Case: 19-30688 Document: 00515536162 Page: 1 Date Filed: 08/21/2020
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
August 21, 2020
No. 19-30688
Lyle W. Cayce
Clerk
Wiener, Weiss & Madison, A Professional Corporation;
Kantrow Spaht Weaver & Blitzer,
Plaintiffs—Appellees,
versus
Leslie B. Fox,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 5:16-CV-850
Before Barksdale, Haynes, and Willett, Circuit Judges.
Don R. Willett, Circuit Judge:
Wiener, Weiss & Madison and Kantrow, Spaht, Weaver & Blitzer (the
Firms) sued Leslie Fox to enforce the terms of the parties’ contingency fee
agreement. Fox argued that the agreement was unenforceable because,
among other things, it violated certain rules of professional responsibility.
The district court disagreed and granted summary judgment in favor of the
Firms. We find that the agreement violates Louisiana Rule of Professional
Conduct 1.8(a), so we vacate and remand.
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I
In 2009, four years after Fox filed for divorce from her husband,
Harold L. Rosbottom, Jr., the divorce court appointed a receiver to assume
control of the couple’s community estate, which consisted primarily of
“state-licensed gaming enterprises” that operated in Louisiana (the
Community Entities). “Less than one hour later,” Rosbottom filed for
Chapter 11 bankruptcy in the Western District of Louisiana, effectively
transferring the contested property division from Texas family court to
federal bankruptcy court. So Fox engaged the Firms.
The Firms originally agreed to represent Fox “in connection with the
[] bankruptcy cases and any and all matters related to those bankruptcy
cases” at an hourly rate. But because her assets were tied up in the
bankruptcy proceedings, the Firms agreed to seek their fees directly from the
court, payable from the community estate. On March 1, 2010, the Firms filed
a “Substantial Contributions Application,” seeking more than $1.2 million
in fees. The bankruptcy court approved the application, and the Firms were
paid their $1.2 million, plus interest.
Because the Firms believed it was “highly unlikely” that the court
would approve another substantial contribution claim, but there was work left
to be done, they proposed a contingency fee agreement. The agreement
assigned the Firms up to a 35% interest 1 in the gross proceeds (whether cash
or property) that Fox received for her claims against the bankruptcy estate
and as an equity owner of the bankruptcy estate of her husband. Fox signed
the agreement.
1
The percentage of the contingency fee varied depending on the overall value of
Fox’s recovery.
2
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By 2013, the Community Entities, whose assets had been depleted by
Rosbottom’s mismanagement, 2 were enjoying a positive cashflow and had
satisfied much of their debt. And on May 1, 2013, the bankruptcy court
approved a proposed Plan of Reorganization for the Community Entities.
The Plan granted Fox a 100% interest in ABC Holding, LLC—later renamed
Louisiana Truck Stop and Gaming (LTSG)—a holding company comprised
of the Community Entities. However, Fox could not receive her entire
interest until all creditors were paid, Louisiana gaming authorities approved
the transfer, and Fox obtained a final, unappealable divorce decree and
community partition.
Following the Plan’s approval, the Firms informed Fox that their
work was complete and that, if Fox “wanted them to stay on,” she had “to
increase the contingency percentage.” The Firms then provided her with a
revised contingency agreement, which increased the Firms’ contingency fee
to 40% of the gross proceeds, including her proceeds as the full equity owner
of LTSG, from the bankruptcy proceedings. Fox signed the agreement.
After the new agreement (the 2013 CFA) was signed, the Firms
worked to expedite the Plan’s consummation, including by searching for a
lender to loan LTSG funds to pay the Community Entities’ remaining
creditors. Business First Bank ultimately provided two loans to LTSG, which
Fox, exclusively, guaranteed.
In early 2016, before Fox received full ownership and control of LTSG
from the bankruptcy court, the Firms asked her to execute a new agreement.
Having determined that the 2013 CFA was “unwieldy for LTSG as well as
the [F]irms,” and “convinced that it was not the best approach for [Fox] or
2
In 2012, Rosbottom was convicted of bankruptcy fraud and money laundering and
sentenced to ten years in federal prison. He was also ordered to pay restitution to Fox.
3
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the companies,” the Firms sought to amend the 2013 CFA so that the
“[F]irms receive 40% of any distributions of property or cash that [Fox]
receive[s] rather than any outright ownership.” Though they had not done
so with the previous agreements, the Firms recommended that Fox seek
independent legal advice about whether to execute this new, eleven-page
contingency agreement. Fox did just that, and her independent counsel
advised against executing the revised agreement—advice Fox took.
