FINDINGS OF FACT, CONCLUSIONS OF LAW, ORDER, AND JUDGMENT. I. Background

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1 DISTRICT COURT CITY & COUNTY OF DENVER, COLORADO 1437 Bannock Street Denver, Colorado DATE FILED: October 28, :41 AM CASE NUMBER: 2014CV33588 Plaintiff: MESSNER & REEVES, LLP, v. Defendants: PATRICK IMESON; 4636 INVESTORS, LLC; ELKHORN GOLDFIELDS, INC.; ELKHORN GOLDFIELDS, LLC; and BLACK DIAMOND FINANCIAL GROUP, LLC. COURT USE ONLY Case Number: 2014CV33588 Courtroom: 414 FINDINGS OF FACT, CONCLUSIONS OF LAW, ORDER, AND JUDGMENT This matter came before the Court for a bench trial on October 5, Plaintiff Messner & Reeves, LLP appeared through counsel, Marc Levy. Defendants appeared through their counsel Christopher Kamper. The Court, having considered the evidence presented at trial, the argument of the parties, and relevant legal authority, makes the following findings of fact, conclusions of law, order, and judgment. I. Background Messner & Reeves is a Colorado-based law firm. Defendant Patrick Imeson is an executive with Defendant Black Diamond Holdings, LLC, a holding company that owns majority interests in a diverse set of companies. Defendant Elkhorn Goldfields, LLC is a company involved in the operation, exploration, and development of mining properties and is one of the companies owned by Black Diamond. Defendants each executed fee agreements with Messner & Reeves during the period 2010 through Messner & Reeves provided Defendants with the legal services requested; however, Defendants failed to pay all amounts billed, precipitating this action. As of the date of trial, Messner & Reeves seek to recover $277,288 from Black Diamond, $8, from Elkhorn Goldfields, and $ from Imeson, which includes 1

2 amounts owed for unpaid legal fees as well as interest and late fees as identified in their fee agreements. 1 Defendants do not dispute that they received legal services from Messner & Reeves or that the services were performed satisfactorily. Defendants do not dispute that the hourly rates charged by Messner & Reeves attorneys were reasonable and in line with the market rates for lawyers of similar background and skill in the Denver metropolitan region. Defendants contend, however, that the hours billed by Messner & Reeves were not reasonable, and that they are entitled to a substantial reduction in Messner & Reeves bills as a result on two grounds: (1) Messner & Reeves billing practices are contrary to State Bar of California Committee on Mandatory Fee Arbitration, Arbitration Advisory (January 29, 2003) (the Fee Advisory ); and (2) additional reductions are warranted based on the factors governing attorney fees in Rule 1.5 of the Colorado Rules of Professional Responsibility. Defendants specifically contend that Messner & Reeves bills are not reasonable because: The bills include entries reflecting time spent of 8.0, 10.0, and 14.0 hours which Defendants contend demonstrates that the bills were padded. The time entries fail to adequately describe the work performed and include standard work descriptions, a lack of detail, and the use of repetitive descriptors such as attention to, rendering them meaningless. The bills include block billing, meaning the inclusion of multiple tasks within a single time entry. Some of the bills were sent to the client in one single bill, five months after the initial work was performed. The bills include brief associate appearances, which Defendants suggest demonstrates that Messner & Reeves assigned unqualified labor to perform the work. Allegedly duplicate time entries appeared in the bills. The three merger transactions that Messner & Reeves worked on for Black Diamond all purportedly failed and were not completed. The legal issues presented were novel and counsel working on the transactions from Messner & Reeves allegedly played only a limited role. Additionally, the deals were largely duplicative according to Defendants suggesting that the work performed was not required. 1 Messner & Reeves initially also sued Defendant 4636 Investors, LLC and Defendant Black Diamond Financial Group, LLC in this action, but voluntarily dismissed these entities without prejudice by way of a notice of dismissal filed November 3, Although both Elkhorn Goldfields, LLC and Elkhorn Goldfields, Inc. were named as Defendants in this action, it appears that Messner & Reeves only seeks to recover from the corporation and not the limited liability company. 2

