Petition for Writ of Certiorari — Swacker v. Pennroad Corp.

;

“seereror: FOR weit oF CERTIORARI To THE:

SUPREME COURT OF. THE STATE or DELAWARE

* 1420 Walnut Street, .

~ Philadelphia, Pa.

Of Counsel. ,

INDEX

PAGE

: Opinion Below 1

fe Jurisdiction 2

S Question Presented 2

c Specification of Errors to Be Urged 4

5 Statement 5

- Reasons for Granting the Writ and Brief in Support

. Thereof 17

CASES CITED

American Federation of Labor v. Swing, 312 U. S. 321.. 20

Berke v. Murphy, 280 Mich. 633 23

Consaul v. Cummings, 222 U. S. 262 24

Ss Florida East Coast Line v. United States, 234 U. S.

FS pee caplciecsninenaatsiin 22

2 Gugle v. Loeser, 140 Ohio State 362 23

bs: Hereford v. Meserve, 272 Fed. 353, 355 23

= Interstate Commerce Commission v. L. & N. R. R., 227

; i Tk Oe wcaccweasateatteiiahegeensignion 22

yu Langdon v. Kennedy, 118 Neb. 290 ........... 93

Malinsky v. New York, 324 U. S. 401 22

Meinhard v. Salmon, 239 N. Y. 458 ... 23

Robertson v. Gordon, 226 U. S. 311 20

United States v. B. & O. R. R. 22

: STATUTES CITED

4 Judicial Code, Section 237 (b) 2

In THE

Supreme Court of the Anited States

OCTOBER TERM, 1947

Frank M. Swacker,

Petitioner,

Vv.

Tse Pennroap Corporation and Danie, O. Hastings

(Respondent therein to the Petition of Frank M. Swacker),

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE STATE OF DELAWARE

Frank M. Swacker, petitioner, prays that a writ of cer-

tiorari issue to review the judgment entered the 19th day

of December, 1947, by the Supreme Court of the State of

Delaware, the highest court of the State, in the case of

Frank M. Swacker v. The Pennroad Corporation, a corpo-

ration of the State of Delaware, and Daniel O. Hastings

(Respondent therein to the Petition of Frank M. Swacker).

OPINION BELOW

The opinion of the Supreme Court of the State of Dela-

ware is not yet reported, but is set out at (R. 990).

ETON a ees

2

JURISDICTION

The judgment of the Supreme Court of the State of

Delaware was entered December 19, 1947 (R. 1002). The

jurisdiction of this Court is invoked under the provisions

of Section 237 (b) of the Judicial Code, as amended.

QUESTION PRESENTED

Whether the refusal by the highest court of the State

of Delaware to recognize the fundamental doctrine that

there is inherent in a joint venture by attorneys a fiduciary

relationship that precludes one of them from dealing for

his own account to the exclusion of his associate with the

subject matter of the joint venture, and a consequent failure

by said court to make effective the high standards of

fiduciary conduct attendant thereupon, is a deprivation of

property without due process of law, contrary to the Four-

teenth Amendment to the Constitution of the United States.’

Briefly stated, petitioner and respondent Hastings un-

dertook a joint venture as co-counsel under an agreement

for an equal division of the fee. The lower court refused

to follow the rule of law applicable to such a venture, but

instead applied the rules of contract law applicable between

strangers and then arbitrarily supplied, wholly without

evidence, a condition to the conceded contract, further

holding that petitioner had failed to comply with such

condition, directly contrary to the evidence, and upon this

finding reached the legal conclusion that there was a ‘‘fail-

ure of consideration.’’ The facts are set forth in detail

in the Statement herein immediately following the Speci-

fication of errors to be urged.

1The Pennroad Corporation is now merely a stakeholder and the

controversy here presented is between petitioner and two other attorneys,

members of the of this 2 T= who _— next into the litigation

by petitioner and are now ensb this Court intervenes—to

overreach tioner as a consequence of th the refusal of the Delaware

Supreme Court to apply the "peinulelan of fidelity arising from a joint

venture of eo-sounnel

3

The result is so arbitrary as to constitute a denial of

due process of law under the Fourteenth Amendment of

the Constitution of the United States.

The question was raised at the outset in the court of

first instance, the Chancery Court for Newcastle County,

Delaware, by petitioner’s petition (Paragraph 5, R. 5)

asserting and claiming under the rules of law applicable

to joint ventures; it was passed upon by that court (Para-

graph 2 of the final decree, R. 414) which refused to apply

such rules and further found a condition of the contract

unsupported by evidence and arbitrarily supplied the find-

ings complained of. (R. 409) This action by the Vice

Chancellor was specifically assigned as error on the appeal

to the Supreme Court of Delaware, being Assignments of

Error 6 and 7, as follows:

‘‘6. The Chancellor erred in material findings of

fact which are not supported by, or which are contrary

to the evidence; and failed to find material facts upon

the admitted or uncontroverted evidence, which es

his findings and his failure to make findings so arbi-

trary as to be repugnant to the due process clauses of

the Constitution of the State of Delaware and of the

United States.

7. The Chancellor erred; in that his findings and

conclusions of law, in a application of funda-

mental principles of law of Fiduciaries inherent in

joint venture undertakings to the undisputed facts

which establish such an undertaking here, are arbi-

rea y so constitute a denial of due process.”’

