2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 5-5-2005 

# In Re: D aniel F inney P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 04-4360

F o l low thi s a nd a dd it ion al work s at : http://d i git alc ommon s .l a w . vi l l a no va . e du/thir dc ir c uit_2005

Thi s de c i sion i s br ou gh t t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a no va U nive r sity S choo l of L a

w Di git al Re posit or y

. It h as be e n a c c e pt e d for inclusion in 2005 D e c i sion s b y a n author i z e d a dmini s tr at or of V i l l a no va U nive r sity S choo l of L a

w Di git al Re posit or y

. F or mor e inform at ion, p le as e c on t a ct Be n j amin . C a rl s on@l a

w . vi l l a no va . e du . Re c omme nde d C it at ion " In Re: D a nie l F inney " (2005). 2005 D e cisio n s . P ape r 1240. http://d i git alc ommon s .l a

w . vi l l a no va . e du/thir dc ir c uit_2005/1240NO T PRECEDENTI AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT N o. 04- 4360 I N R E: DA NI EL FI NN EY D ebt or E S T AT E OF DANI E L F I NNE Y d /b / a F I NNE Y C ONS T RU CT I ON A ppel l ant v. DENNI S J . S P YRA, ES QUI RE

O n A p p ea l from the U n it ed S tat es D istri ct C o u rt f o r th e W e ste rn D istric t o f P e n n sy lv a n ia ( D . C . N o. 03- cv- 01125) D i s t r i ctJ udge: H onor abl e D avi d S. C er cone Subm i t t ed Pur s uantt o T hi r d C i r cui tL . A . R . 34. 1( a)

M ay3, 2005 B efor e: M cK E E , V A N A N T W E R PE N , and W E I S, C i r cui tJ udges

( Fi l ed: M ay5, 2005) OPI NI ON O F THE COURT2

V A N A N T W E R PE N , C i r cui tJ udge. N ow befor e us i s an appe al byD ebt or - A ppel l antD ani el Fi nney( “Fi nney ”) of a M emora ndum O r derof t he U ni t ed St at es D i s t r i ctC our tof t he W es t ern D i s t r i ctof Penns y l vani a af

fi r m i ng an A m ended O r derof t he U ni t ed St at es B ankrupt cyC our tfort he W es t ern D i s t r i ctof Penns y l vani a gr ant i ng cos t s and fe es t o D enni s J . Spy r a, E s q. ( “Spyr a”) i n t he s um of $64, 537. 85. For t he for egoi ng r eas ons , w e af fi r m t he D i s t r i ct C o u rt in p a rt a n d re v e rse in p a rt.

I. F a cts B eca us e t he onl ydi s put e betw een the part i es i n t he i ns t antcas e i s one conc erni ng th e c o n tin g e n t f

e e a rra n g e m e n t b e tw e e n F in n e ya n d S p yra , w e n e e d o n lyre sta te th e f a c ts per t i nentt o t hatcl ai m . Spy r a w as r et ai ned byFi nneyi n 2000 t o fi l e a pe t i t i on under C hapt er11 of t he U ni t ed St at es B ankrupt cyC ode. Spy r a w as t o be pai d fort hi s s er vi ce a t a r at e of $150. 00 perhour , and fi l ed a Chapt er11 pet i t i on on Fi nney ’ s behal f on Sept ember 13, 2000. I n t he s um m erof 2000, a fi r e des t r oy ed a r es i dent i al bui l di ng and damaged a nearbybarn on Fi nney ’ s es t at e. H i s i ns ur er , R oy al SunA l l i ance I ns ur ance C om pany (“ R o y a l”) in iti a ted a n in v e stig a tio n , an d u lti m a telya lleg e d th a t F in n e yh a d c o n trib u ted to t he ar s on t hatdes t r oy ed hi s pr oper t y . O n O ct ober25, 2000, R oy al for m al l ydeni edT h e ju ryf o u n d in f a v o r o f R o y a l w ith re g a rd to F in n e y ’s c laim th a t ith a d a c ted in 1 b ad fa ith . C o n seq u en tl y , the ju ryd id n o t aw ard F inn eyp u n it ive d am ag es o r att o rne y ’s fee s . T he j ur yal s o found aga i ns tR oy al on i t s count er cl ai m s forar s on, fr aud, and m i s r epr es ent at i on. 3 Fi nney ’ s i ns ur ance cl ai m . Soon aft er , Spy r a agr eed t o r epr es entFi nneyi n an ac t i on agai ns tR oy al fori t s deni al of Fi nney ’ s cl ai m undert he i ns ur ance pol i cy . T hi s act i on w as f ile d in U n ite d S ta te s B a n k ru p tc yC o u rt , b u t w a s la te r t ra n s f e rr e d to D is tr ic t C o u rt . Pendi ng r es ol ut i on of t he cl ai m , R oy al pai d Fi nney ’ s m or t gagee t he out s t andi ng bal ance o n th e e sta te’ s m o rtg a g e , w h ich it w a s re q u ire d to d o u n d e r th e in su ra n c e c o n tra c t. O n A pr i l 2, 2001, Fi nneys i gned a c ont i ngentfee agr eementw i t h Spy r a ent i t l i ng S p yra to (in a d d iti o n to a ll co sts a n d e x p e n se s) o n e -th ird o f “ a ll fu n d s o r p ro p e rty acc rui ng t o [Fi nney ] as a r es ul tof [Spyr a’ s ] s er vi ce [ i n connec t i on w i t h anyl egal act i on agai ns tR oy al ] . ” The fee agr eementw as appr oved byt he B ankrupt cyC our ton M ay9, 2 0 0 1 . Fol l ow i ng a t r i al i n t he s ui tagai ns tR oy al , a j ur yr etur ned a ve r di cti n favorof Fi nneyi n t he amount of $600, 000. A ft ert he s et - off pa y m entfort he mort gage thathad 1 al r eadybeen pa i d w as deduct ed fr om t he aw ar d, j udgm entw as ent er ed forFi nneyi n t he am o u n t of

