Court Opinion

ID: 3051313
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:35:03.346186+00
Date Added: 2024-06-11T08:13:31.862887
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

BROWN & BAIN, P.A., an Arizona          
professional association,
                  Plaintiff-Appellee,
                 v.
JOHN M. O’QUINN, an individual;               No. 06-15931
JOHN M. O’QUINN & ASSOCIATES
L.L.P., a Texas limited liability              D.C. No.
                                            CV-03-00923-ROS
partnership; JOHN M. O’QUINN, a
Texas professional corporation;                OPINION
JOHN M. O’QUINN LAW FIRM
PLLC, a Texas limited liability
company; O’QUINN, KERENSKY &
MCANINCH; JANE DOE O’QUINN,
             Defendants-Appellants.
                                        
        Appeal from the United States District Court
                 for the District of Arizona
         Roslyn O. Silver, District Judge, Presiding

                  Argued and Submitted
       February 13, 2008—San Francisco, California

                     Filed March 6, 2008

      Before: John T. Noonan, Sidney R. Thomas, and
                Jay S. Bybee, Circuit Judges.

                  Opinion by Judge Noonan

                             2063
2066               BROWN & BAIN v. O’QUINN
                          COUNSEL

Neil C. McCabe, Houston, Texas, for the defendants-
appellants.

Lawrence A. Kasten, Phoenix, Arizona, for the plaintiff-
appellee.

                          OPINION

NOONAN, Circuit Judge:

   Brown & Bain, P.A. (Brown & Bain), a Phoenix law firm,
sued John M. O’Quinn, et al. (O’Quinn), a Houston law firm,
for fees owed to it on the termination of a lawsuit. The district
court gave judgment for Brown & Bain. O’Quinn appeals.
The case is not without interest for the professional responsi-
bility of lawyers inter se. We affirm the judgment of the dis-
trict court.

                            FACTS

   In 1991, approximately nine hundred claimants in the
Phoenix area joined in a suit against Motorola alleging dam-
ages of over $100 million from environmental contamination.
The law firm bringing the action dissolved. In 1993, O’Quinn
took on the representation of most of the claimants (the McIn-
tire Plaintiffs). Per contract with O’Quinn, each plaintiff
agreed that O’Quinn would be paid a contingent fee of 40%
“of the total sums or fair market value of property collected
or received from trial or settlement of Client’s claims.” Each
client was to receive 60% “of the total recovery or settlement,
less the costs and expenses of litigation.” The client agreed
that “all court costs and expenses of litigation Attorneys have
paid or incurred” should be “reimbursed out of Client’s 60%
share of the Total Recovery by settlement or otherwise.” For
                  BROWN & BAIN v. O’QUINN                 2067
this purpose, expenses were defined to include but not be lim-
ited to “depositions, expert witness and consultant fees, sur-
veys, maps, copies, exhibits, testing, models, travel, meals,
lodging, storage, rentals, equipment, and other expenses rea-
sonably necessary to the prosecution of the claims other than
the salaries and normal office overhead of Attorneys.”

   On April 16, 1993, O’Quinn engaged Brown & Bain to
assist in the suit. The “engagement letter,” drafted by Brown
& Bain, provided that Brown & Bain would be paid $135 per
hour for attorneys’ time and $45 per hour for paralegal time
— a rate identified in the engagement letter as “the discount
rate.” At the termination of the action by trial or settlement,
Brown & Bain was entitled to an additional payment of
$155.25 per hour for attorney’s time and $51.75 per hour for
paralegal time. These “additional payments” were not to be
paid Brown & Bain “until an amount equal to the discount
rate payments previously paid to [Brown & Bain] are recov-
ered by [O’Quinn] and the other plaintiffs’ counsel working
on the matter (in the aggregate) from the proceeds of the liti-
gation. After [O’Quinn] and the other plaintiffs’ counsel
working on the matter (in the aggregate) have recovered an
amount equal to the discount rate payments (exclusive of
costs reimbursement, which are to come from plaintiffs’ share
of the recovery), the remainder of our respective recoveries
will be divided one-half to [O’Quinn] and the other plaintiffs’
counsel working on the matter and one-half to Brown & Bain
until our additional payments have been fully paid. Any
recovery remaining after payment of Brown & Bain’s dis-
count rate and additional payments in this action belongs to
[O’Quinn] and the other plaintiffs’ counsel working on the
matter.”

