Court Opinion

ID: 4529385
Source: CourtListenerOpinion
Date Created: 2020-04-28 16:00:41.40135+00
Date Added: 2024-06-11T12:21:28.467387
License: Public Domain

United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 18-2451
                         ___________________________

                              Padden Law Firm, PLLC

                         lllllllllllllllllllllMovant - Appellant

Bridgette Trice, as trustee for the heirs and next of kin of Devyn Bolton, deceased

                         lllllllllllllllllllllPlaintiff - Appellee

 Koua Fong Lee; Panghoua Moua; Nhia Koua Lee; Nong Lee; American Family
 Mutual Insurance Company, as subrogee of Koua Fong Lee; Jemee Lee, a minor
  child; State of Minnesota, Department of Human Services; UCare Minnesota

                        lllllllllllllllllllllIntervenor Plaintiffs

                                            v.

  Toyota Motor Corporation; Toyota Motor North America, Inc., a California
   corporation; Calty Design Research, Inc.; Toyota Motor Engineering and
  Manufacturing North America, Inc., a Kentucky corporation; Toyota Motor
Manufacturing, Kentucky, Inc.; Toyota Motor Sales, USA, Inc., a California corporation

                             lllllllllllllllllllllDefendants

                                    Robert Bolton

                              lllllllllllllllllllllClaimant

                               Napoli Shkolnik PLLC

                             lllllllllllllllllllllMovant
                         ___________________________
                               No. 18-2576
                       ___________________________

                             Napoli Shkolnik PLLC

                              lllllllllllllllllllllMovant

                            Padden Law Firm, PLLC

                       lllllllllllllllllllllMovant - Appellant

                               Quincy Ray Adams

                       lllllllllllllllllllllPlaintiff - Appellee

                               Medica Health Plans

                       lllllllllllllllllllllIntervenor Plaintiff

                                          v.

Toyota Motor Corporation, a Japanese corporation; Toyota Motor Engineering and
   Manufacturing North America, Inc., a Kentucky corporation; Toyota Motor
  Manufacturing, Kentucky, Inc., a Kentucky corporation; Toyota Motor North
    America, Inc., a California corporation; Toyota Motor Sales, USA, Inc., a
  California corporation; Calty Design Research, Inc., a California corporation

                           lllllllllllllllllllllDefendants
                                   ____________

                   Appeals from United States District Court
                         for the District of Minnesota
                                 ____________

                                         -2-
                            Submitted: October 16, 2019
                               Filed: April 28, 2020
                                  ____________

Before COLLOTON, BEAM, and KELLY, Circuit Judges.
                          ____________

BEAM, Circuit Judge.

       The Padden Law Firm appeals the district court’s1 decision to alter the
distribution of attorney’s fees set forth in a contingency fee sharing agreement
between two law firms in a products liability case. We affirm.

I.    BACKGROUND

       In February 2015, a federal jury in Minnesota found that a product defect in a
1996 Toyota Camry directly caused the 2006 car accident that permanently injured
Quincy Adams and rendered Bridgette Trice’s daughter, six-year-old Devyn Bolton,
a quadriplegic. Devyn died from those injuries in 2007. On appeal, this court
affirmed the jury’s finding of liability but remanded the judgment amounts to the
district court for further consideration. Adams v. Toyota Motor Corp., 867 F.3d 903
(8th Cir. 2017). Thereafter, the parties stipulated to judgment amounts of
$5,543,453.22 for Trice and $1,717,384.82 for Adams (collectively, “Plaintiffs”).

      Plaintiffs’ jury awards were subject to a 40% contingency fee in favor of
several law firms that represented them over the lengthy course of the litigation, and
a dispute remains over the allocation of 45% of that contingency fee, which totals

      1
       The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.

                                         -3-
$997,090.83 in the Trice case and $308,885.68 in the Adams case. Three firms are
vying for a portion of that fee.

