Sears Roebuck & Co. v. Goldstone & Sudalter
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Sears Roebuck & Co. v. Goldstone & Sudalter, (1st Cir. 1997).
Opinion
USCA1 Opinion
United States Court of Appeals United States Court of Appeals
For the First Circuit For the First Circuit
____________________
No. 97-1216
SEARS, ROEBUCK & CO.,
Plaintiff, Appellee,
v.
GOLDSTONE & SUDALTER, P.C.,
Defendant, Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge] ___________________
____________________
Before
Stahl, Circuit Judge, _____________
Bownes, Senior Circuit Judge, ____________________
and Lynch, Circuit Judge. _____________
____________________
David G. Hanrahan, with whom Ross D. Ginsberg and _________________ _________________
Gilman, McLaughlin & Hanrahan, LLP, were on brief, for _____________________________________
appellant.
Allan E. Taylor, with whom Elizabeth C. Sackett and _______________ ____________________
Taylor, Duane, Barton & Gilman, LLP, were on brief, for _______________________________________
appellee.
____________________
October 22, 1997
____________________
LYNCH, Circuit Judge. This case raises issues of LYNCH, Circuit Judge. _____________
Massachusetts law concerning the obligations that attorneys
owe clients in their billing practices.
Attorney Daniel Goldstone formed Goldstone &
Sudalter, P.C. to purchase the practice of the late Eldon
Sudalter, a collection attorney. Goldstone & Sudalter then
billed Sears, Roebuck & Co. in excess of one million dollars
for past work Goldstone said Attorney Sudalter had performed
on Sears's cases. Sears at first paid most of the bills, but
eventually sued Goldstone & Sudalter for an accounting,
asking for a judicial determination of its total liability,
if any, for the past work. Goldstone & Sudalter, in turn,
counterclaimed for the unpaid balance.
Following Goldstone's admission that he had no
personal knowledge concerning Sudalter's billing practices to
support his interpretation of the records which formed the
basis for his bills, Sears amended its complaint to include
common-law claims for breach of contract and breach of
fiduciary duty, and a statutory claim of "unfair and
deceptive trade practices" under Mass. Gen. Laws ch. 93A.
Sears sought reimbursement for bills it had previously paid
and an award of attorney's fees. The district court granted
Sears's motion for summary judgment, and awarded it $833,409
-- the entire amount of Sears's payments on the disputed
bills -- and $112,000 in attorney's fees.
-2- 2
Although our analysis varies from that of the
district court, the summary judgment record reveals that
Goldstone & Sudalter has not met its burden of substantiating
its bills under Massachusetts law and that Sears has met its
burden of showing unfair and deceptive practices. We affirm.
I. The Facts. _____________
We state the facts in the light most favorable to
Goldstone & Sudalter, the party opposing summary judgment.
Swain v. Spinney, 117 F.3d 1, 2 (1st Cir. 1997). _____ _______
In 1991, Daniel Goldstone, then a lawyer with three
years of experience, began negotiations with Mrs. Janice
Sudalter to purchase the law practice of her late husband
Eldon Sudalter. Eldon Sudalter was a solo practitioner and
had been the primary collection attorney for Sears in eastern
Massachusetts for the previous fifteen years. Mrs. Sudalter
had worked in her husband's office for most of that time and
her regular duties included preparing the monthly billings
for Sears and other clients.
In mid-1991, Goldstone and Mrs. Sudalter signed a
letter of intent, and Goldstone formed Goldstone & Sudalter
to purchase the assets of the practice and continue the
business. In late 1991, the relationship broke down amid
mutual recriminations, and Goldstone sued Mrs. Sudalter in
state court over the terms of their agreement.
-3- 3
By early 1992, Goldstone was in possession of the
files of the Eldon Sudalter practice and was servicing its
clients, although Goldstone and Mrs. Sudalter did not
finally settle the state court litigation until January 1993.
The settlement provided for a total purchase price of
$150,000 for all of the assets, tangible and intangible, of
the Eldon Sudalter practice. Goldstone had not actually
worked with Attorney Sudalter, and had not discussed with him
the firm's billing practices. Goldstone had no personal
knowledge of whether particular cases in Sudalter's files had
been billed or were uncollectible, or had been formally
closed, whether or not billed or uncollectible.
Like many collection attorneys, the late Eldon
Sudalter operated on a contingency fee basis. Before 1987,
Sears paid Attorney Sudalter one-third of his recovery and
reimbursed him for all court costs. That changed. On
September 8, 1987, Attorney Sudalter executed a form
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USCA1 Opinion
United States Court of Appeals United States Court of Appeals
For the First Circuit For the First Circuit
____________________
No. 97-1216
SEARS, ROEBUCK & CO.,
Plaintiff, Appellee,
v.
GOLDSTONE & SUDALTER, P.C.,
Defendant, Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge] ___________________
____________________
Before
Stahl, Circuit Judge, _____________
Bownes, Senior Circuit Judge, ____________________
and Lynch, Circuit Judge. _____________
____________________
David G. Hanrahan, with whom Ross D. Ginsberg and _________________ _________________
Gilman, McLaughlin & Hanrahan, LLP, were on brief, for _____________________________________
appellant.
