Did Polsinelli violate $14M flat-fee deal to provide 'legal counsel'? 3rd Circuit rejects claim
The 3rd U.S. Circuit Court of Appeals at Philadelphia has ruled against plaintiffs’ arguments that Polsinelli breached an implied covenant of good faith and fair dealing by “slacking off,” and that Polsinelli was unjustly enriched. Photo from Shutterstock.
A federal appeals court has refused to revive a lawsuit claiming that Polsinelli breached a flat-fee agreement to provide “legal counsel” by sending work covered by the agreement to another firm that billed Polsinelli’s client for its trial work.
The 3rd U.S. Circuit Court of Appeals at Philadelphia ruled for Polsinelli in a nonprecedential Sept. 27 opinion.
“There is no dispute that Polsinelli provided counsel,” the 3rd Circuit said, noting that Polsinelli sent two lawyers to work with the outside firm, Wilmer Cutler Pickering Hale and Dorr, during the trial.
The plaintiffs bringing the appeal are defunct specialty mail-order pharmacy Philidor RX Services and its former-CEO, Andrew Davenport. He was convicted in a kickback scheme, along with former Valeant Pharmaceuticals executive Gary Tanner after a three-week trial in May 2018.
Tanner was represented by WilmerHale; he and Davenport decided that the firm would work with Polsinelli to provide a joint defense. Philidor RX Services agreed to pay WilmerHale’s fees.
Polsinelli’s contracts with Philidor RX Services and Davenport provided that they would pay Polsinelli a flat fee of $12 million for “legal counsel and assistance” with respect to the defense of investigations and enforcement actions by the U.S. Securities and Exchange Commission, the U.S. Department of Justice and Congress.
Philidor RX Services and Davenport also agreed to pay another $2 million for experts, outside counsel and third parties—money that was not used to pay WilmerHale.
Philidor RX Services and Davenport allege that Polsinelli was “understaffed” at trial and pushed work to WilmerHale, which prepared “the vast majority” of court filings.
After consulting Black’s Law Dictionary, the 3rd Circuit decided that Polsinelli had provided counsel.
Allegations that WilmerHale was drafting most court filings “challenge the amount of counsel Polsinelli provided, but they do not suggest that Polsinelli failed to provide some legal representation,” the appeals court said.
The 3rd Circuit also ruled against the plaintiffs’ arguments that Polsinelli breached an implied covenant of good faith and fair dealing by “slacking off,” and that Polsinelli was unjustly enriched.
One of the unjust enrichment arguments was based on ethics rules banning excessive fees. The plaintiffs argued that an excessive fee contract is unenforceable under Pennsylvania law.
The 3rd Circuit called the argument a “novel theory” and said the plaintiffs had offered no support for it, besides citing “two inapposite cases.”
Law360 and Bloomberg Law covered the decision.