Presumably (though the parties don’t say exactly) relations soured
between Fox and the Firms after she declined to sign the revised agreement,
and the Firms eventually filed suit against Fox for breach of contract and to
enforce specific performance of the 2013 CFA. In the alternative, the Firms
raised a quantum meruit claim. Fox answered, in relevant part, that the
Firms’ claims are “barred because their fee agreements violate the Louisiana
Rules of Professional Conduct” and “are void due to vagueness and
ambiguity.”
The parties filed cross-motions for partial summary judgment
concerning Fox’s claim that the Firms’ failure to comply with Louisiana Rule
of Professional Conduct 1.8(a) invalidated the 2013 CFA as a matter of law.
On March 20, 2018, the district court granted partial summary judgment for
the Firms, concluding that Rule 1.8(a), which concerns entering into business
transactions with clients, did not apply to the 2013 CFA.
Two years later, the parties again filed cross-motions for summary
judgment, this time concerning whether the fee-agreement modifications
were “fair and reasonable” and whether the Firms’ fee was “reasonable” in
compliance with Rule 1.5(a). The Firms also moved to strike Fox’s experts.
The district court struck the experts and again granted summary judgment in
favor of the Firms. Based on this ruling, the district court entered its final
4
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judgment and ordered Fox “to specifically perform her obligations under the
[2013 CFA] . . . and pay all fees, costs, and expenses due to the Firms.”
Fox now appeals.
II
Fox argues, among other things, that the Firms failed to comply with
Rule 1.8(a) of the Louisiana Rules of Professional Conduct, invalidating the
2013 CFA. And because our resolution of this issue is dispositive, we do not
reach Fox’s other arguments on appeal.
We review the applicability of rules of ethics—a question of law—de
novo, 3 and because we are sitting in diversity, we apply Louisiana law. 4
But first, we must address the scope of our jurisdiction. The Firms
argue that we do not have jurisdiction to consider whether they violated Rule
1.8(a) because Fox did not notice this issue in her notice of appeal, failing to
abide by the mandatory requirements of Federal Rule of Appellate Procedure
3(c). 5 Specifically, the district court dismissed Fox’s Rule 1.8(a) argument in
its March 20, 2018 summary judgment order, but Fox’s notice of appeal did
not mention that order. Instead, she identified that she would be appealing:
(1) the May 14, 2019 Judgment; (2) the May 20, 2019 Amended Judgment;
and (3) the August 1, 2019 denial of Fox’s Motion for Reconsideration.
3
In re: Deepwater Horizon, 824 F.3d 571, 577 (5th Cir. 2016); see also F.D.I.C. v.
U.S. Fire Ins. Co., 50 F.3d 1304, 1310–11 (5th Cir. 1995); cf. Pesantes v. United States, 621
F.2d 175, 177–78 (5th Cir. 1980).
4
See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Bloom v. Aftermath Pub.
Adjusters, Inc., 902 F.3d 516, 518 (5th Cir. 2018).
5
See Torres v. Oakland Scavenger Co., 487 U.S. 312, 317 (1988); see also Hamer v.
Neighborhood Hous. Serv. of Chi., 138 S. Ct. 13, 17 (2017) (“If properly invoked, mandatory
claim-processing rules must be enforced.”).
5
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Rule 3(c) “requires the appellant to ‘designate the judgment, order,
or part thereof appealed from’ in the notice of appeal.” 6 The purpose of this
rule, like so many rules of procedure, is to provide notice to the opposition
and the court of the issues the appellant is challenging. 7 So where an appellant
notices a particular judgment, we may not review other judgments “which
are not expressly referred to” in the notice of appeal, 8 unless “the intent to
appeal can be fairly inferred, and [] the appellee is not prejudiced or misled
by the mistake.” 9
In Friou, we considered whether we had jurisdiction to consider an
appeal from the district court’s grant of summary judgment, even though it
was not specified in the notice of appeal. 10 Instead, the notice specified the
district court’s denial of a motion to reconsider. 11 We held that, although the
appellant’s notice of appeal was imperfect, we still had jurisdiction because
6
New York Life Ins. Co. v. Deshotel, 142 F.3d 873, 884 (5th Cir. 1998).
7
Torres, 487 U.S. at 318.
8
C.A. May Marine Supply Co. v. Brunswick Corp., 649 F.2d 1049, 1056 (5th Cir. July
1981).
9
Friou v. Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991) (“If there is an
error in designating a judgment appealed, the error should not bar an appeal if the intent to
appeal a particular judgment can be fairly inferred, and if the appellee is not prejudiced or
misled by the mistake.”).
We may also consider an unnoticed order where the appeal is from a final judgment
and the unnoticed order is “inextricably intertwined with the final judgment.” New York
Life Ins. Co., 142 F.3d at 884 (internal quotation omitted). While we need not reach whether
the “intertwined with” path would also justify our jurisdiction in this case, we highlight
what is certainly true of both lines of cases: we are principally concerned with ensuring fair
notice to all parties and the courts. By focusing on notice, as opposed to strict construction
of mechanical rules, we seek to discourage appellees’ games of “gotcha” while insisting on
appellants’ abidance with the spirit of the Federal Rules of Appellate Procedure.
