A recent Texas Lawyer story, “Jenner & Block $3M Fee Award Appeal Could Change Arbitration Law” reports that a former patent client is taking its $3 million attorney fee fight against Jenner & Block to the Texas Supreme Court by arguing it's against public policy for the Chicago-based firm to collect after it allegedly walked away from the contingent fee case without just cause.

"We believe that it's against public policy for lawyers to collect a contingency fee after they've walked away without just cause based on results that other lawyers achieved.  Certainly that is the crux of the case,'' said Kirsten Castañeda, who represents the firm's former client in Parallel Networks v. Jenner & Block.

But because Jenner & Block won its fee award through binding arbitration, the case presents the high court with an even bigger issue to resolve than just the attorney fee dispute if it accepts the case for review.  And that question is whether or not Texas courts can vacate an arbitration award when the arbitrator allegedly violates the state's public policy, Castañeda said.

Jenner & Block represented Parallel Networks against two patent infringement defendants pursuant to a contingency attorney fee agreement. Their agreement provided that Parallel would be solely responsible for paying up-front expenses associated with the patent infringement lawsuits and that Jenner was to receive a percentage of the proceeds paid to Parallel on a sliding scale.

Their agreement also had a termination provision stating that if Parallel ended the representation early, it would compensate the firm at its regular billing hour rates.  The provision allowed Jenner to termination the representation of Parallel "at any time" if it was not in the firm's "economic interest" to represent the client, entitling the firm to compensation.  The parties also agreed to resolve disputes arising from the agreement in arbitration.

In December 2008, Parallel owed Jenner approximately $500,000 in unpaid expenses associated with the lawsuits.  Although Parallel paid Jenner the $500,000 out of settlement from another patent suit, Jenner decided to terminate the representation early after logging 24,000 hours on Parallel's patent cases.  Jenner withdrew in February 2009 and transferred the cases to another law firm.

Parallel later settled both patent suits with the help of a new firm.  Jenner then filed an arbitration demand against its former client, alleging that it had provided more than $10 million worth of legal services to Parallel but they refused to pay.

Parallel argued in the arbitration proceeding that the fee agreement was unenforceable because it was both "unconscionable" and against public policy.  Parallel also argued that Jenner abandoned them as a client without cause.

In its petition to the Texas Supreme Court, Parallel notes that the U.S. Supreme Court declined to expand to scope of judicial review of arbitration awards in 2008's Hall Street Associates v. Mattel.  But that important decision does not preempt Texas court's ability to vacate arbitration awards when the violate public policy, according to the petition.

"An arbitrator's say-so is not a magic wand that transforms Texas courts into unthinking tools for implementing public policy violations," Parallel's petition alleges.  "The court of appeals' erroneous interpretation of the [Federal Arbitration Act and Hall Street] impacts every arbitration award under the FAA whose enforcement is committed to Texas courts.  And as applied in the context of attorney-client fee agreements, the court of appeals' holding threatens public confidence in the legal system and the continued vitality and self-regulation of the Texas Bar."

Castañeda, a partner Alexander Dubose Jefferson & Townsend, notes public policy and manifest disregard of the law are two common reasons Texas courts vacate arbitration awards—though those two reasons that are not specifically mentioned in the FAA.  Hall Street decision calls both of those reasons into question, she said.  And the Texas Supreme Court heard arguments earlier this year in Hoskins v. Hoskins, a case in which the litigants asked the high court whether manifest disregard of the law can invalidate an arbitrator's decision.

"And we feel it would be beneficial for the Texas Supreme Court to answer the entire question'' by considering Parallel Network's appeal and it's public policy question in addition to Hoskins, Castañeda said.