1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

12-29-1995

Mitzel v. Westinghouse Elec. Corp.

Precedential or Non-Precedential:

Docket 94-5666

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Recommended Citation

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1 

 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT 

 

No. 94-5666 

 

KIRK MITZEL; JANET MITZEL, h/w 

v. 

WESTINGHOUSE ELECTRIC CORPORATION; 

DRAVO CORPORATION; DICK CORPORATION; 

CORTEC INDUSTRIES, INC., t/a, d/b/a INLAND BUILDINGS; 

DAVY McKEE CORPORATION, t/a, d/b/a DAVY DRAVO; 

DRAVO ENGINEERING COMPANIES, INC.; 

CORTEC INDUSTRIES, INC., t/a, d/b/a SUMMIT BUILDINGS; 

S.B. ACQUISITION COMPANY, t/a, d/b/a SUMMIT BUILDINGS 

DICK CORPORATION; DRAVO CORPORATION 

 Third-Party Plaintiffs

v. 

A.C. DELLOVADE, INC.; 

DAVY McKEE CORPORATION, t/a, d/b/a DAVY DRAVO 

 Third-Party Defendants

Kirk Mitzel and Janet Mitzel, by and with 

their Attorneys, A Dragon Associates, 

 Appellants

(Caption amended per the Clerk's 11/04/94 Order) 

 

On Appeal from the United States District Court 

for the District of New Jersey 

(D.C. No. 91-cv-05689) 

 

Submitted Pursuant to Third Circuit LAR 34.1(a) 

July 17, 1995 

Before: SLOVITER, Chief Judge, SCIRICA, Circuit Judge, 

and AMBROSE, District Judge1

 

1

Hon. Donetta W. Ambrose, United States District Court for the 

Western District of Pennsylvania, sitting by designation. 
2 

 

(Opinion Filed December 29, l995 ) 

Arlin M. Adams 

Schnader, Harrison, Segal & Lewis 

Philadelphia, PA 19103 

 Of Counsel: 

 Kaethe B. Schumacher 

 Schnader, Harrison, Segal & Lewis 

 Philadelphia, PA 19103 

 

 Albert Dragon 

 Litvin, Blumber, Matusow & Young 

 Philadelphia, PA 19107 

 Attorneys for Appellants 

 

OPINION OF THE COURT 

 

SLOVITER, Chief Judge. 

 A Pennsylvania law firm, A Dragon Associates, and its 

clients, Kirk and Janet Mitzel, challenge the district court's 

application of the New Jersey State Court Contingency Fee Rule to 

a two-million-dollar settlement received by the Mitzels in a case 

Dragon filed for them in federal court in New Jersey. They argue 

that the district court erred in applying New Jersey rather than 

Pennsylvania law, and, in the alternative, that even if the New 

Jersey rule is applicable, Dragon is entitled to an increased fee 

under the terms of the rule because of the extraordinary time and 

effort it devoted to this case. We have jurisdiction under 28 

U.S.C. § 1291. As none of the defendants have filed briefs, this 

matter is before us on appellants' brief only. Although the 
3 

appeal was filed on behalf of both Dragon and the Mitzels, we 

will treat only Dragon as the appellant. 

I. 

 Kirk Mitzel was severely injured at a construction site 

in New Jersey when a steel beam on which he was working collapsed 

and fell 26 feet to the ground. Mitzel and his wife, Janet, were 

Pennsylvania residents at the time and retained Dragon to pursue 

worker's compensation and personal injury claims on their behalf. 

On July 26, 1990, the Mitzels signed a contingency fee agreement 

with Dragon in which the law firm agreed to represent them in 

return for 40% of any net recovery. At some point after signing 

this agreement, but before the complaint was filed, the Mitzels 

moved to North Dakota. 

 Dragon filed a complaint on December 30, 1991 in the 

District Court of New Jersey based on diversity jurisdiction, 

naming as defendants the primary and general contractors and the 

companies that designed the equipment and materials involved in 

the accident. Two attorneys from the firm were admitted pro hac

vice to the District Court of New Jersey on May 18, 1992, 

pursuant to the district court's Local Rule 4(c). 