3 Messner & Reeves lead attorney performing work for Black Diamond purportedly had never attempted the type of transaction that was done. In addition, Defendants claim that by failing to endorse an expert to opine on the reasonableness of their fees, Messner & Reeves did not meet its burden of proof. Defendants also argue that Messner & Reeves failed to mitigate its damages by not asking for a retainer as a condition to commencing work on any transaction, not asking for payment of past invoices in whole or in part before beginning work on the Transnetyx transaction, and not advising the company as to the likely cost and risk of the form of transaction that was selected. Defendants claim that Messner & Reeves knew that Black Diamond and its affiliates were allegedly thinly-capitalized and made no effort to tailor their billing practices or services rendered in light of that information. At trial, the Court heard testimony for Messner & Reeves from Jim Smith (responsible for firm administration), Steve Levine (the Messner & Reeves attorney who was lead counsel for the legal services provided to Defendants), and Patrick Imeson on behalf of Defendant. Defendants also called Levine as a witness. Messner & Reeves Exhibits 1 through 9 were stipulated into evidence. Defendants moved for a directed verdict after the close of Messner & Reeves evidence, which the Court denied. With their motion for directed verdict, Defendants provided a copy of the Fee Advisory as well as their counsel s annotations to Messner & Reeves bills to show where reductions should be made (Exhibits A through F attached to the Motion for Directed Verdict). These documents were not, however, offered or admitted into evidence. II. Findings of Fact 2 1. Messner & Reeves is a law firm located in Denver, Colorado. LLC. 2. Defendant Patrick Imeson is an executive with Black Diamond Holdings, 3. Defendant Elkhorn Goldfields, Inc. is a Montana company with offices located in Denver, Colorado. The company owns and operates mining operations. 4. Defendant Black Diamond Holdings, LLC is a Colorado company with a principal place of business in Denver, Colorado. Black Diamond is a holding company that owns a majority interest in various and diverse companies, including Elkhorn Goldfields. 5. On or about October 21, 2010, Messner & Reeves sent Imeson a fee agreement indicating the terms by which the firm would provide him with legal services. Pl. s Ex. 1. Imeson executed the fee agreement on October 25, 2010 and agreed to the terms (the Imeson Fee Agreement ). 2 All findings of fact and conclusions of law made herein are based on what the Court finds to be a preponderance of the admissible, credible, persuasive evidence. Since the Court sat as the factfinder in this case, in assessing credibility the Court has applied the same standards that jurors are permitted to apply as set forth in CJI-4 th. 3

4 6. The Imeson Fee Agreement indicates that Messner & Reeves was to provide representation on general business matters for Imeson. 7. In executing the Imeson Fee Agreement, Imeson represented that he approved and accepted the terms stated in the October 21, 2010 letter. 8. On or about December 1, 2011, Messner & Reeves sent Elkhorn Goldfields a fee agreement indicating the terms by which the firm would provide it with legal representation (the Elkhorn Goldfields Fee Agreement ). Pl. s Ex. 2. Eric Altman, Chief Executive Officer of Elkhorn Goldfields, executed the fee agreement on March 9, 2012 and in so doing indicated that he was approving and accepting the terms stated in the letter on behalf of the company. 9. The scope of work in the Elkhorn Goldfields Fee Agreement was to assist the company with the reverse-merger of Elkhorn Goldfields and Montana Tunnels Mining, Inc. into Eastern Resources, Inc., and any and all related matters. In connection with this reverse merger transaction, Messner & Reeves was to act as counsel for all of the entities with the legal fees to be paid by Elkhorn Goldfields. 10. On or about July 12, 2012, Messner & Reeves sent Black Diamond a fee agreement indicating the terms by which the firm would provide the company with legal representation (the Black Diamond Fee Agreement ). Pl. s Ex. 3. Eric Altman, Chief Financial Officer of Black Diamond, executed the fee agreement in July 2012 and in so doing indicated that he was approving and accepting the terms stated in the letter on behalf of the company. 11. The scope of the work in the Black Diamond Fee Agreement was to assist with the merger with China VantagePoint Acquisition and related corporate representation. 12. The Imeson Fee Agreement, Elkhorn Goldfields Fee Agreement, and Black Diamond Fee Agreement each indicate that Messner & Reeves would provide monthly statements for services rendered and for expenses incurred on Imeson s behalf. Payments of amounts owed were due 30 days of receipt of each statement from Messner & Reeves. If payment was not made within 60 days of the date billed, Messner & Reeves would bill for interest and late charges from the date of the statement at 1.5% per month (18% per annum) of the amount due. 13. Defendants each admit that they signed their respective fee agreements with Messner & Reeves, that they agreed to be bound by the terms, and that the fee agreements are valid contracts. 14. Messner & Reeves satisfactorily provided all legal services required under the Imeson Fee Agreement, the Black Diamond Fee Agreement, and the Elkhorn Goldfields Fee Agreement. 15. Messner & Reeves invoiced Imeson, Elkhorn Goldfields, and Black Diamond for all services provided and expenses incurred in accordance with the fee agreements executed by each and Defendants received the invoices. 4

