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Ludwig & Robinson, PLLC v. BiotechPharma, LLC

Court of Appeals of The District of Columbia

June 7, 2018

Ludwig & Robinson, PLLC, Appellant,
BiotechPharma, LLC, et al., Appellees.

          Argued March 16, 2017

          Appeal from the Superior Court of the District of Columbia (CAB-884-13) Hon. Brian Holeman, Trial Judge

          Robert W. Ludwig, with whom Salvatore Scanio and James E. Tompert were on the brief, for appellant.

          Albert Wilson, Jr., with whom Lily A Graves was on the brief, for appellees BiotechPharma, LLC, Converting Biophile Laboratories, Inc., and Raouf Guirguis.

          Jeffrey S. Jacobovitz for appellee Martin Kalin.

          Before Glickman, Fisher, and Thompson, Associate Judges.

          Thompson, Associate Judge

         Appellant Ludwig & Robinson PLLC ("L&R" or "the law firm") appeals from the Superior Court's dismissal of its claim 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.

         I Background

         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. On March 4, 2011, BTP, through Guirguis, executed an engagement letter that set out L&R's hourly rates and specified a monthly billing schedule. The engagement letter provided that bills would be "due and payable upon receipt" and stated that "[i]n the event of nonpayment, the [f]irm reserves the right to withdraw from representation in this matter."

          On April 25, 2011, after L&R had begun its work (including drafting a complaint for misappropriation), Kalin "sought [an] alternate billing" arrangement, and L&R and BTP signed a modified engagement letter under which L&R agreed to defer half its hourly rates and BTP agreed to pay the law firm's deferred fees plus 30% upon settlement of the misappropriation action or upon "[a]ny cumulative investment in BTP exceeding $500, 000." Over the next several months, L&R continued to provide legal services to BTP but received little by way of payment for those services. On January 19, 2012, L&R held a meeting with Guirguis and Kalin during which it "raised BTP's ongoing failure to pay" its legal fees. L&R told Guirguis and Kalin "to expect larger bills for round-the-clock work and expenses . . . until the case was settled or tried." L&R "conveyed [that] its lawyers would not work without pay" and said that they would "be forced to move to withdraw absent payment." Guirguis and Kalin "represented BTP would pay past bills, and $40, 000 a month for December [2011] forward, through . . . CBL[] or [through] investment in BTP."

         Payments were not made, however, and, in early February, after L&R reminded Guirguis and Kalin that it would "need . . . a revised fee arrangement if [it was] to continue representation in light of mounting legal fees and costs, " Guirguis "agreed to pay at least $75, 000 a month for December forward." On February 28, 2012, "to account for further deferred payment and risk, " L&R and BTP entered into a second modification to the engagement letter, "signed by Guirguis and copied to Kalin." Pursuant to the second modification letter, "BTP agreed to increase L&R's success fee to 50% of deferred fees, with guarantees . . . by CBL and Guirguis." Thereafter, although "L&R sent monthly invoices . . . showing [its] fees and expenses [] [with] detailed descriptions [] and time" reports, BTP "did not pay any $75, 000 payment for December [2011] through May [2012]."

         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.

         Of particular note given the issues before us, the fraud count (Count IV) against all of the defendants/appellees alleges that Guirguis (on behalf of BTP and CBL) and Kalin represented, over the period from October 2011 to May 2012, including "[b]efore, during, and after the January 19[, 2012, ] meeting, " that "L&R would be paid from CBL's revenue and credit line, " thus "representing [that] . . . the credit line existed, " even though at all relevant times CBL had no credit line. Count IV further alleges that these representations, as well as the representations regarding the large monthly payments from December 2011 forward, "were made with the intent to deceive L&R." Count IV alleges in addition that the defendants "concealed BTP's true financial condition, failing to disclose Kalin's actual investment in or loans to BTP, its indebtedness to lenders, and the fact and magnitude of liens." The foregoing representations and omissions, Count IV alleges, "induced [L&R] to continue work, " as the law firm relied upon them "in deciding not to seek to withdraw as counsel on January 19, 2012[, ] and thereafter, and in deciding not to require security against nonpayment of fees and expenses . . . upon entering [into] the [s]econd [m]odified [e]ngagement [l]etter on February 28, 2012." Count IV includes a prayer for "damages in the amount of services rendered and billed, but not paid, with interest from when payment was due, attorney's fees, and any other appropriate relief." Count V contains similar allegations and a similar prayer for relief, including a prayer for "attorney's fees and expenses under Counts IV and V."

