Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

HAYMOND, NAPOLI DIAMOND, P.C. v. HAYMOND

HAYMOND, NAPOLI DIAMOND, P.C., ANDREW NAPOLI, SCOTT DIAMOND, JACK BERNSTEIN, DAVID BERMAN
v.
JOHN HAYMOND and THE HAYMOND LAW FIRM, P.C.



The opinion of the court was delivered by: NORMA SHAPIRO, Senior District Judge

MEMORANDUM AND ORDER

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 No. 99-5048

  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. Id.

  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 former partners:
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. Facts.

  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 #1).

  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. Id.

  B. History of the Instant Action: Civil Action No. 02-721

  Creation of HND-CT

  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 judgment).

  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 at 13/7-10.

  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.

  II. Procedural History

  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 to HND-PA.

  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.

  Motions in Limine

  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.

  Trial

  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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.