CHARLESTON – Attorneys in Wheeling who settled a dispute over a coal lease for a 30 percent fee in 1998 can collect 30 percent of the royalties their work produced, the West Virginia Supreme Court of Appeals has decided.
The Justices affirmed Ohio Circuit Judge Martin Gaughan, who found the fee of Schrader Byrd & Companion fair and reasonable. The Justices rejected an appeal from leaseholders who argued that the fee made the firm a 30 percent owner of the property.
Justice Larry Starcher delivered the opinion April 5. Chief Justice Robin Davis concurred, as did Justice Joseph Albright. Justices Spike Maynard and Brent Benjamin dissented.
Starting in 1988, Schrader, Byrd & Companion represented sisters Josephine Luther and the late Mary Marks.
The sisters claimed their two brothers failed to pay them their fair shares of royalties from mining on property all four of them owned in Boone County.
They did not sue their brothers. They sued two coal companies that had signed leases with the brothers. The sisters agreed to pay the firm 30 percent of any increase in royalties.
In 1998, the coal companies agreed to pay the sisters $3.5 million. Schrader Byrd & Companion received 30 percent, or just over $1 million.
The coal companies also agreed to execute a lease with the sisters.
Attorney Ray Byrd wrote to the sisters that, "... we are entitled to a contingent fee of thirty percent on any settlement effected after the initiation of the lawsuit but made prior to any trial or trials."
From 1998 to 2004, the firm received about $84,000.
In 2004, the sisters sued the firm. The firm moved for summary judgment. Gaughan granted it in 2005, writing that the case had a significant degree of risk.
"The chance that plaintiff would not prevail was very real," Gaughan wrote.
He found that there was neither a modification of the fee contract at the time of settlement nor a separate fee contract.
For Luther and for the heirs of Marks, John Preston Bailey of Wheeling asked the Supreme Court of Appeals to declare the fee improper.
He wrote 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.
Ray Byrd represented his firm before the Justices. He preserved his fee.
"An attorney fee payment arrangement whereby the attorney receives a percentage of funds as they are periodically received by the attorney's client is not, as such, either suspect or impermissible," Starcher wrote. "The fees-from-future-royalties agreement is entirely consistent with the original fee agreement."
Starcher wrote that at the time of settlement neither sister expressed reservations about paying 30 percent of future royalties.
"As to the amount of fees possibly to be collected in the future by SBC, the appellants argue that the amount could at some time in the future be so 'huge' as to be facially outrageous," he wrote. "However, the appellants did not and do not support this speculation with any evidence ..."
For example, Starcher wrote, they were free to estimate for the circuit court the recoverable tons of coal remaining on the property. He said that from such an estimate they could have made an argument that the fee might become outrageous at some point.
"But the appellants did not do so," he wrote.