Brobeck, Phleger & Harrison v. Telex Corp.

• Decision Date: 05 July 1979
• Docket Number: No. 77-1419,77-1419
• Citation: 602 F.2d 866
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: 1979-2 Trade Cases 62,750 BROBECK, PHLEGER & HARRISON, a partnership, Plaintiff-Appellee, v. The TELEX CORPORATION, a corporation, and Telex Computer Products, Inc., acorporation, Defendants-Appellants.

Page 866

602 F.2d 866

1979-2 Trade Cases 62,750

BROBECK, PHLEGER & HARRISON, a partnership, Plaintiff-Appellee, v. The TELEX CORPORATION, a corporation, and Telex Computer Products, Inc., acorporation, Defendants-Appellants.

No. 77-1419.

United States Court of Appeals Ninth Circuit.

July 5, 1979.

Rehearing Denied Sept. 6, 1979.

Moses Lasky (argued), Brobeck, Phleger & Harrison, San Francisco, Cal., for plaintiff-appellee.

Herman F. Selvin (argued), Kaplan, Livingston, Goodwin, Berkowitz & Selvin, Beverly Hills, Cal., for defendants-appellants.

Appeal from the United States District Court, Northern District of California.

Before MOORE ^*, SNEED and TANG, Circuit Judges.

PER CURIAM:

This is a diversity action in which the plaintiff, the San Francisco law firm of Brobeck, Phleger & Harrison ("Brobeck"), sued the Telex Corporation and Telex Computer Products, Inc. ("Telex") to recover $1,000,000 in attorney's fees. Telex had engaged Brobeck on a contingency fee basis to prepare a petition for certiorari after the Tenth Circuit reversed a $259.5 million judgment in Telex's favor against International Business Machines Corporation ("IBM") and affirmed an $18.5 million counterclaim judgment for IBM against Telex. Brobeck prepared and filed the petition, and after Telex entered a "wash settlement" with IBM in which both parties released their claims against the other, Brobeck sent Telex a bill for $1,000,000, that it claimed Telex owed it under their written contingency fee agreement. When Telex refused to pay, Brobeck brought this action. Both parties filed motions for summary judgment. The district court granted Brobeck's motion, awarding Brobeck $1,000,000 plus interest. Telex now appeals.

Telex was the plaintiff in antitrust litigation against IBM in the United States District Court for the Northern District of Oklahoma. On November 9, 1973 the District Court found that IBM had violated § 2 of the Sherman Act, 15 U.S.C. § 2 (Supp. IV 1974), and entered judgment for Telex in the amount of $259.5 million, plus costs and attorney's fees of.$1.2 million. The court also entered judgment in the sum of $21.9 million for IBM on its counterclaims against Telex for misappropriation of trade secrets and copyright infringement.

On appeal, the Tenth Circuit reversed the entire judgment that Telex had won in the district court. Telex Corp. v. International Business Machines Corp., 510 F.2d 894 (10th Cir. 1975). It also reduced the judgment against Telex on IBM's counterclaim to $18.5 million and affirmed the district court's judgment as modified.

Having had reversed one of the largest antitrust judgments in history, Telex officials decided to press the Tenth Circuit's decision to the United States Supreme Court. To maximize Telex's chances for having its petition for certiorari granted, they decided to search for the best available lawyer. They compiled a list of the preeminent antitrust and Supreme Court lawyers in the country, and Roger Wheeler, Telex's Chairman of the Board, settled on Moses Lasky of the Brobeck firm as the best possibility.

Wheeler and his assistant made preliminary phone calls to Lasky on February 3, 4, and 13, 1975 to determine whether Lasky was willing to prepare the petition for certiorari. Lasky stated he would be interested if he was able to rearrange his workload. When asked about a fee, Lasky stated that, although he would want a retainer, it was the policy of the Brobeck firm to determine fees after the services were performed. Wheeler, however, wanted an agreement fixing fees in advance and arranged for Lasky to meet in San Francisco on February 10th to discuss the matter further with Telex's president, Stephen Jatras, and Floyd Walker, its attorney in the IBM litigation.

The San Francisco meeting was the only in-person meeting between Lasky and the Telex officials on the subject of Brobeck's compensation. Jatras told Lasky that Wheeler preferred a contingency fee arrangement. Lasky replied that he had little experience with such arrangements but proposed a contingency fee of 5% Of either the judgment or settlement. Jatras thought there should be a ceiling and someone proposed that the ceiling be set at 5% Of the first $100 million. Jatras also proposed that anything due IBM on its counterclaim judgment be deducted before calculating the 5% Fee. Lasky rejected this, but suggested as a compromise that the amount of the counterclaim judgment be deducted if Telex received $40 million or less in judgment or settlement.