The Supreme Court of Delaware sustained the Vice

Chancellor’s decision, finding, however, a different condi-

tion of the contract, but reaching the same result as that

reached by the Vice Chancellor (R. 996-998)

The question involved is substantial because uncorrected

the decision of the Supreme Court of Delaware creates a

rule of substantive law repugnant to the common law,

4

counter to the decisions of this Court and to the decisions

of the highest court of every state which has dealt with

the subject matter; and in so doing establishes a rule of

law that will be binding on the Federal Court for the

District of Delaware.

An additional independent, and it is thought alone ade-

quate reason for this Court to take jurisdiction of this

controversy lies in the fact that the persons involved are

all members of the Bar of this Court, and the conduct of

the respondent Hastings is challenged upon grounds that

might well invoke the corrective powers of this Court to

insure fair dealings between one another by members of

its Bar.

SPECIFICATION OF ERRORS TO BE URGED

The Supreme Court of the State of Delaware erred:

1. In failing to give effect to the contractual relation

between petitioner and co-counsel with respect to

their fees;

2. In failing to give recognition and effect to the fidu-

ciary relations between petitioner and co-counsel;

3. In denying petitioner his right to an equal division of

fees between himself and co-counsel, in disregard of

the contractual-fiduciary relations between them;

4. In failing to fix the amount of fees of counsel for

complainants and refusing to award petitioner one-

half thereof as a joint venturer;

5. In arbitrarily finding (a) that a condition of the

contract between petitioner and respondent Hastings,

was that petitioner should perform one-half of the

work, which finding is wholly without evidence to

support it, and (b) in finding that petitioner failed to

perform the work required of him under the agree-

5

ment, which finding is directly contrary to the undis-

puted evidence in the case.

6. In holding that there was, on the part of petitioner,

failure of consideration under the agreement regard-

ing fees between himself and co-counsel.

STATEMENT

Petitioner, an attorney with his offices in the City of

New York, and a member of the bar of this Court, initiated

on a contingent basis a suit on behalf of the stockholders of

The Pennroad Corporation, a corporation of the State of

Delaware, against the Pennsylvania Railroad Company, a

corporation of the Commonwealth of Pennsylvania, and its

Directors.’ This suit, after service in a like proceeding had

been quashed in New York, was filed in the Court of

Chancery of the State of Delaware October 18, 1932 (R.

397). The suit is entitled Perrine et al v. The Pennroad

Corporation, etc., et al. It eventuated in a judgment for

the complainants in the sum of $15,000,000. This judgment,

entered as a result of a settlement, was approved by the

Supreme Court of the State of Delaware, May 27, 1946

(47 A. 2d 479; cert. den., No. 595, October Term, 1946).

The Court of Chancery of Delaware had approved the

settlement agreement August 13, 1945, at which time it

included in its decree the following provision:

‘‘The Chancellor reserves jurisdiction to determine

and award compensation, fees, allowances and expenses

to any interested parties who do not otherwise agree

with the Pennroad Corporation with respect thereto.

Any such interested party who has not heretofore

done so, may file, within ten days from the entry of

this decree, a petition for such compensation, fees,

allowances and expenses’’. (R. 6)

2 The Vice-Chancellor of Delaware described petitioner as an attorney

“whose skill, qualifications and experience in the type of litigation

involved in this case entitle this Court to conclude, and I do conclude,

that he is one of the outstanding attorneys in this field.” (R. 396; see,

also, 46-56; 349).

The present proceeding arose on a petition which peti-

tioner had filed within the framework of the Perrine case,

(R. 1, 3) praying that if and when the settlement was

approved by the Court of Chancery and payment made to

The Pennroad Corporation the Court retain control over

the fund and make an allowance to petitioner and Daniel

O. Hastings as counsel for the Complainants, as well as

allowances to any others entitled thereto, and to award to

petitioner one-half of the fee to be allowed petitioner and

Daniel O. Hastings as counsel for complainants. (R. 1-4).

The proceedings had on this petition and Hastings’ answer

(R. 5) eventuated in the decision of the Supreme Court

of the State, supra, which affirmed a decree of the

Court of Chancery refusing an allowance jointly to peti-

tioner and Hastings and an award of one-half thereof to

petitioner, and awarding petitioner on a quantum merwit

basis the sum of $300,000, giving no effect to the fiduciary-

contractual relations of counsel.

The fees of Hastings and others, as more fully explained

hereinafter, were the subject of an arbitration agreed to by

them and Pennroad but not by petitioner, and aggregated

$1,900,000, with an additional $545,000 award to other coun-

sel and certain persons not counsel. (Supplemental Rec-

ord, 14.) The arbitrator was Hon. George A. Welsh,

Judge of the United States District Court for the Eastern

District of Pennsylvania, acting not in a fudicial capacity

but as the arbitrator agreed upon by other attorneys and

Pennroad.

The course of events which preceded the outcome above

summarily stated are as follows:

Petitioner selected Delaware as the forum for the Perrine

litigation. In 1932 he employed local counsel there, (R.

65). Petitioner drafted the complaint and appears on it,

having been admitted in Delaware pro hac vice.

