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July 13, 2010 7:54 PM

O'Melveny Sues MGA Entertainment Over $10.2 Million in Unpaid Legal Fees

Posted by Brian Baxter

CORRECTION, 7/14/10 at 10:15 a.m. A previous version of this post misidentified the legal expenses of Mattel and MGA. The correct information is included in the tenth paragraph below. We regret the error.

UPDATE, 7/14/10 at 10:15 a.m.: William Gwire from the Gwire Law Offices in San Francisco is representing MGA in the suit. In an e-mail message sent to The Am Law Daily, Gwire says that O'Melveny's complaint includes "needless and malicious accusations," which are irrelevant to the dispute between the firm and MGA. Gwire claims that 300 separate O'Melveny timekeepers billed over $23 million, of which MGA has already paid $13 million. He says MGA believes it is entitled to a refund, and that the dispute itself is not limited to fees, but includes "serious questions about the caliber, quality, and competency of O'Melveny's work in the Mattel litigation, which caused losses to MGA that dwarf the amounts being claimed by O'Melveny."

O'Melveny & Myers has filed suit against MGA Entertainment seeking payment of $10.2 million in unpaid legal fees related to the company's long-running legal dispute with Mattel over ownership of the popular Bratz line of fashion dolls.

The firm filed the suit against Van Nuys, Calif.-based MGA in Los Angeles County Superior Court late Tuesday. Bratz dolls are one of the most profitable products made by MGA, which manufactures children's toys and accessories. The company's copyright infringement battle with Mattel, the world's largest toy maker, ended in August 2008 with a $100 million judgment in favor of Mattel.

During a three-month trial, Mattel alleged that a former employee, Carter Bryant, had developed the sketches for Bratz dolls while he was under contract with Mattel. In recent years the Bratz line has matched if not surpassed Mattel's signature Barbie dolls in popularity and sales. As a result, El Segundo, Calif.-based Mattel, represented at the trial by John Quinn of Quinn Emanuel Urquhart & Sullivan, accused MGA of infringing on its copyrights by using sketches from Bryant's stint at Mattel to develop the dolls.

O'Melveny's role representing MGA effectively ended three years ago. According to the firm's six-page complaint, O'Melveny was hired by MGA in May 2004 to represent the company in litigation commenced by Mattel against MGA and Bryant. O'Melveny claims that MGA entered into oral agreements that were subsequently confirmed in writing about the range of legal services the firm would provide. For years, MGA paid O'Melveny's fees, the firm states in the complaint, but eventually a billing dispute forced the firm to withdraw from the case in 2007. Since that time, O'Melveny has been unable to resolve its payment issues with its former client, according to the complaint.

"Both during its representation of MGA, and for almost three years after the court determined that it was appropriate for O'Melveny to withdraw as MGA's counsel, O'Melveny has attempted to resolve this fee dispute with MGA outside the courtroom by direct negotiation and professional mediation," the firm states in its complaint. "All of those efforts have proven unsuccessful, and O'Melveny's patience and attempts at resolution have been disregarded or exploited by MGA."

The firm says MGA "claimed to be conducting fee audits" that were never provided to O'Melveny. When one was completed, MGA just commenced a new inquiry, the firm says. "This and other pretextual and dubious excuses were offered by MGA to O'Melveny directly and, unfortunately, against O'Melveny in public forums such as the press--at one point MGA proclaimed a 'probe' of the firm's invoices--where MGA knew O'Melveny was severely constrained in how it could respond," states the firm in its complaint.

As reported by sibling publication The Recorder in November 2007, after Mattel first sued Bryant in 2004, MGA responded with a countersuit against the company a year later. MGA initially turned to Patricia Glaser of Los Angeles's Glaser, Weil, Fink, Jacobs, Howard & Shapiro, The Recorder reported, because of Glaser's longtime friendship with MGA founder and CEO Isaac Larian. But Glaser Weil's IP expertise was lacking, so O'Melveny also was brought on board, according to The Recorder.

As a 2008 trial date loomed, conflicts arose among MGA's various outside counsel. O'Melveny reportedly wanted its star litigator, Daniel Petrocelli, to assume first chair at trial, but Larian decided against this, as the MGA founder and CEO told The Recorder in November 2007. O'Melveny then withdrew as counsel to MGA, according to The Recorder.

At the time the firm attributed its decision to withdraw from the case to "disagreements with us and the client that make it unreasonably difficult for us to continue serving as counsel and our client's unwillingness to honor the fee agreement," O'Melveny told The Recorder. Glaser Weil also soon found itself off the case as MGA turned to Skadden, Arps, Slate, Meagher & Flom by October 2007 to take the lead on the litigation with Mattel.

The Am Law Litigation Daily's Alison Frankel previously reported that Mattel reported legal expenses of $44 million for the first half of 2008 for the Bratz case and a consumer class action. Mounting attorneys' fees for MGA also resulted in the company laying off employees as it litigated with insurers over legal costs. Skadden West Coast litigation cochair Thomas Nolan, who represented MGA at trial, did not immediately respond to a request for comment about O'Melveny's suit.

In its complaint, O'Melveny states that it "diligently assisted" MGA and Skadden in transferring its representation of MGA in various matters, "fully enabling them to try the case adverse to Mattel effectively," and later assisting the counsel who replaced Skadden taking the lead on appeal.

U.S. district judge Stephen Larson granted Mattel control of the Bratz dolls in December 2008, but that ruling was suspended a year later by the U.S. Court of Appeals for the Ninth Circuit in Pasadena. As reported by The American Lawyer's Susan Beck, MGA added Orrick, Herrington & Sutcliffe's Joshua Rosenkranz to an appellate team that already included Skadden's Nolan, Sidley Austin's Mark Haddad, and Mitchell Silberberg & Knupp.

While the MGA-Mattel dispute remains in legal limbo, it appears the fight over legal fees will continue.

"O'Melveny reluctantly brings this litigation only as a last resort," said a statement by a firm spokeswoman. "After having tried for years and in every possible way, short of litigation, to resolve this dispute, O'Melveny has no alternative but to ask the court to compel MGA to fulfill its obligation to our firm based on the very hard work and extraordinary efforts expended by O'Melveny on behalf of MGA."

Gibson, Dunn & Crutcher litigation partner Kevin Rosen and associates J. Christopher Jennings and Blaine Evanson in Los Angeles are representing O'Melveny in the suit against MGA along with Dale Kinsella from Santa Monica firm Kinsella Weitzman Iser Kump & Aldisert.

A call to an MGA spokesman was not immediately returned.

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