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Wednesday, June 12, 2024 | Back issues
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Patent Firm Sues Jenner & Block

DALLAS (CN) - A patent holding company sued Jenner & Block, claiming an arbitrator wrongfully awarded it $4.4 million in legal fees after making a "sweeping rewrite" of a contingent fee agreement.

In a 31-page motion to vacate, Dallas-based Parallel Networks claims the arbitrator refused to rule on the key issue of the enforceability of a termination provision that allowed Chicago-based Jenner & Block to seek hourly fees instead of contingency fees in patent claims against nonparty Oracle and QuinStreet.

"Instead, the arbitrator fashioned his 'own brand of industrial justice' and awarded Jenner a fee based on a sweeping rewrite of the termination provision in the contingent fee agreement," according to the petition in Dallas County Court. "In doing so, the arbitrator grossly exceeded his powers, blatantly disregarded over 150 years of well-settled Texas law governing attorney-client fee agreements, set aside Texas policy, and ignored Texas ethical rules."

Parallel claims that 2½ years after Jenner chose to terminate its representation and "abandon" Parallel, successor counsel was able to settle the claims shortly before jury selection in Delaware court.

Parallel claims that Jenner then reappeared and demanded $10 million in hourly fees-more than half the total recovery in the Oracle case and more than the entire amount received in the QuinStreet case.

Jenner filed for arbitration with JAMS after the plaintiff refused to pay.

Parallel claims that Jenner initially said it terminated its representation due to Parallel's refusal to pay expenses.

However, "Faced with irrefutable evidence from its own internal emails and memoranda that Parallel Networks paid outstanding expenses in full prior to termination, Jenner later dropped this false contention," the petition states. "In response to Jenner's demand, Parallel Networks asserted counterclaims against Jenner for breach of the [agreement], breach of fiduciary duty and legal malpractice."

Parallel says that on Jan. 18, the arbitrator awarded Jenner $3 million and 16 percent of net proceeds from any settlement paid by Oracle on Jenner's contract and unjust enrichment claims. He denied all of Parallel's counterclaims and awarded Jenner more than $1.39 million in attorneys' fees and interest.

Parallel claims the arbitrator exceeded his powers in giving an award that did not draw on the "essence"" of the agreement and that is contrary to its language.

It claims that state law prohibits the enforcement of the termination provision: "The Texas Supreme Court has held that such a unilateral option provision is unenforceable as a matter of law because the attorney's fee is no longer contingent, and because it subverts the purpose served by contingency fee agreements by shifting all the risk of the representation to the client," the petition states.

It adds: "Jenner did exactly what the courts in Hoover Slovacek LLP and Wythe II and the Texas Committee on Professional Ethics admonish against. During its representation of Parallel Networks, Jenner evaluated when was the best time to drop Parallel Networks, noting that Jenner could walk away at any time and be compensated in hourly fees."

Parallel claims that Jenner persuaded the arbitrator to ignore a provision and rewrite it to award a "fair" fee based upon unsupported alternative calculations performed by Jenner's expert.

"In effect, Jenner sought a pro rata portion of the contingent fee award even though it terminated the CFA and the CFA and Texas law of not provide such a remedy," the petition states.

Parallel claims the agreement explicitly denies the arbitrator authority to rewrite, and that even with the rewrite it still violates Texas law because of failure to provide a clear and accurate explanation of how the fee was calculated. Such an explanation is required under the Texas Disciplinary Rules of Professional Conduct, the petition states.

Parallel claims the arbitrator failed to mention the testimony or expert reports of Professor David Kricik, an expert on ethics in patent litigation.

"Professor Kricik submitted a 56-page expert report and a 14-page supplemental report regarding, among other things, the unenforceability and unsconscionability of Paragraph 9 of the CFA and Jenner's forfeiture of attorneys' fees because it withdrew from the representation without 'just cause,'" the motion states. "The arbitrator's failure to take into account Professor Kricik's expert testimony discussing relevant Texas case law is further evidence of the arbitrator's manifest disregard of Texas law."

Parallel claims that Jenner's own expert provided at least two different amounts based on different calculations: $4.43 million or $3.28 million. It claims the arbitrator used neither, but chose $3 million without explanation of how he calculated it.

Parallel also claims that awarding of 16 percent of net proceeds in the Oracle matter is not enumerated in the agreement, which allows payment for the result "achieved at the time of termination of the agreement."

"Jenner has not contributed to - let along achieved a result for - this not-yet-filed arbitration," the motion states. "Nonetheless, the arbitrator granted Jenner 16 percent of its total value. Jenner was not even counsel for Parallel Networks when it entered into a settlement agreement with Oracle, which contains the provision regarding a future arbitration proceeding with Oracle."

Parallel also claims the arbitrator failed to hear material evidence regarding its legal malpractice and contract counterclaims, which would have established the "suit within a suit" requirement.

"Parallel Network produced QuinStreet's source code and configuration files and [Keith] Lowery [the technology inventor] was prepared to testify regarding those documents," the motion states. "In overrulling Jenner's previous objections to the use of the materials, the arbitrator held the documents were timely produced. At the hearing, the arbitrator changed course and refused to hear Mr. Lowery's testimony regarding those documents or allow Parallel Networks to introduce those documents into evidence."

Parallel was founded in the 1990s as a website software company. It has filed numerous lawsuits on patent licensing, according to the Dallas Business Journal: against Priceline.com, Orbitz, Walgreen, Officemax, Netflix, E-Trade Financial Corp. and Saks Inc., among others.

Jenner & Block, founded in 1914, is a national law firm with about 450 attorneys in Chicago, Washington, D.C., New York and Los Angeles.

Parallel is represented by Jamil Alibhai with Munck Wilson of Dallas.

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