 Dragon asserts that during the following two-and-a-half 

years it invested over 5100 attorney hours in discovery, taking 

nineteen depositions, accumulating fifty-two expandable files of 

documents that are over twenty-two feet thick, arguing nearly 

twenty oral and written motions, reviewing hundreds of thousands 

of records, and consulting more than ten experts. It also claims 
4 

to have incurred considerable costs in travelling to Pittsburgh 

and Orlando to inspect documents. 

 Ultimately, in mid-1994 the defendants offered the 

Mitzels two million dollars, and Dragon volunteered to reduce its 

contingency fee from 40% to one-third in order to facilitate a 

settlement at this amount. The Mitzels agreed and, on July 25, 

1994, filed a motion with the district court asking it to confirm 

the settlement and approve the one-third counsel fee in the 

amount of $648,403.28. The motion was referred to a magistrate 

judge, who instead recommended application of New Jersey Court 

Rule 1:21-7, and a counsel fee award of $435,181.47. The 

district court adopted the magistrate's recommendation and denied 

plaintiffs' motion for reconsideration. This appeal followed. 

II. 

A. 

Choice of Law

 New Jersey Court Rule 1:21-7(c), which sets a schedule 

of maximum limits on the contingency fees that New Jersey 

attorneys can collect in tort litigation, provides: 

In any matter where a client's claim for 

damages is based upon the alleged tortious 

conduct of another, . . . an attorney shall 

not contract for, charge, or collect a 

contingent fee in excess of the following 

limits: 

(1) 33_% on the first $250,000 recovered; 

(2) 25% on the next $250,000 recovered; 

(3) 20% on the next $500,000 recovered; and 

(4) on all amounts recovered in excess of the 

above by application for reasonable fee in 

accordance with the provisions of paragraph 

(f) hereof . . . . 
5 

N.J. Court Rules, 1969, R. 1:21-7(c). Paragraph (f), referred to 

in subparagraph (4) above, provides that "[i]f at the conclusion 

of a matter an attorney considers the fee permitted by paragraph 

(c) to be inadequate, an application on written notice to the 

client may be made to the Assignment Judge for the hearing and 

determining of a reasonable fee in light of all the 

circumstances." R. 1:21-7(f). 

 The New Jersey district court has incorporated New 

Jersey's contingency fee rule into its local rules through Local 

Rule 4(c), which provides that "[a] lawyer admitted pro hac vice 

[to the federal court] is deemed to have agreed to take no fee in 

any tort case in excess of the New Jersey State Court Contingency 

Fee Rule (N.J. Court Rules, 1969, R. 1:21-7 as amended)." 

 Dragon argues that the district court erred in holding 

that New Jersey law rather than Pennsylvania law was applicable 

to its decision as to the amount of the contingency fee. 

Pennsylvania courts will uphold contingency fee agreements 

voluntarily entered into by the parties as long as they are not 

excessive and do not take "inequitable advantage of the payer." 

Richette v. Solomon, 187 A.2d 910, 919 (Pa. 1963). A one-third 

contingency fee is not considered excessive, see id., and fees as 

high as 40% have been enforced by Pennsylvania courts. See, 

e.g., Oliastro v. Borough of Ellwood City, 486 A.2d 966 (Pa. 

Super. Ct. 1984). We apply plenary review to the district 

court's decision that New Jersey law is applicable here. See
6 

Linan-Faye Constr. Co. v. Housing Auth. of Camden, 49 F.3d 915, 

919 (3d Cir. 1995). 

 Dragon presents the choice as one between Pennsylvania 

and New Jersey law, but it has apparently failed to consider the 

possibility that under the rules established by Erie R.R. Co. v. 

Tompkins, 304 U.S. 64 (1938), and its progeny, an attorney's fee 

issue affecting the allocation of funds between attorney and 

client presented in a diversity case is a matter of procedure 

governed by the law of the forum. 

 Generally, the right of a party or an attorney to 

recover attorney's fees from another party in a diversity action 

is a matter of substantive state law. See Alyeska Pipeline Serv. 

