Ex-Partners Sue Townsend for Cut of Fees

Two former equity partners are dueling with Townsend and Townsend and Crew over whether they should get a cut of the firm's bounty from an antitrust class action against Microsoft Corp. The two assert that they're entitled to a pro-rated cut for contingency cases the firm was working on before the pair left for Howrey Simon Arnold & White two years ago. Townsend Chairman James Gilliland Jr. says his firm expects to collect $30 million to $32 million in fees for the action against the software giant.

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Two former equity partners are dueling with Townsend and Townsend and Crew over whether they should get a cut of the firm’s bounty from an antitrust class action against Microsoft Corp. Last week, Duane Mathiowetz and K.T. “Sunny” Cherian sued their old firm for breach of contract, each seeking at least $700,000 in damages. Among other things, they assert they’re entitled to a pro-rated cut for contingency cases the firm was working on before the pair left for Howrey Simon Arnold & White two years ago. Though their complaint in San Francisco Superior Court doesn’t refer to any particular litigation, the Microsoft case is at least one point of contention. Townsend Chairman James Gilliland Jr. says his firm expects to collect $30 million to $32 million in fees for its role as lead class counsel in an antitrust class action against the software giant. “That, I suspect, is what this is really about,” Gilliland said. Cherian confirmed that the recovery in the Microsoft case is one issue, but declined to elaborate further on the suit. Mathiowetz did not return calls seeking comment. Worth up to $1.1 billion in vouchers for California consumers, the settlement in the 27 coordinated actions — Microsoft I-V cases, 4106 — was announced about three months before the partners left the firm in 2003. It was more than a year later that a San Francisco Superior Court judge formally approved the settlement, then awarded $101 million in fees to be split among more than 30 firms. Townsend estimates it will collect about a third of the money, though some firms are still squabbling over how to divvy up the fees. The crux of the former partners’ dispute is a disagreement over how Townsend has interpreted its partnership agreement in the past. The firm maintains that the date that it actually gets the money in hand determines who reaps the benefits. Under longstanding policy, Gilliland said, the firm’s equity partners — there are about 50 now — all get a cut of any contingency fee paid while they’re at the firm. But those who leave to practice law somewhere else don’t get to reap the benefits of contingency fees the firm receives later, he said. “If a partner leaves the firm, and remains active in the practice of law, [he] does not retain any interest in ongoing contingency cases,” Gilliland said. The firm has never split such fees with former equity partners practicing elsewhere. “To the extent there have been any contingency recoveries since they left the firm, and more particularly with regard to this Microsoft fee, they are not entitled to receive any.” Mathiowetz and Cherian have a completely different take on the partnership agreement. According to their suit, the firm’s “practical interpretation” of that contract has previously been that equity partners are entitled to a pro rata share of contingency fees, based on their compensation during the years the firm pursued the cases. It didn’t matter “whether those equity partners continued with the firm or had withdrawn from it,” says the complaint by David Zeff, of San Francisco’s Law Offices of David M. Zeff. Mathiowetz and Cherian also allege in Mathiowetz v. Townsend and Townsend and Crew, 440446, that the firm hasn’t paid them what they’re owed for their interests in the partnership. They’re asking the court to appoint an appraiser to set an appropriate “buyout price.” Gilliland says his firm has paid the two former partners all the capital they’re due under their partnership agreement. He declined to name a dollar figure. “It was all they were owed,” he said.

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