Brown & Bain, P.A. v. O'Quinn

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BROWN & BAIN, P.A., an Arizona 

professional association,

Plaintiff-Appellee,

v.

JOHN M. O’QUINN, an individual; No. 06-15931

JOHN M. O’QUINN & ASSOCIATES

L.L.P., a Texas limited liability  D.C. No.

CV-03-00923-ROS

partnership; JOHN M. O’QUINN, a

Texas professional corporation; OPINION

JOHN M. O’QUINN LAW FIRM

PLLC, a Texas limited liability

company; O’QUINN, KERENSKY &

MCANINCH; JANE DOE O’QUINN,

Defendants-Appellants.



Appeal from the United States District Court

for the District of Arizona

Roslyn O. Silver, District Judge, Presiding

Argued and Submitted

February 13, 2008—San Francisco, California

Filed March 6, 2008

Before: John T. Noonan, Sidney R. Thomas, and

Jay S. Bybee, Circuit Judges.

Opinion by Judge Noonan

2063

2066 BROWN & BAIN v. O’QUINN

COUNSEL

Neil C. McCabe, Houston, Texas, for the defendants-

appellants.

Lawrence A. Kasten, Phoenix, Arizona, for the plaintiff-

appellee.

OPINION

NOONAN, Circuit Judge:

Brown & Bain, P.A. (Brown & Bain), a Phoenix law firm,

sued John M. O’Quinn, et al. (O’Quinn), a Houston law firm,

for fees owed to it on the termination of a lawsuit. The district

court gave judgment for Brown & Bain. O’Quinn appeals.

The case is not without interest for the professional responsi-

bility of lawyers inter se. We affirm the judgment of the dis-

trict court.

FACTS

In 1991, approximately nine hundred claimants in the

Phoenix area joined in a suit against Motorola alleging dam-

ages of over $100 million from environmental contamination.

The law firm bringing the action dissolved. In 1993, O’Quinn

took on the representation of most of the claimants (the McIn-

tire Plaintiffs). Per contract with O’Quinn, each plaintiff

agreed that O’Quinn would be paid a contingent fee of 40%

“of the total sums or fair market value of property collected

or received from trial or settlement of Client’s claims.” Each

client was to receive 60% “of the total recovery or settlement,

less the costs and expenses of litigation.” The client agreed

that “all court costs and expenses of litigation Attorneys have

paid or incurred” should be “reimbursed out of Client’s 60%

share of the Total Recovery by settlement or otherwise.” For

BROWN & BAIN v. O’QUINN 2067

this purpose, expenses were defined to include but not be lim-

ited to “depositions, expert witness and consultant fees, sur-

veys, maps, copies, exhibits, testing, models, travel, meals,

lodging, storage, rentals, equipment, and other expenses rea-

sonably necessary to the prosecution of the claims other than

the salaries and normal office overhead of Attorneys.”

On April 16, 1993, O’Quinn engaged Brown & Bain to

assist in the suit. The “engagement letter,” drafted by Brown

& Bain, provided that Brown & Bain would be paid $135 per

hour for attorneys’ time and $45 per hour for paralegal time

— a rate identified in the engagement letter as “the discount

rate.” At the termination of the action by trial or settlement,

Brown & Bain was entitled to an additional payment of

$155.25 per hour for attorney’s time and $51.75 per hour for

paralegal time. These “additional payments” were not to be

paid Brown & Bain “until an amount equal to the discount

rate payments previously paid to [Brown & Bain] are recov-

ered by [O’Quinn] and the other plaintiffs’ counsel working

on the matter (in the aggregate) from the proceeds of the liti-

gation. After [O’Quinn] and the other plaintiffs’ counsel

working on the matter (in the aggregate) have recovered an

amount equal to the discount rate payments (exclusive of

costs reimbursement, which are to come from plaintiffs’ share

of the recovery), the remainder of our respective recoveries

will be divided one-half to [O’Quinn] and the other plaintiffs’

counsel working on the matter and one-half to Brown & Bain

until our additional payments have been fully paid. Any

recovery remaining after payment of Brown & Bain’s dis-

count rate and additional payments in this action belongs to

[O’Quinn] and the other plaintiffs’ counsel working on the

matter.”

