Gilbert LLP v. Tire Engineering & Distribution, LLC

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-2192
In Re: OUTSIDEWALL TIRE LITIGATION
----------------------------------
GILBERT LLP,
Appellant,
v.
TIRE ENGINEERING AND DISTRIBUTION, LLC, d/b/a Alpha Tyre
Systems, d/b/a Alpha Mining Systems, a Florida Limited
Liability Corporation; JORDAN FISHMAN, an individual;
BEARCAT TIRE ARL, LLC, d/b/a Alpha Tire Systems, d/b/a
Alpha Mining Systems, a Florida Limited Liability Company;
BCATCO A.R.L., INCORPORATED, a Jersey Channels Islands
Corporation,
Plaintiffs – Appellees,
and
SHANDONG LINGLONG RUBBER COMPANY, LTD., a foreign company;
SHANDONG LINGLONG TIRE COMPANY, LTD., f/k/a Zhaoyuan Leo
Rubber Products Company, Ltd., a foreign company; AL
DOBOWI, LTD., a foreign limited liability company; AL
DOBOWI TYRE COMPANY, LLC, a foreign limited liability
company; AL DOBOWI GROUP, a foreign corporation; TYREX
INTERNATIONAL, LTD., a foreign limited liability company
based in Dubai; TYREX INTERNATIONAL RUBBER COMPANY, LTD., a
foreign corporation; QINGDAO TYREX TRADING COMPANY, LTD., a
foreign corporation; SURENDER S. KANDHARI, an individual,
Defendants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. T. S. Ellis, III, Senior
District Judge. (1:09-cv-01217-TSE-IDD)
Argued: December 8, 2015 Decided: January 11, 2016
Before GREGORY, DUNCAN, and FLOYD, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: Richard Daniel Shore, GILBERT LLP, Washington, D.C., for
Appellant. William Edgar Copley, III, WEISBROD MATTEIS & COPLEY
PLLC, Washington, D.C., for Appellees. ON BRIEF: James C.
Liddell, GILBERT LLP, Washington, D.C., for Appellant.
August J. Matteis, Jr., WEISBROD MATTEIS & COPLEY PLLC,
Washington, D.C., for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
This appeal concerns a fee dispute between a law firm,
Gilbert LLP (“Gilbert” or “the Firm”), and its former client,
Alpha. 1 Gilbert represented Alpha under a contingency agreement.
After Alpha obtained a $26 million judgment in the underlying
suit, the company terminated Gilbert and retained new counsel to
defend the judgment on appeal and initiate recovery actions.
Gilbert asserted an attorney’s lien against any future recovery
on the judgment. Gilbert now appeals the district court’s order
determining the value of that lien. For the reasons that
follow, we vacate the judgment of the district court and remand
for further proceedings consistent with this opinion.
I.
The background of the underlying civil action is set forth
in our previous opinion addressing the jury verdict in that
suit. See Tire Eng’g & Distrib., LLC v. Shandong Linglong
Rubber Co., Ltd., 682 F.3d 292 (4th Cir. 2012). The following
facts are relevant to this appeal, which concerns only the fee
dispute arising from Gilbert’s lien.
1 “Alpha” collectively refers to Jordan Fishman; Tire
Engineering and Distribution, LLC; Bearcat Tire A.R.L., LLC; and
Bcatco A.R.L., Inc. The three entities are owned by Fishman and
do business under the names “Alpha Tire Systems” and “Alpha
Mining Systems.”
3
In 2009, Jordan Fishman, Alpha’s founder and chief
executive officer, retained Gilbert to represent the company in
connection with the appropriation of its designs and trade
secrets by former employees and other third parties. In
August 2009, Fishman signed an engagement letter with Gilbert
that memorialized the arrangement between Alpha and the firm.
The “Fees and Expenses” section of the letter, composed of two
subsections, details the compensation arrangement.
