From Casetext: Smarter Legal Research

MASH ENTERPRISES, INC. v. PROLEASE ATLANTIC CORPORATION

United States District Court, E.D. Pennsylvania
Aug 7, 2006
Civil Action No. 01-2437 (E.D. Pa. Aug. 7, 2006)

Opinion

Civil Action No. 01-2437.

August 7, 2006


MEMORANDUM


In this Court's Findings of Fact and Conclusions of Law issued on March 4, 2004, at page 33, we made the following award to ProLease Atlantic:

DAMAGES

Original Principal Balance of the Promissory Note: $2,066,875

Set-Off Under The Recalculation Formula: $1,692,500

ProLease Atlantic's Payment of ECW Taxes: $6,132.92

ProLease Atlantic's Payment of Health Insurance $106,807 for PLC's Employees:
ProLease Atlantic's Payment of Health Insurance $39,846 for Relatives and Acquaintances:
ProLease Atlantic's Payment of Worker's $45,935.62 Compensation Insurance for PLC Employees:
Counter Defendants; Failure to Reimburse $33,212 ProLease Atlantic for Administering PLC's Payroll and Benefits:
ProLease Atlantic's Promissory Note Payment: $151,558.69

We also awarded counsel fees to ProLease Atlantic as the prevailing party in the sum of $306,330.50.

On appeal the Third Circuit reduced the set-off figure under the recalculation formula by the "maximum of $335,000" and reversed this Court's finding of fraud on the part of Plaintiffs. The Third Circuit then remanded the case to this Court to (1) decide whether Ventresca employees were part of the sale and (2) to re-evaluate the attorneys' fee award in light of the changes made by the Third Circuit to this Court's findings.

The Third Circuit was not certain as to the exact amount because a question remained as to whether Ventresca employees were part of the sale, if they were the amount was $335,000, if not there would have to be a reduction from that figure.

VENTRESCA EMPLOYEES

In its Opinion the Third Circuit directed this Court on Remand to determine whether the "Eligible Employees" of Ventresca were part of the assets purchased by ProLease Atlantic. If we find that they were part of the purchase then ProLease Atlantic must pay for them and according to the Third Circuit Opinion this Court must award MASH $325,884 plus interest. If we find that they were not part of the sale we are to subtract the amount attributed to Ventresca employees (about $15,000) from the $325,884 before calculating interest on the remainder.

In their Memorandum of May 15, 2006, Plaintiffs point out that Mark Freed testified at trial, that at the time the parties signed the Purchase Agreement, PLC's assets, including Ventresca were for sale. (Ex. 1, testimony of Mark Freed at 169-70.) It was not until later that ProLease Atlantic decided that it did not want to buy clients located in Florida. (Id.) At closing, the parties went through a list of clients located in Florida and "lined them out" with a black marker to indicate that those clients were not being sold to ProLease Atlantic. (Id. at 170; see also Ex. 2.) Plaintiffs point out that Ventresca was not one of the clients lined out because Ventresca is not located in Florida. As a letter sent to ProLease Atlantic indicates, it is a Pennsylvania Corporation. (Ex. 3.) Accordingly, Plaintiffs argue, that Ventresca's leased employees were assets purchased by ProLease Atlantic and therefore properly counted as "Eligible Employees" in the calculation of the amount owed by ProLease Atlantic on the Promissory Note.

This argument is persuasive, and when we consider that Defendants make no attempt to refute Plaintiff's position, we conclude that the Ventresca employees were purchased by ProLease Atlantic and therefore $15,000 should be awarded to Mash for these employees.

Under the Purchase Agreement the Promissory Note is to bear interest at 8% per annum. Based on an amount due on the Note of $325,884 at 8% interest for a period of six years, ProLease Atlantic would owe approximately $156,424 in interest resulting in a total amount due on the Promissory Note of $482,308.

ATTORNEYS' FEES AND COSTS

The parties agree that the right to attorneys' fees to the prevailing party is contained in the contract the parties entered into and that the contract is to be governed by Maryland law.

