Stillwagon v Innsbrook Golf & Marina, LLC, et al
ORDER granting 104 Motion for Partial Summary Judgment on count one. The Severance Agreement is unenforceable. Counsel is reminded to read the order in its entirety. Signed by Chief Judge James C. Dever III on 8/29/2014. (Edwards, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILLIAM C. STILLWAGON,
INNSBROOK GOLF & MARINA, LLC,
On May 4, 2012, William C. Stillwagon ("Stillwagon" or "plaintiff'') filed a second amended
complaint against lnnsbrook Golf & Marina, LLC, also known as Innsbrook Golf & Boat, LLC
("Innsbrook"), Rial Corporation ("Rial"), Richard Rieder, and Alois Rieder (collectively
"defendants"), alleging breach of a written contract (count one) or, alternatively, breach of an oral
contract (count two) [D.E. 47]. On October 4, 2013, defendants moved for partial summary
judgment on count one [D.E. 104] and filed a memorandum in support. See [D.E. 105]. On
November 22, 2013, Stillwagon responded in opposition [D.E. 113]. On December 6, 2013,
defendants replied [D.E. 114]. As explained below, the court grants defendants' motion for partial
summary judgment on count one.
Stillwagon, a resident of Pennsylvania and a licensed Pennsylvania attorney, is Richard
Rieder's cousin. See Stillwagon DecI. [D.E. 113-1] ~~ 2-3. Defendants Richard Rieder and his son,
Alois Rieder, are residents of Austria and the principal owners of two foreign companies,
Watersprings Development ("Watersprings") of Switzerland and Nufin Anstalt ("Nufin") of
Liechtenstein. See Alois Reider Decl. [D.E. 105-16] ~ 2; Richard Reider Decl. [D.E. 105-16] ~ 2;
2d Am. Compl. [D.E. 4 7] ~ 9. These companies are shareholder owners of defendant Rial, a North
Carolina corporation. See 2d Am. Compl. ~~ 3, 10. Rial is the sole shareholder of defendant
Innsbrook, a North Carolina limited liability company. See id. ~~ 2, 10.
A simple handshake in 1980 marked the beginning of Stillwagon's decades-long business
relationship with the Reiders and their companies. See id.
11; Stillwagon Decl.
relationship itself was rather complicated-so complicated, in fact, that the parties dispute why it
began and what exactly it entailed. Stillwagon claims that Richard Reider retained him "to generally
manage and assist him with his business affairs in the United States." Stillwagon Decl. ~ 1. To that
end, Stillwagon served as president ofRial, managed the finances of various Reider enterprises, and
managed and supervised the development of multiple North Carolina properties, including a
residential community and accompanying golf course in Bertie County, North Carolina ("Innsbrook
Project"). See id.
4--12, 16--17. Defendants claim that Richard Reider retained Stillwagon to
serve as an attorney, not a businessman, and that although Stillwagon "also served in various
positions as an officer and board member for Rial and Innsbrook, as well as other companies used
to manage investments in the United States, he ... served continuously as legal counsel [for the
defendants]." Alois Reider Decl. ~ 6; see id. ~~ 4--5; Richard Reider Decl. ~~ 4--5, 7-8; Scheffauer
Decl. [D.E. 105-16] ~~ 4--8; Niederkofler Decl. [D.E. 105-14] ~~5-9.
On August 27, 2009, Stillwagon sent a letter to Wilfried Niederkofler (''Niederkofler"), the
Reiders' representative in the United States concerning all Rial and Innsbrook matters, informing
the Reiders that he wished to leave Rial and Innsbrook. Niederkofler DecI. ~~ 4, 10; see [D.E. 16-8].
Stillwagon claimed that, under an alleged oral agreement with the defendants, formed upon
commencing the Innsbrook Project, he was entitled to receive 2.5% of the project's profits, or
$3,250,000. See [D.E. 16-8] 2. Stillwagon indicated, however, that he "would be willing to consider
an alternative, compromise amount" of $1.6 million, coupled with "a release and indemnification
[from] all claims both foreign and domestic." Id.
To facilitate Stillwagon's departure, the Reiders asked Stillwagon to draft the necessary legal
documents, which would settle the issue of remuneration owed to Stillwagon for his work on the
Innsbrook Project and end the parties' business relationship. See Stillwagon Decl. ~ 39; Mem. Supp.