In accordance with the engagement letter, Brown & Bain

billed O’Quinn on a monthly basis and was paid the discount

rate monthly to a total of $2,920,975.17 for 26,000 hours of

work.

2068 BROWN & BAIN v. O’QUINN

In June 1998, O’Quinn and Brown & Bain parted ways —

Brown & Bain says because its role in the management of the

case was being marginalized; O’Quinn says because a deci-

sion in an Arizona state case cast grave doubt as to success

in the McIntire case. Brown & Bain wrote O’Quinn that “now

is the time for Brown & Bain to step aside gracefully” and

suggested Peter Osetek as a Phoenix lawyer who could

replace it as local counsel. On August 31, 1998, Brown &

Bain moved to withdraw as counsel; on September 1, the

motion was granted. The record shows no objection by

O’Quinn or any of the plaintiffs. The record does show that

Peter Osetek was paid $768,550 by O’Quinn.

The record also shows that as early as March 1996, the new

Phoenix law firm of Allen & Price had been formed and had

offered to work on the McIntire litigation at “a significantly

lower cost” than Brown & Bain’s “standard rate” of $230 an

hour. The new firm had been formed by two former partners

in Brown & Bain, of whom one, Charles S. Price, had “a sig-

nificant personal and professional investment in the McIntire

case.” The record shows that O’Quinn paid Allen & Price

$114,088.

In addition to retaining local counsel, O’Quinn opened its

own office in Phoenix, devoted wholly to the McIntire litiga-

tion. O’Quinn’s “internal Settlement Sheet” states “Office

Salaries — Phoenix” as $4,583,523.41 and “Office Exp.—

Phoenix” as $2,594,812.64.

In January 2002, O’Quinn settled the McIntire case.

Motorola agreed to pay $26,301,921.39. O’Quinn treated

$13,727,597.66 of this amount as costs chargeable to its cli-

ents. It paid the clients $2,467,335.12. O’Quinn retained

roughly 40% of the settlement, $10,106,988.61. Brown &

Bain asked to be paid the additional payments provided by the

engagement letter. O’Quinn refused.

BROWN & BAIN v. O’QUINN 2069

PROCEEDINGS

On March 28, 2003, Brown & Bain filed this suit for

breach of contract in Arizona state court. O’Quinn removed

the action to federal court and also filed a counterclaim for

repudiation of the contract. In December 2003, both sides

filed for summary judgment. On September 30, 2004, District

Judge Susan R. Bolton gave partial summary judgment for

Brown & Bain. Applying the Restatement (Third) of the Law

Governing Lawyers §§ 37 and 40, Judge Bolton ruled that

Brown & Bain had not forfeited the additional payments by

withdrawing. No misconduct by the firm had been shown.

The additional compensation would not prejudice the clients.

Judge Bolton also denied O’Quinn’s motion for summary

judgment, but reserved the question of whether Brown & Bain

was owed the additional payments.

On February 22, 2006, District Judge Roslyn O. Silver

ruled that under Arizona law the engagement letter had cre-

ated an obligation for O’Quinn to make the additional pay-

ments. The court took note of the opinion submitted by

Geoffrey Hazard, O’Quinn’s expert, that under Arizona Rules

of Professional Conduct ER 1.5, a lawyer’s fee had to be rea-

sonable and that Brown & Bain’s was not. The court observed

that Hazard’s treatise The Law of Lawyering states that law-

yers “are generally held to their contract as between them-

selves so long as the total fee paid by the client is not

unreasonable.” 1 Geoffrey C. Hazard, Jr. & W. William

Hodes, The Law of Lawyering § 8.22 at 8 56.1 (3d ed. 2001

supp.). Payments to Brown & Bain would not affect the fees

paid by the clients. The court gave summary judgment for

Brown & Bain.

O’Quinn appeals.