5 16. As of the date of trial, Messner & Reeves billed Black Diamond $192, in legal fees and $4, in costs as well as 1.5% simple interest per the Black Diamond Fee Agreement in the amount of $79, for a total amount of $ Pl. s Exs. 4, As of the date of trial, Messner & Reeves billed Elkhorn Goldfields $5, in legal fees and $2, in contract interest, for a total amount of $8, Pl. s Exs. 4, As of the date of trial, Messner & Reeves billed Imeson $ in legal fees and $93.00 in interest, for a total amount of $ Pl. s Exs. 4, Imeson, Black Diamond, and Elkhorn Goldfields admit that they failed to pay amounts billed by Messner & Reeves in accordance with their respective fee agreements. 20. Imeson, Black Diamond, and Elkhorn Goldfields admit that the hourly rates charged by the various Messner & Reeves attorneys providing legal services to them were reasonable. 21. Defendants never complained to Messner & Reeves about the quality of legal services received, or the amounts billed. In fact, Defendants told Messner & Reeves that it had done a good job and that the work of the firm was appreciated. The first time that Defendants raised any question as to the reasonableness of the fees billed was after this litigation was filed. 22. After Messner & Reeves attorney Steven Levine (who was lead counsel for Defendants matters) left the firm, Imeson retained him at his new firm, Husch Blackwell, at a higher hourly rate. 23. The Court found all witnesses testifying on behalf of Messer & Reeves to be credible. Although Imeson, who testified on behalf of Defendants, was credible, the Court notes that he failed to support Defendant s position in this case because he never reviewed the Messner & Reeves bills and provided no testimony supporting the assertion that Messner & Reeves bills were unreasonable or that they should be reduced in any manner. The Court finds that Imeson provided no testimony that went to the substantive issues in this case. A. Jurisdiction and Venue III. Conclusions of Law The Court has jurisdiction over Defendants. Imeson resided in Colorado during all relevant times. Elkhorn Goldfields and Black Diamond both do business in the State of Colorado and Black Diamond has a principal place of business located in Colorado. Venue is proper in Denver County as the contracts at issue in this case were performed in Denver. B. Messner & Reeves Breach of Fee Agreement Claim To recover on a claim for breach of contract a plaintiff must prove: (1) the existence of a contract; (2) performance by the plaintiff; (3) failure to perform the contract by the 5

6 defendant; and (4) resulting damages to the plaintiff. W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992). Additionally, when the breach of contract relates to an agreement for the provision of legal services, the claimant must show that the fees charged were reasonable in establishing damages because there are special considerations inherent in the attorney-client contractual relationship that distinguish the attorney-client relationship from other business relationships. Berra v. Springer & Steinberg, 251 P.3d 567, 571 (Colo. App. 2010). Although Messner & Reeves argued at trial that the firm was entitled to all fees billed and did not have to prove reasonableness, this is contrary to the Rule 1.5 of the Colorado Rules of Professional Conduct which states: [a] lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. C.R.P.C. 1.5(a) (emphasis added). Determining the reasonableness of attorney fees is a question of fact for the trial court. Payan v. Nash Finch Co., 310 P.3d 212, 216 (Colo. App. 2012). A court is to make an initial estimate of a reasonable attorney fee by first calculating the lodestar amount, which is the number of hours reasonably expended multiplied by a reasonable hourly rate. Durbray v. Intertribal Bison Coop., 192 P.3d 604, 608 (Colo. App. 2008). A court s calculation of the lodestar amount carries with it a strong presumption of reasonableness. Payan, 310 P.3d at 217. Once the lodestar has been determined, a court may then adjust the lodestar amount