Firm Not Entitled to $2 Mil. in Attorney Fees
When Devon fronted the firm an additional $250,000 to pay Kroll, Slomsky said, the firm again failed to pay the vendor.
The Mitts firm filed a motion seeking to stay the Nov. 21 order, alleging that Devon perpetrated a fraud on the court by taking opposite positions in the Eastern District litigation and in a separate suit against Kroll in Minnesota federal court, according to Slomsky's Dec. 20 opinion.
But Slomsky said these arguments were not inconsistent.
"In both cases, Devon took the position that because of Kroll's substandard work product, it was not entitled to be paid," Slomsky said in the Dec. 20 opinion, adding, "The second position was that if Kroll is entitled to payment, it was the responsibility of the Mitts firm to make the payment. These positions do not change the court's view that in October 2011, Kroll was still working on Devon's behalf and was entitled to be paid by the Mitts firm for its services and to be sent the $250,000 that Devon gave to the Mitts firm specifically to pay Kroll. They also do not change the fact that the Mitts firm retained the $250,000 that was earmarked for Kroll, which the Mitts firm fails to mention in its motion and memorandum of law and reply brief."
While the Mitts firm had argued that because Devon's position in the Minnesota case was that Kroll was not entitled to any payment, the firm's failure to pay Kroll the $250,000 from Devon was not a breach of the fee agreement, Slomsky disagreed.
"Here, the Mitts firm even sought additional money from the client to pay Kroll, and Devon agreed to the $250,000," Slomsky said. "Accordingly, the Mitts firm's failure to pay Kroll is a serious breach of the fee agreement."
The Mitts firm also argued that it had been fraudulently induced to enter the fee agreement because Devon exaggerated its damages and concealed its alleged fraud on IBM, the International Data Corp. and the state of Pennsylvania, according to Slomsky.
Slomsky, however, said the firm learned of this alleged fraud during discovery and didn't raise the issue at the time.
"The Mitts firm only sought to withdraw after the fee dispute arose," Slomsky said. "Thus, the fact that the alleged fraud was not advanced beforehand as a reason to set aside the fee agreement undermines the credibility of the position now taken. In addition, to the extent that the Mitts firm raises as a new argument that it was fraudulently induced to enter into the fee agreement, this is inappropriate in a motion for reconsideration."
Devon's attorney, Gary M. Samms of Obermayer Rebmann Maxwell & Hippel in Philadelphia, said Slomsky's ruling was correct.