Contingency Fee Collateral Allegedly Lost When Cauley Forfeited Law License

Did Gene Cauley relinquish his claim to millions of dollars in contingency fees from ongoing class-action litigation when he forfeited his law license in May?

That question is at the center of an Oct. 16 lawsuit filed by Centennial Bank of Conway against Cauley's former law firm, partners and their law firms.

Skip Henry, who is representing the Little Rock law firm now known as Carney Williams Bates Bozeman & Pulliam PLLC, said Cauley forfeited his contingency fee rights when he surrendered his law license in advance of pleading guilty on June 1 to stealing $9.3 million in client funds.

"We have told Cauley this, and Centennial this," Henry said. "Because he is no longer a lawyer, we cannot pay him any contingency fees."

Centennial Bank also sued J. Allen Carney, Darrin L. Williams, Hank Bates, Curtis L. Bowman, Marcus Bozeman, Randy Pulliam and the Bowman Law Firm to protect its interest in collateral securing $13.9 million in loans to Cauley.

According to the bank, Cauley's former partners are withholding information on the disposition of more than 30 class-action settlements worth more than $30 million in contingency fees.

The bank argues that Cauley is entitled to the lion's share of those potential payouts, which were used to secure the Centennial loans.

The lawsuit alleges the firm has "actual or constructive possession or control" of $6 million in receipts from two of the cases: Sterling Financial Corp. of Spokane, Wash., and Wal-Mart Stores Inc. of Bentonville.

But Henry counters that Cauley is entitled to collect only an hourly fee for work on the outstanding cases at a rate to be determined by the court. This amount would be deducted from Cauley's share of settlements, with the remainder of what would have been his contingency fee distributed on a prorated basis among the other lawyers in each case.

Henry said money collected for Cauley's past work should be used to repay funds he took from clients in the Bisys Group class-action securities case. Cauley admitted misappropriating money from the account that held settlement money from the Bisys case, an account that was $9.3 million short when the time came to distribute the settlement funds to the plaintiffs.

"If we owe him anything, it should go to the Bisys fund and not to Mr. Cauley or any of his creditors," Henry said.

The Centennial lawsuit harkens back to a lawsuit Cauley filed against his former partners on May 14.

Centennial "took the power of attorney from Cauley in an effort to step into his shoes," Henry said. "Ethically and legally, my clients are prohibited from paying Cauley or Centennial a contingency fee."

Earlier this year, Cauley's purported net worth was $100 million. But the same cash-flow problems that prompted him to steal client funds impaired his ability to stay current on his Centennial debt.

Of the $13.9 million in question, $1.5 million allegedly represents money loaned to Cauley to bring him current on past-due payments.

That loan is dated May 29, one day after the Arkansas Supreme Court accepted the voluntary surrender of Cauley's law license and three days before his guilty plea to wire fraud and criminal contempt of court in the Bisys case.