Grimmer & Assoc. v. NRLA

557 P.3d 626

2024 UT App 131

GRIMMER & ASSOCIATES, PC, Appellee and Cross-appellant,

v.The NRLA, LLC, Appellant and Cross-appellee.

No. 20220978-CA

Court of Appeals of Utah.

Filed September 12, 2024

Third District Court, Salt Lake Department, The Honorable Kent R. Holmberg, No. 220901118

Cameron M. Hancock, Rod N. Andreason, Justin W. Starr, Adam D. Wahlquist, and Jacob A. Green, Attorneys for Appellant and Cross-appellee

Richard D. Burbidge, Carolyn LeDuc, and Clancey S. Henderson, Attorneys for Appellee and Cross-appellant

Judge John D. Luthy authored this Opinion, in which Judges Gregory K. Orme and Ryan M. Harris concurred.

Opinion

LUTHY, Judge:

¶1 The law firm Grimmer & Associates (Grimmer) agreed to represent The NRLA, LLC (NRLA) in litigation for a reduced hourly rate combined with a contingency fee. After NRLA accepted an offer of stock shares to settle the litigation, Grimmer asserted its right to a portion of those shares. NRLA did not transfer the shares, and several years later the shares were converted into stock in a different company, dramatically increasing their value.

¶2 A fee dispute between Grimmer and NRLA ensued, and the matter went to arbitration. The parties’ engagement agreement provided that in any arbitration, the rights and obligations of the parties would be "resolved in accordance with the then-prevailing law of the State of Utah, including the Utah Rules of Professional Conduct." NRLA argued that the present value of the shares constituted an unreasonable fee, in part because the fee violated the Utah Rules of Professional Conduct. Both parties provided expert testimony regarding the reasonableness of the fee, including under the Utah Rules of Professional Conduct. The arbitrator then issued an award in Grimmer’s favor. She concluded that the Utah Rules of Professional Conduct "do not provide the decisional criteria for determining the reasonableness of attorney[ ] fees in civil litigation" and "do not control in this litigation." She also concluded that the contested fee was reasonable because it was reasonable when NRLA obtained the stock and "[o]nly NRLA’s continuing breach [of the engagement agreement] prevented Grimmer from receiving its fee then."

¶3 Grimmer filed a petition in the district court for an order confirming the arbitration award, and NRLA moved for an order vacating the award. NRLA argued that the arbitrator had exceeded her authority and had refused to consider material evidence. The district court determined that the arbitrator had done neither and confirmed the arbitration award. Grimmer then sought an award of its fees and expenses incurred in the district court proceedings, and the court denied that petition. NRLA now appeals the court’s decision confirming the arbitration award, and Grimmer cross-appeals the district court’s denial of its petition for fees. We affirm in both respects.

BACKGROUND

¶4 In 2005, NRLA invested $2,000,000 in Paradigm Group, LC (Paradigm), receiving in return a 7% interest in the company. In 2012, after NRLA "became concerned that it would be unable to recover its investment … due to ongoing financial instability in Paradigm," NRLA retained Grimmer to "attempt[ ] to recover the two-million-dollar investment NRLA had made to Paradigm." NRLA met with Grimmer and developed "a strategy to recover assets from Paradigm"— assets that potentially included stock in a company called Galileo—"in order to make NRLA whole."

The Engagement Agreement

¶5 Rob and Nedra McKell, a married couple, were members and, in turns, the managers of NRLA. Nedra was the manager of NRLA until 2020; Rob was the manager thereafter. In February 2014, the McKells (individually) and NRLA (as an entity) together entered into an engagement agreement (the Engagement Agreement) with Grimmer. The Engagement Agreement outlined the terms of Grimmer’s representation of NRLA against Paradigm. The Engagement Agreement also outlined the terms of Grimmer’s representation of one or both of the McKells in two separate matters, including one in which the McKells anticipated filing a bar complaint and malpractice action against their former attorney.

¶6 As set forth in the Engagement Agreement, Grimmer agreed to represent NRLA under a hybrid fee arrangement involving a reduced hourly rate and a contingency fee:

We have agreed that we will bill and collect a reduced/deferred rate which include[s] a contingent fee interest in the outcome of the case. … Our reduced or deferred rate is coupled with a contingent fee percentage owed upon the successful recovery of funds from the opposing party

….

