Brown & Bain, P.A. v. O’Quinn, 518 F.3d 1037 (9th Cir. 2008)

Brief Summary
In a breach of contract case involving a fee agreement between a law firm and its former co-counsel, the Ninth Circuit held that the term “recovery” referred to a gross, rather than net, recovery. Consequently, the law firm remained liable to co-counsel for the amount it agreed to pay its co-counsel despite suffering an alleged net loss on the case.

Complete Summary
Phoenix law firm Brown & Bain, P.A. sued Houston law firm John M. O’Quinn, et al. (collectively, “O’Quinn”) for fees allegedly owed upon the termination of a lawsuit.  

In 1991, approximately 900 claimants in the Phoenix area (“Client” or, collectively “Clients”) had joined in a suit against Motorola alleging environmental damages of over $100 million. In 1993, O’Quinn took on the representation for a 40 percent contingent fee.

In April 1993, O’Quinn hired Brown & Bain to assist him. The terms of their agreement (the “Agreement”), provided that Brown & Bain would: (1) be paid at a discount hourly rate until termination of the action; and (2) be entitled to an additional payment for each hour billed upon termination of the action. The Agreement specifically provided that the additional payment would not be made until “an amount equal to the discount rate payments previously paid to [Brown & Bain] are recovered by [O’Quinn] and the other plaintiffs’ counsel working on the matter (in the aggregate) from the proceeds of the litigation.” Id. at 1038.

Brown & Bain billed O’Quinn on a monthly basis and was paid $2,920,975.17 at the discounted rate for 26,000 hours of work. In June 1998, Brown & Bain withdrew. In June 2002, Motorola and the Clients reached a settlement of over $26 million. O’Quinn retained 40 percent of the settlement, or $10,106,988.61. After the settlement, Brown & Bain requested additional payments from O’Quinn, but O’Quinn refused.

Brown & Bain sued O’Quinn for breach of contract in Arizona state court. O’Quinn removed the action to federal court and also filed a counterclaim for repudiation, which the court ultimately rejected. In February 2006, the district court held that O’Quinn was obligated to make the additional payments to Brown & Bain and entered summary judgment. The district court rejected the expert testimony submitted by O’Quinn’s expert witness who had opined: (1) that O’Quinn had suffered a loss of $3.2 million while Brown & Bain attempted to receive a total fee of $6.2 million, thus making the fees unreasonable in violation of the pertinent Arizona ethics rules; and (2) that Bain & Brown’s withdrawal violated its duties to prevent prejudice to the Clients.

O’Quinn appealed, arguing that the additional payments were not due unless it first recovered all expenses it had absorbed. Based on its own accounting, O’Quinn claimed that it had suffered an estimated $3 million loss after deducting its costs for litigation.

In addition to asserting that O’Quinn’s alleged loss had not been demonstrated, the Ninth Circuit held that the plain language of the Agreement provided that cost reimbursements were not to be deducted. The court also stated that the state ethics rules on reasonable fees did not govern the outcome of this case because “[t]he propriety of O’Quinn’s charges [to his clients was] not the issue.” Id. at 1041. Specifically, the court stated, “Arizona Rules of Professional Conduct ER 1.5 govern the relation between lawyer and client, not between lawyer and lawyer.” Id. In the instant matter, the additional payments to Brown & Bain had no effect on the fees charged to the Clients.

The court also held that Bain & Brown’s withdrawal had not been shown to damage the Clients.

Significance of Opinion
Absent reason not to do so, courts can and will strictly enforce fee agreements between law firms.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.

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Hinshaw & Culbertson LLP and The Hildebrandt Institute Present: The Three-Part Law Firm Risk Management Virtual Seminar Series

Two Remaining Seminars:

May 15, 2008: Third Party Claims for Lawyers: Is There Life After Stoneridge

July 16, 2008: Impaired and Poorly Behaving Partners: Managing the Risks 

Third Party Claims for Lawyers: Is There Life After Stoneridge

May 15, 2008, Noon-1:30 pm EST

Speakers
Rebecca Lambreth, Partner, Duane Morris LLP
Anthony Davis, Partner, Lawyers for the Profession® Practice Group, Hinshaw Culbertson LLP

Program Overview
One of the most important (and disturbing) developments in law firm risk management in recent years has been the increased willingness of plaintiff’s lawyers, government agencies, and courts to hold lawyers and law firms culpable for the actions or omissions of their clients. We have seen these so-called “third party claims” in a wide variety of contexts, from securities fraud cases to abusive tax shelter claims to cases involving circumstances of deepening insolvency. In January, the Supreme Court handed down its decision in Stoneridge Investment Partners v. Scientific-Atlanta, a case that affirms the limited ability of plaintiffs in securities fraud cases to reach lawyers and other providers of services to defendant companies. 

This virtual seminar will bring together two highly knowledgeable and experienced practitioners to discuss these and related issues.

Topics to Include

• The circumstances under which lawyers can still be held liable for the actions or omissions of their clients; 
• Potential liability for lawyers as third-party defendants in securities fraud cases after Stoneridge, and whether the “aiding and abetting” claim still has relevance;
• The seriousness of the threat of lawyers being held liable for the actions of their clients in deepening insolvency circumstances; 
• What lawyers and law firms can do to protect themselves against such claims going forward; 
• Red flags” in this area that firm managements should pay attention to.

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Impaired and Poorly Behaving Partners: Managing the Risks

July 16, 2008, Noon-1:30 pm EST

Speakers
Thomas L. Browne, Lawyers for the Profession®  Practice Group, Hinshaw Culbertson LLP
Tom H. Luetkemeyer, Lawyers for the Profession®  Practice Group, Hinshaw Culbertson LLP
Dr. Larry R. Richard, Vice President and Head of the Leadership & Organization Development Practice Group, Hildebrandt International

Program Overview
Dealing with “problem” partners has always been a challenge for law firm leaders.  In recent years, however, it has also become a serious area of risk exposure as state bars, regulatory agencies, clients, and plaintiff’s lawyers have been increasingly willing to charge firms with accountability for the “lack of supervision” often evidenced in such behaviors.  In this virtual seminar, you will hear three experts ― two professional responsibility lawyers and one lawyer/psychologist ― describe the nature of these risks and offer some practical advice on dealing with these problems. 

Topics to Include

• Ways of identifying “problem” partners before the problems cause serious damage;
• Methods for dealing with impaired or poorly behaving partners that protect the interests of the partners and the firm;
• Circumstances in which “problem” partners must be reported to the local bar;
• Understanding the psychological issues that can give rise to problems and how to short-circuit them;
• Discussing “problem” partner issues with clients; and
• Managing the damage to the firm when and if problems become public.

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