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Court of Special Appeals overturns verdict in Chapman fee fight

In a fee dispute between prominent attorneys, a Maryland appeals court Tuesday overturned a $200,000 unjust-enrichment award to the law firm of Nathaniel E. Jones Jr., a Baltimore lawyer who served as behind-the-scenes co-counsel to the defense team for now-imprisoned investment manager Nathan A. Chapman Jr.

The Court of Special Appeals said Chapman was the only one enriched by the purported joint-defense agreement between Jones, of Jones & Associates PC, and William R. “Billy” Martin, then of Blank Rome LLP in Washington, D.C.

The court, in deciding for Blank Rome over Jones & Associates, added that unjust enrichment awards are “rarely appropriate” in professional-services disputes, where the parties — in this case, two law firms — know the importance of agreeing on compensation before services are rendered to avoid fee disagreements afterward.

“We believe this vindicates the firm,” said Patrick O. Cavanaugh, a partner and chief administrative officer at Blank Rome, when told of the court’s unreported decision.

The decision was also a victory for Baltimore City State’s Attorney-elect Gregg L. Bernstein, who argued Blank Rome’s case at trial and on appeal.

“It’s extremely gratifying,” Bernstein said of his win.

“There was no evidence of a benefit conferred” that could warrant unjust enrichment, added Bernstein, who represented the firm while with Zuckerman Spaeder LLP in Baltimore and will be sworn in Jan. 3.

The fee dispute centered on Jones’ contention that he and Martin — Chapman’s lead defense attorney — had an oral contract under which Jones provided critical business-law expertise for Chapman’s defense against fraud charges.

Blank Rome countered that Martin had made no such agreement with Jones. An experienced business lawyer, such as Jones, would have insisted on a written contract spelling out compensation, Bernstein argued at trial.

A Baltimore City Circuit Court jury in January 2009 sided with Jones and awarded his firm $200,312.14 in compensation for unpaid services to Blank Rome. The jury rejected Jones’ argument that Blank Rome had breached a contract, but accepted his claim that the D.C. firm had been enriched by his assistance and that its failure to compensate him for the help was unjust.

But the Court of Special Appeals, in overturning the verdict, said it was not Blank Rome who sought “enrichment” through the arrangement.

“Chapman was the one who contacted Blank Rome to request that the firm ask for assistance from Jones,” Judge Robert A. Zarnoch wrote for the court.

“And what defense attorney would turn down help under an apparent joint defense agreement while in the midst of a high profile federal criminal trial,” Zarnoch added. “It is … clear to us that the beneficiary was Chapman because it was ultimately his defense that would have been bolstered by the additional support from Jones.”

The court also said Jones, a lawyer, presumably knew that service contracts must specify the compensation to be paid, particularly because the recipient receives “a non-cash benefit.”

“The parties here were certainly in a position to bargain for legal services, and as Jones & Associates points out, they did in fact bargain,” Zarnoch wrote. “The two firms did not come to an agreement about any kind of payment for services, yet, Jones & Associates conferred a non-cash benefit by assisting in Chapman’s defense. Due to the non-cash nature of the benefit and the parties’ failed bargaining, we need not have any ‘special sympathy’ for Jones & Associates.”

Neither Jones nor James H. Fields, a Jones associate who argued the firm’s case at trial and on appeal, returned telephone messages seeking comment on the decision.

Martin, who was not a party to Jones & Associates’ lawsuit against Blank Rome, also did not return telephone messages. Martin, now with Howrey LLP in Washington, D.C., is the lead defense attorney for former Prince George’s County Executive Jack B. Johnson, who faces federal public corruption charges.

Judges Deborah S. Eyler and Christopher B. Kehoe joined Zarnoch’s opinion.

During Chapman’s 2004 trial, prosecutors said he told his deputies to invest state pension money in the initial public offering of his online financial services company, eChapman Inc.

A U.S. District Court jury in Baltimore found Chapman guilty of 23 counts of fraud. U.S. District Judge William D. Quarles Jr. sentenced Chapman to 7½ years in prison and ordered him to pay more than $5 million in restitution.

Chapman, whose sentence was later reduced to 5¼ years, testified by video deposition on Jones’ behalf at the civil trial.

His projected release date from prison is Dec. 31, 2011, according to the Federal Bureau of Prisons’ website.

The Court of Special Appeals’ unreported opinion is available as RecordFax# 10-1221-01