       In early 2010, Plaintiffs first retained the Padden Firm, Michael Padden,2
principal, to represent them. Soon after, the Padden Firm requested and obtained the
assistance of the White Firm to serve as additional counsel. In April 2010, another
law firm was added, the Chesley Firm, but ultimately this firm stepped away in 2012,
as Mr. Chesley was facing disbarment. Chesley recommended hiring the Napoli Firm
as lead counsel, and the Plaintiffs consented to this decision. However, the Napoli
Firm was ultimately terminated as counsel.3 Following termination of the Napoli
Firm as lead counsel, Plaintiffs retained Markovits, Stock & DeMarco, LLC (MSD)
to assume the role of lead counsel. At this point, in April 2014, Plaintiffs signed a
new retention agreement with the various law firms that (a) reaffirmed the 40%
contingency fee structure that had been in place since the inception; (b) directed MSD
to serve as lead litigation counsel should the case go to trial; and (c) provided for an
allocation of the 40% contingent fee as follows: 55% to MSD, 30% to the Padden
Firm, and 15% to the White Firm. Nonetheless, as the case went to trial, the White
Firm lifted a much heavier oar than the Padden Firm in helping MSD with trial
preparation, pretrial motion practice, and actual trial participation. In fact, neither
Padden, nor anyone else from the Padden Firm attended trial. In February 2015,
shortly after the jury verdict, MSD sent the Plaintiffs a letter somewhat modifying the
April 2014 agreement, specifying that MSD was to act as sole lead counsel going

      2
       When referring to the Padden Firm, we will designate it as such; a reference
to “Padden” is a reference to the individual, Michael Padden.
      3
        The Napoli Firm is one of the three firms vying for a portion of the
contingency fee, and is the appellant in an appeal regarding a quantum meruit claim
for fees. We recently affirmed the district court’s holding that the Napoli Firm was
not entitled to any fee. Napoli Shkolnik PLLC v. Toyota Motor Corp., No. 18-2172,
2020 WL 1814269 (8th Cir. Apr. 10, 2020).

                                          -4-
forward, and authorized MSD to make equitable adjustments to the fees of MSD, the
White Firm, and the Padden Firm to account for work performed post-trial and on
appeal.

       The Plaintiffs brought the current motion, as relevant, asking the district court
to redistribute the attorney’s fees between the Padden and White Firms, asserting that
the remaining 45% of the contingency fee should be altered by paying 30% to the
White Firm and 15% to the Padden Firm–the opposite of what was provided for in the
April 2014 agreement. Plaintiffs contend that this allocation more accurately reflects
the actual contributions of each firm during all stages of litigation.

       The district court made explicit findings about the proportional contributions
and activities of the Padden Firm throughout the litigation. The district court
observed that over the many years of its overseeing this litigation, the Padden Firm
was minimally involved in the substantive work on the cases, whereas the White Firm
expended substantial time and effort. The court stated that the Padden Firm only
“nominally participated in the pre-trial litigation motion practice or strategy, did not
participate in preparing the case for trial, did not participate in or attend the trial, did
not contact Plaintiffs during trial, did not participate in the post-trial and appellate
stages of the cases, did not work with Plaintiffs to finalize the distribution statements,
and did not contribute to the financing of this case.” On the other hand, the court
found that the White Firm extensively assisted MSD in getting up to speed after the
Napoli Firm was terminated, and helped prepare motions in limine, jury instructions,
assisted with legal issues at trial and post-trial, as well as provided appellate support.
Accordingly, the court found that the fee division in the April 2014 agreement should
“yield to a more fair reflection of the work actually performed, which is 15% to the
Padden Firm and 30% to the White Firm.”

                                            -5-
       In arriving at its decision, the district court rejected the Padden Firm’s
arguments that the time Padden spent orchestrating media coverage for the case
should have been taken into account, because the court found that generating media
attention was not a substantive legal contribution. The Padden Firm also argued that
it should get credit for hiring a quality expert car mechanic. The district court agreed
that while Padden “deserve[d] credit for hiring a competent mechanic, this was not
major, substantive legal work.” Finally, Padden posited that the Plaintiffs did not like
him and that is why they were bringing the current motion (and also why they
switched the distributions from 30% to 15% in the February 2015 post-trial
agreement). However, the district court rejected that argument because of its
observations of the Plaintiffs and the various attorneys throughout the course of the
trial. Ultimately, the district court concluded that Plaintiffs’ proposed fee allocation
of 15% to the Padden Firm and 30% to the White Firm was appropriate, citing the
Minnesota Rules of Professional Conduct, Minnesota case law, and primarily the
actual workload between the various law firms at all stages of the litigation.