Employed in petitioner’s office on a salary basis was

TT

7

Hugh F. O’Donnell, who worked on the case. O’Donnell

began to practice on his own in 1935. He continued in

the case under an agreement with petitioner for contingent

compensation, from petitioner’s share, of $100 per day but

not to exceed ten per cent of the whole fee allewed com-

plainants’ counsel (R. 348-9, 397).

When the original Delaware counsel withdrew in 1936

because of a conflict of interest (R. 396, 398) a great deal

of work had been done (R. 449-867) of which petitioner

with the assistance of O’Donnell had done the major part.

The Chancery Court concluded that the service of original

Delaware counsel should be credited to petitioner (R. 396,

398). Details of the large and important quantity of work

done by petitioner are enumerated in various parts of the

record (R. 471, 535; 568, 570, 655; 850-2, 860, 56-96).

Upon withdrawal of the original Delaware counsel peti-

tioner negotiated with Senator Hastings’ firm, of Delaware

(R. 398). Senator Hastings thus came into the case about

June 1, 1936, some four years after its initiation. The

first arrangement between petitioner and Hastings was

that petitioner and O’Donnell ‘‘should continue to carry

the burden of the case and rely upon this firm ( Hastings’)

for court :.ppearances, formal matters and future hearings’”’

on a contingent basis with one-third interest to Hastings.

(R. 398)

This arrangement continued until January, 1937.

Meanwhile, the work by petitioner of preparing the case

went on. Evidence was being assembled. Information

was being supplied to the Wheeler Committee of the United

States Senate, which was making a complete investigation

of railroad activities, and produced the bulk of the evi-

dence on which the issues were later tried in the federal

court in Philadelphia (R. 212, 943-944, 303, 306).

Vice Chancellor Seitz found specifically (R. 402):

8

‘c# * * From June 1, 1936, to the latter part of

January, 1937, when the written agreement was in

effect, Swacker pulled the laboring oar. * * *”’

The written contract regarding the participation of Has-

tings was subsequently modified. On December 21, 1936,

the Hastings firm wrote petitioner (R. S84), in part as

follows:

‘‘T am very pleased to inform you that Senator

Hastings has concluded to take an active part in this

litigation. If agreeable to you, we will plan a con-

ference shortly after the holidays. * * *’

In the Vice-Chancellor’s language (R. 399):

Following this letter, Swacker and O’Donnell came

to Wilmington toward the last of January, 1937 and

had a long conference with Hastings, at which time

they discussed the entire matter. At that time, Swacker

and Hastings orally agreed that the estate of J. Mark- ,

ham Marshall (he died in the summer of 1936) was

entitled to receive from five to ten per cent of the

aggregate fee, and that the balance would be divided

equally between Hastings and Swacker.”’

The Vice-Chancellor added (R. 399):

‘*Hastings contends that they agreed to share the

work equally. Swacker says that the agreement con-

templated that each would do ‘what might most natu-

rally fall to us to do.’ ”’

The record clearly establishes that the division of work

between petitioner and Hastings was not even discussed.

Note, e. g., that in referring to events four years after the

modification, Hastings testified, ‘‘by that time it is not sur-

prising that J] had supposed my fifty-fifty contract was out

of the window’’. (R. 298) (Emphasis sr" «d).

Both petitioner and Hastings did a subst. amount

of work from January, 1937, to March, 1938, w..en Perrine

and one Guiterman, a lay representative of Perrine,

en]

(without justifiable cause), brought about petitioner’s dis-

charge. (R. 932)

But no different arrangement for fees was made between

petitioner and Hastings and O’Donnell growing out of this

situation.

Petitioner told both Hastings and O’Donnell that it was

satisfactory to him to have them go on with the case,

subject to their consulting him on steps materia!ly affecting

the policy of the litigation (R. 228-9, 294, 367), a qualifi-

cation they deny.

O’Donnell kept petitioner apprised of all steps taken

and constantly consulted with him. He used petitioner’s

assembled evidence, even in the trial of the Philadelphia

eases hereinafter referred to. (R. 236, 367, 371-373).

There was no new fee arrangement (R. 249-250, 328-9,

360, 936-937). Although Guiterman desired Hastings and

O’Donnell to go on with the case there was no separate

hiring of them; they simply continued (Ree. 112, 228-9

360).

The Court of Chancery correctly found (R. 405) that

at the time of petitioner’s ‘‘discharge’’ O’Donnell was

working with petitioner on the Perrine case under a sepa-

rate contingent agreement with petitioner. The same is

true as to petitioner and Hastings.

In the spring of 1938 Guiterman and O’Donnell saw

Robert E. Lee Marshall, of Baltimore (R. 307-308) without

petitioner’s knowledge; later Hastings came into conver-

sations between O’Donnell and Marshall, who was invited

into the case (R. 12) and it was decided to bring a suit

in the United States District Court for the Eastern District

of Pennsylvania involving one of the situations covered by

the pending Perrine case (R. 296, 310, 326, 361-2). This

8 Petitioner previously had refused to arrange for participation by

(Rosy in petitioner’s fee, believing this to be unethical and unlawful

(R. 98

10

became the Overfield case filed in Philadelphia March 30,

1939. Petitioner first learned of this suit in May, 1940

(R. 149).

