Dev. Specialists, Inc. v. Peabody Energy Corp. (In re Coudert Bros.)

• Decision Date: 30 January 2013
• Docket Number: No. 11 Civ. 4949 (PAE).,11 Civ. 4949 (PAE).
• Citation: 487 B.R. 375
• Parties: In re COUDERT BROTHERS, Debtor. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Peabody Energy Corporation et al., Defendants.
• Court: U.S. District Court — Southern District of New York

487 B.R. 375

In re COUDERT BROTHERS, Debtor.Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Peabody Energy Corporation et al., Defendants.

No. 11 Civ. 4949 (PAE).

United States District Court, S.D. New York.

Jan. 30, 2013.

David Jeffrey Adler, McCarter & English, LLP (NJ), New York, NJ, Daniel A. Pollack, Joseph R. Scholz, McCarter & English, LLP (NYC), New York, NY, Eric Watt Wiechmann, McCarter & English, LLP, Hartford, CT, for Plaintiff.

Marc Bernard Dorfman, Foley & Lardner, Washington, DC, Robert Allen Scher, Foley & Lardner, LLP, New York, NY for Defendants.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge.

This case involves a dispute over lobbying work done, first by the law firm of Coudert Brothers LLP (“Coudert”), and later, after Coudert's bankruptcy, by the law firm of Baker & McKenzie LLP (“Baker”). This lobbying, done on behalf of various American coal companies, ultimately helped secure an act of Congress that resulted in substantial tax refunds for these companies. In this lawsuit, which arises out of Coudert's bankruptcy proceedings, plaintiff Development Specialists, Inc., the Plan Administrator in Coudert's bankruptcy, claims that such lobbying by Coudert and Baker was done on behalf, and with the consent, of defendants Peabody Energy Corporation, Peabody Holding Company, Inc., and Peabody Holding Company, LLC (collectively, “Peabody”), but that Peabody did not compensate the law firms for their lobbying work. The Plan Administrator brings contract and quasi-contract claims.

Peabody now moves for summary judgment on both claims. For the reasons that follow, Peabody's motion is granted as to the contract claim, and denied as to the quasi-contract claims.

I. Background¹A. Overview

In 1997, Peabody, a major coal company, retained Coudert to seek refunds of millionsof dollars of taxes that Peabody had paid on coal exports. On its face, the parties' written engagement agreement refers to seeking refunds only by means of litigation, and between 1997 and 2003, Coudert's work on behalf of Peabody was limited to litigation. Coudert's litigation efforts were partially successful: It obtained refunds of taxes that Peabody paid covering the years 1994 to 1997, but not for earlier years. Pursuant to the engagement agreement, Coudert received a fee for these services. That fee is not at issue here.

This case concerns the next step in Coudert's efforts—and, after Coudert dissolved in 2005 and some of its partners moved to Baker, Baker's efforts—to obtain refunds for Peabody and other coal companies. In 2003, although it continued to pursue litigation, Coudert broadened its strategy to include lobbying Congress to pass legislation that would give coal companies the refunds they desired. Between 2003 and 2008, Coudert and Baker performed substantial lobbying activities. These activities culminated in legislation, passed by Congress in 2008, that effectively granted refunds to coal companies on excise taxes paid between 1991 and 1994. Peabody's refund was approximately $59 million.

It is undisputed that Coudert and Baker did substantial lobbying work in furtherance of legislation that resulted in these substantial refunds. The dispute in this case is whether that work was performed on behalf of Peabody, and if so, whether that work was performed, and should be compensated, pursuant to the 1997 engagement letter, which provided for Coudert (later Baker) to receive a 15% contingency fee in the event of a successful outcome. The Plan Administrator here, which stands in the shoes of Coudert and Baker, argues that the engagement agreement encompasses lobbying, and that, in any event, Coudert and Baker deserve compensation, because they were working on Peabody's behalf and Peabody knowingly accepted the fruits of their labor. For its part, Peabody denies that the terms of the engagement agreement cover lobbying. It further argues that Peabody did its own lobbying work, and did not retain Coudert and Baker to do it; that any lobbying by Coudert and Baker was exclusively on behalf of the other coal companies they represented; and that Coudert's and Baker's communications with Peabody during the lobbying process were solely to coordinate their parallel efforts and do not reflect a retention by Peabody of these firms to lobby.

With that overview, the Court proceeds to a more detailed review of the parties and relevant events.

B. The Parties

Between 1991 and 1997, Peabody paid millions of dollars in excise taxes on coal exports, pursuant to 26 U.S.C. §§ 4121(a)(1), 4221(a) (the “black lung excise tax” or “BLET”). Pl. 56.1 ¶¶ 1–2; Def. 56.1 ¶¶ 1–2.

