Moderated Discussion Group:
Lawyer
Liability for Breach of Fiduciary Duty to Clients
This is the Moderated Discussion Group for this course. This page contains Part I of the discussion group. Part I is updated from time to time. Part II of the discussion group is conducted by email. Students in the class send their comments and questions to the teacher who emails the discussion to current class members.
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Part 1
Moderated Discussion Group:
Lawyer
Liability for Breach of Fiduciary Duty to Clients
*Comment
by Karen E. Ferris:
The Lawyer Liability for
Breach of Fiduciary Duty to Clients was well researched and interesting to read.
With such recent case law in Texas regarding the breach, it was difficult
for the author to rely on Texas case law.
Unfortunately, most Texas
State District Court Judges do not seem to consider a lot of the sources cited
by the author when one argues a breach of fiduciary duties.
Obviously, as additional case law is created by the most recent Texas
case, Burrow v. Arce, the lawyers in the trenches will have tangible Texas case
law to cite. Obviously,
someone has to start a path, however narrow.
*Response by the teacher, A. Hawkins:
Yes,
Texas lawyers and judges often ignore any authority other than Texas cases and
statutes. Until the recent case law, it was as if the law did not exist. If none
know it exists, it might as well not exist. Now that the Texas Supreme Court has
spoken, Texas lawyers and judges may become aware of the law. Citing the
guidance of out of state courts, including federal courts, and yes, even the
United States Supreme Court can be futile before judges who see the world as
consisting of Texas, and "not Texas." Of course, in some Texas trial
courts, the Texas Supreme Court is equally ignored. Good luck.
*Comment by Chris Lemens
I
would like to know more about "fee" forfeiture in the context of
in-house counsel. Have there been
cases addressing remedies when in-house counsel breach their duties of loyalty? (Obviously, firing them is one remedy; the automatic
forfeiture of unvested stock options and the like would be another.)
*Initial response of the teacher, A.
Hawkins
I would like
to know more as well. I hereby ask other students to provide their responses to
Chris's question. I do not have a final answer. One surprising thing is the lack
of Texas case law prior to the recent cases quoted in the course.
It gives the impression that Texas lawyers had not heard of the concept
of lawyers having fiduciary duties and liability for their breach. Outside of
Texas, there has been litigation for some time. However, there has been Texas
case law on the breach of fiduciary duties by people who have duties that do not
arise from the attorney-client relationship, such as the fiduciary duty of an
employee or member of the board of a corporation to the corporation, or the duty
of a trustee or executor. The case
law which governs the duty of the employee to the employer may be the place to
look for guidance. The fact of being an attorney may or may not increase the
duty or the remedy for breach. I believe there is a recent case involving an
attorney who was an associate in a law firm who was alleged to have breached his
duty to the firm, again with the employee status giving rise to the duty. Your
question and the initial response should alert us that there may be more than
one basis for a fiduciary duty. For example, a person might be outside counsel and
member of the board of directors. We should not be so focused on one theory that
we miss the others.
*Subsequent response of the
teacher, A. Hawkins
The nature of the employed attorney strikes me as
fundamentally different from retained
outside counsel. That is an area outside my expertise. My instinct is that the
relationship between an employee and employer is not a traditional
attorney-client relationship and the fiduciary duties are not based on
traditional attorney-client duties. I welcome comments from those who are
familiar with the concepts which apply to the employee who is also an attorney.
*Comment
by Larry Pinsof:
I
have not yet had a conflict of interest situation arise in my practice. I found the discussion of case law to be quite helpful.
*Comment
by the teacher, A. Hawkins, June 3, 2000
A
former partner of an old Midland firm told me that the managing partner defined
a conflict of interest between clients as the point at which a fist fight
between clients spills from the hall outside his office into his own office.
Hopefully, you will not have that experience.
* Course Update by
the teacher, A. Hawkins, June 3, 2000
The
pace of litigation on these issues
may be accelerating, as predicted. On May 31, 2000 the Tyler Court of Appeals
decided Jackson v. Chappell. It is one
of those cases that is unpleasant to contemplate and brings out thoughts of a
food fight between lawyer and client. I will excerpt the court’s description
of the case.
"Chappell
retained the Jacksons to represent her in a divorce action. The dispute stems
from Chappell's allegation that the Jacksons agreed to handle the divorce for a
maximum of $3,000.00. The Jacksons, on the other hand, asserted that they were
retained to handle the matter for $150.00 per hour. The Jacksons maintained that
Chappell owed them over $60,000.00 in attorney's fees, that she was aware of
this debt, and that she refused to pay. Furthermore, they contended that as a
way of protecting her assets from the Jacksons, Chappell fraudulently
transferred property to R.A. Moreau and Catherine Kennington to defraud the
Jacksons.
"Chappell
answered denying that she owed any fees to the Jacksons. Chappell and Moreau
countersued alleging violations of the Texas Deceptive Trade Practices Act,
breaches of fiduciary duties and violations of the Texas Debt Collection Act.
One of the major allegations of wrongdoing against the Jacksons was that they
coerced Chappell into executing an assignment of the proceeds from several
properties without disclosing the consequences of entering into such a
transaction, and in violation of a court order in the Chappell's divorce
proceeding.
"Moreau
and Kennington answered denying that any property was transferred to them
fraudulently. The case proceeded to trial. The jury returned a mixed verdict.
The jury found in favor of the Jacksons on their claim against Chappell alleging
that she had breached her agreement to pay attorney's fees. The jury also found
that certain properties transferred to Moreau and Kennington were transferred
fraudulently. The jury awarded the Jacksons $43,000.00 for Chappell's breach of
agreement to pay attorney's fees and $5,000.00 as damages for the fraudulent
transfers. The jury also found in favor of Chappell and Moreau regarding their
DTPA claims, violation of the Texas Debt Collection Act, and Chappell's breach
of fiduciary duty claim. The jury awarded zero actual damages and $5,000.00
additional damages. The jury declined to award attorney's fees to the Jacksons
on their breach of contract claim or to Chappell or Moreau on their DTPA and
Debt Collection Act claims. The trial court entered judgment awarding $43,000.00
in damages to the Jacksons, less a $5,000.00 fee forfeiture for breaching their
fiduciary duty to Chappell. The court did not award damages for the fraudulent
transfers, nor did it set aside the transfers as requested by the Jacksons. No
parties were awarded attorney's fees, and each were ordered to pay their own
costs. The Jacksons and Chappell filed motions for new trial, which were
overruled. This appeal followed.”
