After years of wrangling over more than $6 million in unpaid legal fees, Debevoise & Plimpton has taken a timber company to court over its refusal to pay the bill.
Debevoise sued Candlewood Timber Group LLC last month in Manhattan Supreme Court after its former client did not pay the multimillion-dollar tab arising from litigation in 2006 over rain forest damage in Argentina.
Candlewood, in documents filed in an earlier proceeding trying to block the firm's arbitration demand, said Debevoise does not deserve the "exorbitant" $6 million sum, claiming it overstaffed the matter with associates of "no apparent skill" and was replaced by another firm for trial.
Debevoise and its lawyer, Roger Bernstein, a solo practitioner in Manhattan, declined comment.
Robert Chan, a lawyer for Candlewood at Ferber Chan Essner & Coller, said he would not comment on Debevoise's suit against his client, but added that if the two sides do not settle the matter, "we will assert substantial defenses and counterclaims."
Law firms are typically hesitant to sue clients over fees, in part because of the risk of being hit in return with a malpractice claim. John Marquess, president of Legal Cost Control Inc. in Haddonfield, N.J., said he would counsel a firm not to sue for fees, even with a "significant" demand like the more than $6.37 million Debevoise is seeking.
"If I were advising any law firm, I would tell them suing a client over fees is a no-win situation," he said. "It's going to get you adverse publicity you may or may not recover from. And if it went before a jury, juries hate lawyers."
Marquess said law firms usually attempt to resolve the disputes quietly to avoid litigation, which Debevoise tried to do.
Debevoise, which grossed $760.8 million in 2008, in its complaint said it submitted invoices and requests for payment to Candlewood for a year after trial wrapped in May 2006. Debevoise also attempted earlier this year to take Candlewood to arbitration.
But in March, Candlewood filed a petition to stay the proceedings, arguing its engagement letter with the firm did not cover arbitration.
Debevoise withdrew its notice to arbitrate in June, according to an affirmation in the proceedings in Debevoise & Plimpton LLP v. Candlewood Timber Development, LLC, 103982-2009. It then sued Candlewood and its principal, Jeffrey Kossak, on Nov. 12 (Debevoise & Plimpton LLP v. Candlewood Timber Group, LLC, 603479-2009).
According to the state court complaint, the fee dispute stems from Debevoise's representation of Candlewood in litigation against Pan American Energy LLC, a joint venture of BP p.l.c. and Bridas Corporation, which had subsurface rights to extract oil and gas in Argentina on land owned by Candlewood.
Candlewood in 1997 and 1998 acquired about 250,000 acres of forestland in Argentina. Candlewood's goal was to sell wood products from the land consistent with international sustainable forestry principles. Of that land, 70,000 acres were in Argentina's San Pedrito Forest.
Pan American had subsurface rights on those 70,000 acres. After Pan American built a road and well in connection with its oil and gas exploration, Candlewood claimed the gas company's operations caused erosion of the forestland, making the company unable to qualify for certification as a sustainable forestry operation. Candlewood sued Pan American in 2003 in Delaware Superior Court seeking to force it to clean up the property or pay the timber company the costs of repair.
Candlewood was initially represented by boutique Bouchard Margules & Friedlander in Delaware. But as the trial approached, the company retained Debevoise in July 2005. The lead partners were Daniel Abuhoff and Donald Donovan, according to the engagement letter with Debevoise.
In its letter, the firm agreed to work "as cost-effectively as possible." Debevoise agreed to reduce its monthly bills 20 percent with the option to recapture that amount if Candlewood obtained a recovery. It also agreed that Candlewood would pay no more than $100,000 a month while the litigation was ongoing.
The engagement letter also had a contingency fee arrangement tied to any recovery. According to the letter, attached as an exhibit in the arbitration proceedings, Debevoise stood to earn a 5 percent contingency fee on any recovery of $20 million or less. If the recovery was more than $20 million, Debevoise would receive 10 percent.
Debevoise in its complaint filed in November said it worked at "breakneck speed" to prepare the case for trial. When the firm came in to the case no depositions had been taken, Debevoise said, despite the possibility of having to depose more than 40 fact and expert witnesses with a trial date only months away. It also said it succeeded on several pretrial motions.
But Candlewood, in an affirmation by its lawyer in the motion to stay arbitration in March, said that by the time the company hired Debevoise, pleadings were finished, expert opinions had been submitted on both sides and discovery had already begun.
"The expectation was that discovery would be limited because all the factual and legal issues had already been defined and covered by the parties' expert opinions," said Candlewood's lawyer at the time, Manhattan solo practitioner Edward W. Hayes. "But the reality proved to be quite different."
Hayes said in legal documents that Debevoise put 50 lawyers on the case and managed to bill more than 10,000 hours at an average of $600 an hour in eight months primarily on pretrial discovery related to expert opinions that had already been developed.
"The duplication of efforts this necessarily entails was, of course, enormous," Hayes said in the affirmation. "And on top of that, the quality of the legal services provided was definitely subpar. Associates with no apparent skill in conducting examinations were routinely assigned to the case."
Debevoise in its complaint lays some of the blame for the cost on Kossak. The firm said Kossak urged it to undertake "an expensive mock jury exercise." Debevoise also said it gave Candlewood the option in early 2006 of modifying its letter of engagement to reduce the firm's fees and increase any contingency amount. Candlewood declined, the firm said.
In March 2006, before the case went to trial, Candlewood said it stopped paying Debevoise because of the "exorbitant" legal bills.
Debevoise, in its November complaint, said Candlewood was resisting paying all vendors at that time, not just the firm. For example, Debevoise claims when Candlewood did not pay a mediator before trial, the law firm paid out of pocket. Debevoise said it is still owed that money.
Candlewood brought in Susman Godfrey from Houston to replace Debevoise for trial. Debevoise acknowledges in its suit that Susman Godfrey was brought in but said Kossak asked Debevoise to remain involved and that it served as co-counsel on the case.
Candlewood in its arbitration stay proceedings said Susman Godfrey did all Debevoise promised to do "in a fraction of the time" and received "less than half" the compensation Debevoise is now seeking. Partner Harry Susman, who tried the case with his father, Stephen Susman, declined comment.
At the May 2006 trial, Susman Godfrey faced off against Squire, Sanders & Dempsey partner James Murphy and lawyers at Delaware-based Morris, Nichols, Arsht & Tunnell, for Pan American. The jury returned a verdict, but before it was announced, both sides reached a confidential settlement that included an undisclosed payment to Candlewood, according to Debevoise's complaint.
Marquess, the legal bill auditor, said the case highlighted the need for clients and lawyers to specify in engagement letters how the firm will staff a case and that a client's permission will be required before more attorneys can be added to the team.
"The idea is to spell out and control the staffing," Marquess said. The replacement of Debevoise with Susman Godfrey, which Candlewood said used only three lawyers to Debevoise's 50, suggests "the client learned the lesson," he said.