A fee dispute between Travelers, its contractor/insured and the insured's counsel, is not your run of the mill fee dispute. Travelers alleges the existence of an illicit rate agreement between the contractor and its lawyers whereby the lawyers allegedly billed Travelers at a higher rate than the firm actually charged the contractor/insured. Travelers property Casualty Company of America v. Centex Homes et al. (Case Nos. 3:13-cv-00088 and 4:12-cv-00371, Northern District of California).
Centex Homes, Travelers' insured, was represented by Newmeyer & Dillon LLP in several construction defect actions arising out of multiple housing developments. Travelers agreed to defend Centex in the underlying cases. However, on May 11, 2011, Travelers uncovered the existence of the illicit rate agreement between Centex and Newmeyer. Travelers sued Centex and Newmeyer for, inter alia, fraud, breach of fiduciary duty and unfair competition.
Judge Samuel Conti recently ruled, however, that:
- The unfair competition claim should be dismissed due to the lack of any impact on the general public -- one of the requirements of the fraud prong of the UCL;
- The fraud claim should be narrowed to include only billing invoices submitted prior to May 11, 2011 -- the date Travelers discovered the illicit agreement; and
- The breach of fiduciary duty claims can only apply to the period after Travelers agreed to defend Centex, since prior to that date Newmeyer owed no fiduciary duty to Travelers.