Co. v. Wilderness Soc'y., 421 U.S. 240, 259 n.31 (1975); Abrams 

v. Lightolier Inc., 50 F.3d 1204, 1224 (3d Cir. 1995); Montgomery 

Ward & Co. v. Pacific Indem. Co., 557 F.2d 51, 55-58 (3d Cir. 

1977); see also 1A James W. Moore et al., Moore's Federal 

Practice ¶ O.309[1], at 3109-10 & n.46 (2d ed. 1995). In 

contrast, contingency fee agreements have been treated 

differently. 

 Contingency fee agreements apportion resources between 

plaintiffs and their counsel rather than plaintiffs and 

defendants, and therefore are collateral to the substantive 

merits of lawsuits in a way that awards of attorney's fees 

between parties are not. Furthermore, because of the imbalance 

of power that may exist between client and attorney, we have held 

that "contingency fee agreements are of special concern to the 

courts," Dunn v. H.K. Porter Co., 602 F.2d 1105, 1108 (3d Cir. 
7 

1979), and fall within a court's "supervisory power over the 

members of its bar." Schlesinger v. Teitelbaum, 475 F.2d 137, 

141 (3d Cir.), cert. denied, 414 U.S. 1111 (1973); see Dunn, 602 

F.2d at 1110 n.8. 

 In Elder v. Metro. Freight Carriers, Inc., 543 F.2d 513 

(3d Cir. 1976), this court was faced with an attorney's challenge 

to a federal court's limitation of his contingency fee under 

facts strikingly similar to those before us. Mrs. Elder, the 

widow of a New York resident killed in an accident in New Jersey, 

filed suit in New Jersey federal court seeking recovery under 

state tort law. Id. at 515. Both Mrs. Elder and her lawyer were 

residents of New York and they had signed a fee agreement there 

promising the attorney a one-third contingency fee. The lawyer 

was admitted pro hac vice to the New Jersey district court, where 

the suit proceeded. After some discovery, the parties agreed to 

a settlement. Id. The New York Surrogate Court approved 

distribution of the proceeds to the widow and children, and set 

the counsel fees pursuant to the one-third agreement, which would 

have led to a fee substantially in excess of the amount allowable 

under the New Jersey rule. A proposed order for payment of the 

one-third fee was then presented for approval to the district 

court. It declined to follow New York law and instead reduced 

the contingency fee under the formula set forth in New Jersey 

Court Rule 1:21-7, which was then, as now, incorporated into the 

district court's local rules. Id. at 515-16. 

 Counsel appealed to this court, and we affirmed the 

district court's decision. Id. at 517-19. We rejected an 
8 

argument, proffered by Dragon here as well, that we should apply 

the choice of law analysis of Klaxon Co. v. Stentor Elec. Mfg. 

Co., 313 U.S. 487 (1941). We reasoned as follows: "Rules 

regulating contingent fees pertain to conduct of members of the 

bar, not to substantive law which determines the existence or 

parameters of a cause of action. Such rules are designed to 

promote the efficient disposition of litigation and enhance the 

public's confidence in the bar." Id. at 519. After noting that 

federal courts have the power to prescribe requirements for 

admissions before them and to discipline attorneys who have been 

admitted to practice before them, we stated that "such rules are 

of deep concern to the court which promulgated them," and 

concluded "[w]hen local rules of a federal district court are 

questioned, it is doubtful that the choice of law doctrines of 

the forum state come into play." Id.2

 Under this reasoning, contingency fee agreements in 

diversity cases are to be treated as matters of procedure 

governed by federal law. We nonetheless proceed to analyze the 

district court's choice of law decision, a step we also took in 

Elder. We hold that, even assuming arguendo that the issue were 

a matter of state law under the Erie test, an application of New 

Jersey choice of law principles would mandate application of New 

 

2

We are not persuaded by Dragon's attempt to distinguish Elder on 

the ground that Elder involved a conflicting order from a New 

York Surrogate court. That fact was not relevant to, and 

certainly not dispositive of, this court's analysis of the 

conflict of law issue regarding the amount of the counsel fee. 
9 

Jersey law to the contingency fee agreement and thus lead to the 

same result. See Elder, 543 F.2d at 519. 