The court of appeals
discussion of the fiduciary duty of a lawyer to a client and the fee forfeiture
for breach of fiduciary duty issue shows the vulnerability of a lawyer to this
cause of action, and to the vulnerability of attorney and client to the
discretion of the trial judge to set the amount of the forfeiture.
"[T]he
Jacksons . . . claim that there is neither legally nor factually sufficient
evidence to support a finding that they breached their fiduciary duty to
Chappell. But they follow with the complaint that even if there is sufficient
evidence, the trial court abused its discretion when it required the Jacksons to
forfeit $5,000.00 of their fee in spite of the jury's finding that the breach of
fiduciary duty did not cause Chappell any harm.
. . .
"The
relationship existing between attorney and client is characterized as
"highly fiduciary", and requires proof of "perfect fairness"
on the part of the attorney. Archer v. Griffith, 390
S.W.2d 735, 739 (Tex. 1965). The "fail safe" mechanism of the
fiduciary relationship is the duty of full disclosure. A fiduciary has much more
than the traditional obligation not to make any material misrepresentations; he
has an affirmative duty to make a full and accurate confession of all his
fiduciary activities, transactions, profits, and mistakes. See
Montgomery v. Kennedy, 669 S.W.2d 309, 312-14 (Tex. 1984); Kinzbach
Tool Co., Inc. v. Corbett-Wallace Corp., 160 S.W.2d 509, 513-14 (Tex.
1942). The breach of the duty of full disclosure by a fiduciary is tantamount to
fraudulent concealment. Willis
v. Maverick, 760 S.W.2d 642, 645 (Tex. 1988). And where
"self-dealing" by the fiduciary is alleged, a "presumption of
unfairness" automatically arises and the burden is placed on the fiduciary
to prove (a) that the questioned transaction was made in good faith, (b) for a
fair consideration, and (c) after full and complete disclosure of all material
information to the principal. See Stephens
County Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1974);
Int'l. Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576 (Tex.
1963).
"The
evidence shows that the Jacksons were vague about their fee arrangement, and did
not reduce the fee agreement to writing. The Jacksons failed to maintain billing
records, failed to record services rendered, and failed to provide billing
statements to Chappell. During the second divorce proceeding, the Jacksons and
Chappell represented to the court that there had been $18,000.00 in attorney's
fees to that point. Later, when Chappell requested an itemized statement of
those attorney's fees, the Jacksons refused to provide it to her unless she
agreed to pay whatever the itemization showed, although it would be more than
$18,000.00. There is some evidence that the Jacksons inflated the hours charged
during the course of the representation. Furthermore, they charged Chappell for
defending themselves against a grievance filed by her husband. Chappell
testified that the Jacksons misrepresented to her that her husband would be
responsible for her attorney's fees. As a prerequisite for continuing to
represent her, the Jacksons required Chappell to execute an assignment of the
proceeds from certain properties, and failed to make appropriate disclosures of
the legal effect of the assignment. Neither did they recommend that Chappell
seek outside legal counsel before entering into the agreement. In addition,
there is evidence that the assignment was taken in violation of standing court
orders, in the Chappell's divorce action which could have subjected Chappell to
possible contempt proceedings. The evidence supports the jury's finding of
breach of fiduciary duty in that there is evidence of failure to disclose,
misrepresentation, conflict of interest, and self-dealing.
. . .
"The
Supreme Court, in Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999), has clarified its
position on fee forfeitures. Once the jury finds that an attorney has breached
his fiduciary duty to his client, the trial court determines the amount of any
fee forfeiture, since forfeiture is an equitable remedy. Id. at 234. It is within
the discretion of the court whether the attorney who has committed a breach of
trust shall receive full compensation or whether his compensation shall be
reduced or denied. Id. at 243. And a trial court may order a fee forfeiture whether
or not the client sustains actual damages. Id. at 238, 240. In the
instant case, the jury found that the Jacksons breached their fiduciary duty to
Chappell, even though it also found that she was not injured by that breach. We
hold, therefore, that the trial court did not err when it required the Jacksons
to forfeit a portion of their fee. We overrule issue four.”
The court of Appeals
extended Arce to deny a remedy for the client’s conveyance of assets,
proving the old Latin maxim “once a
breach is found, a Texas attorney is in a whole heap of trouble.”
"It
has been traditionally held that in order to justify the application of the
doctrine, the defendant must show that he suffered injury as a result of the
plaintiff's conduct. Grohn,
657 S.W.2d at 855. But because of the Supreme Court's decision in Burrow
v. Arce, wherein it held that the equitable remedy of fee forfeiture was
not dependent upon a finding of injury, we conclude that it follows that when an
attorney breaches his fiduciary duty, the attorney's client need not show that
he suffered injury in order for the court to apply the doctrine of unclean hands
to deny the attorney equitable relief. See
Burrow, 997 S.W.2d at 238, 240.
"The
jury found that the Jacksons had breached their fiduciary duty to Chappell by,
among other things, taking an assignment on proceeds from the sale of various
assets in violation of a court order. The jury also found that the Jacksons
engaged in an unconscionable course of action and violated the DTPA and the Debt
Collection Act. Although the jury found that Chappell did not suffer any damages
from these violations, the fiduciary duty owed by an attorney to his client is
of such magnitude that the Jacksons did not come to the court of equity with
clean hands. We hold that public policy of Texas is best preserved by applying
the unclean hands doctrine in this case. Consequently, the trial court did not
err when it denied the Jacksons the equitable set-aside of the fraudulent
transfers.”
Response of
Theresa Cay Gallucci Langford, June 3, 2000:
I count
myself lucky to have signed up for this course on the day that you posted the
Jackson/Chappell case. It could not
have been more on point, and was helpful in defining the issues.
As an aside, judging from the cited portions, it seems the Jacksons were
extremely fortunate to get ANY attorney fees, considering that they were
charging billable time, not a flat fee, and there was no written fee agreement
and no monthly itemized bill. Particularly
as the fees grew so large. In this
day and time, that alone might constitute a breach!
Thank you for an
enlightening course.
___________
Response the teacher/Guru,
A. Hawkins, June 3, 2000
Thank
you for your kind words.
The cases are just
beginning. Yikes!
I
agree, but my point is that if an attorney has breached his fiduciary duty, of
any kind, to any degree, he should weigh the value of his license and the
publicity, and drop it. He is
inviting a grievance otherwise. After
19 years of practice, I cannot recall when fighting over a fee with a cranky
client was worth it. It doesn't
happen that often, and why "go looking for trouble"?
