Opinion
Civil Action No. 09-563-GMS-SRF
2013-09-30
SQUARE RING, INC., Plaintiff, v. JOHN DOE-1, JOHN DOE-2, JOHN-DOE 3, JOHN DOES 4-10, and USTREAM.TV INC., Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
Presently before the court is a discharge dispute between the Plaintiff, Square Ring, Inc. ("Square Ring" or "SRI"), and its former counsel of record, Lonstein Law Office, P.C. ("LLO"). Following its discharge from representation, LLO filed a Notice of Attorney's Charging Lien to recover costs allegedly incurred and compensation for legal services provided in connection with representing SRI in the underlying action against defendants Ustream.TV, Inc. ("Ustream"), and John Does 1-10. (D.I. 41) SRI filed a Notice of Objection to Charging Lien on the ground that LLO was terminated for cause and is not entitled to fees. (D.I. 42) For the reasons which follow, SRI's objection to LLO's charging lien is sustained, and the charging lien striken.
II. BACKGROUND
A. Procedural History
Square Ring filed this action on July 30, 2009 against Ustream, and John Does 1 -10. (D.I. 1) SRI hired LLO as its legal counsel. Attorney Wayne D. Lonstein of LLO was admitted to this court pro hac vice on August 6, 2009. Attorney Julie C. Lonstein of LLO was admitted to this court pro hac vice on December 21, 2011.
John Does 1-10 are various Ustream officers, directors, shareholders, and principals. (D.I. 1)
As discussed in more detail below, two disputes arose over the course of the proceedings. The first involved a disagreement between SRI and Ustream concerning the execution of an alleged settlement agreement. The second, and somewhat related dispute, involved a breakdown of the attorney-client relationship between SRI and LLO.
On March 12, 2010, as a result of the first dispute, Ustream filed a Motion to Enforce the Settlement Agreement. (D.I. 9) The court denied Ustream's Motion on March 3, 2011.
On December 21, 2011, the court held a Rule 16 scheduling conference to discuss discovery and mediation. On May 10, 2012, the court held a Mediation Conference. The parties, however, were unable to reach an agreement.
As a result of the second dispute, on July 16, 2012, SRI terminated LLO as its counsel. (D.I. 75, Ex. 46) On July 17, 2012, attorney Michael G. Rushe of Hudson, Jones, Jaywork & Fisher, LLC filed a Notice of Appearance as Delaware counsel for SRI. (D.I. 38) On July 18, 2012, LLO filed a Notice of Withdrawal of Counsel (D.I. 40) and Notice of Attorney's Charging Lien (D.I. 41). On July 30, 2012, SRI filed a Notice of Objection to Charging Lien and Motion to Refer Discharge Dispute to Magistrate Judge for Sealed Proceedings. (D.I. 42)
On December 12, 2012, the court held a sealed hearing on the merits of the discharge dispute. Thereafter, SRI and LLO individually submitted Proposed Findings of Fact and Conclusions of Law. (D.I. 94, 95)
B. Facts Relevant to the Underlying Action
SRI is a boxing promotional company. (D.I. 1 at 1, ¶ 1) As a promoter, SRI acquires the rights to boxing matches from boxers in order to become the copyright owner of boxing events. (Id. at 2, ¶ 1) SRI licenses to television networks the rights to distribute events, on a pay-per- view basis, to residential purchasers, and/or on a closed circuit basis to public venues, such as bars and restaurants. (Id.)
SRI regularly engages companies to protect its business interests from individuals and entities that unlawfully distribute, broadcast, stream, and/or view SRI's copyrighted events. (Id. at 2, ¶ 2) The underlying action stems from a boxing and mixed martial arts event on March 21, 2009 (the "March 2009 Event"), of which SRI is the copyright owner. (Id. at 2, ¶ 3) SRI hired attorneys Wayne D. Lonstein ("WDL") and Julie Cohen Lonstein ("JCL") of LLO to protect its interests in connection with the March 2009 Event.
LLO's practice focuses primarily on prosecuting individuals who misappropriate proprietary information, materials, and programming. (D.I. 44 at 5, ¶ 5) LLO acquires piracy claims, in part, by internet monitoring. (Id., Ex. E) Specifically, LLO works with an affiliate company to prevent the illegal online streaming of copyrighted material and to identify individuals who stream or view the copyrighted material. (Id.) Following an event, LLO uses information gathered by its affiliate to pursue claims against those companies and individuals that unlawfully streamed and/or viewed the event. (Id.)
The defendant in the underlying action, Ustream, operates an Internet website that enables anyone with an Internet connection to stream and/or view copyrighted programming online at no cost. (D.I. 1 at 2-4) Internet monitoring for the March 2009 Event revealed that several thousand individuals utilized Ustream to view the Event for free. (Id. at 4, ¶ 5) Accordingly, LLO filed an action on SRI's behalf against Ustream for trademark and copyright infringement. (Id. at 5, ¶ 9)
C. Facts Relevant to the Pending Discharge Dispute
On August 6, 2009, John S. Wirt ("Wirt"), SRI's CEO, communicated SRI's objectives of LLO's representation, through the following email exchange:
LLO: The status of the litigation is that it was filed on Thursday and the Summons and Complaint sent to the attorneys to accept service based on their consent to accept.(D.I. 75, Ex. 16)
Our discussions with the attorneys have been productive and I will give you a recap.
In response to our initial proposal of a take down tool and $ 100K in exchange for a dismissal, they proposed aq [sic] take down tool for [SRI's upcoming August 15, 2009 Event]. We told them that would not be acceptable and a monetary settlement is a necessary component to any amicable resolution.
