The Pennsylvania Supreme Court has refused to hear arguments over whether an Allegheny County trial judge who is suing his former law partners over the distribution of their now-defunct firm’s assets is entitled to an accounting of contingent fee cases that were resolved following the firm’s dissolution.
In an October decision that explored the ethical implications of practicing lawyers sharing fees with sitting judges, the state Superior Court ruled that a Somerset County trial judge’s finding that Allegheny County Court of Common Pleas Judge Philip A. Ignelzi was entitled to such an accounting was premature.
The court also found that while a record must first be established as to whether the judge and his former law partners had an agreement in place governing the distribution of post-dissolution contingent fees, it’s possible the judge would be precluded from accepting those fees anyway under Pennsylvania Rule of Professional Conduct 5.4(a), which bars attorneys and law firms from sharing legal fees with a nonlawyer.
In a 17-page opinion issued Oct. 7, a three-judge panel unanimously reversed the portion of Somerset County Court of Common Pleas Senior Judge Eugene E. Fike II’s ruling that entitled Ignelzi to an accounting of contingent fee cases that resolved after his former firm, Ogg Cordes Murphy and Ignelzi, shut its doors.
In Ignelzi v. Ogg Cordes Murphy and Ignelzi, Judge Christine L. Donohue said Fike’s order was premature because it is still unclear whether the firm’s partners had an agreement in place governing how contingent fees would be handled for cases that closed following its dissolution.
Under the Superior Court’s 2012 ruling in Huber v. Etkin, law firm partners are required to provide each other with an accounting of contingent fees received following a breakup only where there isn’t already an agreement in place that addresses the issue, Donohue said.
But Donohue added that the Huber ruling would not apply here anyway because all of the parties in that case continued to practice law following the breakup of their firm.
According to Donohue, Ogg Cordes dissolved in December 2009 and Ignelzi joined the Allegheny County bench the following January.
“As a sitting trial court judge, Ignelzi is no longer a licensed, practicing attorney,” Donohue said. “This is potentially significant because a Pennsylvania Rule of Professional Conduct governing lawyers prohibits fee-sharing between a lawyer and a nonlawyer.”
Donohue acknowledged that it is not uncommon for a lawyer to leave private practice and become a judge while his or her law firm compensation is still outstanding and noted that the ethics committee of the Pennsylvania Conference of State Trial Judges has issued informal opinions on the subject.
In one such opinion, according to Donohue, the committee found that a judge would be entitled to receive a commission on a case that wrapped up after he or she left a firm if the partnership agreement allowing for such a commission was entered into prior to any consideration that he or she would become a judge.
Donohue said the record in Ignelzi had not been developed enough to assess the potential application of Rule 5.4.
“We recognize that this court and the trial court have no authority to enforce the Rules of Professional Conduct,” Donohue said. “On the other hand, we lack authority to override the Rules of Professional Conduct under the guise of interpreting civil law. Whatever the outcome on remand, the trial court must consider the import of Rule 5.4.”
Donohue was joined by Judge Mary Jane Bowes and joined in the result by Judge Sallie Updyke Mundy.
But Mundy penned a separate concurring opinion seeking to “distance” herself from the majority’s discussion of Huber‘s applicability, which she said was unnecessary dicta.
Mundy also said she was skeptical that Rule 5.4(a) would have any impact on Huber‘s application to Ignelzi.
“Rule 5.4 addresses fee-sharing, which is a form of case-specific compensation for consideration, and not the division of a dissolved partnership’s equity, which includes unrealized contingent fees, among the former partners,” Mundy said.
But, in a lengthy footnote, Donohue called Mundy’s argument “a distinction without a difference as applied to a partnership, such as [Ogg Cordes Murphy and Ignelzi], whose value depends entirely on the realization of contingent fees.”
Mundy had questioned in a footnote whether the majority’s interpretation of Rule 5.4 would also preclude partners who retire or who let their professional licenses lapse due to health problems from receiving their share of their former firm’s revenue from contingent fee cases.
Donohue answered in a footnote that the solution is for partners to execute written partnership agreements.
“Law firm partners can avoid the uncertainty of litigation by agreeing in advance how to wind up the partnership consistent with any applicable ethical considerations,” Donohue said.
According to Donohue, the dispute in Ignelzi began when the former Ogg Cordes partners failed to reach an agreement regarding the valuation and distribution of the dissolved firm’s assets.
Following the breakup of Ogg Cordes, according to Donohue, two of Ignelzi’s former partners—defendants Gary J. Ogg and Michael A. Murphy—subsequently formed Ogg, Murphy & Perkosky with another attorney, defendant John D. Perkosky.
In October 2011, Ignelzi filed suit against Ogg, Murphy, Perkosky and former partner Samuel J. Cordes in Allegheny County trial court, alleging breach of contract, breach of fiduciary duty, unjust enrichment and conversion, as well as a violation of the Pennsylvania Uniform Partnership Act.
Ignelzi argued that he was entitled to inspect both Ogg Cordes’ and Ogg Murphy’s books, as well as to receive an accounting of the contingent fee cases that closed after the firm dissolved, Donohue said.
Fike, hearing the case as a visiting judge from Somerset County, denied the petition with regard to Ogg Murphy’s books but granted Ignelzi’s other two requests, according to Donohue.
The only issue in dispute on appeal, Donohue said, was the accounting of contingent fees.
According to Donohue, Fike ordered the defendants to provide the accounting “‘unless the partners have agreed otherwise, or there is agreement that the dissolution of [Ogg Cordes Murphy and Ignelzi] was to provide a “clean break.”‘”
But Donohue called this “precatory language” and said Fike improperly entered his order on an underdeveloped record.
“The proper course of action would have been to permit the parties to litigate this issue, and then, if necessary, issue an order compelling an accounting,” Donohue said.
Counsel for Ignelzi, Robert J. Ridge of Clark Hill Thorp Reed in Pittsburgh, and counsel for Ogg, Murphy and Perkosky, as well as the Ogg Cordes and Ogg Murphy firms, Stephen R. McDonnell of Gawthrop Greenwood in West Chester, Pa., declined to comment on the allocatur denial.
Cordes also declined to comment on the allocatur denial.