Sharrow v. State Farm Mutual Automobile Insurance

WILNER, Judge. Appellant Ronald M. Sharrow is an attorney. Appellees are, respectively, an automobile insurance company (State Farm) and two of its employees (Burns and Rinehardt). In a three-count complaint filed in the Circuit Court for Baltimore City, appellant claimed that, in negotiating and settling a claim directly with his client, appellees tortiously interfered with his attorney/client contingent fee contract.

The case reaches us from the sustaining of appellees’ demurrer (which, by virtue of new Md.Rules 2-302 and 2-322, the court treated as a motion to dismiss) and the judgment entered thereon. The issue, then, is whether, assuming the truth of all well-pleaded allegations of fact, appellant’s complaint “state[s] a claim upon which relief can be granted.” Md.Rules 2-322(b)(2). ⁴¹⁴ By way of introduction in Count I, appellant avers that on December 29, 1983, he was retained by one Donald P. Zorbach to pursue a claim for injuries sustained by Zorbach in an automobile accident; that Zorbach agreed to pay him a contingent fee of either one-third or 40% of all amounts recovered, depending on whether suit had to be filed; that he notified State Farm, the insurer of the vehicle in which Zorbach had been riding, of his employment and made claim on Zorbach’s behalf; and that State Farm acknowledged the claim and corresponded with appellant’s office in connection with it. We pick up, then, from Count I, against State Farm: “11. On or about February 20, 1984, Zorbach advised Sharrow he was in desperate financial condition and requested that Sharrow lend him money.

Sharrow declined and advised Zorbach that it is unethical for an attorney to make a loan to a client. Zorbach was further advised that it was not the practice of an insurance carrier to advance money against a settlement and it would be unwise to approach State Farm with such a request. 12. Due to his dire financial condition, Zorbach, on or about February 21, 1984, contacted State Farm and requested an advance. Zorbach acted without Sharrow’s knowledged [sic] or acquiescence and contrary to Sharrow’s advice.

State Farm ... denied Zorbach’s request and instead negotiated a settlement of Zorbach’s claim for $2,500.00. Zorbach was directed to go to the Harford Road office to execute certain documents to finalize the settlement. 12. [sic] Zorbach went to State Farm’s offices as directed and executed a release. Zorbach was also required by State Farm ... to execute a document discharging Sharrow as his attorney and stating that he had advised Sharrow of his intention to settle directly with State Farm. This written statement was false and was known by State Farm to be false.

(See Exhibit 7 attached hereto.) [1] ⁴¹⁵ 13. State Farm ... was aware of the existence of a contractual agreement between Sharrow and Zorbach and had full knowledge that the contractual agreement was in existence at the time of the settlement negotiations with Zorbach. 14. State Farm ... intentionally, willfully and maliciously interferred [sic] with Sharrow’s contractual rights by negotiating with Zorbach while he was still represented by Sharrow, by causing Zorbach to terminate Sharrow’s representation without Sharrow’s knowledge, and by requiring that Zorbach falsely state, in writing, that he had advised Sharrow of his intention to deal directly with State Farm. 15. State Farm’s actions in interferring [sic] with Sharrow’s contract rights were perpetrated solely to injure Sharrow and wrongfully deprive it of the benefit of its contract with Zorbach.” (Emphasis added.) ⁴¹⁶ Count II was against Burns.

After incorporating into it the allegations contained in Count I, appellant averred that Burns was the claims adjuster assigned to the Zorbach claim, that she knew of his employment by Zorbach, and that, in addition to interfering with appellant’s contract as alleged in paragraph 14, ante, “Burns further interfered with Sharrow’s contract rights by stating to Zorbach that since it was Zorbach, not Sharrow, that settled the claim, Sharrow should not receive a fee for legal services.” (Emphasis added.) Count III was against Rinehardt, who was “the Supervisor of Burns with full knowledge of, and control over, her actions.” Appellant incorporated by reference all allegations made in Counts I and II, adding, in relevant part, that: “22. Subsequent to learning of the settlement with Zorbach, Sharrow contacted Rinehardt by telephone to discuss Burns’ conduct and to demand that a fee be paid to Sharrow. Rinehardt refused to discuss the matter and abruptly terminated that conversation. 23. Rinehardt was aware of the acts perpetrated by Burns and participated with Burns in maliciously interfering with Sharrow’s contract rights. 24.

Rinehardt failed to take appropriate action to correct the conduct of Burns despite being specifically informed of her conduct by Sharrow and further refused to honor Sharrow’s demand that a fee be paid in accordance with the contractual agreement with Zorbach. 25. Rinehardt intentionally, willfully and maliciously interfered with Sharrow’s contract rights by participating in, and refusing to correct, the acts of Burns and by refusing to honor Sharrow’s claim to a fee.” (Emphasis added.) Whether these averments, assuming them to be true, suffice to state an action for intentional interference with contract is a question of first impression in Maryland. Nearly a century ago, in Ensor v. Bolgiano, 67 Md. 190 , 9 A. 529 (1887), the Court had a similar issue before it. ⁴¹⁷ Thomas Allen, injured on a turnpike, engaged Ensor as an attorney to sue the turnpike company; Ensor was to receive half the recovery as his fee. In August, 1883, Ensor filed suit for $10,000.

In January, 1884, Allen, on his own, settled the case for $500 and gave the company a release. Ensor thereupon sued Bolgiano, a stockholder of the turnpike company who had negotiated the settlement with Allen, seeking, among other relief, damages for maliciously inducing Allen to break his contract with Ensor. Unlike the instant case, Bolgiano did not test the sufficiency of Ensor’s averments by preliminary motion, but permitted the case to go to trial. The evidence showed that, when Bolgiano called Allen and negotiated the settlement, Allen was unaware that the suit had been filed as he had heard nothing from Ensor, and Bolgiano knew nothing of the contract that Allen had with Ensor.