Wirt: Settlement discussions are premature at this point. It will cost them a lot to defend this. Their conduct was egregiuos [sic] and they completely ignored our reasonable requests based on the . . . piracy.
Let them answer the complaint and then hit them with discovery.
The costs of defending this will be way more than our present offer and the facts are on our side in a big way. Their only defense is that they are an intermediary but we put them on notice and they have no defense to that.
A take down tool "allows an authorized user to remove content from Ustream." (D.I. 75, Ex. 39 at 1, ¶ 3)
On August 7, 2009, LLO sent an email to Rodger Cole ("Cole"), counsel for Ustream, which stated: "Although my client has rejected your settlement proposal as drafted below, we are discussing with them today possible counter proposals." (Id., Ex. 39-A) On August 10, 2009, LLO emailed Cole a settlement proposal, which stated: "After extensive discussions with our client, we have received authority to propose the following settlement options . . . ." (Id., Exs. 39-A, 62) On August 11, 2009, Cole sent LLO a counterproposal. (Id., Ex. 39 at 3, ¶ 8) Later that day, LLO responded to Cole by email, stating that LLO was "optimistic" about reaching a settlement, but wanted to further discuss the information Ustream possessed on its individual users. (Id., Ex. 39 at 3, ¶ 9) On August 12, 2009, Cole called LLO "to explain that Ustream does not store user information as a matter of course." (Id., Ex. 39 at 3, ¶ 10) Over the next two days, LLO and Cole continued settlement negotiations, to no avail. (Id., Ex. 39 at 3-4, ¶¶ 11-12)
The proposal included two alternatives:
(1) a take down tool for SRI's August 15, 2009 Event, a take down tool for all future SRI events; identifying information for all users that streamed and/or viewed the March 2009 Event; and payment of $25,000; or
(2) a take down tool for SRI's August 15, 2009 Event; a take down tool for all future SRI events; and payment of $100,000. (D.I. 75, Ex. 39A)
On August 15, 2009, the day of SRI's Event, SRI sought Ustream's assistance in connection with illegal online streaming. (Id., Ex. 39 at 3, ¶ 13) Ustream responded promptly and fulfilled SRI's requests. (Id.)
On August 17, 2009, LLO sent Cole an email asking to resume the settlement negotiations. (Id., Ex. 39 at 4, ¶ 14) On August 21, 2009, Cole sent LLO a revised settlement offer. (Id., Ex. 39 at 5, ¶ 16) LLO forwarded Ustream's offer to SRI and "recommend[ed] acceptance." (Id., Ex. 17)
Ustream's offer included a payment of $20,000, a take down tool for future SRI events, and identifying information of users who illegally streamed/viewed SRI's August 15, 2009 Event. (D.I. 75, Ex. 17; Id., Ex. 39-C)
On August 24, 2009, Wirt called LLO and stated that he "was not interested in settling for this amount but that [he] would discuss it with [SRI's partners]." (D.I. 70 at 14, ¶ 45) On August 31, 2009, LLO sent Wirt the following email:
I haven't spoken with you since our conversation last Monday. Please let me know when we can talk to determine where we stand so I can get back to Ustreams [sic] attorneys who have been requesting a response to their proposal. I thought we were going to have a call with your partners to discuss the pros/cons of settlement vs. going forward.(D.I. 75, Ex. 18) Wirt replied to LLO later that day: "Sorry. . . . I'd [sic] asked [] last week, but didn't get an answer. I'll let you know." (Id.)
On September 8, 2009, LLO sent Cole an email stating, in relevant part:
I have conferenced with my client at length and believe we are very close to finalizing an agreement on the terms proposed by you. ... I also need to confirm that you have the names and identities of the individuals who streamed and viewed the August 15, 2009 Event. That information is crucial to a confirmation of the settlement.(Id., Ex. 39-D) On September 9, 2009, LLO emailed Cole to confirm that he was preparing a written settlement agreement. (Id., Ex. 39-E) Later that day, LLO emailed Wirt and explained that Ustream had identifying information for a single user who illegally streamed SRI's boxing event. (Id., Ex. 27) LLO wrote: "It will be our task after settlement to sue the streamer for the identity of the individuals watching from that stream." (Id.) On September 17, 2009, LLO emailed Cole to ask for an estimate of when Ustream would provide a draft settlement agreement. (Id., Ex. 39-F)
During the last week of September 2009, LLO and Cole exchanged several drafts of the settlement agreement. (Id., Ex. 39 at 6-7, ¶¶ 19-24; Id., Exs. 39-G to K) On October 1, 2009, LLO emailed the finalized settlement agreement to Wirt, and wrote: "Attached is the proposed settlement agreement and take down tool agreement incorporating the terms of resolution previously agreed upon." (Id., Ex. 22) LLO also notified Cole by email that the settlement agreement had been "submitted to [SRI] for approval/execution." (Id., Ex. 39-L)
Meanwhile, on October 2, 2009, LLO called Cole to discuss a company called Circuito Cerrado, Inc. ("Circuito") -- a different client that LLO represented. (Id., Ex. 39 at 7, ¶ 25) LLO indicated that Circuito would be televising a World Cup soccer game on October 10, 2009, and asked if Ustream would provide Circuito with a take down tool, similar to that which Ustream offered to SRI. (Id.)
