Free Reply - District Court of Colorado - Colorado

Case 1:04-cv-00438-JLK-MEH

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-cv-0438-PSF-OES TIMOTHY C. HOILES, Plaintiff and Counterclaim Defendant, v. JOSEPH M. ALIOTO, Defendant and Counterclaim Plaintiff. PLAINTIFF AND COUNTERCLAIM DEFENDANT TIMOTHY C. HOILES'S REPLY TO THE MEMORANDUM OF JOSEPH M. ALIOTO RE: IDENTIFIED ISSUES Plaintiff and Counterclaim Defendant Timothy C. Hoiles ("Hoiles") files this Reply to the Memorandum of Joseph M. Alioto Re: Identified Issues. I. "NO HARM, NO FOUL" Alioto's cavalier "no harm, no foul" construction of Chapter 23.3 must be rejected. If Alioto's argument were adopted, "an attorney would, in effect, no longer be required to comply with Chapter 23.3 in order to recover a contingent fee." Fasing v. LaFond, 944 P.2d 608, 612 (Colo.App. 1997). Alioto's claim that causation is not required possibly is more troubling. Put simply, Alioto's position before this Court is that he does not have to follow Colorado law (Chapter 23.3) and he does not have to recover anything for his client (causation) to receive a contingent fee he claims is at least $21,293,170.00 and possibly more than $28,400,000.00. Such overreaching and intellectually inconsistent arguments from an attorney, if nothing else, point up precisely why the Colorado Supreme Court recognized the need for strict requirements

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for contingency fee agreements and why those requirements are carefully regulated by Colorado courts. II. WHY ARE STRICT REQUIREMENTS NECESSARY? Chapter 23.3 and its strict requirements are necessary and must exist. Alioto's chameleonic interpretations of the Fee Agreement support this conclusion. Chapter 23.3 was enacted to protect the client, not to give an attorney leverage in fee disputes. A Colorado court has explained that: [O]ne of the principal purposes of the rules respecting contingency fee agreements is to assure that a client is fully advised at the time such agreement is executed of all of the financial obligations that such client is assuming by the establishment of the attorney client relationship. Elliott v. Joyce, 857 P.2d 549, 552 (Colo.App. 1993), aff'd, 889 P.2d 43 (Colo. 1994) (emphasis added). Alioto's varying interpretations and constructions of the language and terms he used in his Fee Agreement compel the conclusion that it does not comply substantially with all of the provisions of Chapter 23.3 and is unenforceable under the Rule 6 sanctions. Summarized briefly, Alioto has made, and so far as is known to Hoiles still makes, the following claims under the terms he used in his Fee Agreement: 1. Alioto claims the Fee Agreement covered his representation of Hoiles, Gail Sanchez, Jill Hoiles and Elizabeth Davison (and possibly an entity called Hoiles et Filles) directly as clients; 2. Alioto claims the Fee Agreement was intended to name Hoiles as an agent who represented Gail Sanchez, Jill Hoiles and Elizabeth Davison;

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3. Alioto claims the Fee Agreement describes a minimum contingent fee of 15% of all monies received by Hoiles, Gail Sanchez, Jill Hoiles and Elizabeth Davison, regardless of source (e.g., sale of Freedom stock, sale of partnership interests, or otherwise); 4. Alioto claims the Fee Agreement was not an integrated contract and he is entitled to a contingent fee of 20% from Hoiles, because of an oral modification of the Fee Agreement, but if Hoiles denies that modification occurred, Alioto will not pursue the 20% claim (Hoiles has denied it, but it is likely Alioto will not abandon the claim as stated in his depositions); 5. Alioto uses the Fee Agreement language he claims substantially complies with

