X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
In myth, King Midas is noted for his ability to turn everything he touches into gold. For attorney Douglas Rosenthal, the problem appears to be that what he touches turns into someone else’s gold. But that doesn’t mean he can’t sue to get it back. That’s what Rosenthal, a high-profile Washington antitrust lawyer, is doing to his old firm, Sonnenschein Nath & Rosenthal. While a partner with the firm, Rosenthal helped secure billions for the families of victims killed in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland. Rosenthal is now a partner at the Washington office of 40-lawyer Constantine Cannon. He claims that Sonnenschein, which has more than 700 lawyers firmwide, violated its partnership agreement by underpaying him for work that brought the firm a windfall he estimates at more than $37 million. In his breach-of-contract suit, which was filed in D.C. Superior Court in September 2005, Rosenthal says he is owed more than $9 million. How he arrives at that number isn’t disclosed. But it stems from Rosenthal’s belief that he was undercompensated for his efforts in two cases. One, a $2.7 billion award he helped garner from Libya on the Flight 103 suit; the firm’s cut was $17 million. The other is a $2 billion settlement he negotiated for Sun Microsystems with Microsoft; Rosenthal says in his complaint that the firm billed $20 million. Sonnenschein, as you might suspect, has a different take. (The firm, which is chaired by Elliott Portnoy, declined to comment on the case.) In early 2006, shortly after Sonnenschein’s motion to dismiss was thrown out by D.C. Superior Court Judge Melvin Wright, the firm filed a counterclaim against Rosenthal and Constantine Cannon, arguing that Rosenthal breached his contract with the firm by taking clients to Constantine while telling his partners at Sonnenschein that he intended to retire. Sonnenschein also alleges that Rosenthal’s work at Constantine violates his status as a retired partner. (Rosenthal, 67, “retired” from Sonnenschein and began work the next day at Constantine in August 2005.) “This is about a duty of good faith and fair dealing that says if the firm hasn’t lived up to their end, then they haven’t fulfilled the contract,” Rosenthal says. As a bonus to home viewers, the spat is being handled by Washington’s “legalrati”: Sonnenschein is represented by Michele Roberts of Akin Gump Strauss Hauer & Feld and Bingham McCutchen partner James Hamilton. Constantine’s founding litigation partner, Robert Begleiter, represents Rosenthal. The deposition list includes consulting firm Hildebrandt International and law firm Alston & Bird, which sources say also attempted to recruit Rosenthal around the time of his departure from Sonnenschein. The depositions remain under seal by court order. With discovery wrapping up and a trial date expected to be set in the coming weeks, the case has focused on an interesting question: Just what is the proper relation between a partner and his ex-firm? As with many large law firms, Sonnenschein partners don’t all have functionally equal status. Most have little say in the management of the firm. The real power at Sonnenschein rests with the management committee, which guides the firm’s practice groups, governs client relations, and sets the partners’ compensation. That system is discretionary. As with many firms, there is no set formula for arriving at an objective compensation number. So, because compensation is inherently subjective, the question at issue is whether a partner who feels misused by management can turn to the courts for redress. In our time The story begins in 1993, when Rosenthal was a partner in the Washington office of Coudert Brothers. At that time, he began representing Bruce Smith, whose wife, Ingrid, was one of the 270 people killed when the Pan Am flight exploded 31,000 feet above Lockerbie. Many of the victims’ family members became clients of Rosenthal, who agreed to take the case on contingency; he would receive 20 percent of any payout. In 1994, Sonnenschein approached Rosenthal about joining the firm. At that point, Rosenthal had billed more than 600 hours on the Pan Am case. When Rosenthal joined Sonnenschein, he says in the complaint, he did so with the understanding that the firm would support the case and would recognize and reward his previous work in the event of a recovery. The relationship with Sonnenschein went smoothly until 1998, when, Rosenthal says in the complaint, the firm stopped crediting him with billable hours on the Pan Am case. As a result, Rosenthal says the nearly 2,500 hours he worked on the file from January 1998 to December 2002 were tabbed by the firm as pro bono — crippling his billable-hour totals. Despite the matter being reclassified as pro bono, Rosenthal persisted and ultimately helped his expanded client list reach a historic victory. Libya agreed to pay $2.7 billion — roughly $10 million for every person who died — to settle the claims brought by the family members of Flight 103′s victims. Sonnenschein’s fees came to about $17 million. After the settlement was reached, Caryl Potter, then the Washington office’s managing partner, sent the entire firm an e-mail, which read in part: “Doug has been a tireless force in bringing some measure of justice to the families of the victims and was instrumental in getting legislation passed that removed Libya’s sovereign immunity from suits in federal district court in the United States. This is a major victory for Doug and we are proud of him.” But