ANALYSIS

Two issues are presented by O’Quinn: (1) whether the term

“recovery” in the engagement letter is so clear that its mean-

2070 BROWN & BAIN v. O’QUINN

ing could be determined as a matter of law and (2) whether

Brown & Bain had abandoned the contract and so was not

entitled to further compensation. We review de novo, viewing

the evidence in the light most favorable to O’Quinn, the non-

moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 248 (1986). We apply Arizona law. When interpreting a

contract, Arizona courts attempt to ascertain and give effect

to the intention of the parties at the time the contract was

made.” Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d

1134, 1139 (Ariz. 1993) (internal citation omitted). A court

will consider extrinsic evidence only if the contract language

is “reasonably susceptible to the interpretation asserted by its

proponent.” Id. at 1140.

O’Quinn’s position is that its liability for the additional

payments began only when O’Quinn had recovered all the

expenses it had absorbed. On the basis of its own accounting

to itself, O’Quinn made absolutely no recovery from the liti-

gation but suffered a loss of $3,195,174.19. Its Internal Settle-

ment Sheet shows the following amounts that O’Quinn

deducts from the proceeds it received as its 40% share of the

settlement.

UNRECOVERED EXPENSES NOT CHARGED

TO CLIENTS:

Allen & Price 114,088.00

Brown & Bain Inc. 2,920,975.17

Cohen Kennedy Down & Quigley 165,659.00

Peter Osetek 768,550.00

Robert N. Hinton & Associates 662,500.00

Contract Legal 212,829.48

Office Salaries-Phoenix 4,583,523.41

Office Exp-Phoenix 2,594,812.64

Dennis Reich & Stephanie Shapiro 1,000,000.00

Additional Expenses 293,152.54

[1] O’Quinn’s argument fails, most notably because the

payments to Brown & Bain are to be made when O’Quinn has

BROWN & BAIN v. O’QUINN 2071

“recovered an amount equal to the discount rate payments

(exclusive of costs reimbursement[s], which are to come from

plaintiffs’ share of the recovery).” According to the plain lan-

guage of this provision, costs reimbursements are not to be

deducted in determining the “amount equal to the discount

rate payments.” O’Quinn’s obligation is triggered when it has

recovered an amount — not a net amount — equivalent to the

payments already made. Unquestionably, when O’Quinn

received an amount of over $10 million from the settlement,

it had recovered several times the $2.9 million it had dis-

bursed in discount rate payments.

[2] The additional payments are to be made only after

O’Quinn and “other plaintiffs’ counsel” have received “in the

aggregate” an amount equal to the discount payments already

made. On O’Quinn’s construction of the contract and its esti-

mate of its expenses, the amounts received by all the lawyers

should be aggregated and the sums paid to the other plaintiffs’

lawyers such as Allen & Price, Osetek, and Brown & Bain

itself would then be deducted; so the aggregation of the fees

would be an exercise in futility. That can’t be what the con-

tract means. It is the total gross amount received by the law-

yers that acts as the trigger for the “additional payments” to

Brown & Bain.

The term “recovery,” on which O’Quinn’s argument

focuses, is used first in the phrase relating to the reimburse-

ment of costs. In that context it must mean “gross recovery”

because the phrase provides for charging the costs against

what the plaintiffs received. The second time “recovery” is

used, it again specifies the gross amount, to which, after spec-

ified deductions, O’Quinn is entitled.

[3] The client engagement letters, drafted by O’Quinn, use

“settlement” as an alternative to “total recovery.” In this

usage, O’Quinn equated what was received in a settlement to

“the total recovery,” then carefully provided for the deduction

of costs and expenses. This contract language is in stark con-

2072 BROWN & BAIN v. O’QUINN

trast to that of the Brown & Bain engagement letter’s promise

to pay Brown & Bain after O’Quinn had recovered “an

amount equal to the discount rate payments . . . from the pro-

ceeds of the litigation.” The proceeds are not restricted to net

proceeds.

