By Samson Habte
A federal judge absolved—but strongly criticized—a prominent Philadelphia plaintiffs’ firm accused of using predatory business practices to corner the local advertising market and dominate competition for personal injury cases.
The Feb. 15 decision brought to an anticlimactic end a fiercely litigated case that shined an unfavorable light on the economics of modern personal injury law—a practice area in which some deep-pocketed attorneys increasingly operate as claim harvesters, using big advertising budgets to recruit clients they then send to other firms in exchange for hefty referral fees.
“There is every indication here that a prominent personal injury law firm in Philadelphia essentially rented out its name in exchange for referral fees and that its managing partner lied on television that his firm handled social security disability claims when it did not,” U.S. District Judge Cynthia M. Rufe wrote.
But Rufe said the targets of her ire— Lundy Law LLP and its managing partner, L. Leonard Lundy—couldn’t be held liable to Larry Pitt & Associates, a crosstown rival that said it simply couldn’t compete with a firm that used monopolistic practices to solidify its spot at the top of Philadelphia’s personal injury pecking order.
The parties had been embroiled in litigation since 2013, when Lundy accused Pitt of trademark infringement for using an advertising slogan ("Remember this Number") that was similar to a catchphrase Lundy uses ("Remember this Name").
Lundy dropped the trademark case after learning Pitt’s insurer would cover the defense. That prompted Pitt to file this suit, which accused Lundy of malicious prosecution—and, more significantly, antitrust and unfair competition violations that included eyebrow-raising allegations of monopolistic conduct, racketeering and ethical breaches.
The lawsuit, filed in the U.S. District Court for the Eastern District of Pennsylvania, claimed that Leonard Lundy obtained the exclusive right to advertise on the outside of local transit authority (SEPTA) buses through his daughter, who worked for a Philadelphia advertising firm that handled the SEPTA account.
The lawsuit also accused Lundy of extracting “significant cash payments from doctors in exchange for Lundy referring its clients or prospective clients to those doctors for medical care,” in violation of a criminal statute that governs insurance fraud. (In 2016, Lundy’s intake coordinator pleaded guilty to tax fraud for failing to report $483,901 that he received from doctor kickbacks over the course of just three years. In court filings, Leonard Lundy claimed he blew the whistle on his employee).
The complaint alleged that Lundy used the “illegal and unethical cash payments” it received from doctors to pay “premium prices” for the SEPTA ads, and to negotiate “exclusive dealing contracts” with other highly-coveted advertising partners, including a radio station that allegedly set aside its rush-hour time slots for Lundy, and a downtown sports arena that similarly reserved ad space for the firm.
The lawsuit also accused Lundy of colluding with other law firms to maintain its dominant market position. It said those firms contributed to Lundy’s advertising budget, and that Lundy used the money to solicit social security and workers comp cases that it immediately referred to those other firms for hefty fees.
The complaint said that “predatory scheme” gave Lundy “the ability to control the vast majority of client referrals and divert them to a co-conspirator law firm of its choice, thereby setting up insurmountable barriers to entry for any competitors or would-be competitors that are not part of the scheme.”
In 2013 Rufe trimmed seven counts from Pitt’s nine-count complaint. But she gave the firm a chance to reassert four Sherman Act antitrust claims and three common law claims—alleging unfair competition, abuse of process and tortious interference—that she deemed insufficiently pleaded. See 30 Law. Man. Prof. Conduct 11 .
The court wasn’t entirely satisfied with the amended complaint, and in 2014 Rufe dismissed the Sherman Act counts and the tortious interference claim with prejudice. See 30 Law. Man. Prof. Conduct 653 . Among other findings, the judge said Pitt didn’t “adequately defin[e] the relevant product market,” and failed to show a “dangerous possibility that Lundy Law will achieve monopoly power.”
In her Feb. 15 decision, the court dismissed all of Pitt’s remaining counts.
The court said Pitt failed to show that Lundy: (1) violated the Lanham Act by running false ads for legal services it didn’t perform, and then referring those cases to other firms for a fee; (2) engaged in malicious prosecution by filing an allegedly baseless trademark suit against Pitt; and (3) engaged in common law unfair competition through deceptive advertising and by using Sara Lundy to obtain trade secrets about competitors’ ad buying strategies.
But Rufe dismissed those claims with palpable reluctance, in a 24-page opinion that excoriated Lundy for engaging in “years of wrong-doing.”
And Rufe ended her opinion with a not-so-subtly veiled instruction to the losing plaintiff: file a bar complaint.
Pennsylvania is one of approximately a dozen states that permits lawyers to collect “naked” or “pure” referral fees—which means that the referring lawyer can take a cut of the ultimate fee without doing any work or accepting joint legal responsibility for the case.
But “a law firm may not actively advertise in its own name for certain categories of cases for the purpose of referring those cases to other law firms,” Rufe said, and Lundy clearly violated ethics rules by doing so. But that wasn’t evidence of a Lanham Act violation, the judge said, nor did it establish common law unfair competition.
The problem with those claims was that Lundy took corrective action that allowed the firm to rebut allegations that its ads were “literally false,” the court said. That corrective action included giving an office, insurance coverage, and the title “of counsel” to the attorney who received all of the firm’s workers comp referrals.
