Court Opinion

ID: 4557796
Source: CourtListenerOpinion
Date Created: 2020-08-21 18:00:17.583531+00
Date Added: 2024-06-11T09:47:26.001672
License: Public Domain

Case: 19-30688     Document: 00515536162        Page: 1     Date Filed: 08/21/2020

         United States Court of Appeals
              for the Fifth Circuit                             United States Court of Appeals
                                                                         Fifth Circuit

                                                                       FILED
                                                                 August 21, 2020
                                No. 19-30688
                                                                  Lyle W. Cayce
                                                                       Clerk
 Wiener, Weiss & Madison, A Professional Corporation;
 Kantrow Spaht Weaver & Blitzer,

                                                        Plaintiffs—Appellees,

                                    versus

 Leslie B. Fox,

                                                      Defendant—Appellant.

                 Appeal from the United States District Court
                    for the Western District of Louisiana
                           USDC No. 5:16-CV-850

 Before Barksdale, Haynes, and Willett, Circuit Judges.
 Don R. Willett, Circuit Judge:
       Wiener, Weiss & Madison and Kantrow, Spaht, Weaver & Blitzer (the
 Firms) sued Leslie Fox to enforce the terms of the parties’ contingency fee
 agreement. Fox argued that the agreement was unenforceable because,
 among other things, it violated certain rules of professional responsibility.
 The district court disagreed and granted summary judgment in favor of the
 Firms. We find that the agreement violates Louisiana Rule of Professional
 Conduct 1.8(a), so we vacate and remand.
Case: 19-30688       Document: 00515536162             Page: 2     Date Filed: 08/21/2020

                                     No. 19-30688

                                           I
        In 2009, four years after Fox filed for divorce from her husband,
 Harold L. Rosbottom, Jr., the divorce court appointed a receiver to assume
 control of the couple’s community estate, which consisted primarily of
 “state-licensed gaming enterprises” that operated in Louisiana (the
 Community Entities). “Less than one hour later,” Rosbottom filed for
 Chapter 11 bankruptcy in the Western District of Louisiana, effectively
 transferring the contested property division from Texas family court to
 federal bankruptcy court. So Fox engaged the Firms.
        The Firms originally agreed to represent Fox “in connection with the
 [] bankruptcy cases and any and all matters related to those bankruptcy
 cases” at an hourly rate. But because her assets were tied up in the
 bankruptcy proceedings, the Firms agreed to seek their fees directly from the
 court, payable from the community estate. On March 1, 2010, the Firms filed
 a “Substantial Contributions Application,” seeking more than $1.2 million
 in fees. The bankruptcy court approved the application, and the Firms were
 paid their $1.2 million, plus interest.
        Because the Firms believed it was “highly unlikely” that the court
 would approve another substantial contribution claim, but there was work left
 to be done, they proposed a contingency fee agreement. The agreement
 assigned the Firms up to a 35% interest 1 in the gross proceeds (whether cash
 or property) that Fox received for her claims against the bankruptcy estate
 and as an equity owner of the bankruptcy estate of her husband. Fox signed
 the agreement.

        1
          The percentage of the contingency fee varied depending on the overall value of
 Fox’s recovery.

                                           2
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                                      No. 19-30688

        By 2013, the Community Entities, whose assets had been depleted by
 Rosbottom’s mismanagement, 2 were enjoying a positive cashflow and had
 satisfied much of their debt. And on May 1, 2013, the bankruptcy court
 approved a proposed Plan of Reorganization for the Community Entities.
 The Plan granted Fox a 100% interest in ABC Holding, LLC—later renamed
 Louisiana Truck Stop and Gaming (LTSG)—a holding company comprised
 of the Community Entities. However, Fox could not receive her entire
 interest until all creditors were paid, Louisiana gaming authorities approved
 the transfer, and Fox obtained a final, unappealable divorce decree and
 community partition.
        Following the Plan’s approval, the Firms informed Fox that their
 work was complete and that, if Fox “wanted them to stay on,” she had “to
 increase the contingency percentage.” The Firms then provided her with a
 revised contingency agreement, which increased the Firms’ contingency fee
 to 40% of the gross proceeds, including her proceeds as the full equity owner
 of LTSG, from the bankruptcy proceedings. Fox signed the agreement.
        After the new agreement (the 2013 CFA) was signed, the Firms
 worked to expedite the Plan’s consummation, including by searching for a
 lender to loan LTSG funds to pay the Community Entities’ remaining
 creditors. Business First Bank ultimately provided two loans to LTSG, which
 Fox, exclusively, guaranteed.
        In early 2016, before Fox received full ownership and control of LTSG
 from the bankruptcy court, the Firms asked her to execute a new agreement.
 Having determined that the 2013 CFA was “unwieldy for LTSG as well as
 the [F]irms,” and “convinced that it was not the best approach for [Fox] or