On October 5, 2009, LLO emailed Wirt: "Have you had a chance to look at the agreements I forwarded last week?" (Id., Ex. 23) Later that day, Wirt responded, "I haven't had a chance to look at it. . . . If this is the same deal that was on the table before . . . then I don't see what is in it for us." (Id.)
On October 6, 2009, LLO emailed Cole to inquire about "the status ... of the Take [sic] down agreement for my client Circuito Cerrado with Ustream." (Id., Ex. 39-N) Cole replied: "While Ustream is not typically granting take down tool access in the first instance, it will do so here as a gesture of good will to you as we wrap up the Square Ring dispute. Attached is the . . . Agreement." (Id.)
The agreement between Circuito and Ustream was finalized on October 9, 2009. (D.I. 75, Ex. 39-N)
On October 9, 2009, Cole inquired with LLO about the status of the settlement agreement. (Id., Ex. 39 at 8, ¶ 29) LLO indicated that it would touch base with SRI on October 12, 2009. (Id.)
On October 14, 2009, LLO sent Wirt two emails asking to discuss the settlement agreement. (Id., Exs. 24, 25) On October 15, 2009, LLO and Wirt had the following email exchange:
LLO: I know . . . that you are crazy busy but I would appreciate your giving me some indication of when we can discuss the Ustream settlement.(D.I. 75, Ex. 26)
Wirt: Since there is no honey pot as they didn't capture the IP addresses, I don't understand why we would settle.
LLO: . . . [T]he deal that has been put to paper is the one that we agreed on during a call between [LLO] and you and in good faith, I relayed that agreement to Ustream's counsel.
Wirt: That simply is not true. I never agreed to the deal when we found out that there was only one streamer. ... I did agree that if there was a honey pot, I'd agree to those terms but then we found out there wasn't one and that [Ustream] would not undertake to capture IP addresses of viewers for future fights, it made no sense and I did NOT agree to it. . . . Since we don't seem to be on the
same page on this one, maybe the best thing to do is for you guys to withdraw and I'll take over handling it.
LLO: We had a discussion on September 10, 2009 when you authorized the settlement.... If you want us to withdraw, we have to discuss our fee and our financial investment in the litigation to date.
"Honey pot" refers to the collective group of Ustream users who illegally streamed/viewed SRI's copyrighted programming, and whom SRI could sue. According to Wirt, LLO "said that this would be a 'honey pot' and that [SRI] would benefit not only from the relationship with Ustream but also monetarily by going after the persons illegally uploading and viewing [SRI's] events." (D.I. 70 at 14-15, ¶ 48)
On October 30, 2009, Cole emailed LLO and inquired about the status of the settlement agreement. (Id., Ex. 39-0) LLO responded, "Haven't gotten anything from my client. I will reach out first thing Monday [November 2, 2009] and let you know." (Id.)
On November 9, 2009, LLO emailed Donna Westrich, an agent of SRI, stating:
Donna, suffice it [sic] say we have not heard from [Wirt] and I am considering what to do, I hate to think that I am going to move to be removed as counsel for a client but.....[sic](Id., Ex. 29)
We are starting to look very embarrassed by looking like we negotiated a deal in good faith and then cannot deliver the goods.
On November 12, 2009, Cole emailed LLO to ask about the status of the settlement agreement. (Id., Ex. 39-0) LLO did not respond.
On November 13, 2009, LLO sent Wirt a letter that stated, in pertinent part:
As you recall, on September 9, 2009, [we] had a telephone conference discussing the pros and cons of the settlement proposal. . . . It was during that conversation that you gave us authority to resolve the case on the terms that were negotiated by us with your permission and consent. The email exchanges between us on September 8th, 9th and 10th confirm that point.(Id., Ex. 30)
While I know you are desirous of a heftier financial settlement, or a "honey pot" of viewers, they simply do not exist at this juncture. It is our strong recommendation that Square Ring accept the offer being made by Ustream of $20,000.00 payment . . . .
. . . .
In the event you want to reject the offer and move forward with the litigation, we need an indication from you today. We have given three (3) extensions to [Ustream] while we have been waiting for a response from you.
On November 17, 2009, Cole sent LLO an email inquiring about the status of the settlement agreement. (Id., Ex. 39-0) LLO responded and asked to speak to Cole on the phone the following day. (Id.)
On November 18, LLO emailed Cole to ask if Ustream would, again, assist Circuito in connection with potential illegal streaming of a soccer match that day. (Id., Ex. 39 at 9, ¶ 32) Cole responded to LLO's request and worked with Ustream to address Circuito's concerns. (Id.) Also on November 18, Cole sent LLO the following email regarding the underlying action:
I just left you a [voicemail]. I just want to make sure we are on the path for [SRI] to execute the settlement agreement even if it still takes some time. I've tried very hard to help [LLO] with this and other matters and do not want that to blow up in my face.(Id., Ex. 39-0)
On November 21, 2009, Wirt responded to LLO's November 13, 2009 letter, stating, in relevant part:
I do not agree with your statement in your letter that "I gave you authority to resolve the case . . . ."(Id., Ex. 31)
I have a lot on my plate and I can't fight you and Ustream too. ... I need someone who will fight for us.
Please copy the entire file, including all correspondence between Ustream and your firm, and send it to me . . . .
I will review the file and let you know my position but right now, I am not inclined to settle and neither are [SRI's partners].