   In accordance with the engagement letter, Brown & Bain
billed O’Quinn on a monthly basis and was paid the discount
rate monthly to a total of $2,920,975.17 for 26,000 hours of
work.
2068              BROWN & BAIN v. O’QUINN
   In June 1998, O’Quinn and Brown & Bain parted ways —
Brown & Bain says because its role in the management of the
case was being marginalized; O’Quinn says because a deci-
sion in an Arizona state case cast grave doubt as to success
in the McIntire case. Brown & Bain wrote O’Quinn that “now
is the time for Brown & Bain to step aside gracefully” and
suggested Peter Osetek as a Phoenix lawyer who could
replace it as local counsel. On August 31, 1998, Brown &
Bain moved to withdraw as counsel; on September 1, the
motion was granted. The record shows no objection by
O’Quinn or any of the plaintiffs. The record does show that
Peter Osetek was paid $768,550 by O’Quinn.

   The record also shows that as early as March 1996, the new
Phoenix law firm of Allen & Price had been formed and had
offered to work on the McIntire litigation at “a significantly
lower cost” than Brown & Bain’s “standard rate” of $230 an
hour. The new firm had been formed by two former partners
in Brown & Bain, of whom one, Charles S. Price, had “a sig-
nificant personal and professional investment in the McIntire
case.” The record shows that O’Quinn paid Allen & Price
$114,088.

   In addition to retaining local counsel, O’Quinn opened its
own office in Phoenix, devoted wholly to the McIntire litiga-
tion. O’Quinn’s “internal Settlement Sheet” states “Office
Salaries — Phoenix” as $4,583,523.41 and “Office Exp.—
Phoenix” as $2,594,812.64.

  In January 2002, O’Quinn settled the McIntire case.
Motorola agreed to pay $26,301,921.39. O’Quinn treated
$13,727,597.66 of this amount as costs chargeable to its cli-
ents. It paid the clients $2,467,335.12. O’Quinn retained
roughly 40% of the settlement, $10,106,988.61. Brown &
Bain asked to be paid the additional payments provided by the
engagement letter. O’Quinn refused.
                  BROWN & BAIN v. O’QUINN                2069
                      PROCEEDINGS

   On March 28, 2003, Brown & Bain filed this suit for
breach of contract in Arizona state court. O’Quinn removed
the action to federal court and also filed a counterclaim for
repudiation of the contract. In December 2003, both sides
filed for summary judgment. On September 30, 2004, District
Judge Susan R. Bolton gave partial summary judgment for
Brown & Bain. Applying the Restatement (Third) of the Law
Governing Lawyers §§ 37 and 40, Judge Bolton ruled that
Brown & Bain had not forfeited the additional payments by
withdrawing. No misconduct by the firm had been shown.
The additional compensation would not prejudice the clients.
Judge Bolton also denied O’Quinn’s motion for summary
judgment, but reserved the question of whether Brown & Bain
was owed the additional payments.

   On February 22, 2006, District Judge Roslyn O. Silver
ruled that under Arizona law the engagement letter had cre-
ated an obligation for O’Quinn to make the additional pay-
ments. The court took note of the opinion submitted by
Geoffrey Hazard, O’Quinn’s expert, that under Arizona Rules
of Professional Conduct ER 1.5, a lawyer’s fee had to be rea-
sonable and that Brown & Bain’s was not. The court observed
that Hazard’s treatise The Law of Lawyering states that law-
yers “are generally held to their contract as between them-
selves so long as the total fee paid by the client is not
unreasonable.” 1 Geoffrey C. Hazard, Jr. & W. William
Hodes, The Law of Lawyering § 8.22 at 8 56.1 (3d ed. 2001
supp.). Payments to Brown & Bain would not affect the fees
paid by the clients. The court gave summary judgment for
Brown & Bain.

