McAfee Overbilling Suit Against WilmerHale Proceeds

Leigh Jones

The National Law Journal

Wilmer Pickering Hale and Dorr has lost a bid to force a trial court to throw out a fraud claim in a $7 million lawsuit that alleges the law firm overbilled a former executive it defended in a white-collar criminal case.

The Court of Appeals of Texas on Dec. 31 denied the law firm's petition for a writ of mandamus, which, if granted, would have directed the trial court to dismiss a fraud claim brought by McAfee Inc., the anti-virus software company.

McAfee's lawsuit asserts that WilmerHale inflated its legal fees when it defended McAfee former Chief Financial Officer Prabhat Goyal, who was convicted in 2007 of securities-related fraud for overstating the companies profits from 1998 to 2001.

In denying WilmerHale's petition for a writ of mandamus, the Texas Court of Appeals allowed McAfee to move ahead with the fraud claim, which is the last surviving cause of action in its suit against the law firm.

McAfee's lawsuit stems from an indemnity agreement it had with Goyal, which called for the company to pay for the executive's legal fees. It also called for Goyal to repay the company if it was ultimately determined that he was not entitled to indemnification for his actions. Goyal's criminal case is on appeal.

The company asserted that the $6.8 million of the $12 million it cost to defend Goyal included unjustifiable fees and expenses for numerous WilmerHale partners and associates, in addition to charges for luxury hotel rooms, limousines and bar tabs.

The law firm has denied the overbilling. WilmerHale was closed on Jan. 2, and was not immediately available for comment about the Dec. 31 decision.

In October the District Court of Collin County Texas dismissed most of McAfee's claims, including breach of fiduciary duty, gross negligence and a claim for breach of an oral or written agreement not under seal.

The three-judge panel of the Texas Court of Appeals, in rejecting WilmerHale's bid to have the remaining claim tossed out, ruled that the lower court did not abuse its discretion in allowing the fraud claim to survive.

Specifically, the appeals court rejected WilmerHale's assertion that the trial court should have dismissed the fraud claim because McAfee brought it in the wrong jurisdiction, in violation of a forum-selection clause in the indemnity agreement between the company and Goyal. The forum-selection clause, the appeals court found, did not apply to McAfee's case alleging overbilling.

The appeals court also rejected WilmerHale's argument that McAfee's fraud claim was not ripe because Goyal's criminal case was on appeal.

"It may be true that McAfee's right of recoupment against Goyal, based on the terms of the indemnity agreement, is not yet ripe," wrote Justice Kerry P. Fitzgerald, who authored the opinion. "But McAfee's right not to be defrauded by [WilmerHale] is separate and independent of any contractual rights it may enjoy against Goyal."

In a footnote, Fitzgerald also wrote that he would reject the mandamus petition because certification of the petition did not comply with the Texas Rules of Appellate Procedure.

The rules require the person filing the petition to have read it and concluded that "every factual statement in the petition is supported by competent evidence included in the appendix or record."

The judge noted that the certification on WilmerHale's petition stated that "the petition truly and correctly recites the factual allegations set forth in the pleadings and the evidence in the record."

Fitzgerald concluded that "in light of the foregoing analysis, it [was] unnecessary to address this issue."