Arbitrating Attorney Fees: No Appeal?

by Dennis Crouch

Prof Hricik and I both wrote about the Jenner & Block v. Parallel Networks fee arbitration back in 2013. Hricik also testified in the arbitration. [Crouch][Hricik].  Jenner represented Parallel on contingency fee in a patent case against Oracle and at least one other company. Parallel lost on summary judgment and at that point Jenner dropped Parallel as a client.  After hiring new counsel and successfully appealing, Parallel eventually was able to eventually settle with Oracle for close to $20 million. At that point, Jenner asked for its fees (requesting > $10 million) and Parallel refused to pay.

Arbitration Award Against Public Policy: The representation agreement included an agreement to arbitrate any dispute over fees.  And, in the subsequent arbitration, Jenner was awarded $4 million in fees.  According to Parallel Networks, the problem with the fee award is that it is contravened by Texas Public Policy that prevents a contingent fee attorney who drops its client for pure economic reasons to then expect to receive any further compensation.

Of course, one benefit of arbitration is that those judgments are usually final and non-appealable.  The Federal Arbitration Act (FAA) generally forces binding arbitration and prevents substantive appeals.  Rather, the only role of a court following arbitration is ordinarily to confirm the judgment.

Despite the FAA, Parallel Networks has asked the Texas Supreme Court (SCOTEX) to set aside the arbitration award as a violation of Texas public policy.  “An arbitrator’s say-so is not a magic wand that transforms Texas courts into unthinking tools for implementing public policy violations.”  And, the question presented asks whether “public policy challenges reviewable by Texas courts [a] basis to vacate arbitration awards made under the FAA?

Arbitrator as Arbitrary: Non-reviewable decisions (whether by the USPTO or by an arbitrator) are generally troubling because they create the potential for arbitrary awards that depart from both the law and facts.

The case was originally denied hearing by the Texas Supreme Court. On rehearing request, the Court has showed some interest by requesting further briefing from Jenner & Block and two amicus filings have supported the petition.  Because it is a Federal Law (the FAA) that has prevented judicial review thus far, the case will be appealable directly to the U.S. Supreme Court once Texas gives its final word.

Briefs are available from the SCOTEX.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

14 thoughts on “Arbitrating Attorney Fees: No Appeal?

  1. Wouldn’t the language of the binding contract between the two parties be paramount? Is there a problem of vagueness?

    We agree to settle the matter based on:

    I) A third party’s rational and objective application of a set of rules or an objective standard, which application is reviewable.

    II) A third party’s discretion (whim), which decision is not reviewable.

    III) Based on the actions of a groundhog, which groundhog is to be chosen jointly.

    IV) Based on the flip of a coin.

    Which of the above contracted to methods of resolution would be interfered with by the courts?

  2. A further item of even more general interest re the big % of all patent suits that are filed in E.D.TX: reportedly 57% of attempted venue transfer motions lately have been granted. This significant increase is attributed to better written and supported such motions, and less such motions.
    [But, judges do keep up with legal news of interest, and that news these days includes the currently attempted Sup. Ct. mandamus case attack on the prior Fed. Cir. rendering of the special patent venue statute [still on the books] moot, AND proposed new patent suit venue legislative aimed squarely at E.D.TX.]

  3. Is that just Texas court decisions public policy against enforcement/collection for this particular type of contract under those circumstances, or is this also a Texas attorney-conduct/ethics issue for which there might be some kind of state bar association proceeding and sanction for trying to enforce collection?
    I also wonder if Parallel Networks has considered that this situation might well make for an appealing story in a Texas newspaper?

    1. Paul: In one of Parallel’s appellate briefs it notes that they filed grievance complaints with the State Bar of Texas against the Jenner partners that prosecuted the arbitration against Parallel in Texas. And that the State Bar of Texas dismissed the grievance complaints due to lack of jurisdiction (none of the Jenner partners were admitted in Texas). Apparently, practicing law in Texas (which would make the attorney subject to the disciplinary oversight of the State Bar of Texas) does not include appearing in an arbitration in Texas.

      The briefs lay out a fascinating case (for those interested in legal ethics and the greed of Big Law). Jenner initially sued Parallel for hourly fees arguing that they could lose the case and convert their contingency fee agreement to an hourly fee agreement. A rather absurd argument because that’s effectively a no-risk contingency fee agreement: if Jenner won they would have gotten contingency fees; if they lost they convert to hourly fees (where’s the risk to Jenner to justify their 35% or whatever contingency fee?).

      1. Thanks “Bemused.” This would seem to make my suggestion for a newspaper article to get more effective resolution by exposing this lack of Texas Bar action [even against big Yankee law firms litigating in Texas?] even more appropriate. As the then-famous-columnist character “Mr. Dooley” pointed out more than a century ago, even judges read newspapers.
        I also wonder if there is a “story behind the story?” There seems to be a big decrease in law firms willing to take on patent suits on a contingent fee basis. Is part of that due to inter-firm partner feuds between the partners that took that risk and the other partners mad at them for reducing their draws, leading to desperate fee recovery attempts? There does not seem to be much “partnership” spirit left in giant law firms? But they, and state bar associations, are PR sensitive.

      2. Contingency fee representation is a contract between a lawyer and a client governed by the cannons and ethical rules as adopted by the State bar. It is NOT considered an ordinary contract, because of the nature of the profession, the position of trust, and the fact that a lawyer can be dismissed at anytime by a client (no matter what the representation agreement says). I have often seen unenforceable provisions such as, dismissal will result in immediate conversion to an hourly rate, from big law. Outrageous stuff. The bar should have taken the case, applied Texas rules governing attorney/client representation agreements –> and referred its order to the various bar(s) that have jurisdiction for reciprocal enforcement (or non-enforcement –> if that bar chooses not to enforce and out-of-state bar order). The Texas bar is there to PROTECT the people of Texas from a self regulating profession. Shame on the Texas Bar (but trust me the other State bars are no better) for failing to take on big law.

  4. When Jenner eventually loses (again), the the next fee dispute should be interesting too…in about 12 years.

  5. DC Non-reviewable decisions (whether by the USPTO or by an arbitrator) are generally troubling because they create the potential for arbitrary awards that depart from both the law and facts.

    You forgot to mention the Supreme Court. 😉

    This is why we have regulatory bodies that are, in theory, supposed to be monitoring these decisions and who are authorized to punish decision makers who habitually wander off the reservation.

    1. Yeah, but disciplining bad arbitrators or bad examiners or bad APJ does nothing to fix the damage to a party in a particular case. That is why we always need judicial review not only for legal errors, but for what amounts to abuse.

      1. we always need judicial review

        What about cases where there is no fixing the damage? Like when the state executes or cripples somebody who wasn’t guilty?

        Is that an exception to your rule?

        What about when two lawyered-up entities agree in writing to the arbitration terms which include a non-reviewability clause? What then?

        1. MM there are always going to be some contractual agreements and binding arbitration decisions that are not normally going to be judicially enforced for public policy reasons. One that should be widely familiar from its provenance is the preliminary arbitration decision of King Solomon to cut a disputed baby in half.

      2. Even for public rights Ned that can be wholly given over to the (political) Executive branch with full discretion whether to institute or not (and engage in the taking of sticks from the bundle of property rights AT that separate legal point)…?

  6. No comments on the merits of either party, but this will be an interesting case of “feelings” (as contained in “public policy” and substantive law (what can and cannot happen to arbitration verdicts).

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