Chapter 23.3 to claim he is entitled to a contingent fee of 25% under the Fee Agreement, because this litigation between Hoiles and Alioto in this Federal Court triggered the provision in the Fee Agreement that raised the percentage if Alioto filed a complaint and commenced trial; 6. Alioto claims his language in the Fee Agreement entitles him to collect his percentage contingent fee entirely from Hoiles (whether 15%, 20%, 25% or 40%) based on 667,000 Freedom shares, because that was the number of shares owned by Hoiles, his former wife and two daughters; 7. Alioto argues he is entitled to an attorney's fee lien based on his Fee Agreement contingent fee claims against one of Hoiles's trusts, even though he never disclosed or discussed the possibility of a lien with Hoiles and never represented the trust; 8. Alioto claims the right to recover a fee of at least 30% (in excess of $40,000,000.00) under quantum meruit as a reasonable fee, even though he promised Hoiles in the Fee Agreement that a "reasonable" fee of $1000.00 per hour (with the undisclosed intention of never keeping his

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time) would be charged for Alioto's time if Hoiles withdrew as his client or refused an Aliotorecommended settlement; 9. Alioto claims the language he used in the Fee Agreement entitles him to recover a contingent fee even if he did not cause any recovery for client(s), because Alioto earned the contingent fee in its entirety simply by performing legal services, the only action on his part required by the Fee Agreement he drafted; 10. Alioto is entitled to recover a contingent fee only if he caused Hoiles's recovery; 11. Alioto says his term "anything recovered" in the Fee Agreement does not require him to obtain a settlement or judgment for Hoiles; i.e., Alioto does not have to "recover" anything for Hoiles; 12. Alioto's claims his terms "Freedom Communications matter" and "anything

recovered," when read together in his Fee Agreement, mean achieving liquidity of Hoiles's, Mrs. Davison's, Mrs. Sanchez, and Miss Hoiles's Freedom stock, even though the terms "liquidity," "Freedom stock," or a reference to shares or number of shares and ownership of shares do not appear in the Fee Agreement; 13. Alioto claims the Fee Agreement is not ambiguous; 14. Alioto also claims the Fee Agreement requires parol evidence to explain Alioto's intended true meaning, Hoiles's true understandings, Alioto's assumptions about Hoiles's understandings and the various ways in which the contract should or could be enforced by the Court; and 15. Alioto also argues the Fee Agreement entitles him to a contingent fee even if it does not substantially comply with Colorado law, because of matters Alioto maintains he reasonably

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assumed Hoiles understood even though they were not included in the written contract and even though they may have been material and may not have actually been understood or anticipated by Hoiles. These changing, inconsistent interpretations and alternative recovery theories are claimed to be based on the same terms of the Fee Agreement and consequently reveal the fatal, fundamental defects in the Fee Agreement.1 The Fee Agreement is perhaps the perfect law school exam example for the reason Chapter 23.3 exists and why its rules must be followed and enforced to require attorneys to act in ways that will inspire public trust and to protect the client from these very uncertainties and omissions. III. SUBSTANTIAL COMPLIANCE Alioto has failed to cite the Court to any authority that gives meaning to the term "substantial compliance" as used in Rule 6. He instead directs the Court to two lines of cases-cases dealing with the construction of statutes passed by the Colorado Legislature and cases dealing with substantial performance under a contract--that are not applicable for three reasons. First, and most obviously, they do not apply to Chapter 23.3. Second, Chapter 23.3 consists of rules adopted by the Colorado Supreme Court, not the Colorado Legislature. Finally, the

doctrine of substantial performance under a contract has nothing to do with whether the attorney substantially complied with all of the provisions of Chapter 23.3 at the onset of the attorneyclient relationship. In other words, the end result does not justify failure to comply with Chapter 23.3. See, e.g., Mullens v. Hansel-Henderson, 65 P.3d 992 (Colo. 2002) (attorney recovered

A Federal District Court recently declared a contingent fee agreement unenforceable based in part upon an attorney's varying interpretations of it. See USPS v. Haselrig Constr. Co., 349 F.Supp.2d 955 (D.Md. 2004).

