Court Opinion

ID: 3168569
Source: CourtListenerOpinion
Date Created: 2016-01-11 20:00:44.926182+00
Date Added: 2024-06-11T11:59:43.646846
License: Public Domain

UNPUBLISHED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Vacated and remanded by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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
                              5
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
                                           7
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)
                               10
                                     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).

                                     11
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.

                                           13