Allan E. Taylor, with whom Elizabeth C. Sackett and _______________ ____________________
Taylor, Duane, Barton & Gilman, LLP, were on brief, for _______________________________________
appellee.
____________________
October 22, 1997
____________________
LYNCH, Circuit Judge. This case raises issues of LYNCH, Circuit Judge. _____________
Massachusetts law concerning the obligations that attorneys
owe clients in their billing practices.
Attorney Daniel Goldstone formed Goldstone &
Sudalter, P.C. to purchase the practice of the late Eldon
Sudalter, a collection attorney. Goldstone & Sudalter then
billed Sears, Roebuck & Co. in excess of one million dollars
for past work Goldstone said Attorney Sudalter had performed
on Sears's cases. Sears at first paid most of the bills, but
eventually sued Goldstone & Sudalter for an accounting,
asking for a judicial determination of its total liability,
if any, for the past work. Goldstone & Sudalter, in turn,
counterclaimed for the unpaid balance.
Following Goldstone's admission that he had no
personal knowledge concerning Sudalter's billing practices to
support his interpretation of the records which formed the
basis for his bills, Sears amended its complaint to include
common-law claims for breach of contract and breach of
fiduciary duty, and a statutory claim of "unfair and
deceptive trade practices" under Mass. Gen. Laws ch. 93A.
Sears sought reimbursement for bills it had previously paid
and an award of attorney's fees. The district court granted
Sears's motion for summary judgment, and awarded it $833,409
-- the entire amount of Sears's payments on the disputed
bills -- and $112,000 in attorney's fees.
-2- 2
Although our analysis varies from that of the
district court, the summary judgment record reveals that
Goldstone & Sudalter has not met its burden of substantiating
its bills under Massachusetts law and that Sears has met its
burden of showing unfair and deceptive practices. We affirm.
I. The Facts. _____________
We state the facts in the light most favorable to
Goldstone & Sudalter, the party opposing summary judgment.
Swain v. Spinney, 117 F.3d 1, 2 (1st Cir. 1997). _____ _______
In 1991, Daniel Goldstone, then a lawyer with three
years of experience, began negotiations with Mrs. Janice
Sudalter to purchase the law practice of her late husband
Eldon Sudalter. Eldon Sudalter was a solo practitioner and
had been the primary collection attorney for Sears in eastern
Massachusetts for the previous fifteen years. Mrs. Sudalter
had worked in her husband's office for most of that time and
her regular duties included preparing the monthly billings
for Sears and other clients.
In mid-1991, Goldstone and Mrs. Sudalter signed a
letter of intent, and Goldstone formed Goldstone & Sudalter
to purchase the assets of the practice and continue the
business. In late 1991, the relationship broke down amid
mutual recriminations, and Goldstone sued Mrs. Sudalter in
state court over the terms of their agreement.
-3- 3
By early 1992, Goldstone was in possession of the
files of the Eldon Sudalter practice and was servicing its
clients, although Goldstone and Mrs. Sudalter did not
finally settle the state court litigation until January 1993.
The settlement provided for a total purchase price of
$150,000 for all of the assets, tangible and intangible, of
the Eldon Sudalter practice. Goldstone had not actually
worked with Attorney Sudalter, and had not discussed with him
the firm's billing practices. Goldstone had no personal
knowledge of whether particular cases in Sudalter's files had
been billed or were uncollectible, or had been formally
closed, whether or not billed or uncollectible.
Like many collection attorneys, the late Eldon
Sudalter operated on a contingency fee basis. Before 1987,
Sears paid Attorney Sudalter one-third of his recovery and
reimbursed him for all court costs. That changed. On
September 8, 1987, Attorney Sudalter executed a form
"Attorney Retention Agreement" prepared by Sears for its
collection attorneys throughout the United States.
The 1987 Agreement increased Attorney Sudalter's
fee to forty-five percent, but he was now to be responsible
for all costs that were not reimbursed by debtors. According
to Mrs. Sudalter, under the new agreement, "[W]e take 45
percent of what we collect. If we can recover the costs
[from debtors], great. If we can't recover the costs, that's
-4- 4
just part of the agreement; that's why they're [Sears] paying
us the 45 percent." Goldstone offered no evidence to
contradict Mrs. Sudalter's testimony that the forty-five
percent contingency fee was intended to take into account all
court costs.
According to the 1987 Agreement, the collection
attorney was to send all monies collected to Sears on a
monthly basis, accompanied by a report; Sears would then pay
the attorney's contingency fee. The 1987 Agreement provided:
"Attorney will be accountable for all monies collected on any
of the accounts and will submit at least monthly a report to
Sears listing the accounts on which collections were made and
amount collected, together with a check payable to Sears for
all monies collected." (emphasis supplied). The 1987 ___
Agreement also states, "Attorney waives any attorney's lien
on Sears accounts and agrees not to assert such lien against
Sears."
Sears did not send individual checks to the
Sudalter firm for the particular matters for which they paid
Attorney Sudalter his legal fees or costs over the years.