On March 28, 1939,—two days before the Overfield suit

was brought in Philadelphia — Hastings, Marshall and

O’Donnell met in Hastings’ office (R..296, 362), without

petitioner’s knowledge (R. 190, 297), and agreed to divide

the compensation derived from the Perrine case or any

suit that might be brought in Philadelphia at the instance

of the Hastings firm, the Marshall firm in Baltimore, or

O’Donnell. Hastings describes the purpose of the meet-

ing thus:

«<* * * we undertook to make some provision for

Marshall’s participation in this litigation’. (R. 296).

O’Donnell stated that he was not in a position to ask

for more than ten per cent, obviously because of his con-

tract with petitioner. The agreed division was: The Has-

tings firm, 42 per cent; the Marshall firm, 25 per cent; and

O’Donnell, 10 per cent.

The agreement (R. 913) reciting that he ‘‘may be entitled

to as much as 18 per cent’’, set that percentage aside for

petitioner. It also contained the following:

“Tt is also contemplated, that in any suit brought

in the State of Pennsylvania, it may be necessary to

have additional counsel, and provision must be made

for their compensation. It is not contemplated that

Swacker will have any part in the division of any fees

growing out of the suit in Pennsylvania’’.

After being prepared in the Hastings office, the agree-

ment was signed by Hastings and forwarded to Marshall

in Baltimore. Some time later, at a date which O’Donnell

was unable to fix, he was in Marshall’s office and inquired

what became of the agreement. Marshall stated he had for-

gotten all about it; that he had put it in a desk drawer

(R. 363). He subsequently forwarded it to O’Donnell.

: mn

11

According to O’Donnell, that is when he first saw the

agreement. Later, in 1941, he told petitioner about it,

and stated that, because of the last sentence in the quoted

paragraph, he had refused to sign it. (R. 364).

When O’Donnell subsequently called Hastings’ attention

to the sentence to which he objected, Hastings concurred

that the agreement was unfair to petitioner and told him

he was ashamed it had been drawn in his office, because

he appreciated petitioner ‘‘had done some work and that

he ought to be taken care of’’ (R. 297). O’Donnell’s testi-

mony (R. 364) and that of Hastings (R. 297) is quite en-

lightening.

Hastings, in May, 1940, called petitioner on the tele-

phone in Chicago because he in his turn was now having

trouble with Guiterman ; Hastings was fearful he was being

squeezed out by the Overfield case and he desired to file

still another suit in the federal court in Philadelphia cover-

ing everything in the Perrine case and including the subject

matter of the Overfield case (R. 149-151). Hastings asked

petitioner to supply a stockholder for that purpose.

Guiterman sought to replace Hastings, (R. 295-6) who

feared he might be ‘‘kicked out’’ of both the Perrine and

Overfield cases. Hastings testified that he now felt he

needed a client of his own (R. 297-8). On June 7, 1940,

he filed the Weigle case in Philadelphia. Hastings tostified

as above pointed out, as of the situation at that time (May,

1940, R. 297) more than 2 years after petitioner’s ‘‘dis-

charge’’ by Guiterman and four vears after his contract

with petitioner which had never been revised:

‘‘Now, by that time it is not surprising that I had sup-

posed my fifty-fifty contract was out of the window’’.

(R. 298) (Emphasis supplied).

There followed certain self-serving efforts of Hastings,

Marshall and O’Donnell, without the knowledge of peti-

tioner, to arrange for division of fees (R. 365-366) see,

also, 259-260). In the meantime, petitioner was pushing

ne ee ee

12

O’Donnc"| to get the Perrine case to trial in Delaware (R.

157). O’Donneii does not dispute petitioner’s testimony

that O’Donnell ‘‘continued the preparation in my office—

I oversaw it—day after day, using mainly these Senate

reports as the basis of preparation for trial, for trial

briefs.”’ (R. 157). Petitioner, in fact, even before the

advent of Hastings into the case, had been making sugges-

tions to the Pecora and Wheeler Committees which resulted

in developing the evidence necessary to prove the case.

(R. 943-4).

The Perrine case was set down for trial in Wilmington

on February 10, 1941 (R. 157). Thereafter Judge Welsh

ordered the Overfield and Weigle cases tried on the same

date. (R. 158) When O’Donnell advised petitioner these

cases were to be tried in February this was the first peti-

tioner had heard of the Weigle case. O’Donnell said Hast-

ings had filed it ‘‘to checkmate Guiterman’s machinations

in connection with the Overfield proceedings’’. (R. 157-8).

When petitioner then learned also for the first time that

Hastings, Marshall and O’Donnell had made a fee arrange-

ment without provision for his participation he thought

there should be an understanding. He was willing to

modify his agreement with Hastings so as to take less than

fifty per cent (R. 165-6). Earnest efforts of petitioner to

reach a new accord in the matter met with evasion. (R.

166, 369, 370, 328, 329, 929, 933-7, 191, 192; see, also, 370).

In the Overfield and Weigle cases the pre-trial prepara-

tion was that made for the Perrine case (R. 193-195).

Those cases went to trial in the District Court of the

United States for the Eastern District of Pennsylvania,

before Judge Welsh. The trial lasted 78 days. (R. 137).

