Justices still arguing over royalties in coal lease case

By Steve Korris | Aug 3, 2007



CHARLESTON – Four months after the West Virginia Supreme Court of Appeals decided that attorneys in Wheeling could forever collect 30 percent of royalties on a coal lease they negotiated, the argument hasn't ended.

Justice Brent Benjamin declared July 27 that the sisters who held the lease did not understand the 30 percent fee, and Justice Joseph Albright promptly responded that they did understand it.

Albright did not exactly applaud the firm that negotiated the lease, Schrader, Byrd and Companion.

"This Court has consistently emphasized the obligation of attorneys to deal with clients in utmost good faith," he wrote. "Yet, it is not within the authority of this Court to alter the terms or conditions of an attorney-client agreement by eliminating portions which are not within the liking of this Court."

Sisters Josephine Luther and Mary Marks retained the firm after learning that their two brothers made money off property all four of them owned. The brothers had signed leases with mining companies. The firm and the sisters agreed on a 30 percent contingency fee.

The sisters sued the coal companies and settled for $3,500,000. Schrader, Byrd and Companion collected $1,050,000. As part of the settlement, the companies signed leases with the sisters.

Schrader, Byrd and Companion sent a letter to the sisters in 1998, stating that the 30 percent fee would apply to any increase in lease royalties.

For two years, the sisters paid the fee. After Marks died, her share of the lease passed to her children and they paid their share of the fee.

In 2003, Luther and her nieces and nephews sued in Ohio County circuit court to declare the fee unreasonable.

Circuit Judge Martin Gaughan found it reasonable.

Luther and her nieces and nephews asked the Supreme Court of Appeals to overturn Gaughan. In April, three of five Justices affirmed Gaughan.

Albright, Chief Justice Robin Davis and Justice Larry Starcher found the fee reasonable. Benjamin and Justice Spike Maynard dissented.

In May, Maynard warned that the decision would encourage attorneys to entangle themselves in businesses of their clients.

Benjamin wrote in his dissent that Schrader, Byrd and Companion would collect millions for the simple act of preparing a mineral lease.

"Had SBC simply billed Ms. Marks and Ms. Luther for a multi-million dollar lump sum fee for the preparation of the lease, the circuit court and this Court surely would have disapproved," Benjamin wrote. "There is nothing that would lead me to believe that Ms. Marks and Ms. Luther intended to obligate themselves to give SBC 30 percent of any and all future royalties. ...

"SBC's only apparent job at this point is to sit back and watch the checks roll in."

Albright answered in a concurring opinion that, "A review of the evidence of record reveals that Ms. Luther and Ms. Marks were adequately informed of the scope of the contingent fee agreement."

He wrote that the 1998 letter provided an opportunity to correct any misstatement or different recollection.

"The clients did not immediately assert any allegation of misrepresentation, concealment or misconception regarding the application of the 30 percent contingency fee to the future payments," he wrote. "In fact, the clients paid the attorneys 30 percent of the increase in royalty payments from April 1998 to September 2004."

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