        2
         In 2012, Rosbottom was convicted of bankruptcy fraud and money laundering and
 sentenced to ten years in federal prison. He was also ordered to pay restitution to Fox.

                                            3
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                                  No. 19-30688

 the companies,” the Firms sought to amend the 2013 CFA so that the
 “[F]irms receive 40% of any distributions of property or cash that [Fox]
 receive[s] rather than any outright ownership.” Though they had not done
 so with the previous agreements, the Firms recommended that Fox seek
 independent legal advice about whether to execute this new, eleven-page
 contingency agreement. Fox did just that, and her independent counsel
 advised against executing the revised agreement—advice Fox took.
        Presumably (though the parties don’t say exactly) relations soured
 between Fox and the Firms after she declined to sign the revised agreement,
 and the Firms eventually filed suit against Fox for breach of contract and to
 enforce specific performance of the 2013 CFA. In the alternative, the Firms
 raised a quantum meruit claim. Fox answered, in relevant part, that the
 Firms’ claims are “barred because their fee agreements violate the Louisiana
 Rules of Professional Conduct” and “are void due to vagueness and
 ambiguity.”
        The parties filed cross-motions for partial summary judgment
 concerning Fox’s claim that the Firms’ failure to comply with Louisiana Rule
 of Professional Conduct 1.8(a) invalidated the 2013 CFA as a matter of law.
 On March 20, 2018, the district court granted partial summary judgment for
 the Firms, concluding that Rule 1.8(a), which concerns entering into business
 transactions with clients, did not apply to the 2013 CFA.
        Two years later, the parties again filed cross-motions for summary
 judgment, this time concerning whether the fee-agreement modifications
 were “fair and reasonable” and whether the Firms’ fee was “reasonable” in
 compliance with Rule 1.5(a). The Firms also moved to strike Fox’s experts.
 The district court struck the experts and again granted summary judgment in
 favor of the Firms. Based on this ruling, the district court entered its final

                                       4
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                                        No. 19-30688

 judgment and ordered Fox “to specifically perform her obligations under the
 [2013 CFA] . . . and pay all fees, costs, and expenses due to the Firms.”
         Fox now appeals.

                                              II
         Fox argues, among other things, that the Firms failed to comply with
 Rule 1.8(a) of the Louisiana Rules of Professional Conduct, invalidating the
 2013 CFA. And because our resolution of this issue is dispositive, we do not
 reach Fox’s other arguments on appeal.
         We review the applicability of rules of ethics—a question of law—de
 novo, 3 and because we are sitting in diversity, we apply Louisiana law. 4
         But first, we must address the scope of our jurisdiction. The Firms
 argue that we do not have jurisdiction to consider whether they violated Rule
 1.8(a) because Fox did not notice this issue in her notice of appeal, failing to
 abide by the mandatory requirements of Federal Rule of Appellate Procedure
 3(c). 5 Specifically, the district court dismissed Fox’s Rule 1.8(a) argument in
 its March 20, 2018 summary judgment order, but Fox’s notice of appeal did
 not mention that order. Instead, she identified that she would be appealing:
 (1) the May 14, 2019 Judgment; (2) the May 20, 2019 Amended Judgment;
 and (3) the August 1, 2019 denial of Fox’s Motion for Reconsideration.

