PHILADELPHIA -- The U.S. Court of Appeals for the Third Circuit has paved the way for a Pittsburgh judge to decide who is entitled to millions of dollars in attorneys fees - prominent Western Pennsylvania plaintiffs lawyer Bruce Carlson or the firm for which he used to work.
This case stems from a class action lawsuit against Community Bank of Northern Virginia in which Carlson was co-lead counsel for the plaintiffs. At the time it was filed, he was an associate of Specter Specter Evans & Manogue (SSEM).
However, following a $24 settlement that granted more than $2 million to Carlson, the firm filed a breach of contract action against him, claiming that he owed it most of the fees he had received in the case. Carlson was able to have the case stayed in Allegheny County Court of Common Pleas after he was able to move it from state court to district court.
However, the Third Circuit decision puts the case back into state court. SSEM is seeking $1.9 million of Carlson's $2.4 million.
“Because the Court improperly exercised ancillary jurisdiction over this dispute, we will reverse the order exercising ancillary jurisdiction, lift the stay of the state court action, vacate the order confirming Carlson’s fees, and leave to the state court the resolution of this state law contract dispute,” the court stated in its opinion.
Specter Specter Evans & Manogue sued Carlson for allegedly not following through on a separation agreement signed between the parties after he decided to leave the firm.
"The parties previously agreed that Carlson is entitled to 20 percent of the first $2 million payable to SSEM and/or Carlson and 35 percent of all amounts in excess of $2 million," the Third Circuit wrote.
"This agreement shall continue intact, irrespective of Carlson's ongoing responsibilities in the matter and any time that Carlson may devote to the appeal of the settlement’s approval and thereafter.”
It took years before the class action case was settled and both Carlson and his business partner, Gary Lynch, attempted to contact SSEM to renegotiate the fee-splitting agreement.
“Nothing in the record indicates the agreement was revised,” the appeals court decision stated.
United States District Court for the Western District of Pennsylvania District Judge Arthur Schwab found that Carlson was entitled to the full fees won in the class-action lawsuit “because the agreements between SSEM and Carlson contained an unfulfilled condition precedent that excused Carlson from performance,” the appeals court decision stated.
Yet, the appeals court stated that “The District Court lacked original jurisdiction over the state law breach of contract claim because it involves neither federal question nor diversity jurisdiction.”
The appeals court also noted other reasons that it overturned the lower court decision, including that the firms’ “breach of contract claim is not factually interdependent with the federal claims asserted in CBNV.
"CBNV involved federal statutory claims arising from allegedly deceptive lending practices, whereas the state case involved a state law contract dispute between an attorney and his former firm as to how they would split a fee award," the court wrote. "The fee-splitting case is not the type of dispute one would expect to be tried with the federal deceptive lending claims in CBNV.”
The appeals court decision was filed on Dec. 20.