 New Jersey law considers that matters relating to 

attorney's fees fall within the sphere of the state's "paramount 

concern with its courts," id. at 519. The New Jersey view is 

clear and express: 

It is a virtually axiomatic principle of 

conflicts of law that the procedural law of 

the forum applies even to causes of action 

governed by a different jurisdiction's 

substantive law. . . . Court rules 

regulating attorney fees are not only clearly 

procedural but have also expressly been so 

declared. 

Du-Wel Prods., Inc. v. U.S. Fire Ins. Co., 565 A.2d 1113, 1120 

(N.J. Super. Ct. App. Div. 1989) (citations omitted), cert.

denied, 583 A.2d 316 (N.J. 1990); see also State v. Otis Elevator 

Co., 95 A.2d 715, 717 (N.J. 1953) ("From the outset in New 

Jersey, following English precedents, the allowance of costs and 

counsel fees had been uniformly considered by the courts of this 

state to be a matter of procedure rather than of substantive 

law."). 

 Accordingly, we hold that the district court did not 

err in applying New Jersey Court Rule 1:21-7 or its local federal 

court counterpart to the Mitzels' contingent fee agreement. 

B. 

Reasonableness of the Fee Awarded

 Dragon contends that even if the district court was 

bound to follow the New Jersey contingency fee rule, it failed to 

award "reasonable" compensation. Dragon recognizes that we 
10 

review the district court's order in this respect only for an 

abuse of discretion. 

 Under Rule 1:21-7(f), a court may increase a 

contingency fee above the maximum limits in the rule on 

application by the attorney and written notice to the client. The 

language of the rule makes the polestar "a reasonable fee in 

light of all the circumstances." The New Jersey caselaw 

instructs that the attorney seeking an increased fee must 

demonstrate that 

(1) the fee allowed under the rule is not 

reasonable compensation for the services 

actually rendered, and (2) the case presented 

problems which required exceptional skills 

beyond that normally encountered in such 

cases or the case was unusually time 

consuming. 

Wurtzel v. Werres, 493 A.2d 611, 614 (N.J. Super. Ct. App. Div.), 

cert. denied, 508 A.2d 223 (N.J. 1985); accord Anderson v. 

Conley, 501 A.2d 1057, 1066 (N.J. Super. Ct. Law Div. 1985). 

 In considering Dragon's application for a one-third 

contingency fee, the magistrate judge distinguished earlier New 

Jersey cases that granted fees above those established by Rule 

1:21-17(c) on the ground that those adjustments were made at a 

time when the Rule imposed a ten percent cap on judgments over 

$250,000. See, e.g., Bambi v. Dr. O, 482 A.2d 536, 538 (N.J. 

Super. Ct. Law Div. 1984); Burd v. Hackensack Hosp. Ass'n, 477 

A.2d 843, 844 (N.J. Super. Ct. Law Div. 1984); McNelis v. Cohen, 

455 A.2d 1166, 1168 (N.J. Super. Ct. Law Div. 1982). The 

magistrate judge deemed those cases of little precedent, 

particularly in light of the Rule's 1984 amendment increasing the 
11 

percentages applicable and requiring counsel to make application 

for fees for recoveries above $1 million, R.1:21-7(c)(4). 

 Based on Dragon's application, the magistrate judge 

recommended that Dragon be awarded twenty percent on the amount 

recovered over and above $1 million, explaining "[a]lthough the 

instant case did not present complex or novel legal issues, 

counsel vigorously prosecuted [it] on behalf of his clients, and 

dedicat[ed] a great deal of time to the matter, and secured a 

very good result." Magistrate's Report and Recommendation at 4. 

Thus the fee recommended by the magistrate judge was calculated 

as: 33_% of the first $250,000 recovered, equaling $83,250; 25% 

of the next $250,000, equaling $62,500; 20% of the next $500,000, 

equaling $100,000; and 20% of the remainder of $947,157.10, 

equaling $189,431.42, leading to a total of $435,181.42. 