Lasky added that if there was to be ceiling on the contingent fee, there ought to be a minimum fee as well, and suggested that the minimum fee be $1 million. In his deposition, Jatras acknowledged that Lasky proposed a minimum fee, but disputed the other participants' account of the remainder of the discussion. According to Jatras, he told Lasky that Telex would not pay a minimum fee "unless we got something to pay it from." Lasky denied hearing such a proposal. The parties reached no final agreement at the San Francisco meeting. Jatras and Walker returned to Tulsa to discuss the meeting with the Telex management, while Lasky conferred with his partners.

The next day Walker drafted a memorandum to Jatras recounting the San Francisco meeting and including a proposed fee agreement. Jatras and Walker made some changes on the Walker draft agreement, and as modified, sent the proposed fee agreement to Lasky with a cover letter. The pertinent portion of this proposal, paragraph three, is set forth below:

Once a Petition for Writ of Certiorari has been filed with the Clerk of the United States Supreme Court then Brobeck will be entitled to the payment of an additional fee in the event of a recovery by Telex from IBM by way of settlement or judgment in excess of the counterclaim judgment; and, such additional fee will be 5% Of the first $100,000,000.00 of such recovery, the maximum contingent fee to be paid is $5,000,000.00 and the minimum is $1,000,000.00.

On the day he received the letter and proposed fee agreement, Lasky telephoned Jatras to tell him the proposal was not acceptable and that he would draft changes. Later that same day, Lasky sent to Jatras a letter in which he agreed to represent Telex and enclosed a memorandum agreement. This agreement, which Lasky had already signed, is set forth in full:

MEMORANDUM

1. Retainer of $25,000.00 to be paid. If Writ of Certiorari is denied and no settlement has been effected in excess of the Counterclaim, then the $25,000.00 retainer shall be the total fee paid; provided however, that

2. If the case should be settled before a Petition for Writ of Certiorari is actually filed with the Clerk of the Supreme Court, then the Brobeck firm would bill for its services to the date of settlement at an hourly rate of $125.00 per hour for the lawyers who have worked on the case; the total amount of such billing will be limited to not more than $100,000.00, against which the $25,000.00 retainer will be applied, but no portion of the retainer will be returned in any event.

3. Once a Petition for Writ of Certiorari has been filed with the Clerk of the United States Supreme Court then Brobeck will be entitled to the payment of an additional fee in the event of a recovery by Telex from IBM by way of settlement or judgment of its claims against IBM; and, such additional fee will be five percent (5%) of the first $100,000,000.00 gross of such recovery, undiminished by any recovery by IBM on its counterclaims or cross-claims. The maximum contingent fee to be paid is $5,000,000.00, provided that if recovery by Telex from IBM in less than $40,000,00.00 gross, the five percent (5%) shall be based on the net recovery, i. e., the recovery after deducting the credit to IBM by virtue of IBM's recovery on counterclaims or cross-claims, but the contingent fee shall not then be less than $1,000,000.00.

4. Once a Writ of Certiorari has been granted, then Brobeck will receive an additional $15,000.00 retainer to cover briefing and arguing in the Supreme Court.

5. Telex will pay, in addition to the fees stated, all of the costs incurred with respect to the prosecution of the case in the United States Supreme Court.

Jatras signed Lasky's proposed agreement, and on February 28 returned it to Lasky with a letter and a check for $25,000 as the agreed retainer. To "clarify" his thinking on the operation of the fee agreement, Jatras attached a set of hypothetical examples to the letter. This "attachment" stated the amount of the fee that would be paid to Brobeck assuming judgment or settlements in eight different amounts. In the first hypothetical, which assumed a settlement of $18.5 million and a counterclaim judgment of $18.5 million, Jatras listed a "net recovery" by Telex of "$0" and a Brobeck contingency fee of "$0." ¹

Lasky received the letter and attachment on March 3. Later that same day he replied:

Your attachment of examples of our compensation in various contingencies is correct, it being understood that the first example is applicable only to a situation where the petition for certiorari has been denied, as stated in paragraph 1 of the memorandum.

No Telex official responded to Lasky's letter.

Lasky, as agreed, prepared the petition for certiorari and filed it in July 1975. He also obtained a stay of mandate from the Tenth Circuit pending final disposition of the action by the Supreme Court. In the meantime Telex began to consider seriously the possibility of settlement with IBM by having Telex withdraw its petition in exchange for a discharge of the counterclaim judgment. Telex officials planned a meeting to discuss whether to settle on this basis, and Walker asked Lasky to attend in order to secure Lasky's advice on the chances that the petition for certiorari would be granted.

The meeting was held on September 5. Lasky told the assembled Telex's officials that the chances that the petition for certiorari would be granted were very good....