According to Maryland case law, the quality and amount of information that a claimant is required to provide is as follows:

(a) the party seeking the fees, whether for him/herself or on behalf of a client, always bears the burden of presenting evidence sufficient for a trial court to render a judgment as to their reasonableness; (b) an appropriate fee is always reasonable charges for the services rendered; (c) a fee is not justified by a mere compilation of hours multiplied by fixed hourly rates or bills issued to the client; (d) a request for fees must specify the services performed, by whom they were performed, the time expended thereon, and the hourly rates charged; (e) it is incumbent upon the party seeking recovery to present detailed records that contain the relevant facts and computations undergirding the computation of charges; (f) without such records, the reasonableness, vel non, of the fees can be determined only by conjecture or opinion of the attorney seeking the fees and would therefore not be supported by competent evidence.
BP Enters. v. Overland Equip. Co., 133 Md. App. 583, 625, 758 A.2d 1026, 1048 (2000) (quoting Maxima, 100 Md. App. at 453-54, 641 A.2d at 977). After the claimant has presented the necessary evidence in support of an award of attorneys' fees, the trial court is required to evaluate the reasonableness of the fees.Id. (citing Holzman v. Fiola Blum, Inc., 125 Md. App. 602, 726 A.2d 818 (1999)). In order to evaluate the reasonableness of the fees, the factors to be considered are as follows:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

Id. (citations omitted). "The claimant bears the burden `to provide the evidence necessary for the fact finder to evaluate the reasonableness of the fees.'" Id. (quoting Maxima, 100 Md. App. at 454, 641 A.2d at 977).

In our Memorandum of July 19, 2004 (Doc. No. 202), we awarded ProLease Atlantic a total of $306,330.50 as reasonable attorneys' fees and costs. We still view that amount as reasonable for the results that ProLease Atlantic attained at that point. The Third Circuit reduced the "set off under the recalculation formula" by $335,000, thereby reducing the original set off figure of $1,692,500 to $1,357,500 and they reversed our finding of fraud contained in Count II of the Counterclaim.

The question for us at this point is, what effect did those reductions have on the $306,330.50 figure which we originally found to be reasonable and which we now view as a proper base to start from?

ProLease Atlantic in its Memorandum on this issue argues:

1. ProLease Atlantic claims that because of their overall success they are still entitled to all of the original fee of $306,330.50; or

2. ProLease Atlantic would have us add together certain discreet fees and costs that they can isolate, deduct those from the original fee, then take 77% of the balance and add that figure to the discreet fees that they isolated. That would work out something like this:

Fees and costs re: expert witness — $15,123.01 Fees and costs re: MASH's fraud claim — $ 6,250. Fees and costs re: MASH's constructive trust — $21,570. ___________ $42,943.01

ProLease would then deduct $42,943.01 from $306,330.50 and arrive at a figure of $263,387.49. They would then take 77% of $263,387.49 and add it to the $42,943.01 for a total of $245,751.38 as their final fee and cost figure. (See Defendant's Memorandum of June 15, 2006.)

I believe Plaintiff's position basically is that Defendant has the burden of proving the hours spent on the portion of the set off that was reversed ($335,000) and the time spent on the unsuccessful attempt to prove fraud in Count II of the Counterclaim in order to deduct that time from the total fee of $306,330.50. It is also Plaintiff's position that Defendant has failed to prove this.

In my view it is an almost impossible task to require Defendant to identify the time spent on that particular issue. In our Findings of Fact and Conclusions of Law we found that the number of "Eligible Employees" under the Contract was 1,853 and reduced the amount owed by ProLease Atlantic accordingly. MASH on appeal argued successfully that an additional 268 employees should have been added to the number of "Eligible Employees" and the Third Circuit agreed.