 Dragon contends that this award was not sufficient to 

render the total fee "reasonable" and that the fee should have 

been increased to one-third of the entire net recovery. It 

argues that the fee awarded is not reasonable compensation 

because it amounts to just $85 per attorney hour, out of which 

the firm must still pay overhead and operating expenses. Dragon 

points to the magistrate judge's finding that counsel "vigorously 

prosecuted [the] case," and to letters from defense counsel in 

this case praising Dragon as "extremely competent," App. at 295, 

and as having done an "excellent job in putting together a 

difficult case." App. at 172. Dragon argues that the case was 

"unusually time consuming" as the firm devoted over 5100 attorney 

hours in extensive investigation and discovery. Additionally, it 
12 

points to the facts that the Mitzels agree to the increase and 

that Rule 1:21-7, which has not been changed since 1984, fails to 

account for inflation. Substantially the same arguments were 

considered and rejected by the magistrate judge and the district 

court. 

 Taking at face value Dragon's assertions regarding time 

and effort expended on this case, we are not persuaded that the 

case was so unusual or time-consuming that we should disturb the 

district court's ruling. The cases cited by Dragon in which onethird fees were allowed under Rule 1:21-7(f) involved 

considerably more extensive litigation than was involved here. 

See Luchejko v. Membreno, 475 A.2d 696, 697 (N.J. Super. Ct. Law 

Div. 1983) (medical malpractice action involving a "number of 

difficult legal issues," as well as extensive discovery, pretrial motions, a six-day trial, and post-trial motions); Buckelew 

v. Grossbard, 461 A.2d 590 (N.J. Super. Ct. Law Div.)(medical 

malpractice action which was fully tried, appealed to appellate 

division and then to Supreme Court, and remanded for new trial, 

establishing new rule of law), aff'd, 469 A.2d 518 (N.J. Super. 

Ct. App. Div. 1983). 

 Dragon has not cited, nor has this court found, any New 

Jersey case reversing a trial court's finding that an increase 

above Rule 1:21-7's fee schedule was unwarranted. Cf. Murphy v. 

Mooresville, 333 A.2d 273, 275 (N.J. Super. Ct. App. Div.) 

(reversing trial court's denial of fee increase where trial court 

had concluded that increase warranted but had denied it on basis 

of mistaken impression that rule precluded it), cert. denied, 343 
13 

A.2d 444 (N.J. 1975). On the other hand, in Bolle v. Community 

Memorial Hosp., 368 A.2d 935, 937-38 (N.J. Super. Ct. App. Div. 

1976), cert. denied, 377 A.2d 679 (N.J. 1977), the Appellate 

Division reversed a trial court's allowance of a fee above the 

schedule limits for the prosecution of a medical malpractice 

action despite the fact that it admittedly required "time, 

efforts and expertise" and involved not only discovery but a 

five-day trial and an appeal. See also Wurtzel, 493 A.2d at 613-

16 (reversing trial court's allowance of increased fee for 

prosecution of medical malpractice action involving extensive 

discovery and trial preparation, including consultation and 

preparation of multiple expert witnesses). 

 Dragon cites the opinion in Iskander v. Columbia Cement 

Co., 484 A.2d 353 (N.J. Super. Ct. App. Div. 1984), as precedent 

for the argument that the magistrate judge and the district judge 

should have considered the New Jersey rule's failure to keep pace 

with inflation and the reduced value of the dollar. While 

Iskander cited inflation as one of several factors supporting a 

fee increase, the court explicitly cautioned against extending 

that holding beyond circumstances in which "an especially long 

period of time has elapsed between retainer and outcome, such as 

the eight years involved here." Id. at 355. Here, in contrast, 

the time between retainer by counsel and settlement was four 

years. As the court stated in Iskander, the rule's failure to 

keep pace with inflation "can be solved only by the [New Jersey] 

Supreme Court in its rule-making capacity." Id. 
14 

 Thus, in the absence of other factors indicating that 

an increased fee is warranted, we cannot hold that the district 

court exceeded the considerable bounds of its discretion. 

C. 