$ 1 4 7 , 2 2 5 . 5 4 p lus $ 3 8 , 5 8 4 . 0 8 in p rejud g m en t i n terest. B ec au se th e jury aw ar ded Fi nney$638, 584. 08, Spy r a s oughtcompensa t i on undert he cont i ngentfee a rr a n g e m e n t in th e a m o u n t o f $ 2 1 2 ,8 6 1 .0 0 f

o r l e g a l r e p re s e n ta tio n in th e in s u ra n c e s u it. Fi nneyr efus ed t o pay , and Spyr a s oughtl eave of t he B ankrupt cyC our tt o compel Fi nney to sign o v er the p roc ee d s fro m the in su ran ce co m p an y . L ea v e w as g ran ted, an d S p yraT h is a m o u n t is th e to tal o w e d to S p yra (in c lu d in g c o sts f o r re p re se n tin g F in n e yin a ll 2 C hapt er11 m at t er s ) m i nus t he pr ocee ds fr om t he i ns ur ance companyt hatw er e s i gned overt o hi m . T hi s amount w as cl ai m ed aga i ns tSypr a’ s bankrupt cyes t at e. 4 pr es ent ed hi s appl i cat i on forpaym entt o t he B ankrupt cyC our t . Fi nneyobj ect ed, and t he B ankrupt cyC our tconduct ed an e vi dent i aryhear i ng. A tt he conc l us i on of t hathear i ng, th e B a n k ru p tcy C o u rt c o n c lu d e d th a t (1 ) th e c o n tin g e n t f e e a g re e m e n t w a s a n e n f o rc e a b le agr eementt hatw as s epar at e fr om Spy r a’ s r epr es ent at i on of Fi nneyi n t he C hapt er11 cas e, ( 2) t he cont i ngentfee agr eementw as r eas onabl e, and ( 3) Fi nneyw as an i nt el l i gentand ar t i cul at e bus i nes s m an w ho w as aw ar e of the es s ent i al t er m s of t he agr eementbefor e he s i gned i t . A ccor di ngl y , t he B ankrupt cyC our tent er ed an A m ended O r deron M ay23, 2003, aw ar di ng Spy r a $64, 537. 85. 2 Fi nneyappea l ed thes e fi ndi ngs and the B ankrupt cyC our t ’ s A m ended O r dert o t he D i s t r i ctC our t . O n r evi ew , he cont ended that( 1) t he cont i ngentfee agr eementw as uncons ci onabl e, ( 2) he w as deni ed due pr oces s , and ( 3) t he B ankrupt cyC our tal l ow ed Spy r a t o r ecove rdoubl e paym entforhi s s er vi ces . T he D i s t r i ctC our trul ed i n favorof S p yra a s to e a c h c laim o f e rro r, an d a f

f irm e d th e A m e n d e d O rd e r. F in n e yth e n tim e ly a p p e a led to th is C o u rt. O n appea l befor e us , Fi nneyar gues t hr ee poi nt s : ( 1) t he cont i ngentfee agr eement i s uncons ci onabl e and i s notenfor cea bl e as i ti s unr eas onabl e; ( 2) bot h t he B ankrupt cy C our tand the D i s t r i ctC our tm ade mani fes terr or s of fa ct ; and ( 3) bot h t he B ankrupt cy C our tand the D i s t r i ctC our terr ed i n notfi ndi ng t hatSpy r a r ece i ved dupl i cat e payfort he5

s ame se r vi ce.