On December 7, 2009, LLO left a voicemail for Cole regarding the settlement agreement. LLO stated, in pertinent part:
Hey Rodger .... Returning your call. . . . Unfortunately, I have no answer for you - I have a client who is taking their time and not prioritizing this settlement and I'm embarrassed to say that I can't give you an answer as to what the status is, but I can tell you that in the interim I will give you an open-ended extension [to answer the complaint] until I get a response from my client.(Id., Ex. 39-P)
On December 16, 2009, Cole sent LLO a letter asking that SRI execute the settlement agreement or dismiss the action without prejudice. (Id., Ex. 39-Q) LLO forwarded Wirt the letter from Cole, and the following email exchange ensued:
LLO: Attached find [sic] letter received today from the attorney for the Ustream defendant in the pending lawsuit. Although I have given him [sic] numerous extensions in their time to answer the complaint or otherwise move, it appears that they are requiring something definitive from Square Ring.(Id., Ex. 36)
Wirt: [T]heir offer is far too low .... If you feel that you need to withdraw, we understand and won't take it personally. We just think that the facts in this case will allow us to defeat a motion to dismiss at which point their offer will have to increase substantially. We know you believe otherwise . . . but we just feel that a $20000 offer ... is just not sufficient given the facts and that we need to press this.
LLO: What number would be acceptable to you [and SRI's partners] so I could relay that to Ustream?
Wirt: No number. We want to defeat their motion to dismiss. ... I have had a number of very good lawyers review this matter . . . and everyone agrees that that [sic] we easily [sic] defeat a motion to dismiss and that once that happens, their offer increases substantially.
LLO: I will relay that information to Ustream. However, if you say that once the motion to dismiss is defeated, they will raise their offer substantially, I again ask you what number will be acceptable to you for settlement, since there obviously is a number and they will ask that question....[sic]
On January 12, 2010, LLO and Cole had telephone conference. (Id., Ex. 39 at 10, ¶ 36) During the conference, LLO indicated that SRI decided not to execute the settlement agreement. (Id.) On February 23, 2010, Cole called LLO in a final attempt to settle the underlying action pursuant to the terms of the settlement agreement. (Id., Ex. 39 at 10, ¶ 37) LLO explained to Cole that SRI would not settle the case for anything less than $100,000. (Id.)
On December 21, 2011, the court held a Rule 16 scheduling conference. The conference involved a brief discussion concerning discovery and mediation:
The Court: Counsel, before I send you off to the Magistrate Judge to resolve this, how much time do you need to do the discovery you need to do? I am not putting this on my calendar.(D.I. 70, Ex. A at 2-3) Following the conference, LLO forwarded Wirt the court's minute entry denoting that the conference had occurred. (D.I. 75, Ex. 80) Wirt replied: "So still no discovery? What did the ustream [sic] people say?" (Id.) LLO responded: "Judge referred discovery schedule to Magistrate for an Order. I requested 90 days for expedited discovery, USTREAM [sic] said they didn't need any( of course) [sic] and Judge wants magistrate to control the case and bring us to settlement table or ADR." (Id.)
. . . .
Ms. Lonstein: We believe 90 days would be sufficient.
. . . .
Mr. Cole: Ms. Lonstein would like to take some discovery. We are willing to make any information available to her.
The Court: As a practical matter, you will probably have some period of time to do that. I will direct that the parties conduct discovery on your own. I will have an order issued today referring this to a Magistrate Judge.
On January 30, 2012, LLO and Wirt had the following email exchange:
LLO: I have a conference call today with the Court . . . regarding the Order for mediation. Do you have any preferences regarding types of [ADR], i.e. [sic] mediation, arbitration, with or without highs and lows, Binding/ [sic] Non binding Arbitration [sic] or Magistrate Judge.(Id., Ex. 50)
Wirt: Non-binding mediation with no conditions.
LLO: Wouldn't you rather do a high low with $75k low and $500K [sic] high.
Wirt: No. ... I don't want to do it at all if I don't have to.
On February 13, 2012, LLO forwarded Wirt an email conversation between LLO and Cole, dated February 2, 2012, wherein Cole wrote: "I wanted to outline a proposed alternative form of mediation along the lines of the 'baseball arbitration' form of ADR you [LLO] had suggested. After consideration, I agree that such a process would streamline this case to settlement to the benefit of both parties." (Id., Ex. 51) In the email to Wirt, LLO asked Wirt to "[pjlease advise if you are agreeable to [Cole's] proposal or would prefer traditional mediation." (Id.) Wirt responded:
LLO did not respond to Cole's proposal. On March 5, 2012, Cole emailed LLO: "At this point I am assuming your baseball arbitration idea is off the table." (D.I. 75, Ex. 70)
The biggest issue I have with all of this is that we are going into this process without any discovery .... It is not possible to make an informed decision about anything when I have no idea what the other side has in terms of proof as to how many people actually saw the [March 2009 Event] and thus the extent of our damages. Frankly, as I have told you before, I think a mediation at this point is premature. . . . Thus, I am not prepared and do not want to agree to anything binding at this point, and I am not sure why you suggested this form of ADR to the other side.(Id.) LLO replied, in relevant part: "The Court ordered the mediation and we cannot opt out. . . . The Court did not think any discovery was necessary." (Id.)
The parties submitted voluminous exhibits containing additional correspondence between LLO and SRI, however, that evidence is not material to resolving the narrow issue presently before the court.