Unless billions are at stake, a smart lawyer would never allow a judge or
jury to review his case in the first place.
[** The reference by Hawkins
on June 8, 2000, below, is a reference to Theresa’s comment above.]
Response the teacher, A.
Hawkins, June 3, 2000:
We
are seeing the early skirmishes in the billion dollar case... the tobacco
litigation.
Other
cases involve millions and hundreds of millions. Lawyers seem reluctant to take
your advice, sound though it may be.
My
answer is for good lawyers who are good people to represent good clients who are
good people, and then get along. Of
course, that is easier said than done.
*Comment
by Chris Lemens
*Comment
by Chris Lemens
Law.Com Texas carries the
following story by Brenda Sapino Jeffreys today. The civil tobacco lawyers
appear to have substantial risk of fee forfeiture..... But what’s a billion or
two, one way or the other. Maybe that isn’t their only risk.
If I recall correctly, Webb Hubbell went to
prison for false billing. Surely the expenses paid, and money returned
doesn’t suggest false billing, or does it? The concept of paying lawyer’s
salaries as expenses with a contingent fee in addition might be considered
novel, although the Smith v. McCleskey
case from the Eastland Court of Appeals involving double billing may be compared
to it. While this course does not examine what constitutes a breach, double
billing, fraudulent billing, failure to disclose, and deception of the client
are not advisable practices.
"The five plaintiffs’
lawyers who negotiated a $17.3 billion settlement with the tobacco industry
returned $6.9 million in expense money on May 30, a move Texas Attorney General
John Cornyn says raises "troubling questions" about how they conducted
the litigation.
"Their
misrepresentation of expenses just raises more questions and strongly reinforces
the need to determine what happened in the tobacco case," Cornyn says in a
written statement. "After 18 months of assuring the people of Texas that
their expenses were justified in every way, and claiming that they acted
ethically, these tobacco trial lawyers are now returning millions of dollars
with no satisfactory explanation as to why."
Cornyn says it’s an
"incredible admission" for the plaintiffs’ lawyers to return the
$6.9 million because they have repeatedly claimed they spent $40 million in
expenses.
Cornyn attached a portion of
a transcript from an arbitration proceeding on Dec. 5, 1998, during which one of
the lawyers for Texas, Walter Umphrey, said, "We actually expended $40
million, four times the amount that we committed."
But an attorney for Umphrey
and the four other lawyers, Michael Tigar, says the $40 million was simply a
good-faith estimate.
"To claim that we
behaved improperly is completely false. We behaved in the only way a lawyer can
behave under the rules of professional responsibility," says Tigar, partner
in The Tigar Law Firm of Washington, D.C.
He says the lawyers refunded
the expense money to comply with terms of the settlement. They retained an
independent group of financial investigators and an ethics expert to advise them
on the expense claim, he says.
Tigar says the lawyers —
Umphrey, John O’Quinn, Wayne Reaux, John Eddie Williams and Harold Nix — are
claiming $33,787,028 in expenses; the refund includes $677,318 in interest.
Tigar says the lawyers only
claimed expenses that are consistent with their agreement with the state and the
kinds of expenses that would be claimed by hourly rate lawyers, such as those
hired by the tobacco industry. Some of their expenses they chose not to claim
include bonuses paid to people who worked in the law firms, salaries paid to
lawyers at the firms and certain kinds of expenses for investigating and running
the litigation, he says.
The plaintiffs lawyers’
announcement of the refund comes as Cornyn investigates whether the five lawyers
breached their fiduciary duty. In April, he filed a suit in state court in
Houston seeking to depose the five lawyers under a rarely used procedural rule,
but the plaintiffs team removed that suit to federal court. A hearing on the
AG’s motion to remand is set for June 8 before U.S. District Judge David
Folsom of Texarkana, who has presided over all aspects of the tobacco
litigation.
*Comment
by the teacher, A. Hawkins, June 8, 2000: Theresa’s comment above is an
inciteful backdrop to the following case which came out today.
The dissent as well as the majority are “must reading.” The
references to breaches for excessive fees despite the contract, not explaining
the fee agreement to the client, etc. should give the tobacco lawyers a
sleepless night tonight. I quote today’s case in full. A future course on the
“loadstar method” and rival approaches to determining fees in class actions
and common fund cases may be forthcoming, if there is sufficient interest.
Perhaps today we see a hint that the tobacco lawyers will be limited to, at
best, a “loadstar” based fee. Just think of the income tax savings that they
may realise if they each receive a few hundred million less than they claim.
IN THE SUPREME COURT OF TEXAS
No. 98-0994
Leonel Lopez, Sr., Zulema M. Lopez, and Leonel Lopez, Jr.,
individually and on behalf of the Estate of Eloy Lopez, deceased, Petitioners
v.
Muñoz, Hockema & Reed, L.L.P. and Albert A. Muñoz, II, David A. Hockema and Roger H. Reed, individually and d/b/a Muñoz, Hockema & Reed, Respondents
On Petition for Review from the
Court of Appeals for the Fourth District of Texas
Argued on October 20, 1999
Justice O'Neill delivered the opinion of the Court, joined by Justice Hecht, Justice Enoch, Justice Owen, Justice Baker, Justice Abbott, and Justice Hankinson, and by Chief Justice Phillips and Justice Gonzales as to Parts I and IV.
Justice Gonzales filed an opinion concurring in part and
dissenting in part, in which Chief Justice Phillips joined.
The contingent fee contract that underlies this dispute allowed the plaintiffs' law firm to charge an additional five percent fee in the event the case was "appealed to a higher court." We must decide whether the law firm breached the contract by charging its client the additional fee when the defendant, to preserve its right to appeal, filed a cash deposit in lieu of a cost bond with the trial court shortly before settlement documents were signed. We hold that the case was "appealed to a higher court" when the defendant initiated the appellate process by filing a cash deposit in lieu of a cost bond; therefore, the law firm did not breach the contract by charging the additional fee. This holding also disposes of the clients' breach of fiduciary duty claim because that claim is based entirely upon the alleged contract breach. However, because the trial court's judgment improperly disposed of the clients' fraud, negligence, and DTPA claims, we remand them to the trial court for further proceedings.
