CHARLESTON, W. Va. - Justice Spike Maynard of the West Virginia Supreme Court of Appeals warns that a recent Court decision will encourage attorneys to entangle themselves in businesses they represent.
Maynard dissented May 1 from an opinion allowing Schrader Byrd & Companion of Wheeling to collect 30 percent of a coal lease that the firm negotiated for sisters Josephine Luther and the late Mary Marks.
"May we never see the day when lawyers who negotiate leases on behalf of Wal-Mart receive compensation in the form of five percent of that store's future earnings," he wrote. "Such a practice would unduly entangle lawyers in the affairs of their clients and arguably give these lawyers and ownership interest in the businesses they represent, all to the detriment of the legal profession."
The majority's April 5 opinion affirmed Ohio County Circuit Judge Martin Gaughan, who found the fee fair and reasonable.
The sisters hired the firm in 1988, after learning that two brothers made money from a lease on land all four of them owned in Boone County.
The sisters agreed to pay the firm 30 percent of any increase in royalties/ The sisters did not sue the brothers. They sued two coal companies that had signed leases with the brothers.
In 1998, the companies agreed to pay the sisters $3.5 million. Schrader Byrd & Companion received 30 percent, or $1,050,000. The companies also agreed to execute a lease with the sisters.
Attorney Ray Byrd wrote to the sisters that, "... we are entitled to a contingent fee of thirty percent on any settlement effected after the initiation of the lawsuit but made prior to any trial or trials."
From 1998 to 2004, the firm received about $84,000. In 2004, Luther sued the firm.
Gaughan granted summary judgment in favor of the firm in 2005. He wrote that the case had a significant degree of risk.
"The chance that plaintiff would not prevail was very real," he wrote. He also found that there was neither a modification of the fee contract at the time of settlement nor a separate fee contract.
John Preston Bailey of Wheeling appealed for Marks's heirs and Luther. He argued that the firm failed to disclose that it would charge a fee as long as coal was mined, that the fee could be astronomical, or that the firm would charge the fee against the clients' children and grandchildren.
Bailey lost his argument 3-2.
Chief Justice Robin Davis and Justices Larry Starcher and Joseph Albright decided in favor of the firm.
"An attorney fee payment arrangement whereby the attorney receives a percentage of funds as they are periodically received by the attorney's client is not, as such, either suspect or impermissible," Starcher wrote in the majority opinion.
He wrote that at the time of settlement neither sister expressed reservations about paying 30 percent of future royalties.
Maynard and Justice Brent Benjamin dissented.
"There is evidence below that Ms. Marks and Ms. Luther simply did not assent to paying SBC 30 percent of the increase in all future royalty payments," Maynard wrote.
He said that courts should cast the burden on attorneys to show that contracts are fair, reasonable and fully understood by clients. He also wrote that he found nothing improper with the $1,050,000 that the firm collected at the settlement.
"Certainly, lawyers should be well compensated for their expertise and hard work," Maynard wrote. "However, I believe that SBC's work on the new lease must be judged separately from the original contingent fee arrangement."