Class action attorney bound to fee agreement despite refusing to sign

By Kyla Asbury | Mar 12, 2014

CHICAGO (Legal Newsline) - An attorney in a fee-allocation dispute is bound to a final agreement, according to three circuit judges in the U.S. Court of Appeals for the Seventh Circuit.

On Aug. 29, 2011, a district court approved an Illinois class action settlement in fiber-optic cable litigation and awarded attorneys fees and expenses. The $3.54 million attorneys fees award was deposited in to an escrow account, and the attorneys agreed to pursue mediation -- with the assistance of a court-appointed special master if necessary -- to reach a division of fees for the Illinois settlement and for other settlements nationwide.

Once the fee-division question was resolved, the court would order the disbursement of the funds held in escrow.

The plaintiffs lawyers had coalesced into three main groups for purposes of the fee dispute, Arthur Susman, the "48-Firm Group" and William Gotfryd, a former collaborator with Susman who later asked to be treated separately in the fee-division process.

The first attempt to resolve the fee-division issue occurred in 2006, when all the lawyers, except Susman and Gotfryd, agreed to submit the issue of attorneys fees to binding arbitration at a future claim, according to the decision. This resulted in a 2011 proposal binding on the 48-Firm Group as to the fee allocation within that group, but this proposal did not address Gotfryd and Susman and did not bind them.

"The parties continued to attempt to resolve the situation through mediation after the district court so ordered, but a global agreement was not readily forthcoming," the decision says.

On June 11, 2012, the mediators made one final effort to resolve the dispute and have the entire fee fight settled. They offered a final "Mediators' Proposal" awarding each lawyer or group of lawyers a certain percentage of the national gross fees. The proposal was blind in the sense that each firm received an email listing only the percentage of the fee allocation that it would receive.

After a long history of disagreement, the mediators recognized that the prospects for agreement would likely be improved if the parties were only offered a chance to think about their absolute, rather than relative, awards. The proposal was a take-it-or-leave-it offer with no more negotiations, according to the decision.

Everyone accepted the proposal, which allocated 87 percent of the fees to the 48-Firm Group, 8.5 percent to Gotfryd and 4.5 percent to Susman. The proposal contained only the fee-division percentages and a condition that the percentages were subject to a pro rata reduction for an arbitrated award to a fourth attorney, Seth Litman, to be determined after the agreement was finalized.

On July 2, a draft written agreement was circulated via email, and it included the approved fee-division terms and several additional enforcement-related provisions.

The written agreement provided that the mediators, now working in the capacity of arbitrators, were authorized to arbitrate any disputes arising out of or relating to the agreement; deem any lawyers fees forfeited if the lawyer failed to cooperate in implementing the agreement in the state-specific settlements; and adjust normal arbitration rules to further the goal of expediency, according to the decision.

The process of revising and approving the agreement moved quickly and, for the most part, without controversy. One of the mediators responded right away, urging the lawyers to get everything signed up that day if possible.

Within two hours of the initial circulation, Susman responded with a suggestion that two minor points be clarified and the changes were made immediately. Other adjustments were made pursuant to comments from the other parties.

On July 6, a final draft was circulated and the lawyers began to sign the agreement. Most signed and returned the July 6 draft immediately, a few others signed on July 9 and 10 and the last, except for Susman, signed on July 12, according to the decision.

On July 11, the lawyer in charge of the drafting process emailed Susman and reminded him to sign the document. However, the following day, Susman emailed back, saying he was "not now in position to sign up" and needed to deal with "some loose ends on our part."

The lawyers and mediators later discovered the "loose ends" mentioned referred to an expense dispute between Susman and Gotfryd, and Susman cryptically told the drafting lawyer that the timing of his signature was "not in his hands," the decision says. The drafter passed the information along to the mediators.

On July 13, one of the mediators emailed Susman asking him to help "dot all the 'i's' and cross all the 't's' by signing the last agreement," and suggested that he defer resolution of any remaining issues he had on the side. He also reminded Susman that the Litman fee issue was deferred for future arbitration and also noted that the agreement could not be finalized without Susman's signature.

On July 17, Susman responded to the email and acknowledged his prior approval of the fee-allocation proposal, but said that he could not approve the written agreement because of an ongoing disagreement with Gotfryd and because "there are obligations in the proposed agreement which were really not a part of the original mediators' proposal and which were not part of our understanding of our acceptance" of the proposal.

When the Litman arbitration was completed on July 19 and on July 20, the lawyers filed a motion asking the district court to hold that Susman was bound by the written agreement notwithstanding his failure to sign and to order the distribution of their agreed-upon percentages from the settlement escrow.

The lawyers submitted evidence about the unanimous approval of the mediators' fee-division proposal and the circumstances surrounding the drafting and approval process that had produced the final written agreement. After hearing the argument, the district court granted the motion.

The judge held that Susman is bound by the final written agreement and entered an order disbursing the escrow funds to the various attorney groups according to the percentages in the agreement, according to the document.

Susman appealed, and while his appeal has been pending, fee-allocation orders have been entered and fees distributed in several other state settlements in accordance with the agreement. Susman has not objected to the distributions, but continues to maintain that he is not bound by the written agreement.

"Indeed, when pressed at oral argument, Susman identified the expense dispute with Gotfryd as the reason he objected to the written agreement," the decision states. "He also acknowledges on appeal that he considers himself bound by the fee-allocation percentages, and indeed he has been accepting distributions pursuant to the agreement."

"If his real complaint is the size of his share whether in relative terms, once he saw all the numbers, or because the expense dispute with Gotfryd made him change his mind about the allocation's fairness-then his reliance on a tardy objection to the arbitration and hold-harmless provisions in the written agreement is hard to explain as anything other than a sham."

Susman cannot re-open the fee division now, and he claims he is not trying to, but neither can he get out of the other terms in the written agreement by way of a late objection when the circumstances reasonably suggest that he manifested as assent to be bound, the decision states.

"The district court was intimately familiar with the parties' course of conduct during the fee dispute and carefully reviewed the evidence before finding that Susman is bound by the written agreement despite his failure to sign. Given the parties' lengthy relationship and course of dealings, the district court reasonably construed Susman's silence as an assent to be bound," the decision says.

The appeal was assigned to Circuit Judges William Joseph Bauer, Richard Posner and Diane S. Sykes.

U.S. Court of Appeals for the Seventh Circuit case number: 12-3036

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