A Philadelphia trial judge has ordered attorney Donald E. Haviland Jr. to pay his former firm, Kline & Specter, more than $210,000, plus interest, to cover referral fees and costs arbitrators found he failed to pay from products liability cases he took with him when he left in 2006.
On August 6, Philadelphia Court of Common Pleas Judge Patricia A. McInerney confirmed a 2-1 arbitration panel's March 2 award to Kline & Specter of $210,220, plus 6 percent annual interest from the date Haviland received the attorney fees.
On Tuesday, Kline & Specter filed a praecipe for judgment of more than $230,000, factoring in interest through August 13.
McInerney said the arbitrators made a factual finding that Haviland, who is now an attorney at Haviland Hughes in Philadelphia, had underreported the amount of fees he collected from those cases when the panel issued its original award in May 2011.
According to McInerney, Haviland had an "ongoing duty" under the arbitrators' decision to accurately report the amount of attorney fees he retained from those cases versus the amount he paid to his co-counsel, Adam S. Levy.
But the distribution sheets Haviland provided overstated the amount of fees he paid to Levy by about $606,000, McInerney said.
"During the reopened proceeding, Levy testified about the fees he was actually paid and how those fees differed from the amounts reported in the documents produced by Haviland to Kline & Specter," McInerney said. "Based on this evidence presented to the panel, the majority panel concluded as a matter of fact, after weighing all the evidence, that some of the distribution sums set forth in the previously submitted documentation to the panel did not accurately reflect funds withheld from or paid by Levy or Haviland."
McInerney also rejected Haviland's assertion that it had been improper for one of the arbitrators, Schnader Harrison Segal & Lewis partner Ralph G. Wellington, to participate in the arbitration process while concurrently representing the state in the average wholesale price litigation in which a referral fee was at issue.
"A review of the record demonstrates that there is no evidence of partiality or corruption by Wellington," McInerney said. "No evidence was presented that Wellington's representation of the commonwealth was adverse to Haviland's representation. Moreover, no evidence was presented that Wellington's representation of the commonwealth was limited by his role in this arbitration."
In Kline & Specter v. Haviland, according to McInerney's August 6 opinion, Haviland was an associate at Kline & Specter from October 2001 until he left in September 2006.
In July 2007, Kline & Specter filed a petition for appointment of an arbitrator in the Philadelphia Court of Common Pleas, alleging Haviland had breached his employment contract, McInerney said.
The petition was granted in March 2008, following a failed attempt at mediation, according to McInerney.
In June 2009, Kline & Specter filed a second amended arbitration complaint alleging Haviland failed to pay referral fees and costs on products liability cases the firm had asked him to take with him upon his departure, according to McInerney.
In May 2011, an arbitration panel consisting of Wellington, Conrad O'Brien partner Louis W. Fryman and former state Superior Court Judge Joseph Del Sole found — with Del Sole dissenting — that Haviland had breached his employment agreement with Kline & Specter by failing to pay referral fees in a number of cases, McInerney said.
The panel awarded Kline & Specter one-third of the total attorney fees Haviland had made from 13 cases, plus 6 percent interest, according to McInerney.
As part of the arbitrators' decision, Haviland was required to provide Kline & Specter with distribution sheets detailing the amount of attorney fees he received in six of the cases.
In September 2011, Haviland paid Kline & Specter $5.7 million and the parties signed a stipulation to confirm the arbitration panel award, according to McInerney. Judgment was entered in October 2011.
But in February 2012, Kline & Specter filed a petition to reopen the arbitration proceedings, alleging Haviland had overstated in his distribution sheets the amount of fees he had paid to Levy by $604,000, McInerney said.
In March 2012, the court reopened the arbitration proceedings, according to McInerney.
This past March, the arbitration panel that issued the original award found — with Del Sole once again dissenting — that some of the fee figures Haviland had previously reported were inaccurate and awarded Kline & Specter an additional $210,000, plus 6 percent interest, McInerney said.
Kline & Specter filed a petition to confirm the award and, in April, Haviland filed a petition to vacate, modify and correct the award, according to McInerney.
Haviland argued that the arbitrators were wrong to modify their previous award without making a finding of fraud.
But McInerney said the arbitrators merely supplemented their original award based on its factual finding of an inaccuracy in Haviland's fee documentation.
According to McInerney, 42 Pa.C.S.A. § 7302(d)(2) does not allow courts to conduct an expansive de novo review of an arbitration panel's factual conclusions.
"Here, the majority panel made a factual finding that an inconsistency existed and corrected the inconsistency," McInerney said. "Consequently, Haviland's petition to partially vacate, correct and modify is denied since the panel's decision and award is not contrary to the law."
Shanin Specter of Kline & Specter declined comment Friday.
Haviland's attorney, Dean R. Phillips of Elliott Greenleaf in Blue Bell, Pa., said in an emailed statement Friday that the trial court "improperly opened the arbitration award without any factual findings and based upon disputed factual representations that were never resolved."
Phillips said in the statement that he and his client "stand by" Del Sole's dissenting statement, in which Del Sole said, "'The evidence presented to the panel, during the recent proceedings, and from a review of the prior proceedings, establishes that the panel knew of the fee arrangement between Haviland and Levy when it issued its initial decision and award. There exists no basis for the panel to revisit the award, nor for the court to direct a modification.'"
"In sum, the panel had no jurisdiction to consider the matter further and the decision to open the arbitration award and the decision to confirm the supplemental award are reversible errors," Phillips said in the statement.