Respondent Jenner & Block filed a waiver stating that the firm didn’t intend on filing a response to Parallel Network’s petition for writ. The case involves a patent licensing company – Parallel Networks – which is fighting a multi-million arbitration award given to a law firm – Jenner & Block – which agreed to represent Parallel Networks in two patent infringement cases in Delaware District Court pursuant to a contingency fee agreement (CFA). The CFA used arbitration for the resolution of disputes with Texas as the governing law of the agreement.
Four weeks after losing summary judgement, Jenner & Block decided the cases were no longer economically viable, refused to handle the appeal of the adverse summary judgment and advised Parallel Networks that it was terminating its representation in both cases. Parallel Networks retained new legal counsel for the appeal and these new lawyers undid Jenner & Block’s loss when the Federal Circuit vacated the summary judgement order of non-infringement and remanded the case back to Delaware. Parallel Networks eventually settled both cases, including an eight-figure settlement in one of those cases.
Jenner & Block apparently interpreted the CFA to allow it to terminate its representation of Parallel Networks if the firm unilaterally determined the cases were not in its economic self-interest and then to retroactively convert the CFA from a contingency fee agreement to an hourly fee agreement (see Exhibit L of this reply in support of motion for rehearing filed with the Supreme Court of Texas). Although Parallel argued that the payment of any fees to Jenner & Block, which had lost one of the cases and then abandoned its client, would be unconscionable under Texas law and violate core Texas public policies designed to protect clients from egregious and unethical attorney conduct, an arbitrator awarded Jenner & Block millions of dollars in contingency fees.
Parallel Networks appealed the adverse arbitration award through the Texas court system arguing that the award violated Texas public policy and, therefore, had to be vacated. The Texas courts, however, interpreted the U.S. Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc. as preventing vacatur of arbitration awards under the FAA for violations of public policy and they confirmed the arbitration award. Parallel Network’s petition for certiorari asks the U.S. Supreme Court to confirm that public policy still exists as a basis to vacate egregious arbitration awards under the FAA which violate fundamental state public policies.
This multi-part series will examine the dispute between Parallel Networks and Jenner & Block (including Jenner & Block’s conduct during and after the arbitration), the law governing attorney-client contingency fee representation and fees as well as the interplay between the FAA and state public policy in the context of attorney regulation. This arbitration dispute is very unique because Parallel Networks refused to allow the arbitration to be conducted under any sort of confidentiality designation (with the exception of the settlement amounts it received in the two cases). As a result, these articles will link to the actual emails of the parties, Jenner & Block’s internal memoranda and deposition and arbitration testimony of Parallel Network’s and Jenner & Block’s witnesses wherever applicable so readers can see what actually happens in the normally closed world of high-stakes arbitration.
In the United States, the use of arbitration proceedings to handle disputes between parties is either governed by state arbitration statutes (e.g. the Texas Arbitration Act) or by the Federal Arbitration Act (FAA), with the latter typically applying when the dispute involves interstate commerce or is between parties domiciled in different states. The FAA was first enacted in 1925 and was originally meant only to govern disputes between merchants engaged in interstate commerce by creating procedures for use solely in federal courts. (The author of the article linked in the previous sentence also provided an amicus brief to the Supreme Court of Texas in this case.) Under the terms of the FAA, codified in 9 U.S.C. §10, there are four statutory grounds under which federal or state courts may vacate an arbitration award: (1) where the award was procured by corruption, fraud or undue means; (2) where there was evident partiality or corruption in the arbitrators; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause, refusing to hear evidence pertinent and material to the controversy, or any other misbehavior which has prejudiced the rights of any party; or (4) where the arbitrator either exceeded his powers or imperfectly executed them such that a mutual, final and definite award was not made.
Abuses of contingency fee arrangements by unethical lawyers (as allegedly exemplified by Jenner & Block’s conduct in pursuing first hourly and then contingency fees against a former patent client on cases that Jenner & Block lost and then abandoned) negatively impact the larger conversation surrounding alternative fee structures as some organizations that advocate limiting or even doing away completely with contingency fee arrangements argue that they encourage abuses of the legal system by facilitating the filing of frivolous lawsuits or by gamesmanship against clients by unethical contingency fee lawyers. The U.S. Court of Appeals for the Fifth Circuit’s (5th Cir.) 1996 decision in Augustson v. Speiser, Krause, Madol and Mendelsohn denied compensation to a lawyer who terminated his representation of a client prior to the resolution of a lawsuit because the lawyer disagreed with the client over the extent of discovery and the settlement value of the case. The court noted that a lawyer holds a fiduciary duty to implement a client’s wishes despite the economic interest of the lawyer and that abandoning a client without “just cause” precludes the lawyer from seeking any compensation. The 5th Circuit gave several examples of what constituted “just cause” which could be summarized as culpable client conduct so egregious as to basically preclude the lawyer from being able to prosecute the case. In 2006 the Supreme Court of Texas issued its opinion in in Hoover Slovacek v. Walton which held that contingency fee agreements including provisions imposing termination fees in the event that the client wishes to terminate a lawyer’s services impede upon a client’s unfettered right to terminate counsel, and such provisions are unenforceable because they are contrary to public policy.