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Coudert Estate Pursues Fees Earned From Former Clients
New York Law Journal
November 20, 2009
The liquidation plan administrator for the Coudert Brothers estate is claiming that Baker & McKenzie has breached an agreement with the defunct law firm by failing to hand over a portion of a contingency fee earned from work for former Coudert clients.
By not handing over the fees, Baker & McKenzie breached an agreement signed with Coudert in 2005 that gave Coudert rights to part of the fee, according to an amended complaint filed last week in bankruptcy court by the administrator. Baker & McKenzie last year resolved a series of cases involving taxes on coal exports for clients brought to the firm by former Coudert attorneys.
In a statement this week, Baker & McKenzie said, "We deny any wrongful conduct in this matter, and because it is pending, we will offer no further comment on the matter at this time."
Coudert was once one of the world's largest law firms, with more than 600 lawyers in 15 countries and 28 offices before partners voted to dissolve in August 2005. It filed for Chapter 11 in September 2006.
The Southern District Bankruptcy Court approved its plan of liquidation in August 2008 in In re Coudert Brothers LLP, 06-12226.
The plan allowed the administrator, Development Specialists Inc., to pursue law firms that took on former Coudert partners for any fees they earned from completing matters that followed the lawyers to their new homes. In April, Development Specialists began adverse proceedings against Baker & McKenzie, as well as DLA Piper and Dechert.
The administrator claimed Coudert did not sign away its interests in the unfinished business that the ex-partners took with them, and that the new firms were required to hand over fees earned from Coudert clients. The administrator also claimed the other firms had purchased Coudert's accounts receivable at less than face value.
The firms generally have argued that the Coudert estate has no right to revenue derived from unfinished business, and that there are no problems with negotiations over the accounts.
In a bench ruling in August, U.S. Bankruptcy Court Judge Robert Drain said the Coudert administrator's original complaint did not set forth sufficient facts to withstand a motion to dismiss. But he also said would entertain a request to amend. The amended complaint, Development Specialists, Inc. v. Baker & McKenzie LLP, 09-01150, was filed last week.
The latest claims against Baker & McKenzie involve a contingency fee that could be as high as $17 million. Baker and Steven Becker, a former Coudert partner, represented numerous coal companies before the Internal Revenue Service and the U.S. Court of Federal Claims involving the constitutionality of a federal excise tax on coal exports. The Federal Claims Court allows for recoveries for up to six years.
Coudert had already won a three-year refund from the IRS for its clients, collecting $21 million in fees, according to a motion filed in July in the bankruptcy case.
In 2004, Coudert obtained a stipulated judgment in a test case before the Federal Claims Court for the other three years, but the court denied interest on those refunds. Coudert appealed for interest. The government cross-appealed seeking to block the entire award.
In January 2007, the Federal Circuit ruled for Coudert's former clients -- Clintwood Elkhorn Mining Co., Gatliff Coal Co. and Premier Elkhorn Coal Co. -- on both recovery and interest.
But the U.S. Supreme Court reversed in United States v. Clintwood Elkhorn Mining Co. in April 2008.
The Supreme Court defeat prompted the coal industry to lobby the U.S. Senate and House of Representatives for legislation that would overturn the decision. Several companies, including former Coudert clients, retained Baker & McKenzie for the lobbying effort, according to bankruptcy briefs and lobbying records kept with the Senate.
When Congress passed the legislation in October creating the $700 billion Troubled Asset Relief Program, one provision authorized Baker's coal clients to file refund claims for excise taxes dating back to 1990, according to the July motion in the Coudert case.
In November, Becker e-mailed David Adler, who represents Coudert's plan administrator, to notify him of the potential contingency fee. Becker wrote that "the net result could be that Baker receives approximately $6 million and Coudert receives approximately $11 million."
Becker in his e-mail noted that one client, whose contingent fee represented 35 percent of the total owed, had contested the fee payment, saying that since the refund was coming from the legislation -- and not litigation -- it did not owe the lawyers anything. Becker said the lawyers "strongly disagree" with the client's position, but noted it was possible because of that dispute the total fees would shrink to $11 million, with Coudert's share dropping to $5 million.
The complaint claims Baker has already received more than $5 million in payments on the contingency fee. Under a formula described by Becker in his November e-mail, Coudert is owed more than $1.5 million on what had been collected, the complaint states.
The administrator maintains that Baker has failed to pay that $1.5 million or any other funds from the contingency fee, putting it in breach of the contract with Coudert.
Mark Hanchet at Mayer Brown represents Baker & McKenzie.
Adler is a partner with McCarter & English.
Coudert's actions against Dechert and DLA Piper are ongoing.
