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SILVER v. KLEHR

July 28, 2004.

MOSES SILVER, Plaintiff,
v.
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.

I. BACKGROUND

  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 (citations omitted).

  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 ...


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