III. LEGAL STANDARDS
A. Choice of Law
"Attorney conduct is governed by the ethical standards of the court before which the attorney appears." Madukwe v. Del. State Univ., 552 F. Supp. 2d 452, 458 (D. Del. 2008) (citing In re Corn Derivatives Antitrust Litig., 748 F.2d 157, 160 (3d Cir. 1984)). The District of Delaware has adopted the American Bar Association's Model Rules of Professional Conduct ("MRPC"). See D. Del. LR 86.3(d); Apeldyn Corp. v. Samsung Elecs. Co., 660 F. Supp. 2d 557, 561 (D. Del. 2009). JCL and WDL consented to this court's disciplinary jurisdiction through their respective motions for admission pro hac vice. See D. Del. LR 83.6(d) & (i). Consequently, LLO's professional conduct must comport with the ABA's Model Rules.
Furthermore, "[o]ne of the inherent powers of any federal court is the admission and discipline of attorneys practicing before it." In re Corn Derivatives Antitrust Litig., 748 F.2d at 160 (citing In re Abrams, 521 F.2d 1094, 1099 (3d Cir. 1975), cert, denied, 423 U.S. 1038 (1975)). See also United States v. Miller, 624 F.2d 1198, 1201 (3d Cir. 1980) ("This court has the inherent authority to supervise the professional conduct of attorneys appearing before it.").
Whenever an allegation is made that an attorney has violated his moral and ethical responsibility, an important question of professional ethics is raised. It is the duty of the district court to examine the charge, since it is that court which is authorized to supervise the conduct of the members of the bar.Nemours Foundation v. Gilbane, Aetna, Federal Ins. Co., 632 F. Supp. 418, 421-22 (D. Del. 1986) (quoting Richardson v. Hamilton Int'l Corp., 469 F.2d 1382, 1385 (3d Cir. 1972), cert, denied, AW U.S. 986(1973)).
The conduct relevant to this matter occurred primarily in Delaware and New York. The parties agree that Delaware law should govern this dispute. (See D.I. 95 at 17, ¶ 48; 12/12/12 Tr. at 11) Thus, a choice of law analysis is not necessary.
"The Delaware Lawyers' Rules of Professional Conduct [are] based on the ABA's Model Rules." In re Davis, 43 A.3d 856, 865 (Del. 2012).
Regardless, Delaware and New York apply the same legal standards in resolving attorney discharge disputes.
B. Discharge of Attorney From Representation
It is a well-established principle that "[a] client has a right to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer's services." MRPC 1.16 cmt. 4. See also Murrey v. Shank, 2011 WL 4730549, at *3 (Del. Super. Ct. Aug. 30, 2011) ("The nature of the attorney-client relationship gives a client the absolute right to terminate an attorney's services at any time for any reason."), aff'd sub nom. Murrey v. Ramunno & Ramunno, P.A., 2012 WL 1264449 (Del. 2012); Teichner v. W & J Holsteins, 478 N.E.2d 177, 178 (N.Y. 1985) ("A client has an absolute right to discharge an attorney at any time.").
The attorney's right to recover fees upon discharge depends on whether he was discharged with or without cause. "The prevailing rule in a contingent fee case where an attorney is discharged without cause is that recovery for attorney fees is limited to quantum meruit." Webb v. Harleysville Ins. Co., 995 WL 716757, at *3 (Del. Super. Ct. Oct. 23, 1995). See also Gurry v. Glaxo Wellcome, Inc., 2000 WL 1702028, at *1 (S.D.N.Y. Nov. 13, 2000) ("An attorney discharged without cause may recover fees only on a quantum meruit basis even where the attorney was retained on a contingency fee basis.").
In a contingent fee case, the quantum meruit recovery of attorney's fees is "not to exceed the contingency fee." Murrey v. Shank, 2011 WL 4730549, at *3.
On the other hand, where the discharge is for cause, the lawyer will not be entitled to any fee. Ramunno & Ramunno, P.A. v. Gary S. Nitsche, P.A., 2009 WL 395224, at *1 (Del. Super. Ct. Feb. 2, 2009) (citing Casper v. Lew Lieberbaum & Co., 182 F. Supp. 2d 342 (S.D.N.Y. 2002)). See also Budin, Reisman, Kupferberg & Bernstein, LLP v. Law Offices of Rosemarie Arnold, 79 Fed. Appx. 460, 461 (2d Cir. 2003) ("In New York, it is well-settled that attorneys lose their right to fees if discharged for cause." (citation omitted)).
C. Determination of Whether Discharge was For Cause
Whether an attorney was discharged for cause depends primarily on the facts and circumstances of each individual case. Good cause for discharge of an attorney is generally found where the attorney is guilty of professional misconduct, or where there has been a significant breach of legal duty. See, e.g., Murrey, 2011 WL 4730549, at *3; Allstate Ins. Co. v. Nandi, 258 F. Supp. 2d 309, 312 (S.D.N.Y. 2003). In Murrey v. Shank, the Superior Court of Delaware explained that, in determining whether an attorney was discharged for cause,
See also 31 Am. Jur. Proof of Facts 2d 125 ("[CJourts have been fairly consistent in finding just cause to exist where one or more of the following elements is present in the factual picture: (1) the attorney's failure to perform under the employment contract; (2) his lack of diligence in so performing; (3) his lack of ordinary skill or care in so performing; (4) his making of demands on the client which violate the terms or exceed the scope of the contract; (5) his taking of actions contrary to the client's interests or objectives; (6) his indulging in some sort of unprofessional conduct while handling the client's affairs; (7) his venting of personal or economic hostility toward the client; and (8) his loss of the client's trust and confidence.").
the Court may look to those requirements enumerated in the Delaware Lawyers' Rules of Professional Conduct. A lawyer must act with diligence and provide competent legal representation which requires legal knowledge, skill, thoroughness and preparation .... A lawyer must follow the decisions of his client concerning the objectives of representation, including a decision to settle a matter, and shall consult with the client as to the means by which they are to be pursued. It is a lawyer's duty to promptly keep his client reasonably informed and to give straightforward and honest advice. Other evidence suggesting discharge 'for cause' is failure to return a client's phone calls and to keep the client advised as to the status of his case.Murrey, 2011 WL 4730549, at *3 (citations omitted). See also First Nat'l Bank v. Pepper, 454 F.2d 626, 633 (2d Cir. 1972) (explaining that an attorney who is "guilty of professional misconduct in the handling of his client's affairs" has no right to fees).
