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Nugget No Longer Lawyers’ Goldmine
by Ron Davis
Two Washington state lawyers will no longer get to share in the booming success of an Alaska shopping center venture that they helped get off the ground.
The shopping center venture is Nugget Mall in Juneau, and the two lawyers’ firm provided discounted legal services to the owners of the center during a two-and-a-half-year period following its initial development. In exchange for those discounted services, the center’s owners agreed to indefinitely pay the law firm 5 percent of any cash distributions produced from the shopping center venture. The agreement contained no provision allowing the venture to unilaterally terminate the cash-distribution provision.
The shopping center gradually became more successful and underwent several phases of expansion. Eventually, the center’s owners raised concerns about the method of calculating cash distributions. The parties resolved the dispute by agreeing that the venture would pay a reduced amount to the law firm.
The law firm subsequently assigned its interest in the agreement to the two members who had been closely connected to the venture. Over time, the venture distributed some $380,000 to the law firm and the two lawyers. The shopping center owners then terminated distributions, arguing that the agreement was no longer enforceable.
The two lawyers sued, and a Washington court ruled in favor of the lawyers. The shopping center owners appealed.
A Washington appellate court reversed the lower-court ruling, explaining, “From the outset, the financial burden on the law firm was minimal…. The return to the two lawyers has been enormously favorable, and they have not demonstrated any special circumstances, such as particular expertise or unusual demands on their time, that would justify continued enforcement of the agreement. While the 5-percent provision may have been reasonable at the outset given the small percentage it represented of the development’s total revenue, at this point, the amount of fee reduction does not justify further enforcement of the agreement…. We agree with the venture’s contention that the time has been reached when making additional distributions under the agreement would result in an excessive fee.”
The judges were quick to point out, however, that the agreement was not an unethical business transaction under professional conduct rules. (Holmes v. Loveless, 2004 WL 1546772)
Decision: July 2004
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