A recent Law 360 story by Sarah Javis, “MedMen Doubles Down on Clawback on Bid for Ex-CFO’s Fees” reports that Cannabis company MedMen has doubled down on its efforts to claw back $612,000 in legal fees it was ordered to pay its former chief financial officer in his unsuccessful suit against the company, accusing the former executive of trying to "slant the record and rewrite the jury's verdict."  MedMen argued in a filing in a California state court that it is entitled to recoup the legal fees it paid to former CFO James Parker because a jury found he "breached his May 2018 employment agreement, stole MME USA's highly valuable trade secrets, and violated his duty of loyalty to the company."

Parker had argued in a Feb. 10 opposition filing that the company can't recoup his legal fees because, among other things, a provision of his employment agreement indicates the company will pay up to $500,000 of his legal fees per year "regardless of the outcome of the dispute."  But that argument is irrelevant, the company argued, because Parker's breaches excused MedMen from its duty to pay his legal fees.  "Parker naturally would like to fixate myopically on that phrasing, but those words have no legal effect given his preceding material breaches of the agreement containing that provision," MedMen argued.

Parker sued MedMen in 2019, alleging breach of contract, promissory fraud, retaliation and wrongful discharge in violation of public policy, and a claim for promissory fraud against the company's founders, Adam Bierman and Andrew Modlin. MedMen, in turn, filed counterclaims against Parker for breach of contract, breach of fiduciary duty, breach of duty of loyalty, misappropriation of trade secrets and conversion.  A California state jury in Santa Monica found in November that MedMen did not constructively discharge or breach Parker's contract, awarding no money to him after he sought a payout of more than $24 million.

MedMen previously raised its arguments about Parker's legal fees in a January motion, in which it argued the court's previous order for it to pay the fees "expressly recognized that, if successful, [MedMen's] counterclaims and affirmative defenses might 'eventually unravel the advancement provision' in [Parker's] May 2018 employment agreement, but deemed that 'an issue for another day.'  That day has finally arrived."

The company has filed a memorandum of costs totaling more than $1 million, including the $612,000 in legal fees, as well as just over $143,000 in deposition costs, most of which Parker also contested.  Parker argued among other things last month that MedMen could not ask for costs incurred defending against his unsuccessful claim that he was fired in retaliation, because California state law requires such an award only if the claim was frivolous.

A recent Texas Lawyer story by Angela Morris, “Court Lets Houston-Area Lawyer Keep $70,000 Fee, Despite Unethical Contract,” reports that a Houston-area attorney won’t have to pay back more than $70,000 in fees to two clients who argued the lawyer’s fee agreement was unconscionable, after Texas’ 14th Court of Appeals ruled that the clients’ defensive argument wouldn’t support a recovery.  But one of the justices on the three-judge panel disagreed, explaining that Bellaire lawyer Joe Alfred Izen Jr. had an unconscionable fee agreement with his clients, which breached the attorney’s ethical duties, and that it was right for the trial court to make him return the money.

“In Texas, attorneys are held to the highest standards of ethical conduct in their dealings with their clients.  As a result, attorneys must conduct their business with their clients with inveterate honesty and loyalty, and they must always keep the client’s best interest in mind,” said a concurring and dissenting opinion by Justice Jerry Zimmerer.  “The question of Izen’s fees must be viewed through that prism.”

Izen, who represented himself pro se in the appeal, didn’t immediately respond to a call seeking comment.  And Ralph Kraft, member in Kraft Lege Anseman in Lafayette, Louisiana, who represented Izen’s past clients Brian and Kimberly Laine, declined to comment.

Izen represented the Laines in a 2002 personal injury settlement agreement over Brian Laine’s injury at work, said the 31-page majority opinion by Justice Kevin Jewell, joined by Justice Bourliot.  His employer took care of him after the injury and initiated a settlement for two lump sum payments and a monthly annuity for 30 years, and then the Laines hired Izen to look over the settlement agreement.  The Laines also wanted Izen to research if they may have a claim against any third-party entities—but not to sue Brian Laine’s employer.

An attorney-client agreement between Izen and the Laines was for a 35% contingency fee of the settlement with the employer.  Izen testified at trial they paid him between $70,000 and $90,000 and eventually he expected nearly $229,000 total.  Izen wasn’t licensed to practice in Louisiana and he contracted with an attorney there to represent the Laines in litigation against a third-party entity.  However, Brian Laine eventually dismissed that litigation and he did not owe any contingent fee for it.

In 2007, Brian Laine terminated Izen’s representation because he didn’t need it anymore.  He also quit paying Izen 35% of his monthly annuity payments from the settlement with his employer.  In 2010, Izen sued the Laines alleging they still owed him 35% of the annuity payments.  In response, the Laines argued his fee agreement was unconscionable and filed counterclaims seeking the return of the fees they already paid him.