I believe it is unrealistic to require ProLease Atlantic to identify the time spent trying to exclude the 268 additional employees from the 1,853 employees. I believe the best solution is to reduce the fee in proportion to the reduction in the set off under the recalculation formula. When the Third Circuit added the 286 workers to the list of "Eligible Employees" thereby reducing the set off due to ProLease Atlantic from $1,692,500 by $335,000, this amounted to approximately a 20% reduction in ProLease Atlantic's favorable result. The original fee award of $306,330.50 should be reduced accordingly. Therefore the original fee should be reduced by $61,266.10.

FRAUD CLAIM

The Third Circuit Court of Appeals also reversed this Court's finding of fraud set forth in Count II of the Defendants' Counterclaim. One of the issues that this Court must decide is what effect did this reversal of the fraud claim have on the attorneys' fee awarded by this Court. In order to determine this let us compare the allegations set forth in Count II, the Fraud Count of the Counterclaim which was reversed with Count III, the Negligent Misrepresentation Count of the Counterclaim which was not reversed.

Count II Count III

As can be seen both Counts would require almost identical proof, the main difference being the requirement of "intentional" as opposed to "negligent misstatements". Because the work to prove the successful Count was basically the same as that to prove the unsuccessful Count, I believe no reduction should be made for the dismissal of the Fraud Count.

CONCLUSION

Incomplete success is a frequent basis for a downward adjustment in a fee award. However, the usual precision that the State of Maryland would require cannot reasonably be applied to reduce a fee where the successful and unsuccessful claims are factually intertwined or where counsel devoted most of his time to the litigation as a whole. It is for these reasons that we arrived at our conclusions.

We therefore enter the following Order.

ORDER

AND NOW, this 7th day of August, 2006, having considered Plaintiffs' Memorandum Addressing The Remaining Issues Before This Court Following The Decision Of The United States Court of Appeals for the Third Circuit As Amended on February 9, 2006, and Defendants' response thereto, it is ORDERED that:

Defendants, ProLease Atlantic Corp., et al., shall pay to Plaintiff, MASH Enterprises, Inc. $325,884 in principal owed on the Promissory Note plus 8% interest per annum calculated from June 30, 2000 to the date of this Order, which is $159,140.02 for a total of $485,024.02; and

MASH Enterprises, Inc. shall pay the sum of $245,064.40 to ProLease Atlantic Corp. in attorneys' fees and costs.

