Fifth Circuit Affirms $1.45 Million Arbitration Award in Legal Fees Dispute

Last month, the United States Court of Appeals for the Fifth Circuit upheld an arbitrator’s decision awarding a Texas-based law firm $1.45 in unpaid legal and expert witness fees.  In McKool Smith, P.C. v. Curtis International Ltd., No. 15-11140 (5th Cir. May 23, 2016), Curtis International, Limited (“Curtis”) hired McKool Smith, P.C. (“McKool”) to defend the company in two patent lawsuits that were filed in a Florida federal court.  The parties’ engagement agreement stipulated that any future disagreements would be resolved through binding arbitration under the Federal Arbitration Act.  In addition, the signed engagement contract stated it was governed by Texas law.  About six months after retaining McKool, Curtis settled both patent cases.

A few months later, McKool initiated arbitral proceedings because Curtis refused to pay approximately $1.4 million in legal and expert witness fees.  Curtis argued the legal invoices were unreasonable and asserted that McKool secured the services of the expert witnesses without permission from Curtis.  Eventually, an arbitrator issued a $1.45 million award in favor of McKool.

Next, the law firm sought to confirm the arbitrator’s award in the Northern District of Texas.  In response, Curtis asked the federal court to vacate the arbitration award.  According to Curtis, the award was contrary to public policy, the arbitrator exceeded his powers, and the neutral exhibited a manifest disregard for the law.  After examining the facts of the case, the district court granted McKool’s motion and confirmed the arbitral award.  Curtis then filed an appeal with the Fifth Circuit.

On appeal, the Fifth Circuit Court of Appeals first stated there was a “strong federal policy favoring arbitration,” and any judicial “review of an arbitration award is extraordinarily narrow.”  The appellate court then said its review of the district court’s order would be extremely deferential.  Next, the court stated:

Assuming—without deciding—that manifest disregard of the law and a violation of a state’s public policy fall within 9 U.S.C. § 10(a)(4), Curtis still fails to show any grounds for vacatur of the arbitration award. This is because Curtis fails to overcome our deferential standard of review and to demonstrate that the arbitrator manifestly disregarded the law or issued the arbitration award in violation of public policy.

After that, the appeals court addressed whether the arbitrator manifestly disregarded Texas law.  According to the court:

… Curtis fails to show that the arbitration award was in manifest disregard of Texas law. While Curtis asserts that Texas law requires explaining block billing entries in fee disputes, Curtis points to cases disfavoring, but not disallowing, block billing to prove attorney’s fees in fee-shifting cases. See, e.g., Barrow v. Greenville Ind. Sch. Dist., No. 3:00-CV-0913-D, 2005 WL 6789456, at *4 (N.D. Tex. Dec. 20, 2005); El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 763 (Tex. 2012). In fact, with respect to fee agreements, as in the instant case, one Texas state court found that a law firm did not breach its fiduciary duty or charge unreasonable fees when block billing a client when the client never complained about the format of the bills during the representation. See McGuire, Craddock, Strother & Hale, P.C. v. Transcon. Realty Inv’rs, Inc., 251 S.W.3d 890, 895–96 (Tex. App.—Dallas 2008, pet. denied). We therefore cannot conclude that the arbitrator disregarded well defined Texas law by allowing McKool Smith to collect block billed attorney’s fees. …

Next, the Fifth Circuit panel examined Curtis’ claim that the arbitral award was subject to vacatur because it violated public policy.  The court said Curtis failed “to show that the arbitration award violated Texas public policy. Reframing its previous arguments, Curtis asserts that allowing McKool Smith to collect 100% of its billed fees for work that it allegedly performed without Curtis’s consent would violate the well-defined Texas public policy against unconscionable attorney’s fees.”  Additionally, the appellate court stated Curtis’ “argument is essentially a challenge to the arbitrator’s underlying factual findings, and we cannot entertain such a challenge.”

Ultimately, the United States Court of Appeals for the Fifth Circuit affirmed the district court’s order confirming the $1.45 million arbitration award.

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