Hastings, Marshall and O’Donnell presented various

phases of the case. Petitioner’s assistance was of great

value. (R. 379-381). Throughout the trial O’Domnell spent

Saturdays in petitioner’s office consulting with him, assem-

bling data, preparing, etc. (R. 161).

ef

P |

13

A judgment was obtained for some $22,000,000. The

judgment was reversed by the United States Circuit Court

of Appeals for the Third Cireuit, 146 F. (2d) 889 (1944),

on the ground that the statute of limitations had barred

the suit. If correct, this killed the Overfield and Weigle

cases, but because of the evidence assembled, primarily by

petitioner, which had been presented in those cases, and

the pendency of the Perrine case, settlement negotiations

were begun and a settlement of $15,000,000 was agreed

upon. Of this amount not to exceed $3,000,000 was pro-

vided for counsel fees (R. 134-8; Supplemental Record, 4-5,

11).

But Counsel for the companies naturally said it was the

Perrine case that was to be settled and not the Philadelphia

cases which had been won by the defendants. (R. 135, see,

i also, pp. 144-5).

Hastings agreed but insisted that the fees be fixed by

Judge Welsh as arbitrator (R. 136), because, ‘‘Mr. [Lee]

Marshall, for instance, had never had anything to do with

the Perrine suit excepting to consult with us from time to

time while we were preparing it, but he had not entered any

appearance.’’ (R. 135).

And, ‘‘I’’, Hastings, ‘‘then said to Mr. McCracken and

Mr. Wolf and Mr. Dickinson, ‘I can’t agree unless we have

Judge Welsh determine the fees, because that is where the

work was done and he knows what was done, and there are

other people that would have no standing in the Perrine

suit at all. Welsh must determine those fees if this agree-

ment is to be put through.’ ’’ (R. 136).

And, ‘‘Then Mr. Wolf and I got in a cab and went down

to see Judge Welsh to see whether or not he would act as

arbitrator, and he readily agreed to act as arbitrator.’’

(R. 136).

Thus, though the settlement was of the suit petitioner

had initiated, the only suit really left alive to settle, Hast-

na ne Bi Real ob

14

ings obtained an arrangement for the fixing of fees by the

judge who presided over the ill-fated suits in the Federal

Court in Philadelphia. (R. 136).

Application was made to the Delaware Court of Chancery

for approval of the settlement. Petitioner appeared in sup-

port of the application (R. 196) and the settlement was ap-

proved.

Another attorney now entered his appearance for the

surviving complainant, thus displacing Hastings. (See No.

595, Oct. Term, 1946).

Judge Welsh, however, over in Philadelphia, undertook

to serve as arbitrator to fix allowances of fees, compensa-

tion: and expenses. Petitioner declined to enter this arbi-

tration. He felt that such matters were peculiarly within

the province of the Delaware Court of Chancery and, ac-

cordingly, when the $15,000,000.00 settlement came before |

that Court for approval he asked the Court to retain juris- :

diction to fix the compensation of counsel. The Chancellor

complied to the extent of embodying in his decree the pro-

vision hereinabove referred to reserving jurisdiction to de-

termine and award compensation, fees, allowances, and

expenses ‘‘to any interested parties who do not otherwise |

agree with the Pennroad corporation with respect thereto’’.

After a hearing before the Vice Chancellor on petition-

er’s petition, Hastings testified before Judge Welsh, who

on May 5, 1947, made his award (Supplemental Ree. 3).

He allowed Hastings and his associates, including O’Don-

nell, $1,900,000 (Supplemental Rec. 14), and he made al-

lowances of $115,000 to Guiterman, who is not a member

of the bar, $80,000 to the committee of which Guiterman

was chairman, and $350,000 to counsel for various inter-

* Under their agreement this amount is to be divided as follows:

Strubing (counsel of record) 190,000

Hastings 666,900

Marshall 521,550

O’Donnell 521,550

15

venors of minor participation in the unsuccessful Phila-

delphia cases.

The Courts of Delaware allowed petitioner $300,000 on a

quantum meruit basis, giving no regard whatever to the

joint adventure character of the relations between peti-

tioner and Hastings and O’Donnell. The Court found the

contract between petitioner and Hastings but rested its

decision upon its further finding, wholly unsupported by

evidence, that there was a ‘‘failure of consideration’’ on

petitioner’s part.

The findings of fact by both the Vice Chancellor and the

Supreme Court of Delaware are so unsupported by evi-

dence and contrary thereto as to render them arbitrary. It

was not claimed in the testimony of either of the parties

that anything was said at the time of the making of the

contract as to any division of the work to be performed.

The only evidence whatsoever bearing on this matter is

that contained in petitioner’s letter of May 29, 1936 (R.

868) originally employing Hastings, where at the end

thereof petitioner offered alternative suggestions, one of

which was ‘‘or, you to take active charge of the litigation,

we according you such assistance as we can’’. Petitioner

testified that he considered it was reasonably to be

expected that each of the Parties ‘‘would do what might

most naturally fall to us to do’’. (R. 399) Respondent

Hastings testified ‘‘There wasn’t any specific statement

about who would try (to) the case but it was generally

understood, I think, among all of us, that a division of the

fees meant that we would divide the work practically

equally’’. (R. 289)