       In a post-trial motion pursuant to Federal Rules of Civil Procedure 52(b) and
59(e), the Padden Firm argued to the district court, for the first time, that it was jointly
responsible for the case and therefore the April 2014 division of fees agreement
should prevail. In ruling on the post-trial motion, the district court noted that
proportionality, but not the joint responsibility argument, was previously raised and
found the joint responsibility argument to be waived. Alternatively, the court held
that even considering the merits of the joint responsibility argument, the Padden Firm
would not prevail under that theory because the Padden firm did not assume joint
financial responsibility for litigation expenses or ethical responsibility for the case.
The Padden Firm appeals, arguing it was entitled to 30% of the contingent fee based
upon the April 2014 agreement because it did that amount of work, proportionally
speaking, on the case, and that it is entitled to a fee because it was jointly responsible
for the case.

                                            -6-
II.   DISCUSSION

       Minnesota substantive law applies in this dispute as a result of diversity
jurisdiction. Qwest Commc’ns Co. v. Free Conferencing Corp., 905 F.3d 1068, 1074
(8th Cir. 2018). We review the district court’s application of state law de novo.
Bjornestad v. Progressive N. Ins. Co., 664 F.3d 1195, 1198 (8th Cir. 2011). "We
review de novo the legal issues related to the award of attorney fees and costs and
review for abuse of discretion the actual award of attorney fees and costs."
Thompson v. Wal-Mart Stores, Inc., 472 F.3d 515, 516 (8th Cir. 2006).

       The Minnesota Supreme Court has specified that the attorney-client
relationship differs from other contractual relationships, and thus different legal
principles are applied when interpreting and enforcing attorney-fee agreements. In re
Petition for Distrib. of Attorney’s Fees Between Stowman Law Firm, P.A. & Lori
Peterson Law Firm, 870 N.W.2d 755, 760 (Minn. 2015). The attorney-client
relationship, even if documented by a written agreement, is subject to ethical and
professional court rules, and ordinary contract principles must yield to these ethical
standards. Id.

      The ethical rules for dividing fees among lawyers in different firms are set forth
in Minnesota Rule of Professional Conduct 1.5(e), which provides:

      A division of a fee between lawyers who are not in the same firm may
      be made only if (1) the division is in proportion to the services
      performed by each lawyer or each lawyer assumes joint responsibility
      for the representation; (2) the client agrees to the arrangement, including
      the share each lawyer will receive, and the agreement is confirmed in
      writing; and (3) the total fee is reasonable.

Minn. R. Prof’l Conduct 1.5(e) (emphasis added). To be deemed enforceable and
consistent with public policy, fee-splitting agreements between attorneys of different

                                          -7-
firms must comply with all requirements of this rule. Christensen v. Eggen, 577
N.W.2d 221, 225 (Minn. 1998).

       At the outset we must discern which issues have been preserved for appeal.
The Padden Firm made a proportionality argument to the district court, but on appeal,
does not meaningfully raise proportionality until its reply brief. On the other hand,
the Padden Firm did not raise the joint responsibility argument to the district court
until its post-trial motion. The district court held that because the issue had not
previously been raised it was waived, but alternatively held that a joint responsibility
theory would not prevail on the merits either. Nonetheless, this joint responsibility
theory is the theory primarily argued to us on appeal in the opening brief. As we may
affirm on any ground supported by the record, we will assume for the sake of analysis
that both the proportionality and joint responsibility arguments as they pertain to the
20144 fee-splitting agreement are properly before us.