          The Superior Court action was stayed while the contract claims against the BTP defendants proceeded to arbitration before the Attorney-Client Arbitration Board ("ACAB"), as requested by BTP. On February 11, 2015, the ACAB awarded L&R $908, 000 on its claim for "approximately $1.79 million in fees and expenses, plus interest."

         The Superior Court granted L&R's motion to confirm the arbitration award and entered judgment for $908, 000 against BTP, CBL and Guirguis jointly and severally. On June 22, 2015, the court held a hearing on pending matters. L&R initially told the court that "[i]f the arbitration award by ACAB had been complied with . . . the complaint would be moot." Shortly thereafter, however, saying that it had "misspoke[n]" earlier, L&R argued that its claims for fraud and conspiracy against the BTP defendants and Kalin should proceed. The court readily disagreed as to the BTP defendants, reasoning from the bench and in a June 23, 2015, written order that all of the counts of the complaint "were pled by L&R in order to recover its unpaid legal fees"; that the fraud and conspiracy claims "were disposed [of] when [the law firm was] compensated under the [ACAB] award" (which the court said had res judicata effect as to Counts I-III of the complaint); and that L&R did not "have a separate right to compensation [from the BTP defendants] based on claims of fraud and conspiracy." Without allowing L&R an opportunity for briefing, the court dismissed the fraud and conspiracy claims against the BTP defendants. The court postponed its ruling as to dismissal of the claims against Kalin (who was not a party to the ACAB proceedings), although it preliminarily suggested that the fraud and conspiracy claims against Kalin were "subsumed within the award of the arbitrator." L&R had argued that the law firm was entitled to recover from Kalin if it could "show more than [the ACAB] award as damages as to [Kalin] up to the claimed 1.8 million dollars." L&R told the court that it was "entitled to judgment against a co-defendant [Kalin] who may be more collectible than the BTP defendants, " and it asserts in its brief that it has never been able to collect the ACAB award amount.

         At an October 1, 2015, hearing, the Superior Court denied the law firm's motion to alter or amend the judgment dismissing the claims against the BTP defendants. The court also dismissed the claims against Kalin, reasoning that L&R had, through the arbitration award, "received the relief it sought against the defendants, which was a money judgment essentially for payment for legal services previously rendered." The court found "without merit" the arguments "that [the] ACAB had no jurisdiction over the fraud claim" and that "the arbitration award did not create res judicata effect" as to the fraud claim. L&R explained that its request "for additional fees under a fraud and conspiracy theory . . . was necessitated by [the defendants'] obstructive conduct" and pertained to "compensation] for the need to pursue" and "chase" the BTP defendants "to honor [their] obligation." The court, however, characterized Counts IV and V as ―alternative theories of relief for the exact same relief that was "granted under the arbitration award."[1]

         Finally, in an October 13, 2015, written order, the Superior Court explained its reasoning that "the fraud and conspiracy claims are wholly dependent upon the extant contract"; that L&R has not alleged "an independent injury over and above the mere disappointment of [its] hope to receive [its] contracted-for benefit"; that L&R's claimed damages were addressed in the breach of contract claim; and that "[t]here [was] no duty owed to [L&R] =from considerations other than the contractual relationship.'" Oct. 13, ...

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