I Background
The Muñoz, Hockema & Reed (MHR) law firm represented the Lopez family in a wrongful-death suit against Westinghouse Electric Corporation. Their contingent fee contract assigned forty percent of any recovery to MHR, and forty-five percent if the case "is appealed to a higher court." (1) After the jury returned a verdict against Westinghouse in excess of twenty-five million dollars, the parties began settlement negotiations. While the negotiations were ongoing, the trial court rendered judgment on the verdict, and the deadline for perfecting an appeal was October 29, 1991.
By mid-October, Westinghouse had tentatively agreed to a settlement. (2) To preserve its right to appeal should the settlement fall through, Westinghouse, on October 18, 1991, filed a cash deposit in lieu of a cost bond with the trial court. MHR and the Lopezes met on October 21 to discuss the settlement and MHR's fees. The Lopezes' estate and tax attorneys, their family attorney and an accountant attended this meeting. MHR explained to the Lopezes that its fee would be forty-five percent of the recovery, or $6,750,000, and no one voiced an objection. The settlement was ultimately signed on October 30, 1991. Among other documents, the Lopez family members signed a settlement statement reflecting MHR's forty-five percent fee percentage. The funds were distributed according to the settlement statement, and Westinghouse took no further action on its appeal.
About three years later, MHR received a letter requesting that the firm refund the additional five percent fee to the Lopez family. When MHR refused, the Lopezes sued, alleging breach of contract, breach of fiduciary duty, fraud, negligence, and DTPA violations. The Lopezes sought forfeiture of the entire fee. The Lopezes moved for summary judgment on the breach of fiduciary duty and contract claims and moved to sever the other claims. MHR filed a cross-motion for summary judgment alleging that the doctrines of accord and satisfaction and "acceptance of benefits" defeated the Lopezes' claims and that limitations barred their breach of fiduciary duty claim. MHR also claimed that the summary judgment evidence showed no contract breach as a matter of law.
The trial court denied the Lopezes' summary judgment and severance motions, and granted MHR's motion for summary judgment except as to limitations. The court of appeals reversed. See 980 S.W.2d 738, 744. The appeals court held that MHR breached the fee agreement by charging the forty-five percent appeal rate, and that the contract breach was also a breach of fiduciary duty. See id. at 742-43. The court reasoned that "appealed to a higher court" means something more than initiating the appellate process by filing a cash deposit in lieu of a cost bond. See id at 742. The appeals court further held that MHR's affirmative defenses did not defeat the Lopezes' recovery, and reversed and rendered a $750,000 judgment for the Lopezes, representing five percent of the settlement. See id. at 742. The court of appeals remanded the case to the trial court for consideration of the Lopezes' claim for attorneys' fees. One justice, concurring and dissenting, agreed with the majority that MHR had breached its fiduciary duty but concluded that the appropriate remedy was forfeiture of MHR's entire fee. See id. at 744-45 (Duncan, J., concurring and dissenting).
The Lopezes petitioned this Court for review, arguing that the court of appeals should have ordered MHR to remit the entire fee and not just the five percent overcharge. MHR cross-petitioned arguing that, as a matter of law, it did not breach its contract with, or fiduciary duty to, the Lopezes.
II Breach of Contract
We first consider the breach of contract claim. The Lopezes argue that the phrase "appealed to a higher court" is ambiguous and should be construed against its drafter, MHR. See Gonzalez v. Mission American Ins. Co., 795 S.W.2d 734, 737 (Tex. 1990). They also argue that, because of the fiduciary nature of the relationship, any contract between an attorney and a client must be construed in a reasonable and equitable manner. Cf. Keck, Mahin & Cate v. Insurance Co. of N. Am., S.W.3d ; Archer v. Griffith, 390 S.W.2d 735, 739 (Tex. 1964). The Lopezes contend that the contract provision at issue is subject to only one reasonable and ethical meaning, although their expression of that meaning is less than clear. While these general rules of construction apply when we construe ambiguous contracts or contracts that are reasonably susceptible to more than one interpretation, we hold that the contract language at issue is unambiguous and that MHR did not breach the contract. See Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996) (stating that an unambiguous contract will be enforced as written).
Whether a contract is ambiguous is a question of law for the court to decide. See R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980). In construing contracts, we must ascertain and give effect to the parties' intentions as expressed in the document. See id. A contract is not ambiguous if it can be given a certain or definite legal meaning or interpretation. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex. 1996). Ambiguity does not arise simply because the parties advance conflicting interpretations of the contract; rather, for an ambiguity to exist, both interpretations must be reasonable. See Columbia Gas, 940 S.W.2d at 589; National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). Because here the contract language can be given a definite legal meaning, and it is not reasonably susceptible to more than one meaning, it is unambiguous.
By filing a cash deposit in lieu of a cost bond, Westinghouse "perfected" an appeal under the appellate procedure rules in effect when the underlying case settled. Tex. R. App. P. 40(a)(1), 707 S.W.2d (Tex. Cases) LI (Tex. 1986, amended 1997). (3) The appellate rule further provided that, absent a supersedeas bond, a cash deposit does not suspend the judgment and execution may issue "as if no appeal . . . had been taken." Tex. R. App. P. 40(a)(5), 707 S.W.2d (Tex. Cases) LII (Tex. 1986, amended 1997). Thus, the rule's plain language indicates an appeal was "taken" and the appellate court's jurisdiction was invoked when Westinghouse made its cash deposit. See Burns v. Miller, Hiersche, Martens & Hayward, P.C., 909 S.W.2d 505, 506 (Tex. 1995)(per curiam); Ammex Warehouse Co. v. Archer, 381 S.W.2d 478, 482 (Tex. 1964).
The Lopezes contend, and the court of appeals agreed, that "appealed to a higher court" means something more than initiating the appellate process. See 980 S.W.2d at 742. Although not stating what that "something more" might be, the court of appeals held that "appealed to a higher court" anticipates "a meaningful review of the appellate record and a careful consideration of the arguments presented in the appeal." 980 S.W.2d at 742. The problem with this approach, however, is that it expands the actual contract language and makes it difficult, if not impossible, to determine with any certainty when a case has been "appealed."
