Law Firm’s Fraud Claims Revived in Fee Dispute with Client


Law firm sued client for breach of contract, fraud after non-payment of nearly $1.8 million in fees

Firm should have chance to explain why fraud claims don’t duplicate contract claims, court says


The District of Columbia Court of Appeals June 7 revived a law firm’s fraud and conspiracy claims alleging its former client duped it into revising its fee structures to avoid the law firm’s threatened withdrawal.After obtaining a judgment for its unpaid legal fees, Ludwig & Robinson, PLLC, succeeded in convincing the appeals court that the trial court shouldn’t have dismissed its fraud and conspiracy claims. The firm should be allowed to argue that it’s entitled to fraud damages that are separate from its contract damages, Associate Judge Phyllis D. Thompson wrote for the court.A law firm pursuing a client for fees will often have trouble couching fraud claims so that they aren’t tossed out for being duplicative of the breach of contract claims. This case shows how, with the right facts and careful pleading, fraud claims can survive as an alternate theory of recovery.

Ludwig began advising BiotechPharma, LLC, its wholly-owned subsidiary, and two executives, Martin Kalin and Raouf Guirguis, on intellectual property matters in 2011. After BTP failed to pay its fees, it negotiated revised fee agreements, the court said. In the first modification, firm agreed to defer collection of half of its fees and BTP agreed to pay a percentage of the deferred fees as a success fee, the court said.

After the firm said it may be forced to withdraw, BTP promised to make monthly payments, the court said. BTP allegedly said the money would come from the subsidiary’s revenue and line of credit, but there was no line of credit, the court said. BTP failed to make payments.

The parties modified the fee arrangement again, whereby BTP agreed to increase its monthly payments and the success fee it would pay the firm. BTP again failed to pay.

The firm sued BTP, its subsidiary, and executives for breach of contract, breach of guarantee agreements, and for fraud and conspiracy, to recover nearly $1.8 million in fees and expenses owed.

The parties arbitrated the contract claims and a judgment was entered in favor of the firm for $908,000. The trial court dismissed the fraud and conspiracy claims, characterizing them as “alternative theories” for the same relief awarded in the arbitration.

The law firm appealed. The court reversed the dismissal of the fraud and conspiracy claims.

Not the Same Damages

The court clarified that damages for fraud can be recovered if they don’t “fall within the realm of recoverable contract damages.” The court said it previously established that statements made in a business transaction must be truthful and that facts that “would materially qualify those stated” can’t be concealed.

Here, the firm alleged defendants “induced L&R to continue providing legal services to BTP under modified engagement letters, and thus not to withdraw” by falsely representing it had access to a line of credit and by not telling the firm about how much it was in debt.

Citing its own precedent and federal appellate case law, the court said that the dismissed claims for fraud in the inducement are “not duplicative of a contract claim.” There can be fraud leading up to the creation of the contract, which is independent from a contract claim, the court said.

Nod and a Wink

The court also disagreed with the trial court that the firm’s complaint “failed to allege ‘an independent injury over and above the mere disappointment of [its] hope to receive [its] contracted-for benefit.’”

Here, the court said the fraud and conspiracy counts sought the firm’s attorneys fees incurred in pursuing recovery against BTP and its executives. The court said the firm was “entitled to attempt to prove” it deserved such damages.

The court said even though the amount sought is the same as the contract damages, the request for approximately $1.8 million in damages for the fraud and conspiracy counts “may have a different basis and may pertain to damages that are not compensable under contract principles.”

While the firm won’t “be permitted a duplicative recovery,” the court said the fraud and conspiracy claims shouldn’t have been dismissed without letting the firm brief its “rationale for the damages” it is seeking, “which could be independent of” the contract claims.

The court said the amount the firm billed for services rendered to BTP is “some measure” of the firm’s lost opportunity costs in continuing to represent BTP instead of working for other clients. Those costs, the court said, may be “up to” $1.8 million, and not necessarily “equivalent to” that amount.

Associate Judges Stephen H. Glickman and John R. Fisher joined the opinion.

Ludwig & Robinson, PLLC represented itself. Martin Kalin was represented by Arnall Golden Gregory LLP. The remaining defendants were represented by Veda Law, LLC.

The case is Ludwig & Robinson, PLLC v. BiotechPharma, LLC, 2018 BL 201054, D.C., 15-CV-1214, 6/7/18.

To contact the reporter on this story: Mindy Rattan in Washington at mrattan@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com