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U.S. Trustee v. Thorpe

United States District Court, E.D. Pennsylvania

July 19, 2017

U.S. TRUSTEE and CHIEF ERIC L. FRANK, Defendants,
v.
RENEE MARIE THORPE, Debtor-in-Possession, FREDERICK L. REIGLE, Trustee. Bankruptcy No. 13-15267

          MEMORANDUM OPINION

          Wendy Beetlestone, J.

         This case concerns a dispute over the disbursement of bankruptcy settlement funds in the wake of Debtor Renee Thorpe's Chapter 12 bankruptcy proceeding, which previously resulted in the sale at auction of the Thorpe family farm to satisfy debts to mortgage holder Lititz Properties, Inc. See In re Thorpe, 540 B.R. 552 (E.D. Pa. 2015). Joseph Q. Mirarchi Legal Services, P.C. (“MLS”), a solo law practice maintained by Joseph Q. Mirarchi, is now attempting to recover $113, 400 from the bankruptcy settlement as compensation for its representation of Renee Thorpe and her husband, Dale Thorpe, in a suit against their property insurer, Nationwide Mutual Insurance Company. MLS claims both a contractual and an equitable right to recover for services rendered prior to its dismissal as the Thorpes' attorney. The Thorpes maintain that the circumstances of Mirarchi's termination bar recovery, and that Lititz is instead entitled to a portion of the funds in satisfaction of the mortgage debt.

         The disputed funds are currently in escrow, pursuant to an order of the Bankruptcy Court. MLS filed a motion with the Bankruptcy Court seeking to claim the funds (the “MLS motion”). The Bankruptcy Court, after finding that the MLS motion presented a non-core matter over which it could not issue final judgment, issued proposed findings of fact and legal conclusions recommending denial of the motion. MLS has objected to that recommendation. After a de novo review of the record, the Bankruptcy Court's recommendation shall be adopted in all material respects and the MLS motion shall be denied.

         I. BACKGROUND

         Between 2010 and 2012, the Thorpes' farm sustained significant property damage from three separate events: two storms and one fire. 8/8/16 N.T. at 149.[1] In response to this damage, the Thorpes retained Brem Moldovsky in early 2013 to represent them against Nationwide, their property insurer. Ex. M-2. Moldovsky soon obtained a partial settlement, and in June of 2013 Ms. Thorpe filed a motion with the Bankruptcy Court to award Moldovsky his $51, 025.54 contingency fee. Ex. M-35. The Thorpes subsequently retained Herbert McDuffy to continue their suit against Nationwide. Ex. M-2. On November 7, 2014, McDuffy filed a complaint against Nationwide on the Thorpes' behalf. Ex. M-2.

         McDuffy was unable to continue his representation of the Thorpes for personal reasons, and the Thorpes retained Mirarchi, a solo practitioner specializing in first-party insurance litigation, to continue the suit. 8/3/16 N.T. at 15-16, 19, 125-27. On December 23, 2014, prior to receiving a signed contingency agreement from the Thorpes, Mirarchi filed an amended complaint on their behalf. 8/3/16 N.T. at 131; see also Ex. M-6 at 3. Faced with what he believed to be a firm filing deadline, Mirarchi did not have the Thorpes review and verify the complaint. 8/8/16 N.T. at 141-42. Rather, he obtained Dale Thorpe's verbal consent to attach signed verifications obtained from the original complaint filed by McDuffy. 8/19/16 N.T. at 19. The amended complaint successfully mooted Nationwide's preliminary objections. 8/3/16 N.T. at 131.

         The Thorpes sent Mirarchi a signed copy of the contingency fee agreement (“MLS Fee Agreement”) on March 4, 2015. Ex. M-13. The agreement provides, in pertinent part, that MLS's compensation “shall be determined as follows: Thirty-Five (35%) of the funds derived by suit or amicable settlement.” Ex. M-13. Further, the agreement authorizes MLS “to bring suit or to settle and compromise” the claim, with the Thorpes' consent. Ex. M-13. Nationwide filed its Answer to the amended complaint on April 29, 2015, and though MLS was at this point formally retained, no discovery was conducted by either party between April and August of 2015. Ex. M-2; see also 8/3/16 N.T. at 131-32.

         On July 15, 2015, Mirarchi was administratively suspended from practicing law in Pennsylvania effective August 14, 2015, due to a failure to fulfill his Continuing Legal Education (“CLE”) requirements under Pennsylvania Rule for Continuing Legal Education 111(b). Exs. M-38, M-42. Mirarchi soon obtained the necessary CLE hours, and the Pennsylvania CLE Board sent Mirarchi a letter on August 28, 2015 acknowledging Mirarchi's completion of his CLE obligations for 2014 and 2015. Ex. M-16. The letter also noted that the administrative suspension would not be lifted until certain “form(s) and fee(s)” were sent to the Disciplinary Board. Ex. M-16. Mirarchi was not reinstated to active status as an attorney until September 16, 2015, the same day that the Thorpes' farm was sold at auction. Ex. M-42.

