Delta Fuel, Inc. and Others Ordered to Pay DC Firm
D.C. law firm Bode & Grenier, LLP and some long-time clients became embroiled in a lengthy dispute over unpaid legal fees. At trial in federal court, the firm won an award of $70,000 in unpaid legal fees and $269,585.19 in attorneys' fees spent litigating over the unpaid legal fees. The clients appealed, and, last Thursday, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the trial court's decision. The case is Bode & Grenier, LLP v. Knight,_F.3d, No. 14-7104 (D.C. Cir. Oct. 24, 2015).
Carroll Knight owns and manages three Michigan-based companies [including Delta Fuel] "offer[ing] petroleum fueling products and services, ranging from service stations to large-scale petroleum storage." Bode & Grenier represented the companies from 1994 to 2008, providing advice "on taxation, gasoline contracts, petroleum futures and various regulatory enforcement and litigation matters." In November 2005, 100,000 gallons of petroleum leaked from holding tanks the companies owned in Ohio, and the firm agreed to represent the companies in regulatory proceedings and a federal lawsuit. As with their previous dealings, the firm undertook the representation without a formal contract between the parties. . .
Between December 2005 and January 2007, the clients began paying their legal fees only sporadically, and, at some point, they stopped paying completely. The firm threatened to withdraw from all pending litigation if Knight and his companies did not agree to pay all overdue legal fees and enter into a contract governing the terms of their future lawyer-clients relationship. In August 2007, the firm and its clients signed three documents: (1) a retention letter governing the parties' future relationship; (2) a promissory note obligating the clients to pay $300,000 in past-due legal fees by May 1, 2008; and (3) a confession of judgment to be filed in the firm's favor if the clients did not satisfy the note by May 1, 2008.
When the clients did not satisfy the note, the firm entered the confession of judgment on May 2, 2008, and the Michigan state court entered judgment the same day for $302,500, which included $2,500 in attorneys' fees. Then, in August 2008, the law firm filed suit in D.C. federal court seeking $75,107.97 in unpaid fees under the retention letter. Later, the firm amended its complaint to seek its own attorneys' fees incurred in the suit against its client.
As indicated above, the trial court awarded $70,000 in unpaid legal fees for its representation of its clients, and $269,595.19 in its own attorneys' fees. In affirming the award, the D.C. Circuit resolved four issues: (1) whether entry of the confessed judgment in Michigan state court precluded Bode & Grenier's later federal suit; (2) whether the trial court erred by refusing to allow the clients to amend their answer to add new defenses a month before trial; (3) whether the promissory note's limitation of an attorneys' fee award to 15% of the principal is incorporated into the retention letter; and (4) whether Bode & Grenier can recover attorneys' fees it incurred at a time when its own attorneys were representing the firm.
The appellate court first held that the Michigan confessed judgment on the promissory note did not preclude the later, federal law suit for unpaid legal fees under the retention letter. Under Michigan law, the filing of a confessed judgment requires no litigation, it simply requires the correct paperwork. The claims in the two lawsuits were not the same. In the confessed judgment action, the claim was based on the clients' failure to pay a note. In the federal court action, the claim was based on the clients' failure to pay legal fees in accordance with the retention letter. According to the D.C. Circuit, Bode & Grenier was not required to bring its two separate claims in one case.
Next, the court rejected the clients' argument that the trial court erred by refusing to allow them to amend their answer shortly before trial. After four years of litigation, and just four weeks before trial, the clients filed a motion asking for leave to amend their answer. The clients wanted to include new defenses they had not raised in their earlier pleadings. The trial court denied their request. The D.C. Circuit ruled that the trial court did not abuse its discretion because "[t]he request simply came too late." While district courts should freely give leave to amend pleadings, they may refuse to allow amendments for reasons such as "undue delay, bad faith or dilatory motive . . . repeated failure to cure deficiencies by [previous] amendments . . . [or] futility of amendment." Here, the proposed amendment came on the eve of trial, years after the clients knew about the proposed defenses. Allowing the clients to amend would prejudice the law firm, lead to more discovery, and delay the trial.
The court then turned to the clients' challenges relating to the $269,595.19 attorneys' fees award. The clients first argued that the promissory note limited an award of attorneys' fees to only 15% of the principal and that the limitation was incorporated into the retention letter. The court rejected that argument because the language of both documents was clear, the retention letter did not incorporate the promissory note, and the parties obviously knew how to include such a limitation in the retention letter if they had chosen to do so.
Finally, the court addressed whether Bode & Grenier--which had represented itself through much of the litigation--could recover attorneys' fees for the self-representation. The clients argued that the promissory note's choice of Michigan law provision was incorporated into the retention letter and that Michigan law does not allow a party to recover attorneys' fees when it represents itself. The court found: (1) the retention letter did not incorporate the note's choice of law provision; (2) District of Columbia law applied because D.C. bears the greatest relationship to the contract and is where the majority of the services were performed; and (3) "[t]he Retention Letter nowhere precludes Bode & Grenier from recovering fees incurred while representing itself," which the court found "is enough to resolve the matter."