The opinion of the court was delivered by: NORMA SHAPIRO, Senior District Judge
Plaintiffs/Counterclaim Defendants, Haymond Napoli Diamond,
P.C., d/b/a Hochberg Napoli Diamond ("HND-PA"), Andrew F. Napoli
("Napoli"), Scott E. Diamond ("Diamond"), Jack Bernstein
("Bernstein"), David S. Berman ("Berman") and Robert
Hochberg*fn1 ("Hochberg"), (together, "the HND-PA parties"),
filed 53 posttrial motions under Fed.R. Civ. P. 50 and 59,
following a threeweek trial and jury verdict in favor of
defendants/counterclaim plaintiffs, John Haymond ("Haymond") and
the Haymond Law Firm (together, "the Haymond parties"). I. Factual Background*fn2
This breach of contract action with related counterclaims
arises in part from prior litigation involving the dissolution of
Haymond & Lundy, LLP ("H&L"), a personal injury law firm. That
action's procedural history may be found in this court's eleven
opinions and two opinions of the Court of Appeals. See Haymond
v. Lundy, No. 99-5048, 2000 U.S. Dist. LEXIS 8585 (E.D. Pa.
2000) (denying in part Haymond and Lundy's cross-motions to
dismiss); Haymond v. Lundy, No. 99-5048, 2000 U.S. Dist. LEXIS
17879 (E.D. Pa. 2000) (dismissing in part Lundy's claims against
Hochberg for the unauthorized practice of law); Haymond v.
Lundy, No. 99-5048, 2001 U.S. Dist. LEXIS 54 (E.D. Pa. 2001)
(granting and denying in part cross-motions for summary
judgment); Haymond v. Lundy, No. 99-5048, 2001 U.S. Dist. LEXIS
630 (E.D. Pa. 2001) (granting the HND-PA parties' motion for summary judgment against Lundy on the
civil conspiracy counterclaim); Haymond v. Lundy,
177 F. Supp. 2d 371 (E.D. Pa. 2001) (following jury verdict for Haymond,
entering judgment in favor of Haymond, appointing Receiver to
dissolve partnership, and creating a schedule for distribution of
partnership assets), aff'd in relevant part, 79 Fed. Appx. 503
(3d Cir. 2003); Haymond v. Lundy, 174 F. Supp. 2d 269 (E.D. Pa.
2001) (following bench trial, entering judgment for Lundy on
Lundy's claim that Hochberg engaged in unauthorized practice of
law), vacated, 91 Fed. Appx. 739 (3d Cir. 2003) (for lack of
jurisdiction); Haymond v. Lundy, 205 F. Supp. 2d 390 (E.D. Pa.
2002) (denying cross-motions for post-trial relief, denying
motion to intervene), aff'd in relevant part 79 Fed. Appx. 503
(3d Cir. 2003); Haymond v. Lundy, 205 F. Supp. 2d 403 (E.D. Pa.
2002) (granting Lundy's petition for attorney's fees); Haymond
v. Lundy, No. 99-5048, 2002 U.S. Dist. LEXIS 15770 (E.D. Pa.
2002) (adopting proposed distribution of assets); Haymond v.
Lundy, No. 99-5048, 2002 U.S. Dist. LEXIS 15767 (E.D. Pa. 2002)
(denying Lundy's Motion to Effectuate Jurisdiction) aff'd
79 Fed. Appx. 503, 2003 U.S. Dist. LEXIS 13487 (3d Cir. 2003). A. History of the Haymond and Lundy Litigation: Civil Action
Formation & Dissolution of H&L
H&L was formed on October 13, 1997; initially, the partners
were Marvin Lundy ("Lundy"), Haymond and Hochberg. The firm's
other attorneys included Napoli, Diamond, Berman, Bernstein,
Barry Magen, Robert Pollan, Fred Braverman and George Szymanski.