  O’Quinn appeals.

                        ANALYSIS

   Two issues are presented by O’Quinn: (1) whether the term
“recovery” in the engagement letter is so clear that its mean-
2070               BROWN & BAIN v. O’QUINN
ing could be determined as a matter of law and (2) whether
Brown & Bain had abandoned the contract and so was not
entitled to further compensation. We review de novo, viewing
the evidence in the light most favorable to O’Quinn, the non-
moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). We apply Arizona law. When interpreting a
contract, Arizona courts attempt to ascertain and give effect
to the intention of the parties at the time the contract was
made.” Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d
1134, 1139 (Ariz. 1993) (internal citation omitted). A court
will consider extrinsic evidence only if the contract language
is “reasonably susceptible to the interpretation asserted by its
proponent.” Id. at 1140.

   O’Quinn’s position is that its liability for the additional
payments began only when O’Quinn had recovered all the
expenses it had absorbed. On the basis of its own accounting
to itself, O’Quinn made absolutely no recovery from the liti-
gation but suffered a loss of $3,195,174.19. Its Internal Settle-
ment Sheet shows the following amounts that O’Quinn
deducts from the proceeds it received as its 40% share of the
settlement.

    UNRECOVERED EXPENSES NOT CHARGED
    TO CLIENTS:

    Allen & Price                               114,088.00
    Brown & Bain Inc.                         2,920,975.17
    Cohen Kennedy Down & Quigley                165,659.00
    Peter Osetek                                768,550.00
    Robert N. Hinton & Associates               662,500.00
    Contract Legal                              212,829.48
    Office Salaries-Phoenix                   4,583,523.41
    Office Exp-Phoenix                        2,594,812.64
    Dennis Reich & Stephanie Shapiro          1,000,000.00
    Additional Expenses                         293,152.54

  [1] O’Quinn’s argument fails, most notably because the
payments to Brown & Bain are to be made when O’Quinn has
                  BROWN & BAIN v. O’QUINN                  2071
“recovered an amount equal to the discount rate payments
(exclusive of costs reimbursement[s], which are to come from
plaintiffs’ share of the recovery).” According to the plain lan-
guage of this provision, costs reimbursements are not to be
deducted in determining the “amount equal to the discount
rate payments.” O’Quinn’s obligation is triggered when it has
recovered an amount — not a net amount — equivalent to the
payments already made. Unquestionably, when O’Quinn
received an amount of over $10 million from the settlement,
it had recovered several times the $2.9 million it had dis-
bursed in discount rate payments.

   [2] The additional payments are to be made only after
O’Quinn and “other plaintiffs’ counsel” have received “in the
aggregate” an amount equal to the discount payments already
made. On O’Quinn’s construction of the contract and its esti-
mate of its expenses, the amounts received by all the lawyers
should be aggregated and the sums paid to the other plaintiffs’
lawyers such as Allen & Price, Osetek, and Brown & Bain
itself would then be deducted; so the aggregation of the fees
would be an exercise in futility. That can’t be what the con-
tract means. It is the total gross amount received by the law-
yers that acts as the trigger for the “additional payments” to
Brown & Bain.

   The term “recovery,” on which O’Quinn’s argument
focuses, is used first in the phrase relating to the reimburse-
ment of costs. In that context it must mean “gross recovery”
because the phrase provides for charging the costs against
what the plaintiffs received. The second time “recovery” is
used, it again specifies the gross amount, to which, after spec-
ified deductions, O’Quinn is entitled.

   [3] The client engagement letters, drafted by O’Quinn, use
“settlement” as an alternative to “total recovery.” In this
usage, O’Quinn equated what was received in a settlement to
“the total recovery,” then carefully provided for the deduction
of costs and expenses. This contract language is in stark con-
2072              BROWN & BAIN v. O’QUINN
trast to that of the Brown & Bain engagement letter’s promise
to pay Brown & Bain after O’Quinn had recovered “an
amount equal to the discount rate payments . . . from the pro-
ceeds of the litigation.” The proceeds are not restricted to net
proceeds.