         3
           In re: Deepwater Horizon, 824 F.3d 571, 577 (5th Cir. 2016); see also F.D.I.C. v.
 U.S. Fire Ins. Co., 50 F.3d 1304, 1310–11 (5th Cir. 1995); cf. Pesantes v. United States, 621
F.2d 175, 177–78 (5th Cir. 1980).
         4
           See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Bloom v. Aftermath Pub.
 Adjusters, Inc., 902 F.3d 516, 518 (5th Cir. 2018).
         5
          See Torres v. Oakland Scavenger Co., 487 U.S. 312, 317 (1988); see also Hamer v.
 Neighborhood Hous. Serv. of Chi., 138 S. Ct. 13, 17 (2017) (“If properly invoked, mandatory
 claim-processing rules must be enforced.”).

                                              5
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                                            No. 19-30688

          Rule 3(c) “requires the appellant to ‘designate the judgment, order,
 or part thereof appealed from’ in the notice of appeal.” 6 The purpose of this
 rule, like so many rules of procedure, is to provide notice to the opposition
 and the court of the issues the appellant is challenging. 7 So where an appellant
 notices a particular judgment, we may not review other judgments “which
 are not expressly referred to” in the notice of appeal, 8 unless “the intent to
 appeal can be fairly inferred, and [] the appellee is not prejudiced or misled
 by the mistake.” 9
          In Friou, we considered whether we had jurisdiction to consider an
 appeal from the district court’s grant of summary judgment, even though it
 was not specified in the notice of appeal. 10 Instead, the notice specified the
 district court’s denial of a motion to reconsider. 11 We held that, although the
 appellant’s notice of appeal was imperfect, we still had jurisdiction because

          6
               New York Life Ins. Co. v. Deshotel, 142 F.3d 873, 884 (5th Cir. 1998).
          7
              Torres, 487 U.S. at 318.
          8
              C.A. May Marine Supply Co. v. Brunswick Corp., 649 F.2d 1049, 1056 (5th Cir. July
 1981).
          9
           Friou v. Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991) (“If there is an
 error in designating a judgment appealed, the error should not bar an appeal if the intent to
 appeal a particular judgment can be fairly inferred, and if the appellee is not prejudiced or
 misled by the mistake.”).
           We may also consider an unnoticed order where the appeal is from a final judgment
 and the unnoticed order is “inextricably intertwined with the final judgment.” New York
 Life Ins. Co., 142 F.3d at 884 (internal quotation omitted). While we need not reach whether
 the “intertwined with” path would also justify our jurisdiction in this case, we highlight
 what is certainly true of both lines of cases: we are principally concerned with ensuring fair
 notice to all parties and the courts. By focusing on notice, as opposed to strict construction
 of mechanical rules, we seek to discourage appellees’ games of “gotcha” while insisting on
 appellants’ abidance with the spirit of the Federal Rules of Appellate Procedure.
          10
948 F.2d at 974.
          11
Id.

                                                   6
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                                        No. 19-30688

 the unnoticed summary judgment order was the subject of the noticed denial
 of reconsideration. 12 Therefore, the appellee could fairly infer that appellants
 intended to appeal the underlying summary judgment order, 13 evidenced by
 the fact that the parties had fully briefed the issues concerning the grant of
 summary judgment and the appellee did not aver that it was prejudiced or
 misled by the imperfect notice of appeal. 14 The same is true in this case.
         The Firms point out that Fox’s notice of appeal did not reference the
 March 2018 order rejecting her Rule 1.8(a) argument. True. But though
 Fox’s notice may not have been perfect, it was sufficient to provide us with
 jurisdiction. 15 As was the case in Friou, Fox here noticed the denial of her
 motion for reconsideration, and in that motion, Fox had asked the district
 court to reconsider its summary judgment ruling regarding Rule 1.8(a). And
 the Firms acknowledged the Rule 1.8(a) issue in their response to Fox’s
 motion. 16 Therefore, the Firms could fairly infer that Fox intended to appeal
 the Rule 1.8(a) summary judgment ruling because it was a subject of the
 motion to reconsider that she did notice. 17 Further, both parties briefed the
 underlying Rule 1.8(a) issue in their briefs on appeal, and the Firms have not

         12
Id.
         13
 Id.
         14
            Id.; see also DeVoss v. Sw. Airlines Co., 903 F.3d 487, 489 n.1 (5th Cir. 2018)
 (finding that failure to adequately brief an argument on appeal forfeits it).
         15
              Friou, 948 F.2d at 974
         16
            In their opposition to the motion for reconsideration, the Firms noted that “Fox
 has asked the court to reconsider its March 20, 2018 ruling on the parties’ prior cross-
 motions for summary judgment on the applicability . . . of . . . 1.8(a).” They did not argue
 that this request was inadequately, untimely, or improperly raised. So, the Firms seem to
 have been on notice and accepted that the March 2018 order concerning Rule 1.8(a) was
 part of the Motion for Reconsideration.
         17
              Friou, 948 F.2d at 974.

