ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, SCRANTON, D.C. Civil No. 79-1188.
Before GIBBONS, Chief Judge, SEITZ, Circuit Judge, and BARRY, District Judge*fn*
This appeal results from the efforts of the district court and successive attorneys to deal with two difficult and suspicious clients in a serious personal injury case. The appellants are attorneys who once represented those clients but whose services were termination prior to the time when a substituted attorney executed a settlement for them. The attorneys appeal from orders denying their motions for payment of attorneys' fees and expenses out of the proceeds of that settlement. We reverse and remand for further proceedings.
The plaintiffs Kevin and Darlene Novinger commenced the underlying diversity products liability action in 1979, alleging that Kevin Novinger was poisoned during the course of his employment as an auto mechanic from exposure to paint manufactured by the defendants. Novinger claimed that this exposure caused inter alia, blindness, permanent destruction of his teeth, and peripheral nerve damage, resulting in total disability. The Novingers asserted theories of strict liability and negligence.
The Novingers' diversity complaint was filed on their behalf by Steven M. Kramer, Esq. The Novingers had approached a Boston attorney, F. Lee Bailey, who referred them to Richard Sprague, Esq. Sprague, in turn referred the Novingers to the firm of Lewis & Kramer. On March 16, 1978 Kramer agreed in writing to prosecute workers' compensation and products liability claims on the basis of 40% of the gross recovery in the products liability case plus costs and expenses, and 33 1/3% of the gross recovery in the workers' compensation case plus costs and expenses. In addition, Kramer agreed to advance all costs and expenses. As best can be determined from the information of record, the Novingers did not sign the March 16, 1978 agreement. On April 8, 1978 a more detailed writing was executed by Kramer, containing essentially the same terms, but clarifying what may have been some misunderstanding on the part of the Novingers.*fn1 This letter, too, was not signed by the Novingers. Kevin Novinger did, however, sign a July 10, 1978 letter in which Kramer undertook to prosecute cases against "Aetna, Patterson and Burnside" on the "same terms as applicable to the products liability case." This suggests that there was a meeting of the minds on those terms. On September 1, 1978 Kramer wrote to Darlene Novinger confirming the agreement that the Novingers retain Richard A. Sprague and the firm of Lewis & Kramer in the products liability case, on a 40% contingency basis, with the understanding that "you will be obligated to pay the firm the foregoing fee of 40% of the gross recovery plus costs and expenses, even if you decide to instruct us to withdraw from the case." From the information of record, it appears that the Novingers did not sign the September 1, 1978 letter. Finally, a letter agreement dated April 11, 1979 outlines a contingent fee agreement with Kramer of 33 1/3% of the gross recovery by verdict or settlement on the products liability case plus expenses. This letter is signed both by Kramer and by the Novingers. It obligates Kramer to compensate Bailey for any fees to which he may be entitled and to hold the Novingers harmless from any claim by Sprague or by the firm of Lewis & Kramer, which by then was dissolved.
Meanwhile the workers' compensation case and the products liability case had been filed on the Novingers' behalf by Kramer. The products liability case was filed in the Eastern District of Pennsylvania on January 5, 1979. It was transferred to the Middle District of Pennsylvania on September 20, 1979.
The Novingers apparently were dissatisfied with Kramer's representation, and therefore, by a mailgram on July 21, 1980 purported to discharge him.*fn2 Kramer contended that prior to this time he and Charles J. Geffen, Esq. whom he retained to assist him in the preparation of the Novingers' case had expended substantial time and money. Consequently he asserted an attorneys' retaining lien on the Novingers' file. on February 11, 1981 the district court issued an order directing Kramer to show cause why he should not turn over the file to attorneys William T. Smith and David E. Cole, who on December 26, 1980 had entered an appearance on the Novingers' behalf. Apparently efforts were made to have Kramer surrender the file without reimbursement of expenses and without any recognition of his retaining lien. On April 9, 1981, however, the district court ordered:
That Steven M. Kramer shall submit his file on this matter to the court . . . [at] Harrisburg on or before April 20, 1981. At the conclusion of the case the court will determine what expenses and attorneys' fees should be paid to Steven M. Kramer. Due to the unique fee and expense agreement existing between the Novingers and Mr. Kramer, the court will not order payment of expenses at this time.
Kramer was not entirely satisfied with the protection afforded by this order and filed a notice of appeal. His motion for a stay was denied, and the district court ordered him to show cause why he should not be barred from further practice for failure to obey the April 9, 1981 order. On May 19, 1981 Kramer surrendered the file and subsequently withdrew his first appeal.
Smith was retained by the Novingers pursuant to a written contingent fee agreement dated December 17, 1980, covering the district court products liability case, a parallel common pleas court products liability case, the workers' compensation case, a common pleas court medical malpractice case, and a suit against the Aetna Insurance Company and others for unpaid insurance benefits. The agreement called for payment of 25% of all amounts received by way of settlement, 33 1/3% of all amounts received after trial and verdict, plus costs and disbursements. In addition, the agreement contained a recital to the effect that the Novingers were prepared to show that Kramer had breached the terms of their April 11, 1979 agreement, and provided:
15. Attorney agrees that in the event of any settlement in any of the civil actions set forth in this Agreement, that the settlement check or checks will be made payable to Attorney and Clients. Under no circumstances whatsoever are the names of any previous attorneys, law firms, individuals or prior counsel, such as, but not limited to those mentioned herein, to appear on any settlement check whatsoever.
Attorney Contingent Agreement at 6. Kramer was not a party to the December 17, 1980 Smith-Novinger agreement, and nothing in the record suggests that he or the district court were aware of its ...