Bennett v. Ashcraft & Gerel, LLP
| Docket Number | 31-2022 |
| Decision Date | 01 September 2023 |
| Parties | Jamie Bennett v. Ashcraft & Gerel, LLP |
| Court | Court of Special Appeals of Maryland |
IN THE APPELLATE COURT OF MARYLAND [*]
Circuit Court for Prince George's County Case No CAL-18-36527
OPINION
This case principally involves a dispute between a law firm and an attorney who was formerly employed by the firm. At the outset of her employment, the attorney and the firm entered into an agreement about how they would divide a contingent fee if she left the firm, was engaged by a client of the firm, and earned the fee after leaving the firm.
The attorney contends that the agreement violates the Maryland Attorneys' Rules of Professional Conduct and, thus, is unenforceable. On that premise, she withheld over $700,000.00 in fees that were due to the firm under the agreement.
For the reasons stated below, we shall hold that the agreement is not unenforceable on its face or as applied in the circumstances of this particular case. Consequently, we shall largely affirm the judgment of the Circuit Court for Prince George's County, which upheld the agreement and ordered the attorney to pay the fees that she had withheld in violation of it. We shall, however, vacate the judgment insofar as the circuit court failed to award pre-judgment interest to the firm. We shall remand the case with instructions to amend the judgment to include the undisputed amount of $81,212.10 in pre-judgment interest.
The "Prenuptial Agreement"
In 2011, after approximately 20 years as an Assistant United States Attorney, appellant and cross-appellee Jamie Bennett joined the law firm of Ashcraft &Gerel, LLP ("Ashcraft"). Ashcraft, the appellee and cross-appellant, is a regional law firm that primarily represents plaintiffs on a contingent-fee basis. Ashcraft hired Ms. Bennett to take over its False Claims Act practice.[1]
Ms. Bennett began her employment with Ashcraft on April 1, 2011. On April 5, 2011, Ms. Bennett signed an agreement, to which the parties refer as the "Prenuptial Agreement." Ashcraft requires its attorneys to sign the Prenuptial Agreement as a condition of their employment.
The Prenuptial Agreement is not an employment agreement; it is a departure agreement. It governs the division of fees between Ashcraft and an attorney if the attorney leaves the firm, is retained by any of the firm's former clients, and settles the clients' cases after leaving the firm.
In the absence of an agreement like the Prenuptial Agreement, the parties' share of a contingent fee would be governed by principles of quantum meruit, under which the firm would have to show the extent to which it contributed to the client's success. See, e.g., Somuah v. Flachs, 352 Md. 241, 257-58 (1998); First Nat'l Bank of Md. v. Meyer, Faller, Weisman & Rosenberg, P.C., 125 Md.App. 1, 20-23 (1999). The Prenuptial Agreement attempts to resolve these potential fee disputes in advance.
The Prenuptial Agreement uses a sliding-scale formula to apportion the division of fees. The formula considers two factors: (1) the amount of time between when the client retained the firm and when the attorney departed, and (2) the amount of time between when the attorney departed and when a fee was generated.
The Prenuptial Agreement provides as follows:
Retained by Ashcraft A Gerel. LLP
Within one Year From Termination By Attorney
Within Two Years From Termination By Attorney
Within Three Years From Termination By Attorney
Prior to Two Years Before Attorney's Termination with Firm...............
75%
70%
65%
Between Two Years Before Attorney's Termination with Firm and One Year Before Attorney's Termination with Firm................ 70% 65% 60%
Within One Year of Attorney's Termination with Firm.....
65%
60%
55%
In summary, if the client retained the firm more than two years before the attorney left, the firm's share of the fee ranges from 75 percent to 65 percent, depending on whether the fee was generated within one year, two years, or three years of when the attorney left. If the client retained the firm between one and two years before the attorney left, the firm's share of the fee ranges from 70 percent to 60 percent, depending again, on whether the fee was generated within one year, two years, or three years of when the attorney left. And if the client retained the firm less than a year before the attorney left, the firm's share of the fee ranges from 65 percent to 55 percent, depending on whether the fee was generated within one year, two years, or three years of when the attorney left.
The Prenuptial Agreement goes on to say that, when fees are generated more than three years after the attorney leaves the firm, Ashcraft receives 55 percent if the clients had been with the firm as long as they had been with the attorney; Ashcraft receives 50 percent if the clients had been with the attorney longer than they had been with the firm.