The appellate process involves many steps, such as transmitting the trial court record, preparing and responding to the briefs, and presenting oral argument. See Tex. R. App. P. 54(a), 74, 75, 707 S.W.2d (Tex. Cases) XVIII, LXXIV-LXXVIII (Tex. 1986, amended 1997). The rules require the court of appeals to write an opinion addressing all issues raised and necessary to the appeal's disposition. See Tex. R. App. P. 90(a), 707 S.W.2d (Tex. Cases) LXXXV (Tex. 1986, amended 1997). After the opinion issues, the parties may file motions for rehearing, which the court must then consider and decide. See Tex. R. App. P. 100, 707 S.W.2d (Tex. Cases) LXXXVI-LXXXVII (Tex. 1986, amended 1997). At what point "meaningful review" occurs during this ongoing process is not readily discernible. We believe the Lopezes' interpretation of the contract language is too broad and therefore unworkable. That an appeal may encompass multiple and various stages does not mean that the contract language is ambiguous. Under our former appellate rules, an appeal was "taken" and the court of appeals' jurisdiction invoked when a cash deposit in lieu of a cost bond was filed. Thus, when Westinghouse made its cash deposit, the case was "appealed to a higher court" under the contract's terms.
When a contract is unambiguous we will enforce it as written. See Heritage Resources, 939 S.W.2d at 121. We hold that the case was "appealed to a higher court" when Westinghouse perfected its appeal. Accordingly, as a matter of law MHR did not breach the contract by charging the additional appeals fee. Therefore, the trial court did not err in granting MHR summary judgment on the Lopezes' breach of contract claim.
III Breach of Fiduciary Duty
The Lopezes' breach of fiduciary duty claim, as presented in their pleadings and summary judgment motion, was grounded solely on the theory that MHR breached its contract. As the court of appeals noted, "the Lopez family tied its breach of fiduciary duty claim to its breach of contract claim." 980 S.W.2d at 740. In their summary judgment motion, the Lopezes summarized the facts and argued that MHR's behavior breached the contract. Their argument that MHR breached its fiduciary duty followed immediately: "Further, such conduct constitutes, as a matter of law, a breach of the Defendant's fiduciary obligation to the Plaintiffs." Nowhere in their pleadings, their motion for summary judgment, or their response to MHR's motion for summary judgment did the Lopezes argue that MHR breached its fiduciary duty other than by breaching its contract. Although counsel later posited that MHR had a duty to inform the Lopezes that there was an alternate colorable construction of the triggering clause, the Lopezes neither pleaded nor briefed this theory.
Texans for Reasonable Legal Fees (TRLF) has filed an amicus brief arguing that MHR's fee is unreasonable despite the fee agreement and that MHR breached its fiduciary duty by charging an excessive fee. Alternatively, TRLF contends MHR breached its fiduciary duty by failing to inform the Lopezes that the phrase "if the case is appealed to a higher court" might colorably be interpreted to mean something other than "if appeal is perfected." Whether or not these theories have merit, they are not before us.
The Lopezes submitted no theory other than breach of contract to support their breach of fiduciary duty claim. They did not allege that the forty-five percent appeal rate was excessive when the contract was made, or that charging the additional five percent was a breach of fiduciary duty irrespective of the contract's terms. (4) Nor did they allege that MHR concealed the additional fee charge, improperly delayed execution of the settlement so that Westinghouse would perfect an appeal, or otherwise manipulated the settlement and appeal process in order to charge the higher fee.
On an appeal from summary judgment, we cannot consider issues that the movant did not present to the trial court. See Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 625 (Tex. 1996); Travis v. City of Mesquite, 830 S.W.2d 94, 100 (Tex. 1992). We have already decided that the trial court did not err in granting MHR's motion for summary judgment on the breach of contract claim. Because the Lopezes premised their breach of fiduciary duty claim on MHR's alleged contract breach, our conclusion on the contract issue necessarily disposes of the breach of fiduciary duty claim. (5)
IV Other Claims/Affirmative Defenses
The Lopezes also pleaded negligence, DTPA violations, and fraud. The Lopezes did not move for summary judgment on these claims but rather moved to sever them. The motion to sever was combined with their motion for summary judgment on the breach of contract and breach of fiduciary duty claims. In response, MHR filed a cross-motion for summary judgment arguing that (1) the parties had reached an accord and satisfaction, (2) the Lopezes accepted the benefits of the settlement and were therefore estopped from contesting it, (3) the breach of fiduciary duty claim was barred by limitations, and (4) there was no breach of contract as a matter of law. The trial court denied the Lopezes' severance and summary judgment motions, and rendered summary judgment for MHR on all of the Lopezes' claims without specifying the grounds for its ruling. We have upheld the trial court's summary judgment in MHR's favor on the Lopezes' breach of contract and breach of fiduciary duty claims. We must next decide whether the trial court properly granted summary judgment in MHR's favor on the Lopezes' remaining fraud, negligence, and DTPA claims. The affirmative defenses asserted by MHR that could arguably defeat the Lopezes' remaining claims are accord and satisfaction and acceptance of the benefits. MHR contends that the trial court properly granted summary judgment on these defenses, and therefore all of the Lopezes' remaining claims are barred. The Lopezes, on the other hand, contend that MHR was not entitled to summary judgment on these affirmative defenses. We agree with the Lopezes, and consequently remand their fraud, negligence, and DTPA claims to the trial court. (6)
The accord and satisfaction defense rests upon a contract, express or implied, in which the parties agree to the discharge of an existing obligation by means of a lesser payment tendered and accepted. See Jenkins v. Henry C. Beck Co., 449 S.W.2d 454, 455 (Tex. 1969). MHR claims that the Lopez family's agreement to accept the settlement after full disclosure of the forty-five percent additional fee constituted an accord, which was satisfied when the Lopezes accepted payment of their part of the settlement funds. However, for this defense to prevail, there must be a dispute and an unmistakable communication to the creditor that tender of the reduced sum is upon the condition that acceptance will satisfy the underlying obligation. See id. The parties must specifically and intentionally agree to the discharge of one of the parties' existing obligations. See Industrial Life Ins. Co. v. Finley, 382 S.W.2d 100, 104 (Tex. 1964). In other words, to prevail on its defense, MHR was required to present summary judgment evidence that the Lopezes disputed the fee and specifically and intentionally agreed to relinquish any claims they might have had against MHR for its alleged overcharge. To knowingly relinquish claims arising out of MHR's alleged overcharge the Lopezes would have to know that an overcharge existed. There is no evidence in the record, however, that there was a fee dispute between the Lopezes and MHR when the Lopezes accepted the settlement. "A valid accord and satisfaction requires that there initially be a legitimate dispute between the parties about what was expected." Bueckner v. Hamel, 886 S.W.2d 368, 372 (Tex. App.--Houston [1st Dist.] 1994, writ denied). Accordingly, MHR was not entitled to summary judgment on its accord and satisfaction defense.
