United States District Court, E.D. Pennsylvania
July 28, 2004.
MOSES SILVER, Plaintiff,
KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS, LLP, et al., Defendants.
The opinion of the court was delivered by: BERLE M. SCHILLER, District Judge
MEMORANDUM AND ORDER
Presently before the Court is the motion of Defendants Klehr,
Harrison, Harvey, Branzburg & Ellers, LLP, Steven Kortanek, Esq.,
and David Zalesne, Esq. to replace Plaintiff Moses Silver with
Mantel Investments Ltd. as the real party in interest, or
alternatively, to dismiss the Complaint. For the reasons set
forth below, the Court denies Defendants' motion.
This case is a legal malpractice and breach of contract action
instituted by Plaintiff Moses Silver. Plaintiff is the purported
assignee of all claims held by Mantel Investment Ltd. ("Mantel")
against Defendants Klehr, Harrison, Harvey, Branzburg & Ellers,
LLP ("Klehr, Harrison"), Steven Kortanek, Esq., and David
Zalesne, Esq. (collectively "Defendants") regarding Defendants'
legal representation of Mantel. (Am. Compl. ¶¶ 4, 9.) While the
scope of Defendants' representation is bitterly contested,
Plaintiff alleges that in March 1999, Mantel and an individual
named Dan Dotan jointly retained Defendants to investigate any
bankruptcy, securities, and/or RICO claims arising from Mantel
and Dotan's respective security holdings in United Petroleum
Corporation ("UPET"), which recently had filed for Chapter 11
bankruptcy. (Id. ¶ 9.) Mantel was an unsecured creditor of UPET, and both Dotan and Mantel had purchased stock in UPET
between May 1, 1996 and January 16, 1997. (Id. ¶¶ 8, 11.)
Plaintiff is one of the principals in Kensington Capital
Corporation ("Kensington"), which was the stock brokerage used by
Mantel to trade UPET shares. (Pl.'s Opp'n Ex. D.) Kensington paid
Mantel's share of Defendants' initial $20,000.00 retainer fee
(id. Ex. E), and Plaintiff communicated with Defendants during
the course of their representation of Mantel. (Id. Ex. B, Ex.
C, Ex. F.)
In or around February 2001, a settlement was reached in a
federal securities class action brought on behalf of all persons
and entities that had purchased UPET common stock from May 1,
1996 through January 16, 1997. (Am. Compl. ¶¶ 10, 12.) Defendants
filed a proof of claim on behalf of Dotan but not on behalf of
Mantel. Mantel allegedly did not learn of the settlement until
the time to file a proof of claim had passed. In his Complaint,
Plaintiff alleges that Mantel's claim would have been valued at
$859,440.00. (Id. ¶¶ 13-18.)
On June 9, 2003, Ms. Shaindy Eichenstein, President of Mantel,
signed, on behalf of Mantel, an "Assignment of All Claims."
(Pl.'s Opp'n Ex. A.) The assignment states:
For good and valuable consideration, [Mantel] hereby
assigns, transfers and conveys to [Silver] . . . any
and all claims and causes of action Mantel may have
against [Defendants] arising from [their]
representation of Mantel.
Id. Mantel assigned its claims against Defendants in exchange
for "a 40% interest in any net proceeds therefrom." Id.
Now Plaintiff, as Mantel's purported assignee, brings this
breach of contract and malpractice action against Defendants for
failure to file a proof of claim in the UPET class settlement.
Contesting the validity of the assignment, Defendants move this
Court to substitute Mantel as the real party in interest or, alternatively, to dismiss the Complaint pursuant to
Federal Rule of Civil Procedure 17.
II. STANDARD OF REVIEW
Federal Rule of Civil Procedure 17(a) provides that every
action shall be prosecuted in the name of the real party in
interest.*fn1 Jordan v. Fox, Rothschild, O'Brien &
Frankel, 20 F.3d 1250, 1278 (3d Cir. 1994). The impetus behind
this rule "is to protect a defendant from a subsequent action by
the party actually entitled to recover and to insure generally
that the judgment will have its proper res judicata effect."
Nat'l Paragon Corp. v. Aberman, Civ. A. No. 87-4454, 1987 U.S.
Dist. LEXIS 11270, at *4, 1987 WL 27024, at *1 (E.D. Pa. Dec. 2,
1987) (citing FED. R. CIV. P. 17 advisory committee note;
Nagle v. Commercial Credit Bus. Loans, Inc., 102 F.R.D. 27, 31
(E.D. Pa. 1983)); see also Beneficial Commercial Corp. v.
