CHARLESTON – Lawyers who collected 30 percent for cleaning up a dirty coal lease continue to collect 30 percent under the lease they negotiated in its place.
Now, the West Virginia Supreme Court of Appeals must decide whether the Wheeling law firm of Schrader, Byrd & Companion deserves to keep charging 30 percent.
Holders of the lease have asked the Justices to overturn Ohio Circuit Judge Martin Gaughan, who granted summary judgment in favor of the firm in 2005. Gaughan ruled that the fees were not excessive, the case involved significant risk, and there was not a separate attorney fee contract for the new lease.
John Preston Bailey of Wheeling, representing the leaseholders, wrote to the Justices that Gaughan essentially granted the firm a 30 percent interest in the property.
"As coal mining commences on the property, the royalties could extend into millions of dollars," Bailey wrote in an Oct. 27 brief. "This could end up in a fee of millions of dollars for negotiating and drafting a lease.
"The excessiveness of such a fee is obvious."
Bailey represents former Schrader, Byrd & Companion client Josephine Luther and seven children of her late sister, Mary Catherine Marks.
"It is clear that Ms. Marks and Ms. Luther did not intend to make the Law Firm a 30 percent owner of the property, a partner in their business, or a member of the family," Bailey wrote in the brief.
The sisters each owned a fourth of a Boone County property that they inherited from their father. Two brothers each owned a fourth.
The brothers signed a lease in 1968 with underground coal companies.
The sisters found out in 1988. They retained the firm -- then known as Schrader, Stamp, Byrd, Byrum & Companion -– to recover lost income.
A contingent fee contract provided 30 percent of lost income and other damages.
The sisters settled in 1998 for $3,500,000. The firm received $1,050,000. The firm and attorneys for the mining companies executed a lease for the sisters.
"After the settlement was reached, the Law Firm insisted that the future income generated from the new lease and side letter agreement was to be counted under the contingent fee arrangement," Bailey wrote. "Feeling that they had no alternative at that stage of the proceedings, Ms. Marks and Ms. Luther acquiesced in the modification of the contingent fee arrangement."
Bailey wrote that neither sister signed the modification, adding that the firm failed to disclose that it would charge a fee as long as coal was mined on the property, that the fee could be astronomical or that the firm would charge it against the clients' children and grandchildren.
He wrote that the firm should have billed its work on the lease at an hourly rate.
In a footnote on the settlement, Bailey wrote that prior to settlement, the firm tried to persuade the sisters to accept $750,000.
For the firm, Ray Byrd wrote in a Nov. 27 brief that the sisters entered into only one attorney contract -– the 1998 contingency fee contract.
He wrote that Luther honored the contract without objection from 1998 to 2004. He wrote that Marks died in 2000, and her children honored the contract through 2003.
He quoted Judge Gaughan: "Even after the settlement, the value of the recovery and the fee were uncertain because it was contingent on the price of coal, whether anyone would mine it, and the amount of usage that would take place."
He wrote that a substantial portion of the coal had been deep mined and extraction of the remaining coal would require mountaintop removal or other surface methods.
"Due to various court decisions and environmental regulations, mining permits have been difficult – if not impossible – to obtain," Byrd wrote.
He challenged Bailey's claim that the firm tried to persuade the sisters to take $750,000.
Bailey fired back in a Dec. 8 reply brief, writing that the firm pressured the sisters to accept $750,000, "in which case the fee would have been only $225,000."
"While the Law Firm denies this, the Appellants refer to a meeting held in Wheeling at which Ms. Marks, her son Tony, Mr. and Mrs. Luther and their son Bill met with Mr. Byrd," Bailey wrote. "Mr. Byrd went over the reasons not to pursue the case and to accept the money on the table.
"Mr. Byrd even brought in a former Supreme Court justice to give a 'gloom and doom' assessment of the case.
"The plaintiffs refused the settlement, ultimately resulting in a much, much larger recovery."
The Supreme Court of Appeals will hear oral arguments Feb. 13.