Neither the Coudert Brothers’ estate nor Baker & McKenzie can pursue a contingency fee claim for lobbying work the firms said helped secure a $59 million tax refund for Peabody Energy Corp., a Southern District judge has ruled.

In a dispute with their former client, the law firms said they were entitled to 15 percent of the recovery, about $9 million, in accordance with an engagement letter with the coal company that directly refers to pursuing the refunds through the IRS or in litigation, but not lobbying.

The firms, however, can go forward with their attempt to seek compensation through quantum meruit and unjust enrichment claims.

"Where, as here, a contingent fee agreement lists the type of legal services to be provided, and makes no mention of another type of services, the contract cannot be reasonably interpreted to encompass the omitted, non-legal services," Judge Paul Engelmayer (See Profile) wrote in Development Specialists v. Peabody Energy, 1:11-cv-04949. "If Coudert had wanted to ensure that it would receive a contingency fee based on its lobbying work, it should have explicitly included a provision to that effect in the Agreement."

But the judge also said, "A jury could certainly find both that Baker & McKenzie’s lobbying efforts benefited Peabody in some way and that Peabody knowingly accepted at least some of those benefits."

Peabody retained Coudert in 1997 to seek refunds of millions of dollars of taxes it paid on coal exports. A 1997 engagement letter provided for Coudert, and later Baker & McKenzie, to receive a 15 percent contingency fee in the event of a successful outcome.

The agreement states: "This representation may include applying to the Internal Revenue Service for refund and abatement of the excise tax, filing suit against the United States in the U.S. Court of Federal Claims, and whatever other action before the IRS, or in the federal trial or appellate courts, we may deem necessary or advisable" to obtain refunds.

The firms pursued some litigation and filed refund claims with the IRS, and Coudert successfully obtained refunds for Peabody for taxes paid in or after 1994. Coudert received a fee for that work, which is not at issue. The firm continued to pursue refunds for taxes paid before 1994.

In 2003, Coudert began lobbying Congress to pass legislation to provide refunds to coal companies.

Coudert dissolved in 2005 and Steven Becker, the partner who had led Coudert’s effort for Peabody, joined Baker & McKenzie, along with other Coudert lawyers. Baker continued to perform legal services under the agreement with Peabody.

Coudert and Baker & McKenzie’s lobbying activities culminated in legislation, passed by Congress in 2008, that effectively granted refunds to coal companies on excise taxes paid between 1991 and 1994, Engelmayer wrote in a summary of the case. Peabody’s refund was about $59 million.

In a case arising out of Coudert’s bankruptcy proceedings, Coudert and Peabody disputed whether the lobbying work was performed on behalf of the coal company, and, if so, whether the firm should be compensated in accordance with the 1997 agreement.

Development Specialists Inc., represented by McCarter & English, is the plan administrator for Coudert and is standing in for Coudert and Baker & McKenzie.

The estate argues the engagement agreement encompasses lobbying, and that the firms were working on behalf of Peabody, which knowingly accepted the fruits of the labor.

"Peabody, in truth, did not give a ‘tinker’s damn’ about how it got its money—its sole concern was that it get its money, which it did—in spades, to the tune of $59 million," said Development Specialists in court papers.

Baker & McKenzie, which assigned to the bankruptcy estate its right to pursue contingency fee claims, would receive a capped 50 percent share of the plan administrator’s net recovery, after fees and costs. According to another agreement, Becker, who is now a solo practitioner, would receive 65 percent of Baker’s share of the recovery.

Peabody, represented by Foley & Lardner, argued that the engagement letter does not cover lobbying and that the firms were also working on behalf of other coal companies.

"On at least two occasions, Peabody gave Baker explicit written instructions that Baker was not to lobby on Peabody’s behalf," Peabody said in court documents.

In dismissing the breach of contract claim on summary judgment, Engelmayer said the notion the agreement entitled the firms to a 15 percent contingency fee for "literally any lawful activity resulting in a tax ‘refund or savings’ is implausible," Engelmayer wrote.

"Moreover, a contingency fee for lobbying would raise imponderable questions of causation. In contrast to the litigation context, where a plaintiff’s success (in the form of a verdict or court ruling) is directly attributable to the efforts of his or her attorney, the credit for any legislative victory before Congress is necessarily more diffuse," Engelmayer wrote.

"In a city full of lobbyists, interest groups, congressional staffers, other purveyors of influence, and the media, it may well be open to debate—or an unanswerable metaphysical question—whose efforts caused the passage of particular legislation," he said.

But Engelmayer found Peabody’s knowing acceptance of Baker & McKenzie’s services relevant to the plan administrator’s quasi-contract claims for quantum meruit and unjust enrichment.

The judge said Peabody made a number of representations that a jury could reasonably construe as requests for lobbying services, and a jury could also find these services were more than incidental. The judge said billing records suggest Baker & McKenzie’s lobbying work totals about 80 hours.

Engelmayer directed counsel to jointly submit a letter to the court on whether a settlement conference would be productive.

Peabody’s attorney, Marc Dorfman, a partner at Foley & Lardner, declined to comment.

Becker also declined comment.

Development Specialists’ was represented by partners David Adler and Daniel Pollack of McCarter & English.

William Brandt, CEO of Development Specialists, said in an interview that although the firms are now not entitled to seek a contractual 15 percent, they can still seek some compensation.

If the case goes to trial, Brandt said he will argue for up to possibly 33 percent. "I’m going to show a comparison, across the board range," of contingency fee agreements, he said.

"The fact of the matter is Peabody got $59 million back and Coudert got squat for its efforts," Brandt said. "It’s hard not to see the law firm was instrumental in getting Peabody $59 million."