Railserv Mgmt. Corp., 563 F. Supp. 114, 116 (E.D. Pa. 1983),
aff'd mem., 729 F.2d 1445 (3d Cir. 1984). "Generally, if a
person has validly assigned all of his interest in a claim before
an action is brought he is no longer the real party in interest."
Beneficial Commercial Corp., 563 F. Supp. at 116 (citing
Rodriguez v. Compass Shipping Co. Ltd., 617 F.2d 955 (2d Cir.
1980), aff'd 451 U.S. 596 (1981)); Nat'l Paragon Corp., 1987
U.S. Dist. LEXIS 11270, at *4; see also Gardner v. Surnamer,
608 F. Supp. 13854, 1391 n. 4 (E.D. Pa. 1985) ("It is
well-established under Pennsylvania law that the real party in interest in an
assigned suit is the assignee and not the assignor . . . where
the assignment itself seems unequivocal." (citations omitted))
(collecting Pennsylvania cases). Under this rationale, however,
if there is only a partial assignment, "both the assignor and the
assignee have an interest in the claim and both are real parties
in interest." Beneficial Commercial Corp., 563 F. Supp. at 116
When faced with an action involving an assignment, a court must
ensure that the plaintiffassignee is the real party in interest
with regard to the particular claim involved by determining: (1)
what has been assigned; and (2) whether a valid assignment has
been made. 6A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL
PRACTICE AND PROCEDURE § 1545 (2d ed. 2004). In order to
determine whether a valid assignment has been made, a court must
turn to the substantive state law governing the assignability of
the action at bar. Id. Under Pennsylvania law, "an assignment
is `a transfer or setting over of property, or of some right or
interest therein, from one person to another, and unless in some
way qualified, it is properly the transfer of one whole interest
in an estate, chattel, or other thing.'" Fran & John's
Doylestown Auto Ctr. v. Allstate Ins. Co., 638 A.2d 1023, 1025
(Pa. Super. 1994) (citing In re Purman's Estate, 56 A.2d 86
(Pa. 1948)). While consideration is required to support an
assignment, lack of consideration does not render an assignment
invalid. Brager v. Blum, 49 B.R. 626, 629 (E.D. Pa. 1985)
(discussing assignments under Pennsylvania law). Rather, lack of
consideration makes an assignment revocable, whereas
consideration makes it irrevocable. Id. III. DISCUSSION
In the present case, Defendants present three arguments in
support of their motion.*fn2 First, they argue that the
assignment is champertous, and thus, invalid. Second, they argue
that if the assignment is deemed valid, it is only a partial
assignment and thus, Mantel must be joined as a real party in
interest under Federal Rule of Civil Rule of Procedure 19. Third,
Defendants argue that even if the assignment is not deemed
partial, Mantel is the real party in interest because the
assignment is revocable.
A. Champertous Assignment
Defendants first argue that the assignment is invalid because
it is champertous. Champerty has been defined as a "bargain
between a stranger and a party to a lawsuit by which the stranger
pursues the party's claim in consideration of receiving part of
any judgment proceeds." See In Re Rite Aid Corp. Secs. Litig.,
146 F. Supp.2d 706, 716-17 (E.D. Pa. 2001) (citing BLACK'S LAW
DICTIONARY231 (6th Ed. 1990); Ames v. Hillside Coal & Iron Co.,
171 A. 610, 612 (Pa. 1934)). Champerty is also considered "a form
of maintenance," which is in turn defined as "an officious
intermeddling in a lawsuit by a non-party by maintaining,
supporting or assisting either party, with money or otherwise, to
prosecute or defend the litigation." Id. (citing BLACK'S LAW
DICTIONARY at 954). Under Pennsylvania law, if an assignment is
champertous, it is invalid. Belfonte v. Miller, 243 A.2d 150,
152 (Pa. Super. 1968). An assignment is champertous when the
party involved: (1) has no legitimate interest in the suit, but
for the agreement; (2) expends his own money in prosecuting the
suit; and (3) is entitled by the bargain to a share in the proceeds of the
Plaintiff argues that Defendant's champerty argument must fail
because assignments of legal malpractice claims are permissible
and privity is not a requirement for an assignment of legal
malpractice claims to be valid under Pennsylvania law.
Plaintiff's argument has some merit in that under Pennsylvania
law, "[a]n agreement can be regarded as champertous only when it
is demonstrated that it does what the law does not allow."