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settlement, but failure to substantially comply with Chapter 23.3 prohibited contingent fee recovery); Fasing v. LaFond, 944 P.2d 608 (Colo.App. 1997) (same); Beeson v. Indus. Claim Appeals Office, 942 P.2d 1314 (Colo.App. 1997) (same). Hoiles is unaware of any Colorado case where a court has enforced a written contingent fee agreement that did not substantially comply with all of the provisions of Chapter 23.3. IV. PAROL EVIDENCE IS INADMISSIBLE ON THE SUBSTANTIAL COMPLIANCE ISSUE Alioto's request for the admission of parol evidence on his alleged performance under the contract on the substantial compliance issue is totally misplaced. It is little more than a sophistry to persuade the Court to ignore Colorado law under his "no harm, no foul" position. His argument is fundamentally flawed on this simple basis: if terms are not in the Fee Agreement, then any agreement or operative understanding concerning those terms must be, by definition, an oral agreement (or an agreement not in writing), assuming any agreement exists. Any and all oral agreements plainly are not enforceable as contingent fee agreements and are not in compliance with Colorado law. It is well established that Colorado case law and Chapter 23.3 "require clear written statements of the fee arrangements between the attorney and the client early in the relationship." Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 448 (Colo. 2000). This reflects Colorado's policy to protect the public by carefully regulating contingent fee agreements to assure that a client is fully advised of all the financial obligations he is assuming by entering such a relationship. See Mullens v. Hansel-Henderson, 39 P.3d 1200, 1202 (Colo.App. 2001), rev'd on other grounds, 65 P.3d 992 (Colo. 2002); Elliot v. Joyce, 857 P.2d 549, 552 (Colo.App. 1993),

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aff'd, 889 P.2d 43 (Colo. 1994). To allow parol evidence to "explain" or "supplement" the Fee Agreement obviously thwarts that policy. Alioto hints that substantial compliance with Chapter 23.3 is not necessary if the Court entertains extrinsic evidence (including parol evidence) showing Hoiles hired Alioto to obtain liquidity for Hoiles's Freedom stock and that such an event occurred.2 The Colorado case Fasing v. LaFond, 944 P.2d 608 (Colo.App. 1997) rejects this tactic. In that case, an attorney obtained a settlement for his client (who also was an attorney), but the client had never signed the written contingent fee agreement prepared by the attorney. Id. at 610. In seeking a

contingent fee, the attorney argued that the court should not apply Chapter 23.3, because the client's representations led him to believe a contingent fee contract was in place. Id. at 612. The court dismissed this estoppel argument and stated that Chapter 23.3 "allow[s] for no exception for instances in which, as alleged here, an attorney does not comply with the requirements of the rules but simply relies on the client's representation." Id. (emphasis added). Otherwise, "an attorney would, in effect, no longer be required to comply with the rules in order to recover a contingent fee." Id. The court's rationale in Fasing is compelling here. This Court must rely

solely on the Fee Agreement to determine whether it substantially complies with all of the provisions of Chapter 23.3. It does not. Parol (oral contract) evidence simply defeats the purpose of Chapter 23.3.

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Of course, Alioto did not include the terms "liquidity" or "stock" in the Fee Agreement.

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V. PAROL EVIDENCE IS ADMISSIBLE ONLY IF THE COURT DETERMINES THE FEE AGREEMENT IS AMBIGUOUS Alioto's argument that parol evidence should be considered by the Court to determine ambiguity is also misplaced. In fact, it is backwards and renders the parol evidence rule

meaningless. To begin with, a court must first determine ambiguity as a matter of law without the aid of parol evidence. See KN Energy, Inc. v. Great Western Sugar Co., 698 P.2d 769 (Colo. 1985), cert. denied, 472 U.S. 1022 (1985). Determining whether an ambiguity exists requires a court to examine the four corners of the agreement and construe it in harmony with the plain and generally accepted meaning of the words used, and reference must be made to all the agreement's provisions. Fibreglas Fabricators, Inc. v Klyberg, 799 P.2d 371, 374 (Colo. 1990).3 Once, and only if, a court determines there is an ambiguity, then parol evidence may be admitted to prove the parties' intent and understanding.4 See USI Properties East, Inc. v. Simpson, 938 P.2d 168, 173 (Colo. 1997). In that scenario, the interpretation of any ambiguous terms is an issue of fact for the jury to decide in the same manner as other factual issues. Heller v. LextonAncira Real Estate Fund, 809 P.2d 1016, 1026 (Colo.App. 1990) (citing Pepcol Mfg. Co. v. Denver Union Corp., 687 P.2d 1310 (Colo. 1984)). VI. ALIOTO MUST PROVE CAUSATION Alioto's position that he need not prove causation to collect a contingent fee under his Fee Agreement is unsupported in law. It is a backfire argument that actually supports the

