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King & King, Chartered v. Harbert International

June 26, 2006

KING & KING, CHARTERED PLAINTIFF,
v.
HARBERT INTERNATIONAL, INC., ET AL. DEFENDANTS.



The opinion of the court was delivered by: John D. Bates United States District Judge

MEMORANDUM OPINION

This civil action presents an apparently novel question of District of Columbia law: what relief, if any, may a law firm obtain where it undertakes representation pursuant to a contingencyfee agreement but the subsequent conduct of its client leads to a forfeiture of the underlying claim? For the reasons that follow, the Court holds that, absent an allegation that the client obtained an identifiable benefit as a result of the forfeiture, the law firm is unable to state a claim for which relief may be granted. Accordingly, because the plaintiff in this action does not make any such allegation, the Court will dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

BACKGROUND

Plaintiff King & King, Chartered ("King & King"), a District of Columbia law firm, brings this action against its former client, Harbert International, Inc. ("HII"), and several affiliated persons and entities, alleging various theories of recovery, including breach of contract, unjust enrichment, and tortious interference with contract.*fn1 The complaint details a complex web of relationships -- both financial and familial -- among the defendants, but ultimately the defendants fall into two distinct groups: (1) HII and its president, Raymond Harbert (hereinafter collectively referred to as "the HII defendants"), and (2) HII's former president, Bill Harbert (Raymond's uncle), and two entities that he controls, Liechtenstein-based Bilhar International Establishment ("BIE")*fn2 and Alabama-based Bill Harbert International Construction ("BHIC") (hereinafter collectively referred to as "the BH defendants"). For more than two decades, King & King served as legal counsel to HII with regard to HII's government contracts. 2d Am. Compl. ¶¶ 8, 9.*fn3 This action arises out of legal work related to several of those contracts.

Between 1987 and 1989, the United States Army Corps of Engineers awarded fifteen contracts to HII for work to be performed at the Kwajalein Atoll in the Marshall Islands. Id. at ¶ 13. After disputes arose between HII and the government over contract performance, in July of 1990, "Bill Harbert, then president of HII[,] authorized engagement of plaintiff to provide legal advice and assistance with respect to the Kwajalein contracts and more particularly to help HII in the preparation and presentation of claims for additional compensation for added costs incurred in contract performance." Id. at ¶ 13. From July 1990 through December 2002, King & King provided legal services relating to the Kwajalein claims "on essentially a continuous basis." Id. This included submitting "numerous claims for various changes to the work ... at the job site level" as well as "a demand for payment of interest on any amounts found due on said claims." Id. at ¶ 14. Most significantly for present purposes, plaintiff prepared a formal claim that sought an adjustment in the price of the Kwajalein contracts, plus interest, in the amount of $12,865,605. Id. at ¶¶ 15, 16. That claim -- which was signed by Raymond Harbert, as president of HII, and submitted to the government's contracting officer on January 28, 1994 -- was based on additional costs that HII incurred in its performance on the Kwajalein contracts and that resulted from delays for which HII believed the government was responsible. Id. Plaintiff contends that it invested "thousands of hours of work" developing facts relating to the price-adjustment claim. Id. at ¶ 16. The government responded to the claim with an allegation that HII had illegally assigned the Kwajalein contracts to BIE. Id. at ¶¶ 18-21.*fn4 Eventually, all proceedings relating to the Kwajalein contracts were consolidated before the Armed Services Board of Contract Appeals ("ASBCA"). Id. at ¶ 22.

While the ASBCA appeals were ongoing, the government requested that the proceedings be stayed pending resolution of a Department of Justice investigation, which was probing the conduct of HII and BIE in regard to unrelated government contracts. Id. at ¶ 23-24. With the consent of HII, the ASBCA suspended the appeals for 150 days on March 17, 1998. Id. When the government requested a further stay, the ASBCA issued an order on September 28, 1998, that dismissed HII's appeals without prejudice to reinstatement within three years (that is, on or before September 29, 2001). Id. On August 20, 2001 -- slightly more than a month before the reinstatement deadline -- plaintiff wrote to Bill Harbert requesting authorization to proceed with reinstatement of the appeals. Id. at ¶ 25. Plaintiff received no response. Id. Plaintiff faxed and mailed a further notice to Bill Harbert informing him that the appeals would be forfeited if not timely reinstated and that, unless plaintiff received written instructions to the contrary, plaintiff would reinstate the appeals. Id. Having received no reply from Bill Harbert, plaintiff reinstated the appeals on September 28, 2001. Id. In response, the government requested proof of plaintiff's authority to represent HII and specifically its authority to reinstate the appeals. Id. at ¶ 26. Plaintiff thereafter requested that Raymond Harbert, as president of HII, confirm that HII was the appellant in the Kwajalein appeals and that plaintiff had been HII's attorney with respect to those claims since they had been filed. Id. On March 14, 2002, in response to that request, plaintiff received a letter from Spriggs & Hollingsworth, the law firm that was representing HII in relation to the Justice Department investigation. Id. That letter, plaintiff asserts, requested that "future communication with defendant, Raymond Harbert, be sent by plaintiff through the Spriggs firm." Id. Subsequently, at the request of Raymond Harbert, plaintiff prepared and filed a motion with the ASBCA to substitute BIE for HII as the appellant in the Kwajalein appeals. Id. at ¶ 31.

