In a recent development, the 3rd U.S. Circuit Court of Appeals in Philadelphia has delivered its verdict, refusing to revive a lawsuit that alleged Polsinelli’s breach of a flat-fee agreement to provide “legal counsel.” This contentious case stemmed from allegations that Polsinelli had assigned work covered by the contract to another law firm, which billed Polsinelli’s client for its trial-related services.
The Court’s Decision
In a nonprecedential ruling dated September 27, the 3rd Circuit upheld Polsinelli’s position. The court emphasized that Polsinelli did indeed offer counsel to the involved parties. It noted that Polsinelli had dispatched two of its attorneys to collaborate with the external law firm, Wilmer Cutler Pickering Hale and Dorr, during the trial.
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Background of the Case
The plaintiffs behind this appeal are the now-defunct specialty mail-order pharmacy, Philidor RX Services, and its former CEO, Andrew Davenport. The lawsuit stemmed from Davenport’s conviction in a kickback scheme, along with former Valeant Pharmaceuticals executive Gary Tanner, following a three-week trial in May 2018. WilmerHale represented Tanner, and both Tanner and Davenport opted for a joint defense with Polsinelli, with Philidor RX Services agreeing to cover WilmerHale’s legal fees.
Terms of the Agreements
The agreements between Polsinelli, Philidor RX Services, and Davenport stipulated that Polsinelli would receive a flat fee of $12 million for providing “legal counsel and assistance” in defense of investigations and enforcement actions by entities such as the U.S. Securities and Exchange Commission, the U.S. Department of Justice, and Congress. Philidor RX Services and Davenport also agreed to pay an extra $2 million for experts, outside counsel, and third parties, separate from the fees payable to WilmerHale.
Allegations Against Polsinelli
Philidor RX Services and Davenport contended that Polsinelli was inadequately staffed during the trial and had shifted a substantial portion of the legal workload to WilmerHale, which they claimed had prepared “the vast majority” of court filings. In their arguments, they challenged the adequacy of counsel provided by Polsinelli.
Court’s Interpretation
Following a review that included Black’s Law Dictionary, the 3rd Circuit concluded that Polsinelli had fulfilled its obligation to provide legal counsel. While the allegations about WilmerHale’s substantial involvement in drafting court filings raised concerns about the extent of Polsinelli’s counsel, the court determined that Polsinelli had not failed to provide some form of legal representation.
Rejection of Additional Claims
The 3rd Circuit also ruled against the plaintiffs’ claims that Polsinelli had breached an implied covenant of good faith and fair dealing by not adequately fulfilling its obligations and that Polsinelli had been unjustly enriched.
One aspect of the unjust enrichment argument was based on ethics rules prohibiting excessive fees. The plaintiffs asserted that an absurd fee contract is unenforceable under Pennsylvania law. However, the 3rd Circuit characterized this argument as a “novel theory” and found that the plaintiffs had not provided sufficient support for it.
In conclusion, the 3rd Circuit’s decision solidifies Polsinelli’s position in this lawsuit, with the court ruling that the law firm did meet its obligations to provide legal counsel, ultimately rejecting the plaintiffs’ claims of breach and unjust enrichment.
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