Likewise, Attorney Sudalter did not customarily record his
receipt of the contingency fee or costs from Sears on each
debtor's file. Rather, Attorney Sudalter regularly
deposited money from debtors in a Sears client trust account
and remitted a single check each month to Sears from the
-5- 5
account for the total amount of that month's collections.
Sears then remitted the contingency fee for that amount and
for any amounts that debtors sent directly to Sears. Before
1987, Sears would reimburse court costs in a single monthly
check if Sudalter could not collect them from debtors. After
1987, Sears was not responsible for those costs, although it
would still occasionally send Sudalter costs that debtors had
sent to Sears instead of Sudalter, again in a single check
for that month.
The agreement set forth a separate compensation
arrangement if Sears terminated the agreement or withdrew
customer accounts. In that event, Sears would pay Sudalter
$60 per hour for his time and reimburse his court costs,
although it would pay no such fees if Sudalter terminated the
agreement or was in breach of the agreement. According to an
employee for a collection agency that Sears uses, withdrawing
accounts is seen as a "drastic" step because of these fees
and costs and for that reason is rarely employed in the
collection industry.
In early 1992, Goldstone called Karen D'Angelo, a
special accounts manager at Sears, to ask why Sears had
stopped sending cases to the Sudalter firm, now operating as
Goldstone & Sudalter. D'Angelo was a low-level Sears
employee who had been in her present job in Massachusetts for
two years and had first spoken to Attorney Sudalter only
-6- 6
shortly before he died in 1991. D'Angelo informed Goldstone
that Sears rated its collection attorneys by comparing the
amounts the attorneys collected monthly as a percentage of
their total portfolios. According to Goldstone, D'Angelo
informed him that the law practice had "never closed a file
in fifteen years," and urged the firm to close these accounts
to make its percentage appear more competitive.
Goldstone began "closing" the old files, informing
Sears that he would attempt no more collections on such
cases. At the same time, he implemented the billing
practices at issue in this lawsuit. Goldstone began by
reviewing thousands of old files contained in "dead storage"
in the basement of the late Eldon Sudalter's former office,
most of which had red stickers on them. Some file folders
contained handwritten notations of court costs paid by
Sudalter and some indicated whether those costs had been
reimbursed by debtors or Sears. Goldstone prepared a letter
for signature by a Sears representative, "acknowledg[ing] the
assignment to Goldstone & Sudalter, P.C. of the contract
executed by Eldon B. Sudalter, P.C." in 1987. The letter
also referred to that contract, stating, "Specifically, with
regard to the 'pre-1992 closed cases,' Sears will be
responsible for costs expended and attorneys' fees at the
rate of $60.00 per hour in accordance with Exhibit 'B'
-7- 7
annexed to the 1987 contract." Emma Scott, an in-house
attorney for Sears, signed the letter.
Goldstone states that he regarded this letter as
"completely consistent with the earlier Attorney Retention
Agreement" and that he did not believe that Scott's signing
of the letter was intended to alter the terms of the 1987
Agreement in any way. According to Goldstone's
interpretation of the agreement, his "closing" of cases,
which he did after his conversation with D'Angelo, triggered
Sears's obligation to pay for court costs and work performed
on an hourly basis under the contract's provisions regarding
cases "withdrawn" by Sears. There is some evidence that
Sears's in-house attorneys, at least initially, agreed with
Goldstone's interpretation.
From February 1, 1992 until February 23, 1996,
Goldstone billed Sears for costs and attorney's fees on each
of over 15,000 files. He derived his cost figures from the
handwritten notations on the outside of the folders. He
assumed that Sudalter had not been reimbursed by Sears or _
debtors unless there was a handwritten note to that effect on
the folder. He derived his figures for attorney's fees by
estimating the amount of time that Sudalter had spent on each
file by examining the tasks that the file reflected had been
performed, or by having non-attorney employees perform such
-8- 8
estimates to his specifications.1 These bills for "closed
cases" totaled over $1.1 million dollars; Sears paid $833,409
before bringing the present litigation.
During this time, Goldstone also submitted monthly
the money he had collected for Sears on active files, and
Sears paid the forty-five percent contingency fee. Despite
the 1987 Agreement and without Sears's knowledge, Goldstone
also pocketed a portion of the money he collected from Sears
debtors as reimbursement for court costs before sending the
balance to Sears each month.2
____________________
1. In each case, the amount of attorney time that
Goldstone estimated was minimal, almost always less than an
hour.
2. According to Goldstone, the firm's practice of skimming
reimbursement for costs off the top of collections from Sears
debtors was dictated by the law of champerty, which generally
requires that clients remain liable for expenses even in
contingency fee arrangements. According to Goldstone, a non-
attorney Sears employee agreed with his interpretation. In
fact, however, S.J.C. Rule 3:05, governing contingent fees
for Massachusetts attorneys, provides, "Contingent fee
arrangements concerning the collection of commercial accounts
. . . made in accordance with usual practices in respect of
such cases shall not be regarded as champertous and shall not
be subject to," inter alia, the requirement that "the client, __________
in any event, is to be liable for expenses and
disbursements." Regardless, the 1987 Agreement and DR 9-102
absolutely forbid Goldstone's unilateral reimbursement of
costs from client funds without the client's knowledge or
consent, even if he were entitled to such reimbursement.
