Bank of America, N.A. v. Prestige Imports, Inc.

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15-P-248 Appeals Court

BANK OF AMERICA, N.A. 1 vs. PRESTIGE IMPORTS, INC., & others. 2

No. 15-P-248.

Norfolk. January 11, 2016. - July 20, 2016.

Present: Grainger, Rubin, & Milkey, JJ.

Attorney at Law, Attorney-client relationship, Lien, Contingent

fee agreement, Withdrawal. Damages, Quantum meruit.

Civil action commenced in the Superior Court Department on

February 1, 1991.

A motion to adjudicate an attorney's lien, filed on

December 9, 2013, was heard by Patrick F. Brady, J.

Steven J. Bolotin for George Deptula.

Timothy J. Fazio (Jennifer L. Morse with him) for the

defendants.

RUBIN, J. In 1992, attorney George Deptula agreed to

represent Prestige Imports, Inc., and its principals, Helmut

1

The original plaintiff in this action was South Shore

Bank. A motion to substitute Bank of America, N.A., was allowed

in this court.

2

Helmut Schmidt and Renate Schmidt.

2

Schmidt and his wife Renate Schmidt 3 (collectively, Prestige), on

a contingent fee basis in litigation with South Shore Bank and,

later, its acquirer, Bank of America, N.A. (Bank of America), in

exchange for a nonrefundable retainer and a percentage of any

recovery on Prestige's counterclaims. 4 After victories at two

trials and a reversal of those victories by this court, see Bank

of America, N.A. v. Prestige Imports, Inc., 75 Mass. App. Ct.

741 (2009) (Prestige Imports), Deptula withdrew from the case

without Prestige's consent in April, 2010. Represented by

different counsel, Prestige won a judgment of $27,031,568.12,

including statutory interest, at a third trial. While that

judgment was on appeal at this court, Deptula filed a notice of

attorney's fees lien pursuant to G. L. c. 221, § 50. Prestige

brought a motion to adjudicate this lien, arguing that Deptula

forfeited it by withdrawing without Prestige's consent and

without good cause. After a jury-waived trial, a Superior Court

judge -- who was also the trial judge for the third trial in the

underlying litigation -- ordered the entry of judgment for

3

Because Renate Schmidt does not play any role in the facts

relevant to this dispute, we will follow the parties and the

judge below in referring to Helmut as "Schmidt."

4

Although the 1992 fee agreement was revised during the

course of the representation, there always was a significant

contingent component. Specifically, the April, 1992, and

October, 1999, versions of the fee agreement both provided that

Deptula would receive fifteen percent of the first $1.5 million

recovered, twenty percent of the next $1.5 million, and twenty-

five percent of any balance more than $3 million.

3

Prestige. Deptula appealed that judgment and, for the reasons

stated infra, we reverse.

Background. The litigation between Bank of America and

Prestige involved claims by Bank of America for repayment of

loans, and counterclaims by Prestige chiefly alleging Uniform

Commercial Code violations, violation of G. L. c. 93A, and

negligence, arising out of Bank of America's handling of certain

checks and its issuance of treasurer's checks by which the

comptroller of Prestige embezzled substantial funds from

Prestige. Detailed facts about that litigation are set forth in

Prestige Imports, supra at 742-752. We summarize here only the

facts relevant to the attorney-client relationship between

Deptula and Prestige. We take the facts as found by the judge,

supplemented by uncontested facts in the record. Denver St. LLC

v. Saugus, 462 Mass. 651, 653 (2012).

After Deptula agreed to represent Prestige in April of

1992, he spent nine years conducting extensive discovery and

opposing two motions for summary judgment filed by Bank of

America. In 2001, Deptula asked Schmidt to allow him to bring

in an attorney named Richard Grahn to help him try the case.

Deptula proposed that Grahn would be compensated by sharing the

contingent fee. Schmidt agreed to hire another attorney, but

did not hire Grahn. Instead, he hired an attorney of his own

choosing, Thomas Francis, whom Schmidt arranged to pay on an

4

hourly basis. In 2002 and 2003, Deptula and Francis succeeded

at two different trials, the first on liability and the second

on damages. Although it was a difficult case, they obtained a

net damages award of approximately $8 million, including

statutory interest. Bank of America appealed these jury

verdicts and, due primarily to delays in the preparation of the

trial transcripts, this court did not hear the appeal until

2008. Prestige Imports, supra at 741.

During the sixteen-year period following Prestige's

retention of Deptula, there were a number of attempted revisions

to the fee agreement. In 1999, Deptula requested and received a

revision that provided him with additional upfront cash and

required Schmidt to hold additional money in escrow for the

payment of experts. In 2001, Deptula and Schmidt discussed, but

apparently never formalized, another amendment to the fee

agreement. In 2003, Deptula stated that hiring Francis on an

hourly basis was Schmidt's choice, and Deptula proposed minor

modifications to the fee agreement. Schmidt responded that the

increased upfront payment requested by Deptula be offset by a

portion of the fees he was paying to Francis. It appears that

the two never memorialized any of these suggested changes. In

April and December of 2004, and in November of 2007, Schmidt

again unsuccessfully requested a change to the fee agreement in

light of the money he was spending on Francis.