MHR's remaining defense, acceptance of the benefits, is a
species of quasi-estoppel. See Atkinson
Gas Co. v. Albrecht, 878 S.W.2d 236, 240 (Tex. App.--Corpus Christi 1994,
writ denied). Quasi-estoppel precludes a party from asserting, to another's
disadvantage, a right inconsistent with a position previously taken. See
id. The doctrine applies when it would be unconscionable to allow a person
to maintain a position inconsistent with one to which he acquiesced, or from
which he accepted a benefit. See id; Vessels v. Anschutz Corp., 823 S.W.2d 762, 765-66 (Tex.
App.--Texarkana 1992, writ denied). For the reasons considered in connection
with the accord and satisfaction defense, the Lopezes' initial acceptance of a
lesser portion of the settlement is not inconsistent with their later assertion
that they were entitled to more. Consequently, MHR was not entitled to summary
judgment based upon its acceptance of the benefits defense.
V
We reverse the court of appeals' judgment on the Lopezes' breach of contract and breach of fiduciary duty claims, render judgment that the Lopezes take nothing on those claims, and remand the Lopezes' fraud, negligence, and DTPA claims to the trial court.
Harriet O'Neill, Justice
OPINION DELIVERED: June 8, 2000.
{Footnotes by the court]
1. The relevant portion of the Lopezes' contract with MHR reads as follows:
For services rendered, and to be rendered, I/we assign 40%
of any monies or other property recovered. If the case is appealed to a higher
court then 45% of any monies or other property recovered is herein assigned. If
nothing is recovered, I/we owe said attorneys nothing.
2. Although the court of appeals wrote that Westinghouse's attorney "agreed to [settle]," 980 S.W.2d 738, 740, there was conflicting testimony as to whether the attorney accepted the settlement or merely reported that he would take it to his client for approval.
3. Rule 25.1(a) of the Texas Rules of Appellate Procedure now provides that "[a]n appeal is perfected when a written notice of appeal is filed with the trial court clerk." Tex. R. App. P. 25.1(a).
4. According to the court of appeals, the evidence showed that the parties understood the case would not be appealed if it settled, and MHR breached its fiduciary duty because it knew the case would not be appealed when it charged the additional five percent. See 980 S.W.2d at 743. But this conclusion is based upon the court of appeals' expanded definition of an appeal, which we have rejected in the context of this case.
5. We note that the court of appeals also concluded that the Lopezes' breach of fiduciary duty claim was predicated on their contract claim. See 980 S.W.2d at 740.
6. MHR claims that the Lopezes did not properly plead fraud or negligence, but concedes that the Lopezes pleaded DTPA violations. Nonetheless, both parties agree that whatever claims remain were disposed of improperly and should be remanded unless MHR established that it was entitled to summary judgment on its affirmative defenses.
I join Part IV of the Court's opinion, that the Lopez family's fraud, negligence, and DTPA claims should be remanded. I agree with the Court's conclusion but not its reasoning in Part III that the Muñoz firm did not breach the fiduciary duty alleged by the Lopez family. However, I dissent from Part II of the Court's opinion because, unlike the Court, I conclude that the contract is ambiguous and would remand for that reason. Accordingly, I only join the Court's judgment in part. I write further to advance the proposition that attorneys owe a fiduciary duty to fully explain the ramifications of their employment contracts to their clients.
Here we must decide whether a contingent fee contract between a law firm, Muñoz, Hockema & Reed, and its client, the Lopez family, entitles the firm to forty percent or forty-five percent of the Lopezes' settlement recovery of fifteen million dollars from Westinghouse Electric Corporation. The settlement was finalized a few days after Westinghouse filed a cash deposit in lieu of cost bond to preserve its right to appeal. See Tex. R. App. P. 40(a)(1), 707 S.W.2d (Tex. Cases) LI (Tex. 1986, amended 1997). The lawyers' portion of the fifteen million dollars depends on the contract language that provides a forty percent contingent fee for services rendered, but forty-five percent if the case is "appealed to a higher court." The Court decides that the term "appealed to a higher court" plainly and unambiguously means the moment that one party files a cash deposit in lieu of a cost bond with the court, thereby preserving its right to an appeal. I respectfully disagree.
As the Court acknowledges, our standard rules of contract construction direct us to ascertain the true intentions of the parties as expressed in the terms of the instrument. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). We give contract terms their plain, ordinary, and generally accepted meaning unless the instrument shows that the parties used them in a technical or different sense. See Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). Neither the parties nor the Court contends that "appealed to a higher court" is a technical term or a term of art. The Court, however, ignores the tenets of contract construction by adopting a technical and specialized meaning of the term "appealed to a higher court." While the public would generally understand that some act must be taken to initiate the appellate process, it defies common sense to conclude that the general public would understand the term to mean the point in time a party files a cash deposit in lieu of a cost bond. The Court's own words confirm the ambiguity about this term. The Court concludes that the filing of a cash deposit in lieu of a cost bond results in an appeal, and yet states that filing a cash deposit in lieu of a cost bond preserves a right to appeal -- suggesting that an appeal has yet to occur. ___ S.W.3d ___, ___. Generally, only members of the legal profession have any reason to know and appreciate that filing a cash deposit in lieu of a cost bond preserved a right to appeal under the old rules. Such a limited and specialized meaning cannot be the plain and common meaning of the term for purposes of this contract.
The Court says that it chooses the filing of a cash deposit in lieu of cost bond as the point in time a case is "appealed" because that event provides certainty. ___ S.W.3d at ___. The Court dismisses the court of appeals' decision that "appealed to a higher court" means something more than initiating the appellate process, because, the Court explains, such a construction expands the actual contract language and "makes it difficult, if not impossible, to determine with any certainty when a case has been appealed." ___ S.W.3d at ___. But the Court has no obligation to reach an interpretation that achieves certainty if a construction is inconsistent with the intent of the parties as reflected in the words of the contract. Instead, the Court must construe the contract as written, not as it would have drafted the contract had it been a party. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).
Even if providing certainty were the goal in construing this contract, the Court does not explain why perfection of an appeal is any more certain than other stages of the appellate process. The Court concedes that the appellate process involves many steps, and I find nothing in the contract that specifies that the law firm is entitled to the additional fee for services rendered if the right to appeal is preserved -- which is all that really happened here. The contract merely provides for the additional fee if the case is "appealed." Thus, it is the Court that expands the contract language by choosing the preparatory stage of the appellate process. And as for the certainty in contract desired by the Court, that can surely be achieved by choosing other equally determinable events in the appellate process.