10
948 F.2d at 974.
11
Id.
6
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the unnoticed summary judgment order was the subject of the noticed denial
of reconsideration. 12 Therefore, the appellee could fairly infer that appellants
intended to appeal the underlying summary judgment order, 13 evidenced by
the fact that the parties had fully briefed the issues concerning the grant of
summary judgment and the appellee did not aver that it was prejudiced or
misled by the imperfect notice of appeal. 14 The same is true in this case.
The Firms point out that Fox’s notice of appeal did not reference the
March 2018 order rejecting her Rule 1.8(a) argument. True. But though
Fox’s notice may not have been perfect, it was sufficient to provide us with
jurisdiction. 15 As was the case in Friou, Fox here noticed the denial of her
motion for reconsideration, and in that motion, Fox had asked the district
court to reconsider its summary judgment ruling regarding Rule 1.8(a). And
the Firms acknowledged the Rule 1.8(a) issue in their response to Fox’s
motion. 16 Therefore, the Firms could fairly infer that Fox intended to appeal
the Rule 1.8(a) summary judgment ruling because it was a subject of the
motion to reconsider that she did notice. 17 Further, both parties briefed the
underlying Rule 1.8(a) issue in their briefs on appeal, and the Firms have not
12
Id.
13
Id.
14
Id.; see also DeVoss v. Sw. Airlines Co., 903 F.3d 487, 489 n.1 (5th Cir. 2018)
(finding that failure to adequately brief an argument on appeal forfeits it).
15
Friou, 948 F.2d at 974
16
In their opposition to the motion for reconsideration, the Firms noted that “Fox
has asked the court to reconsider its March 20, 2018 ruling on the parties’ prior cross-
motions for summary judgment on the applicability . . . of . . . 1.8(a).” They did not argue
that this request was inadequately, untimely, or improperly raised. So, the Firms seem to
have been on notice and accepted that the March 2018 order concerning Rule 1.8(a) was
part of the Motion for Reconsideration.
17
Friou, 948 F.2d at 974.
7
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argued that they were prejudiced or misled by Fox’s imperfect notice. Taken
together, these facts and our liberal construction demonstrate that any
inadequacies in Fox’s notice of appeal do not deprive us of jurisdiction.
III
Satisfied of our jurisdiction, we can turn to the law. Louisiana Rule of
Professional Conduct 1.8(a) provides that “[a] lawyer shall not enter into a
business transaction with a client” unless, among other things, the client is
(1) advised in writing “of the desirability of seeking” the advice of
independent legal counsel; and (2) given a reasonable opportunity to do so.
Without question, the Firms did not advise Fox to seek the advice of
independent counsel before signing the 2013 CFA, and “[a]n attorney-client
contract which directly violates a disciplinary rule is unenforceable.” 18 So the
only question that remains is whether the 2013 CFA amounted to a business
transaction, such that the Firms violated Rule 1.8(a) by failing to encourage
Fox to consult with an independent attorney.
The Firms argue—and the district court concluded—that the 2013
CFA was not a business transaction because it did not convey an interest in
property; it only provided the Firms a future claim to 40% of the proceeds of
the bankruptcy proceedings, to the extent there were any. But this strained
definition of “business transaction” deprives Rule 1.8(a) of its very purpose
and borders on (if not crosses over into) absurdity. As members of this court
have urged, Rule 1.8(a) exists to impose “prohibitions and restrictions aimed
at preventing . . . conflicts” between the client’s and the lawyer’s own
interests. 19 And as the Nevada Supreme Court ably explained, “[a] business
18
Hodges v. Reasonover, 103 So. 3d 1069, 1073 (La. 2012).
19
Beets v. Scott, 65 F.3d 1258, 1297 (5th Cir. 1995) (King, J., dissenting, joined by
Politz, Garwood, Smith, and Wiener, JJ.).
8
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transaction occurs when an attorney places himself in a position wherein the
exercise of his professional judgment on behalf of his clients would be
affected by his own financial interest.” 20
Contrary to the Firms’ suggestion otherwise, it seems such potential
conflicts are rarely more present than during a contingency fee relationship
where the attorney seeks to gain a property interest in the client’s business at
the end of the representation. At bottom, the risk of conflict, and in turn the
appearance of impropriety, 21 is certainly no less present where an attorney
possesses a future interest in a client’s property as opposed to a present
interest. For example, in this case, the Firms had a financial interest in Fox
obtaining a loan to pay off LTSG’s creditors more quickly. Yet, it was Fox,
not the Firms, who had to bear the risk of personally guaranteeing that loan.