Under the Massachusetts Rules of Professional
Conduct, effective January 1, 1998, which repeal former
S.J.C. Rule 3:05 and the disciplinary rules, attorneys may
make payment of costs and expenses contingent on success for
all clients. See Rule 1.8(e)(1). Naturally, the requirement ___
to keep client funds separate remains in effect. See Rule ___
1.15.
-9- 9
In mid-1992, Sears employees began to question Mr.
Goldstone's billings when they noticed that his bills
exceeded the amount he had collected for Sears for several
months. Goldstone explained that many of the bills were not
for ongoing cases, but for closed cases from the Sudalter
firm. He represented that Sears had not previously paid for
these cases. At a meeting in the summer of 1992, Goldstone
showed a box of files to Karen D'Angelo, the Sears special
accounts manager with whom he had spoken earlier, explaining
that the markings meant that Sears had not paid for these
cases. D'Angelo confirmed that the account numbers on the
files represented genuine Sears collection accounts that had
been placed with the Sudalter firm, but did not challenge
Goldstone on the meaning of the file folder markings.
Goldstone did not say that this was just his interpretation
of the file folder markings, or that the markings could be
interpreted differently.
Later that year, higher-ranking Sears executives
inquired about the increase in expenses for attorney's fees
that Goldstone's "closed cases" bills represented, asking the
office to "stop" Goldstone's bills. Renee Matta, D'Angelo's
supervisor, wrote an e-mail explaining her understanding of
the situation.
This is not something that I can "stop." Attorney
Goldstone is charging for fees and costs that were
never billed to us over an extended period of time
for services rendered by Attorney Sudalter. . . .
-10- 10
I merely asked him to get the bloodletting over
with in 92 if possible. He was in today and
brought in the "last" of the culling process. It
should peak out at $605,000 for the year! All of
these cases should have (at some time) been billed
to Sears -- but were not. Mrs. Sudalter has said
that she had intended to bill Sears -- but didn't.
. . . I have reviewed many of the accounts and find
the bookkeeping to be in order. Mr. Goldstone
merely followed the intent of the contract when he
was told that accounts that have not been "paid"
should not remain in his portfolio. . . .
Although the e-mail states that Matta "reviewed many of the
accounts," the record reveals that such review was only to
determine whether the account numbers accurately referred to
Sears debtors. As Matta explained,
[O]n some invoices it was difficult for us to
determine what we were paying for. The accounts
were very, very old . . . . I recall [my
employees] getting some clarification [from
Goldstone] on some account numbers. . . . I do
recall them getting some clarification on account
names to substantiate the name that we had been
billed for.
Other than the review to see if the account numbers matched
those of Sears's debtors, Matta relied on Goldstone for her
information. Apart from reviewing the account numbers, Sears
employees did not independently review the law firm's records
to determine whether the amounts Goldstone billed for
attorney time or costs were accurate; they trusted that
Goldstone, as their attorney, had a basis for those figures.
Believing that Goldstone had a basis for his bills
and that the contract required the payments, Sears employees
did not question Goldstone again until the bills continued to
-11- 11
arrive throughout 1993 and early 1994 without any apparent
end in sight. When Sears again began to question the bills
and to delay its payments to Goldstone, he took action.
Goldstone threatened to deduct his fees from money collected
from Sears's debtors. He also noted in a letter that he and
the firm felt "restrained from acting in our client's best
interest because of" Sears's failure to pay. In 1994, Sears
finally terminated its relationship with Goldstone & Sudalter
and brought the present action for an accounting to determine
whether Goldstone's bills were in order. Goldstone
counterclaimed for the unpaid balance.
At deposition, Mrs. Sudalter testified that she
performed bookkeeping duties for her husband's firm and was
intimately familiar with its billing practices. She
testified that Sears did not owe anything on the old files,
i.e. files in dead storage of whatever year, and that it was
impossible to determine from the outside of a folder whether
Sears had paid a fee for the file. Although he had never
discussed with Attorney Sudalter the system for determining
whether Sears had paid a fee or reimbursed costs for a
particular case, Goldstone's position was that the costs were
self-evident from a review of the case jacket. Likewise,
Goldstone contends, the fee could be reliably estimated by
reviewing the work performed and determining, based on his
experience, how much time each task ordinarily required.
-12- 12
Mrs. Sudalter noted that, after 1987, Sears was not
obligated to reimburse for costs, and that she did not record
Sears's payment of the forty-five percent contingency fee on
the outside of each file folder because it would have been
time-consuming. Mrs. Sudalter also testified that the red
stickers that many of the file folders contained marked those
cases as "closed," that the firm's "closed" cases were either
fully paid up or uncollectible, and that the law practice
never intended to submit any further bills to Sears on
"closed" cases. A preliminary review of a mere fourteen case
files demonstrated that Sears had already paid legal fees for
work performed on some substantial portion of the cases, a
fact which Goldstone admitted at his deposition.