5

During the period between the damages trial in 2003 and the

2008 oral argument in Prestige Imports, Schmidt expressed

significant frustration with Deptula's performance. On a number

of occasions, Schmidt stated or implied that the delays were

Deptula's fault. Often, Schmidt drew connections between

Deptula's flaws and the hiring and payment of Francis. For

instance, in 2004, Schmidt wrote a letter to Deptula stating

that his failure to return telephone calls showed "disrespect"

and "lack of care and attention towards my case," and that "[i]t

was exactly this behavior and attitude which forced me three

years ago, two month[s] prior to our first scheduled trial, to

hire additional legal help." Schmidt also repeatedly returned

to the issue of Francis's fees, expressing his belief that

Deptula was procrastinating and producing inferior work product,

and then overutilizing Francis to make up for these

deficiencies.

Schmidt's frustrations became even more pronounced during

the preparation of a brief opposing Bank of America's petition

for direct appellate review and the preparation of Prestige's

appellate briefs. During this period, Schmidt wrote Deptula

another letter stating that he "remember[ed] that [Deptula was]

very negative prior to the first trial about our chances to

succeed with the bad faith argument" and that "[t]hat attitude

is what drove me to seek additional legal advice from Tom

6

Francis." Schmidt stated that Deptula was once again displaying

this negative attitude, which "ma[de] me feel helpless and

without adequate legal representation." A few months later,

Schmidt wrote an electronic mail message (e-mail) to Deptula

expressing frustration about his progress in preparing a reply

brief, stating that "[i]t appears again that your lack of

commitment forces me to engage Tom to complete the job."

These tensions came to a head after the 2008 oral argument

in this court. In the hallway outside the court room, Schmidt

expressed -- either by "screaming and yelling" or just "in a

somewhat angry voice" -- that he thought that Deptula had failed

to make the argument they had agreed he would make. Schmidt put

his feelings into writing in a letter dated April 17, 2008, and

titled "WHAT A DISAPPOINTMENT!!!" There, Schmidt once again

expressed his belief that Deptula had failed to make the

argument they had agreed upon. He concluded, "In light of our

preparation for this hearing this demonstrates complete

disregard for your client's interest and preferences. . . . I

do not know whether your presentation was a result of your

overriding determination not to create grounds for a new trial

or if you have other ulterior motives. . . . Until the Appeals

Court has made its decision, the final consequences of what I

perceive[d] to be a perplexing misrepresentation cannot be

assessed." Deptula replied with a lengthy letter explaining

7

that he needed to focus on the issues about which the justices

asked questions. Schmidt responded to that letter with an e-

mail that repeated his earlier accusations. He wrote, in

relevant part, "Again, I believe[d] that you intentionally

avoided these issues to be put in the foreground [sic] in order

not to create the possibility of a retrial."

This court issued an opinion on November 19, 2009, that

reversed large portions of the jury verdicts in favor of

Prestige and remanded the case for a new trial on the issue of

liability under a standard less favorable to Prestige. Prestige

Imports, 75 Mass. App. Ct. at 772. After that, Schmidt began

consulting his son-in-law, attorney Joseph (Ted) Killory, for

legal advice. Killory assisted in the preparation of a motion

for rehearing before the Appeals Court and an application for

further appellate review. However, at that time, Killory made

clear that he would only be able to work on the case on a part-

time basis in a supporting role, with Deptula remaining lead

counsel.

While the petitions for rehearing and further appellate

review were pending, Deptula wrote Schmidt several times

suggesting that they discuss a new fee agreement for retrial.

In a letter dated January 19, 2010, Deptula stated, in part,

"[W]e need to have further discussions about if and how I can

handle, with or without assistance, any form of retrial." In an

8

e-mail dated February 25, 2010, after further appellate review

was denied, Deptula stated, "[A]s you saw, unfortunately the

[Supreme Judicial Court] denied further review, therefore we

should try to agree on a new fee arrangement, if we can, discuss

the costs and need for experts, and then discuss next steps."