Mot. Summ. J. [D.E. 105] 1. Stillwagon drafted and signed a Severance and Release Agreement
("Severance Agreement"), dated November 9, 2009, in his office in Pennsylvania. See Stillwagon
Decl. ~ 39; Mem. Supp. Mot. Summ. J. 7-8; Severance Agreement [D.E. 11-1]. Alois Rieder signed
it in Austria as the "authorized representative" of Richard Reider, Rial, Innsbrook, Watersprings,
Nufin, and two other Reider companies, Seg Anstalt ("Seg") and All Seasons Development, Inc.
("All Seasons"), that have since been dissolved. See Severance Agreement 1, 4. The Severance
Agreement terminated Stillwagon's employment as manager oflnnsbrook and president of Rial,
Seg, and All Seasons, but Stillwagon continued to serve as vice president of Rial until May or June
2010. See id. 1; 2d Am. Compl.
The Severance Agreement called for Stillwagon to receive four annual payments of$300,000
each, totaling $1.2 million, beginning on April1, 2010. See Severance Agreement 1. Defendants
paid Stillwagon the first installment as agreed, but refused to pay the remaining three after allegedly
uncovering ''widespread fraud on the Innsbrook Project." Mem. Supp. Mot. Summ. J. 2.
On September 27, 2011, Stillwagon filed suit in the Court of Common Pleas of
Westmoreland County, Pennsylvania, asserting breach of contract under the Severance Agreement.
See [D.E. 1-2]. On October 20, 2011, defendants removed the case to the United States District
Court for the Western District of Pennsylvania [D .E. 1]. On November 14, 2011, Stillwagon filed
an amended complaint [D.E. 11]. After lnnsbrook and Rial answered and asserted affirmative
defenses seeking to void the Severance Agreement [D.E. 38], Stillwagon filed a second amended
complaint on May 4, 2012, adding another cause of action for breach ofthe oral contract he allegedly
entered into with defendants upon commencing the Innsbrook Project. See 2d Am. Compl.
56--61. On June 1, 2012, defendants answered Stillwagon's amended complaint and asserted
numerous defenses and counterclaims [D.E. 51].
On June 21, 2012, Stillwagon moved to dismiss defendants' counterclaims pursuant to
Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7) [D.E. 54]. On July 27, 2012, the Reiders
moved to dismiss for lack ofjurisdiction or, alternatively, to transfer venue to this district [D.E. 59].
On August 15, 2012, Innsbrook and Rial moved to join the Reiders' motion [D.E. 63]. On March
20, 2013, the Western District of Pennsylvania granted in part and denied in part Stillwagon's
motion to dismiss, granted Innsbrook and Rial's motion for joinder, granted the Reiders' motion to
transfer venue, and transferred the case to this district [D.E. 70-74]. On June 20,2013, defendants
filed their answer and counterclaims concerning Stillwagon's second amended complaint [D.E. 96].
On October 4, 2013, defendants moved for partial summary judgment on Stillwagon's breach
of written contract claim [D.E. 104].
Defendants contend that the Severance Agreement is
unenforceable because Stillwagon negotiated and drafted the agreement as defendants' attorney,
failed to advise defendants of the material conflict of interest associated with his dual role as
defendants' attorney and party to the agreement, as the Pennsylvania Rules of Professional Conduct
required him to do, and essentially "bargain[ed] against his own clients" to craft an unconscionable
contract. Reply [D.E. 114] 7; see Mem. Supp. Mot. Summ. J. 9-17; Answer [D.E. 96]
Moreover, defendants contend that Stillwagon failed to advise them to seek independent review of
the Severance Agreement, as the Pennsylvania Rules of Professional Conduct also required him to
do, and that no other attorney reviewed the Severance Agreement before Alois Reider signed it. See
Mem. Supp. Mot. Summ. J. 8; Suppl. Niederkofler Decl. [D .E. 114-1] mf 2-12. Stillwagon responds
that he had no duty to advise defendants of any alleged conflict of interest because he and defendants
shared a business relationship, not an attorney-client relationship. See Mem. Opp'n Mot. Summ.
J. [D.E. 113] 6--11. Stillwagon also argues that the Pennsylvania Ru1es of Professional Conduct
have no bearing on the Severance Agreement's enforceability. See id. 14-17. Finally, Stillwagon
contends that he believed that the Reiders' attorneys and representatives in Europe reviewed the
Severance Agreement, and that Alois Reider signed it "over the objection" of independent counsel.
ld. 10; see Stillwagon Decl. ,, 39-40.