[4] O’Quinn’s second line of defense attempts to draw on

the opinion letter furnished by an outstanding authority on

legal ethics and lawyering, Professor Geoffrey Hazard. Pro-

fessor Hazard does not profess to comment on the engage-

ment letter itself, but first on whether Brown & Bain’s

compensation would violate Arizona Rules of Professional

Conduct ER 1.5 by being unreasonable. He accepts as proper

the charges to itself made by O’Quinn against the $10 million

it recovered instead of charging them against the clients. The

result of O’Quinn’s absorbing the charges, he notes, was to

“have a little more money” for the clients. The propriety of

O’Quinn’s charges is, however, not the issue. However ethi-

cally appropriate, the absorption of the charges did not dimin-

ish what O’Quinn had received from the proceeds. However

it accounted to itself, it remained liable to Brown & Bain for

the amount it had agreed to pay after it had received an

amount equivalent to the discount rate payments.

Accepting O’Quinn’s Internal Settlement Sheet, Professor

Hazard believed O’Quinn had suffered a loss of $3.2 million

while Brown & Bain was attempting to get a total fee of $6.2

million. He thought that unreasonable and unethical. But Ari-

zona Rules of Professional Conduct ER 1.5 govern the rela-

tion between lawyer and client, not between lawyer and

lawyer. As Judge Silver noted, additional payments to Brown

& Bain would have no effect on the fees already charged the

client.

[5] It might be urged, nonetheless, that O’Quinn had

absorbed the expenses in order to save something to give the

clients. Even with this indulgence, individual clients averaged

only $2,100 apiece. They might not have agreed to any settle-

BROWN & BAIN v. O’QUINN 2073

ment if they had gotten nothing. But O’Quinn’s necessity of

putting something on the table for the clients does not deter-

mine the reasonableness of the allocation of charges among

the lawyers themselves.

O’Quinn’s alleged loss is actually unproved. On its Internal

Settlement Sheet the single largest payment is $4,583,523 for

Office Salaries-Phoenix. This charge was not generated by

overhead for the Phoenix office, listed separately as

$2,594,812. Nothing in the record shows the Phoenix salaries

to be different from the Houston salaries of O’Quinn. If “loss”

was to be part of its case, O’Quinn had the burden of estab-

lishing it.

Other items on the Internal Settlement Sheet went to law-

yers identified in the record — Allen & Price; Osetek; Robert

N. Hinton & Associates; Dennis Reich; Stephanie Shapiro;

Brown & Bain itself. These amounts paid as attorneys’ fees

were not properly costs to O’Quinn; they were income and

potential profit to the attorneys. If salaries and lawyers’ fees

are excluded from O’Quinn’s expenses, its total expenses

dwindle from $13.3 million to less than $3 million, for “Of-

fice Exp.—Phoenix” and unspecified “Additional Expenses.”

O’Quinn does not establish a loss.

Professor Hazard also wrote in his opinion letter that

Brown & Bain’s “quitting was a breach of its contractual obli-

gations with O’Quinn” and that Brown & Bain “had an obli-

gation to consider the interests of the clients.” He noted that

the Restatement (Third) of the Law Governing Lawyers, § 32,

Comment c provides that a lawyer “ordinarily should see [a

representation] through to the contemplated end” when failure

to do so would inflict a burden on the client.

[6] No evidence, however, was presented by O’Quinn that

any burden was put on any client by Brown & Bain’s with-

drawal. Brown & Bain gave ample notice of its desire to with-

draw and designated a lawyer, in addition to Allen & Price,

2074 BROWN & BAIN v. O’QUINN

who could be local counsel for O’Quinn, which had its own

amply funded office in Phoenix. It was part of O’Quinn’s

defense to show that the withdrawal of Brown & Bain had

burdened the clients. O’Quinn did not do so.

[7] O’Quinn has not persuaded us that either Judge Bolton

or Judge Silver erred in their rulings. Rather, they interpreted

the engagement letter in accordance with Arizona law and

faithfully applied the Restatement of the Law Governing Law-

yers.

For these reasons, the judgment is AFFIRMED.

Costs are awarded to Brown & Bain.