When considering the plain meaning of the term "appealed to a higher court," I believe there are multiple reasonable interpretations. First, this term reasonably could mean the first procedural or technical step taken to preserve the right to appeal -- the interpretation adopted by the Court. Second, the term "appealed to a higher court" could mean when a party expresses his or her complaint to an appellate court and seeks redress. Under this view, the term "appealed" would correspond with the filing of the appellant's brief in the court of appeals or the filing of a petition for review in this Court. Third, one could conclude that the term "appealed" contemplates a completed act. In that case, "appealed" could mean when the parties have fully expressed their arguments and have submitted the case to an appellate court for a decision. Each of these constructions is consistent with the plain language of the contract, and each would provide the certainty important to the Court. Because I conclude there are multiple reasonable meanings of the term "appealed to a higher court," I would hold that this contract is ambiguous. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) (explaining a contract is ambiguous when its meaning is reasonably susceptible to more than one meaning).
Generally, when the objective meaning of a contract term is ambiguous, the parties' subjective meaning of the term becomes a fact question. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996). In some circumstances, however, courts will construe the contract to favor one party in light of the relationship of the parties or public policy. See Temple-Eastex, Inc. v. Addison Bank, 672 S.W.2d 793, 798 (Tex. 1984) ("a writing is generally construed most strictly against its author and in such a manner as to reach a reasonable result consistent with the apparent intent of the parties.") For example, when an insurance contract is ambiguous, the contract is construed against the insurer. See State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex. 1998). One court construed an equipment lease against the drafter because that party was responsible for choosing the ambiguous language and could have used clearer terms. See General Corrosion Services Corp. v. K Way Equip. Co., Inc., 631 S.W.2d 578, 580 (Tex. App. -- Tyler 1982, no writ). However, this Court has not applied the rule of construction to an employment contract between an attorney and client. (1)
The special relationship between a lawyer and client leads me to conclude that an ambiguous contract between them should generally be construed against the lawyer-drafter. The Restatement of Contracts suggests that construing contracts against the drafter is justified when the drafter is in a better position to know of uncertainties of meaning or when the drafting party has the stronger bargaining position. See Restatement (Second) of Contracts § 206 com. a (1981). The Restatement of the Law Governing Lawyers, which adopts a similar construction rule for lawyer-client contracts, adds the rational that lawyers are more able than most clients to detect and repair omissions in lawyer-client agreements. See Restatement (Third) of Law Governing Lawyers § 29A com. h (Proposed Final Draft No. 1, 1996). These reasons suggest that ambiguities in fee contracts should be construed against the lawyer-drafter. Usually a lawyer is in a better position to understand the terms of a contract drafted by the lawyer than a client. Clients, after all, are clients because they need legal advice and seek to hire lawyers with greater legal skill and experience. Additionally, a lawyer is usually in a stronger bargaining position and generally has more experience negotiating contracts, settlements, and fee arrangements. Finally, lawyers, because of their training and experience, are in a better position than most of their clients to discover and correct ambiguities in the contract.
For these reasons, I would generally construe ambiguous lawyer-client contracts against the lawyer-drafter. But even if the Court is unwilling to adopt such a rule of construction, it should at least remand because the objective meaning of the contract term "appealed to a higher court" is ambiguous.
The Lopez family also alleges that the Muñoz law firm breached its fiduciary duty by breaching their contract. In Texas, we hold attorneys to the highest standards of ethical conduct in their dealings with their clients. See Archer v. Griffith, 390 S.W.2d 735, 739 (Tex. 1964). The duty is highest when the attorney contracts with his or her client or otherwise takes a position adverse to his or her client's interests. As Justice Cardozo observed, "[a fiduciary] is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928). Accordingly, a lawyer must conduct his or her business with inveterate honesty and loyalty, always keeping the client's best interest in mind.
Clearly, a breach of fiduciary duty may arise if a lawyer accepts fees that the lawyer is not entitled to by contract. But not every breach of contract is necessarily a breach of fiduciary duty. If a lawyer acts in good faith under a colorable interpretation of a contract, the lawyer does not necessarily act against a client's interest. See Restatement (Third) of Law Governing Lawyers § 28 (Proposed Final Draft No. 1, 1996) (limiting professional discipline to intentional failures to fulfill a valid contract). Here, the Muñoz law firm accepted the additional fee under one of several reasonable interpretations of the contract, and the Lopez family does not allege that the firm was acting in bad faith. Accordingly, even if the fact finder were to conclude that the term "appealed to a higher court" refers to a point in time after the right to appeal is preserved, I would hold that the Muñoz firm did not breach its fiduciary duty to the Lopez family by breaching its contract.
But there are two other ethical issues in this case, about which the Lopez family does not complain, that nonetheless deserve discussion. The first relates to a lawyers's duty to fully and honestly inform his or her client of a fee arrangement. See Tex. Disciplinary R. Prof. Conduct 1.03(b), 1.04(d) (1989), reprinted in Tex. Gov't Code Ann., tit. 2, subtit. G app. A (1998). The fiduciary relationship between attorney and client requires "absolute and perfect candor, openness and honesty, and the absence of any concealment or deception." Vickery v. Vickery, 999 S.W.2d 342, 376 (Tex. 1999). Fundamentally, a lawyer should always act in the client's best interests. A lawyer and client's negotiations are often imbalanced in favor of the lawyer because of information inequalities and the client's customary reliance on the lawyer's legal advice. Consequently, a lawyer should fully explain to the client the meaning and impact of any contract between them. Here, for example, to best serve their client, and to protect their own interests, the Muñoz firm could have explained to the Lopez family at the time the contract was signed that the firm believed it would be entitled to an additional fee the moment Westinghouse preserved their right to appeal, even though an agreement in principle had been reached to settle the case.