Summary judgment is proper if''the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a);
Celotex Corp. v. Catrett, 477 U.S. 317,322 (1986); Anderson v. Liberty Lobby. Inc., 477 U.S. 242,
24 7-48 ( 1986). In evaluating a motion for summary judgment, the court views the evidence and the
inferences drawn from that evidence in the light most favorable to the nonmoving party. See Tolan
v. Cotton, 134 S. Ct. 1861, 1863 (2014) (per curiam); Scott v. Harris, 550 U.S. 372, 378 (2007).
The party seeking summary judgment bears the initial burden of demonstrating the absence
of a genuine issue of material fact. See Celotex, 4 77 U.S. at 325. Once the moving party has met
its burden, the nonmoving party "must come forward with specific facts showing that there is a
genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986) (emphasis and quotation omitted). The nonmoving party must do more than present a
"scintilla of evidence" in its favor. Anderson, 477 U.S. at 252. Rather, the nonmoving party must
present "sufficient evidence" such that reasonable jurors cou1d fmd for it. Id. at 249. Accordingly,
a court may grant summary judgment if the nonmoving party's evidence is "merely colorable" or
"not significantly probative." Id. at 249-50; see Evans v. Techs. Awlications & Serv. Co., 80 F.3d
954, 962 (4th Cir. 1996).
In diversity cases, the court ordinarily applies the substantive law and choice-of-law rules of
the state in which it sits. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487,496-97 (1941);
Kenneyv. Indep. OrderofForesters, 744F.3d901, 905 (4thCir. 2014);Martinezv. Nat'l Union Fire
Ins. Co., 911 F. Supp. 2d 331,335 (E.D.N.C. 2012). When a diversity action is transferred pursuant
to 28 U.S.C. § 1404(a), however, the transferee court must apply the substantive law and choice-oflaw rules of the state in which the action was filed (here, Pennsylvania). See Volvo Constr. Equip.
N. Am .. Inc. v. CLM Equip. Co., 386 F.3d 581, 559-600 (4th Cir. 2004); Myelle v. Am. Cyanamid
Co., 57 F.3d 411, 413-14 (4th Cir. 1995).
The parties dispute whether Pennsylvania's choice-of-law rules call for the application of
North Carolina law or Pennsylvania law. Stillwagon favors North Carolina law, and argues that
under the Severance Agreement's choice-of-law provision, North Carolina law governs disputes
regarding the Severance Agreement's enforceability. Severance Agreement 3; see Stillwagon v.
InnsbrookGolf&Marina. LLC, Civil Action No. 2:11-cv-1338, 2013 WL 1180312, at *6 (W.D. Pa.
Mar. 20, 2013) (unpublished); Coram Healthcare Corp. v. Aetna U.S. Healthcare. Inc., 94 F. Supp.
2d 589, 593 (E.D. Pa. 1999) (noting that Pennsylvania courts "generally honor the intent of the
contracting parties and enforce the choice of law provisions in contracts executed by them"
Notwithstanding the Severance Agreement's choice-of-law provision,
defendants argue that Pennsylvania law governs this particular dispute regarding the Severance
Agreement's enforceability, which touches on whether a licensed Pennsylvania attorney complied
with his obligations of professional responsibility. See Stillwagon, 2013 WL 1180312, at *8
(concluding that Pennsylvania law governed defendants' breach of fiduciary duty counterclaim
because "Pennsylvania has a strong interest in regulating the conduct of its attorneys and would
subject [Stillwagon] to disciplinary action in [Pennsylvania]"); see also CenTra. Inc. v. Estrin, 538
F.3d 402, 409 (6th Cir. 2008) (noting as relevant to the choice-of-law analysis the fact that the case
concerns matters of professional responsibility).
The court need not decide whether North Carolina law or Pennsylvania law governs the
Severance Agreement's enforceability because the choice oflaw will not affect the outcome of the
at *5 (4th Cir. July 17, 2014) (per curiam) (unpublished); CenTra. Inc., 538 F.3d at 409; Volvo
Constr. Equip. N. Am.. Inc., 386 F.3d at 600--01. North Carolina and Pennsylvania's Rules of
Professional Conduct are identical concerning conflict-of-interest issues. Compare N.C. Rules of
Profl Conduct R. 1.7, 1.8, with Pa. Rules ofProfl Conduct R. 1.7, 1.8. Moreover, both North
Carolina and Pennsylvania courts closely scrutinize transactions between attorneys and their clients,
and require the attorney to show that the transaction was fair.
