Lawyer Can’t Get Paid for Preliminary Advice He Gave Potential Client on Possible Lawsuit

By Samson Habte

Jan. 30 — A law firm claiming it provided Kraft Foods with “$190,000 worth of legal analysis” about a potential antitrust claim has no remedy at law or equity because the company made it clear that any preliminary work would be treated “as having been done for the pitch, and therefore not billable,” the District of Columbia Circuit held Jan. 30.

The ruling highlights the importance of conveying an “expectation to be paid” for pre-retention services that lawyers provide in hopes of persuading a prospective client to pursue litigation.

Here, the court said, Berry Law PLLC could not show that Kraft Foods Group was “reasonably notified” that the law firm expected to be paid for a 42-page legal evaluation the firm prepared for Kraft executives.

“The complaint alleges that Kraft told Berry that it had ‘never paid' ‘fees for work to create the proposal to share with management,' and ‘viewed it as part of what we expect counsel to do in bringing to us a proposal to use their firm,'” Judge Stephen F. Williams wrote.

Accordingly, he said, the district court properly held that attorney Stephen R. Berry could not establish an implied-in-fact contract to be compensated for his time.

The panel also shot down Berry's claim for unjust enrichment, predicated on allegations that Kraft “received substantial uncompensated value” when it used Berry's “extensive evaluation” to negotiate a “secret” settlement with the putative antitrust defendant.

“Berry completed the memorandum and other legal work in the hope that Kraft would retain him as counsel in the event that Kraft ‘moved forward,'” Williams wrote. “Because Berry Law’s ‘services were rendered simply in order to gain a business advantage,’ its quasicontract claim fails,” he added, quoting Bloomgarden v. Coyer, 479 F.2d 201 (D.C. Cir. 1973).

‘Secret' Settlement

Berry said he approached Kraft in 2010 about “its possible monopoly overcharge claim” against News Corp. subsidiaries that sell advertising in supermarkets and newspapers.

Berry, who is suing News Corp. on behalf of other companies, alleged that Kraft's in-house counsel was receptive and “requested more analysis.” Berry sent a “retention e-mail” asking about payment for a proposal that Kraft's management asked him to prepare.

A high-level Kraft in-house lawyer replied that Kraft's practice was “to treat everything pre-management approval as having been done for the pitch, and therefore not billable.”

He added: “I don't think this will be a big issue for you in view of the size of the ultimate payout should this matter proceed favorably, but if it helps you to get comfortable proceeding as I suggest, I can tell you that presuming we move forward, you will be our counsel on this matter.”

“Berry Law claims that it persisted, ‘ask[ing] that it be able to carry its evaluation time and bill it later if the matter “moved forward,”' but does not claim that Kraft reconsidered its earlier denial,” the court noted.

Berry alleged that Kraft subsequently used his work to negotiate a “secret” deal that was “likely” conditioned on Berry's dismissal to prevent his other clients from learning “the terms [News Corp.] was willing to give to one of its very largest customers to settle.”

No Claim

Berry's implied-in-fact contract claim was predicated on the assertion that Kraft “moved forward” when it used his work to inform its “discussion or negotiation” with News Corp.

He further alleged that “Kraft has been unjustly enriched at Berry Law's expense, and in circumstances that in good conscience Kraft should make restitution.”

Kraft responded that “where a plaintiff performs work for which he seeks payment with ‘an obvious, self-serving motivation’—such as a lawyer attempting to persuade a prospective client to pursue litigation he believes will potentially reap hundreds of millions of dollars in fees for his firm—no claim for payment will lie.”

“In sum, even though Berry devoted some time and effort (for its own obvious benefit) to convince Kraft that it should pursue the claims, this does not create an actionable basis for quantum meruit under either an implied or quasi contract theory of relief,” Kraft argued.

A contrary rule would have the undesirable effect of “encouraging prospective litigants like Kraft, unconvinced in the merits of their claims, to pursue them anyway to avoid quantum meruit liability,” it added, citing King & King Chtd. v. Harbert Int'l Inc., 503 F.3d 153, 23 Law. Man. Prof. Conduct 545 (D.C. Cir. 2007).

The trial court and appellate panel agreed with Kraft.

Berry’s implied-in-fact contract claim failed even if Kraft's “alleged discussions or negotiations with News Corp. could qualify as ‘moving forward' as the term appeared in the context of the email exchange,” Williams said, because “the complaint does not plausibly allege that Kraft was ‘reasonably notified' that Berry expected to be paid for any work completed before that point.”

“Any expectation that Berry might have had that Kraft would pay for such work was thus unreasonable,” the court said, citing Jordan Keys & Jessamy LLP v. St. Paul Fire & Marine Ins. Co., 870 A.2d 58, 21 Law. Man. Prof. Conduct 143 (D.C. 2005).

Berry's unjust enrichment claim “fares no better,” Williams added, because case law makes clear that lawyers may not recover for services “rendered simply in order to gain a business advantage.”

Kraft was represented by Kelley Drye & Warren LLP and Roeser Bucheit & Graham LLC. Berry, of Washington, D.C., argued for his law firm.

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