      A.     Proportionality

       As stated in the proportionality prong of the rule, a fee-splitting agreement
between lawyers from different law firms is only ethical under Rule 1.5(e) if it
ultimately reflects the proportion of services that was actually performed by the
lawyers splitting the fee. See Minn. R. Prof’l Conduct 1.5(e)(1). As to the services
performed, the Padden Firm argues that it did enough work compared to the White
Firm to garner 30% of the fee, rather than the 15% awarded by the district court. It
cites as evidence of this work: that it procured the clients’ case to begin with, that it

      4
        While the new agreement executed in February 2015 is interesting in that it
reflects the will of the Plaintiffs and the MSD firm from that point, it is not
particularly relevant in our analysis because it only pertains to work performed post-
trial and on appeal. The bulk of, or perhaps all of, the fee that is at stake in this
appeal was generated before the 2015 agreement. Nor did the district court rely upon
the 2015 agreement in making its decision.

                                          -8-
secured a key expert witness, and that it worked behind the scenes to drum up
publicity for the case. The Plaintiffs do not dispute any of those facts; they simply
argue that proportionally speaking, this is far less legal work than was performed by
the White Firm, which participated in pretrial motion practice and actively
participated in the substantive work of the trial. A member of the Padden Firm did
not even attend trial. The factual findings by the district court support its conclusion
that the proper distribution of fees should be 15% to the Padden Firm, and 30% to the
White Firm. The Padden Firm does not take umbrage with the district court’s factual
findings. Nor does the Padden Firm disagree with the proportionality theory, as we
understand its argument; it simply argues that this theory should not deny it the
benefit of its original bargain to receive 30%.

       Instead, the Padden Firm continues to argue that the agreement should govern,
and points out that Stowman, cited by the district court,5 is distinguishable because
the firm in that case withdrew from representing the plaintiff, 870 N.W.2d at 757,
whereas the Padden Firm did not withdraw in the instant case. Instead, the Padden
Firm argues the case is more like Matter of Caswell, 905 N.W.2d 507 (Minn. Ct. App.
2017). In Caswell, a client disagreed with the amount of fees the law firm was set to
receive, pursuant to a contingency fee agreement, after simply settling a personal
injury case for the insurance policy limits. The client tried to avoid the agreement by
firing the law firm. The Minnesota Court of Appeals enforced the contingency fee
agreement and found that there was no reason for the terms of the agreement not to
be enforced. Id. at 509-10. We find Caswell is distinguishable, however, as there is
no issue in that case about the division of labor between two law firms; it simply
involves a client who was remorseful about agreeing to a generous fee agreement for

      5
        The district court cited Stowman only for the legal proposition that attorney
fee agreements are unique contracts governed by other principles than simply contract
law, including the Rules of Professional Conduct.

                                          -9-
a relatively simple case. Caswell does not involve the issue of proportionality as
contemplated by Rule 1.5(e)(1).

       Here, the district court found that the Padden Firm did not do nearly as much
work as the White Firm, let alone double the work. These findings are not clearly
erroneous and are in fact supported by the record. The district court did not preclude
the Padden Firm from obtaining any fee; it just found, upon the Plaintiffs’ request,
that the 30% fee should be awarded to the White Firm, which performed a
proportionally larger share of work on the case. We understand that as a public
policy matter, it is unusual for the courts to revise fee-sharing agreements between
lawyers, negotiated at arm’s length, based upon the perceived fairness of the
agreements. However, this was not a typical personal injury litigation matter, which
the district court presided over for more than seven years. We do not lightly
disregard an arm’s-length fee-sharing contract, but in the unusual circumstances of
this case, and reviewing the matter in light of the construct of the Minnesota Code of
Professional Conduct as we must, we find that the district court correctly analyzed the
proportionality prong of Rule 1.5(e) and did not abuse its discretion in altering the fee
agreement and awarding the Padden Firm 15% of the disputed fee. See, e.g.,
Dragelevich v. Kohn, Milstein, Cohen & Hausfeld, 755 F. Supp. 189, 192-93 (N.D.
Ohio 1990) (surveying laws of various states and noting that the “majority view”
seemed to be that the division of fees among counsel must be proportional to the
work actually performed, despite the existence of an agreement that delineates a firm
will get a specific percentage).