183 N.C. 333, 335, 111 S.E. 627, 629 (1922),
Mebane v. Broadnax,
Meara v. Hewitt, 455 Pa. 132, 135, 314
A.2d 263, 265 (1974). Thus, in resolving defendants' motion for partial summary judgment, the
court cites the Pennsylvania Rules of Professional Conduct, which govern Stillwagon's conduct as
a licensed Pennsylvania attorney, but looks to relevant North Carolina and Pennsylvania decisions.
Initially, the court first addresses whether an attorney-client relationship existed between
Stillwagon and defendants. In North Carolina, "the relation of attorney and client may be implied
from the conduct of the parties, and is not dependent on the payment of a fee, nor upon the execution
of a formal contract." N.C. State Bar v. Sheffield, 73 N.C. App. 349, 358, 326 S.E.2d 320, 325
(1985). "The dispositive question ... is ... whether [the attorney's] conduct was such that an
attorney-client relationship could reasonably be inferred." Id., 326 S.E.2d at 325. Pennsylvania law
is materially indistinguishable.
See,~. Atkinson v. Haug, 424 Pa.
Super. 406,411-412,622 A.2d
983, 986 (1993) ("Absent an express contract, an implied attorney/client relationship will be found
if 1) the purported client sought advice or assistance from the attorney; 2) the advice sought was
within the attorney's professional competence; 3) the attorney expressly or impliedly agreed to
render such assistance; and 4) it is reasonable for the putative client to believe the attorney was
Defendants have marshaled overwhelming evidence of an attorney-client relationship. See
Tummerello Decl. & Exs. 1-125 [D.E. 105-3 to D.E. 105-12]. Stillwagon provided legal advice to
defendants, executed real estate deals as counsel for defendants, billed defendants for legal services,
corresponded with defendants on his law firm's letterhead, and represented himself to others,
including the federal government, as defendants' attorney.
Tummerello Decl. Ex. 1 (letter
from "William C. Stillwagon, Attorney at Law" to Richard Reider, dated February 22, 1980); id. Ex.
25 (invoice for legal services from Stillwagon to Rial, dated January 11, 2001); id. Ex. 32 (letter
from another attorney to "William C. Stillwagon, Esquire, William C. Stillwagon, PIC," dated June
11, 2001, stating, "I understand that you are a principal [of Rial] and [Rial's] legal counsel"); id. Ex.
55 (letter from "William C. Stillwagon PIC, Attorneys at Law" to Swissreal Investments Ltd., dated
May 1, 2002, stating, "I represent Richard Rieder on his United States investments"); id. Ex. 96
(Agricultural Foreign Investment Disclosure Act Report for Seg, dated July 13, 2005, in which
Stillwagon identifies himself as the "Attorney" for Seg); id. Ex. 112 (United States income tax return
of a foreign corporation, dated November 14, 2006, in which Stillwagon identifies himself as
"Attorney at Law" for Seg); id. Ex. 120 (North Carolina general warranty deed, dated August 12,
2009, prepared by "William C. Stillwagon, Attorney" for Rial). Given Stillwagon's conduct, the
Reiders reasonably believed that Stillwagon served as legal counsel to them and their companies.
Swimming against this evidentiary tsunami, Stillwagon seeks a lifeline in State v. Pledger,
257 N.C. 634, 127 S.E.2d 337 (1962). In Pledger, the North Carolina Supreme Court held that a
non-lawyer who prepares legal documents for his corporate employer does not engage in the
unauthorized practice of law where the documents further a business transaction in which the
corporation has a "primary interest." Id. at 637-38, 127 S.E.2d at 339-40. Citing Pledger,
Stillwagon claims that he "relied on his legal background and expertise to perform his duties" at
Rial, Innsbrook, and other Reider companies, but never served as defendants' attorney. Mem. Opp 'n
Mot. Summ. J. 9.
Pledger does not rescue Stillwagon. The issue is not whether Stillwagon engaged in the
unauthorized practice of law. Rather, the issue is whether Stillwagon and defendants shared an
attorney-client relationship. The existence of an attorney-client relationship turns on what the
client reasonably believed based on the attorney's conduct, not on how the attorney characterizes
his conduct. Moreover, and in any event, the record belies Stillwagon's claim that he used his legal
training only to perform his duties as an officer of various Reider companies. Indeed, after executing
the Severance Agreement, Stillwagon continued to bill for legal services. See Tummerello Decl.
