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Complete Logistical Services, LLC v. Rulh

United States District Court, E.D. Louisiana

February 11, 2019


         SECTION "L" (5)

          ORDER & REASONS

          Eldon E. Fallon, U.S. District Court Judge

         Before the Court is Defendant Donald Rulh's Objection to Magistrate Judge North's Order granting a Motion to Intervene filed by Movant Fowler Rodriguez, LLC (“Fowler Rodriguez”). R. Doc. 165. Movant has filed a response memorandum, R. Doc. 167, to which Defendant has filed a reply, R. Doc. 170.

         I. BACKGROUND

         In the underlying action, Plaintiff Complete Logistical Services, LLC (“CLS”), a Louisiana LLC that provides contract labor to various marine industries, brings claims against Defendants Donald Rulh, Arnold Baker, Morris Kahn, Michelle Elwell, and Shawana Harris, alleging its former member, Defendant Rulh, breached his fiduciary duties to CLS, misappropriated CLS' assets, damaged CLS' image, and took confidential and proprietary information after he was removed from the LLC by its remaining members. R. Doc. 98 at 1-3. Based on these allegations, CLS brings claims against Defendants for violations of the Defend Trade Secrets Act (“DTSA”); Louisiana Uniform Trade Secrets Act (“LUTSA”); Computer Fraud and Abuse Act (“CFA”); and for unjust enrichment; breach of fiduciary duties, duty of loyalty, and duty of due care; conversion; conspiracy; and fraud. Id. at 3. CLS also seeks injunctive relief in the form of a declaratory judgment. Id. at 4.

         On May 7, 2018, Defendants answered the complaint and filed counterclaims against CLS and a third-party complaint against CLS members Spencer Sens and Natchez Morice, III. R. Doc. 30. In their counterclaim, Defendants claim CLS wrongfully seized information from them in violation of the Defend Trade Secrets Act and the Louisiana Unfair Trade Practices Act (“LUTPA”). Additionally, Mr. Rulh brings claims against CLS for breach of fiduciary duties and due care, breach of contract, unjust enrichment, conversion, and derivative action. Mr. Rulh also seeks an accounting of CLS. R. Doc. 30 at 18-24. On June 25, 2018, Plaintiff moved to dismiss Defendants' counterclaims, which the Court granted in part, dismissing Defendants' LUTPA claim and Defendant Rulh's claims for unjust enrichment, conversion, and derivative action. R. Doc. 93.

         Up until this point in the litigation, Defendants were represented by Movant, Fowler Rodriguez. On August 10, 2018, however, Defendant Rulh filed a motion to substitute Randall Smith and Geoffrey Ormsby as counsel of record in place of Fowler Rodriguez, which the Court granted on August 13, 2018. R. Docs. 86, 89. On September 19, 2018, Fowler Rodriguez moved to withdraw as counsel for the remaining Defendants, which the Court granted on September 21, 2018. R. Docs. 106, 107.


         On November 26, 2018, Fowler Rodriguez filed a motion seeking to intervene in the case, alleging Mr. Rulh had terminated the firm as counsel without paying any of the legal fees it had incurred. R. Doc. 144. In its motion to intervene, Fowler Rodriguez contends it held a contract with Mr. Rulh, pursuant to which Fowler Rodriguez would be paid attorney's fees on an hourly basis. Id. In filing its motion, Fowler Rodriguez seeks to recover its hourly fees from any monies awarded to Mr. Rulh based on his counterclaims against CLS. Id. The motion was referred to Magistrate Judge North who granted the motion following oral argument on December 14, 2018. R. Doc. 163. On December 27, 2018, Mr. Rulh objected to Judge North's decision, which is now before the Court. R. Doc. 165.