The first subsection, titled “Costs and Expenses,” provides
that Gilbert will advance “all costs and expenses related to
this matter.” J.A. 2 at 358. The agreement states that “[i]f
Alpha prevails in this matter and receives payment” from a
judgment or settlement, Alpha will “reimburse the Firm for all
costs and expenses” that Gilbert advanced. Id. The letter
specifies that
[s]uch costs and expenses may include photocopying
charges, courier and overnight delivery charges,
travel expenses (including mileage, parking, airfare,
lodging, meals, translation services, security, and
ground transportation), costs incurred in computerized
research, litigation support services, filing fees,
witness fees, and the costs of any consultants,
experts, investigators, court reporters, or other
third parties who [Gilbert] deem[s] necessary to
successfully pursue Alpha’s claim.
2 Citations to the “J.A.” refer to the Joint Appendix the
parties filed in this appeal.
4
Id. The second subsection, titled “Attorneys’ Fees,” sets forth
the following contingency arrangement:
If Alpha recovers money through judgment, settlement
or other means as the result of any work done by
[Gilbert] on this matter, then, in addition to
reimbursing the Firm for costs and expenses as
described above, Alpha will pay the Firm a contingency
fee equal to forty percent (40%) of the gross amount
of any sum that Alpha recovers (calculated prior to
the deduction of any costs and expenses enumerated
above).
Id.The engagement letter contains a separate termination
provision. Under that provision, “[i]n the event that Alpha
elects to terminate our representation, [Gilbert] will be
entitled to a fee based upon the hours expended by the Firm on
this representation at the hourly rates normally charged by the
involved personnel for the type of work rendered.” Id. In the
alternative, the letter permits Gilbert to seek its contingency
fee if Alpha recovers within twelve months of terminating
Gilbert. The letter further provides that “[i]n any event,
Alpha will reimburse the Firm for all out-of-pocket expenses and
disbursements incurred by the Firm” in connection with Gilbert’s
representation of Alpha. Id.Gilbert represented Alpha from 2009 to 2011. During that
time, Gilbert initiated suit on Alpha’s behalf and ultimately
won a jury award of $26 million. After winning the case in the
district court, the Gilbert attorneys representing Alpha left
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the Firm and formed their own practice. Alpha terminated
Gilbert and hired the new firm to defend the judgment on appeal
and initiate judgment recovery actions. Shortly thereafter,
Gilbert asserted an attorney’s lien in the district court
against any future recovery, pursuant to Va. Code § 54.1-3932.
Represented by the new firm, Alpha obtained over $15.5 million
in recovery on the judgment, largely by negotiating settlements.
Alpha filed a motion to determine the value of Gilbert’s
lien. Gilbert sought to recover its expenses, but it did not
seek its contingency fee, conceding that the provision
authorizing it was not enforceable under Virginia law, and
therefore the Firm could only recover the value of its services
in quantum meruit. However, Gilbert sought to recover more than
just its hourly fees, arguing that its significant contribution
towards Alpha’s success in the litigation merited an increased
award of attorney’s fees. Gilbert therefore sought $4.5 million
in hourly fees, $1.8 million in costs, and a portion of the
contingency fee. The district court rejected Gilbert’s
arguments and ruled that Gilbert was entitled to recover
$1,237,720.00 in attorney’s fees and $720,621.67 in costs.
II.
Gilbert raises two arguments on appeal. The Firm first
contends that the district court failed to properly consider the
6
factors for quantum meruit fee awards set forth by the Supreme
Court of Virginia in County of Campbell v. Howard, 112 S.E. 876(Va. 1922). Second, Gilbert argues that the district court
erroneously applied a quantum meruit analysis to the cost issue
instead of enforcing the cost provision of the engagement
letter. We consider each argument in turn, reviewing de novo
the principles of state law upon which the district court based
its valuation of Gilbert’s lien. See Food Lion, Inc. v. Capital
Cities/ABC, Inc., 194 F.3d 505, 512 (4th Cir. 1999) (citing
Salve Regina College v. Russell, 499 U.S. 225, 231 (1991)).
A.
The parties agree that Virginia law governs Gilbert’s
recovery from its former client, and that Virginia law prohibits
Gilbert from enforcing its contingency fee agreement with Alpha.