Exs. 122-23 (invoices for legal services from "William C. Stillwagon, PIC, Attorneys at Law" to
Rial, dated July 19 and August 12, 2010). Thus, no genuine issue of material fact exists concerning
whether Stillwagon and defendants shared an attorney-client relationship. They did.
Next, the court must determine whether the Severance Agreement requiring Stillwagon's
clients to pay him $1.2 million and release him from almost all liability is enforceable, even though
Stillwagon drafted the Severance Agreement on his clients' behalf. Cf. [D.E. 96] ~~ 90-96. North
Carolina courts "look on transactions ... between an attorney and his client with suspicion, and
will not permit [such a transaction] to stand unless the attorney demonstrates the entire good faith
of the transaction." Mebane, 183 N.C. at 335, 111 S.E. at 629 (quotation omitted); see Tatom v.
White, 95 N.C. 453,461 (1886); cf. Randolph v. Schuyler, 284 N.C. 496,501,201 S.E.2d 833,836
( 1974). The attorney must prove that he was "absolutely frank and open with his client, disclose[ d]
every fact of which he ha[d] knowledge, and as well any professional opinion he may have formed,
which could in any way affect the client in determining whether or not to [enter into the
transaction]." Mebane, 183 N.C. at 335, 111 S.E. at 629. Pennsylvania courts view transactions
between attorneys and their clients with the same suspicion, and will not enforce such a transaction
unless the attorney proves that "he fully disclosed the facts of the transaction to his client, and that
the transaction wasfairandcons[c]ionable."
Pa. at 135-36, 314A.2dat265; seeKribbs
v. Jackson, 387 Pa. 611,621-22, 129 A.2d 490,495-96 (1957); Lynch v. Hook, 298 Pa. Super. 27,
29-32, 444 A.2d 157, 159-60 (1982). In short, whether it be ''the most absolute good faith" in
North Carolina, Mebane, 183 N.C. at 335, 111 S.E. at 629, or ''the most perfect good faith" in
Pennsylvania, Kribbs, 387 Pa. at 621, 129 A.2d at 495, a high standard of care applies to an
attorney's conduct when transacting with clients. Unless the attorney proves that his conduct
conformed to that high standard, the transaction is unenforceable.
Mebane, 183 N.C. at
335, 111 S.E. at 629; Kribbs, 387 Pa. at 621-22, 129 A.2d at 495-96.
In determining whether Stillwagon acted with ''the most absolute good faith" or ''the most
perfect good faith" in negotiating, drafting, and entering the Severance Agreement, the court begins
with the relevant Pennsylvania Rules of Professional Conduct. Rule 1.8(a) states:
A lawyer shall not enter into a business transaction with a client ... unless:
(1) the transaction and terms on which the lawyer acquires the interest are
fair and reasonable to the client and are fully disclosed and transmitted in writing in
a manner that can be reasonably understood by the client;
(2) the client is advised in writing of the desirability of seeking and is given
a reasonable opportunity to seek the advice of independent legal counsel on the
(3) the client gives informed consent in a writing signed by the client, to the
essential terms of the transaction and the lawyer's role in the transaction, including
whether the lawyer is representing the client in the transaction.
Pa. Ru1es ofProfl Conduct R. 1.8(a). Additionally, the commentary to Ru1e 1.8 provides:
The risk to a client is greatest when the client expects the lawyer to represent the
client in the transaction itself or when the lawyer's financial interest otherwise poses
a significant risk that the lawyer's representation of the client will be materially
limited by the lawyer's fmancial interest in the transaction. Here the lawyer's role
requires that the lawyer must comply, not only with the requirements of [Ru1e 1.8(a)],
but also with the requirements of Ru1e 1.7. Under [Ru1e 1.7], the lawyer must
disclose the risks associated with the lawyer's dual role as both legal adviser and
participant in the transaction, such as the risk that the lawyer will structure the
transaction or give legal advice in a way that favors the lawyer's interests at the
expense of the client. Moreover, the lawyer must obtain the client's informed
consent. In some cases, the lawyer's interest may be such that Ru1e 1. 7 will preclude
the lawyer from seeking the client's consent to the transaction.
Id. cmt. n.3; see id. R. 1.7 & cmt. n.lO.