(Fraud — Counter-Defendants HRO/MASH, (Negligent Misrepresentation — Counter-Defendants Fried and Vogel) HRO/MASH, Fried and Vogel) 106. ProLease Atlantic realleges 113. ProLease Atlantic realleges Paragraphs 1 through 105 as if fully Paragraphs 1 through 112 as if fully set forth herein. set forth herein. 107. At the time HRO/MASH Fried and 114. HRO/MASH Fried and Vogel owed Vogel entered into the Asset ProLease Atlantic a duty of care not Purchase Agreement and the Letter to make misrepresentations which Agreement with ProLease Atlantic, were untrue. HRO/MASH Fried and Vogel, 115. At the time HRO/MASH Fried and jointly and severally, made numerous Vogel entered into the Asset false representations and misleading Purchase Agreement and the Letter material omissions of fact to Agreement with ProLease Atlantic, ProLease Atlantic. These false HRO/MASH Fried and Vogel, representations and material jointly and severally, made numerous omissions included, but are not negligent misrepresentations to limited to: ProLease Atlantic including but not limited to: I. false representations and material I. negligent misrepresentations relating omissions relating to the accuracy of to the accuracy of the Client List the Client List attached as Exhibit C attached as Exhibit C to the Asset to the Asset Purchase Agreement; Purchase Agreement; ii. false representations and material ii. negligent misrepresentations relating omissions relating to the number of to the number of HRO's Eligible HRO's Eligible Employees; Employees; iii. false representations and material iii. negligent misrepresentations relating omissions relating to clients to clients identified on Exhibit C identified on Exhibit C who were who were intending to cease doing intending to cease doing business business with HRO; with HRO; iv. false representations and material iv. negligent misrepresentations relating omissions relating to the asserted to the asserted payment by payment by HRO of all federal, state HRO/MASH of all federal, state and and local taxes due and owing by local taxes due and owing by HRO HRO and its "Affiliates" (including and its "Affiliates" (including ECW) ECW) to governmental bodies at the to governmental bodies at the time of time of Closing; Closing; v. false representations and material v. negligent misrepresentations relating omissions relating to PLC's to PLC's compliance with the terms compliance with the terms of its of its group health insurance policy group health insurance policy with with Capitol BlueCross; Capitol BlueCross. vi. false representations and material vi. negligent misrepresentations relating omissions relating to HRO's to HRO's compliance with the terms compliance with the terms of its of its group health insurance policies group health insurance policies with with Amerihealth; Amerihealth; vii. false representations and material vii. negligent misrepresentations relating omissions relating to HRO's asserted to HRO's asserted disclosure to disclosure to ProLease Atlantic of all ProLease Atlantic of all facts facts material to HRO's operations; material to HRO's operations; viii. false representations and material viii. negligent misrepresentations relating omissions relating to the truth of each to the truth of each of the warranties of the warranties and representations and representations made in the made in the Asset Purchase Agreement; Asset Purchase Agreement; 108. Subsequent to the Closing, Fried, on 116. At the time these misrepresentations behalf of MASH/HRO and Vogel, were made prior to Closing, fraudulently induced ProLease MASH/HRO, Fried and Vogel knew Atlantic into advancing payroll or should have known that these payments to TASC based upon misrepresentations were false and Fried's false representation that HRO misleading, and that ProLease and/or its affiliates had tendered "a Atlantic was likely to suffer harm as deposit" to ProLease Atlantic for the a result of these misrepresentations. purpose of permitting ProLease 117. These misrepresentations were Atlantic to advance payroll to TASC. materially relied upon by ProLease 109. These representations and material Atlantic when it decided to enter into omissions were made by HRO, the Asset Purchase Agreement, to MASH, Fried and Vogel prior to pay the Purchase Price for the Closing with the knowledge of their Purchased Assets and to execute the falsity and/or with reckless disregard Promissory Note, and materially of their truth, with the intention that induced ProLease Atlantic to ProLease Atlantic would rely upon purchase HRO's assets. these statements, and with the 118. As a result of ProLease Atlantic's knowledge that ProLease Atlantic reliance upon these negligent would likely suffer harm as a result misrepresentations, ProLease of these misrepresentations. Atlantic has been damaged in the 110. These misrepresentations and amount of Five Million Dollars material omissions were reasonably ($5,000,000.00). relied upon by ProLease Atlantic when it decided to enter into the Asset Purchase Agreement, to pay the Purchase Price for the Purchased Assets and execute the Promissory Note, and materially induced ProLease Atlantic to purchase HRO's assets, to pay the Purchase Price and execute the Promissory Note. 111. As a result of ProLease Atlantic's reasonable reliance upon these fraudulent representations and material omissions, ProLease Atlantic has been damaged in the amount of Five Million Dollars ($5,000,000.00). 112. The foregoing actions were undertaken by HRO, MASH, Fried and Vogel with actual malice and with ill will, such that an award of punitive damages is appropriate.


Summaries of

MASH ENTERPRISES, INC. v. PROLEASE ATLANTIC CORPORATION

United States District Court, E.D. Pennsylvania
Aug 7, 2006
Civil Action No. 01-2437 (E.D. Pa. Aug. 7, 2006)
Case details for

MASH ENTERPRISES, INC. v. PROLEASE ATLANTIC CORPORATION

Case Details

Full title:MASH ENTERPRISES, INC., et al. v. PROLEASE ATLANTIC CORPORATION, et al

Court:United States District Court, E.D. Pennsylvania

Date published: Aug 7, 2006

Citations

Civil Action No. 01-2437 (E.D. Pa. Aug. 7, 2006)