Following these depositions, Sears amended its
complaint, alleging a fraudulent double-billing scheme by
Goldstone. Sears asked for damages of $833,409 to recover
all the fees it had paid for old cases, and also demanded
attorney's fees under Mass. Gen. Laws ch. 93A for "unfair or
deceptive trade practices." On cross-motions for summary
judgment, the district court ruled for Sears, finding
Goldstone in breach of his contract and fiduciary duty as an
attorney and in violation of Mass. Gen. Laws ch. 93A, 2.
The district court awarded the full $833,409 in damages and
$112,000 in attorney's fees.
-13- 13
Our review of the district court's grant of summary
judgment is de novo. Swain, 117 F.3d at 5. _____
II. Goldstone's Obligations In Billing Sears _____________________________________________
The attorney-client relationship is "highly
fiduciary" in Massachusetts. Hendrickson v. Sears, 310 ___________ _____
N.E.2d 131, 135 (Mass. 1974); Dunne v. Cunningham, 125 N.E. _____ __________
560, 561 (Mass. 1920). To state that elastic truism does not
answer the question of the level of duty which is imposed on
a lawyer in billing clients. The district court found that a
particularly high level of duty was required here,
analogizing this case to situations where the attorney has a
separate business relationship with a person while
simultaneously representing that person as counsel. See ___
Goldman v. Kane, 329 N.E.2d 770 (Mass. App. Ct. 1975). To _______ ____
the extent that the district court's opinion might be
misunderstood to suggest that the separate "business
transaction" rules in Goldman apply to ordinary billing _______
arrangements between a lawyer and client when the lawyer's
sole relationship with the person who is the client is as
counsel, we clarify that this is not the law.
To the extent that the district court was ruling
that the more stringent Goldman business transaction rules _______
apply when an attorney purchases a practice and subsequently
bills for services rendered earlier by that practice, we need
not and do not reach that issue. We leave that issue more
-14- 14
appropriately to the Massachusetts courts to decide in some
future case.3 We affirm on the basis that the summary
judgment record shows no dispute of material fact that
Goldstone violated the usual duties owed by Massachusetts
lawyers when billing clients and that he did so in a manner
which was in breach of his contract and in violation of Mass.
Gen. Laws ch. 93A.
In Goldman, an attorney sued his client to enforce _______
a loan agreement whose terms greatly favored the attorney.
The loan agreement was an independent business transaction
between the two. In this context, the court declined to
enforce the agreement: "When an attorney bargains with his
client in a business transaction in a manner which is
advantageous to himself, and if that transaction is later
called into question, the court will subject it to close
scrutiny." Id. at 773. When there are such business ___
transactions, the fiduciary relationship requires a series of
heightened duties in light of the heightened risks.
Specifically, these heightened duties require the lawyer to
meet the burden of showing that (1) the transaction "was in
all respects fairly and equitably conducted" and that (2) the
____________________
3. The new Massachusetts Rules of Professional Conduct,
effective January 1, 1998, do not expressly address whether
the business transaction rules should be applied to such a
situation. See Rule 1.8 (governing attorney-client business ___
transactions); Rule 1.17 (governing the sale of a law
practice).
-15- 15
client had received "independent advice in the matter or else
receive[d] from the attorney such advice as the latter would
have been expected to give had the transaction been one
between his client and a stranger." Id.4 The Goldman rule ___ _______
has been adopted by the Supreme Judicial Court. See In re ___ _____
Stern, 682 N.E.2d 867, 871 (Mass. 1997) (finding an _____
attorney's entering into a business transaction with a client
without urging an independent legal opinion a violation of DR
5-104 and DR 1-102); Israel v. Sommer, 197 N.E. 442 (Mass. ______ ______
1935) (holding a trust agreement favoring an attorney invalid
for failure to obtain disinterested advice); Hill v. Hall, 77 ____ ____
N.E. 831 (Mass. 1906) (holding a sale invalid for failure to
obtain disinterested advice). The new Massachusetts Rules of
Professional Conduct restate the Goldman requirements as a _______
separate rule, see Rule 1.8,5 and essentially the same rule ___
____________________
4. Under Goldman, a prudent attorney would refrain from _______
attempting personally to give the required disinterested
advice. The attorney in Goldman had advised his client not _______
to enter into the loan agreement, yet the court found that
"in the circumstances of this case, [the attorney's] full
disclosure and his advice were not sufficient to immunize him
from liability." Id. ___
5. Rule 1.8(a) provides:
"A lawyer shall not enter into a business
transaction with a client or knowingly acquire an
ownership, possessory, security, or other pecuniary
interest adverse to a client unless:
"(1) the transaction and terms on which the
lawyer acquires the interest are fair and
reasonable to the client and are fully
disclosed and transmitted in writing to the
client in a manner which can be reasonably
understood by the client;
-16- 16
has been proposed by the ALI, see Restatement (Third) of the ___ __________________________
Law Governing Lawyers 207 (Proposed Final Draft No. 1, ______________________
March 29, 1996) (relying on Goldman and similar cases to _______
require independent legal advice for business transactions
between lawyers and clients).6
Business transactions other than fee agreements
between lawyers and clients create special conflicts of
interest that require the precaution of independent advice.
