Complete Logistical Services, LLC v. Rulh et al

Filing 184

ORDER & REASONS that the Court hereby AFFIRMS Magistrate Judge North's order granting Movant Fowler Rodriguez, LLC's Motion to Intervene. R. Doc. 163 . IT IS ORDERED that Movant Fowler Rodriguez, LLC's Motion to Intervene, R. Doc. 144 , be and hereby is GRANTED. Accordingly, Defendant Donald Rulh's Objection to Magistrate Judge North's Order, R. Doc. 165 , is hereby OVERRULED. Signed by Judge Eldon E. Fallon on 2/11/19. (dno)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

COMPLETE LOGISTICAL SERVICES, LLC

CIVIL ACTION

VERSUS

NO. 18-3799

DONALD RULH, JR. ET AL.

SECTION "L" (5)

ORDER & REASONS
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
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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.
I.

PRESENT MOTION
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.
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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,
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[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).
II.

LEGAL STANDARD
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 law, or rules of procedure.” 8 FEDERAL PROCEDURE,
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LAWYERS EDITION § 20:197 (Dec. 2018) (citing Morgal v. Maricopa County Bd. of Sup’rs, 284
F.R.D. 452 (D. Ariz. 2012); Botta v. Barnhart, 475 F. Supp. 2d 174 (E.D. N.Y. 2007)).
III.

DISCUSSION
Under the Federal Rules of Civil Procedure, there are two means by which a movant may

