Recent developments in the world of contingency fee business litigation and commercial arbitration

Bad news for Jeff Skilling

Former Enron CEO Jeff Skilling lost his most recent appeal to the 5th Circuit. He was originally sentenced to 24 years and $45 million in restitution. His convictions were affirmed, although he is still to be resentenced because of a sentencing enhancement that had been misapplied by the trial court. U.S. v. Skilling, ___ F.3d ___. 2011 WL 1290805, (5th Cir. 2011). Unless the U.S. Supreme Court agrees to revisit Mr. Skilling’s case again, it appears that he will remain in federal prison for a very long time.

Investors receive surprisingly large arbitration award.

According to The Wall Street Journal, Citigroup has been ordered to pay $54.1 million to two wealthy investors (a venture capital investor and a retired patent attorney) for losses they sustained on risky municipal bond funds that lost 77% of their value in the financial crisis. “The award by an industry arbitration panel is the largest ever levied against a major Wall Street brokerage in favor of individual investors . . . .” (Larger awards have been made to corporate investors.) The award included $17 million in punitive damages and $3 million in legal fees. Citigroup’s municipal bond funds are the subject of an SEC probe into whether the bank misled investors by failing to disclose the funds’ risks. The investors were neighbors, and the former Smith Barney broker testified on behalf of his former clients. Arbitration is mandatory in most Wall Street customer agreements, and this result appears to substantially exceed any previous award to individuals is such an investment advice dispute. It is good to see a case in which a FIRA arbitration worked out so well for the investors!

Lieck is out of luck!

The written contract for local counsel (Ed Lieck) provided that he would receive 10% of the first $50 million and 5% above $50 million of “recovered judgments awarded” in a lawsuit. As a result of an arbitration and settlement of a related action in Sweden, the lawsuit was dismissed. Local counsel sued for a fee. He wanted his percentages of the fair market value generated from the business deal. The trial court awarded him approximately $13.5 million. The appellate court reversed and he recovered nothing. The contract was unambiguous. Lieck was to get his percentage of “any and all recovered judgment(s) awarded in [the lawsuit].” The judgment in the lawsuit simply dismissed all claims and ordered each party to bear its own costs. Since the parties were awarded nothing, Lieck recovered nothing. U.S. Denro Steels, Inc. v. Lieck, ___S.W.3d___, 2011 WL 1252090 (Tex. App. Houston [14th Dist.] 2011). Whether fair or not, this appears to be consistent with the view that attorneys’ fee contracts will be construed like any other contracts, and possibly for a further view that they will usually be construed against the attorney.

MME Launches New Website

McCanahan Myers Espey is proud to announce a new firm website today and express thanks to Steve Matthews, Laurel Fulford, and others at Stem Legal who created and implemented the site's changes. 

Please drop by and see our new online home.

Patent Infringement Litigation: Risks of Notifying the Infringer Before Filing a Lawsuit

            It is clear that MedImmune has altered the world in which a patent owner may safely initiate communication with a potential infringer or licensee of the patent. Before sending any letters, the patent owner should be working with patent litigation counsel to make sure that the risks of a hostile declaratory judgment action are carefully evaluated and a fully informed decision made about how to go about enforcing the patent.

Business Method Patents: Challenges for Patent Infringement Cases

As attorneys involved in patent litigation, our firm has received several inquiries lately about whether we might take, on contingent fee, a case for infringement of a business method patent.  The answer is “maybe!” “A business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting.” Bilski v. Kappos,130 S.Ct. 3218 (U.S. 2010). Great care must be taken in evaluating such a case, however, because method patents are not broadly patentable.

Bilski made its way to the highest court via an administrative route rather than by private litigation. An applicant tried to patent a method of hedging risk in commodities trading in the energy market. The PTO rejected the patent, which was affirmed by the Board of Patent Appeals and the Federal Circuit (en banc).   The Supreme Court granted certiorari.            

Methods of doing business are not necessarily non-patentable. In Bilski, the claimed invention was a mathematical formula, an “abstract idea,” and thus not a patentable “process.” Significantly, however, the Court rejected any limitation that a method patent must satisfy a “machine” or “transformation” test. That is, a claimed process is not patent eligible only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.  Although a useful tool, the Supreme Court held that the “machine or transformation” test is not the sole test for determining whether a method is patent eligible.   While the “machine or transformation” test might have worked well in the Industrial Age, it does not work as well in the Information Age.             

In the Supreme Court’s decision, four Justices concurred in one opinion (strongly disagreeing with the Court’s disposition of the case) and two in another (believing that business methods are not patentable). The Federal Circuit’s decision produced five opinions. This led Justice Kennedy to note, “Students of patent law would be well advised to study these scholarly opinions.”             

This has led some to suggest reexamination as an alternative to patent litigation or a license and that “defendants and potential licensees are using reexaminations more frequently than in the past to challenge the validity of the claims in issued patents.  So what’s the bottom line? Business method patents, while perhaps alive, will be difficult to successfully litigate by a plaintiff.   Perhaps the patent owner can best prepare his case for successful litigation by seeking re-examination himself before it is sought by a defendant, potential licensee or other third-party. We would be much more likely to take a business method case on contingency fee after the patent has survived re-examination in light of the substantial, though perhaps somewhat ambiguous, discussion of the higher and highest courts in Bilski.

Oops! Plaintiffs want a jury to award them money, but end up with arbitrators making them pay!

            This should be of interest to plaintiffs and attorneys who hope to conduct business litigation or arbitration with a contingent fee.

            Homeowners hired a construction company to build an 8000 square foot house, 2000 square foot guest house, pool and pool house, tennis court, pavilion and multi-car garage on their 12 acre property. The project was to cost $11.3 million. About 2 and ½ years into the project the builder stopped work, alleging the homeowners breached their contract by failing to pay for increased construction costs due to a design change. The homeowners claimed that the builder had delayed work and overrun costs. 

            The homeowners wanted the case heard in court. The builder wanted to arbitrate.  The case was ultimately heard by a three member arbitration panel.  The homeowners were ordered to pay the construction company $5.75 million in legal fees and arbitration costs.

The homeowners believed that they would have won with a jury and that the arbitrators were biased because they had formerly represented construction companies. 

            Obviously, it can matter a great deal to a contingent fee plaintiff whether his case gets tried by a jury or arbitrators. In either case, however, it is very important to pick the right audience, whether they are jurors or arbitrators!

Insurer faces counterclaim in STOLI case

In 2009, the Penn Mutual Life Insurance Company sued a trust and its trustee in a Delaware federal court, alleging the life insurance policy issued to them was part of an impermissible “stranger oriented life insurance” or “STOLI” scheme. Penn Mutual sought to rescind the policy because of “material misrepresentations” it relied upon when it placed the coverage.

The trust filed a counterclaim against Penn Mutual, essentially arguing that any misrepresentations in the policy application were made by Penn Mutual’s agents and should therefore be imputed to Penn Mutual itself. Penn Mutual asked the Delaware court to dismiss the counterclaim. But the court refused.  On July 30, 2010 it held the trust’s allegations “implicate legal and factual issues related to agency” and allowed the counterclaim to proceed further. The case is styled civil action number 09-677, Penn Mutual Life Insurance Company v. Barbara Glasser 2007 Insurance Trust, in the United States District Court for the District of Delaware.