However, attorneys, like fiduciaries generally, are entitled
to receive compensation for their services, and may pursue
their legitimate interests in receiving payment in the
ordinary fashion. Thus, seeking to enforce a valid fee
contract is an exception to the general requirement that
____________________
"(2) the client is given a reasonable
opportunity to seek the advice of independent
counsel in the transaction; and
"(3) the client consents in writing thereto."
6. As proposed by the ALI, Restatement 207 provides: ___________
"A lawyer may not participate in a business or
financial transaction with a client, except a
standard commercial transaction in which the lawyer
does not render legal services, unless
"(1) the client has adequate information about
the terms of the transaction and the risks
presented by the lawyer's involvement in it;
"(2) the terms and circumstances of the
transaction are fair and reasonable to the
client; and
"(3) the client consents to the lawyer's role
in the transaction under the limitations and
conditions provided in 202 [concerning
client consent to conflicts of interest] after
being encouraged, and given a reasonable
opportunity, to seek independent legal advice
concerning the transaction."
-17- 17
fiduciaries subordinate their interests to those of their
clients. See generally Restatement (Second) of Agency _____________ _______________________________
441, 463 (1957) (providing that a principal has a duty to
compensate his or her agent and that an agent may take action
in the case of breach); Restatement (Third) of the Law _________________________________
Governing Lawyers 29, 29A (P.F.D. No. 1, March 29, 1996) _________________
(providing that a client has an obligation to compensate his
or her lawyer and that a lawyer may enforce a valid fee
contract).
Massachusetts law does not regard the ordinary fee
contract as a "business transaction between lawyer and
client" subject to the special requirements of Goldman. See _______ ___
Coupounas v. Madden, 514 N.E.2d 1316 (Mass. 1987) (affirming _________ ______
a client's duty to pay a lawyer-accountant and refusing to
hold invalid notes that client signed for failure to obtain
independent legal advice); see also Restatement (Third) of ________ _______________________
the Law Governing Lawyers 207 cmt. a (P.F.D. No. 1, March __________________________
29, 1996) ("The requirements [for business transactions] do
not apply to ordinary client-lawyer fee agreements . . . .").
It would make little sense to require an attorney, embarking
on representation of a client and entering into an ordinary
fee agreement, to advise the client to hire another attorney
to give "independent legal advice" concerning that fee
agreement.
-18- 18
Nevertheless, this case still turns on the rules
for the regulation of attorney's fees which Massachusetts has
established to protect clients and to preserve the integrity
of the bar. Massachusetts has established that a lawyer
always bears the burden of proof in any proceeding to resolve
a billing dispute, whether the lawyer appears as a plaintiff
seeking to recover a fee or as a defendant in a suit for a
refund. First National Bank of Boston v. Brink, 361 N.E.2d ______________________________ _____
406, 410 (Mass. 1977) (suit for an accounting and refund of a
large fee for tax advice); Smith v. Binder, 477 N.E.2d 606 _____ ______
(Mass. App. Ct. 1985) (suit for an accounting and refund of a
portion of large retainer fee); see also Restatement (Third) ________ ___________________
of the Law Governing Lawyers 56(2) (P.F.D. No. 1, March 29, ____________________________
1996) (following the Brink rule). As the Restatement notes, _____ ___________
"A lawyer . . . will usually have better access than a client
to evidence about the lawyer's own services . . . ." Id. at ___
56 cmt. c. That concern is particularly salient in this
case, where the items of evidence that Goldstone presents
consist of cryptic handwritten notations on several thousand
old file folders.
To satisfy an attorney's burden of proof under
Massachusetts law, he or she must provide more than purely
speculative evidence to support a claim that a client owes a
particular charge in order to defeat a properly supported
motion for summary judgment. See Beatty v. NP Corp., 581 ___ ______ _________
-19- 19
N.E.2d 1311, 1314-16 (Mass. App. Ct. 1991) (finding evidence
of an agreement by a client to pay a performance bonus too
"isolated" to support attorney's claim); accord Davis v. ______ _____
Glenville Haldi, P.C., 253 S.E.2d 207, 208 (Ga. Ct. App. ______________________
1979) (rejecting attorney's claim where he introduced "no
evidence indicating the amount of time spent on the case or
the amount of work he performed," but only the attorney's own
opinion that a prospective contingency fee would be $25,000).
Scanty or speculative evidence concerning the value of legal
services is insufficient to create a genuine issue for the
trier of fact. See Beatty, 581 N.E.2d at 1315-16 (summary ___ ______
judgment appropriate); accord Davis, 253 S.E.2d at 208 ______ _____
(directed verdict appropriate). Placing the burden of proof
on the attorney is sensible in light of the difficulty of
monitoring the attorney's services.
