Thursday, June 7, 2018
The District of Columbia Court of Appeals has held that a law firm's fraud claim against a former client for alleged misrepresentations regarding fee payments survives the resolution of the unpaid fees awarded by the Bar's Attorney Client Arbitration Board ("ACAB").
Appellant Ludwig & Robinson PLLC ("L&R" or "the law firm") appeals from the Superior Court‘s dismissal of its claims alleging fraud and conspiracy by defendants/appellees BiotechPharma, LLC ("BTP"), BTP‘s wholly-owned subsidiary Converting Biophile Laboratories, Inc ('CBL"), BTP‘s principal Raouf Guirguis (together, the "BTP defendants"), and Martin Kalin (alleged to be a BTP lender "who has held himself out" as BTP‘s "Executive Vice President." For the reasons set out below, we reverse and remand.
L&R‘s complaint alleges that in 2011, BTP engaged the law firm‘s services to provide the company with "advice and representation regarding cross-border intellectual property claims." The engagement, which entailed extensive motions practice in the Eastern District of Virginia (the "Rocket Docket") and elsewhere as well as depositions and interviews "across the country and overseas," began after Kalin contacted L&R seeking representation for the company.
There were a series of retainer agreements as unpaid bills mounted.
On January 31, 2013, after attempts to collect payment proved unsuccessful, L&R brought suit in the Superior Court, suing BTP for breach of contract (Count I); CBL and Guirguis for breach of guarantee (Count II); each of the BTP defendants for "Failure to Pay Accounts Stated" (Count III); and all defendants for fraud (Count IV), and conspiracy (Count V). The complaint alleges that as of June 5, 2012, BTP had incurred but failed to pay hourly fees of $1,233,683.08, a "success fee' of $358,659.96, and expenses of $196,605.67, for a total of $1,788,948.71.
Here, the L&R-BTP relationship was an open-ended engagement; i.e., it had no fixed termination date. L&R‘s complaint alleges that the law firm reserved the right to "move to withdraw absent payment" and threatened to invoke that right when confronting Guirguis and Kalin about BTP‘s failure to pay billed amounts. The complaint further alleges that during those conversations, BTP (through Guirguis) and Kalin induced L&R to continue providing legal services to BTP under modified engagement letters, and thus not to withdraw, through false statements about payment sources available to pay the law firm‘s bills (e.g., CBL‘s purported credit line) and through omissions about "the fact and magnitude of liens" against BTP, loans by Kalin to BTP, and BTP‘s level of "indebtedness." In the context of these alleged transactions, the defendants/appellees had a duty independent of the subsequent modified engagement letters to "state truly"what "they told the law firm and also not to suppress or conceal any facts within [their] knowledge which would materially qualify those [representations] stated."
The scope of the ACAB authority
Under the rules of then ACAB, that body‘s jurisdiction is limited to disputes "about the fee paid, charged, or claimed for legal services." D.C. Bar Att‘y-Client Arb. Bd. R. 3 (b). In addition, the Superior Court did not find, and none of the parties has argued that, Kalin is a privy of any of the BTP defendants such that he could be bound by the ACAB decision to which the BTP defendants were subject. For those reasons, the ACAB arbitration decision did not have res judicata effect as to L&R‘s claims sounding in fraudulent inducement and civil conspiracy against the BTP defendants, and likewise is not a res judicata bar with respect to any claim against Kalin.
In this case, the amount L&R billed BTP for legal services under the second modified engagement letter is some measure of what the law firm could have earned if the lawyers involved had withdrawn from representing BTP and taken on work for another or other clients. As L&R has suggested, its damages (if any) in this regard were likely "up to" rather than equivalent to the billed $1.8 million, because that amount was billed for what L&R has asserted was "round-the-clock work" and also because it included a success fee ($358,659.96) that the law firm would not necessarily have earned through other engagements, as well as expenses ($196,605.67, for, inter alia, "depositions and interviews across the country and overseas") the law firm would not necessarily have incurred in representing other clients. Whatever L&R might be able to prove in the way of "damages . . . up to the claimed 1.8 million dollars," the point we make here is that L&R‘s inclusion of a prayer to recover such an amount as damages for alleged fraudulent inducement does not necessarily require a conclusion that the law firm is attempting to recharacterize a contract claim as a fraud claim, or is merely trying to obtain the benefit of its bargain under its contract with BTP. Though monetarily equivalent to L&R‘s claimed damages for breach of contract, the law firm‘s prayer in Counts IV and V for approximately $1.8 million in damages may have a different basis and may pertain to damages that are not compensable under contract principles.
Associate Judge Thompson authored the opinion. (Mike Frisch)