The Vice Chancellor refused to accept respondent Has-

tings’ contention that the agreement had as a condition

a term that the work should be equally divided; instead he

adopted petitioner’s inference that each ‘‘would do what

might most naturally fall to us to do’’. (R. 401) There

ee

i

16

can be no question that both parties were at the time

referring only to the Perrine case in Wilmington because

that was the only case in existence at the time and the

only subject matter under discussion. Yet the Vice Chan-

cellor, following that conclusion, applied the supposed ob-

ligation on the part of petitioner to the activities of re-

spondent Hastings in the Philadelphia cases, which were

not even in existence at the time the obligation was sup-

posed to have been assumed. And on that hypothesis,

supplying a further finding (R. 404) that petitioner ‘‘was

one of the outstanding trial lawyers in the country in this

type of litigation’’, assumed that there was implicit in the

supposed obligation participation in the trial of the case;

and then stretched this assumption to participation in the

trial of the Philadelphia cases; and upon the failure of

petitioner personally to participate in the trial of those

eases which respondent Hastings never asked him to do,

reached the conclusion that petitioner had defaulted in his

obligation under the contract, thus constituting a material

‘*failure of consideration.’’ (R. 409)°5

The Supreme Court of Delaware went further than the

Vice Chancellor in that it adopted respondent Hastings’

contention that there was implicit in the contract an obli-

gation on petitioner’s part to do one half the work to be

done, (notwithstanding the utter absence of evidence to

that effect), and then, as did the Vice Chancellor applied

the supposed obligation concerning the Perrine case to

extend to the Philadelphia cases not even in existence at

the time the contract was entered into, and then completely

ignoring petitioner’s contribution to the Philadelphia cases,

reached the same conclusion as the Vice Chancellor, i. e.

that the failure to participate in the trial of the Philadelphia

5 The Vice Chancellor recognizes that Petitioner did contribute to the

trial of the Philadelphia action to the full extent to which he was

requested, but ins of attributing that to performance under the

contract, found “This cooperation by Swacker is understandable because

he ho to procure an allowance in the Federal court if the Overfield-

Weigle suits culminated successfully”. (R. 409)

i

aaa

17

cases constituted such a material breach of the contract as

to be a ‘‘failure of consideration’’, thus rendering the

contract unenforceable. (R. 996-998)

REASONS FOR GRANTING THE WRIT AND BRIEF IN

SUPPORT THEREOF

The most solemn fiduciary relationship existed between +

Hastings and petitioner, between O’Donnell and petitioner

and between Hastings and O’Donnell and petitioner.

Hastings was brought into the Perrine case by petitioner

and no arrangement between them other than for an equal

division of fees ever existed after the original agreement

for one-third to Hastings was modified by increasing his

share to fifty percent. This is so notwithstanding peti-

tioner undertook in 1941 to make arrangements more fav-

orable for Hastings, failing to do so because of Hastings’

failure, for reasons of his own, to cooperate to that end.

O’Donnell had come into the case as an employee in the

office of the petitioner in New York. Using the Perrine

case, and the preparation of it by petitioner, as the center

of all that followed and as the basé of operations, Hastings

and O’Donnell, with other counsel interested by them,

ventured forth with the two suits in the federal court in

Philadelphia. They did this without making any different

arrangements with petitioner for fees in connection there-

with and indeed without petitioner’s knowledge at the

time. Much labor was expended by Hastings and O’Donnell

in the trial of these suits. This included the previous labor

of petitioner and current consultation with him. But in the

end these cases furnished no successful outcome of them-

selves. The judgment obtained in the federal court was re-

versed; and the strong probabilities are that except for the

pendency of the Perrine case filed in 1932 by petitioner, the

Pennsylvania Railroad Company could have escaped all

liability by reason of the bar of the statute of limitation,

which was the basis of the reversal of the judgment.

18

In order to effect the settlement for $15,000,000 it was

necessary to resort to the Perrine case in Deléware which

was alive, was not barred by limitations and was in fact

the foundation of the fund created by the settlement.

Hastings, O’Donnell, Marshall, and others, nevertheless,

obtained by arbitration of the judge who presided over the

unsuccessful Federal cases in Philadelphia fees aggregat-

ing $1,900,000, and there were additional allowances to the

Guiterman group and to intervenors of $545,000. Although

the settlement of the litigation was necessarily to be ap-

proved by the Delaware Courts, these awards were not

brought for approval to those courts, which had control

of the funds and jurisdiction to make allowances for fees

and expenses. Those who participated in the arbitration

agreed with Pennroad for the payment by it of these

awards.

It cannot be controverted that the allowances of $2,455.-

000 to others than petitioner is based largely upon their

participation in the Philadelphia cases and that the selection

of Judge Welsh as arbitrator had this purpose in mind.

(R. 135-6)

In essence, therefore, and disregarding all irrelevant

considerations, the fund of $15,000,000 had its primary

and also its ultimate source in the Perrine suit initiated by

petitioner and all subsequent efforts rested upon the pre-

paration which had been made by petitioner in that suit.

It was this suit which stood as the source of recovery and

the vehicle for its accomplishment, after all the intervening

ramifications of activity. It sprang from petitioner’s fore-

sight, research and expertness.

Petitioner brought Hastings and O’Donnell into this suit,

the latter originally as an employee in his office, and

19

the former as associate counsel after the suit was filed.