On the other hand, '"[wjhere an attorney is discharged not because he or she neglected to properly represent the client but because of personality conflicts, misunderstandings or differences of opinion having nothing to do with any impropriety by the lawyer, the discharge is not 'for cause' and the attorney does not forfeit his or her fee.'" Nandi, 258 F. Supp. 2d at 312 (quoting Gurry, 2000 WL 1702028, at *2). See also Murrey, 2011 WL 4730549, at *3 (noting that a "disagreeable" relationship between the client and his attorney does not, alone, constitute good cause to discharge the attorney).
IV. DISCUSSION
The resolution of this dispute turns on whether SRI terminated LLO for cause. If SRI had good cause to discharge LLO from representation, LLO cannot recover any fees. See Ramunno, 2009 WL 395224, at *1. As discussed below, the court LLO finds that SRI terminated LLO for cause and, consequently, LLO is not entitled to fees.
A. LLO Attempted to Settle the Underlying Action with Ustream Contrary to SRI's Directions
SRI had good cause to discharge LLO because LLO did not adhere to SRI's objectives of representation and disregarded SRI's decision to not settle the case. Under the ABA's Model Rules, which govern attorney conduct in this District, a lawyer must abide by a client's decisions "concerning the objectives of representation" and "whether to settle a matter." MRPC 1.2(a). Similarly,
See also MRPC 1.2 cmt. 1 ("Paragraph (a) confers upon the client the ultimate authority to determine the purposes to be served by legal representation, within the limits imposed by law and the lawyer's professional obligations. The decisions specified in paragraph (a), such as whether to settle a civil matter, must also be made by the client. . . . With respect to the means by which the client's objectives are to be pursued, the lawyer shall consult with the client as required by Rule 1.4(a)(2) and may take such action as is impliedly authorized to carry out the representation.")
[a] lawyer should pursue a matter on behalf of a client despite opposition, obstruction or personal inconvenience to the lawyer, and take whatever lawful and ethical measures are required to vindicate a client's cause or endeavor. A lawyer must also act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client's behalf.MRPC 1.3 cmt. 1.
In the present case, Wirt conveyed to LLO the objectives of SRI's representation as early as August 6, 2009, when he wrote: "Settlement discussions are premature at this point. . . . Let them answer the complaint and then hit them with discovery." (D.I. 75, Ex. 16) Wirt reiterated SRI's opposition to settlement a number of times thereafter. For example, Wirt called LLO on August 24, 2009 and stated that he "was not interested in settling for [$20,000]." (D.I. 70 at 14, ¶ 45) On October 5, 2009, Wirt emailed LLO, "[i]f this is the same deal that was on the table before . . . then I don't see what is in it for us." (D.I. 75, Ex. 23) On October 15, 2009, Wirt emailed LLO, "I don't understand why we would settle," "I never agreed to the deal," "it made no sense and I did NOT agree to it." (Id., Ex. 26) On November 21, 2009, Wirt sent LLO an email stating, "I do not agree . . . that T gave you authority to resolve the case,'" and SRI is "not inclined to settle." (Id., Ex. 31) On December 16, 2009, Wirt emailed LLO that "[Ustream's] offer is far too low," and "[n]o number" will be acceptable to SRI. (Id., Ex. 36) "We want to defeat [Ustream's] motion to dismiss." (Id.) Despite Wirt's clear opposition, LLO entertained settlement discussions with Ustream, in varying degrees, from August 2009 until January 2010.
In addition to disregarding SRI's objectives, LLO unjustifiably delayed the underlying litigation. The Model Rules provide that "[a] lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client." MRPC 3.2. In this respect, "[t]he [relevant] question is whether a competent lawyer acting in good faith would regard the course of action as having some substantial purpose." MRPC 3.2 cmt. 1.
Here, LLO's conduct did not have any substantial purpose. On October 15, 2009, Wirt unequivocally conveyed to LLO that SRI opposed the settlement agreement. Specifically, Wirt sent LLO emails that stated, "I don't understand why we would settle," "I never agreed to the deal," "it made no sense and I did NOT agree to it." (D.I. 75, Ex. 26) "Since we don't seem to be on the same page on this one, maybe the best thing to do is for you guys to withdraw." (Id.) In spite of Wirt's clear message, LLO continued to misrepresent to Cole SRI's position on settlement. For example, in response to Cole's status request of October 30, 2009, LLO wrote: "Haven't gotten anything from my client. I will reach out first thing Monday and let you know." (D.I. 75, Ex. 39-0 (emphasis added)) In response to Cole's status request of December 7, 2009, LLO stated: "Unfortunately, I have no answer for you - I have a client who is taking their time and not prioritizing this settlement and I'm embarrassed to say that I can't give you an answer as to what the status is, but... I will give you an open-ended extension until I get a response from my client." (Id., Ex. 39-P (emphasis added)) There is no substantial purpose for LLO's misrepresentations that would justify the resulting delay to the underlying action.
