West Virginia Record

Friday, February 28, 2020

Supreme Court hears coal lease dispute

By Steve Korris | Feb 16, 2007

CHARLESTON – Like a contestant on a quiz show, attorney Raymond Byrd of Wheeling searched for answers worth millions.

Byrd did not appear on television. He appeared at the West Virginia Supreme Court of Appeals in defense of a 30 percent contingency fee on a coal lease.

His former clients, who hold the lease, want the Court to declare the fee excessive.

Contingency fees normally apply in cases with uncertain outcomes. The high rate of return balances the risk of winning nothing.

In this case, the contingency fee originally applied in the usual fashion.

In 1988, the firm of Schrader, Stump, Byrd, Byrum & Companion signed a contract to represent sisters Josephine Luther and Mary Catherine Marks.

The sisters had discovered that for 20 years their two brothers had made money by letting coal companies dig under land the four of them owned.

The contract between the sisters and Byrd's firm provided a 30 percent fee on any recovery for lost income and other damages.

In 1998, the sisters settled for $3,500,000. The firm received $1,050,000. As part of the settlement the coal companies signed leases with the sisters.

Byrd told the sisters in a letter that his firm would receive 30 percent of the difference between the lease payments and what they would have received under the original lease.

Marks died in 2000.

In 2003, her seven children and her sister sued the firm in Ohio County circuit court.

In 2005 Circuit Judge Martin Gaughan granted summary judgment in favor of the firm, now known as Schrader, Byrd & Companion.

Luther and her nieces and nephews petitioned the Supreme Court of Appeals to overturn Gaughan's decision. John Preston Bailey of Wheeling filed the petition.

In oral arguments Feb. 13, Bailey said the fee made the firm a 30 percent owner.

He said the fee on the 1998 settlement was 2.66 times as much as the firm would have received at a normal hourly rate.

Chief Justice Robin Davis said, "What does that have to do with it?"

Bailey said, "They were not under compensated."

Davis asked if the contract was modified.

"I think it had to have been," Bailey said.

He said the contract provided 30 percent of recovery from a wrongful lease and not 30 percent of a new lease.

"That is where there had to have been a modification," Bailey said.

He said the sisters abided by what their lawyer said.

Justice Joseph Albright said, "Isn't the new lease part and parcel of the lawsuit?"

Bailey said that in lease negotiations, plaintiff's counsel should have said he had to talk to his clients.

He said, "What they needed to do was settle and charge hourly for negotiating a lease."

He said West Virginia attorneys do not get 30 percent for negotiating coal leases.

Davis said, "Who says they can't?"

She asked Bailey if he wanted the Court to say they can't. Bailey said he did.

Justice Brent Benjamin asked Bailey to separate issues of fact from issues of law.

Bailey said modification of the contract was an issue of law.

He said, "Past that you have the whole issue of facts. Was the negotiation within the ambit of the contract? Did the firm disclose? Was the fee reasonable?"

He said the firm should have told its clients that the fee could be astronomical and that the firm would collect it from future generations.

When Byrd's turn came, he said he was disturbed and angry at the suggestion that the firm violated the code of professional conduct.

Justice Spike Maynard asked Byrd if the fee would produce many millions of dollars.

Byrd said it would. He said, "That is the risk we took. We freed them from the '68 lease."

He said, "There were a number of culprits in this." He said the brothers took advantage of their sisters.

He started to say something about 1973. Davis said, "Mr. Byrd, you are way off base here."

Albright said, "Tell us why it is appropriate to have a contingent interest in a long term lease. Why shouldn't we frown on it?"

Byrd said that in 1995, Kanawha County circuit court granted summary judgment to the sisters on a claim of intentional trespass against coal company Laxair.

He said the sisters had lost $7,000,000 and could have won triple damages, or $21 million. He said, "We're flying high."

Two weeks later, he said, Laxair declared bankruptcy.

He said, "That neutered – took away – the leverage that we had."

He said, "They gave us a bunch of lemons and we made lemonade."

On rebuttal, Bailey said that if there was no modification of the contract there was no need for the letter in 1998.

Benjamin said the letter referred to a conversation. He asked if the sisters agreed to 30 percent. He said the letter implied consent or understanding.

Bailey said, "It was a one-sided understanding."

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