Stillwagon did not comply with Ru1es 1. 7 and 1.8. Defendants asked Stillwagon to draft the
Severance Agreement as their attorney, and Stillwagon was a party to the agreement. See Alois
Reider Decl. ,, 8-9; Richard Reider Decl. ,, 10--11; Niederkofler Decl. , 11. As such, there was
a significant risk that Stillwagon's fmancial interest cou1d hinder his ability to put his clients first.
Stillwagon did not disclose this risk, did not obtain defendants' informed consent, and did not advise
defendants to seek independent representation. See Alois Reider Decl. ,, 10--13; Richard Reider
Decl. ,, 12-15; Niederkofler Decl. ,, 12-15; Scheffauer Decl., 9.
Moreover, Stillwagon drafted a Severance Agreement that favored his interests at the
expense ofhis clients. According to Stillwagon, the Severance Agreement replaced the oral contract
that he allegedly entered into with defendants upon commencing the Innsbrook Project. See [D.E.
16-8] 2; 2d Am. Compl. ~ 32. Stillwagon alleges that, under the terms ofthat oral agreement, he was
to receive 2.5% of the Innsbrook Project's revenues. See [D.E. 16-8] 2; Severance Agreement 1.
When Stillwagon pitched the Innsbrook Project to the Rial board, he estimated net income at
$25,364,301.00 to $27,831,099.35. See Tummerello Decl. Ex. 76 (cost proposal). Thus, by
Stillwagon's own estimate, he would have made (at most) $695,777.48. Yet, in the letter Stillwagon
wrote to Niederkotler informing defendants that he wished to leave Rial and Inns brook, Stillwagon
advised defendants that he was entitled to receive over $2.5 million more ($3 ,250,000, to be exact),
because the Innsbrook Project, "as represented to [him]," was worth $135 million. [D.E. 16-8] 2.
Stillwagon then indicated that he would be willing to "compromise" and accept $1.6 million instead,
and the Severance Agreement he ultimately drafted called for payment of $1.2 million. Id.; see
Severance Agreement 1.
No genuine issue of material fact exists concerning whether Stillwagon acted with ''the most
absolute good faith" or ''the most perfect good faith" in negotiating and drafting the Severance
Agreement. He did not. Stillwagon's financial interest and his clients' best interests conflicted.
Instead of disclosing in writing this material conflict of interest to his clients, allowing them to
decide whether Stillwagon should represent them, advising them in writing to seek independent legal
counsel, and obtaining informed consent in writing from the clients, Stillwagon chose to draft and
enter the Severance Agreement at his clients' expense. The Severance Agreement is unenforceable
under both North Carolina and Pennsylvania law. See,~, Mebane, 183 N.C. at 335, 111 S.E. at
629; Mear~ 455 Pa. at 135-36, 314 A.2d at 265; Kribbs, 387 Pa. at 621-22, 129 A.2d at 495-96;
Lynch, 298 Pa. Super. at 29-32, 444 A.2d at 159-60.
In opposition to this conclusion, Stillwagon makes three main arguments. See [D.E. 113]. 1
First, Stillwagon contends that he and defendants did not share an attorney-client relationship. The
court already has addressed and rejected this argument.
Second, Stillwagon contends that the Pennsylvania Ru1es of Professional Conduct have no
bearing on the Severance Agreement's enforceability. Stillwagon correctly asserts that, in both
North Carolina and Pennsylvania, a violation of the Ru1es of Professional Conduct cannot alone
serve as a basis for civil liability. See,~' Laws v. Priority Tr. Servs. ofN.C .. LLC, 375 F. App'x
345,348 (4thCir. 2010)(percuriam)(unpublished); McGeev. Eubanks, 77N.C. App. 369,374,335
S.E.2d 178, 181-82 (1985); Inre Estate of Pedrick, 505 Pa. 530,535,482 A.2d 215,217 (1984).
However, this principle "does not mean that the Rules of Professional Conduct have utterly no
bearing on the proper resolution of civil litigation." Cunningham v. Selman, 201 N.C. App. 270,
287, 689 S.E.2d 517, 529 (2009);
CenTra Inc., 538 F.3d at 410. This conclusion follows
where, as here, ''the disciplinary rules ... do nothing but rea:ffum pre-existing substantive law."