         At no point did Mirarchi inform the Thorpes of his suspension, and he continued to act as their attorney while suspended from the bar. On August 25, eleven days after his suspension took effect, Mirarchi engaged in settlement negotiations with Nationwide's counsel on the Thorpes' behalf. 8/3/16 N.T. at 23-24. Nationwide offered a figure of $324, 729.30. Mirarchi texted this offer to Dale Thorpe, who after some prodding suggested that he could not assent without first discussing the matter with Ms. Thorpe's bankruptcy counsel. 8/8/16 N.T. at 95; see also Ex. M-6 at 15-17. Mirarchi nevertheless forged ahead: He sent Ms. Thorpe's counsel a copy of the MLS Fee Agreement in preparation for the filing of a motion for: (1) approval of the Nationwide settlement, (2) Mirarchi's appointment as special counsel, and (3) approval of MLS's contingent fee. Ex. M-17.

         In mid-September 2015, Dale Thorpe and Rene Thorpes' bankruptcy counsel began to request details concerning Mirarchi's administrative suspension. Exs. M-22, M-23. On October 2, Mirarchi sent the Thorpes a letter addressing the issue, claiming that the suspension “in now [sic] way effected [sic] my representation of you.” Ex. M-24 at 3. He further maintained that “[a]t all material times, I was a Member of the Bar of our Commonwealth's Supreme Court.” Ex. M-24 at 3. At no point did Mirarchi inform the Thorpes of either the nature of the suspension or its length. Ex. M-24 at 3. In the following weeks, Mirarchi continued urging the Thorpes to accept Nationwide's offer, at times disparaging the effectiveness of Debtor's bankruptcy counsel and suggesting that the Thorpes' case against Nationwide was “very weak.” Exs. M-26, M-27, M-28, M-30.

         The Thorpes terminated Mirarchi by e-mail on November 23, 2015, without having accepted the Nationwide settlement. Ex. M-34. The email cited both Mirarchi's failure to notify the Thorpes of his administrative suspension as well as his inadequate responses to their inquiries concerning the suspension. 8/8/16 N.T. at 155, 180-81. The Thorpes rehired McDuffy, who accepted the Nationwide offer on the Thorpes' behalf without any further negotiation.[2] 8/19/16 N.T. at 43.

         The following day, the Bankruptcy Court held a status hearing in the Chapter 12 case. The funds received from the farm's auction sale ($1.75 million) failed to satisfy the extent of Lititz's claim (in excess of $2.3 million), a claim still secured by the Thorpes' second residential property. Rather than continue the litigation, both parties agreed to undergo mediation with the Honorable Ashely M. Chan. During the mediation conferences, the issue of MLS's legal fees was discussed but not resolved; the parties were nevertheless able to agree upon a proposed settlement. The settlement required the Thorpes to accept the Nationwide settlement offer and immediately pay Lititz $210, 600 from the proceeds. The remaining funds ($113, 400) would remain undistributed until the matter of MLS's fees could be resolved. If MLS received less than the entire sum, Lititz would be entitled to an additional payment, up to a maximum of $9, 400. Lititz would then accept these payments in full satisfaction of its claim against Ms. Thorpe.

         On April 19, 2016, Lititz filed a motion to approve the settlement. ECF No. 547. In an order dated May 25, 2016, the Bankruptcy Court approved the proposed settlement, authorized the payment of $210, 600 to Lititz, and directed that the remaining funds be held by the Clerk of the Bankruptcy Court until the question of MLS's legal fees could be resolved. ECF No. 572.

         MLS filed the MLS motion with the Bankruptcy Court on June 22, 2016, seeking payment of the disputed funds based on the MLS Fee Agreement. ECF No. 581. The Thorpes filed a response on July 11, alleging that Mirarchi's attorney misconduct barred MLS from recovering for his services. ECF No. 586. The Bankruptcy Court, after a three-day hearing, found: (1) that the matter was a non-core proceeding, (2) that MLS had no contractual right to recover its legal fees, and (3) that Mirarchi's wrongful conduct during the Nationwide suit barred MLS from recovering in equity. The Bankruptcy Court issued its proposed finding of facts and legal conclusions recommending dismissal of all of MLS's claims and denial of the Mirarchi motion on February 17, 2017. ECF No. 644. That recommendation was transmitted to this Court for review on February 22, 2017. ECF ...


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