Without contradiction, Bolgiano said that he acted solely at Allen’s request and that Allen denied there were “any third parties to consult.” On this evidence, the trial court directed a verdict for the defendant, which the Court of Appeals affirmed. Having concluded that the evidence was insufficient to warrant any verdict for Ensor, the Court declined to address the underlying legal question of whether an action for tortious interference with contractual relations, as recognized by the Court of Queen’s Bench in Lumley v. Gye, 2 E. & B. 216 (1853), “is applicable to the relation of attorney and client in this State, and to the contracts made between them in reference to compensation for professional services rendered____” 67 Md. at 201 , 9 A. 529 . 2 ⁴¹⁸ That question, theoretically, is still an open one. The Court of Appeals has recognized the general proposition “that a third party who, without legal justification, intentionally interferes with the rights of a party to a contract, or induces a breach thereof, is liable in tort to the injured contracting party.” Wilmington Trust Co. v. Clark, 289 Md. 313, 329 , 424 A.2d 744 (1981), and cases cited therein. The Court has not had occasion since Ensor , however, to consider whether that tort applies to professional service agreements between attorney and client and, if so, what type of conduct will suffice to create liability.

Although a different rule has apparently been adopted in Massachusetts (see Walsh v. O’Neill, 350 Mass. 586 , 215 N.E.2d 915 (1966)), we see no reason why attorney-client agreements should be regarded as pariahs in the eyes of the law — why they, like most all other contracts, should not be protected against tortious interference by third parties. Whether viewed from the perspective of the lawyer or the client, it is not against public policy to preclude outsiders from improperly inducing either one to repudiate a valid contract he has made with the other; indeed, it would be contrary to public policy not to preclude such interference. From the point of view of the client, the harm that may result from the improper disruption of his retainer agreement, especially at the hands of one whose interest is adverse to his own, is all too obvious. The lawyer too has a legitimate interest in his employment contracts, notwithstanding their revocability at the will of the client.

As the text writers point out, the tort in question is one of several aimed at discouraging improper interference with economic relations and relationships {see, for example, Prosser and Keeton, Law of Torts, 5th ed. (1984), ch. 24; Harper and James, The Law of Torts, ch. VI; Restatement of Torts 2d, ch. 37), and we see no reason, in that regard, why lawyers ⁴¹⁹ should be treated differently than any other group of professionals, or, for that matter, anyone in the world of commerce. This, indeed, is the position taken by most of the courts. The problem, in our judgment, is not with encompassing attorney-client employment agreements within the aegis of the tort, but in determining whether the particular conduct of a third party is actionable.

As to that, the argument made by Bolgiano long ago has some force, for there is no doubt but that a client has the right "at any time before judgment, if, acting in good faith, to compromise, settle or dismiss his cause of action without his attorney’s intervention, knowledge or consent. The attorney in such case, under mere contract of employment, acquires no vested interest in the suit, and his authority is revocable at the will of the client.” Boyd v. Johnson, 145 Md. 385, 389 , 125 A. 697 (1924); Palmer v. Brown, 184 Md. 309 , 40 A.2d 514 (1945); Maddox v. District Supply, Inc., 222 Md. 31, 37 , 158 A.2d 650 , cert. denied 364 U.S. 872 , 81 S.Ct. 114 , 5 L.Ed.2d 93 (1960). A good synthesis of the respective rights of the client to terminate the employment at will and of the attorney to have his contract free from malicious interference by third parties was stated by a nisi prius court in New York. In Gordon v. Mankoff, 146 Misc. 258 , 261 N.Y.S. 888, 889-90 (Cty.Ct.N.Y.1931), the Court observed: “It is unquestioned that a client has the right to terminate the relationship of attorney and client at any time, with or without cause.

That right is afforded him by the law because of the peculiar nature and character of the relationship, which in its very essence is one of trust and confidence. It is a right for the benefit of the client, and is intended to save him from representation by an attorney whose services he no longer desires, an obviously sound and salutary doctrine. But, while that relationship continues, it is a contract which must be respected like any other contract, and, because the law gives the client ⁴²⁰ the right to terminate the relationship at will, is no justification for maliciously inclined third persons to disrupt it while it exists.” A number of courts around the country have considered the question at issue here. As they most always do, the cases turn essentially on their facts.

As a general rule, however, it seems clear that the mere negotiation and settlement of a claim by an insurance company directly with the claimant, even when the company is aware of the attorney’s employment, is not enough to create liability for malicious interference with the attorney’s contingent fee contract. In most of the cases finding such liability, there has been the presence of some more egregious conduct on the part of the defendant, usually in the nature of fraudulent statements made to the claimant, which induces him to dismiss the attorney and settle with the company. In Lurie v. New Amsterdam Casualty Co., 270 N.Y. 379 , 1 N.E.2d 472 (1936), for example, the insurance company threatened the claimant that “unless he repudiated his retainer with plaintiff, he would receive no compensation for his injuries.” Id., 1 N.E.2d at 473 . After the claimant dismissed his attorney, the company paid him $25,000 and took a general release.

In State Farm Mutual Ins. Co. v. St. Joseph’s Hospital, 107 Ariz. 498 , 489 P.2d 837 (1971), the attorney had rejected an insurance company offer of $1400 and had yet to respond to a second offer of $1750; the company pursued the claimant and got her to agree to a settlement of $1325, knowing not only of her agreement with the lawyer but of her separate agreement to pay $392 from any recovery to her doctor; notwithstanding that “she was unaware of their significance because she was very ill at that time and in fact had to