based upon consideration of the factors identified in Rule 1.5 of the Colorado Rules of Professional Conduct including but not limited to the novelty and difficulty of the questions involved, the skill requisite to perform the legal service properly, the amount involved and the results obtained, and the experience, reputation, and ability of the lawyer or lawyers performing the services. Planning Partners Int l, LLC v. QED, Inc., 304 P.3d 562, 568 (Colo. 2013) (citing Rules 1.5(a)(1) through (8) of the Colorado Rules of Professional Responsibility). Only a single issue is in dispute in this action whether the total hours billed by Messner & Reeves to Elkhorn Goldfields and Black Diamond Holdings are reasonable. Defendants admit that the fee agreements are valid contracts and that they agreed to be bound by the terms. Defendants admit that Messner & Reeves satisfactorily performed its obligations under each of the fee agreements, and that Defendants failed to perform their obligation to pay for services rendered. Defendants also admit that the rates charged by Messner & Reeves attorneys on its matters were reasonable and appropriate based on the Denver metropolitan market and the rates charged by attorneys of like skill and experience. Defendants do not dispute that Messner & Reeves suffered some damage as a result of their breach of the fee agreements, but contend, however, that the total damages claimed are unreasonable and should be substantially reduced. Defendants specifically argue that although Messner & Reeves is seeking only $5, in unpaid fees from Elkhorn Goldfields (exclusive of interest), the total fees billed to the company over the course of the firm s engagement was excessive by at least $49, According to Defendants, because the amount Elkhorn Goldfields billed exceeded the amount that Messner & Reeves claims is still owed, Messner & Reeves has not been damaged at all with respect to the fee agreement. Defendants also claim that Messner & Reeves overbilled Black Diamond by at least $109,

7 As an initial matter, Defendants do not dispute that Imeson personally owes Messner & Reeves $ through the date of trial with interest continuing to accrue at the contract rate of 1.5%. Consequently, Messner & Reeves is entitled to judgment in the amount of $ plus interest that is continuing to accrue based on Imeson s admitted breach of the Imeson Fee Agreement. With respect to Elkhorn Goldfields and Black Diamond, the Court finds that Messner & Reeves proved by a preponderance of the evidence that the total hours billed for the work performed was reasonable. On this point, the Court relied most heavily on the testimony of Steven Levine, the Messner & Reeves attorney who served as lead counsel on the work performed for Elkhorn Goldfields and Black Diamond at issue in this case. Levine was responsible for overseeing and performing the work performed for these Defendants and reviewing the bills of all attorneys supporting the clients to ensure that they were accurate. Levine credibly testified that it was Messner & Reeves practice to contemporaneously enter time as work was performed for Defendants. Time was entered accurately, without padding of bills or charging for unnecessary or duplicate work. Time was entered in compliance with the Colorado Rules of Professional Conduct. In reviewing the bills submitted to Defendants, he determined that charges were reasonable and appropriate for the work performed. At the time that the work at issue in this case was performed and at the time of trial, Levine was an experienced attorney specializing in merger and acquisition work, and had sufficient knowledge to testify as to the propriety of all amounts billed. Levine has also worked at several reputable firms in the Denver metropolitan area, and demonstrated at trial that he has familiarity with billing practices. Levine specifically testified that the hours billed were all necessarily incurred in order to provide legal services to Defendants. He testified as to the complexity of the transactions and what he and his colleagues were required to do for Defendants and demonstrated that the total hours billed to both Elkhorn Goldfields and Black Diamond were reasonable. Levine s testimony as to the reasonableness of the total hours billed was supported by the testimony of Jim Smith, the president in charge of administration for Messner & Reeves. Smith testified that he has reviewed not only the bills and fee agreements relating to the work performed for Defendants, but he has reviewed numerous bills sent by Messner & Reeves to clients. Smith further testified that based on his experience and knowledge of the legal market, the total hours charged to Defendants were reasonable. In concluding that total hours billed were reasonable, the Court also finds compelling certain actions and representations by Defendants important. First and foremost, when asked in discovery to identify every billing entry on the invoices provided by Messner & Reeves that Defendants contended was for services that should not have been performed, Defendants failed to identify a single actual entry that they contested. Pl. s Ex. 6. When asked to identify every billing entry that Defendants believed demonstrated that Messner & Reeves had run up fees on a high-risk transaction knowing there was a 7