      B.     Joint Responsibility

        As noted above, the Padden Firm also argues on appeal that the “joint
responsibility” portion of Rule 1.5(e)(1) should govern to justify its receipt of 30%
of the fee. The Padden Firm’s primary evidence of joint responsibility is that its name
was on the pleadings, and counsel for the Padden Firm also asserted at oral argument

                                          -10-
that it would be financially responsible to pay any fee that the Napoli Firm might be
awarded in its quantum meruit case, or might be joined in any malpractice case
brought against the Napoli Firm. As noted, the district court held that the Padden
Firm did not take either financial or ethical responsibility for the case.

       The Padden Firm admits that Minnesota cases have not clearly established what
constitutes “joint responsibility.” However, comments to the Minnesota rules and
cases from other jurisdictions follow the district court’s formulation that joint
responsibility generally means taking joint financial and ethical responsibility for the
case with the other firms who are parties to the fee-split agreement. See Minn. Rule
Prof’l Conduct 1.5(e)(1) cmt. n.7 (“Joint responsibility for the representation entails
financial and ethical responsibility for the representation as if the lawyers were
associated in a partnership.”). The Padden Firm cites cases from Georgia and New
York wherein the concept was likened to joint and several liability, and assert that
these courts found that as long as the attorneys participated in the case, the agreement
for fees should stand as written. See Nickerson v. Holloway, 469 S.E.2d 209, 210
(Ga. Ct. App. 1996) (holding that it “agree[d] with those courts which have held that
as long as both attorneys have done some work on the case beyond signing and
referring the client, the courts will not engage in the cumbersome task of evaluating
after the fact the relative contributions made by the bickering attorneys”); Aiello v.
Adar, 750 N.Y.S.2d 457, 464-66 (N.Y. Sup. Ct. 2002) (holding that a 50-50 fee-
sharing agreement which explicitly stated that division of fees would not be in
proportion to the work performed, would still be enforced because both attorneys
assumed joint financial and ethical responsibility for the case).

       We are not persuaded by these arguments. First, in the New York case, the
agreement spelled out that proportionality would not be considered. No such clause
was included in the April 2014 agreement at issue here. And while the Georgia court
referred to bickering attorneys, it is the clients in this matter that instigated the current
motion before the district court. Thus, we agree with the district court that the test

                                            -11-
for joint responsibility is taking financial and ethical responsibility for the case.
Although the Padden Firm participated with regard to publicity and by initially
securing the clients, the district court correctly found that it “assumed no financial
responsibility for litigation expenses, which exceeded $100,000 in these cases.” The
Napoli case has been resolved with no fee award for which the Padden Firm alleges
it would have been responsible. Napoli, 2020 WL 1814269, at *3.6 Although the
Padden Firm asserts that it took ethical responsibility for the case with regard to the
Napoli Firm problems, the record indicates that all attorneys, including the White and
MSD firms, worked diligently to get information from the Napoli Firm during the
time Napoli was lead counsel and after the Napoli Firm was discharged as lead
counsel. Further, joint responsibility seems to require both the financial and ethical
components, and the financial element is clearly lacking. Thus, the district court did
not err in finding that the Padden Firm did not take financial and ethical responsibility
for the case within the meaning of Rule 1.5(e).

III.   CONCLUSION

       Because the usual rules of contract construction must bend to the Minnesota
Rules of Professional Conduct, Stowman, 870 N.W.2d at 760, the district court did
not err in revising the fee agreement to reflect the proportional reality of the attorney
work performed during this litigation. The joint responsibility doctrine does not
change that outcome in this particular case. Accordingly, we affirm.
                         ______________________________

       6
       Even if Napoli had been awarded a fee in quantum meruit to be paid by the
Padden and White firms, we doubt this would have indicated joint financial
responsibility for the case, given all the other litigation fees that the Padden Firm did
not advance in this protracted personal injury litigation against a major international
corporation.

                                          -12-