The arrangement with Hastings, and the nature of their

joint venture, called for an equal division of fees. Except

for petitioner having brought him into the case Hastings

would never have heard of it so far as the record in this

case discloses. The relations between petitioner and Hast-

ings and O’Donnell were not changed by the discharge of

petitioner by Guiterman, Perrine’s representative, and

Perrine; the legal relations between petitioner, Hastings

and O’Donnell were not changed unless they themselves

changed them, which they did not do.

In the same manner that petitioner hired and retained

O’Donnell and Hastings, and made a definite contract with

each for compensation, which contracts never were rescind-

ed or modified, O’Donnell and Hastings could hire all the

clerical and legal assistance they might desire, but only in

furtherance of the joint venture and with due regard to

their contracts with petitioner, i.e., to pay for such assist-

ance, used practically exclusively in the fruitless Philadel-

phia cases, out of their share of the compensation to be re-

ceived.

To hold, therefore, that such assistance hired by O’Don-

nell and Hastings, without the approval or even the knowl-

edge of petitioner, should receive compensation out of by

far the greater portion of petitioner’s share of the fees,

constitutes a denial of petitioner’s property rights without

due process of law in violation of the Fourteenth Amend-

ment to the Constitution.

Hastings did nothing, however much labor he expended,

which did not enure to the benefit of petitioner unless

otherwise agreed, which was not done; and petitioner did

no less than the arrangements between them required.

It is ampossible nicely to measure the value of their re-

spective services. Nothing requires this to be done. It

could be said, on the one hand, that except for petitioner’s

eee ment

services in the Perrine litigation nothing whatever would

have borne fruit; and, on the other hand, that the work

done by Hastings and others, even though in cases which

were lost in Court, materially contributed to the ultimate

outcome. The nature of their relations and the agreement

between them precluded the necessity for such balancing

of values. There was to be an equal division of fees with-

out a detailed and impossible itemization of the amount

and value of particular activities.

In Robertson v. Gordon, 226 U. S. 311, involving a con-

troversy between attorneys upon facts quite similar to

those in this ease, the Court, speaking through Mr. Justice

Holmes, said,—

‘*The controversy wholly is between Robertson and

Gordon, and it is unnecessary to refer to the other

parties or other aspects of the case.’’ (p. 313).

‘*We are of opinion that the decree must be reversed

and that the plaintiff (appellant) is entitled to prevail.

He starts with a contract of definite meaning.’’ (p. 314)

‘‘Again, there is no doubt that Robertson did some

work, whether more or less does not matter, so that

there was no failure of consideration, according to the

common rather inaccurate phrase.’’ (p. 315.)

Under the above circumstances, the disregard by the

Supreme Court of the State of Delaware of the fiduciary

and contractual relations between counsel has wrought a

deprivation of petitioner’s property in a manner so in-

consistent with and violative of the principles of funda-

mental fairness, and so lacking in legal or evidentiary

basis, as to constitute a denial of due process of law under

the Fourteenth Amendment.

The Federal due process issue was seasonably raised

(R. 418) and argued to the State Supreme Court. It is no

longer open to question that judicial decrees or judgments

in suits between private parties may be held to impair

rights protected by the Fourteenth Amendment. American

21

Federation of Labor v. Swing, 312 U. S. 321, 61 Sup. Ct.

568. The decision of the State Court, ignores entirely the

fiduciary relations which permeated the contractual rela-

tions between petitioner and Hastings and as well between

petitioner and O’Donnell. The Court finds that a contract

existed (Opinion of Court) but bases its decision to dis-

regard it upon an alleged failure of consideration, in that

petitioner did not perform what in fact was no part of

the contract, namely, an equal or agreed amount of work.

Even this latter factual conclusion is not supported by the

evidence. Indeed, the Court seeks to support its theory of

failure of consideration and consequent decision to disre-

gard the contract, on the baseless assumption that peti-

tioner took no part in the litigation after the discharge

incident; and even uses against him petitioner’s willing-

ness, expressed to Hastings and O’Donnell, that they should

continue in the case. This attitude of fairness on the part

of petitioner to his co-counsel surely did not relieve them

of their obligations to him. It should have bound them more

closely to him.

The decision below and the basis upon which it expressly

rests, it is submitted, constitute not mere error of a State

Court which it would not be the concern of this Court to

correct, but a departure from settled principles governing

contractual-fiduciary relations between counsel, leading to

unconscionable results in disregard not only of important

property rights of petitioner but of the principles govern-

ing fiduciary obligations which lie at the foundation of so

much of human activity. For the State Court merely to

say there was a ‘‘failure of consideration’’ does not furnish

a State ground of decision independent of the Federal

question. It is to decide the Federal question of due

process which was raised as a barrier to a ground of de-

cision which would ignore the fiduciary-contractual rela-

tionship and which would treat petitioner’s property rights

®It is to be noted that petitioner’s ex-employe, O’Donnell, is awarded

$521,550.00 as compared with the $300,000.00 awarded petitioner.

ey

22

as only a right to quantum meruit notwithstanding the

merged interests of co-counsel in the whole, growing out

of the relationship between them.

For the Court to ignore, though pressed upon it, the ex-

istence of the contractual-fiduciary relations, here the re-

lations between counsel under contract and engaged in a

joint venture, is a denial of due process of law; and the

factual aspect of the decision of the Court is so devoid of

evidentiary support, and contrary thereto, as to be arbi-

trary, and thus a denial of due process of law. United

States v. B. € O. R. R., 293 U. S. 454; Florida East Coast

Line v. United States, 234 U. S. 167 at 185; Interstate Com-

merce Commission v. L. & N. RR., 227 U.S. 88 at 91.

