January 15, 2020
A recent Law 360 story by Celeste Bott, “Attys Spar Over Fees From Antitrust Row at 7th Circ.,” reports that a Seventh Circuit panel took issue with an attorney’s arguments that the allocation of attorney fees from an underlying case should have been settled in arbitration and that Cozen O'Connor wasn’t entitled to its share of a $4 million deal for representing that attorney in the fee dispute. Judges Amy J. St. Eve, Diane P. Wood and Ilana Rovner said attorney Michael Needle appeared to waive arbitration, noting that he didn’t move to compel it and had previously stated that the district court was the proper forum to resolve all claims in a dispute over a $4.2 million settlement fund.
“How can you come in and argue now there’s no jurisdiction because it should have gone to arbitration, when you argued the opposite in the district court?” Judge St. Eve asked. The panel heard argument in two related cases, both stemming from a Racketeer Influenced and Corrupt Organizations Act case alleging that International Profit Associates Inc. and its affiliates bilked small businesses into buying expensive but useless consulting.
Needle and Merle L. Royce were co-counsel on a contingent fee basis representing 16 plaintiffs in the RICO case, and in 2013 obtained a $4.2 million settlement, then disagreed over the fees for their work, according to court documents. Cozen O'Connor represented Needle in the fee dispute and later sought a lien to get paid.
After the settlement, Royce said the fees should be limited to one-third of the settlement proceeds, while Needle sought a much larger sum of $2.5 million, according to briefs in the case. In 2015, Royce filed an interpleader complaint to determine how the fees should be allocated, and a lower court ruled that the pair were entitled to one-third of the settlement, with 60% to Needle and 40% to Royce. Needle argued on appeal that the fee dispute should have been decided in arbitration under a binding mediation provision in the fee agreement. That provision means there’s no jurisdiction to proceed, said Frank C. Fusco, arguing for Needle.
The judges pushed back on that argument and against Needle’s assertion that he was wrongfully sanctioned for asking for an extension that was ultimately granted. They said he waited “until the last minute” and that the district court had the right to grant him extra time yet still find his actions sanctionable.
Alan R. Borlack of Bailey Borlack Nadelhoffer & Carroll, arguing for Royce, said the sanctions were warranted, noting that even the lower-court judge had said he had “never encountered” anyone so “unrelentingly obstructionist” as Needle in more than six decades of practicing law. Needle had asked for the added time allegedly because he had failed to file time sheets and was seeking a transcript from a status hearing, Borlack said.
“These were disingenuous reasons for an extension,” Borlack said. “This case goes to whether a district court can have control of a courtroom so it can administer justice.” And in the Cozen O'Connor appeal, Fusco told the panel the firm was wrongfully granted a lien because the fee agreement didn’t provide for compensation if the firm withdraws, and that the firm’s work didn’t help Needle recover funds.