I I . Juri s di ct i on and St andard of R evi ew T he B ank rupt cyC ou rthad subjectm at t er j uri sdi ct i on t o en t ert ai n the i nst ant cas e pur s uantt o 28 U . S. C . § 157( b) . T he D i s t r i ctC our thad appe l l at e j ur i s di ct i on overt he f in a l o rd e r o f

th e B a n k ru p tc yC o u rt in f a v o r o f S p yra p u rs u a n t to 2 8 U .S .C . § 1 5 8 (a )( 1 ). Ou rj u r i s d i c t i o n i s g r o u n d e d i n 2 8 U. S . C. § § 1 5 8 ( d ) & 12 9 1 . “ Ex e r c i s i n g t h e s a me s t andar d of r evi ew as t he [D ] i s t r i ct[C ] our t , w e r evi ew t he [B]a nkrupt cy[C ] our t ’ s l egal determ i nati on s de novo , i t s fac tual fi ndi ngs forcl earerr orand i t s exer ci s e of di s cr et i on fo r ab u se th ere o f.” In re U n it ed H ea lth ca re S y stem , Inc . , 3 9 6 F . 3 d 2 4 7 , 2 4 9 (3d C ir . 2 0 0 5 ) ( c ita tio n s a n d in te rn a l q u o ta tio n m a rk s o m itte d ).

I I I . D i s cus s i on A s a th re sh o ld m a tter, w e f irst a d d re ss S p yra ’s c o n ten tio n th a t F in n e y ’s c laim to r ecove ranypor t i on of t he cont i ngentfee i s barr ed byt he doctr i nes of re s ju d ica ta or c o llate ra l es to p p e l. W e a g re e w ith F in n e yth a t S p yra ’s f a ilu re to ra ise th e se a rg u m e n ts b e lo w c o n s titu te s w a iv e r. 

### “T h e g en eral ru le is th at th e f ailure to p leado r raise ina tim ely m ann e r m att e r s c a l l i ngfo r

the app l i c at i onof

the do c tr i ne s of res ju dica ta and collate ra l es topp elis re garded as a wai ver. ” 4 7 Am . J u r . 2 D J u d g m e n ts § 7 17 (2004 ); see al so 

### Rycoli ne Prod ., Inc. v. C & W Unlimit ed, 109 F.3d88 3, 88 6 (3dCir. 19 97 ) ( “ResW h e th e r o r n o t a c o n tra c t is u n c o n sc io n a b le is q u in tes se n tiallya q u e stio n o f sta te 3 law . A s s u c h , w e a p p lyth e law o f th e C o m m o n w e a lth o f

P e n n sy lv a n ia to th is c laim . E rie R . R . v . T o m p k ins, 30 4 U . S . 6 4 , 7 8 (19 3 8 ). 6 

### ju dica ta is an affirm at ive defense andno t a do ctri ne that

wo uld d efeat

subj ec t m atte r juri sdic ti onof

this court. ”) . C on sequen t l y , as t his i s the fir stt i m e S ypra has rai sed t hese a r g u me n t s , we c a n n o te n t e r t a i n t h e m. T ur ni ng t o t he mer i t s of t hi s cas e, Fi nneyfi r s tcont ends t hatt he cont i ngentfee ag ree m en t i s u n co n scio n ab le an d h en ce n o t enf o rce ab le be ca u se it s term s are unr eas onabl e. A s w e have s ai d befor e, “court s s houl d be r el uct antt o di s turb cont i ngent fee arr angement s fr eel yent er ed i nt o byknow l edgea bl e part i es . ” R y an v. B ut er a, B e a u s a n g , C o h e n & B re n n a n , 1 9 3 F .3 d 2 1 0 , 2 1 5 (3 d C ir . 1 9 9 9 ). T h a t b e in g s a id , a D i s t r i ctC our tm us tbe al er tt o a fe e agr eementt hatw oul d unj us t i fi abl yenr i ch an a t t or ney t hr ough oppr es s i on oroverr eac hi ng. See M cK enzi e C ons t . , I nc. v. M aynar d, 758 F. 2d 97, 1 0 2 (3 d C ir . 1 9 8 5 ). A ft era r evi ew of t he r ecor d, w e agr ee w i t h t he D i s t r i ctC our tt hatFi nneyhas not d e m o n stra ted th a t th e c o n tin g e n t f e e a g re e m e n t b e tw e e n h im a n d S p yra is uncons ci onabl e. I n Penns y l vani a, t he t es tforuncons ci onabi l i t yi s t w o- fol d: fi r s t , one of 3 t he par t i es t o t he contr actm us thave l acke d a meani ngful choi ce a boutw hethert o acc ept t he pr ovi s i on i n ques t i on; and s econd, t he cha l l enged pr ovi s i on m us tunr eas onabl yfavor t he otherpar t yt o t he contr act . K oval v. L i ber t yM ut . I ns . C o. , 531 A . 2d 487, 491 ( Pa. Super . 1987) . H er e, t he B ankrupt cyC our tfound, and the D i s t r i ctC our tagr eed, t hatW e ar e es peci al l yper s uaded byFi nney ’ s admi s s i on t o t he B ankrupt cyC our tt hathe 4 negot i at ed Spyr a’ s cont i ngentfee per cent age f r om 40% t o 33 1/ 3% . A ppendi x t o B r i ef of A ppel l antat333a. W e have pr evi ous l yhel d t hatw e mustappl yfede r al l aw t o t he exa m i nat i on of a 5 c o n tin g e n t f