   [4] O’Quinn’s second line of defense attempts to draw on
the opinion letter furnished by an outstanding authority on
legal ethics and lawyering, Professor Geoffrey Hazard. Pro-
fessor Hazard does not profess to comment on the engage-
ment letter itself, but first on whether Brown & Bain’s
compensation would violate Arizona Rules of Professional
Conduct ER 1.5 by being unreasonable. He accepts as proper
the charges to itself made by O’Quinn against the $10 million
it recovered instead of charging them against the clients. The
result of O’Quinn’s absorbing the charges, he notes, was to
“have a little more money” for the clients. The propriety of
O’Quinn’s charges is, however, not the issue. However ethi-
cally appropriate, the absorption of the charges did not dimin-
ish what O’Quinn had received from the proceeds. However
it accounted to itself, it remained liable to Brown & Bain for
the amount it had agreed to pay after it had received an
amount equivalent to the discount rate payments.

   Accepting O’Quinn’s Internal Settlement Sheet, Professor
Hazard believed O’Quinn had suffered a loss of $3.2 million
while Brown & Bain was attempting to get a total fee of $6.2
million. He thought that unreasonable and unethical. But Ari-
zona Rules of Professional Conduct ER 1.5 govern the rela-
tion between lawyer and client, not between lawyer and
lawyer. As Judge Silver noted, additional payments to Brown
& Bain would have no effect on the fees already charged the
client.

   [5] It might be urged, nonetheless, that O’Quinn had
absorbed the expenses in order to save something to give the
clients. Even with this indulgence, individual clients averaged
only $2,100 apiece. They might not have agreed to any settle-
                  BROWN & BAIN v. O’QUINN                  2073
ment if they had gotten nothing. But O’Quinn’s necessity of
putting something on the table for the clients does not deter-
mine the reasonableness of the allocation of charges among
the lawyers themselves.

   O’Quinn’s alleged loss is actually unproved. On its Internal
Settlement Sheet the single largest payment is $4,583,523 for
Office Salaries-Phoenix. This charge was not generated by
overhead for the Phoenix office, listed separately as
$2,594,812. Nothing in the record shows the Phoenix salaries
to be different from the Houston salaries of O’Quinn. If “loss”
was to be part of its case, O’Quinn had the burden of estab-
lishing it.

   Other items on the Internal Settlement Sheet went to law-
yers identified in the record — Allen & Price; Osetek; Robert
N. Hinton & Associates; Dennis Reich; Stephanie Shapiro;
Brown & Bain itself. These amounts paid as attorneys’ fees
were not properly costs to O’Quinn; they were income and
potential profit to the attorneys. If salaries and lawyers’ fees
are excluded from O’Quinn’s expenses, its total expenses
dwindle from $13.3 million to less than $3 million, for “Of-
fice Exp.—Phoenix” and unspecified “Additional Expenses.”
O’Quinn does not establish a loss.

   Professor Hazard also wrote in his opinion letter that
Brown & Bain’s “quitting was a breach of its contractual obli-
gations with O’Quinn” and that Brown & Bain “had an obli-
gation to consider the interests of the clients.” He noted that
the Restatement (Third) of the Law Governing Lawyers, § 32,
Comment c provides that a lawyer “ordinarily should see [a
representation] through to the contemplated end” when failure
to do so would inflict a burden on the client.

  [6] No evidence, however, was presented by O’Quinn that
any burden was put on any client by Brown & Bain’s with-
drawal. Brown & Bain gave ample notice of its desire to with-
draw and designated a lawyer, in addition to Allen & Price,
2074              BROWN & BAIN v. O’QUINN
who could be local counsel for O’Quinn, which had its own
amply funded office in Phoenix. It was part of O’Quinn’s
defense to show that the withdrawal of Brown & Bain had
burdened the clients. O’Quinn did not do so.

   [7] O’Quinn has not persuaded us that either Judge Bolton
or Judge Silver erred in their rulings. Rather, they interpreted
the engagement letter in accordance with Arizona law and
faithfully applied the Restatement of the Law Governing Law-
yers.

  For these reasons, the judgment is AFFIRMED.

  Costs are awarded to Brown & Bain.