A recent Law 360 story by Craig Clough, “Polsinelli Says Clients’ ‘Slacking Off’ Claims are “Meritless”,” reports that Polsinelli PC urged a Pennsylvania federal judge to toss a lawsuit accusing the firm of overcharging and underperforming while representing a pharmacy and its former CEO in an investigation by the U.S. Securities and Exchange Commission, saying claims the firm "slack[ed] off" are not plausibly alleged. Philidor Rx Services LLC and former CEO Andrew Davenport said in the suit that Polsinelli shifted much of its legal work to another firm and added unnecessary third-party legal fees, but those arguments don't belong in a breach of contract claim, Polsinelli said.
"Plaintiffs do not allege that Polsinelli breached any specific provision of the engagement letters but instead allege that it negligently performed its obligations such that Philidor allegedly paid more than it should have," Polsinelli said. "That is a negligence claim. And as explained below, plaintiffs' negligence claim fails for multiple reasons."
Philidor and Davenport alleged in their November lawsuit that Polsinelli transferred much of its legal work to another firm working on their case, WilmerHale, which charged by the hour and added unnecessary third-party fees. This way, Polsinelli received the same $14 million capped flat fee, and WilmerHale billed more hours than anticipated, the complaint said.
Davenport was convicted in 2018 for his involvement in a $9.7 million kickback scheme after the SEC investigated Philidor's relationship with Valeant Pharmaceuticals International Inc. Philidor hired Polsinelli and former partner Jonathan N. Rosen in 2016 when the SEC investigation was first launched. Gary Tanner, a former Valeant executive who was a co-defendant in the investigation and trial, hired WilmerHale. Tanner and Davenport agreed to have a joint defense with WilmerHale and Polsinelli attorneys, with Philidor agreeing to pay the flat fee for Polsinelli and the hourly fees for WilmerHale.
The investigation eventually led the government to charge Davenport and Tanner with honest services wire fraud and conspiracy to commit money laundering in 2017. Philidor claims that once Polsinelli realized the case would likely face trial, the capped flat fee agreement was looking "less and less lucrative" to the firm. Polsinelli began pushing work to WilmerHale and adding third-party legal fees for work the plaintiffs say the firm should have been able to do in-house and should've been included in the $14 million they paid, such as hiring an outside counsel for Davenport's defense, the complaint alleges.
Philidor was charged over $5 million in expert fees instead of the $2 million initially agreed to and more than $13 million in counsel fees instead of the $2 million agreed to, among other millions of dollars in third-party fees, the complaint alleges. The company is accusing Polsinelli of one count of breach of contract, one count of unjust enrichment and a third count of mismanagement of litigation. Philidor is asking for damages in the form of the costs of suit and the counsel fees they were charged because the firm's effort "represented a slacking off and willful rendering of imperfect performance."
Polsinelli said all the claims are "meritless," including the negligence claim, which is time-barred and fails even if it wasn't. Under Pennsylvania law, there is a two-year statute of limitations for tort claims, and because the trial wrapped in May 2018, all of the alleged breaches occurred before then and the claim is untimely, Polsinelli said. Under Pennsylvania law, the plaintiffs must also allege Polsinelli failed to "exercise ordinary skill and knowledge" to properly plead the negligence claim, but the claim does not make that allegation, Polsinelli said. The firm also argued, among other things, that the unjust enrichment claim should be tossed because it "is a quasi-contractual doctrine that does not apply in cases where the parties have a written or express contract."