In Malinsky et al v. New York, 324 U. S. 401, this Court

said

‘“‘The guaranty of the Fourteenth Amendment in-

escapably imposes upon this Court an exercise of

judgment upon the whole course of the proceedings in

order to ascertain whether they offend those canons of

decency and fairness which express the notions of

justice of English-speaking peoples’’—even toward

those charged with the most heinous offenses.

These standards of justice are not authoritatively

formulated anywhere as though they were prescrip-

tions in a pharmacopoeia.”’

The principles referred to, the canons of decency and

fairness, would seem a fortiori to call for adherence here.

Notions of justice, equity and fairness have in few areas

of the law been developed with such strength as in the

area of fiduciary relations.

‘*Joint adventurers, like copartners, owe to one an-

other, while the enterprise continues, the duty of the

finest loyalty. Many forms of conduct permissible in

a workaday world for those acting at arm’s length are

forbidden to those bound by fiduciary ties. A trustee

is held to something stricter than the morals of the

market place. Not honesty alone, but the punctilio of

an honor the most sensitive, is then the standard of

behavior. As to this there has developed a tradition

23

that is unbending and inveterate. Uncompromising

rigidity has been the attitude of courts of omy when

petitioned to undermine the rule of undivided loyalty

by the ‘disintegrating erosion’ of particular exceptions.

Wendt v. Fisher, 243 N. Y. 489, 444, 154 N. E. 303.

Only thus has the level of conduct for fiduciaries been

kept at a level higher than that trodden by the crowd.

It will not consciously be lowered by any ju ent of

this court.’’ Meinhard v. Salmon et al, 239 N. Y. 458,

164 N. E. 545, Cardozo, J.

Cases almost without number could be cited of similar

tenor, resting upon the old English equitable principles

never departed from.

The question posed by this petition is whether full con-

sideration by this Court should be drawn to a final decision

of the highest Court of a State which has deprived peti-

tioner of rights inherent in the principles governing fidu-

ciary relations, and has done this in a manner which, with

the attendant circumstances, which include the arbitration

by a federal judge of fees in a State case, has brought

about a denial to petitioner of his property rights in the

fruits of his labors and learning with respect to which he

entered into a joint venture with co-counsel.

It is submitted that the course of judicial process which

brought about the result below cannot be reconciled with

due process of law, which encompasses the necessity for

maintaining in the conduct of litigation the integrity and

fair dealing which lies at the root of the canons of decency

which over the centuries have developed in the area of

fiduciary relations.

That petitioner and Hastings were joint venturers can-

not be seriously in doubt. Berke v. Murphy, 280 Mich. 633,

274 N. W. 356; Langdon v. Kennedy, etc., 118 Neb. 290, 224

N. W. 292; Gugle v. Loeser, 143 Ohio St. 362, 55 N. E. 2d.

580; Hereford v. Meserve, 272 Fed. 353, 355. They were

also co-counsel. By reason of the former relation, as well

as by reason of the latter, they were on an equal footing

24

in this case. What one did both did in legal contemplation.

The facts recited hereinabove preclude the possibility of

‘failure of consideration’’ Robertson v. Gordon, supra.

The nature of their joint and fiduciary relations called for

no equal division of work or accounting of contribution.

Consaul et al v. Cummings, Adm., 222 U. S. 262 and cases

last cited above.

The judgment below excludes petitioner from the status

to which he was and is of right entitled, with consequent

deprivation of important property rights in a manner in-

consistent with the regard of the law for the integrity,

character and legal consequences of fiduciary relations.

This it is submitted raises an issue with respect to due

process which is worthy of the consideration of this Court.

This is especially so in view of the particular manner by

which the result was brought about, sanctioned by the court

below in rendering the decision it did.

The inescapable effect of the decision of the Supreme

Court of Delaware in this case is that a trustee can absolve

himself of that capacity merely by imagining himself re-

lieved. It is counter to the rule of law on the subject as

announced by this Court and by the high court of every

state which has dealt with the subject matter. Neverthe-

less, it will set a rule of substantive law that will be con-

trolling on the point on the Federal Court for the District

of Delaware. Uncorrected, it will be provocative of much

mischief.

The man whose efforts lay at the basis of the full re-

covery is rewarded little better than intervenors who ar-

rived late and did little if anything more than stand by

in order to profit by the outcome; and those whom peti-

tioner brought into the case arrange in Philadelphia for

the fixing of their fees independently of him and independ-

ently of the Court where the only case the Pennsylvania

25

Railroad Company would settle was pending—the case

brought by petitioner.

Petitioner is entitled, as he properly sought in the Court

which controlled the funds, to one-half of the fees of counsel

for the complainants. He is entitled by reason of the due

process clause of the Fourteenth Amendment to a decision

of the State Court based upon recognition by that Court

of the fiduciary relations between counsel and the joint

venture character of their undertaking.

Respectfully submitted,

Harvey D. Jacos,

National Press Bidg.,

Washington, D. C.

Attorney for Petitioner.

ALEXANDER Conn,

1420 Walnut Street,

Philadelphia, Pa.

Of Counsel.

February, 1948