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Judge: Even Split of $20M Fee Award was Wrong

September 29, 2017 | Posted in : Fee Agreement, Fee Allocation / Fee Apportionment, Fee Award, Quantum Meruit

A recent Law 360 story by Cara Salvatore, “Even Split of $20M Atty Fee was Wrong, Judge Says” reports that a New York federal judge on reversed a bankruptcy judge’s division of a $20 million attorneys’ fee award to four law firms into four equal parts, saying that in the decades-old asbestos-related insurer litigation, there was “no evidence” to support that the four intended an equal split.
 
Bevan & Associates LPA LLC, Law Offices of Bruce Carter and Madeksho Law Firm PLLC were appealing a bankruptcy judge’s order splitting the $20 million into four equal $5 million parts; the three believe that the fourth set of counsel, Eric Bogdan and Bogdan Law Firm, didn’t do enough to justify that large a share.

The litigation from which the fee stems can trace its lineage back to 1982, when Johns-Manville Corp. declared bankruptcy.  Manville eventually paid $770 million to its insurers to settle the litigation.  The settlement was enshrined in 1986.  Then, asbestos plaintiffs started suing one of the insurers, Travelers.  The four sets of counsel represented plaintiffs and reached a $70 million deal with Travelers in 2004, which set an additional $20 million aside for fees.

But “the agreement did not specify clearly how, to whom, and in what percentages the $20 million in attorneys’ fees were to be distributed,” Judge Engelmayer said, finding that a bankruptcy judge must be the one to do that, and can choose the most appropriate method — except for the method of splitting equally.

“It was clear error to hold that the parties objectively intended to split the $20 million fee award evenly among the three appellant law firms and Bogdan at $5 million apiece.  There was no evidence to support that finding,” the judge said.  Under black-letter contract law, faced with an ambiguity — the deal actually contained the words “to be paid as follows,” but no details followed — the bankruptcy court erred, Judge Engelmayer found.

“The court therefore has no choice but to reverse and vacate the decision below and remand to the bankruptcy court to resolve the proper allocation,” he said.  The so-called quantum meruit method, a main option that sprang to Judge Engelmayer’s mind, “is admittedly an imperfect fit” here because it’s usually used when there is no agreement, and here there is an agreement that speaks to fees.  Still, it “may be the most apt” method here, Judge Engelmayer mused.  But he still left it up to the bankruptcy judge to decide.

A lawyer for Bogdan, Todd Duffy of Duffy Amedeo LLP, said, "We think that under the test for quantum meruit as articulated by Judge Engelmayer, our client may receive an even larger portion of the attorney fee pool than was previously awarded."

Meanwhile, Richard Haddad of Otterbourg, who argued for the three other firms, said they also were hopeful and "very pleased" with the ruling.  "The historical settlement was a highlight of the legal career of Larry Madeksho, who passed away last year while the appeal was pending," Haddad said.

Travelers deposited the money into a court escrow account in early 2015. Bogdan filed the new litigation over the fee allocation in February 2015.  In August 2016, a bankruptcy court decided the fee should be split into four equal parts, finding that was the parties’ intention, even though the agreement itself was fuzzy.
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The case is In re Johns-Manville Corp., case number 1:16-cv-07154, in the U.S. District Court for the Southern District of New York.