¶7 The Engagement Agreement contained the following "Dispute Resolution" provision:

Any dispute arising out of, in connection with, or in relation to the interpretation, performance or breach of this agreement—including any claim of legal malpractice (or similar claim) and any claim involving fees or expenses—shall be resolved by final and binding arbitration conducted in Utah County, Utah, administered by and in accordance with the Utah Uniform Arbitration Act, and any judgment upon any award rendered by the arbitrator may be entered by any state or federal court having jurisdiction to do so.

[NRLA] further acknowledges that, by so agreeing, [NRLA] waives the right to a jury trial. [NRLA] also acknowledges that arbitration provides only limited discovery and that courts will enforce an award in arbitration without reviewing it for errors of fact or law.

¶8 The Engagement Agreement also contained the following "Choice of Law" provision:

In any proceeding (whether in arbitration, in court, or in any other tribunal), all questions concerning the rights and obligations of [NRLA] and [Grimmer] under this agreement that are determined to be governed by the law of a state shall be resolved in accordance with the then-prevailing law of the State of Utah, including the Utah Rules of Professional Conduct.

The Settlement and Subsequent Changes in Stock Value

¶9 NRLA ultimately settled its lawsuit against Paradigm for 250,000 shares of Galileo stock, which it received in May 2015. According to Grimmer, it became entitled at that time to 37,500 shares of Galileo stock, representing 15% (the agreed-upon percentage under the contingency fee agreement) of the shares NRLA received in the settlement. The value of the stock at that time was less than two dollars per share.

¶10 The arbitrator who was later selected to resolve the fee dispute (the Arbitrator) found that "Grimmer made several attempts to collect its fee from NRLA," including by meeting with NRLA in June 2015, during which meeting Grimmer "discussed the need to transfer shares to pay [its] contingency fee," and by further discussing the matter with NRLA in August and October of that year. The Arbitrator further found that at some point in 2015, NRLA "requested additional time to make arrangements to transfer the stock, due to other legal matters that consumed [its] time and attention"; in June 2016, Grimmer "sent a letter … seeking to collect the stock"; in November 2017, Grimmer "sent a certified letter … seeking to effect a stock transfer"; in 2017 and 2018, Grimmer "contacted other attorneys who represented the McKells[ ] to solicit their help in obtaining the stock"; and in November 2020, Grimmer "sent a final letter." "Notably," the Arbitrator found that "at no time [during these years] did ... NRLA contest Grimmer’s right to receive the shares."

¶11 Between 2020 and 2021, Galileo was acquired by another company, Social Finance Inc. (SoFi). As a result, in exchange for its Galileo stock, NRLA received a combination of cash and 1,263,922 SoFi shares. The value of the SoFi shares was significantly higher than the previous value of the Galileo stock.

Grimmer’s Arbitration Claim

¶12 In February 2021, Grimmer commenced arbitration against NRLA, asserting a single claim for breach of contract. Grimmer contended that it was entitled to "the consideration received by NRLA when it converted [Grimmer’s] 37,500 contingency shares [in Galileo] during the acquisition [of Galileo by SoFi], namely, $600,208.48 and 188,426.4 [SoFi shares], plus interest." NRLA responded by arguing, among other things, that Grimmer’s claim was "barred, in whole or in part, as the requested fee is unreasonable or otherwise violates rule 1.5 of the Utah Rules of Profession[al] Conduct and related legal standards for the reasonableness of attorney fees."

¶13 The Arbitrator received briefing and evidence from the parties. The evidence included expert testimony from both sides regarding rules 1.5(a), 1.5(c), and 1.8 of the Utah Rules of Professional Conduct. See generally Utah R. Prof’l Conduct 1.5(a) (stating that "[a] lawyer shall not make an agreement for, charge, or collect an unreasonable fee" and providing "factors to be considered in determining the reasonableness of a fee"); id. R. 1.5(c) (stating that "[u]pon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement" showing, if there is a recovery, "the remittance to the client and the method of its determination"); id. R. 1.8 (stating that "[a] lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client" unless certain conditions are met).

¶14 The parties’ experts also opined about the reasonableness of the fee Grimmer alleged it was owed. In the words of the Arbitrator, "neither expert took issue with the reasonableness of the fee if it had been paid when the case concluded in May 2015." Grimmer’s expert "testified that [the] fee is reasonable today [as well], regardless of value, because it was earned by [Grimmer] in May 2015" and "[a]ny subsequent increase in [the] value of the shares cannot alter, after the fact, [Grimmer’s] right to [the] fee." NRLA’s expert, on the other hand, "opined that the value of the stock today makes the fee unreasonable, because the value and...