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Category: Fees & Withdrawing / Terminated

Law Firms Spar Over Attorney Fees Ahead of Trial

August 4, 2021

A recent Law 360 story by Celeste Bott, “Chicago Firm, Attys Spar Over Fees Ahead of Ex-Client’s Trial”, reports that Chicago law firm Wood Phillips and one of its former attorneys suing an ex-client for payment for their two decades of work in a patent case are embroiled in a contentious dispute over how potential recovery would be allocated between them, and the firm is asking an Illinois federal judge to weigh in on the applicability of its contingency fee agreements ahead of trial.

Wood Phillips Katz Clark & Mortimer and named partner John S. Mortimer are seeking to file either a pretrial motion to resolve whether the parties are bound by those agreements or, alternatively, to add a cross-claim against former Wood Phillips attorney Dean Monco for anticipatory breach of contract.

The case is set to go to trial early next year, as the firm and attorneys seek to be compensated for more than 20 years of work for carbon fiber manufacturer Zoltek Corp.  The firm and Mortimer argue, in their motion for leave to file, that it would be unfair and would create "chaos and confusion" to have the plaintiffs arguing amongst themselves at trial.

But U.S. District Judge Martha M. Pacold appeared skeptical of those proposed procedural avenues during a status hearing, pushing the parties to address how a Rule 16 pretrial motion could resolve a substantive issue such as the applicability of the firm agreements, how it would impact how the trial would be conducted and whether a potential cross-claim is premature given there's no recovery to divvy up yet.  The judge also questioned whether a cross-claim against Monco was fair given the late stage of the litigation.

Acknowledging that resolving the intra-plaintiff dispute could assist in a potential settlement, the judge said that there still needs to be a legal basis for resolving the issue, not just a practical one.  "I don't think I have a kind of free-ranging power, even if I wish I might, to just decide random stuff," Judge Pacold said.  "There has to be a legal basis and legal hook for really every issue that is teed up.  So I certainly understand all those practical considerations, there just has to be a legal framework for resolving it."

Lee Grossman, an attorney representing Mortimer and the firm, told the court the vehicle for the pretrial motion could entail a jury instruction telling jurors to conduct the recovery for Monco, Mortimer, and the firm based on the formula laid out in the firm agreements at issue.  As for whether a cross-claim is premature ahead of a potential recovery at trial, Monco has already stated in interrogatories that he doesn't intend to honor the firm fee agreements, Grossman said.

"One party has already said, 'I'm not going to follow that contract,'" Grossman said. "In the interest of judicial economy, or whatever economy is left, I don't think it's a practical way to go."  But Monco argued to the court that Wood Phillips has made multiple improper attempts to adjudicate an unfiled and disputed contract claim against any future quantum meruit recovery from Zoltek, and that his former employer can't use Rule 16 to skip the required steps of filing a pleading and then a motion for summary judgment.

Paul Vickrey of Vitale Vickrey Niro & Gasey LLP, representing Monco, said allowing that avenue would lead to a "sideshow" at trial and would only invite confusion and delay. The firm agreements have nothing to do with the elements for determining quantum meruit under Illinois law, Vickrey said, and the firm can later challenge the results in state court if they so choose.

The calculations laid out in the agreements at issue are "hotly disputed," said Patrick F. Solon, another attorney for Monco. The contract claim that the firm is now trying to pursue was never filed, and there's been no pleading, no answers and no discovery on the matter, he said.  But Grossman countered that the fee agreements have been a cornerstone in the yearslong case.  "There's no discovery needed on these agreements," he said.  "They've been talked about in this case from day one."

Also, before the judge is a conditional bid by Monco to disqualify Grossman as counsel. Monco contends that if the firm is allowed to pursue its claim for his "anticipatory breach" of firm agreements, "using Grossman as their counsel [...] would result in Grossman suing his own former client in this very action."  Judge Pacold didn't rule on the pending motions immediately, saying she would either issue a decision after reviewing the materials and arguments or schedule another hearing for further discussion.

According to the 2017 complaint, Zoltek had hired Monco and Mortimer in 1996 to represent the manufacturer in a lawsuit against the federal government alleging that the B-2 bomber, which was developed by aerospace company Northrop Grumman Corp., infringed its patented method to produce carbon fiber sheets that help military aircraft avoid being detected by radar. Japanese conglomerate Toray Industries Inc. acquired Zoltek in 2014.

The litigation, which proved "extremely contentious and difficult," lasted 20 years, with the attorneys spending almost 13,000 hours representing Zoltek, the firm said.  But after a July 2016 strategy meeting in St. Louis, which Monco and Mortimer said led to their termination as counsel, the manufacturer then allegedly refused to pay the attorneys for overdue legal bills.

The manufacturer eventually settled the previous litigation for $20 million, but Wood Phillips and the attorneys got nothing, according to the complaint.  In July 2019, an Illinois federal judge said Monco and Mortimer can't pursue fees out of that settlement and must instead raise their claims against the company, with whom they had the attorney-client relationship.