While Sears is the moving party, it has supported
its summary judgment motion by pointing to undisputed
material facts in the record. Now, the burden of proof rests
with Goldstone to present clear evidence that the bills are
owed by Sears. "Once the moving party has properly supported
her motion for summary judgment, the burden shifts to the
nonmoving party, with respect to each issue on which he has
the burden of proof, to demonstrate that a trier of fact
could reasonably find in his favor." DeNovellis v. Shalala, __________ _______
1997 WL 527912, at *5 (1st Cir. Sept. 2, 1997). Goldstone
-20- 20
has failed to demonstrate that a trier of fact could find in
his favor. The evidence he presented to substantiate the
bills he submitted for over 15,000 files consists entirely of
his own interpretation of the handwritten markings contained
on the outside of the files and his own estimates of the
amount of time that Sudalter spent on cases stretching over
fifteen years. He lacks personal knowledge that Sudalter had
not already billed Sears on these accounts or had determined
that they were not to be billed.
On the summary judgment record, Mrs. Sudalter is
the only competent witness to her late husband's bookkeeping
practices; Goldstone has no personal knowledge regarding the
firm's records and never even met Attorney Sudalter.7 See ___
F.R.C.P. 56(e) ("Supporting and opposing affidavits shall be
made on personal knowledge . . . and shall show affirmatively
that the affiant is competent to testify to the matters
stated therein."). Mrs. Sudalter has testified that it is
impossible to determine from the old file folders whether
____________________
7. Goldstone also calls our attention to the affidavit of
Frederick Casson, which was stricken by the district court.
Goldstone failed to disclose Casson's identity pursuant to
F.R.C.P. 26(a) at the outset of the litigation. The district
court ordered the affidavit stricken, the sanction
established by F.R.C.P. 37(c)(1). The district court's
decision was well within its discretion. See Rivera-Flores ___ _____________
v. Bristol-Myers Squibb Caribbean, 112 F.3d 9, 14 (1st Cir. ______________________________
1997) ("Our review of the district court's discovery-related
decisions is for abuse of discretion, and we will intervene
in such matters only upon a clear showing of manifest
injustice.").
-21- 21
Sears owed any money for attorney's fees and costs, that the
Sudalter firm never intended to submit further bills to Sears
for files in "dead storage" and that the red stickers on old
files indicate that the matters were considered "closed."
Goldstone's only response is to say that Mrs. Sudalter is
biased against him. But that does not satisfy his burden to
"set forth specific facts showing that there is a genuine
issue" for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. ________ ___________________
242, 248 (1986); DeNovellis, 1997 WL 527912, at *5. A party __________
cannot create an issue for the trier of fact "'by relying on
the hope that the jury will not trust the credibility of
witnesses. . . . There must be some affirmative evidence . .
. .'" Dragon v. Rhode Island Dep't of Mental Health, ______ ________________________________________
Retardation and Hospitals, 936 F.2d 32, 35 (1st Cir. 1991) __________________________
(quoting Wright and Miller, Federal Practice and Procedure: ________________________________
Civil 2d 2527 (1st ed. 1971) (misquoted as 2528 in _________
Dragon)). ______
Goldstone nonetheless urges us to vacate the
summary judgment for Sears and remand the case in order to
require Sears to establish its injury by showing the
impropriety of his bills for each of over 15,000 files. As
the district judge noted, "[i]t would be perverse for the
court to hold Sears . . . to a standard the [defendant]
himself could never achieve." This case illustrates the
reasons for the Commonwealth's rule that a lawyer always
-22- 22
bears the burden to prove that he is owed compensation under
a valid fee agreement. The burden of proof was not on Sears;
it was on Goldstone. He has had his opportunity to satisfy
his burden. While Sears's record keeping practices were
sloppy at best and Sears does not evoke much sympathy, it is
the lawyer's burden to justify amounts billed.8 Because
Goldstone has failed to produce evidence that Sears actually
owed Sudalter any of the $833,409 that represents Sears's
payment on the closed files, the district court's damage
award was proper.9
____________________
8. Goldstone argues that a ruling for Sears means that no
attorney can recover for his work in the absence of
contemporaneous time records. The issue is not whether an
attorney may charge fees in the absence of contemporary time
records. It is whether a lawyer without personal knowledge
that a bill is owed has produced sufficient admissible
evidence to survive summary judgment that the obligation in
fact exists. We also note that in the purchase of a law
practice, the lack of adequate billing records to support
accounts receivable can, of course, be reflected in the
purchase price.
9. Goldstone's attorney contended in oral argument that some
of the $833,409 in bills that Sears paid were not for closed
files, but for new work that Goldstone performed. However,
the district court had ordered Goldstone to make an
accounting of invoices he submitted for fees and costs that
he claimed were owing to his deceased partner, Eldon B.
Sudalter, and according to the district court, "[t]he parties
agree[d] that the relevant sum charged to and paid by Sears
[was] $833,409. Goldstone & Sudalter's own accountant
provided that figure as "an accounting of all charges . . .
for 'closed accounts' . . . ." Goldstone's attorney did not
dispute that figure at the damages hearing, but instead
contended that Sears had not shown that all the files had
previously been billed. Given Goldstone's burden, that fact
is not material to the damages issue. Goldstone has not
sustained his argument that part of the $833,409 judgment
covers bills for work that he himself performed, rather than
-23- 23
III. Chapter 93A ___________
The district court found that the undisputed facts
established that Goldstone's conduct was "unfair or
deceptive," in violation of Chapter 93A. This Chapter 93A
finding, and the finding that Sears suffered harm from that
violation, entitled Sears to an award of attorney's fees.
