DLA Piper is locked in a dispute with an energy executive who claims the firm acted as his company’s “ghost counsel” after being ordered to withdraw from a case and continued to bill him.
The firm, which has sued the executive, Adam Victor, for payment of legal bills, claims it had an agreement to represent Victor in his individual capacity.
DLA was hired by Project Orange Associates, owned by Victor, to handle its bankruptcy in April 2010. But in June of that year, Southern District Bankruptcy Judge Martin Glenn (See Profile) found that DLA’s representation of General Electric, one of Project Orange’s creditors, created a conflict of interest and denied the firm’s application to represent Project Orange. (Read Judge Glenn’s order disqualifying DLA Piper.)
“Because DLA Piper had institutional knowledge, and did not want to lose a lucrative client, DLA Piper insisted that it should continue to provide legal services behind the scenes to POA,” Victor claims in DLA Piper v. Victor, 650374-2012, which is before Manhattan Supreme Court Justice Ellen Coin (See Profile).
While the company “hired separate counsel to officially represent its interests in the bankruptcy, DLA Piper acted as ‘ghost’ counsel for POA and performed the bulk of the legal work required,” he says in his counterclaims.
Victor owned Project Orange Associates and Gas Alternative Systems, companies that operated a plant in Syracuse that supplied steam to Syracuse University.
In 2008, Project Orange was forced to shut down as a result of deregulation and restructuring of the electric utility industry, Victor claims. Shortly afterward, it filed Chapter 11 papers with DLA as counsel.
After the firm was dismissed as counsel to Project Orange, the company retained Klestadt & Winters. DLA continued to “work behind the scenes” for Project Orange, Victor said in the affidavit.
DLA sued Victor in February 2012 for $678,763 in past due legal bills. The firm’s complaint says that after it withdrew as Project Orange’s counsel in bankruptcy court, Victor told the firm he wanted it to represent him “in his individual capacity.”
The firm agreed to do so, DLA claims, and Victor made some payments to the firm from his personal accounts.
DLA maintains that the bankruptcy court was aware it represented Victor, citing a November 2010 motion in which Project Orange says DLA has represented Victor and Gas Alternative Systems, the debtor in possession lender under a credit agreement.
Victor supported an affidavit in support of that motion, the firm claims.
In a motion to dismiss DLA’s suit, Victor says the firm continued to provide services for Project Orange. “DLA Piper was well aware of its precarious position,” he argued.
Alleging a “sweeping practice of over-billing,” Victor claims DLA has never represented him individually, except in one small collections manner. Victor seeks $776,000 from the firm, an amount he claims he “was pressured to pay DLA Piper to continue a representation DLA Piper was barred from undertaking.”
In the firm’s reply papers, DLA denied it acted as “ghost counsel” and said it billed Victor for services it provided to him.
DLA’s complaint includes the April 22, 2010, engagement letter for Project Orange’s restructuring. The letter is addressed to Adam Victor as president of Project Orange, which filed its bankruptcy papers seven days later.
Victor, who is represented by Larry Hutcher, a partner at Davidoff Hutcher & Citron, argues that DLA “inadequately sidesteps New York law and ethics rules which require attorneys to obtain separate retainer letters for each client, which is an absolute bar to recovery against Victor under a breach of contract cause of action.”
He added that if the firm’s claim that he has personal liability had any merit, the firm would have requested him to sign a separate retainer letter.
DLA says its services to Victor were “of the same general kind” rendered to Project Orange in accordance with the engagement letter in the firm’s opposition to Victor’s motion to dismiss.
“Victor’s apparent argument that DLA Piper was required to provide a second engagement letter addressed solely to him fails, as such a second engagement letter would have contained the same description of services, same fee structure and would have been received by the same person as the first engagement letter, Victor,” the firm says.
Hutcher, Victor’s attorney, said that Coin in June denied Victor’s request to dismiss the case, finding a question of fact existed as to whether the firm represented Victor personally.
“We strongly disagree” that DLA represented Victor in an individual capacity, Hutcher said. He said the parties are in settlement talks now.
DLA spokesman Josh Epstein said the firm won’t comment on pending litigation. The firm is represented by Jeffrey Schreiber, a partner at Meister Seelig & Fein, who also declined to comment.
The idea of shadow counsel mostly appears in the context of pro se litigants who seek guidance from attorneys, said Stephen Gillers, a New York University School of Law professor and an expert on professional responsibility.
Various bar association opinions on shadow counsel have approved the practice of assisting pro se litigants without appearing on record, he said.
Gillers, speaking generally on engagement letters, said, “It’s the lawyers’ job generally to make it clear who the client is and what the client’s financial responsibilities are.” In his view, he said, a lawyer should ordinarily have a new fee agreement when there is a change in the identify of the client.
If there is no written fee agreement with a client, however, it does not necessarily mean the lawyer goes unpaid, he said. The lawyer may just get paid less in quantum meruit, he added.
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