After a jury trial, the judge granted a directed verdict in favor of the Laines, ruling the fee agreement was unconscionable.  But Izen also got a favorable ruling dismissing the clients’ counterclaims because they weren’t filed within the four-year statute of limitations.  Later, the trial court ordered Izen to disgorge all his fees to the Laines and to pay prejudgment interest spanning back to 2002.  In the appeal, Izen attacked the notion that his attorney fee agreement was unconscionable.

The appellate court ruled that Izen’s work reviewing the Laines’ settlement agreement with Brian Laine’s employer, and going to a meeting where the parties signed the agreement, was representation with little risk or expense to Izen.  His work on litigation against the third-party entity did have some risk, that there would be no recovery—which did happen in the end.

The 14th Court rejected Izen’s “attempt to combine the two separate jobs he was hired to perform.”  He was insisting his 35% fee on the settlement wasn’t unconscionable because the money financed the third-party litigation.  “Any fees Izen collected under the guise of financing the litigation against the Louisiana third party defendants were collected under false pretenses in violation of an attorney’s duty of honesty and loyalty to his clients,” said the opinion.  “Izen is not entitled to any fee on the Louisiana third-party litigation because there was no recovery.”

The appellate court upheld a trial court ruling that said that the Laines should not have to pay Izen any more money under that agreement.  But it also determined that Izen shouldn’t have to pay back the fees the clients had previously paid him.

The clients didn’t file their counterclaims seeking fee forfeiture within the four-year statute of limitations, explained the ruling. It said they couldn’t get back the fees based on an affirmative defense that the agreement was unconscionable.  While the Laines’ defense did defeat Izen’s claims, it could not advance their own claims for relief, the ruling said.

A recent Law 360 story by Andrew Strickler, “Brown Rudnick Seeks Defense Bill ‘Advance’ From Trustee,” reports that facing a $300 million malpractice suit over its work for a bankrupt chemical company, Brown Rudnick LLP told a New York federal judge it is "unmistakably" entitled to having its legal bills covered by the trustee now suing the firm and a trust director.  Rather than pursue "immunity" from the massive potential liability, Brown Rudnick told the court it only seeks an "advance" on its mounting bills under the terms of a trust agreement at issue in the case, which it said provides for the payment of legal costs for any agent sued over work for the trust.

Brown Rudnick also argued that if it ultimately loses the case, it would be required to return the money to the trustee.  Therefore, the payment would not violate ethics rules or case law disfavoring lawyers securing blanket protections from a client's legal malpractice claims.  "[T]here is no public policy concern with advancement of fees where a party commits to returning the fees if ultimately adjudicated to have committed malpractice for which it cannot receive indemnity," the firm said.

Brown's unusual stance in the case stems from work commenced nearly a decade ago for a litigation trust formed in the bankruptcy of Lyondell Chemical Company, of which a Brown Rudnick partner was the original trustee.  After the bankruptcy declaration, trustee Edward Weisfelner of Brown Rudnick filed numerous claims against investor Leonard Blavatnik's company, Access Industries Holdings Inc.  He also lost a trial three years ago in which he tried to recoup some $300 million in credit line repayments made by AIH.

A replacement trustee, Mark E. Holliday, then sued Brown Rudnick, saying the firm committed malpractice by failing to establish at trial that Lyondell had been insolvent, a finding that would have made the money available for clawback as avoidable preference payments.  Brown has denied botching the trial, and insisted that a trust advisory board refused to give Weisfelner authority to settle before it decided to "roll the dice" at trial.

In counterclaims brought in August, Brown pointed the finger at a trust advisory board member, Paul Silverstein, as personally responsible for not settling, and for going after Brown Rudnick in court.  As part of that personal liability claim, the firm accused Silverstein of breaching his duty regarding the "advance fee" portion of the trust agreement, and the board generally of "depleting whatever negligible [trust] funds remained" through their salaries and legal bills.

In the motion, which answers Holliday's own bid for a dismissal, the firm did not put a number on its legal expenses thus far.  But the firm did say that, as of March of last year, the trust had a cash balance of $1.96 million, which it called insufficient to cover its bills.  And at a September hearing, Judge Engelmayer encouraged the parties to reach a settlement, and suggested that a discovery "autopsy" on the bankruptcy court trial would be costly.  He also noted that experts alone could cost the parties $1 million.

Silverstein "committed gross negligence by, among other things, directing the assertion of this malpractice suit against Brown Rudnick despite the fact that the Trust lacked adequate funds to pursue its claims and advance Brown Rudnick's defense costs," the firm said.  The personal liability and counterclaims "clearly arise out of the same transaction/series of transactions, i.e., authorizing suit against Brown Rudnick without advancing funds, or having sufficient funds to advance, to Brown Rudnick for its defense," according to the filing.