Mass. Gen. Laws ch. 93A, 11; NASCO v. Public Storage, Inc., _____ ____________________
1997 WL 610055, at *1 (1st Cir. Oct. 8, 1997).
Chapter 93A applies to attorneys, and unlawful
billing or other unethical conduct can constitute a Chapter
93A violation. See Guenard v. Burke, 443 N.E.2d 892, 896 ___ _______ _____
(Mass. 1982) (reliance on an illegal contingent fee agreement
to collect a fee violates Chapter 93A); Brown v. Gerstein, _____ ________
460 N.E.2d 1043, 1051-52 (Mass. App. Ct. 1984) (lawyer's
unethical deceit toward his clients concerning the status of
litigation violated Chapter 93A). To establish that no
genuine issue of material fact existed on the Chapter 93A
claim, Sears is required to show that the undisputed facts
reveal that Goldstone's conduct "falls 'within at least the
penumbra of some common-law, statutory, or other established
concept of unfairness' or is 'immoral, unethical, oppressive
or unscrupulous.'" Cambridge Plating Co. v. NAPCO, Inc., 85 ______________________ ___________
F.3d 752, 769 (1st Cir. 1996) (quoting PMP Assoc., Inc. v. _________________
Globe Newspaper Co., 321 N.E.2d 915, 917 (Mass. 1975)). ___________________
____________________
bills for Sudalter's work.
-24- 24
Goldstone's breach of his obligations in these
circumstances is sufficient to establish a Chapter 93A
violation. Cambridge Plating, 85 F.3d at 769; Doucette v. __________________ ________
Kwiat, 467 N.E.2d 1374 (Mass. 1984) (finding that an _____
attorney's collection of a fee to which he was not entitled
under his fee agreement violated Chapter 93A). Furthermore,
Goldstone admitted to conduct which constitutes unethical
behavior in skimming his costs off the top of Sears
collections without Sears's knowledge or consent and in
violation of his contract. See DR 9-102. Violations of the ___
rules governing the legal profession are evidence of legal
malpractice, and are also relevant in Chapter 93A
determinations. See Fanaras Enterprises, Inc. v. Doane, 666 ___ _________________________ _____
N.E.2d 1003, 1006 (Mass. 1996); Brown, 460 N.E.2d at 1050, _____
1052 n.22.
The district court's finding of a Chapter 93A
violation does not depend on whether Goldstone knowingly
devised a scheme to defraud Sears or was merely opportunistic
and reckless in making the assumptions he did regarding the
files. Whether or not Goldstone's conduct was knowingly
fraudulent, the record clearly shows that his conduct fell
"within at least the penumbra of some common-law, statutory,
or other established concept of unfairness." Cambridge _________
Plating, 85 F.3d at 769 (citation and internal quotation _______
marks omitted). Sears did not seek the double or treble
-25- 25
damages that are available for knowing violations of Chapter
93A, see Mass. Gen. Laws ch. 93A, 11, so the issue of ___
Goldstone's knowledge is not a "genuine issue of material
fact" that would defeat summary judgment. The district
court's award of attorney's fees of $112,000 was warranted.
Goldstone does not dispute the amount of attorney's fees
awarded.
The district court's grant of summary judgment,
damages and attorney's fees is affirmed. ________
-26- 26
Related
Swain v. Spinney
117 F.3d 1 (First Circuit, 1997)
Donna L. Dragon v. State of Rhode Island, Department of Mental Health, Retardation & Hospitals
936 F.2d 32 (First Circuit, 1991)
Gidel Rivera-Flores v. Bristol-Myers Squibb Caribbean
112 F.3d 9 (First Circuit, 1997)
Vincent DeNOVELLIS, Plaintiff, Appellant, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant, Appellee
124 F.3d 298 (First Circuit, 1997)
Davis v. Glenville Haldi, P. C.
253 S.E.2d 207 (Court of Appeals of Georgia, 1979)
Guenard v. Burke
443 N.E.2d 892 (Massachusetts Supreme Judicial Court, 1982)
Coupounas v. Madden
514 N.E.2d 1316 (Massachusetts Supreme Judicial Court, 1987)
Brown v. Gerstein
460 N.E.2d 1043 (Massachusetts Appeals Court, 1984)
Goldman v. Kane
329 N.E.2d 770 (Massachusetts Appeals Court, 1975)
PMP Associates, Inc. v. Globe Newspaper Co.
321 N.E.2d 915 (Massachusetts Supreme Judicial Court, 1975)
Doucette v. Kwiat
467 N.E.2d 1374 (Massachusetts Supreme Judicial Court, 1984)
Smith v. Binder
477 N.E.2d 606 (Massachusetts Appeals Court, 1985)
Israel v. Sommer
197 N.E. 442 (Massachusetts Supreme Judicial Court, 1935)
In re Stern
682 N.E.2d 867 (Massachusetts Supreme Judicial Court, 1997)
Cite This Page — Counsel Stack
Bluebook (online)
Sears Roebuck & Co. v. Goldstone & Sudalter, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sears-roebuck-co-v-goldstone-sudalter-ca1-1997.