 Throughout its brief, Dragon has called to our 

attention the Mitzels' agreement to Dragon's receipt of the 

larger fee. Indeed, the Mitzels filed the notice of appeal along 

with Dragon, challenging the district court's fee award, even 

though a reversal would mean that the Mitzels' recovery would be 

substantially reduced. As the magistrate judge noted, if Dragon 

were awarded the fee it requested, it would receive $648,403.28, 

instead of the $435,181.47 awarded by the district court. 

 In this posture of the case, we are acutely 

uncomfortable with the lack of an opposing party on the appeal. 

Undoubtedly, the defendants have no interest in how the 

settlement fund is divided between plaintiffs and their 

attorneys. The only ones who stand to lose if Dragon gets the 

increased fee it is seeking are the Mitzels themselves, and the 

difference to them is $213,221.81, a considerable sum in any 

financial circumstances. Any time the attorney's fee and the 

client's recovery come from a fixed fund of money, a "significant 

conflict of interest" arises between attorney and client. See

Report of the Third Circuit Task Force, Court Awarded Attorney's 

Fees at 36 (Oct. 8, 1985), reprinted in 108 F.R.D. 237 (1985); 

see also In re General Motors Corp. Pick-Up Truck Fuel Tank 

Prods. Liab. Litig., 55 F.3d 768, 820 (3d Cir.) (discussing 

similar conflict in class action context), cert. denied, 116 S. 
15 

Ct. 88 (1995). But in this case, by actually petitioning the 

court for an increase in its fee, Dragon has brought that 

conflict into stark relief. 

 The premise behind Rule 1:21-7 is that attorneys and 

their clients do not have equal bargaining power, and that 

clients consequently need protection from the courts with respect 

to contingent fee agreements. See Kingman v. Finnerty, 486 A.2d 

342, 344 (N.J. Super. Ct. App. Div. 1985); American Trial Lawyers 

Ass'n v. New Jersey Supreme Court, 316 A.2d 19, 24-25 (N.J. 

Super. Ct. App. Div. 1974), aff'd 330 A.2d 350 (N.J. Sup. Ct. 

1974). Numerous provisions of the Rule are included to protect 

clients' interests. Illustrative are those requiring the 

attorney to advise the client of the option to retain the 

attorney under an arrangement for compensation on the basis of 

the reasonable value of the services, 1:21-7(b), and mandating 

that any application for an increase be made on "written notice 

to the client," 1:21-7(f). 

 We have no reason to assume that there has been any 

overreaching by Dragon or that the Mitzels have not been fully 

advised of their rights. We assume that the Mitzels joined in 

bringing this appeal out of a sense of gratitude to Dragon and a 

commitment to their earlier contractual fee arrangement. 

Nonetheless, it is because there is an inherent conflict of 

interest in this situation, but see New Jersey Rules of 

Professional Conduct (RPC) 1.8(j)(2) (contingency fee contracts 

excepted from general prohibition on conflicts of interest 
16 

between lawyer and client), that we have treated this appeal as 

if filed by Dragon alone.3

III. 

 For the reasons set forth above, we will affirm the 

order of the district court. 

 

 

3

We have no desire to enter into the debate about contingency 

fees currently underway in legal circles and particularly in New 

Jersey, where regulation of contingency fees is apparently the 

strictest in the country. It has been reported that a New Jersey 

state senate committee has discussed proposals for abolition of 

contingency fees, whereas the 1994 report of the New Jersey 

Supreme Court Committee on Civil Practice, since tabled, 

recommended amending Rule 1:21-7 to increase the contingency fees 

allowed. See generally Robert J. Kerekes, The Crisis of 

Congested Courts, 18 Seton Hall Legis. J. 489, 498 n.39 (1994); 

Martin L. Haines, Contingent Fee System in Need of Shakeup, N.J. 

L.J., Oct. 17, 1994, at 18; Martin L. Haines, Time to Rethink 

Contingent Fee Caps, N.J. L.J., Sept. 19, 1994, at 17; Tess 

Brennan, Proposed Contingency-Fee Revision Tabled, N.J. L.J., 

Apr. 11, 1994, at 8. 
17