8 likelihood the transaction would not close through no fault of any of the parties, Defendants again failed to identify a single entry. Pl. s Ex. 6. Second, Defendants never challenged the hours being billed at the time of receipt of invoices from Messner & Reeves, thanked Messner & Reeves for their work, and represented to Messner & Reeves that the firm would be paid. Third, Imeson retained Levine after he left Messner & Reeves, at a higher rate, which indicates that he was pleased with the services that had been provided as well as Levine s qualifications, and had no dispute about the billing practices of Messner & Reeves. Defendants did not challenge the reasonableness of Messner & Reeves bills until this litigation commenced, which suggests to the Court that Defendants position is a litigation tactic only. In response to Messner & Reeves showing at trial that the hours billed were reasonable, Defendants provided no evidence in rebuttal. Rather, Defendants contention that the hours billed to Elkhorn Goldfields and Black Diamond should be reduced was based solely on argument of counsel. Indeed, Defendants sole witness, Imeson, had not reviewed the bills and provided no testimony that supported counsel s arguments. Defendants first contended that Messner & Reeves did not meet its burden because it failed to endorse an expert to opine on the reasonableness of its fees. Contrary to Defendants assertion, the reasonableness of attorney fees is not a subject solely within the province of an expert. The unrebutted testimony of an attorney may be sufficient to support a finding of reasonableness of fees awarded. Roget v. Grand Pontiac, Inc., 5 P.3d 341, 347 (Colo. App. 1999); see also Husband v. Colorado Mountain Cellars, Inc., 867 P.2d 57 (Colo. App. 1993) (finding that the testimony of a plaintiff who was an attorney sufficient to support finding of reasonableness of fees.). Defendants failed to demonstrate that testifying as to the reasonableness of hours billed requires specialized knowledge that only an expert may provide. Messner & Reeves laid sufficient foundation for its witnesses as to their knowledge of billing practices and the reasonableness of bills to allow them to testify without having been qualified as an expert. Defendants then argued that based on the State Bar of California Committee on Mandatory Fee Arbitration, Arbitration Advisory (January 29, 2003) (the Fee Advisory ), which the Payan court found authoritative, the lodestar analysis required that significant reductions be made to the hours charged to Elkhorn Goldfields and Black Diamond. The Court disagrees. Defendants position is based on the errant assumption that if an attorney engages in any of the practices identified in the Fee Advisory, the attorney s bills are per se unreasonable. The Fee Advisory supports no such conclusion (nor does the holding in Payan). The Fee Advisory is nothing more than a set of observations as to possible ways to identify that an attorney has padded his or her bills. The purpose of the paper is to provide ways for an arbitrator charged with resolving an attorney fee dispute to try to identify whether hours have been overstated. It is not binding legal authority and does not support the conclusion that an attorney s bills are necessarily padded if the attorney has engaged in any of the practices identified in the paper. To the extent that Messner & Reeves employed any of the practices that 8

9 the Fee Advisory identifies, Defendants failed to provide any evidence at trial that padding of bills occurred or to rebut Levine s credible testimony as to the reasonableness of the bills. Defendants also contended that in addition to reducing the lodestar amount, the Court should make further deductions to Messner & Reeves hours based on C.R.P.C. 1.5, and, specifically, the amount involved and the results obtained, the novelty and difficulty of questions involved, and the experience, reputation, and ability of lawyers involved. Again, the Court found this assertion wholly unsupported. Defendants argued that because the unpaid invoices pertaining to Black Diamond were for three attempted merger transactions that failed