Under Virginia law, “when, as here, an attorney employed under a
contingent fee contract is discharged without just cause and the
client employs another attorney who effects a recovery, the
discharged attorney is entitled to a fee based upon quantum
meruit” for work performed before the attorney was terminated.
Heinzman v. Fine, Fine, Legum & Fine, 234 S.E.2d 282, 285 (Va.
1977)(footnote omitted).
In County of Campbell v. Howard, the Supreme Court of
Virginia set forth the factors a court must consider when
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awarding attorney’s fees in quantum meruit. 112 S.E. at 885.
Those factors are
the amount and character of the services rendered, the
responsibility imposed; the labor, time and trouble
involved; the character and importance of the matter
in which the services are rendered; the amount of the
money or the value of the property to be affected; the
professional skill and experience called for; the
character and standing in their profession of the
attorneys; and whether or not the fee is absolute or
contingent, it being a recognized rule that an
attorney may properly charge a much larger fee where
it is to be contingent than where it is not so. The
result secured by the services of the attorney may
likewise be considered; but merely as bearing upon the
consideration of the efficiency with which they were
rendered, and, in that way, upon their value on a
quantum meruit, not from the standpoint of their value
to the client.
Id. The Supreme Court of Virginia has twice reaffirmed that
County of Campbell governs an assessment of fees in quantum
meruit. See Hughes v. Cole, 465 S.E.2d 820, 834 (Va. 1996);
Heinzman, 234 S.E.2d at 286 n.4.
Here, the district court correctly noted that quantum
meruit principles governed the fee award, but it failed to
analyze the County of Campbell factors. Although the district
court correctly cited Hughes, Heinzman, and County of Campbell
as the governing authorities, the district court employed a
“lodestar” analysis 3 to determine an appropriate fee award.
3
A court calculates a “lodestar” figure by “multiplying the
number of reasonable hours expended times a reasonable rate.”
Jones v. Southpeak Interactive Corp., 777 F.3d 658, 675-76 (4th
(Continued)
8
After reducing both the hours and rates Gilbert requested (based
upon inflated and vague billing), the district court awarded the
lodestar figure and stated in a footnote: “No further
adjustment, upward or downward, is warranted by application of
the County of Campbell factors.” J.A. at 459 n.23. The
district court did not explain this conclusion, and the opinion
neither lists the relevant factors nor expressly analyzes them.
As far as we can tell, the district court calculated a lodestar
figure and ended its analysis there.
Because the district court did not explain its reasoning
with respect to the County of Campbell factors, it is impossible
for us to review the district court’s analysis for an abuse of
discretion. This is troubling, given that the particular
circumstances of this case--where Gilbert represented Alpha from
initial pleadings to a $26 million judgment--suggest that the
contingent nature of the fee arrangement should have been a
significant factor in a quantum meruit analysis. See Lowe v.
Mid-Atlantic Coca-Cola Bottling Co., 33 Va. Cir. 361, 363 (Va.
Cir. Ct. 1994) (“Every hour spent in performance of a contingent
fee contract is an hour spent against the risk of no
Cir. 2015)(quoting McAfee v. Boczar, 738 F.3d 81, 88 (4th Cir.
2013)). A lodestar analysis is the first in a three-step
process for calculating attorney’s fees under federal law. Id.9
compensation at all. When, without fault of the attorney, it
becomes necessary to evaluate a quantum meruit charge for such
time, that a charge ‘much larger’ than normal may properly be
charged is a ‘recognized rule.’” (quoting Cty. of Campbell,
112 S.E. at 885)). The district court also failed to consider
the “result secured” in this case: a $26 million judgment.
Although a district court need not recite and make express
findings as to each and every factor, its failure here to
analyze relevant factors in detail sufficient to allow for
meaningful appellate review constitutes legal error.