intervene in a civil case. The Court reviews each standard in turn.
a. Intervention of Right
Under Federal Rule of Civil Procedure 24(a), a party is entitled to an intervention of right
if: (1) the motion to intervene is timely; (2) the potential intervenor asserts an interest that is related
to the property or transaction that forms the basis of the controversy in the case into which she
seeks to intervene; (3) the disposition of that case may impair or impede the potential intervenor’s
ability to protect her interest; and (4) the existing parties do not adequately represent the potential
intervenor’s interest. Ford v. City of Huntsville, 242 F.3d 235, 239 (5th Cir. 2001). However,
“intervention as a matter of right cannot rest on an interest that is remote or collateral to the main
action.” League of United Latin American Citizens v. Clements, 884 F.2d 185, 188 (5th Cir. 1989).
Here, Defendant argues the second element, whether the movant has stated a legal
interest in the case, is not met. In his ruling granting Fowler Rodriguez’s motion to intervene, the
magistrate judge relied on Black & Decker stating,
[I]rrespective of whether LSA-R.S. 37:218 applies to fees billed on an hourly basis,
Kreger v. General Steel Corp., No. 07-CV-0575, 2008 WL 11353671 at *2 (E.D.
La. Oct. 10, 2018), in light of the counterclaim asserted herein there is a potential
for recovery by the Defendant as to which movant should at least be afforded the
opportunity to establish its interest under Rule 24. State Farm Fire and Casualty
Co. v. Black & Decker, Inc., No. 02-CV-1154, 2003 WL 22966373 (E.D. La. Dec.
10, 2003).
R. Doc. 163 at 1. In Black & Decker the movant, Milling, sought to intervene in a case in which
Foster, who formally had a fee-sharing arrangement with Milling, represented the plaintiff on a
contingency fee basis. After the motion was referred, the magistrate judge found that, because
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there was “no provision in the contract [between the Milling and Foster] which suggests that the
fees earned by Foster would be turned over to Milling,” Milling did not have an interest in the
underlying litigation’s outcome. 2003 WL 22966373, at *1, *3. On review, the district court judge
rescinded the magistrate judge’s order denying Milling’s motion to intervene, explaining that
Milling “should be provided an opportunity to prove the existence of a fee sharing arrangement.”
2003 WL 22966373, at *3. Thus, because Foster’s fee arrangement with the plaintiff was
contingency based, and Milling alleged it had an interest in that fee based on its alleged fee-sharing
arrangement with Foster, the Court concluded Milling had a right to intervene.
One year after it issued its order in Black & Decker, the court in Premier, Inc. v.
Commercial Underwriters Insurance Co. considered whether a discharged attorney asserting an
interest in the underlying litigation based on her hourly fee arrangement with the plaintiff had a
right to intervene in the case. 2004 WL 32918, at *3. There, the Court distinguished between
contingency-based fees and fees based on an hourly-rate, denying the movant’s motion,
explaining that, because the movant’s payment arrangement with the plaintiff was based on an
hourly fee, she had not asserted an interest in the underlying litigation, as whether she was
entitled to fees for her work did not depend on the plaintiff’s success in the case. Thus, because
“[t]here was no agreement that [the movant] would receive part of any fees that may be granted
by the Court upon the resolution of the . . . matter,” the movant “ha[d] not asserted a direct,
substantial, and legally protectable interest in the property or transaction that forms the basis of
the controversy.” 2004 WL 32918, at *3.
In this case, Fowler Rodriguez has not alleged an interest in the underlying litigation, as its
compensation arrangement with Mr. Rulh is not based on a contingency fee, but rather Fowler
Rodriguez’s claim is based on its allegation that Mr. Rulh agreed to pay Fowler Rodriguez on an
hourly basis. Thus, like the court did in Premier, the Court concludes Fowler Rodriguez has
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failed to meet the standard for intervention as a right, as Fowler Rodriguez’s entitlement to
attorneys’ fees is not contingent upon Mr. Rulhs success in the underlying litigation. As a result,
the magistrate judge’s order granting Fowler Rodriguez’s motion to intervene as a matter of right
is contrary to law. The Court therefore considers whether Fowler Rodriguez has established the
requirements necessary for permissive intervention.
a. Permissive Intervention
Federal Rule of Civil Procedure 24(b) governs permissive intervention and provides in
pertinent part:
Upon timely application anyone may be permitted to intervene in an action: . . .
when an applicant’s claim or defense and the main action have a question of law
and fact in common. In exercising its discretion the court shall consider whether
the intervention will unduly delay or prejudice the adjudication of the rights of the
original parties.
Fed. R. Civ. P. 24(b)(2).
Courts in this circuit undergo a two-step process in determining whether to grant a
permissible intervention. Stallworth v. Monsanto Co., 558 F.2d 257, 269 (5th Cir. 1977). First,
the Court must determine, as a matter of law, whether the movant’s “claim or defense and the
main action have a question of law or fact in common.” Mac Sales Inc., et al. v. E.I. Dupont de
Nemours, No. 89-45712, 1995 WL 581790, *4 (E.D. La. Sept. 29, 1995). Thereafter, the Court
must exercise its discretion to determine if permissive intervention should be allowed. See New
Orleans Public Service, Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 471 (5th Cir. 1984).
“Permissive intervention ‘is wholly discretionary with the [district] court . . . even though there is
a common question of law or fact, or the requirements of Rule 24(b) are otherwise satisfied.’” Id.
(quoting 7C CHARLES ALAN WRIGHT, ET AL., FEDERAL PRACTICE & PROCEDURE: CIVIL § 1913 at
551 (3d ed. 2018)). In acting on a request for permissive intervention, it is proper to consider,
among other things, “whether the intervenors’ interests are adequately represented by other
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parties” and whether they “will significantly contribute to full development of the underlying
factual issues in the suit.” Spangler v. Pasadena City Bd. of Ed., 552 F.2d 1326, 1329 (9th Cir.
1977); United States Postal Service v. Brennan, 579 F.2d 188, 191–92 (2d Cir. 1978).
In this case, the Court will permit Fowler Rodriguez’s intervention. The questions of law
and fact Fowler Rodriguez seeks to bring are sufficiently similar and connected to those currently
pending before the Court, and intervention will not unduly delay the adjudication of the original
parties’ rights. Moreover, although Fowler Rodriguez’s interests likely will not contribute
significantly to the development of the underlying factual issues of the main action, no other party
to this action adequately represents Fowler Rodriguez’s interests. The Court having presided over
this and other related actions since their inception is uniquely situated to determine whether Fowler
Rodriguez is entitled to attorneys’ fees, even if Mr. Rulh agreed to pay those fees on an hourly—
and not contingency fee—basis. As a result, the Court concludes Fowler Rodriguez has met the
standard for permissive intervention and the Court will affirm the magistrate judge’s order granting
Fowler Rodriguez’s intervention on that basis.
IV.

CONCLUSION
For the foregoing reasons, the Court hereby AFFIRMS Magistrate Judge North’s order

granting Movant Fowler Rodriguez, LLC’s Motion to Intervene. R. Doc. 163.
IT IS ORDERED that Movant Fowler Rodriguez, LLC’s Motion to Intervene, R. Doc.
144, be and hereby is GRANTED. Accordingly, Defendant Donald Rulh’s Objection to
Magistrate Judge North’s Order, R. Doc. 165, is hereby OVERRULED.

New Orleans, Louisiana on this 11th day of February, 2019.
_____________________________
Eldon E. Fallon
U.S. District Court Judge
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