         In his objection, Mr. Rulh argues Judge North's order is contrary to law, as Fowler Rodriguez has failed to meet the standard for intervention as a matter of right, nor has it met the standard for permissive intervention. Id. at 2. Mr. Rulh argues that, because Fowler Rodriguez's interest in hourly attorney's fees is unrelated to the underlying cause of action-namely the alleged misappropriation of trade secrets-Fowler Rodriguez may not intervene in this action. Id. at 6. In support of his argument, Mr. Rulh points to Premier, Inc. v. Commercial Underwriters Insurance Co., No. 02-3199, 2004 WL 32918 (E.D. La. Jan. 5, 2004), in which the court distinguished between contingency fee-based payment arrangements and hourly fee-based payments, concluding that, although the former entitles a discharged attorney to intervene as a matter of right, the latter does not. Id. at *3. Thus, Mr. Rulh contends, Judge North's order allowing Fowler Rodriguez to intervene based on an hourly fee contract is contrary to Premier and its progeny and therefore must be overturned.

         In opposition, Fowler Rodriguez first argues Premier is not in conflict with State Farm Fire & Casualty Co. v. Black & Decker, Inc., No. 02-CV-1154, 2003 WL 22966373 (E.D. La. Dec. 10, 2003), the case upon which Judge North based his order granting Fowler Rodriguez's intervention. R. Doc. 167 at 4; see R. Doc. 163 at 1. It contends Premier and Black & Decker both “stand[] for the assertion that attorneys who claim an interest should be allowed to intervene under Rule 24(a) to attempt to prove that interest, ” and that “[i]n Premiere, the court found that the attorney had failed to prove that interest.” Id. Thus, according to Fowler Rodriguez, Judge North's order is not contrary to law, as “[t]he gist of Magistrate Judge North's ruling was that Fowler Rodriguez should at least be given the opportunity to prove that it has a protectable interest, and that it should be allowed to intervene and attempt to prove its interest at this stage in the litigation.” Id. Next, Fowler Rodriguez argues it has alleged an interest in the underlying litigation “because it shares with the main action a common question of law or fact. Namely, [whether] Donald Rulh, Jr. [is] entitled to recover against Complete Logistical Services, LLC.” Id. at 6. Finally, Fowler Rodriguez emphasizes that “[t]he standard of review to overturn a [magistrate judge's] decision . . . is extremely high, ” and argues that, even though Judge North rejected its assertion, Fowler Rodriguez maintains “it has the right to the funds under La. R.S. § 37:218 and/or La. R.S. § 9:5001 because its hourly fees were ‘fixed.'” Id. at 5-6.

         In reply, Mr. Rulh disputes whether Premiere and Black & Decker do not conflict, noting that “[t]he inquiry surrounding a former counsel's right to intervene has always centered on the nature of the fee agreement, ” not whether the intervener has simply alleged an interest in the underlying litigation. R. Doc. 170 at 3. Mr. Rulh also addresses whether an hourly-based fee can ever be considered a “fixed” fee, pointing to Gupta v. Merrill Lynch, No. 12-1787, 2016 WL 9582819, at *1 (E.D. La. Sept. 30, 2016), in which this court “soundly rejected” that argument, stating, “Fees paid on an hourly basis are by their nature neither fixed nor contingent.” R. Doc. 170 at 4 (quoting Gupta, 2016 WL 9582819, at *1).


         Federal Rule of Civil Procedure 72(a) provides that a district judge must review a magistrate judge's decision on a non-dispositive motion and “modify or set aside any part of the order that is clearly erroneous or is contrary to law.” Fed.R.Civ.P. 72(a); Black & Decker, 2003 WL 22966373, at *1. “A finding is clearly erroneous if it is without substantial evidence to support it, the court misinterpreted the effect of the evidence, or [the reviewing] court is convinced that the findings are against the preponderance of credible testimony.” Bd. of Trs. New Orleans Employers Intern. Longshoremen's Ass'n v. Gabriel, Roeder, Smith & Co., 529 F.3d 506, 509 (5th Cir. 2008). “A magistrate judge's decision is contrary to law if it applies an incorrect legal standard, fails to consider an element of the applicable standard, or fails to apply or misapplies relevant statutes, case ...

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