In a letter dated March 3, 2010, Deptula suggested that he take

the case on his "current standard fee agreement" for "partial

contingency cases" of $175 per hour plus twenty-five percent of

the total recovery including interest. The record does not

reveal whether Schmidt ever responded to any of this

correspondence.

On March 25, 2010, Deptula met with Killory alone. On

Killory's account, which the judge credited, Deptula used this

meeting as an opportunity to probe Killory about Schmidt's

finances and to discuss the possibility of restructuring the fee

agreement. Deptula proposed to Killory that Schmidt either pay

Deptula $50,000 to $100,000 more upfront, or increase the

contingency percentage to thirty-eight percent so Deptula could

bring in another attorney to take the lead in trying the case.

Deptula expressed his opinion that the case was a "loser" and

said that if he could not restructure the fee agreement his

other option would be to resign from the case and file a lien

for the value of his services. He said that he thought he had a

fifty-fifty chance of success on a lien claim.

9

On March 31, 2010, Deptula met with Killory and Schmidt.

On Killory and Schmidt's account, which again the judge

credited, at this meeting Deptula proposed restructuring his fee

agreement along the same lines described to Killory earlier.

Schmidt said that he would consider increasing the contingency

percentage but would not increase it to thirty-eight percent,

and that he did not want a different lawyer trying the case.

When Schmidt said that he could not afford to pay any more money

upfront, Deptula asked how that could be, given that Schmidt had

paid Francis $400,000. Schmidt responded that Francis's charges

were only so high because Deptula delegated so much work to him.

The judge concluded that this statement about Francis's

fees was not an explicit or implicit threat of a malpractice

suit nor an attempt to hold Deptula responsible for Francis's

fees. The judge reached this conclusion on the ground that

making such a threat would have been unreasonable given the lack

of legal basis for such a claim and the degree to which Schmidt

needed Deptula to participate in the case. The judge also

found, in a footnote, that the division of labor between Deptula

and Francis was reasonable given the difficulty of the case.

At the March 31 meeting, the parties also discussed Bank of

America's most recent offer to settle the case for $2 million.

Deptula said that he would not let Schmidt settle the case for

that amount unless Deptula received a fee of between $400,000

10

and $500,000; this was more than he was entitled to receive

under the existing fee agreement. Killory responded that it was

unethical to try to prevent a client from settling a case. At

some point -- the judge found that it was this one -- Deptula's

receptionist heard Deptula and one of the other people at the

meeting "yelling and swearing" at each other. Shortly

afterward, the meeting ended.

In a letter dated April 12, 2010, Deptula stated to Schmidt

that he was withdrawing from the case. He explained in this

letter that "[t]he trust and confidence necessary for an

effective attorney-client relationship [were] not present" for a

variety of reasons. The relevant portions of the two paragraphs

stating his reasons for withdrawal are as follows:

"Throughout my representation, you have frequently

questioned my strategy decisions, rejected my input and

work product, and hampered me from exercising independent

professional judgment. Instead of following my advice you

relied on the opinions of others . . . .

"Subsequent to the Appeals Court's decision, you

seemed to steadfastly reject any ideas I had or anything I

wrote. In a series of meetings, you criticized my

diligence. Then, at our March 31 meeting, the tenor of

your critique changed and your second-guessing went further

than it had before. You unfairly accused me of engaging in

unethical conduct, inadequate past performance, showing a

lack of proper diligence, and being greedy. You attributed

any past trial success to Tom Francis'[s] preparation and

asserted that your payments to him were caused by my lack

of preparation."

Before sending this letter, Deptula had notified his malpractice

insurer of the possibility that a malpractice claim or a

11

disciplinary complaint would be filed against him. After April

12, Schmidt and Deptula each sent an additional letter, the

contents of which are not relevant here, except insofar as the

letters made clear that Deptula was withdrawing without

Schmidt's consent.

On September 27, 2011, Prestige, represented by Killory and

Francis, prevailed at the third trial and obtained a judgment of

$27,031,568.12 including statutory interest. On July 8, 2013,

Deptula filed a notice of attorney's fees lien pursuant to G. L.

c. 221, § 50. In December of 2013, Prestige filed a motion to

adjudicate the lien. After the judgment was affirmed in an

unpublished decision pursuant to our rule 1:28 dated August 6,

2013, see Bank of America, N.A. v. Prestige Imports, Inc., 84

Mass. App. Ct. 1106 (2013), a five-day, jury-waived trial was

held on the lien claim, during which the judge had the

opportunity to hear witnesses and assess their credibility. In

a decision dated August 15, 2014, the judge ruled that Deptula

had forfeited his lien by withdrawing from the case without good

cause.