See, Stip. Facts.*fn3 Lundy, who had practiced law in
the Philadelphia area, contributed his pending cases to the firm,
and Haymond and Hochberg, who had been partners in a Connecticut
law firm, contributed cash for expenses. The partnership
continued until October 8, 1999, when Lundy dissolved it by
letter to Haymond and Hochberg. Stip. Facts. Haymond and Lundy
each immediately filed civil actions in the United States
District Court for the Eastern District of Pennsylvania.
As part of these proceedings, on November 10, 1999, the court
appointed Martin Heller, Esq. ("Receiver" or "Heller"), as H&L's
"Neutral Court Representative with the powers and duties of a
master under Fed.R. Civ. P. 53." Haymond v. Lundy, No.
99-5048, (E.D. Pa. Nov. 10, 1999) (Paper #18) (Order appointing Receiver). Heller was empowered to: (1) meet with the parties to
implement an orderly and equitable division of the cases of the
Former Clients between the parties and their respective law
firms, subject to the Former Clients' written instructions and
approval of the court"; and (2) to use bank accounts in his
representative capacity to hold sums in escrow for payment of
bills and eventual distribution of profits, if any, to the
parties. Haymond v. Lundy, No. 99-5048, 2002 U.S. Dist. LEXIS
15767, at *3-*4. All of Heller's activities were subject to
review and supervision by the court. Id., at *4. Every attorney
formerly employed by H&L received notice of this appointment.
On December 10, 1999, Alan Epstein, Esq., counsel to Lundy,
wrote to Larry Spector, Esq., counsel to Haymond, to memorialize
the parties' agreement escrowing attorney's fees collected by the
Fees from cases opened after the inception of H&L
(October 1997) and before its dissolution would be
held in escrow in the "Haymond and Lundy operating
account" after certain distributions were made.
Fees from cases opened by Lundy (the "Lundy" or
"ML&L" cases) would be held in escrow by Lundy and
deposited in an account at Prudential Securities.
Id., at *4-*5. Heller, writing on the text of this letter on
December 12, 1999, and attaching a new signature page, wrote:
The Lundy cases "shall be held by Mr. Lundy in that
account pending agreement or a court order as to the
disbursement of those funds."
"From Martin Heller to all attorneys
non-attorneys of the Law Office of Marvin Lundy and
Haymond, Napoli and Diamond. This letter should be considered as if it
were an Order of the Court. Any deviation from this
Order will be reported to the Court and appropriate
sanction will be recommended."
Id., at *5. The court was notified of this Order and approved
of it, but the Order was not entered on the docket; no one
subject to the Order objected to it. Id. All of the HND-PA
parties were aware of the letter agreement to escrow fees. Stip.
On August 31, 2001, after a jury verdict against Lundy on all
claims and counterclaims, judgment was entered on Haymond's
claims for breach of the partnership agreement. Haymond v.
Lundy, 177 F. Supp. 2d at 389. Under the judgment, Haymond was
to receive forty percent of fees from cases generated during the
existence of H&L while Lundy was to receive sixty percent with
some exceptions. Stip. Facts. As to cases Lundy brought into
the initial partnership that were litigated after the dissolution
by Haymond's new firm, Haymond was to receive eighty percent and
Lundy only twenty percent, again with certain exceptions. Id.
Haymond and Lundy were both obligated to place in escrow net fees
already earned and those received from future Haymond and Lundy
cases. Id., at 390.*fn4 At the Receiver's request, the court appointed Jerome Kellner
("Kellner"), a certified public accountant, to help effectuate
its judgment. Haymond v. Lundy, No. 99-5048 (Paper #307)
(Order). The fees and costs collected but not placed in escrow
totaled $1,532,948 as of January 31, 2002, according to Jerome A.
Kellner (the "Kellner Report"). See, Pl. Exh. 25. HND-PA has
not remitted those funds to HND-CT or Haymond.
Involvement of the HND-PA parties in H&L litigation
On September 7, 2001, HND-PA, Napoli, Diamond, Bernstein,
Berman and Hochberg, jointly moved to intervene in the litigation
between Haymond and Lundy, Haymond v. Lundy, No. 99-5048 (Paper
#303), but Haymond and Lundy both objected. On October 25, 2001,
HND-PA withdrew its motion to intervene. Haymond v. Lundy, No.