e e a rra n g e m e n t’s re a so n a b len e ss , as su c h re v iew im p lica tes o u r re sp o n sib ili ty t o s uper vi s e t he mem ber s of ourB ar . D unn v. H . K . Por t erC o. , I nc. , 602 F. 2d 1105, 1110 n . 8 (3d C ir . 1 9 7 9 ). 7 Fi nneyw as “an i nt el l i gent , ar t i cul at e bus i nes s m an w ho r an more t han one bus i nes s ” w ho “w as aw ar e of a l l t he es s ent i al t er m s of t he agr eement , and al s o under s t ood t he ra m if ic a tio n s o f

s ig n in g th e a g re e m e n t.” M e m o ra n d u m O rd e r o f th e D is tr ic t C o u rt a t 4 . Fi nneyhas adduce d no evi dence count er i ng t hes e fi ndi ngs , norcan w e fi nd anyon i ndepende ntr evi ew . W e t her efor e w i l l notuns eatt he conc l us i ons of bot h t he 4 B a n k ru p tcy C o u rt a n d th e D istric t C o u rt th a t F in n e yh a d a m e a n in g f u l ch o ice a s to w h e th e r o r n o t h e w o u ld s u b m it to th e c o n tin g e n t f e e a g re e m e n t. M or eover , t he agr eementdoes notunr eas onabl yfavorSpy r a. A cont i ngentfee agr eementw i l l be cons i der ed val i d and enf or cea bl e onl yw her e i ti s fai r , j us t , and re a s o n a b le . 7 A C .J .S . A t t or ney & C l i ent § 395 ( 2004) . T he Thi r d C i r cui thas adopt ed the

“ e q u itya n d f

a irn e ss sta n d a rd ” f

o r d e ter m in in g w h e th e r o r n o t an a tto rn e y ’s f e e is r eas onabl e. R y an, 193 F. 3d at214. U ndert hi s s t andar d, “a c our tm us teval uat e the