Rosenthal says the firm wasn’t proud enough to pay him for the hours he worked on the case. He claims in his suit that denying those billable hours cost him at least $600,000 from 1998 to 2002, and another $300,000 since. In the two years Rosenthal worked at the firm after winning the Libya case, his annual compensation was $389,663 in 2003 and $450,151 in 2004 — compared to the firmwide average profits per partner in those years of $648,536 and $721,452, respectively. In its countersuit, Sonnenschein confirms the numbers. The sun also rises It was during those same two years that Rosenthal was counsel for Sun Microsystems in its huge antitrust case against Microsoft. The software giant eventually paid $2 billion to settle the suit. In his complaint, Rosenthal says Sonnenschein collected $20 million in billing fees on the case. Sonnenschein denies that number in its counterclaim, without offering another figure. Despite being named by the client as the lead attorney (Sonnenschein confirms the position in its counterclaim), Rosenthal alleges in his suit that the firm credited another, younger partner, Michael Kiklis, with origination credit on the case. Rosenthal says that even though he billed 2,000 hours to Sun, a client he brought to Sonnenschein from Coudert Brothers, the compensation committee awarded all billing credits for the representation of Sun to Kiklis. Kiklis, now a partner at Akin Gump, declined to comment. Rosenthal says in his complaint that the firm’s actions were designed “to increase compensation to a younger, more ‘valuable’ partner, while denying compensation to Mr. Rosenthal, who the firm shortly intended to force into retirement.” Just how Rosenthal reached the decision to retire is also in dispute. In November 2004, Sonnenschein raised Rosenthal’s annual compensation to $800,000 as a reward for his work on the Libya case (Sonnenschein confirms the number in its counterclaim) — but then Rosenthal claims the firm amended its partnership agreement in early 2005 without his consent, lowering the retirement age from 70 to 65. He says the move was designed to force him out and take away the “reward” that had been promised for work on the Libya case. “Certain promises were made when he was entering the firm — that if this case was a success, it would result in the firm making things right,” says Begleiter, Rosenthal’s attorney. “That didn’t happen.” In its counterclaim, Sonnenschein says it was Rosenthal who wanted to leave. For months, Sonnenschein claims, Rosenthal had sought out a new firm that would take him in. The firm also alleges that he used his time and expenses as a Sonnenschein partner to develop business for Constantine, that he moved clients to his new firm while telling Sonnenschein partners he would retire, and that before joining Constantine, Rosenthal told the firm of his plan to sue Sonnenschein. Last year, the U.S. District Court for the Eastern District of New York ruled in Sonnenschein’s favor in a contingent fee dispute between Sonnenschein and Constantine over one of Rosenthal’s fees from the Libya case. When Rosenthal joined Constantine, he brought along clients including Rose Copeland, who lost her daughter, son in-law, and two grandchildren in the bombing. After Rosenthal joined Constantine in August 2005, the Copeland family terminated Sonnenschein’s representation and signed new retainer agreements with Constantine. Constantine argued that because there was a court delay in deciding how the money would be divided among Copeland family members (three illegitimate children staked a claim), Sonnenschein had forfeited its fee. The court disagreed, and the decision was upheld on appeal to the U.S. Court of Appeals for the 2nd Circuit. To have and have not Fairness in compensation is at the heart of the debate between Rosenthal and his former partners. For Rosenthal, it’s simply a matter of numbers; for Sonnenschein it’s not a matter for the courts. Attorneys specializing in partnership law say Rosenthal, despite his performance, may have a tough case. “It’s all about how the partnership agreement reads,” says Leslie Corwin, a partner at Greenberg Traurig. “We as partners all work 24/7 with the understanding that our compensation will be set by others. It’s part of practicing in a major law firm.” Sonnenschein may have tipped its litigation strategy by citing a 1992 decision from the 7th Circuit. In that case, Roan v. Keck, Mahin & Cate, a partner sued his old firm for inadequate pay. Roan had the highest billings in the partnership — but the lowest compensation as a percentage of billings compared to every other equity partner. It didn’t matter. The case was thrown out, with the court saying the covenant of a fair dealing only requires that one side “not unfairly deprive the other of what he has bargained for.” And so the court found that questions of fairness have little impact on partner compensation issues. But an appeal to basic fairness is central to the argument Rosenthal and his lawyers are making. Rosenthal’s lawyers cite Delaware and Illinois laws that prohibit ignoring fairness when considering the interpretation of a contract. And the lawyers point to a 1995 Massachusetts case, Starr v. Fordham, that held the partnership breached its duty of good faith by underpaying a partner based on his billable hours in comparison to other partners. “What we’re saying is that he should have gotten credit for the hours he worked,” Begleiter says. “It’s that simple.” Nathan Carlile can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.