Law Offices of Peter H. Priest, PLLC v. Coch

Rule of Law:

An attorney's failure to strictly comply with the requirements of Rule 1.8(a) of the North Carolina Rules of Professional Conduct for business transactions with a client can be used defensively by the client to render the agreement unenforceable and bar the attorney's claims arising from it.

Facts:

• Beginning in 2004, the Law Offices of Peter H. Priest, PLLC (Priest's firm), represented Gabriel Coch and Information Patterns, LLC (IP), in filing and prosecuting a patent for a computer program.
• In August 2006, IP paid Priest's firm $10,000 for the initial drafting and filing of the patent application, exhausting the capped fee.
• In September 2009, after receiving a non-final rejection from the USPTO, Priest filed a response at his firm's expense because Coch, Knight, and Smith (IP's members) were financially unable to proceed.
• On February 18, 2010, Priest's firm received a Notice of Allowance, indicating a patent would be issued for IP's claims upon payment of fees.
• On March 19, 2010, Priest and Coch met and agreed in principle that Priest's firm would continue to prosecute and maintain IP's patent, pay 25% of the actual costs, and receive 25% of the proceeds generated from the patent, with Coch believing this would make Priest an 'equal partner.'
• Priest drafted the Agreement, handled subsequent edits with Coch's input, and orally advised Coch to seek independent counsel, which Coch declined, and Priest signed the final draft on May 5, 2010, believing Coch also signed.
• Priest emailed the final draft to Coch on May 6, 2010, for Knight and Smith's signatures, but Priest was never able to produce any signed or executed copies of the Agreement.
• Despite no signed agreement, Priest and Coch proceeded according to its terms, with Priest paying the full costs to complete patent registration and billing Coch, Knight, and Smith for 75% of expenses, which they paid.
• On June 15, 2010, the USPTO issued the patent for the Program, after which Priest sent letters to potential licensees but generated little interest.
• In September 2011, Coch contacted a patent broker, Patent Profit International (PPI), to sell the patent; Priest agreed to hold his exclusive licensing rights in abeyance to allow PPI to proceed.
• The patent was sold for $1,000,000 on March 16, 2012, and Priest subsequently claimed his firm was entitled to $200,000 (25% of the net sale proceeds), which Coch refused to pay, believing the Agreement only entitled Priest to proceeds from licenses he personally negotiated.

Procedural Posture:

• Law Offices of Peter H. Priest, PLLC, and Peter H. Priest individually, filed a complaint in Durham County Superior Court against Gabriel Coch and Information Patterns, LLC, alleging claims for breach of contract, breach of fiduciary duty, constructive fraud, fraud, and unfair and deceptive trade practices.
• The matter was designated a mandatory complex business case and assigned to Chief Special Superior Court Judge for Complex Business Cases James L. Gale.
• A consent order was entered directing Coch and IP to place $200,000, representing Priest’s purported share of the sale proceeds, in escrow.
• Coch and IP filed a motion to dismiss Priest’s claims under N.C.R. Civ. P. 12(b)(6) and to dismiss Priest himself as a party due to a lack of standing under N.C.R. Civ. P. 12(b)(1).
• The trial court entered an Order on January 25, 2013, granting in part and denying in part Coch and IP’s motion, dismissing Priest as an individual party and dismissing the law firm's claims for breach of fiduciary duty, constructive fraud, and unfair and deceptive trade practices, but denying dismissal of the breach of contract and fraud claims.
• Coch and IP filed a motion for summary judgment against Priest’s law firm’s remaining claims for breach of contract and fraud, contending the Agreement was unenforceable due to Priest’s noncompliance with Rule 1.8(a) and that its terms did not cover patent sales by a third party.
• Priest's firm filed a motion for summary judgment in its favor, arguing the Agreement was valid and enforceable, covered all patent monetization, and that Rule 1.8(a) did not apply or could not be used defensively.
• The trial court entered an Order and Opinion on November 5, 2014, granting summary judgment in favor of Coch and IP based on Priest's failure to comply with Rule 1.8(a)’s explicit requirements.
• Priest's firm gave written notice of appeal to the North Carolina Court of Appeals on December 4, 2014.