Shortly after this suit was filed Lundy also brought in a lawyer to handle a few social security cases. “While Pitt contends that Ms. Squires only handles a ‘ de minimis’ number of cases, it has not shown that any of Lundy Law’s advertisements since 2013 unambiguously represent that the firm would take on more than five cases per month,” Rufe said.
"[T]he Lanham Act and Pennsylvania law do not permit a court to grant relief based solely on a defendant’s past misrepresentations,” Rufe said.
Accordingly, she dismissed those claims. But Rufe said her “decision should not be read to condone or excuse Defendants’ alleged actions, but should instead serve as a reminder of the burden that plaintiffs bear when they choose to seek relief against their competitors in court.”
“Nonetheless, courts are not the only institutions to review deceptive attorney advertising; nor are they typically the most appropriate or efficient forum,” Rufe wrote. “In many instances, a complaint to the state attorney disciplinary boards may be the most effective means for quickly ending and sanctioning plainly unethical conduct.”
Pennsylvania’s unfair competition law also recognizes a cause of action for commercial harm that results from a competitor’s misappropriation of trade secrets.
Pitt invoked that provision as well, accusing Lundy of obtaining “commercially sensitive” information about Pitt’s advertising purchases from an executive at a major Philadelphia advertising firm. That ad executive, Sara Lundy, is the daughter of Lundy Law’s managing partner.
The parties stipulated that Sara Lundy gave her father information about firms that bought ads through her agency, including photographs of the ads that those competitors ran and data about the types of ads they ran at certain points in time in certain locations.
Pitt also obtained an email in which Leonard Lundy informed Sara that he planned to sue Pitt over its “Remember this Number” slogan and asked her for information about Pitt’s ads. Sara Lundy responded that Pitt “has ads inside buses, subways” and “on the platforms of subway stops” and agreed to provide photos of the ads.
Rufe said the “nepotistic interactions between Leonard and Sara Lundy may be concerning” for Titan Outdoor, Sara’s advertising firm (now known as Intersection Media), and for SEPTA, the public transit authority that placed Lundy’s ads on its buses.
But the familial exchange of information didn’t amount to trade secret misappropriation, Rufe said. Pitt couldn’t show that the information Sara Lundy gave her dad was confidential, the judge noted. “Nor has Pitt identified any confidentiality agreements between Titan and any law firm that prohibited Titan from sharing the locations or photographs of law firms’ advertisements with other Titan customers,” she said.
Finally, Rufe dismissed the malicious prosecution claim.
The judge said Pitt couldn’t show an essential element: that Lundy’s trademark suit, which lit the fuse for this five-year legal battle, was terminated in Pitt’s favor.
Pitt said alleged that Lundy dropped the case after learning that Pitt’s insurance carrier would cover the defense costs. But the fact that Lundy dismissed the case “the day after it learned Pitt was being indemnified by its insurance carrier” was not “proof of anticipated defeat,” Rufe said.
The case is Larry Pitt & Assocs. v. Lundy Law LLP , 2018 BL 52844, E.D. Pa., No. 13-2398, 2/15/18 .
Mitts Law LLC represented the plaintiff. Dechert LLP represented the defendants.
In Feb. 2017, the court rejected Pitt’s request to file a third amended complaint that would have added new counts, including RICO claims, and new parties—including Francis Bass, the convicted Lundy intake coordinater; Sara Lundy and her employer; and two law firms that benefited from Lundy referrals.
The court’s earlier dismissal of the Sherman Act counts significantly reduced the potential value of Pitt’s case, and its refusal to permit an amended complaint alleging RICO violations—and civil conspiracy counts—effectively foreclosed the possibility of a large judgment.
Pitt did something that aggrieved clients in this scenario often do: it sued its lawyer, Carl W. Hittinger, along with Baker & Hostetler LLP and DLA Piper LLP, the two firms where Hittinger worked while handling this case.
“Despite the multi-year history of the [Lundy] litigation, the pleadings stage of that lawsuit relatively recently closed after years of unnecessary, costly motion practice,” Pitt said in a July 2017 complaint alleging fraud, malpractice and breach of fiduciary duty.
The lawsuit, filed in Pennsylvania state court, said Hittinger told Pitt at an initial meeting that costs of the Lundy suit “could reach approximately one million dollars,” and that “a prior client who had a similar matter” told Hittinger “it was the best million dollars I ever spent.”
Pitt said it had paid around $2 million in fees to date. “These fees, considering the unnecessary claims pleaded and the associated work to pursue them, cannot be justified, and, at a minimum, constitute improper overbilling,” Pitt said.
The malpractice case is Larry Pitt & Associates, P.C. v. Carl W. Hittinger, Pa. Ct. Com. Pl., No. 170700992, filed 7/12/17.
Haines & Associates represents the plaintiffs. Conrad O’Brien P.C. represents BakerHostetler and Hittinger; Pepper Hamilton LLP represents DLA Piper.
To contact the reporter on this story: Samson Habte in Washington at email@example.com
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Copyright 2018, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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