99-5048 (Paper #324). The HND-PA parties subsequently filed the
instant action in the Philadelphia Court of Common Pleas; it was
removed to this court on the ground of diversity on February 12,
2002. HND-PA v. Haymond, No. 02-721, Notice of Removal (Paper
On January 15, 2002, Lundy moved to effectuate jurisdiction
over HND-PA in Civil Action No. 99-5048, because the law firm
controlled the assets subject to the Haymond and Lundy litigation. Haymond v. Lundy, No. 99-5048, 2002 U.S. Dist.
LEXIS 15767 (E.D. Pa. 2002). The motion was denied because the
court, in distributing the H&L assets, treated Haymond as in
privity with HND-PA to evade the court's jurisdiction, to avoid
penalizing Lundy by delaying the distribution. Id., at *29.
Haymond was charged with $1,532,948, as though he had received
and retained that amount, even though he had not, and left the
respective shares of Haymond and HND-PA for another day. Id.,
at *30. The court viewed the amount due Lundy as distinct from
Haymond's recovery against HND-PA.
As a result, although Haymond and Lundy were each due a
distribution of $1,675,402, the court subtracted from Haymond's
distribution the $1,532,948 in accounts receivable diverted from
escrow by HND-PA, resulting in a $142,454 judgment for Haymond.
B. History of the Instant Action: Civil Action No. 02-721
On October 14, 1999, following the dissolution of H&L on
October 8, Haymond held a meeting with various former H&L
attorneys, including Diamond, Bernstein and Berman, to solicit
the attorneys not to accept employment with Lundy's new firm but
to join his new law firm. Stip. Facts. Haymond promised Diamond
that if he came to work for the new firm, he would continue to
receive the same $150,000 salary and benefits as he had at H&L. HND-PA v. Haymond, No. 02-721, Second set of interrogatories
(Paper #221). Haymond made similar offers to Napoli, Berman and
Bernstein. Haymond also suggested that the Haymond law firm would
cover all expenses, salaries and employee benefits and that Scott
Diamond would be paid a $150,000 salary plus benefits. Id.
Napoli, Diamond, Berman, Bernstein and Hochberg joined Haymond in
a new law firm, Haymond Napoli Diamond, P.C., the Connecticut law
firm now known as the Haymond Law Firm, P.C. ("HND-CT"). Id.
Hochberg and Haymond were the only shareholders in HND-CT. Id.
In April 2000, Haymond stopped paying Napoli, Diamond,
Bernstein and Berman, three weeks later gave them a lump sum
check for the previous three weeks, and then stopped paying
altogether in May. HND-PA v. Haymond, No. 02-721 (E.D. Pa.
Mar. 23, 2004) (Paper #177) (Order denying motions for summary
Creation of HND-PA: June 29, 2000 Agreement
On June 29, 2000, Haymond, Napoli, Diamond and Hochberg entered
into an agreement creating a separate law firm, HND-PA, for the
Pennsylvania operations of HND. See, Pl. Exh. 5, June 29, 2000
Agreement. The Agreement divested Haymond of daily
responsibility for managing the Pennsylvania practice. Id., at
¶ 6. HND-CT advanced funds to the HND-PA parties to form
HND-PA.*fn5 HND-CT advanced an additional $100,000 to HND-PA after it was
formed. Stip. Facts. In July 2000, Napoli, Diamond, Bernstein
and Berman began receiving wages from HND-PA. HND-PA v.
Haymond, No. 02-721 (E.D. Pa. Mar. 23, 2004) (Paper #177) (Order
denying motions for summary judgment).
The Agreement, signed by Hochberg, Haymond, Napoli and Diamond,
provided, in relevant part:
All property including but not limited to furniture,
fixtures, software, supplies, bank account and cases
in progress owned by HND-CT and located or primarily
utilized in Pennsylvania or New Jersey are hereby
conveyed and assigned to HND-PA. Excluded from this
conveyance/assignment are funds totaling $1,050,000
which may be received in connection with a lawsuit
against Marvin Lundy, et al. Currently pending in
(court & docket #). [sic] These funds shall remain
the property of HND-CT but any monies received in
excess of $1,050,000 shall become the property of
HND-PA. Pl. Exh. 5 at ¶ 1.
