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In re Ingersoll

April 15, 2009


Appeal from the United States District Court for the Northern District of Illinois, Western Division. No. 07 C 50098-Philip G. Reinhard, Judge.

The opinion of the court was delivered by: Evans, Circuit Judge.


Before BAUER, EVANS, and WILLIAMS, Circuit Judges.

Although many have tried to put a stake through the heart of this fee dispute which refuses to die, all have failed to do the trick. We, as the sixth forum to take a stab at it, are next in line. Now creeping along as a bankruptcy appeal, the case is here after stops at the District of Columbia Bar Attorney/Client Arbitration Board, the Superior Court of the District of Columbia, the Superior Court of Delaware, the federal bankruptcy court for the Northern District of Illinois, and finally the federal trial court for that district. Baise & Miller, P.C., the Washington, D.C. law firm in this dispute, is here today appealing an order barring its claim for additional fees under 11 U.S.C. § 105 of the bankruptcy code. In resolving the firm's appeal, we must go back in time to when this saga all began.

The Ingersoll Cutting Tool Company (ICTC), since its inception in the late 1800s, was at the forefront of the metal cutting tool industry. For the vast majority of that time it was a family-owned enterprise, handed down from its founder, Winthrop Ingersoll, to future generations. But that changed in 2001, when Israeli-based Iscar, Ltd. took over in a sale allegedly "masterminded" by the first outside board members in ICTC's history. Prior to the sale, ICTC was owned by the Gaylords, descendants of Mr. Ingersoll and the appellees in this case. They claim they had no desire to sell the company but were duped by the non-family CEO and certain directors. According to them, a corporate chauffeur overheard these individuals scheming and laughing in a limousine, reveling in their plan to "take down" ICTC and ship it "overseas where it belonged." Whether this actually occurred is unknown-the Gaylords never managed to get a statement from the chauffeur-but it doesn't make much of a difference. What is important is that when the Gaylords caught wind of this plan, they tried with all their might to stop the sale, retaining Baise & Miller to act on their behalf. And when the law firm failed to make a difference-and sought more money for its services-the Gaylords found themselves trading one battle (over their company) for another (over legal fees).

The Gaylords first contacted Baise & Miller in late November 2000. They explained to partner Marshall Miller that they needed to stop the sale, and Miller agreed to help by filing a motion for a temporary restraining order and a preliminary injunction. Miller allegedly told them not to worry; he was friends with a judge in Delaware who "owed him a favor," so getting the sale enjoined was no big deal. What's more, Miller supposedly said he had contacts in the media who could sling mud at Iscar. He even said he spoke with a three-star lieutenant general (Jim Williams) who was ready to investigate the company on international security grounds. So Miller could handle this thing, no sweat. But he would need help from another lawyer, David Margules of Bouchard, Margules & Friedlander.

Miller and Margules held a phone conference with the Gaylords on December 1. (The Gaylords lived in Illinois; Miller in Washington, D.C.; and Margules in Delaware.) Margules introduced himself, described his background and experience, and told the Gaylords that this sort of thing was his "bread and butter." Bouchard Margules and Friedlander v. Gaylord, 2005 WL 2660043, *2 (Sup. Ct. Del. Aug. 31, 2005). But despite all that-and Miller's "friends" in high places-the Gaylords weren't sold.

The deal wasn't sealed until the two attorneys flew to Rockford, Illinois, and met the Gaylords in person. You see, the Gaylords were old-school to a fault: face-to-face meetings were important, but if they went well, they were happy to trust an agreement to a handshake and a promise. In fact, Robert Gaylord, who was more or less in charge before he passed away during this litigation, conducted "multi-million dollar" deals on this basis. So he thought nothing of reaching an oral agreement to pay Miller a $100,000 retainer, with the understanding that Margules would be paid out of those funds as well.

A few days later, Miller sent the Gaylords a letter "memorializing" their oral agreement. It contained some surprises. After reciting the $100,000 retainer and the fact that Margules would submit his fees to Miller (not the Gaylords), the letter discussed a contingency fee. The Gaylords were shocked. Thinking they had an agreement for a capped fee of $100,000, they refused to sign the contract.

In the meantime, Margules decided he needed a bigger piece of the action. Margules previously reached a deal with Miller where he would receive $25,000 of the retainer based on the expectancy that he would do a quarter of the work. However, as a preliminary injunction hearing drew closer-by this point they had filed suit in Delaware's Chancery Court, a court of equity known mainly for its decisions on corporate matters-Margules saw that he was doing a greater percentage of the work. So Margules asked Miller for more money, and "Miller arbitrarily decided on a new retainer figure, $250,000, because that was the next 'notch' up." Bouchard Margules and Friedlander, 2005 WL 2660043 at *2.

Back at the negotiating table with the Gaylords, Miller assured them that $250,000 was the outside figure, and that he would return any unused portion of the fee.

Robert Gaylord agreed to the deal reluctantly; he was willing to pay $250,000 if need be, "but not a penny more." Id. at *3. Unfortunately, the agreement was never put in writing, and this caused headaches as the fees escalated well beyond the $250,000 cap.

For all that, the litigation was unsuccessful. The Delaware court denied injunctive relief, and the sale was consummated. Then came the fee dispute. As agreed, the Gaylords deposited $250,000 into Baise & Miller's escrow account. But well after the representation came to a close, the Gaylords hadn't received any invoices from Miller detailing the costs and fees. It turns out there was a logical (if unreasonable) explanation for the delay: the total fees from Miller and Margules outstripped the escrow fund. When the Gaylords finally received the invoices from both attorneys-Margules had been billing Miller all along but received only partial payment-the total came to almost $390,000. Outraged by the request for another $140,000 on top of the "outside figure," the Gaylords wrote Miller and insisted he had it wrong. They explained that the agreement was for no more than $250,000, and if Miller and Margules had trouble apportioning the money, that was their problem. Miller didn't back down. While continuing to demand more money, though, he partially satisfied Margules by paying him $134,205.13-roughly $60,000 short of the total claimed.

When the Gaylords also refused to budge, Baise & Miller filed an action in the D.C. Superior Court. The court stayed the case, however, because the Gaylords agreed to arbitration before the D.C. Attorney/Client Arbitration Board. The board issued its ruling in late 2004, but unfortunately it failed to decide the critical issue-whether $250,000 ...

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