to close, Messner & Reeves bills should be reduced because Black Diamond received no benefit. Defendants failed to provide any evidence that Messner & Reeves should be blamed in any way for the failure of these transactions to close. The evidence at trial demonstrated that these were complex transactions and that the failure of these deals to be fully consummated was based on circumstances that had nothing to do with the quality of the legal services rendered. Imeson testified that he asked Messner & Reeves to do the work. He is a sophisticated business person who has experience in securities transactions that have not closed and he knew going into these deals that there was a risk that they would not be able to be completed. Defendants concede that while the type of transaction that Black Diamond hired Messner & Reeves to assist with was complex, Messner & Reeves did not perform substantive legal work and that the work that they did do was duplicative of work done for another deal. Defendants provided no evidence that Messner & Reeves work was not required on the transactions in question. Defendants also claimed that Levine lacked experience in the transactions that he performed for Black Diamond. Again, this was unsupported by evidence. Levine demonstrated himself to be an experienced attorney knowledgeable of the transaction. Defendants never questioned his competency or the quality of the work that he performed. Finally, Defendants contended that Messner & Reeves failed to mitigate its damages because the firm did not require a retainer, and continued working for them when they had not been paid. The failure to mitigate damages is an affirmative defense that must be proven by a defendant. Martin v. Porak, 638 P.2d 853, 855 (Colo. App. 1981). The affirmative defense fails when a defendant provides no evidence showing that the plaintiff failed to take reasonable steps that would have mitigated the plaintiff s damages. Id. Defendants, here, failed to meet their burden of proving by a preponderance of the evidence that Messner & Reeves failed to mitigate its damages. Defendants provided no authority supporting the contention that an attorney fails to mitigate damages by not requesting a retainer from a client, or that an attorney is ever required to request a retainer. 3 Moreover, Defendants provided no evidence that under the circumstances of this case, there are any actions that Messner & Reeves could have taken that would have mitigated their damages or that their 3 The Court notes that Elkhorn Goldfields did provide an initial retainer to Messner & Reeves. Pl. s Ex. 6. 9

10 damages were aggravated by any actions that they took with respect to Defendants. The undisputed evidence at trial was that Messner & Reeves had a reasonable belief based on what it knew about Defendants as well as Imeson s continuing assurances that it would be paid for its work on the various transactions that Elkhorn Goldfields and Black Diamond were pursuing. IV. Order and Judgment follows: Based on the above findings and conclusions, the Court hereby enters judgment as 1. In favor of Messner & Reeves, LLC and against Patrick Imeson in the amount of $ in legal fees and contract interest and late fees through the date of trial in the amount of $93.00 for a total judgment of $ In favor of Messner & Reeves, LLC and against Elkhorn Goldfields Inc. in the amount of $5, in legal fees and contract interest and late fees through the date of trial in the amount of $2, for a total judgment of $8, In favor of Messner & Reeves, LLC and against Black Diamond Holdings, LLC in the amount of $192, in legal fees, $4, in costs and interest and late fees in the amount of $79, through the date of trial for a total judgment of $ As the prevailing party under C.R.C.P. 54(d), Messner & Reeves, LLC may submit a bill of costs in accordance with the procedure and timing requirements set forth in C.R.C.P Additionally, it appears to the Court that Messner & Reeves, LLC may be contractually entitled to recover attorney fees, at least with respect to some of the Defendants. Accordingly, a motion for attorney fees may be submitted in accordance with C.R.C.P This judgment has been prepared pursuant to C.R.C.P. 58(a) and the Clerk of the Court shall enter it on the register of actions as provided in C.R.C.P. 79(a). IT IS SO ORDERED on this Wednesday, October 28, 2015 BY THE COURT: Judge Karen L. Brody Denver District Judge 4 At the conclusion of trial, Messner & Reeves indicated that it should be awarded attorney fees because Defendants defense was frivolous and groundless. Messner & Reeves may address any basis for such an award in their motion for attorney fees, which will ensure that Defendants have an opportunity to fully respond. 10