In effect, the Prenuptial Agreement focuses on the amount of time in which the firm was responsible for the client and the amount of time in which the attorney was responsible for the client. The Prenuptial Agreement uses those factors as a surrogate for the parties' respective contributions to the outcome. In general, under the Prenuptial Agreement, the longer the case was with the firm before the attorney departed, the greater the share of the fee for Ashcraft. On the other hand, the longer it took for the case to generate the fee after the attorney's departure, the lesser the share of the fee for the firm. Based on the percentages assigned to the firm, the agreement appears to assume that the firm typically makes a large investment of time, money, or both at the outset of an engagement.
Ms. Bennett signed the Prenuptial Agreement, but about six months later she formed the opinion that the agreement was unethical and that it violated the Maryland Attorneys' Rules of Professional Conduct. She expressed her opinion to Ashcraft's managing partner.
In February of 2012, Richard Barker retained Ashcraft to represent him in claims arising under the False Claims Act. Pursuant to his retainer agreement with Ashcraft, Barker agreed to pay 40 percent of any award to Ashcraft. Barker also agreed that any recovery of statutory attorneys' fees and costs would go to Ashcraft.
Ashcraft represented Barker in two False Claims Act cases that he brought on behalf of the United States: United States ex rel. Barker v. Columbus Regional Healthcare Sys., et al., No. 4:12-cv-108 (M.D. Ga.); and United States ex rel. Barker v. Columbus Regional Healthcare Sys., et al., No. 4:14-cv-304 (M.D. Ga.). Ms. Bennett was principally responsible for the representation.
The Barker cases settled in principle on April 3, 2015. Less than two months later, on May 29, 2015, Ms. Bennett gave Ashcraft four weeks' notice that she was resigning from the firm. She left on June 26, 2015. When she left, Mr Barker chose to terminate his relationship with Ashcraft and to retain Ms. Bennett.
On September 2, 2015, the parties to the Barker cases, including Mr. Barker, entered into a written settlement agreement. The agreement obligated the defendants to pay between $25 million and $35 million to the United States and the State of Georgia, on a quarterly basis, over five years. At the time of the settlement, Ashcraft had advanced over $700,000.00 in legal fees and over $300,000.00 in costs.
Pursuant to the settlement agreement in the Barker cases, Mr. Barker would receive over $5,000,000.00, which was subject to a contingent fee of over $2,000,000.00. The settlement agreement also awarded Mr. Barker $675,000.00 in statutory attorneys' fees. Ms. Bennett asserts that, as a result of her efforts after she left the firm, Mr. Barker's share of the recovery increased from $3,750,000.00 to over $5,000,000.00. Ms. Bennett received the first installment of the settlement payments on September 3, 2015, the day after the settlement agreement was signed, and less than three months after she left the firm.
At the time of the settlement in the Barker cases, Ms. Bennett and Ashcraft disagreed about the enforceability of the Prenuptial Agreement and the fees to which Ashcraft was entitled from the Barker cases and others. Through counsel, the parties reached a negotiated agreement as to the Barker fees, which was memorialized in email dated October 5, 2015. In that agreement, Ashcraft and Ms. Bennett agreed to divide the fees in the Barker cases in accordance with the formula set out in the Prenuptial Agreement: 75 percent to Ashcraft and 25 percent to Ms. Bennett.
In accepting Ashcraft's settlement proposal on Ms. Bennett's behalf, Ms. Bennett's attorney stated that Ashcraft "should not interpret Ms. Bennett's agreement in this case as an admission regarding the validity of the prenuptial agreement." Ashcraft acknowledged Ms. Bennett's position and replied, "This agreement does not release or waive any rights Ashcraft may have with respect to any other issues with respect to Ms. Bennett's departure."
Ms. Bennett and Ashcraft authorized the United States Department of Justice to wire the Barker settlement proceeds and the statutory attorneys' fees to an escrow account established and held by Ms. Bennett's attorney. Ms. Bennett's attorney would then pay Ashcraft and Ms. Bennett from that escrow account in the agreed percentages: 75 percent to Ashcraft and 25 percent to Ms. Bennett.[2]
In August of 2016, Ms. Bennett informed Ashcraft that her attorney's escrow account had been closed because of inactivity. She asked Ashcraft to consent to having the settlement proceeds deposited into a new escrow in her name....
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