Brobeck, Phleger & Harrison v. Telex Corp.
602 F.2d 866 (1979)
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Rule of Law:
A contingency fee agreement between sophisticated parties, represented by counsel, is enforceable according to its unambiguous terms, and a non-monetary benefit, such as the discharge of a significant counterclaim judgment, can constitute a 'recovery' that triggers a minimum fee provision.
Facts:
- The Telex Corporation lost a $259.5 million antitrust judgment against IBM on appeal and was left with an $18.5 million counterclaim judgment against it.
- To appeal to the U.S. Supreme Court, Telex sought out and hired Moses Lasky of the Brobeck, Phleger & Harrison law firm, considered a preeminent lawyer in the field.
- Telex insisted on a contingent fee arrangement rather than an hourly rate.
- After negotiations where Telex's proposal to limit the fee to recovery 'in excess of the counterclaim judgment' was rejected by Brobeck, the parties signed a final agreement.
- The signed agreement stipulated that once Brobeck filed a petition for certiorari, it would be entitled to a minimum fee of $1,000,000 if the subsequent recovery was less than $40 million.
- Brobeck prepared and filed the petition for a writ of certiorari with the Supreme Court.
- Leveraging the pending petition, Telex negotiated a 'wash settlement' with IBM, where Telex withdrew its petition in exchange for IBM discharging the $18.5 million counterclaim judgment.
- Brobeck sent Telex a bill for the $1,000,000 minimum fee as specified in the agreement, which Telex refused to pay.
Procedural Posture:
- Brobeck, Phleger & Harrison sued The Telex Corporation and its subsidiary in the United States District Court to recover attorney's fees.
- Both parties filed motions for summary judgment.
- The district court granted summary judgment in favor of Brobeck, awarding it $1,000,000 plus interest.
- Telex, as the appellant, appealed the district court's decision to the U.S. Court of Appeals for the Ninth Circuit; Brobeck was the appellee.
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Issue:
Is a contingency fee agreement providing for a $1 million minimum fee upon the filing of a petition for certiorari enforceable against a sophisticated corporate client when the case concludes with a 'wash settlement' where no money is exchanged but a substantial counterclaim judgment against the client is discharged?
Opinions:
Majority - Per Curiam
Yes, the contingency fee agreement is enforceable. The contract was unambiguous and its terms were triggered when the petition for certiorari was filed. The court determined that under California law, a contract's meaning is derived from reading the entire document, and here, the agreement's structure clearly distinguished between different fee scenarios. The discharge of the $18.5 million counterclaim judgment constituted a 'recovery' for Telex within the meaning of the contract, triggering the provision for a minimum $1 million fee for settlements under $40 million. The court rejected Telex's extrinsic evidence because the contract's language was not reasonably susceptible to Telex's interpretation, especially since Brobeck had explicitly rejected Telex's proposed language that would have limited the fee to a net monetary recovery. Finally, the fee was not unconscionable because it was negotiated at arm's length between sophisticated parties, both represented by counsel, to secure the services of a top-tier attorney for a high-stakes case.
Analysis:
This case reinforces the principle that courts will strictly enforce unambiguous contracts between sophisticated commercial parties, especially when both sides are represented by counsel. It establishes that a 'recovery' in a contingency fee context is not limited to an affirmative cash payment but can include any significant benefit, such as the discharge of a substantial debt. The decision sets a high bar for claiming unconscionability in a commercial setting, focusing on the circumstances at the time of contracting rather than hindsight. For future cases, it underscores the importance of precise drafting in fee agreements and demonstrates that a client cannot easily escape a fee obligation by structuring a settlement to avoid the exchange of cash.