Maritrans GP Inc. v. Pe_m?er. Hamilton & Scheetz, 529 Pa. 241,251 & n.2, 252,261-63,602 A.2d
1277, 1282 & n.2, 1287-88 (1992). The case law and the disciplinary rules regarding attorney-client
transactions speak to the same points: the attorney must disclose certain information in writing to
his client before entering a transaction with a client, the lawyer must obtain informed consent in
writing from his clients, and the client's interests must come first. Thus, the court appropriately
considered the Pennsylvania Rules of Professional Conduct in determining whether to enforce the
In opposing partial summary judgment, Stillwagon makes other procedural arguments that
are baseless and do not warrant a separate discussion.
At least one state has held that although an attorney's failure to comply with a disciplinary
rule does not create a cause of action, it may provide an appropriate defense in certain cases,
Third, Stillwagon contends that even if he and defendants shared an attorney-client
relationship, and even ifthe Pennsylvania Rules ofProfessional Conduct properly inform the court's
analysis, he "complied with the [l]etter and [s]pirit ofRules 1. 7 and 1.8." Mem. Opp'n Mot. Summ.
J. 17. In support, Stillwagon claims that after he drafted the Severance Agreement, the Reiders'
agent, Niederkofler, ''told [him] that he would send it to the Rieders in Austria for review by their
lawyers and representatives." Stillwagon Decl. ~ 39. Stillwagon also claims that Niederkofler told
him that the Rieders' independent counsel reviewed the Severance Agreement, and thatAlois Reider
signed it "over the objection" of independent counsel. See id.
The commentary to Rule 1.8 states that an attorney need not advise his client to seek
independent representation if his client already has independent representation. See Pa. Ru1es of
Profl Conduct R. 1.8 cmt. n.4. Additionally, the commentary provides that "[t]he fact that the client
was independently represented in the transaction is relevant in determining whether the agreement
was fair and reasonable to the client." Id.
Stillwagon has failed to create a genuine issue of material fact concerning whether the
Severance Agreement was fair and reasonable to defendants. In response to Stillwagon's claim,
Niederkofler filed a supplemental declaration stating that no other lawyer besides Stillwagon
reviewed the Severance Agreement before the parties signed it. See Suppl. Niederkofler Decl.
including where an attorney seeks to enforce an unethical contract. See Evans & Luptak. PLC v.
Lizza, 251 Mich. App. 187, 192-97, 650 N.W.2d 364, 368-70 (2002); see also CenTra. Inc., 538
F.3d at 410. After all, "[i]t would be absurd if an attorney were allowed to enforce an unethical ..
. agreement through court action, even though the attorney potentially is subject to professional
discipline for entering into the agreement." Evans & Luptak. PLC, 251 Mich. App. at 196, 650
N.W.2d at 369 (quotation omitted). At least one North Carolina trial court has reached a similar
conclusion. See Dunn v. Dart, No. 09 CVS 02600, 2011 WL 2749569, at *9 (N.C. Super. Ct. Ju1y
14, 2011) (unpublished) (holding that a "fee-sharing agreement ... is not enforceable absent
compliance with [N.C. Ru1es ofProfl Conduct R. 1.5(e)], and that the failure to comply with that
rule can be raised as a defense to an action to enforce fee-sharing pursuant to such an agreement").
see also Alois Reider Decl. ~~ 10-11; Richard Reider Decl. ~~ 12-13; Niederkofler Decl.
12-13; Scheffauer Decl.
9. Moreover, Stillwagon has no personal knowledge of any other
attorney reviewing the Severance Agreement.
See Stillwagon Decl.
39--40; Answer to
Interrogatories [D.E. 114-3] 4 ("I understood the [Severance Agreement] would be reviewed by Rico
Jenny, a lawyer in Switzerland."). Furthermore, Stillwagon never advised his clients in writing to
seek independent legal counsel concerning the Severance Agreement and never received informed
consent in writing from his clients. At best, Stillwagon has created a genuine dispute about whether
he believed the Reiders had independent representation, not whether the Reiders actually had
independent representation. As the commentary to Rule 1.8 provides, it is "[t]he fact that the client
was independently represented in the transaction"-not the fact that the attorney believed the client
was independently represented in the transaction-that counts. Pa. Rules ofProri Conduct R. 1.8
In sum, the court GRANTS defendants' motion for partial summary judgment [D.E. 104] on
count one. The Severance Agreement is unenforceable.
SO ORDERED. This _2j day of August 2014.
Chief United States District Judge
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