Accordingly, we vacate the district court’s award of
attorney’s fees and remand with instructions to consider the
County of Campbell factors. 4
4 Gilbert asks us to instruct the district court, on remand,
to award Gilbert a prorated share of its contingency fee. It is
well established that a district court enjoys broad discretion
to award attorney’s fees based on its first-hand knowledge of
the case. See Robinson v. Equifax Info. Servs., LLC, 560 F.3d
235, 243 (4th Cir. 2009); see also Hughes, 465 S.E.2d at 834
(noting that an award of fees in quantum meruit is a
determination committed to “the sound judicial discretion of the
trial judge”). Thus, we decline to issue instructions for the
district court’s exercise of its broad discretion.
Gilbert also contends that the district court erred when it
awarded fees to Gilbert, a Washington, D.C., law firm, based on
the lower prevailing rates in the Eastern District of Virginia.
We do not decide the propriety of the rates requested by Gilbert
or those awarded by the district court. We do, however, remind
the district court that this is not a fee-shifting case (like
those cited in its opinion) and that under County of Campbell it
must consider the ‘skill and experience called for’ and the
(Continued)
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B.
We now turn to Gilbert’s argument that the district court
was required to enforce the cost provision of the agreement and
failed to do so. Upon review of the engagement letter, we
conclude that the district court overlooked the cost provision,
and failed to consider whether that provision is severable from
the contingency fee arrangement.
It appears that the district court assumed, after correctly
determining that the contingency fee provision was unenforceable
under Heinzman, that the entire engagement letter was
unenforceable. Based on that assumption, the district court
applied precedent from fee-shifting cases and analyzed, under a
quantum-meruit theory, whether Gilbert’s expenditures were
“reasonable.” This was erroneous, because there is no precedent
that extends Heinzman, which addresses attorney’s fees, to cost
agreements. In other words, the rule of Heinzman is limited to
attorney’s fees, and there was no basis for concluding that the
entire engagement agreement automatically became void when Alpha
terminated Gilbert. To the contrary, courts have held that
attorneys’ ‘standing in their profession.’ 112 S.E. at 885.
These factors suggest that when a litigant selects a firm with
higher rates, that firm may be entitled to a larger fee in
quantum meruit (depending, of course, on the balance of all the
factors).
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other provisions of an engagement agreement may be enforceable,
notwithstanding Virginia’s rules regarding the unenforceability
of a contingency provision by a terminated attorney. See, e.g.,
Morris Law Office, P.C. v. Tatum, 388 F. Supp. 2d 689, 693 n.2
(W.D. Va. 2005) (“Note that the court only finds that [the fee
provision] of the contract is void, but agrees . . . that other
separate provisions of the contract are enforceable. . . .
Therefore, [the law firm] is still entitled to recover its
expenses under paragraph 3.0 of the contract.”).
Here, Alpha and Gilbert entered into an agreement regarding
costs. The engagement letter provides that “[i]n the event that
Alpha elects to terminate our representation, . . . . Alpha
will reimburse the Firm for all out-of-pocket expenses and
disbursements incurred by the Firm . . . .” J.A. at 358. As we
have noted, the agreement lists recoverable expenses with
particular detail. The district court did not analyze Gilbert’s
expenditures in the context of this provision, and instead
employed a “reasonableness” inquiry to award costs. In a key
example, the district court held that Gilbert’s request for
expert fees and overhead costs was unreasonable, stating: “[i]t
is well-settled that attorneys ‘are clearly not entitled to
reimbursement of expenses where the request is for an amount
which is excessive or otherwise noncompensable.’ Absent a
specific agreement to the contrary, overhead expenses are
12
typically neither taxable nor recoverable costs.” J.A. at 460-
61 (internal citation omitted). But such a “specific
agreement,” under which Alpha expressly agreed to reimburse
Gilbert for expert fees and several types of overhead costs, did
exist. The district court did not analyze whether the cost
provision was enforceable, and its failure to consider the cost
provision was reversible error.
In sum, Gilbert’s entitlement to costs and expenses is
governed by a contract, and the district court’s analysis, which
overlooked the terms of the agreement, was erroneous.
Therefore, we vacate the award of costs and remand with
instructions to recalculate the cost award after considering the
“costs and expenses” and “termination” provisions of the
engagement agreement.
III.
For the foregoing reasons, the judgment of the district
court is
VACATED AND REMANDED.
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