Regardless of whether paying off the creditors sooner was in Fox’s best
interest, it is certainly true that because of the 2013 CFA, the Firms had their
own financial interest in Fox obtaining the loan.
Louisiana has not squarely answered whether a contingency fee
agreement for an ownership interest in a client’s company raises Rule 1.8(a)
concerns, but it has recognized that at least some contingency fee agreements
implicate the Rule, irrespective of the fact that contingency fee agreements,
20
In re Discipline of Hardy, 422 P.3d 708, *2 (Nev. July 19, 2018) (Table) (internal
quotation omitted).
21
See Zylstra v. Safeway Stores, Inc., 578 F.2d 102, 104 (5th Cir. 1978)
(“[W]henever an attorney is confronted with a potential for choosing between actions
which may benefit himself financially and an action which may benefit the class which he
represents there is a reasonable possibility that some specifically identifiable impropriety
will occur.”); Woods v. Covington Cty. Bank, 537 F.2d 804, 807 n.1 (5th Cir. 1976) (noting
that an attorney must “avoid even the appearance of impropriety” (internal quotation
omitted)); Horaist v. Doctor’s Hosp. of Opelousas, 266 F.3d 261, 266 (5th Cir. 2001)
(considering the appearance of impropriety when considering whether to disqualify a
client’s attorney from acting as a witness.)
9
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by their nature, provide a future interest. 22 This conclusion alone belies the
Firms’ argument that future interests cannot amount to business
transactions.
And though few courts have addressed the exact question before us
now, those who have expressly reject the Firms’ argument. For instance, the
Eleventh Circuit determined that a contingency fee agreement providing
counsel stock in the client’s corporation amounts to a business transaction. 23
The court reasoned that such an agreement carries the risk that the attorney
will overreach in advising his client because of his own financial interests in
the matter. 24 The Southern District of New York, 25 the Western District of
Kentucky, 26 and a California state court 27—from sea to shining sea—all
22
In re Curry, 16 So. 3d 1139, 1154 (La. 2009) (finding that attorney violated Rule
1.8(a) where client and attorneys entered into contingency fee agreement though attorneys
did not urge their client to seek the advice of independent counsel).
23
Mursten v. Caporella, 619 F. App’x 832, 834-36 (11th Cir. 2015). While the
contingency fee agreement here concerned an ownership interest in an LLC, not stock in a
corporation, ownership interest is the LLC.-equivalent of corporate stock. See Olmstead v.
F.T.C., 44 So. 3d 76, 80 (Fla. 2010) (“An LLC is a type of corporate entity, and an
ownership interest in an LLC is personal property that is reasonably understood to fall
within the scope of ‘corporate stock.’”); cf. When the Lawyer Owns the Client: Equity
Interests as Attorney’s Fees, 15 Geo. J. Legal Ethics 759 (2002) (using the terms
“stock” and “ownership interest” interchangeably).
24
Mursten, 619 F. App’x at 834-36.
25
Held & Hines LLP v. Hussain, 2018 WL 4233809, at *4 (S.D.N.Y. July 31, 2018)
(finding Rule 1.8(a) implicated where contingency agreement created possibility of firm
receiving ownership interest in client’s business entities).
26
Inst’l Labor Advisors, LLC v. Allied Res., Inc., 2014 WL 4211196, at *2, *6 (W.D.
Ky. Aug. 25, 2014) (finding Rule 1.8(a) implicated where contingency agreement entitled
firm to 5% of “net profits realized by client in the ownership, operation, or sale” of certain
reserves).
27
Passante v. McWilliam, 62 Cal. Rptr. 2d 298 (Cal. Ct. App. 1997) (finding rules
of ethics implicated by contingency fee agreement providing 3% interest in company if deal
was accomplished).
10
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reached the same result. Similarly, the American Bar Association recognizes
that a fee arrangement that results in an attorney receiving stock in exchange
for his services is subject to Model Rule of Professional Conduct 1.8(a), a
substantively identical rule to Louisiana’s Rule 1.8(a). 28
We agree with these courts that a contingency fee arrangement
resulting in an attorney owning part of the client’s business is a business
transaction under Rule 1.8(a). Because the terms of the 2013 CFA give the
Firms an ownership interest in LTSG, Rule 1.8(a) applies, and the Firms
were required to advise Fox to seek the advice of independent counsel. Fox
did not have to take this advice, but the Firms were obligated to give it. Thus,
the 2013 CFA is void. To the extent the Firms seek to revert to the original
CFA, executed in 2010, it is likewise void for the same reason.
CONCLUSION
The district court misapplied Louisiana Rule of Professional Conduct
1.8(a), so we VACATE the final judgment, GRANT partial summary
judgment in favor of Fox, and REMAND to the district court for
consideration of the Firms’ alternative quantum meruit claim.
28
ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. No. 00-418 (2000).
11