The judge found that Deptula's subjective motivation for

withdrawing was his belief that the case would not be

profitable. In particular, the judge found that "[t]he reason

that [Deptula] quit is that the case, following the

disappointing Appeals Court decision of November 19, 2009,

12

looked very bleak and he did not see a realistic chance of

obtaining another favorable jury verdict . . . . Unless the fee

agreement could be modified to enhance his economic prospects,

as he had expressed several times before the [March 31, 2010,]

meeting, he simply was unwilling to continue with a very

difficult case and a demanding and critical client." The judge

ruled that this financial reason did not constitute good cause

for withdrawal. The judge found that Schmidt's statements to

Deptula at the March 31, 2010, meeting did not rise to the level

of an express or implied threat of a malpractice suit, and so

also did not constitute good cause for withdrawal.

Discussion. "Upon appeal, we accept a trial judge's

findings of fact unless they are 'clearly erroneous,' and do not

review questions of fact if any reasonable view of the evidence

and the rational inferences to be drawn therefrom support the

judge's findings. We uphold the findings of a judge who saw and

heard the witnesses unless we are of the 'definite and firm

conviction that a mistake' has been made. Our review of a trial

judge's conclusions of law, however, is de novo." Martin v.

Simmons Properties, LLC, 467 Mass. 1, 8 (2014) (citations

omitted).

"From the . . . appearance in any proceeding . . . , the

attorney who appears for a client in such proceeding shall have

a lien for his reasonable fees and expenses upon his client's

13

cause of action, counterclaim or claim, upon the judgment . . .

in his client's favor entered or made in such proceeding, and

upon the proceeds derived therefrom." G. L. c. 221, § 50, as

appearing in St. 1945, c. 397, § 1. However, "an attorney must

establish a substantive contractual or quantum meruit basis to

recover fees from the client as a prerequisite to filing a lien

[under G. L. c. 221, § 50]." Boswell v. Zephyr Lines, Inc., 414

Mass. 241, 249 (1993).

Neither party argues that Deptula has any contractual basis

to recover fees. Thus, his only basis to recover fees, and thus

for asserting a lien, is quantum meruit. The general rule

applicable to cases of this sort is that "[w]hen a lawyer who

has entered into a contingent fee agreement with a client is

later discharged or withdraws from the case before the

contingency occurs, . . . the attorney may be paid only the

reasonable value of his services under principles of quantum

meruit, rather than recover the contingent fee prescribed by the

agreement itself." In the Matter of the Discipline of an

Attorney, 451 Mass. 131, 142 (2008). This rule applies at least

when, as here, the contingency –- here, Prestige winning a

judgment -- has been met. See Liss v. Studeny, 450 Mass. 473,

481 (2008). See also Curly Customs, Inc. v. Pioneer Financial,

62 Mass. App. Ct. 92, 97 (2004) ("[T]he lien exists only on

14

proceeds obtained by the client in the underlying proceeding;

consequently, if there are no such proceeds, there is no lien").

The general rule allowing a lien in these circumstances is

qualified, however, by the longstanding principle that a lawyer

who voluntarily withdraws from a case without good cause

forfeits any claim to an attorney's lien. See Phelps Steel,

Inc. v. Von Deak, 24 Mass. App. Ct. 592, 594 (1987), citing

Powers v. Manning, 154 Mass. 370, 375-377 (1891); Kourouvacilis

v. American Fedn. of State, County & Mun. Employees, 65 Mass.

App. Ct. 521, 527-528 (2006). "Whether withdrawal works a

waiver of the attorney's lien depends on whether the attorney

had good cause to withdraw." Phelps Steel, Inc., supra. The

court in Phelps Steel, Inc. held that the "[b]reakdown of the

lawyer-client relationship serves as good cause for withdrawal,

without waiver of the attorney's lien. The lawyer-client

relationship is founded on trust and confidentiality. When

those foundations deteriorate, it is not only impractical to

persist in the relationship, it diminishes the integrity of the

bar to do so." Ibid. (citations omitted).

The facts found by the judge demonstrate a breakdown of the

attorney-client relationship and the trust that must underlie

it; therefore, good cause for withdrawal existed. Schmidt's

statement that he had to pay Francis $400,000 because Deptula

delegated so much work to him was just the latest in a long line

15

of similar accusations against Deptula. As described supra,

these accusations dated back to 2004, but had intensified after

the 2008 oral argument in this court. The accusations included

allegations of laziness, unprofessionalism, lack of commitment

to the case, failure to provide adequate legal representation,

ulterior motives, and intentional sabotage. Schmidt had

degraded and humiliated Deptula in e-mails, in letters, and,

after oral argument in this court, in public, over the course of

several years. In light of this history, Schmidt's statement

amounted to a renewal of these accusations, which confirmed the

continued existence of a longstanding breakdown of the attorney-

client relationship. Phelps Steel, Inc. does not require either

that Schmidt's statement rise to the level of an express or

implied threat of a malpractice suit, or that Deptula's

withdrawal was mandated by the Rules of Professional Conduct.