Model Rule 4.1 provides that, "[i]n the course of representing a client a lawyer shall not knowingly . . . make a false statement of material fact... to a third person." MRPC 4.1. LLO's statements to Cole constitute misrepresentations, which are construed under this Rule as false statements. Comment 1 to Model Rule 4.1 defines misrepresentations as "partially true but misleading statements or omissions that are the equivalent of affirmative false statements." MRPC 4.1 cmt. 1. LLO's statements to Cole fall squarely in this category.
In sum, SRI had good cause to discharge LLO because LLO did not adhere to SRI's objectives of representation and disregarded SRI's decision to not settle the case.
B. LLO Disregarded SRI's Instructions to Conduct Discovery
SRI had good cause to discharge LLO, in part, because LLO ignored SRI's directions to conduct discovery. Under Model Rule 1.2(a), LLO was required to abide by SRI's decisions concerning the objectives of representation. MRPC 1.2(a). Furthermore, LLO was required to "make reasonable efforts to expedite litigation consistent with the interests of the client." MRPC 3.2. LLO did neither. On August 6, 2009, SRI instructed LLO to conduct discovery. (See D.I. 75, Ex. 16 ("Let them answer the complaint and then hit them with discovery.")) LLO, however, did not take any action with respect to discovery for more than two years.
On December 21, 2011, the court held a teleconference, and mediation was scheduled. During the conference, the court explicitly provided an opportunity for LLO to initiate discovery.
The Court: Counsel,. . . how much time do you need . . . [for] discovery?(D.I. 71, Ex. A at 2-3) Notably, between the December 21, 2011 teleconference and the May 10, 2012 mediation, LLO had more than four and a half months to conduct discovery. Despite this ample time period, LLO failed to serve Ustream with a single discovery request. (See 12/12/12 Tr. at 52)
. . .
Ms. Lonstein: We believe 90 days would be sufficient.
. . .
Mr. Cole: . . . We are willing to make any information available to her.
The Court: . . . I will direct that the parties conduct discovery on your own.
Also relevant to the issue of discovery is the fact that LLO misrepresented to SRI this court's stance on discovery. On February 13, 2012, Wirt expressed to LLO his discontent over the absence of discovery in connection with the May 10, 2012 mediation:
The biggest issue I have with all of this is that we are going into this process without any discovery .... It is not possible to make an informed decision .... Frankly, as I have told you before, I think a mediation at this point is premature.(D.I. 75, Ex. 51 (emphasis added)) LLO responded: "The Court ordered the mediation and we cannot opt out. . . . The Court did not think any discovery was necessary." (Id. (emphasis added)) In contrast, unbeknownst to SRI, the court "directed that the parties conduct discovery on [their] own." (D.I. 71, Ex. A at 3) LLO's misrepresentation to SRI conflicts with its obligation under Model Rule 2.1 to "exercise professional judgment and render candid advice." MRPC 2.1.
See also MRPC 2.1 cmt. 1 (explaining that "[a] client is entitled to straightforward advice expressing the lawyer's honest assessment"); MRPC 1.4 cmt. 7 (explaining that "[a] lawyer may not withhold information to serve the lawyer's own interest or convenience or the interests or convenience of another person").
Consequently, LLO was discharged for cause based on its failure to conduct any discovery pursuant to SRI's instructions, and its misrepresentation to SRI concerning the court's stance on discovery.
C. LLO Disregarded SRI's Instructions Concerning ADR
SRI had good cause to discharge LLO, in part, because LLO disregarded SRI's instructions concerning the parties' approach to ADR. On January 30, 2012, LLO and Wirt had the following email exchange:
LLO: Do you have any preferences regarding types of [ADR], i.e. [sic] mediation, arbitration, with or without highs and lows, Binding/ [sic] Non binding Arbitration [sic] or Magistrate Judge.(D.I. 75, Ex. 50 (emphasis added))
Wirt: Non-binding mediation with no conditions.
LLO: Wouldn't you rather do a high low with $75k low and $500K [sic] high.
Wirt: No. . . . I don't want to do it at all if I don't have to.
This approach to ADR is known commonly as "baseball arbitration," wherein each party submits its final and best settlement offer, and an arbitrator must choose one of the two numbers provided. See, e.g., Brandt v. MIT Dev. Corp., 552 F. Supp. 2d 304, 307 (D. Conn. 2008); UMG Recordings, Inc. v. Myspace, Inc., 526 F. Supp. 2d 1046, 1066 (CD. Cal. 2007).
Notwithstanding SRI's position, LLO proposed to Cole the exact form of ADR that Wirt had rejected only two days earlier. (See id., Ex. 51 ("I wanted to outline a proposed alternative form of mediation along the lines of the 'baseball arbitration' form of ADR you [LLO] had suggested." (emphasis added)); Id., Ex. 70 ("Julie - At this point I am assuming your [LLO's] baseball arbitration idea is off the table." (emphasis added))) LLO's conduct did not conform to Model Rule 1.2(a), which requires a lawyer to abide by a client's decisions "concerning the objectives of representation" and "whether to settle a matter." MRPC 1.2(a). Consequently, SRI had good cause to discharge LLO, in part, because LLO ignored SRI's instructions concerning ADR.
