- Case Type:
- Case Status:
- Reversed and Remanded
- 19-30688 (5th Circuit, Aug 21,2020) Published
- 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. The Fifth Circuit found that the agreement violates Louisiana Rule of Professional Conduct 1.8(a), so and vacated and remanded.
- Procedural context:
- 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. 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 district court disagreed and granted summary judgment in favor of the Firms. It was from the Motion To Reconsider the District Courts ruling that Fox appealed.
- 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% interest1 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. By 2013, the Community Entities, whose assets had been depleted by Rosbottom’s mismanagement, 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 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. 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 judgment and ordered Fox “to specifically perform her obligations under the [2013 CFA] . . . and pay all fees, costs, and expenses due to the Firms.”
- Barksdale, Haynes, and Willett
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