In 1997, Peabody retained Coudert to seek refunds of those excise taxes, pursuant to an engagement agreement described below. Until 2005, Coudert performed under that agreement. In August 2005, however, Coudert's partners voted to dissolve the firm's business and began selling off the firm's assets. Pl. 56.1 ¶ 33; Def. 56.1 ¶ 33. In September 2005, Coudert sold a number of its assets to Baker. These included Coudert's rights under the engagement agreement at issue here. Pl. 56.1 ¶¶ 35–36; Def. 56.1 ¶¶ 35–36. Contemporaneously, the partner who had led Coudert's work for Peabody, Steven H. Becker, Esq., joined Baker, along with other Coudert lawyers. Baker thereafter continued to perform under the agreement.

Plaintiff Development Specialists is the court-appointed Plan Administrator in Coudert's bankruptcy. Under an agreement with the Plan Administrator, Baker has assigned to the bankruptcy estate its right to pursue contingent fee claims against Peabody. Under the terms of that agreement, Baker would receive a capped 50% share of the Plan Administrator's net recovery, after fees and costs. Pl. 56.1 ¶ 85; Def. 56.1 ¶ 85. Thus, the bankruptcy estate is the assignee of Baker's right to fees for work performed by Baker and Coudert. For ease of reference, the Court will refer to Coudert and Baker, when described collectively, as Baker.

C. The 1997 Engagement Agreement

On April 16, 1997, Coudert and Peabody entered into the engagement agreement that is the focus of the Plan Administrator's contract claim (the “Agreement”). The Agreement takes the form of a letter from Becker ² to Jeffrey L. Klinger, Esq., Peabody's Vice President and Chief Legal Officer. Scher Decl. Ex. A (“Agreement”). Becker and Klinger signed the Agreement. Id.

The Agreement is headed “Constitutional Challenge to Coal Excise Tax.” Id. It begins:

This will confirm our conversation concerning our proposed representation of [Peabody] in its efforts to obtain refunds and/or savings [ ] of excise taxes paid by it upon sale of coal for exportation. This representation may include applying to the Internal Revenue Service for refund and abatement of the excise tax, filing suit against the United States in the U.S. Court of Federal Claims, and whatever other action before the IRS, or in the federal trial or appellate courts, we may deem necessary or advisable in order to obtain and maximize the refunds being sought.

Id. The Agreement nowhere refers to lobbying work.

In addition to its header and these introductory sentences, the Agreement contains other provisions referencing the courts or litigation:

• It provides that Coudert's fee for its services will be 15% of the gross refunds obtained by Peabody, and that this amount would be calculated “based upon total refunds ... of all excise taxes applicable to Peabody's shipments prior to a final favorable decision by the IRS or the courts and in accordance with such final favorable decision.” Id.

• It states that “[Coudert] do[es] not expect to incur disbursements beyond normal photocopying, telecommunications, and filing fees in court.” Id.

• It provides that if Peabody decides to cease its pursuit of refunds, it may instruct Coudert “to seek settlement, and/or the withdrawal of any and all claims and/or cessation of any litigation.” Id.

Klinger testified that, at the time he signed the Agreement, he did not intend or expect that Coudert's work would encompass lobbying. Scher Decl. Ex. C (“Klinger Dep.”) at 78. Becker testified to the same effect. Scher Decl. Ex. B (“Becker Dep.”) at 25 (“I don't recall, at the time this agreement was entered into, thinking about lobbying.”). In an affidavit opposing Peabody's motion for summary judgment, however, Becker sought to present his views in a different light. He attested: “I can state that both parties understood that the particular services to be preformed [sic] by Coudert were secondary to the primary purpose of the Engagement Letter, which was to represent Peabody in its efforts to obtain refunds, and that if Peabody got refunds, Coudert was to receive its fee.” Becker Decl. ¶ 25. Regardless, it is undisputed that, at the time that the Agreement was signed, Becker was not a lobbyist, and had never been one. See Becker Dep. 22–24; see also Dkt. 50–51.³

There is no document that explicitly amends, or purports to amend, the Agreement. Becker Dep. 19–21. Nor has any witness testified that the parties explicitly agreed, orally, to amend the Agreement. The parties, however, vigorously dispute whether their course of conduct implicitly amended or modified the Agreement. See, e.g., Pl. 56.1 ¶¶ 13–14; Def. 56.1 ¶¶ 13–14; see also Part III(A)(2), infra.

D. Litigation Efforts

Coudert's litigation proceeded on two fronts. First, in 1997, Coudert filed refund claims with the IRS, arguing that the black lung excise tax was unconstitutional. Because the statute of limitations for such claims was three years, Coudert sought refunds for taxes paid by Peabody during the previous three years, i.e., dating back to 1994. Second, also in 1997, Coudert sued the United States in the U.S. Court of Federal Claims under the Tucker Act, on behalf of Peabody and other coal companies. That action sought to recover the excise taxes paid on exported coal during the preceding six...