[HND-PA] shall assume all obligations and liabilities
of [HND-CT] in connection with the maintenance and
operation of the law firm on [sic] Pennsylvania and
New Jersey including but not limited to lease
obligations, yellow page advertising[,] equipment and
service contracts, payroll and any and all other
existing and future obligations. Id. at ¶ 6.
[T]he lawsuit against Marvin Lundy may be settled by
John Haymond but only with the approval of at least
three of the following individuals: Scott Diamond,
Andrew Napoli, Jack Bernstein, David Berman, or
Robert Hochberg. Id. at ¶ 9.
It is further agreed that all strategy regarding the
lawsuit will be discussed in advance by all the
parties to this agreement. Id.
The Agreement also appointed Robert Hochberg firm manager. Id.,
at ¶ 12. Escrow of Fees
While employed by HND-CT, Napoli, Diamond, Bernstein, Berman
and Hochberg escrowed fees from H&L cases. Stip. Fact. After
the formation of HND-PA, the firm established its own escrow
accounts into which the HND-PA parties placed fees from H&L cases
for a period of time. Id. The HND-PA parties eventually stopped
escrowing fees from H&L cases to finance the daily operation of
their law firm. Id. Since January 30, 2002, when the Kellner
report was released, HND-PA has continued to receive, retain and
spend fees earned from H&L cases not accounted for in the report.
Id. Haymond did not know until January 30, 2002 that HND-PA
ceased escrowing fees.
Haymond Hochberg Release
In 1996, Hochberg had been indicted and in 1997 pled guilty to
conspiracy to commit bank fraud; as a result he lost his
Massachusetts law license, and was suspended from practice in
Connecticut for three years. Tr. 5/10/04, at 18/20-20/17. When
he initially came to work for Haymond and Lundy, Hochberg
concealed the fact that he had been indicted from Haymond and
Lundy, but after he was convicted, Haymond wrote letters to the
presiding judge on his behalf to urge a lenient sentence. Tr.
5/7/04 at 21/20-25/10. One of the issues in Civil Action No.
99-5048 was Lundy's allegation that Hochberg, Diamond and Haymond
had defrauded him by not disclosing Hochberg's indictment at the time the H&L partnership agreement was negotiated;*fn6 those
claims are part of a lawsuit pending in the Philadelphia Court of
Common Pleas. Tr. 5/7/04 at 25/5-13.
The relationship between Haymond and Hochberg became strained
and Hochberg began to shut Haymond out of decisionmaking in the
operation of HND-CT, and decreased Haymond's compensation but
gave himself a bonus. Tr. 5/7/04 at 25/19-28/6. As a result,
Haymond terminated Hochberg as manager of HND-CT on February 26,
2001. Tr. 5/7/04 at 28/6.
On April 6, 2001, Haymond and Hochberg entered a Severance and
Settlement Agreement to settle any known and unknown claims
between them. See, Pl. Exh. 20, Severance and Settlement
Agreement (Apr. 6, 2001). HND and Haymond released Hochberg:
and his current and former agents, employees,
officers, directors, attorneys, assigns,
predecessors, successors, and affiliated persons and
organizations from all liabilities, causes of action,
charges, complaints, claims, obligations, costs,
losses, damages, injuries, interest, attorneys' fees,
liquidated damages, punitive damages, penalties,
fines, all damages and claims of any kind, including
those related to attorneys' fees, both known and
unknown, which HND and Haymond may have had at the
time of the execution of this Agreement.