5 contr actas t o i t s r eas onabl enes s bot h as of t he t i m e the part i es ent er ed i nt o i tand i n l i ght of s ubs equentci r cumst ance s conce r ni ng per for m ance and enf or cement , w hi ch maym ake a contr actunfai ri n i t s enfor cement . ” I d. at215 ( i nt ernal quot at i on m ar ks om i t t ed) . T he a g re e m e n t re q u ire s th a t S p yra b e p a id o n e -th ird o f a ll fu n d s o r p ro p e rtya c c ru in g toI n Penns y l vani a, a cont i ngentfee i s cons i der ed r eas onabl e i f i ti s comput ed upon t he 6 amount of ac tual r ecove r y , noton t he amount of t he ver di ctr ender ed. M i erni cki v. Sel t zer , 458 A . 2d 566, 569 ( Pa. Super . 1983) , aff’ d 479 A . 2d 483 ( Pa. 1984) . For e x a m p le, a n a tto rn e yw h o se c lien t’s ju rya w a rd h a s b e e n re d u c e d b ya c o u n ter c laim cannotcl ai m as hi s fee a per cent age of t he j ur yver di ct , butr athert he netpr ocee ds r ece i ved byhi s cl i entaft ert he count er cl ai m amount has been de duct ed. Such i s nott he cas e her e. 8 Fi nneyas a r es ul tof Spyr a’ s s er vi ces i n t he i ns ur ance s ui t . W e fi nd t hi s pr ovi s i on t o be unambi guous . T hi s w as a fa i rand r eas onabl e bar gai n on t he dayt hatFi nneys i gned t he agr eement , and r emai ned s o t hr oughouthi s r el at i ons hi p w i t h Spy r a. T he pos i t i on t hat Spy r a t akes –t hathe i s ent i t l ed t o one- t hi r d of t he $600, 000 aw ar d, and notm er el yt he net m o n e yp a id d ire c tlyto F in n e y– is re a so n a b le w h e n w e c o n sid e r th a t F in n e yn o t o n ly r ece i ved a moneyj udgm enti n t he amount of $147, 225. 54, butal s o fr ee a nd cl eart i t l e t o a fo rm erlyen cu m b ere d p rop erty . T o restri ct S p yra’s ac ce ss to the m ajorit yo f th e jury 6 verdi ct(the m on eyused to sat i sfyF i nn ey ’s ob l i gati on t o h i s m ort gag ee), si m plybecau se i tw as pai d di r ect l yt o t he mort gagee pr i ort o t he r ender i ng of t he ver di cti n t he i ns ur ance s ui t , i s an i nequi t abl e perver s i on of an otherw i s e cl earcontr act . B eca us e w e conc l ude t hatt he cont i ngentfee agr eementenvi s i oned paym entof one- t hi r d of t he t ot al aw ar d, and beca us e w e fur t herconcl ude thatt he fe es s oughtbySpy r a ar e r eas onabl e gi ven the ver di cti n Fi nney ’ s i ns ur ance cl ai m , t he cont i ngentfee agr eementi s notuncons ci onabl e. M ovi ng nextt o Fi nney ’ s cont ent i on t hatt he B ankrupt cyC our terr ed i n i t s fi ndi ngs o f f a c t, w e c o n c lu d e th a t n o n e o f th e f a c tu a l f in d in g s p o in ted to b yF in n e yw e re c lea rly err oneous . W i t houtbel abor i ng t he poi nt , Fi nneyagai n poi nt s t o not hi ng i n t he r ecor d t hat9

su p p o rts h is c laim s o f

e rro r w ith re g a rd to th e B a n k ru p tcy C o u rt’s f in d in g s o f

f a c t. F in a lly , the re is o n e p o in t o n w h ich w e p a rt c o m p a n yw ith th e D istric t C o u rt: dupl i cat i ve fe es . W e di s agr ee w i t h t he D i s t r i ctC our tt hatenfor cementof t he cont i ngency fee agr eementw i l l notcaus e dupl i cat i ve bi l l i ng w i t h r egar d t o w or k done bySpy r a on Fi nney ’ s i ns ur ance s ui tpr i ort o t he s i gni ng of t he cont i ngentfee agr eement . D es pi t e the D i s t r i ctC our t ’ s as s er t i on t o t he contr ary , w e not e thatt he i t emi zed bi l l s entt o Fi nneyon S eptem ber 3, 20 02 , con t ai ns nu m erous bi l l i ng entr i es r egardi ng t he insur ance su i tagainst R oy al , s peci fi cal l yforl egal r es ear ch and pr epar at i on of t he “Tur noverC om pl ai nt . ” The cont i ngentfee agr eementcover s “anyact i on ar i s i ng fr om a di s put e w i t h R oy al & Sun In su ra n c e C o m p a n y ,” a n d th e re is n o lan g u a g e in th e a g re e m e n t re stric tin g its c o v e ra g e to r epr es ent at i on t hatoccurr ed af t ert he dat e the agr eementw as s i gned- w e thus r ead the contr actt o be unambi guous i n t er m s of w hats er vi ces ar e cove r ed. A s s uch, w e conc l ude t hatt he cont i ngentfee agr eementcover s al l l egal r epr es ent at i on as s oci at ed w i t h t he in su ra n c e su it, a n d c o n se q u e n tly , an yh o u rlyf e e s c h a rg e d to F in n e yin c o n n e c tio n w ith t hi s s ui tm us tbe s t r i cken a s dupl i cat i ve.

I V . C oncl usi on F o rt h e s e r e a s o n s , we a f f i r m th e Di s t r i c tCo u r ti n p a r ta n d r e v e r s e i n p a r t . On rem an d , w e ins tru ct t h e D istri ct C o u rtto f u rt h er rem an d this case to the B an k rup tcyC o u rt w ith in stru c tio n s to (1 ) strik e a n yh o u rlyf e e c h a rg e d b yS p yra f

o r w o rk d e a lin g w ith10

Fi nney ’ s i ns ur ance s ui tagai ns tR oy al , and ( 2) al t eri t s A m ended O r derof M ay23, 2003 a c c o r d i n g l y.