Abdou v. Walker

Background

Shareef Abdou was a successful plaintiff and relator in a False Claims Act case against his former employer. That case settled for $300 million, including $300 million allocated to Abdou’s qui tam action. Abdou accepted a 16% relator share, producing a $48 million award. The Mahany Firm, Brian Mahany, Joseph Bird, and Anthony Dietz represented Abdou under contingency-fee agreements. The firm ultimately received more than $15 million in fees, while Abdou received approximately $32 million.

Abdou alleged that the attorneys performed little substantive work, left him to draft much of the complaint and conduct legal research, and did not substantially assist with negotiations concerning his relator share. He also alleged that the attorneys pressured him to accept the 16% award and failed to properly explain or negotiate the terms of their fee agreements. He asserted claims for breach of fiduciary duty, professional negligence, breach of contract, unjust enrichment, and relief under the court’s authority to determine whether attorneys’ fees are reasonable.

The defendants moved to dismiss the Second Amended Complaint under Federal Rule of Civil Procedure 12. At this stage, the court had to accept well-pleaded factual allegations as true and decide whether they plausibly stated claims for relief.

Choice of law and statutes of limitations

Because the case had been transferred from the Eastern District of Wisconsin for convenience, the court applied Wisconsin choice-of-law rules. It held that Wisconsin substantive law governed the contract and unjust-enrichment claims and also applied Wisconsin limitation periods to the relevant claims. Contract and unjust-enrichment claims generally had a six-year limitation period. Breach-of-fiduciary-duty claims had a three-year limitation period. The professional-negligence conduct occurred before an amendment to Wisconsin law, so the court applied a six-year limitation period to those claims.

Claims challenging the reasonableness of the contingency fee

The court held that Abdou plausibly alleged that the one-third contingency fee was unreasonable in light of the work performed. Wisconsin law permits contingency agreements but requires fees to be reasonable under the circumstances. The court considered the standards in American Bar Association Rule 1.5 and Wisconsin Rule 20:1.5, which include factors such as the time and labor required, the difficulty of the matter, the amount involved, the result obtained, and whether the fee was contingent.

Accepting Abdou’s allegations as true, the court found that he adequately alleged that the defendants performed negligible work while receiving a fee of approximately $16 million. The court therefore denied the motions to dismiss Abdou’s professional-negligence, breach-of-contract, and unjust-enrichment claims to the extent they challenged the reasonableness of the contingency fee. The court also denied the motions as to Abdou’s request for relief under the court’s authority to determine and reduce unreasonable attorneys’ fees.

The court dismissed with prejudice Abdou’s breach-of-fiduciary-duty claims based on the alleged unreasonableness of the fee. It held that those claims accrued no later than December 2014, when Abdou knew the total amount of the attorneys’ award, and were therefore filed after Wisconsin’s three-year limitation period. The court stated that Abdou could pursue the same fee-reasonableness theory through the other surviving claims, but he could recover only once for the same injury.

Claims concerning formation and modification of the fee agreements

The court dismissed Abdou’s breach-of-fiduciary-duty claims based on alleged failures to explain the agreements, disclose a right to independent counsel, discourage consultation with independent counsel, or include allegedly unfair terms. Those claims were untimely and also were not adequately pleaded. The court found that the agreements contained the required written fee information, that Abdou did not identify authority requiring attorneys to advise clients of a right to independent counsel in this setting, and that the complaint did not adequately allege damages or misconduct based on the challenged provisions.

The court also dismissed with prejudice the related professional-negligence claims. Although those claims were timely, the complaint did not plausibly allege that the defendants’ conduct in forming or modifying the agreements fell below the required level of competence. The court further held that Abdou did not plead concrete facts showing that additional or more competent legal work would have produced a larger recovery.

The court dismissed Count V, which alleged that the Mahany Defendants breached the October Letter by charging a one-third fee instead of a 33% fee. The court held that the October Letter reduced the fee only for Financial Institutions Reform, Recovery, and Enforcement Act claims, while Abdou recovered under the False Claims Act. However, because the complaint also alleged a separate oral agreement and January email concerning a 33% fee for the False Claims Act claim, the court authorized Abdou to seek leave within two weeks to amend Count V for that limited purpose.

Claim concerning the relator award

The court dismissed with prejudice Abdou’s breach-of-fiduciary-duty claim concerning the defendants’ advice and conduct in accepting the 16% relator share. Abdou did not defend that claim as timely, and the court held that it accrued no later than December 15, 2014, when Abdou executed the settlement agreement. The three-year limitation period therefore expired before Abdou filed suit.

Disposition

Judge Paul A. Engelmayer granted in part and denied in part the defendants’ respective motions to dismiss. The court denied the motions as to Abdou’s claims challenging the reasonableness of the contingency fee through breach of contract, professional negligence, unjust enrichment, and the court’s inherent fee authority. It granted the motion to dismiss Count V, while allowing Abdou to seek leave to amend that count within two weeks. It dismissed all other claims with prejudice. The court lifted the stay on discovery and directed the parties to identify remaining discovery and propose a schedule.