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May 16, 1940


The opinion of the court was delivered by: BARD

These two suits are before the Court on motion, by the proctors of the libellant, for leave to continue prosecution of the suits on their own behalf for recovery of their costs and legal fees. By stipulation filed July 14, 1939, the parties agreed to consolidate the two actions for the purposes of trial.

On November 11, 1937, the libellant sustained certain injuries while employed as a member of the crew on board the S.S. "William Boise Thompson".

 The petitioners, attorneys at law, allege that on November 27, 1937, they were retained by the libellant to protect his interests in the claims arising out of his injuries under a written contract of retainer providing as compensation 40% of the net proceeds recovered by suit, settlement, or otherwise. Petitioners made an investigation, instituted two suits, one for personal injuries and one for maintenance and cure, took depositions in New York, and made all negotiations with a view towards settlement. They were offered $900 prior to the institution of the suit, which was rejected upon the instruction of the libellant.

 Respondent's answers were filed on August 15, 1938, denying negligence and the cases were ordered on the admiralty trial list. On November 16, 1938, respondent filed supplemental answers pleading a release, attaching to each answer a photostatic copy of a release executed by the libellant on September 9, 1938, in compromise and settlement of his claim in consideration of the sum of $1,100.

 On February 10, 1939, the petitioners filed a motion for leave to continue further prosecution of the suits on their own behalf, alleging the above facts and further: That the respondent's agents had approached the libellant and made certain fraudulent misrepresentations to the effect that the libellant did not need his proctors, that they were not properly protecting his interests, that he would make more money without his proctors, and that he should discharge them; that these misrepresentations were made for the purpose of obtaining an undue advantage over the libellant and the petitioners and to injury the petitioners wrongfully and maliciously by depriving them of their costs and compensation as proctors; that respondent was at all times fully aware of the valid and existing agreement between the libellant and the petitioners, of the petitioners' valuable rights thereunder, and of the professional services rendered by the petitioners in the institution, prosecution and general conduct of the pending litigation; and that as a result of these false and improper statements, the respondent by its agents succeeded in inducing the libellant without the knowledge or consent of the petitioners to enter into a fraudulent and collusive settlement for the purpose of defrauding the petitioners of their costs and compensations, as a consequence of which the petitioners have received no portion of the settlement, and have no prospect of receiving any amount from the libellant, as his whereabouts are unknown. At the argument it was stated by petitioners that respondent's proctors were likewise unaware of the settlement or of the alleged false misrepresentations, until after the settlement was consummated in the office of the respondent in New York.

 On March 10, 1939, the respondent filed an Answer to the petition denying that it offered any inducement to libellant to settle his claim directly with the respondent either by way of misrepresentation or otherwise. The respondent admits that it paid the sum of $1,100 to the libellant in settlement of the claim and that he executed a general release. Respondent avers, however, that the settlement was effected at the instance and solicitation of the libellant and that the libellant voluntarily approached the respondent and notified the petitioners that their services were no longer required.

 The question for determination is whether, assuming the allegations to be true, the petitioners can continue to prosecute to judgment the action in admiralty for their own benefit for the recovery of their costs and compensation as proctors for the libellant.

 Parties may settle and compromise their litigation without consulting counsel, but such right of settlement does not confer the right to interfere with the contractual obligations existing between counsel and client.

 The rights under a contract of retainer are determined by the laws of the state where made: In re Paschal, 10 Wall. 483, 77 U.S. 483, 19 L. Ed. 992; Spellman v. Bankers' Trust Co., 2 Cir., 6 F.2d 799; Shattuck v. Pennsylvania R.R. Co., D.C., 48 F.2d 346.

 Under the laws of Pennsylvania, an attorney retained on a contingent fee basis has an interest in the contract apart from his mere employment as an attorney. For a breach of such contract the attorney has a cause of action against his client and may recover the full contingent fee. Williams v. Philadelphia, 208 Pa. 282, 57 A. 578.

 In addition to and independent of the remedy which an attorney may have against his client for breach of a contingent fee contract, where the attorney's interest in the contract is maliciously interfered with by the wrongful act of a third party with knowledge of the existence of a valid contract and the rights of the attorney thereunder, the latter has a cause of action against the wrongdoer: Klauder v. Cregar, 327 Pa. 1, 192 A. 667. In that case a widow retained the plaintiff, an attorney at law, to bring suit for the death of her husband, fatally injured in an automobile accident. She executed a power of attorney containing an agreement that one-half of whatever sum is obtained from the defendant should be paid to her attorney. Action was brought by the attorney and during the pendency of proceedings and before trial, the widow settled directly with the defendant for the sum of $5,000. She did not pay her attorney his fee. Thereupon Klauder brought an action in trespass against the defendant in the original suit, and the defendant's insurance carrier, alleging that they had maliciously interfered with the performance of the contract between himself and his client and induced her to break the contract to his injury and damage. On trial, at the close of plaintiff's evidence, the Court entered a compulsory non-suit which it declined to remove and the plaintiff appealed. The Supreme Court affirmed the judgment as to Cregar since the record failed to show any liability on his part, but reversed the judgment for the insurance carrier and awarded a new trial, holding that as to it the plaintiff had stated and proved a cause of action.

 The Pennsylvania Supreme Court in its opinion said, 327 Pa. at page 3, 192 A. at page 668: "At the outset of a review of the pleadings, the testimony, and the governing legal principles entering into the case, it is opportune to remark that 'a contract confers certain rights on the person with whom it is made, and not only binds the parties to it by the obligation entered into, but also imposes on all the world the duty of respecting that contractual obligation. * * * If one maliciously interferes in a contract between two parties, and induces one of them to break that contract to the injury of the other, the party injured can maintain an action against the wrongdoer.' Caskie v. Phila. Rap. Trans. Co., 321 Pa. 157, 159, 184 A. 17, 18, 106 A.L.R. 318." The Court then reviews the evidence presented by the plaintiff and continues, 327 Pa. at page 6, 192 A. at page 669:

 "It is argued by appellee that although the statement of claim avers that defendants had made settlement with the client for $5,000, there is no averment or proof that defendants had prevented her from paying or induced or persuaded her not to pay one-half of that sum to plaintiff, nor is any claim for one-half that sum made in the statement. While it is true it was not shown that defendants had prevented or directly induced Mrs. Burgess not to pay her attorney, the insurance company's representatives effectively brought about this result, after being informed by her that she had agreed to pay him one-half of the recovery, by stating to her that the power of attorney was not any good and that she would not have to pay him if she settled out of court and that they would take care of him and ...

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