court's refusal to grant Edell and his law firm's motion to amend their complaint was deemed an abuse of discretion, leading to the vacating of that denial and remanding the matter for the court to grant the motion. The court vacated the district court's summary judgment in favor of the Angelos Firm regarding the contract claim and the intentional misrepresentation claim, remanding both for further proceedings. However, the court affirmed the summary judgment in favor of the Angelos Firm concerning the breach of the alleged covenant of good faith and fair dealing. Additionally, it was noted that the Maryland Attorney General is in litigation with the Angelos Firm over a fee dispute related to a settlement estimated at $4.4 billion, which the AG considers excessive. Other claims made by Edell and his firm were dismissed, either not relevant to the appeal or duplicative of the noted claims. The Angelos Firm did not contest the agency authority of Smouse to bind the firm contractually. The court referenced the Post decision, outlining various circumstances that must be considered when evaluating defenses based on MLRPC 1.5(e), including the nature of the violation, good faith actions of the parties, culpability, public interest, potential client harm, and other relevant factors.
The Angelos Firm's argument against the non-assignment of rights under its fee agreement with Maryland is rejected, as the relevant contract does not involve any assignment of rights by the Angelos Firm. Additionally, the Angelos Firm's claim that Edell and his law firm failed to preserve their argument based on MLRCP 1.5(e) for appellate review is also dismissed; the record shows that Edell and his law firm adequately presented this argument to preserve it for review. Furthermore, a negligent misrepresentation claim under Maryland common law comprises five elements: (1) the defendant owes a duty of care and negligently asserts a false statement; (2) the defendant intends for the statement to be acted upon by the plaintiff; (3) the defendant knows the plaintiff will likely rely on the statement, which could lead to loss or injury if false; (4) the plaintiff justifiably relies on the statement; and (5) the plaintiff suffers damages as a direct result of the defendant's negligence, as established in Gross, 630 A.2d at 1162.