D. LLO's Representation of SRI was Materially Limited by LLO's Other Responsibilities and Interests
SRI had good cause to discharge LLO because LLO breached its duty of undivided loyalty owed to SRI. The Model Rules prohibit a lawyer from representing a client where "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, ... or by a personal interest of the lawyer." MRPC 1.7(a)(2). The rationale behind this principle is that "[ljoyalty and independent judgment are essential elements in the lawyer's relationship to a client." MRPC 1.7 cmt. 1.
Model Rule 1.7(b) provides an exception that allows a lawyer to represent a client notwithstanding the existence of a conflict of interest, if, among other things: "the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client," and "each affected client gives informed consent, confirmed in writing." MRPC 1.7(b). The exception, however, is inapplicable in this case because LLO's representation of SRI was materially limited, and SRI did not give informed consent.
Even where there is no direct adverseness, a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests. . . . The critical questions are the likelihood that a difference in interests will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.MRPC 1.7 cmt. 8 (emphasis added). Similarly,
[t]he lawyer's own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer's own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. Similarly, when a lawyer has discussions concerning possible employment with an opponent of the lawyer's client, or with a law firm representing the opponent, such discussions could materially limit the lawyer's representation of the client.MRPC 1.7 cmt. 10.
But see MRPC 1.7 cmt. 6 ("Loyalty to a current client prohibits undertaking representation directly adverse to that client without that client's informed consent. . . . On the other hand, simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients.").
In the present case, LLO represented two clients whose interests were adverse. SRI sought to prosecute Ustream for trademark and copyright infringement. On the other hand, Circuito sought Ustream's prompt assistance in connection with illegal online streaming of Circuito's copyrighted programing. Even assuming, arguendo, there was no direct adverseness, a conflict of interest existed due to the significant risk that LLO's independent professional judgment would be materially limited as a result of its divergent responsibilities to SRI and Circuito.
If LLO had zealously prosecuted SRI's claims against Ustream, it is unlikely that Ustream would have promptly assisted Circuito, if at all. Indeed, when LLO initially solicited Ustream on behalf of Circuito, Cole stated: "While Ustream is not typically granting take down tool access in the first instance, it will do so here as a gesture of good will to you as we wrap up the Square Ring dispute." (D.I. 75, Ex. 39-N (emphasis added))
Furthermore, the record demonstrates that LLO's independent professional judgment relative to SRI was, in fact, materially limited by LLO's representation of Circuito. By October 15, 2009, LLO was aware of SRI's firm opposition to the settlement agreement. (See id., Ex. 26) Nevertheless, LLO misrepresented SRI's position to Cole for the benefit of Circuito. On October 30, 2009, LLO told Cole: "Haven't gotten anything from my client. I will reach out first thing Monday and let you know." (Id., Ex. 39-0 (emphasis added)) Later, on November 18, 2009, LLO solicited Ustream on behalf of Circuito, for the second time, in connection with illegal online streaming of Circuito's copyrighted programming. (See id., Ex. 39 at 9, ¶ 32) Then, on December 7, 2009, LLO told Cole: "Unfortunately, I have no answer for you - I have a client who is taking their time and not prioritizing this settlement and . . . I can't give you an answer as to what the status is . . . ." (Id., Ex. 39-P (emphasis added))
Consequently, SRI had good cause to discharge LLO because LLO breached its duty of loyalty by soliciting Ustream on behalf of Circuito, which materially interfered with LLO's independent professional judgment relative to SRI.
See International Bus. Machs. Corp. v. Levin, 579 F.2d 271, 282 n.3 (3d Cir. 1978) ('"When a client employs an attorney, he has a right to presume, if the latter be silent on the point, that he has no engagements, which interfere, in any degree, with his exclusive devotion to the cause confided to him; that he has no interest, which may betray his judgment, or endanger his fidelity.'" (citation omitted)).
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E. Fee Dispute and Conflict of Interest in Connection with Work Performed in November 2008
SRI alleges ethical violations by LLO with respect to fees LLO collected for piracy work in November 2008. Those issues, however, are outside of the court's jurisdiction. Pursuant to Local Rule 83.6(i),
[wjhenever an attorney applies to be admitted or is admitted to this Court for purposes of a particular proceeding (pro hac vice), the attorney shall be deemed thereby to have conferred disciplinary jurisdiction upon this Court for any alleged misconduct of that attorney arising in the course of or in the preparation for such proceeding.D. Del. LR 83.6(i) (emphasis added). Therefore, the court's disciplinary jurisdiction over WDL and JCL is limited to their conduct "arising in the course of or in the preparation for" the underlying action. The November 2008 piracy work does not relate to any proceeding in this court for which WDL and JDL were admitted pro hac vice. Thus, the alleged misconduct has no bearing on the resolution of the pending discharge dispute.
V. CONCLUSION
For the foregoing reasons, the court finds that SRI discharged LLO for cause.
IT IS HEREBY ORDERED that SRI's objection to LLO's charging lien (D.I. 42) is sustained, and the charging lien (D.I. 41) is striken.
This Memorandum Opinion and Order is filed pursuant to 28 U.S.C. § 636(b)(1)(A), Fed. R. Civ. P. 72(a), and D. Del. LR 72.1. The parties may serve and file specific written objections within fourteen (14) days after being served with a copy of this Memorandum Opinion and Order. Fed. R. Civ. P. 72(a). The objections and responses to the objections are limited to ten (10) pages each.
The parties are directed to the court's Standing Order in Non-Pro Se Matters for Objections Filed Under Fed. R. Civ. P. 72, dated November 16, 2009, a copy of which is available on the court's website, http://www.ded.uscourts.gov.
_________________
Sherry R. Fallon
United States Magistrate Judg