The opinion of the court was delivered by: Joyner, J.
In this Civil Suit between two law firms, Defendant, Scott & Scott
LLC ("Scott"), moves for a partial dismissal of Counts II and III
of Plaintiff's Complaint for failure to state a claim upon which
relief may be granted. For the reasons that follow, we will deny
the Defendant's motion.
Berger eventually withdrew as lead counsel, and began negotiations with
Scott and the clients to transition lead counsel to another firm.
Thereafter, Berger entered into a Memorandum of Understanding ("Memo")
with Scott and the clients to reduce Berger's fee to 50% of the total
contingent fees. Under this Memo, Berger and Scott entered a separate
agreement to divide the 50% of the total fees awarded. Thus, if the case
was won, 50% of the total fee would be divided between Berger and Scott
according to each firm's respective lodestar. Furthermore, both Berger
and Scott would be reimbursed for their costs.
On December 4, 2000, the clients' case settled, and the new lead
counsel was paid $1,968,170.90 in fees. From this amount, Berger and
Scott were due $984,085.45, which, under the agreement, the firms were to
split according to their lodestars. The $984,085.45 was forwarded to Scott
for distribution pursuant to the terms and conditions of the Agreement.
However, Scott has failed to pay Berger its full share of $984,085.45. To
date, Scott has only paid Berger the sum of $315,000, which does not
reflect Berger's share of the fees due under the Agreement.
Motion to Dismiss Standards
The standards for granting a motion to dismiss are outlined in
Fed.R.Civ.P. 12(b)(6). Under Rule 12(b)(6), a motion to dismiss may be
granted only when "it is clear that no relief could be granted under any
set of facts that could be proved consistent with the allegations."
Hishon v. King & Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d
59 (1984); Quarles v. Germantown Hosp. & Cmty. Health Servs.,
126 F. Supp.2d 878, 880 (E.D.Pa. 2000) (quoting Hishon). The Court must
accept all well-pleaded allegations as true and construe the complaint in
a light most favorable to the plaintiff when determining whether, under
any reasonable reading of the pleadings, the plaintiff may be entitled to
relief. See, e.g., Lake v. Arnold, 232 F.3d 360, 365 (3d Cir. 2000);
Allah v. Seiverling, 229 F.3d 220, 223 (3d Cir. 2000). Although
generally, courts may not look beyond the complaint in deciding a motion
to dismiss under Rule 12(b)(6), "they may consider an undisputedly
authentic document that a defendant attaches to a motion to dismiss, if
the plaintiff's claims are based on that document." Pension Benefit
Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993); ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994).
Under Pennsylvania law, tort claims allegedly committed in the course
of carrying out a contract are dismissible if the "gist" of them sound in
contract instead of tort. Quorum Health Res. Inc. v. Carbon-Schuylkill
Cmty. Hosp. Inc., 49 F. Supp.2d 430, 432 (E.D. Pa 1999). The Pennsylvania
state courts have thus developed a "gist of the action" test to establish
if a claim asserts either a breach of contract or tort claim. Lex & Smith
Professional Assoc., LTD. v. Wilmington Professional Assoc., Inc., No.
CIV.A. 98-6422, 1999 WL 33100113 at *1 (E.D.Pa. May 18, 1999). Under this
test, an action is considered a tort action if the wrong ascribed to the
defendant is the gist of the action, with the contract being collateral.
Lex & Smith, 1999 WL 33100113, at *1; Phico Ins. Co. v. Presbyterian
Med. Servs. Corp., 663 A.2d 753, 757 (Pa.Super.Ct. 1995).
Moreover, under Pennsylvania's "economic loss doctrine," a plaintiff is
prohibited "from recovering in tort economic losses to which their
entitlement flows only from a contract," thereby circumventing the bar on
collecting punitive damages for breach of contract. Duquesne Light Co.
v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995); Craig v.
Salamone, No. CIV.A. 98-3685, 1999 WL 213368 at *8 (E.D.Pa. April 8,
1999). Conversion, of course is defined as the "deprivation of another's
right of property in, or use of possession of a chattel, without the
owner's consent and without lawful justification." Bernhardt v.
Needleman, 705 A.2d 875 (Pa.Super.Ct. 1998).
In Bernhardt v. Needleman, 705 A.2d 875 (Pa.Super.Ct. 1998), the
Superior Court considered the question of whether an action for recovery
of an attorney's unpaid referral fees would lie under the theories of
conversion and breach of contract. In resolving this issue of first
impression under Pennsylvania law, the Court examined Rule 1.5 of the
Pennsylvania Professional Rules of Conduct. As the comment thereto
recognized, a client and a contingent fee attorney contract for specified
percentage interests in property — the proceeds of the lawsuit. Thus, the
Bernhardt Court reasoned, "the contract for a referral fee is a contract
for a division of work in exchange for a division of property — the
attorney's interest in those proceeds. Accordingly, once a fee has been
received, the referral fee can be the subject of conversion." Bernhardt,
705 A.2d at 879.
In the instant case, Berger and Scott entered an Agreement, that upon
settlement of the case, the firms would divide the 50% of total fees
awarded from the clients, according to each firm's respective lodestar.
Furthermore, both Berger and Scott would be reimbursed for their costs.
Moreover, Scott was responsible for the collection and disbursement of
the fees received from the clients. The total fees awarded were
$1,968,170.90, and from this amount Berger and Scott were due
$984,085.45. The $984,085.45 was forwarded to Scott for distribution,
however, Scott has not paid ...