971 F.3d 511
5th Cir.2020Background
- Leslie Fox and her husband’s community estate (gaming businesses) became subject to bankruptcy proceedings after a receiver was appointed in a Texas divorce case and the husband filed Chapter 11.
- Fox retained Wiener, Weiss & Madison and Kantrow Spaht (the Firms) initially on an hourly basis and the Firms were paid ~ $1.2M after a substantial-contribution application to the bankruptcy court.
- Because further court-approved fee recovery seemed unlikely, the Firms and Fox entered contingency-fee arrangements: an original agreement (up to 35%) and a 2013 contingency-fee agreement (2013 CFA) that entitled the Firms to 40% of Fox’s gross proceeds—structured to give the Firms an ownership interest in LTSG (the holding company for the community entities).
- The Firms later proposed a revised agreement giving them 40% of distributions rather than ownership; Fox’s independent counsel advised her not to sign the revision and she declined.
- The Firms sued Fox seeking specific performance of the 2013 CFA (and alternatively quantum meruit); the district court granted summary judgment for the Firms and ordered specific performance. Fox appealed, arguing the 2013 CFA violated Louisiana Rule of Professional Conduct 1.8(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2013 contingency-fee agreement is a "business transaction" under La. Rule of Prof. Conduct 1.8(a) | The Firms: not a business transaction because it conveys only a future claim to proceeds, not a present property interest. | Fox: the agreement gives the Firms an ownership interest in LTSG (or equivalent future property interest) and creates conflicts, so Rule 1.8(a) applies. | Court: the 2013 CFA is a business transaction; Rule 1.8(a) applies and the Firms’ failure to advise Fox to seek independent counsel voids the agreement. |
| Whether the court of appeals has jurisdiction to consider the Rule 1.8(a) challenge given Fox’s notice of appeal | The Firms: Fox’s notice did not designate the March 2018 summary-judgment order rejecting the Rule 1.8(a) challenge, so the issue is not properly before the court. | Fox: her noticed appeal of the denial of reconsideration encompassed the Rule 1.8(a) ruling; the Firms had notice and were not prejudiced. | Court: jurisdiction exists—intent to appeal could be fairly inferred from the motion for reconsideration and there was no prejudice. |
| Whether a contingency fee that yields an ownership or distribution interest creates an inherent conflict requiring application of 1.8(a) | The Firms: contingency future-interest arrangements do not always create a business transaction covered by Rule 1.8(a). | Fox: future ownership interests can create conflicts equivalent to present interests and therefore trigger Rule 1.8(a). | Court: future ownership or distribution interests can constitute a business transaction; contingency arrangements awarding ownership implicate Rule 1.8(a). |
| Remedy for noncompliance with Rule 1.8(a) | The Firms: sought enforcement of the 2013 CFA (and impliedly preservation of prior CFA). | Fox: the 2013 CFA (and earlier CFA) are void due to violation of Rule 1.8(a). | Court: 2013 CFA is void for failure to comply with Rule 1.8(a); the 2010 CFA is likewise void for the same reason; case remanded to consider the Firms’ alternative quantum meruit claim. |
Key Cases Cited
- Hodges v. Reasonover, 103 So.3d 1069 (La. 2012) (attorney-client contract that directly violates a disciplinary rule is unenforceable)
- In re Curry, 16 So.3d 1139 (La. 2009) (contingency-fee agreement implicated Rule 1.8(a) where attorneys failed to advise client to seek independent counsel)
- Mursten v. Caporella, [citation="619 F. App'x 832"] (11th Cir. 2015) (contingency agreement granting counsel equity in client’s company is a business transaction under Rule 1.8(a))
- Friou v. Phillips Petroleum Co., 948 F.2d 972 (5th Cir. 1991) (notice-of-appeal may be sufficient where intent to appeal can be fairly inferred and appellee not prejudiced)
- In re: Deepwater Horizon, 824 F.3d 571 (5th Cir. 2016) (de novo review of applicability of ethical rules as a question of law)