The principals of the Bucks County firm formerly known as Mellon Webster & Shelly are currently embroiled in litigation with each other over the firm’s succession plan in the wake of its leader’s diagnosis with a serious illness.

Former shareholder Carol A. Shelly filed suit in the Bucks County Court of Common Pleas on April 23 against Thomas Mellon Jr., the firm’s president, chief executive officer and chief financial officer, and his wife, Sara Webster, who is also a shareholder with the firm.

On May 4, Mellon and Webster countered with their own suit in county court, characterizing Shelly’s suit in their complaint as “a transparent attempt to accomplish a ‘money grab.’”

Shelly’s suit alleges that Mellon, since being diagnosed with pancreatic cancer in 2010, has transferred ownership of the firm’s life insurance policy as well as the power to control millions of dollars in mass tort proceeds to himself with no input from Shelly.

The suit also claims Mellon has notified staff that the firm would be closing in the near future but has failed to take the necessary steps to wind down the firm’s operations in compliance with the state’s Business Corporation Law.

Shelly’s complaint alleges Webster has conspired with Mellon to exclude Shelly from a number of firm decisions.

On April 26, according to court documents, the firm’s board of directors voted Shelly out of the firm and changed the firm’s name to Mellon & Webster.

Webster and Mellon now allege in their countersuit that Shelly has “seized upon Mellon’s illness in an attempt to gain an unfair and unlawful remedy that she could not lawfully or otherwise obtain under the firm’s governing agreements.”

They claim in their complaint that Shelly’s suit has caused them to suffer “embarrassment, poor sleep, depression, weight loss and other ailments,” along with substantial legal costs.

shelly’s suit

Shelly alleges in her complaint that Mellon will not acknowledge that his medical condition is a “disability” under the terms of the firm’s shareholders agreement and has refused to resign and transfer his shares to the firm.

According to Shelly’s complaint, the firm established an approximately $5 million line of credit with Bancorp Bank in 1999 and was required to assign a $1.5 million life insurance policy on Mellon as collateral.

Mellon “either intentionally, or by oversight” put the life insurance policy in his name rather than the law firm’s name, but did list the firm as the policy’s sole beneficiary, according to the complaint.

In October 2010, following his cancer diagnosis, Mellon made himself the beneficiary of the policy and advised the bank not to recognize anyone’s but his authority to act on behalf of the firm, according to the complaint.

Mellon has also begun repaying the firm’s obligations to himself without first consulting with Shelly and without consideration for the firm’s other debts and obligations, the complaint alleges.

According to the complaint, the firm was also involved in hormone replacement therapy mass tort litigation and is anticipating receiving $7.2 million in May from cases that have settled.

Shelly’s suit alleges Mellon has attempted to negotiate the transfer of those cases — referred to in the complaint as “the pipeline cases” — and has agreed to pay a portion of the fees the firm receives from those cases to associates at the firm.

The suit also claims Mellon has advised third parties that he is the only one who can dictate how the proceeds from the HRT cases are used.

Shelly further alleges in her complaint that Mellon and Webster have refused to meet with her to discuss the firm’s dissolution and that Webster has informed Shelly that Webster will not confront Mellon, citing his illness and her relationship with him.

“All of the defendants’ actions, as set forth herein, have been, and are being, orchestrated to financially or otherwise benefit Webster and Mellon (or his estate) without due regard to the interests and rights of the law firm and/or Shelly,” Shelly said in the complaint.

Shelly’s suit includes claims for breach of contract, breach of fiduciary duty, fraud and unjust enrichment.

Mellon and Webster responded with preliminary objections on April 30, claiming that the firm has repurchased all of Mellon’s shares and that Shelly was paid for her interest in the firm when she was voted out by the board of directors.

Mellon is the brother of Bucks County Common Pleas Judge Robert Mellon. On April 25, Bucks County President Judge Susan Devlin Scott filed an order recusing the entire Bucks County bench from the case.

Mellon and Webster’s Suit

Mellon and Webster claim in their own complaint that the firm owes Mellon, who owns the building where the firm’s office is located, about $1.2 million in deferred rent and salary payments as well as for the repayment of loans that Mellon made to the firm.

“Shelly, on the other hand, was unwilling and indeed refused to assume any personal liability for the line of credit, and she made no financial contributions to the firm,” the complaint alleges.

According to the complaint, Mellon did change the beneficiary designation form for the firm’s life insurance policy to allow for each of his four sons to receive 20 percent of any proceeds that remained after the firm’s line of credit and mortgage were paid off, as well as for Webster to receive 10 percent and the firm to receive 10 percent.

Mellon was within his rights to do so, according to the complaint, and at the time, the balance owed on the line of credit “substantially exceeded” the payout to be received from the life insurance policy.

The complaint also maintains that Mellon is not and has never been “permanently disabled” as defined by the shareholders agreement, but says that in July 2011, Mellon and Webster met with Shelly to discuss transitioning the firm to younger attorneys.

Mellon went on vacation with his family that month, during which Shelly began investigating both the firm’s finances as well as Mellon’s personal finances, the complaint alleges.

When the firm learned in the fall of 2011 that it would receive $7.2 million from the settlement of the “pipeline cases,” Mellon told Shelly he was going to use the money to pay referral fees on the case, compensate lawyers at the firm and pay down the line of credit, at which point Shelly became “distressed” that she would not receive any significant income from the settlement proceeds, according to the complaint.

The complaint also alleges that “Shelly wanted the firm to continue after Mellon’s retirement or death — at the expense of Mellon’s estate — without taking any responsibility for financing the firm’s business and operations, including any advances needed on her cases.”

According to the complaint, Shelly sent a letter to Mellon in January announcing that she intended to resign from the firm.

However, the complaint alleges, Shelly ultimately rejected the firm’s proposed departure agreement, after which she began “plotting her potential takeover of the firm and her unlawful use of legal proceedings to destroy the reputations of Mellon, Webster and the firm.”

According to the complaint, Shelly wanted Mellon to declare himself permanently disabled and to sell his shares back to the firm in order to give her more control over the proceeds from the “pipeline cases.”

“Shelly, having miscalculated that Mellon would continue to act as managing partner of the firm into 2012, and with significant incoming fees expected in May 2012, panicked,” the complaint alleges.

Along with claims of abuse of process, breach of fiduciary duty and tortious interference, Mellon and Webster’s countersuit alleges intentional infliction of emotional distress.

According to the complaint, Mellon had been keeping his illness from his elderly father since 2005 until his father learned about it through news coverage of Shelly’s suit.

The complaint also alleges that Shelly has written to 80 of the firm’s clients advising them of her lawsuit in an attempt to solicit them.

On Monday, when asked to comment on the suits, Webster told The Legal , “The jewel in the crown for a lawyer is their reputation and anything that reflects on that has to be addressed.”

Reached Monday, Shelly’s attorney, Gary Rochestie of Rochestie Law Offices in Jenkintown, Pa., could not immediately comment on the countersuit by Mellon and Webster.

Regarding Shelly’s suit, Rochestie said he and his client are attempting to keep the dispute out of the press as much as possible.

He did not return a follow-up request for comment on the countersuit on Tuesday.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.