                                              7
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                                          No. 19-30688

 argued that they were prejudiced or misled by Fox’s imperfect notice. Taken
 together, these facts and our liberal construction demonstrate that any
 inadequacies in Fox’s notice of appeal do not deprive us of jurisdiction.

                                                III
         Satisfied of our jurisdiction, we can turn to the law. Louisiana Rule of
 Professional Conduct 1.8(a) provides that “[a] lawyer shall not enter into a
 business transaction with a client” unless, among other things, the client is
 (1) advised in writing “of the desirability of seeking” the advice of
 independent legal counsel; and (2) given a reasonable opportunity to do so.
 Without question, the Firms did not advise Fox to seek the advice of
 independent counsel before signing the 2013 CFA, and “[a]n attorney-client
 contract which directly violates a disciplinary rule is unenforceable.” 18 So the
 only question that remains is whether the 2013 CFA amounted to a business
 transaction, such that the Firms violated Rule 1.8(a) by failing to encourage
 Fox to consult with an independent attorney.
         The Firms argue—and the district court concluded—that the 2013
 CFA was not a business transaction because it did not convey an interest in
 property; it only provided the Firms a future claim to 40% of the proceeds of
 the bankruptcy proceedings, to the extent there were any. But this strained
 definition of “business transaction” deprives Rule 1.8(a) of its very purpose
 and borders on (if not crosses over into) absurdity. As members of this court
 have urged, Rule 1.8(a) exists to impose “prohibitions and restrictions aimed
 at preventing . . . conflicts” between the client’s and the lawyer’s own
 interests. 19 And as the Nevada Supreme Court ably explained, “[a] business

         18
              Hodges v. Reasonover, 103 So. 3d 1069, 1073 (La. 2012).
         19
           Beets v. Scott, 65 F.3d 1258, 1297 (5th Cir. 1995) (King, J., dissenting, joined by
 Politz, Garwood, Smith, and Wiener, JJ.).

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                                        No. 19-30688

 transaction occurs when an attorney places himself in a position wherein the
 exercise of his professional judgment on behalf of his clients would be
 affected by his own financial interest.” 20
         Contrary to the Firms’ suggestion otherwise, it seems such potential
 conflicts are rarely more present than during a contingency fee relationship
 where the attorney seeks to gain a property interest in the client’s business at
 the end of the representation. At bottom, the risk of conflict, and in turn the
 appearance of impropriety, 21 is certainly no less present where an attorney
 possesses a future interest in a client’s property as opposed to a present
 interest. For example, in this case, the Firms had a financial interest in Fox
 obtaining a loan to pay off LTSG’s creditors more quickly. Yet, it was Fox,
 not the Firms, who had to bear the risk of personally guaranteeing that loan.
 Regardless of whether paying off the creditors sooner was in Fox’s best
 interest, it is certainly true that because of the 2013 CFA, the Firms had their
 own financial interest in Fox obtaining the loan.
         Louisiana has not squarely answered whether a contingency fee
 agreement for an ownership interest in a client’s company raises Rule 1.8(a)
 concerns, but it has recognized that at least some contingency fee agreements
 implicate the Rule, irrespective of the fact that contingency fee agreements,

         20
           In re Discipline of Hardy, 422 P.3d 708, *2 (Nev. July 19, 2018) (Table) (internal
 quotation omitted).
         21
             See Zylstra v. Safeway Stores, Inc., 578 F.2d 102, 104 (5th Cir. 1978)
 (“[W]henever an attorney is confronted with a potential for choosing between actions
 which may benefit himself financially and an action which may benefit the class which he
 represents there is a reasonable possibility that some specifically identifiable impropriety
 will occur.”); Woods v. Covington Cty. Bank, 537 F.2d 804, 807 n.1 (5th Cir. 1976) (noting
 that an attorney must “avoid even the appearance of impropriety” (internal quotation
 omitted)); Horaist v. Doctor’s Hosp. of Opelousas, 266 F.3d 261, 266 (5th Cir. 2001)
 (considering the appearance of impropriety when considering whether to disqualify a
 client’s attorney from acting as a witness.)