NJ Law Firm Wants Out After Unpaid Attorney Fees

July 29, 2021

A recent Law 360 story by Nick Muscavage, “Zayat’s Bankruptcy Attys Want Out Over Unpaid Fees,” reports that the law firm representing thoroughbred race horse owner Ahmed Zayat in his bankruptcy proceeding has asked a judge to be removed from the case, claiming that the businessman owes the firm hundreds of thousands of dollars in legal fees.  Jay L. Lubetkin, a partner at Livingston, New Jersey-based firm Rabinowitz Lubetkin & Tully LLC, told a New Jersey bankruptcy judge that Zayat owed his firm $368,273 as of June 29.

The attorney said he tried to communicate with Zayat — who bred and owns the 2015 Triple Crown winner American Pharoah — at least nine times in July, but the businessman never responded.  "The debtor has been consistently advised that absent satisfactory arrangements for the payment of the outstanding fees and expenses due to our firm and newly incurred billings, the firm would have no alternative but to seek to withdraw from the representation of the debtor," Lubetkin wrote in a motion his firm filed.

The fee dispute arises from Zayat's $18.8-million bankruptcy case in the U.S. Bankruptcy Court of the District of New Jersey.  In an adversary case related to Zayat's bankruptcy, MGG Investment Group LP filed claims against Zayat and his company, Zayat Stables LLC, alleging that Zayat engaged in a "fraudulent scheme" by selling off assets he had secured as collateral to loans from the investment firm.

Zayat lied to MGG about his assets and submitted false financial statements that concealed or distorted Zayat Stables' sales revenue and other financial information to deceive MGG, the investment firm claimed in court documents.  According to MGG, Zayat owes more than $24 million in unpaid loans, plus accrued interest.

Novel Ruling: Law Firm Awarded $10M in Fees After Withdrawing in NJ

April 17, 2021

A recent New Jersey Law Journal story by Charles Toutant, “Novel Holding in New Jersey: Law Firm Awarded $10M After Withdrawing From Case,” reports that a New Jersey judge has awarded $10 million to the law firm of Kirsch, Gelband & Stone in a fee dispute stemming from a $125 million personal injury settlement of a suit by a lawyer who was left paralyzed by a falling utility pole.  Although Kirsch Gelband was ultimately replaced by another firm, it had a key role in developing evidence that yielded such a large settlement, Essex County Superior Court Judge Thomas Vena said.

The ruling, giving a law firm that withdrew from representation a share of successor counsel’s legal fees, based on its contribution toward the recovery, is a novel holding in New Jersey, Vena said.  The ruling gives Kirsch Gelband a 40% cut of the $25 million awarded to its successor in the case, Mazie Slater Katz & Freeman.

Justifiable withdrawal

The case stems from a 2017 accident in which Maria Moser Meister was left paralyzed and brain damaged after a deteriorating utility pole fell on her on a street in Union City.  At the time of the accident, Meister was general counsel for finance firm Milberg Factors in New York, and previously had been an associate at Simpson Thacher & Bartlett.  David Mazie of Mazie Slater obtained the $125 million settlement in May 2020, calling it the largest settlement in New Jersey history.

Vena found that Kirsch Gelband’s Gregg Alan Stone had a stormy relationship with Meister’s husband, Peter, who would contact him at all hours. Finding that Stone had a justifiable cause to withdraw, the judge found that Kirsch Gelband was entitled to a calculation of how much of the fee the firm deserves.

Vena concluded that “the nature of and deterioration of the attorney/client relationship, exhibited throughout the hearing, justified Mr. Stone’s good-faith belief that the representation could not ethically be continued.” Vena said a “balancing of predecessor and successor contribution” was needed to decide Stone’s cut of the fees.  Bruce Nagel of Nagel Rice, who represents Kirsch Gelband, says that “in view of Mr. Mazie’s position that Kirsch Gelband was entitled to zero, we are extremely pleased with the $10 million award.”

But additional proceedings are underway between Mazie Slater and Kirsch Gelband.  Nagel and Mazie have a long history of acrimony.  The two are former law partners who frequently face each other as litigation adversaries.  Their rancor dates back to when Mazie split with Nagel to start his own firm in 2006. Mazie took cases with him that led to disputes over counsel fees.

Nagel said evidence in the case supported his claim, raised in a separate suit pending against Mazie Slater by Kirsch Gelband, that Mazie provided false information to Meister in order to get the case.  Mazie called that claim “nonsensical.”

Nagel also said he was filing an additional motion in the Verizon case to vacate a deal between Mazie and Philip Rosenbach, a lawyer who handled the case before Stone, in which Mazie purchased the other lawyer’s right to receive a referral fee from Kirsch Gelband.  Such a deal is “highly unethical and highly improper,” Nagel said.  But Mazie said Rosenbach “chose to resolve his claim for that one-third referral fee by settling with us rather than being embroiled in this frivolous litigation,” and added that there’s “nothing unethical about it.”