Spokane-based intellectual property law firm Lee & Hayes PC has won a major court ruling in its effort to recover unpaid legal fees from its former client, 3D printing company Continuous Composites Inc.

Earlier this month, a federal judge in the U.S. District Court for the Eastern District of Washington ruled that Continuous Composites breached its contingency fee agreement with Lee & Hayes, rejecting the Coeur d'Alene-based company’s argument that the law firm agreed to reduce its $7.2 million contingency fee to a $3 million fixed rate.

Lee & Hayes had represented the company in a patent infringement lawsuit against Markforged Holdings Corp. that resulted in a $25 million settlement in favor of Continuous Composites. The litigation will now move into a damages phase to determine how much the advanced manufacturing company ultimately owes.

The Journal reached out to Continuous Composites with questions regarding the ruling, settlement negotiations, and the status of the fee dispute. In response, the company provided a written statement from its CEO, Steve Starner.

“We respectfully disagree with the court’s ruling and intend to pursue and appeal,” Starner says. “This is not the conclusion of the litigation; the case remains active with numerous issues yet to be resolved. Our position remains unchanged: we firmly believe that Lee & Hayes agreed in writing to accept $3 million in full and complete satisfaction of its legal fees — an agreement that directly facilitated our subsequent settlement with Markforged.”

According to court filings, Continuous Composites won its patent infringement case against Markforged in spring 2024 and was awarded $17.3 million, representing damages through the end of 2023. The verdict did not include forward looking damages or ongoing royalties. As both parties prepared posttrial motions, Continuous Composites and Markforged entered settlement discussions during later that year.

As Continuous Composites negotiated a settlement agreement with Markforged, the company kept in communication with Lee & Hayes. Continuous Composites points to an email exchange with Lee & Hayes from Sept. 9 as proof that the law firm would accept a lower payment. Continuous Composites claims that in reliance on the email, it accepted a $25 million settlement with Markforged.

In the email, Lee & Hayes writes: “I confirm that Lee & Hayes would be willing at this time and, as part of a settlement between Continuous Composites and Markforged, to accept the sum of $3,000,000 in full and complete satisfaction of our contingent attorney’s fees.”

The email thread continues and includes a note from Lee & Hayes CEO Rob Hartman: “Like any investment/contingent-fee litigation, the amount we would be comfortable with really depends on the settlement amount, so it’s hard to put a number down in the abstract without that information.” 

In his ruling, U.S. District Court Judge Thomas O. Rice notes that the matter was not as straightforward as Continuous Composites claims.  

“While the beginning language … appears to be an acceptance on its own, the rest of the email makes it clear that it is not,” he writes. “It is clear from the context of the same email that it was not a concrete acceptance, modification, or promise.”

Additionally, Continuous Composites verbally accepted Markforged’s $25 million settlement before confirming with Lee & Hayes that the email constituted a formal adjustment to the fee agreement, Rice explains.

“Once it was clear to defendant (Continuous Composites) that plaintiff (Lee & Hayes) did not agree to the fixed fee amount, … this did not stop defendant from continuing settlement discussions,” he writes.

Rice notes that Lee & Hayes had not received compensation as of the filing of its motion for summary judgment and concluded that Continuous Composites breached the original contingency fee agreement. According to the settlement and patent license agreement, Markforged, a company that sells 3D printer materials, software, and other related services, was to issue an initial payment of $18 million to Continuous Composites by the end of 2024; $1 million by Dec. 15, 2025; $2 million by Dec. 15, 2026; and $4 million by Dec. 15, 2027.

In an emailed statement to the Journal, Lee & Hayes CEO Rob Hartman says the lawsuit reflects the firm's responsibility to support employees and ensure years of legal work on the patent case were fairly compensated.

“Our firm is grounded in three core values: relationship centered, service excellence, and stewardship,” Hartman says. “Filing a case against a former client is not something we do lightly, and those values guided us here. … We have a responsibility to ensure that work is honored and properly compensated. Bringing this action was part of that responsibility.”

Lee & Hayes was represented by the Spokane office of Kutak Rock LLP, a full-service national law firm. Attorneys Sarah Elsden, Geana Van Dessel, and Lesley Gangelhoff helped secure the win for Lee & Hayes.

Up next, the damages phase of the litigation will determine how much Continuous Composites ultimately owes under the contingency agreement. Starner says he remains committed to “reaching a reasonable resolution.”