Pepper, Hamilton In $3m Settlement

Posted: November 16, 1992

One of the city's largest and most prestigious law firms has paid a former client $3 million to drop a conflict-of-interest suit.

Pepper, Hamilton & Scheetz agreed to the whopping settlement late last Friday, ending a bitter five-year dispute that damaged its reputation as a prim and proper Philadelphia institution.

The settlement was paid to Maritrans Partners L.P., a Philadelphia-based marine transport company specializing in shipping petroleum products along the East and Gulf coasts.

It was worked out by attorney Richard A. Sprague, representing Maritrans, and William T. Hangley, acting for Pepper, Hamilton.

The $3 million payout is far from a record for a law firm, but it nevertheless is one of the largest ever won by a single client. The amount and the fact that it results from an alleged ethical lapse made it doubly embarrassing for Pepper, Hamilton.

With about 300 lawyers, Pepper, Hamilton is the city's third-largest law firm. It has a proud history, producing chancellors of the Bar Association, city solicitors (including the current one), and civic leaders.

It traces its history back to George Wharton Pepper, a U.S. senator 70 years ago and an acknowledged legal giant.

But in 1987, after representing Maritrans for more than a decade and earning $2 million in legal fees, Pepper, Hamilton also began representing four of Maritrans' competitors.

According to court documents, when Maritrans objected, Pepper, Hamilton replied that it had no "ethical duty" to Maritrans that would prevent it

from representing the competitors. Pepper, Hamilton resigned the Maritrans account in December 1987.

Sprague then sued Pepper, Hamilton, charging the firm with violating its fiduciary duty to Maritrans because it saw a chance to make more money.

Sprague asked for, and obtained, an injunction from Common Pleas Judge Abraham Gafni prohibiting Pepper, Hamilton from continuing to represent Maritrans' competitors.

Gafni's order was sustained by the state Supreme Court by a 5 to 2 vote last January. At that time, Justice Nicholas Papadakos wrote an opinion raising the possibility that Pepper, Hamilton was guilty of a "breach of duty" and "an impermissible conflict of interest actionable at law."

The high court remanded the case back to Gafni, and Friday's settlement grew out of ensuing negotiations.

Hangley said a "key element" of the settlement was an acknowledgment by Maritrans that Pepper, Hamilton did not disclose any confidential information to the shipper's competitors.

Hangley said his clients were "very pleased" with the settlement, and added that it was less than the fee paid by Maritrans to Sprague. He said that fee was $3.3 million.

Sprague disputed that figure, saying Hangley apparently was referring to the total costs of the law suit, dating to 1987.

Hangley conceded that Pepper, Hamilton legal fees were substantial, and Sprague said they would match his own fees.

Upon payment of the settlement, Gafni dissolved the injunction, freeing Pepper, Hamilton to again represent Maritrans' competitors.

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