The ASBCA commenced a three-day evidentiary hearing on the appeals on November 18, 2002. Id. at ¶ 32. During the course of that hearing, Raymond Harbert was called as a witness and was asked repeatedly by the administrative judge if he would ratify the reinstatement of the appeals. Id. at ¶ 32. The judge explained to Raymond Harbert that ratification was necessary for the case to proceed and for the ASBCA to rule on the motion to substitute BIE for HII as the appellant. Id. Raymond Harbert responded that HII's position on ratification was set forth in a November 14, 2002, letter from Spriggs & Hollingsworth to plaintiff, which said that "if it is necessary for HII to ratify the September 28, 2001, reinstatement of the appeals in order for [BIE] to be substituted for HII as appellant, HII is willing to provide such a ratification and hereby does so." Id. at ¶ 32. The letter further set forth conditions under which HII would consider remaining as the named appellant. Id. On December 20, 2002, the ASBCA issued an order requiring HII to ratify unconditionally the reinstatement of the appeals or otherwise show cause as to why its appeals should not be dismissed with prejudice, and to do so by not later than January 26, 2003. Id. Between the conclusion of the November 2002 hearing and the issuance of the December 20, 2002, order, HII indicated in letters, e-mails, and facsimile messages that it might ratify the reinstatement, but HII never responded to the ASBCA's order. Id. As a consequence, the ASBCA claims and appeals were dismissed with prejudice on January 26, 2003. Id.

Nearly three years later, on January 20, 2006, plaintiff filed this action in the Superior Court of the District of Columbia.*fn5 Pursuant to 28 U.S.C. § 1441, defendants removed the case to this Court. Through this action, plaintiff seeks damages for uncompensated (or under-compensated) legal services that it provided with respect to the Kwajalein claims between February 1995 and December 2002, a period during which plaintiff was performing under a contingency-fee agreement. According to the complaint, as well as the statements made by plaintiff's counsel at the motions hearing, that agreement called for King & King to receive as compensation for its services twenty percent to twenty-five percent of any amount that HII recovered from the government on the claims,*fn6 and beginning in 1997 the agreement further provided that, in addition to the contingency fee, King & King would be paid at a reduced hourly rate of $150. See id. at ¶ 34; Tr. of May 24, 2006, Mot. Hr'g. at 58.*fn7 All amounts paid at the hourly rate were to be deducted from the amount due on the contingency fee. Id.*fn8 The fee agreement was signed by Bill Harbert on behalf of defendants HII and BHIC (on a date -- or dates -- that plaintiff has not specified). Id.*fn9 Furthermore, by letter dated June 18, 2002, Bill Harbert promised that he personally would honor the commitments he had made on behalf of HII to pay for plaintiff's legal services. Id.

Plaintiff now seeks a judgment against defendants "in the amount of $4,779,830.20." Id. at ¶ 45.*fn10 Plaintiff says it calculated this amount based on"[t]he total value of the Kwajalein claims/appeals, including interest thereon," which it estimates to be $20,116,762.56. Id. at ¶ 34. If that had been the recovery, plaintiff would have been entitled to $400,000 plus twenty-five percent of the amount in excess of $2 million (i.e., $4,529,190.64, or one quarter of $18,116,762.56) -- that is, $4,929,190.64, in total. The difference between that amount and the $4,779,830.20 figure that plaintiff demands is $149,360.44, which reflects "deductions for amounts previously paid by defendants to plaintiff for the reduced hourly rates [that] plaintiff billed." See id. Simple math thus reveals that plaintiff, based on its own acknowledgments, was paid for about 1,000 hours of work at a rate of $150 per hour. Plaintiff conceded at the motions hearing that it was paid the full hourly rate for all hours worked during the period when the hybrid hourly-contingency contract was in effect (i.e., from 1997 through 2002). Tr. of May 24, 2006, Mot. Hr'g. at 46.*fn11 Defendants filed motions to dismiss asserting that plaintiff has failed to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6).

STANDARD OF REVIEW

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure will not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also Haynesworth v. Miller, 820 F.2d 1245, 1254 (D.C. Cir. 1987). All that the rules require of a complaint is that it contain "'a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 346 (2005) (quoting Conley, 355 U.S. at 47). "Given the Federal Rules' simplified standard for pleading, '[a] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)).

Under Rule 12(b)(6), the plaintiff's factual allegations must be presumed true and should be liberally construed in his or her favor. Leatherman v. Tarrant County Narcotics and Coordination Unit, 507 U.S. 163, 164 (1993); Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C. Cir. 1979). The plaintiff must be given every favorable inference that may be drawn from the allegations of fact. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000). Conclusory legal and factual allegations, however, need not be considered by the court. Domen v. Nat'l Rehabilitation Hosp., 925 F. Supp. 830, 837 (D.D.C. 1996) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).

ANALYSIS

I. Contract and ...


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