Id., at ¶ 11. The Severance Agreement also divested Hochberg of
his role as director, officer and shareholder of HND-CT. Haymond
testified that at the time of the Severance Agreement, he was
unaware that HND-PA was no longer escrowing fees from H&L cases, and that he did not become aware of its failure to escrow until
February 2002 after the Kellner report was released. Tr. 5/7/04
Joint Litigation and Common Interest Agreement
On August 15, 2002, Haymond, the Haymond Law Firm and Lundy
entered a Joint Litigation and Common Interest Agreement, which
became binding on October 9, 2002. See Pl. Exh. 22, Joint
Litigation and Common Interest Agreement (Aug. 15, 2002). At no
time did Haymond, on behalf of himself or the Haymond Law Firm
seek approval of Napoli, Diamond, Bernstein, Berman or Hochberg
before this settlement with Lundy, as required by the June 29,
2000 Agreement. Stip. Facts. Neither Napoli, Diamond,
Bernstein, Berman nor Hochberg were parties to the Joint
Litigation and Common Interest Agreement.
The HND-PA parties brought the instant action in the Court of
Common Pleas of Philadelphia against Haymond and the Haymond Law
Firm for breach of contract and violation of the Pennsylvania
Wage Act, for settling the litigation with Lundy without
consulting them, and failing to pay their wages, as required by
the June 29, 2000 Agreement. The Haymond parties removed to this
court on the ground of diversity, and filed counterclaims
alleging breach of contract by HND-PA and breach of fiduciary duty by Napoli, Diamond, Bernstein, Berman and Hochberg.
The claims made by the HND-PA parties against the Haymond
parties were: (I) breach of contract for settling the litigation
with Lundy without the consent of the HND-PA parties in violation
of the June 29, 2000 Agreement; (II) violation of Pennsylvania
Wage Act for failure to pay Napoli, Diamond, Bernstein, and
Berman's salaries; (III) breach of oral promise of employment by
Haymond to Diamond. The counterclaims made by the Haymond parties
against the HND-PA parties were: (I) breach of contract by HND-PA
for failure to repay amounts advanced as a loan by HND-CT to
HND-PA; (II) breach of contract by HND-PA for failure to escrow
fees; (III) breach of fiduciary duty by Napoli, Diamond,
Bernstein, Berman and Hochberg for failure to escrow fees; (IV)
breach of fiduciary duty by Napoli, Diamond, Bernstein, Berman
and Hochberg as directors, officers and shareholders of HND-PA;
(V) self-dealing and wilful misconduct by Napoli, Diamond,
Bernstein, Berman and Hochberg as shareholders of a closely held
corporation; and (VI) accounting of all cases referred by HND-CT
Motions for Summary Judgment
The court, on consideration of cross-motions for summary
judgment, found genuine issues of material fact on all claims and
counterclaims, and denied the parties' motions. HND-PA v.
Haymond, No. 02-721 (E.D. Pa. Mar. 23, 2004) (Paper #177) (Order denying motions for summary judgment). On the HND-PA parties'
claims, summary judgment was denied: on count I because there was
a genuine issue of material fact whether Haymond or the Haymond
Law Firm breached the June 29, 2000 Agreement and/or whether the
alleged breach was justified by material breach on the part of
the HND-PA parties; on count II because there were genuine issues
of material fact whether: Napoli, Diamond, Bernstein and Berman
were employed by HND-CT or HND-PA during the month of June; the
payment Napoli, Diamond, Bernstein and Berman received in July
was for work in June or work in July; and "the existing and
future obligations" assumed by HND-PA included responsibility for
past wages due Napoli, Diamond, Bernstein and Berman; and on
Count III because there was a genuine issue of material fact as
to whether, on or about October 14, 1999, Haymond, individually
or on behalf of the Haymond Law Firm, promised to pay the salary
of Diamond, and if so, for how long.*fn7 Id.
On the counterclaims, summary judgment was denied: on
counterclaim I because there were genuine issues of material fact
regarding the amount of money carried on the books of HND-PA as
"Advanced by Hartford", and whether the funds were a loan or shareholders' equity; on counterclaims II and III because there
was a genuine issue of material fact whether plaintiffs were
obligated to escrow fees; on counterclaim IV because there was a
genuine issue of material fact whether the use of the escrow fund
was illegal or wrongful; and on counterclaim V because there was
a genuine issue of material fact whether the actions of Napoli,
Diamond, Bernstein, Berman and Hochberg were improper selfdealing
and willful misconduct. Id.