A contract term is ambiguous only if it is fairly susceptible to more than one interpretation. Id. The incredible number of alternative interpretations Alioto has given his own contract come to mind. Parol evidence is a type of extrinsic evidence that explains or supplements the terms of an ambiguous agreement. Cheyenne Mountain School Dist. No. 12 v. Thompson, 861 P.2d 711, 715 (Colo. 1993).
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conclusion that the Fee Agreement is unconscionable, unreasonable, and unfair.

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surprisingly, Alioto has never cited the Court to a single case (in Colorado or elsewhere) where an attorney received a contingent fee without proving that he caused a recovery for his client in the form of a settlement or judgment. Hoiles too is unaware of any such cases. Ironically, Alioto's arguments on this issue are actually an admission that the Fee Agreement (and his fee demand) violates Rule 3(d) and Rule 5(d). A contingent fee agreement that permits an attorney to collect a contingent fee that is not "indicative of the time, labor, and skill" invested by the attorney is plainly unconscionable, unreasonable and unfair. See People v. Nutt, 696 P.2d 242 (Colo. 1984); Brillhart v. Hudson, 455 P.2d 878 (Colo. 1969). Likewise, the Colorado Supreme Court has expressly held that if an attorney is going to collect a fee from a client other than from a settlement or a judgment, the contingent fee agreement must expressly set forth the basis for that fee. Mullens v. Hansel-Henderson, 65 P.3d 992, 996 (Colo. 2002) (explaining that "[i]f the client is to be required to pay the attorney from monies not obtained for the client by the attorney through settlement or judgment, the fee agreement must contain a statement giving the client notice of such a possibility.") (emphasis added); see also Rule 5(d). VII. A JURY MUST DECIDE NUMEROUS FACT ISSUES Alioto argues that if the Court determines the Fee Agreement substantially complies with Chapter 23.3, all of the remaining fact issues in the case would be for the Court. Alioto's argument that the only remaining fact issue would be whether the contingent fee would include the values of the stock redeemed by Mrs. Davison, Gail Sanchez and Jill Hoiles is made without explanation or support. In fact, Alioto confuses, once again, the concepts of substantial

compliance and substantial performance. Even in the unlikely event that the Court were to find

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the Fee Agreement substantially complied with Colorado's laws, many issues for the jury would remain, beginning with whether or not Alioto actually performed under the written agreement. Issues regarding expenses, lawyers billed as experts, the percentages to be applied, the occurrence of the contingency and other facts issues would be for the jury and not the Court. Respectfully submitted this 27th day of June, 2005.

/s/ E. Glen Johnson, Esq. E. Glen Johnson [email protected] Bart A. Rue [email protected] Frank P. Greenhaw IV [email protected] Kelly, Hart & Hallman, P.C. 201 Main Street, Suite 2500 Fort Worth, Texas 76102 (817) 332-2500 and Kenneth B. Siegel [email protected] William T. Hankinson [email protected] Katherine D. Varholak [email protected] Sherman & Howard, L.L.C. 633 17th Street, Suite 3000 Denver, Colorado 80202 (303) 297-2900 Attorneys for Plaintiff Timothy C. Hoiles

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CERTIFICATE OF SERVICE I hereby certify that on June 27, 2005, a true and correct copy of the foregoing Reply was served to: Ian L. Saffer [email protected] Scott Levin [email protected] Daniel R. Shulman [email protected] I hereby certify that I have served the foregoing to the following non-CM/ECF participants by e-mail: Maxwell M. Blecher John E. Andrews Blecher & Collins, P.C. 611 West Sixth Street, 20th Floor Los Angeles CA 90017-3120 [email protected] [email protected] /s/ Linda Erickson

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