See Pearlmutter v. Alexander, 97 Cal. App. 3d Supp. 16, 20

(1979) (entitlement to lien not waived where attorney

permissibly withdrew "where the client's conduct . . .

render[ed] it unreasonably difficult for the attorney to carry

out his employment effectively"), cited with approval in Phelps

Steel, Inc., supra at 594. 5 In the circumstances of this case,

5

We disagree with Prestige's contention that Deptula was

not permitted to withdraw under the Rules of Professional

Conduct. See Minkina v. Frankl, 86 Mass. App. Ct. 282, 293

(2014), quoting from Mass.R.Prof.C. 1.16(b)(5), (6), 426 Mass.

16

Deptula's withdrawal did not work a waiver of his statutory

right to an attorney's lien for the value of the work he

performed during his seventeen-year representation of Prestige.

Accord Phelps Steel, Inc., 24 Mass. App. Ct. at 594 (in

determining whether there has been waiver, "[i]t is also a

factor in favor of [the law firm] that it had rendered

substantially all the services required to obtain a favorable

result for [the client] at the trial level. Thus . . . there

was, assuming some good cause for withdrawal, a solid basis for

the statutory lien, which attaches '[f]rom the authorized

commencement of an action.' G. L. c. 221, § 50").

Prestige argues, and the judge found, that whatever the

objective case with respect to the presence of good cause,

Deptula's subjective motivation for withdrawal was financial; in

essence Deptula had made a calculation that continued

representation of Prestige was no longer a good bet in light of

his contingent fee agreement. The proper method for assessing

good cause in determining the applicability of the attorney's

1435 (1998) ("According to the Massachusetts Rules of

Professional Conduct, 'a lawyer may withdraw from representing a

client if withdrawal can be accomplished without material

adverse effect on the interests of the client, or if . . . the

representation . . . has been rendered unreasonably difficult by

the client . . . [or] other good cause for withdrawal exists'").

We need not and do not determine whether the standard for

permissive withdrawal under the rules is coextensive with the

good cause standard required to avoid waiver of an attorney's

lien in a contingent fee case.

17

lien statute in a contingency fee case, however, does not

involve determining the withdrawing attorney's subjective

motivation, something that would be difficult to do with any

confidence. Rather, as indicated in Ambrose v. Detroit Edison

Co., 65 Mich. App. 484, 488-489 (1975), on which we relied in

Phelps Steel, Inc. in initially adopting the good cause rule,

the proper inquiry is whether, viewed objectively, the facts

demonstrate the existence of good cause for withdrawal. In

Ambrose, supra at 487, the withdrawing attorneys put forth four

different grounds that they asserted supported their claim of

good cause for withdrawal. Rather than exploring which among

them was the actual, subjective reason for withdrawal, the court

concluded simply that "[s]ince the record here shows good cause

for the attorneys to withdraw, we hold that the trial judge

properly imposed an attorneys' lien in this case." Id. at 488.

Similarly here, where the objective facts demonstrate the

existence of good cause for withdrawal, we conclude Deptula is

entitled to an attorney's fees lien.

This result is supported by broader considerations about

the role of contingency fee agreements in our justice system.

As other jurisdictions have recognized, allowing attorneys to

withdraw from contingent fee agreements and still retain

compensation risks undermining the viability of the arrangements

altogether. See, e.g., Augustson v. Linea Aerea Nacional-Chile

18

S.A. (LAN-Chile), 76 F.3d 658, 664 (5th Cir. 1996); Bell &

Marra, PLLC v. Sullivan, 300 Mont. 530, 538-539 (2000); Ausler

v. Ramsey, 73 Wash. App. 231, 237-238 (1994). However, an

attorney who agrees to bear the risk of losing a case is not

thereby forced to bear the risk that his client's behavior will

cause a breakdown in the attorney-client relationship. When an

attorney withdraws due to the behavior of the client, he is thus

entitled to the reasonable value of services rendered, even

while losing the opportunity for a larger payoff if, as occurred

here, another attorney is able to win a significant judgment.

The judgment is reversed, and the case is remanded for a

determination of the reasonable value of Deptula's services

under principles of quantum meruit, and for entry of a judgment

granting him a lien in that amount. 6

So ordered.

6

We deny Prestige's request for double costs and appellate

attorney's fees.