Richettte v. Pa. R.R., 187 A.2d 910, 918 (Pa. 1963). The
precise relationship between the doctrine of champerty and the
assignment of legal malpractice claims under Pennsylvania law,
however, is unclear. In its most recent decision regarding
assignments of legal malpractice actions, Hedlund Mfg. Co. v.
Weiser, Stapler & Spivak, 539 A.2d 357 (Pa. 1988), the Supreme
Court of Pennsylvania was presented with the issue of whether
privity should be a requirement for assignments of legal
malpractice claims. Id. at 357, 359. While several courts have
found that assignments of legal malpractice claims are
impermissible becausethey would offend public policy, erode the
attorney-client relationship, and promote champerty, the Supreme
Court of Pennsylvania determined that assignments of legal
malpractice claims were permissible and do not require privity
because "[w]here the attorney has caused harm to his or her
client, there is no relationship that remains to be protected."
Id. at 359; see also Ohio Cas. Ins. Co. v. Southland Corp.,
Civ. A. No. 98-6187, 1999 U.S. Dist. LEXIS 5564, at *8, 1999 WL
236733, at *3 (E.D. Pa. Apr. 22, 1999) (citing Hedlund);
DiMarco v. Lynch Homes-Chester County, Inc., 583 A.2d 422, 425
(Pa. 1990) (discussing Hedlund). Despite this holding, it is
unclear whether the Supreme Court of Pennsylvania, in its 4 to 2
opinion, held that champerty is no longer a defense to an
assignment of a legal malpractice claim. Therefore, the Court
will determine whether the assignment is champertous.
Despite Defendants' argument to the contrary, the assignment at
issue is not champertous because the first element is not met. Id. at 152 (holding that
all three elements must be present for finding of champerty).
While Defendants assert that Plaintiff has no legitimate interest
in the suit apart from the assignment, Plaintiff is no stranger
to the suit. In fact, Defendants' own billing records show that
from the beginning of their representation of Mantel, Defendants
communicated with Mantel through Plaintiff. (Pl.'s Opp'n Ex. B,
Ex. C, Ex. F.) In addition, Plaintiff is a principal of
Kensington, which paid a portion of Mantel's retainer fee to
Defendants. (Id. Ex. E.) Thus, it cannot be said that, but for
the agreement, Plaintiff has no interest in the suit as it is
clear from the record that Plaintiff was intimately involved with
Defendants' representation of Mantel and has an interest in the
outcome of the suit. Therefore, Defendants' first argument fails.
B. Partial Assignment and Revocability
Defendants assert that Mantel must be joined as the real party
in interest because it retained a forty-percent interest in any
recovery, and thus the assignment was only a partial assignment.
(Def.'s Mem. of Law at 10-11.) Alternatively, Defendants argue
that the forty-percent interest in the recovery is a "promise for
future consideration" (Id. at 11), and therefore, Mantel must
be joined as the real party in interest because the assignment is
revocable due to lack of consideration.*fn3 These arguments
fail, however, because they mischaracterize the assignment.
First, the assignment unequivocally states that "[Mantel] hereby
assigns, transfers and conveys to [Silver] . . . any and all
claims and causes of action Mantel may have against [Defendants]
arising from [their] representation of Mantel." (Pl.'s Opp'n Ex.
A (emphasis added).) Therefore, the language of the assignment is
clear that the assignment is not partial because Mantel does not
retain any rights to bring claims against Defendants. Gardner, 608 F. Supp. at 1391 n. 4 (noting that under Pennsylvania law,
assignee is real party in interest where assignment is
unequivocal). Second, when looking at the assignment, it is clear
that the consideration provided to Mantel for the transfer of
Mantel's rights was the assumption by Plaintiff of the time and
burden of bringing the claim, as well as the risk of loss should
the claim be unsuccessful. Therefore, the assignment was not only
a full transfer of all rights, but it is also irrevocable as
Plaintiff provided consideration for it. Brager, 49 B.R. at
629. As such, Plaintiff, as the assignee of claim, is clearly the
real party in interest and Defendants' motion is denied. An
appropriate Order follows. ORDER
AND NOW, this 28th day of July, 2004, upon
consideration of Defendants' Motion to Replace Silver with Mantel
as the Real Party in Interest or, Alternatively, to Dismiss the
Complaint, and Plaintiff's response thereto, it is hereby
1. Defendants' Motion to Replace Silver with Mantel
as the Real Party in Interest or, Alternatively, to
Dismiss the Complaint (Document No. 30) is DENIED.
2. Defendants' Motion for Leave to File Reply Brief
in Support of their Motion to Replace Silver With
Mantel (Document No. 32) is DENIED as moot.