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                                          No. 19-30688

  by their nature, provide a future interest. 22 This conclusion alone belies the
  Firms’ argument that future interests cannot amount to business
  transactions.
          And though few courts have addressed the exact question before us
  now, those who have expressly reject the Firms’ argument. For instance, the
  Eleventh Circuit determined that a contingency fee agreement providing
  counsel stock in the client’s corporation amounts to a business transaction. 23
  The court reasoned that such an agreement carries the risk that the attorney
  will overreach in advising his client because of his own financial interests in
  the matter. 24 The Southern District of New York, 25 the Western District of
  Kentucky, 26 and a California state court 27—from sea to shining sea—all

          22
            In re Curry, 16 So. 3d 1139, 1154 (La. 2009) (finding that attorney violated Rule
  1.8(a) where client and attorneys entered into contingency fee agreement though attorneys
  did not urge their client to seek the advice of independent counsel).
          23
              Mursten v. Caporella, 619 F. App’x 832, 834-36 (11th Cir. 2015). While the
  contingency fee agreement here concerned an ownership interest in an LLC, not stock in a
  corporation, ownership interest is the LLC.-equivalent of corporate stock. See Olmstead v.
  F.T.C., 44 So. 3d 76, 80 (Fla. 2010) (“An LLC is a type of corporate entity, and an
  ownership interest in an LLC is personal property that is reasonably understood to fall
  within the scope of ‘corporate stock.’”); cf. When the Lawyer Owns the Client: Equity
  Interests as Attorney’s Fees, 15 Geo. J. Legal Ethics 759 (2002) (using the terms
  “stock” and “ownership interest” interchangeably).
          24
               Mursten, 619 F. App’x at 834-36.
          25
            Held & Hines LLP v. Hussain, 2018 WL 4233809, at *4 (S.D.N.Y. July 31, 2018)
  (finding Rule 1.8(a) implicated where contingency agreement created possibility of firm
  receiving ownership interest in client’s business entities).
          26
             Inst’l Labor Advisors, LLC v. Allied Res., Inc., 2014 WL 4211196, at *2, *6 (W.D.
  Ky. Aug. 25, 2014) (finding Rule 1.8(a) implicated where contingency agreement entitled
  firm to 5% of “net profits realized by client in the ownership, operation, or sale” of certain
  reserves).
          27
             Passante v. McWilliam, 62 Cal. Rptr. 2d 298 (Cal. Ct. App. 1997) (finding rules
  of ethics implicated by contingency fee agreement providing 3% interest in company if deal
  was accomplished).

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                                       No. 19-30688

  reached the same result. Similarly, the American Bar Association recognizes
  that a fee arrangement that results in an attorney receiving stock in exchange
  for his services is subject to Model Rule of Professional Conduct 1.8(a), a
  substantively identical rule to Louisiana’s Rule 1.8(a). 28
         We agree with these courts that a contingency fee arrangement
  resulting in an attorney owning part of the client’s business is a business
  transaction under Rule 1.8(a). Because the terms of the 2013 CFA give the
  Firms an ownership interest in LTSG, Rule 1.8(a) applies, and the Firms
  were required to advise Fox to seek the advice of independent counsel. Fox
  did not have to take this advice, but the Firms were obligated to give it. Thus,
  the 2013 CFA is void. To the extent the Firms seek to revert to the original
  CFA, executed in 2010, it is likewise void for the same reason.
                                     CONCLUSION
         The district court misapplied Louisiana Rule of Professional Conduct
  1.8(a), so we VACATE the final judgment, GRANT partial summary
  judgment in favor of Fox, and REMAND to the district court for
  consideration of the Firms’ alternative quantum meruit claim.

         28
              ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. No. 00-418 (2000).

                                             11