The Ninth Circuit today upheld summary judgment against Law Firm A for shortchanging Law Firm B on the latter’s share of a $10.1 million contingent fee. Brown & Bain, P.A. v. John M. O’Quinn, No. 06-15931 (9th Cir. Mar. 6, 2008).
The losing outfit (Firm A) engaged Firm B to help handle an environmental contamination case against Motorola for 900 claimants in the Phoenix area. The engagement letter promised that Firm A would pay Firm B hourly fees at a cut rate. It also provided that, once Firm A recovered enough money to cover the fees it paid to Firm B, Firm A would pay Firm B an additional amount per hour out of the excess. Firm B received hourly fees of $2.9 million from Firm A for about 26,000 hours of work.
The case settled for $26.3 million. After paying itself $13.7 million in "costs", Firm A disbursed $2.5 million — less than 10 percent of the settlement money — to the clients.
The district court and the Ninth Circuit held that Firm A owed an additional $3.3 million to Firm B. Both rejected Firm A’s argument that it didn’t have to pay Firm B more until Firm A recovered all its litigation "costs". They also concluded that Firm A failed to prove excessiveness of Firm B’s fee, particularly in light of the fact that the additional money for Firm B didn’t lessen the clients’ net recoveries. Finally, both courts found no evidence that Firm B failed to do its job properly.
Blawgletter views Brown & Bain as a cautionary tale for law firms that band together to prosecute contingent fee cases. It tells us that courts will strictly enforce fee agreements between the firms. Also that they will cast a gimlet eye on ethical arguments — especially if accepting them won’t put more money in clients’ pockets.