On consideration of an additional motion for summary judgment
filed by the HND-PA parties, the court granted partial summary
judgment for Hochberg because the release agreement precludes all
claims "known and unknown, which HND and Haymond had or may have
had at the time of the execution of the agreement." HND-PA v.
Haymond, No. 02-721 (E.D. Pa. Apr. 28, 2004) However, the court
found a genuine issue of material fact whether the counterclaims
had accrued as of April 6, 2001 so Hochberg was not terminated as
a counterclaim defendant. The court also found a genuine issue of
material fact whether the release agreement was applicable to
Napoli, Diamond, Bernstein and Berman. (Paper #197) (Order
denying partial summary judgment).
On consideration of a second additional motion for summary
judgment filed by the HND-PA parties for a reduction of the
Haymond parties' claim of damages to reflect alleged errors in the Kellner Report, the court denied summary judgment without
prejudice to what might be asserted at trial because: (1) the
motion was improper in form; (2) the matters of which the motion
complained were the subject of the litigation between Haymond and
Lundy, affirmed on appeal and not subject to challenge by the
HND-PA parties; the HND-PA parties were not parties so they are
not bound by that result.
On consideration of the HND-PA parties' motion in limine and
the Haymond parties' objections, the court limited the testimony
of each of the parties' experts. HND-PA v. Haymond, No. 02-721
(E.D. Pa. Nov. 7, 2003) (Paper #153) (Order limiting expert
testimony). Abraham Reich, Esq. was not permitted to testify to
the conclusions stated in his report dated August 15, 2003; had
he testified, John J. Hubbert, III, Esq. would not have been
permitted to testify to the conclusions stated in his report
dated September 4, 2003. Id.*fn8
The court also limited Napoli from testifying if he remained
trial counsel for himself, Diamond, Bernstein and Berman. ABA Rule 3.7 prohibits a lawyer from being an advocate in a trial
where the lawyer is "likely to be a necessary witness." One of
the rationales for prohibiting the dual lawyer-witness situation
in a contested proceeding is to prevent confusion by the trier of
fact with regard to the separate roles of an advocate and a
witness. That rationale is explained as follows:
Combining the roles of advocate and witness can
prejudice the opposing party and can involve a
conflict of interest between the lawyer and client.
The opposing party has proper objection where the
combination of roles may prejudice that party's right
in the litigation. A witness is required to testify
on the basis of personal knowledge, while an advocate
is expected to explain and comment on evidence given
by others. It may not be clear whether a statement by
an advocate-witness should be taken as proof or as an
analysis of the proof.
Gordon v. Bechtel Int'l, No. 01-132, 2001 U.S. Dist. LEXIS
22432, 12-13 (D.V.I., 2001). Because Napoli was both a plaintiff
and counterclaim defendant in the action, the court felt his role
as advocate would be compromised if he were allowed to testify.
The trial was severed into three phases and the jury was
presented with special interrogatories for each phase.*fn9
HND-PA [EDITORS' NOTE: THIS PAGE CONTAINED FOOTNOTES.] [EDITORS' NOTE: THIS PAGE CONTAINED FOOTNOTES.] v. Haymond, No. 02-721, (E.D. Pa. Mar. 26, 2004) (Paper #181)
(Order setting trial schedule). In the first phase, the jury, on
consideration of liability for breach of contract and related
counterclaims, found defendants had signed the Joint Litigation
and Common Interest Agreement with Lundy without consulting with
or obtaining consent from at least three of the five persons
listed in paragraph 9 of the June 29, 2000 Agreement. The jury
also found that this conduct was not a breach of their June 29,
2000 agreement because the HND-PA parties had materially breached
the Agreement first by failing to retain fees from H&L cases in
escrow and disregarding Haymond's shareholder rights. The jury
found that the June 29, 2000 agreement transferred to HND-PA
Haymond's obligation to escrow fees from H&L cases. The jury also
found that the $1,509,310 ...