What happens when a corporate general counsel hires a law firm on a contingency fee basis to handle litigation matters and then asks the outside lawyers to share some of the fee award – $1.6 million to be exact – with him?
More litigation.
The Fifth Court of Appeals in Dallas faced this very issue in a dispute involving global pump technology manufacturer Ruhrpumpen, the estate of former Ruhrpumpen General Counsel Eugene Moore and the law firm Cokinos & Young.
Sheila Moore, who is the executor of her deceased husband’s estate, claims that the Cokinos law firm agreed to give Eugene Moore a 20% slice of the $8 million they were paid for representing Ruhrpumpen in a patent dispute with Irving-based Flowserve.
Cokinos and Ruhrpumpen claim there was no such legal agreement. Even if such an agreement was made, they argue, it was invalid because it violates the Texas Disciplinary Rules of Professional Conduct and it violates Texas public policy established by prior court precedent.
Dallas District Judge Craig Smith ruled in favor of Moore’s estate.
In a unanimous decision issued Tuesday, the Dallas Fifth Court of Appeals reversed, saying that any fee-sharing agreement between Moore and Cokinos “violates public policy and is unenforceable.”
“We conclude that a company’s general counsel owes the company a fiduciary duty not to accept compensation from anyone other than the company or for referring the case to a law firm without disclosing that compensation to the company and getting the company’s consent,” Justice Lana Myers wrote in the 11-page opinion.
Justice Myers, joined by Justices Leslie Osborne and Erin Nowell, said the side agreement violates Disciplinary Rule 1.04 because Ruhrpumpen never consented in writing to the terms of the agreement.
“This was a truly unfortunate situation, but we are pleased with the court’s decision,” Greg Cokinos told The Texas Lawbook on Thursday.
This story began in July 2010. Ruhrpumpen, a 70-year-old German company, had settled a patent infringement dispute with Irving-based Flowserve, but they believed that Flowserve was violating the terms of the settlement agreement.
Moore – who was general counsel of Ruhrpumpen for a decade and previously served as a former corporate lawyer for Lone Star Gas and Dresser Industries, hired Cokinos to pursue litigation against Flowserve.
The engagement letter, dated Sept. 27, 2010 and signed by a Ruhrpumpen official – not Moore – called for Cokinos to be paid 40% of the final judgment if the case settled before an appeal and 50% if the case settled after an appeal.
Moore, whose name was on the pleadings against Flowserve, emailed Cokinos in January 2011 inquiring about the possibility of a fee sharing agreement. Moore claimed in the email, which was from his personal AOL account, that he planned to have a substantial role in the litigation, that he was “experiencing health problems and needed to get some personal business matters in order.”
In the email, Moore said he would be involved by “identifying evidence, identifying elements of potential claims and damages, uncovering facts and evidence, and, as we go along, helping to prep RP witnesses.”
“Given my work so far … and given the effort that will be expended going forward, I suggest that a 20% reserve to me would be fair and reasonable,” Moore wrote to Cokinos.
In March, Cokinos emailed back.
“We are ok with this arrange, understanding that our cost/expenses will be deducted before we calculate your % recovery, assuming that is ok,” Cokinos wrote.
Nine months later, Moore retired as Ruhrpumpen’s general counsel, but he continued to participate in the case on behalf of his former company. He was replaced by Tulsa corporate lawyer John Folks, who worked at Ruhrpumpen for five years and is now the chief legal officer of 3D printer maker SSYS.
“After Folks took over, [Cokinos] still contacted Moore and sent copies of documents to him in connection with the lawsuit,” according to a brief filed by Dallas attorneys Michael Jones of Henry & Jones and David Shuford of the Shuford Law Firm, who represent Sheila Moore and Moore’s estate.
In April 2014, Moore died at the age of 66.
Eight months later, Cokinos engineered a settlement agreement for Ruhrpumpen in which Flowserve paid his client $41 million.
Cokinos initially raised Moore’s request for a slice of the contingency fee to Ruhrpumpen officials at the mediation that led to the settlement agreement.
“When I disclosed the information to the client, they really freaked out,” Cokinos said. “Ruhrpumpen absolutely objected. It almost got me fired.”
Ruhrpumpen paid Cokinos $7,999,200 in fees on March 6, 2015,
Three days later, Ruhrpumpen President Marcelo Elizondo wrote Cokinos saying that the company “did not, does not and will not consent” to a referral fee paid to Moore or his estate.
One year later, Sheila Moore, acting as executor of her husband’s estate, sued Cokinos seeking more than $1 million.
The complaint, filed in Dallas state district court, claimed that Moore and Cokinos had a valid agreement in place and that Moore deserved the money because he had continued to work on the Ruhrpumpen litigation unpaid after he retired.
“Moore continued to be an attorney of record after he retired. Moore provided input on mediators and attended two or three out of the four mediation days in December 2013,” Shuford and Jones, lawyers for Sheila Moore, wrote in their appeal’s brief. “Moore provided input on the settlement agreement. Moore was copied on information up until his death.”
The lawyers argued that Moore, as a corporate officer of Ruhrpumpen, negotiated the original contract with Cokinos and thus had the authority to negotiate the additional side deal in which Cokinos would pay him a share of the contingency fee. They also point out that Cokinos never raised questions about Moore’s side agreement with the client, Ruhrpumpen, until the settlement.
“The engagement letter provided that the firm could at its sole cost and expense, engage the services of any attorney to act as co-counsel in the case,” Shuford and Jones wrote in the brief to the Fifth Court of Appeals.
Dallas appellate law expert Jeff Levinger, who represents Cokinos in the case, said Moore’s emails to Cokinos were essentially “a shakedown.”
“The Moore estate overlooks the fact that Moore had a greater responsibility to obtain Ruhrpumpen’s consent to the agreement, especially because it was for his own personal financial benefit,” Levinger writes. “Cokinos assumption that Moore had obtained Ruhrpumpen’s consent was reasonable because Moore was a longtime employee of Ruhrpumpen. But that assumption was erroneous.”
Cokinos also disputes the Moore estate’s claim that Moore did a significant amount of work on the case.
“Gene Moore was a very nice person, but he did no substantive work on this case,” Cokinos said.
Levinger, in court documents, points out that Moore died six months before the mediation that led to the settlement of the case.
Judge Smith of Dallas granted summary judgment in favor of the Moore estate and awarded nearly $1.6 million.
But a three-judge panel of the Fifth Court of Appeals reversed, saying the agreement between Moore and Cokinos “violated public policy” because Ruhrpumpen “never consented at any time, either in writing or by other means, to the fee-sharing.”
“The Texas Disciplinary Rules of Professional Conduct are not traps for the unwary,” Justice Myers wrote. “All practicing lawyers in Texas are presumed to be aware of the Rules.”
The opinion states that the requirements in Rule 1.04 “are clear” that attorneys should not collect fees in such an agreement without the client’s consent.
Lawyers for Sheila Moore and the Moore estate did not respond to calls or emails seeking a comment or to questions about whether they will appeal to the Texas Supreme Court.