By Dennis Crouch and David Hricik
Kelley Drye & Warren, LLP v. Orbusneich Med. Co. Ltd., BVI, 2014 WL 1814204 (Conn. Super. Ct. Apr. 4, 2014). KDW Decision
In this case, the law firm of Kelley Drye (KDW) has sued Orbus to collect the $14,000,000 that it claims to be owed as part of its alternative fee arrangement for handling litigation on behalf of its then-client, Orbus, against Boston Scientific.
The basics: Orbus hired KDW to litigate its patent infringement and related common law claims against Boston Scientific. Orbus was advised that the suit would go quickly on the rocket docket of the Eastern District of Virginia. The fee-setup was a hybrid-contingency-fee arrangement with a guaranteed payout of $375,000 for pre-trial work and another $325,000 for the trial, if necessary. In the event of a settlement, the agreement called for KDW to then receive the full hourly rate for their work plus a “success fee” based on the settlement amount.
The case was filed in the Eastern District, but then was transferred to Massachusetts. Then, Boston Scientific moved for reexam and the suit was stayed. Thus, things were in a ditch:
At this point the exchange of correspondence between the parties (Defendants’ Exhibits B, C & D) make clear that: (1) the U.S. litigation begun by KDW on behalf of Orbus was stayed for possibly several more years; (2) no leverage whatsoever of the kind envisioned in Attorney Moore’s engagement letter (Plaintiff’s Ex. 2) had been brought to bear on Boston Scientific; (3) the settlement value of the U.S. litigation had minimal or no cash value at all; and (4) Orbus’ patents had possibly been placed in jeopardy by the continuing reexaminations. In reviewing the results obtained by counsel when determining the reasonableness of fees charged, the court cannot find on these facts that KDW added substantial value to Orbus’ legal interests as of July of 2012, after three years of litigation and millions of dollars of time expended.
Orbus then turned to replacement counsel. Their strategy had Orbus file a number of European actions, including ones in Germany, UK, Ireland, and the Netherlands. KDW was not much involved.
In 2013, Orbus and Boston Scientific came to a settlement resulting in a one-time payment to Orbus and a worldwide patent license for Boston Scientific. KDW then added-up its fees thus far in the litigation ($2.8 million) and added on its success fee bonus before sending its $14 million bill to Orbus.
When the (now former) client balked, KDW filed suit. In this decision, the trial court rejected KDW’s argument that it was entitled to pre-judgment relief, apparently in the form of some sort of state law attachment of Orbus’ assets. The question the court had to decide was whether KDW was likely to prevail on the merits.
Attorney fee arrangements are treated somewhat differently from ordinary commercial contracts – here the court indicated in can only enforce attorney fee arrangements to the extent that they are reasonable. All state professional responsibility rules prohibit the collection of unreasonable fees. Regarding reasonableness, a major question is whether the attorney exerted substantial effort and/or added substantial value.
Here, the European cases began after the US case was stayed. That fact aided Orbus’s argument that KDW added no value to the European cases. In addition, Orbus argued that the terms of the fee arrangement do not extend to those cases. And, if it had to pay KDW for the European monies then Orbus would effectively be paying “twice for the same legal service” since its European attorneys must also be paid.
Based upon these facts, the trial court stated:
[T]he court is unable to find even a reasonable suspicion that KDW would prevail on the merits at trial, and that the trier of fact would find the superseding contingent fee agreement enforceable in the full amount of $14,560,000.00.
At this point, the court has denied preliminary relief, but KDW still has the opportunity to prove its case at the trial.