Another ethical consideration that deserves mention is the lawyer's fiduciary duty not to collect an unconscionable fee from his client. See Tex. Disciplinary R. Prof. Conduct 1.04(a); Nolan v. Foreman, 665 F.2d 738, 741 (5th Cir. 1982) (holding under Texas law an attorney breaches a fiduciary duty to the client by charging an excessive fee). A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable. See Tex. Disciplinary R. Prof. Conduct 1.04(a). The reasonableness of any fee depends on the circumstances of the services. See Tex. Disciplinary R. Prof. Conduct 1.04(b) (detailing factors to weigh in determining reasonableness of fees); Restatement (Third) of the Law Governing Lawyers, §§ 46, 47 (Proposed Final Draft No. 1, 1996). Generally, however, a lawyer's fee is unreasonable if it is grossly disproportionate to the work and the risks. See Tex. Disciplinary R. Prof. Conduct 1.04(b); Committee on Legal Ethics v. Tatterson, 352 S.E.2d 107, 113 (W.Va. 1986); The Florida Bar v. Moriber, 314 So.2d 145, 149 (Fla. 1975); see also General Motors Corp. v. Bloyed, 916 S.W.2d 949, 960 (Tex. 1996) (discussing lodestar method to calculate lawyer's fees in class actions as calculated by multiplying the number of hours expended by an appropriate hourly rate determined by a variety of factors, such as the benefits obtained for the class, the complexity of the issues involved, the expertise of counsel, the preclusion of other legal work due to acceptance of the class action suit, and the hourly rate customarily charged in the region for similar legal work).
The fee contract here compensated the lawyers for "services rendered." There is evidence in the record that the firm did some work in connection with an appeal both before and after the cash deposit in lieu of cost bond was filed. But the record also suggests that the Lopez family and Westinghouse had agreed in principle to a settlement, substantially lowering the risk to the law firm -- a risk existing in all contingent fee contracts -- that it might not collect its fees. While a contract may entitle a lawyer to a substantial fee for little or no work, a lawyer may nonetheless be required by his or her fiduciary duty to decline the fee. Additionally, a law firm may breach its fiduciary duty if it provides little or no services, but still collects a substantial part of its clients recovery in the face of a pending settlement.
By all appearances, the law firm did a good job representing its client against Westinghouse. The firm obtained a twenty-five million dollar jury award and participated in negotiating a fifteen million dollar settlement. The lawyers should be fully compensated for their work and the risks they assumed. I do not begrudge them for demanding compensation for services rendered according to their contract. (2) But the demand must be clearly supported by the contract. And when construing contracts between lawyers and clients, it is not enough to simply say that a contract is a contract. There are ethical considerations overlaying the contractual relationship. Lawyers should be just as mindful of these ethical obligations as their contractual obligations.
For these reasons, I concur in part and dissent in part.
Alberto R. Gonzales, Justice
OPINION ISSUED: June 8, 2000
[Footnotes by the court]
1. Many other courts, however, have adopted as a rule of construction that lawyer-client contracts will be strictly construed against the lawyer. See, e.g., Vans Agnew v. Fort Myers Drainage Dist., 69 F.2d 244, 246 (5th Cir. 1934); Waugh v. Q. & C. Co., 16 F.2d 363, 365 (7th Cir. 1926); Estate of Sparkman v. Smith, 639 So.2d 1258, 1261 (Miss. 1994); Cardenas v. Ramsey County, 322 N.W.2d 191, 193-94 (Minn. 1982); Hitchcock v. Skelly Oil Co., 440 P.2d 552, 554 (Kan. 1968); In re Irwin, 91 P.2d 518, 523 (Or. 1939); Bennett v. Potter, 183 P. 156, 157-58 (Cal. 1919); Falloon v. Miles, 170 N.W. 191, 192 (Neb. 1918).
2. I note that the law firm has indicated its willingness to repay the additional five percent by not appealing the court of appeals' judgment.
*Comment
by Lisa McDonald Eddleman July 5
As
I am currently living and working in New Zealand, I find your online continuing
legal education system a wonderful service!
Your site link is somewhat buried within the MCLE supersite--if I had not
known to look for
Can
you talk in more detail about fiduciary duty and its application in the attempts
by the Texas Legislature/Attorney General to reduce the fees of the law firms
involved in tobacco litigation?
*Response
by A. Hawkins, teacher:
We are pleased to be of service to our New Zealand Texans. Other lawyers with
Texas licenses who live in New York City, Jackson, Mississippi, Steamboat
Springs, Colorado, and Oklahoma City took our courses at about the same time as
you took this course from New Zealand.
Data
entry at the bar has been inconsistent. We will try to have the errors
corrected. We are not yet in the internet search engine listings.
We are new, so we are learning as we go. Our intent is to focus on
quality and quantity before addressing marketing. As we add courses and learn
the ropes we hope to be easier to find. We are delighted that you found us, and
delighted with the response of those who have taken our courses.
The
tobacco litigation is an ongoing saga. We expect to add a comment now and then
as the story unfolds and we have time. We
have considered adding a separate discussion group and/or course on that
situation. Student response will affect where we focus our efforts. Thank
you for your response.
*Comment
by Christopher Hansen
An interesting topic, with some good cases.
* Course Update by
the teacher, A. Hawkins, August 20, 2000
A
breach of fiduciary duty case arising out of the polybutylene case was issued on
August 3, 2000. It is reproduced in full below.
Affirmed
in Part, Reversed and Remanded in Part, and Opinion filed August 3, 2000.
In
The Fourteenth Court of Appeals
NO.
14-99-00137-CV
SUE
SPERA ET AL., Appellants
V.
FLEMING,
HOVENKAMP & GRAYSON, P.C. ET AL., Appellees
On
Appeal from the 61st District Court
Harris
County, Texas
Trial
Court Cause No. 98-06249
O
P I N I O N
Appellants
in this case, all plaintiffs below, are Sue Spera, James Surowka, Joan Tully,
William Tully, Matthew Uto, Harry White, Richard Wood, Nelson Eppert, Helen
Groves, Erwin Irmscher, James Keily, Ann Keily, Joseph Langley, and Richard
Shore (collectively, the "Spera Plaintiffs" or
"Appellants"). Appellees, all defendants below, are individual
attorneys George M. Fleming, Mark Hovenkamp, John L. Grayson, and the law firm
which bears their names, Fleming, Hovenkamp & Grayson, P.C. (collectively,
"FH&G" or "Appellees"). In the trial court, the Spera
Plaintiffs complained that FH&G breached its fiduciary duty and otherwise
committed legal malpractice by seeking excessive attorneys' fees and by failing
to timely disclose a conflict of interest between the firm and its clients. In
nine points of error, Appellants argue that the trial court erred in granting FH&G's
motion for summary judgment. For the reasons set out below, we affirm, in part,
and reverse and remand, in part.
Background
This
case stems from the tide of polybutylene pipe litigation which flooded the
nation's courtrooms during the last decade. Although thousands of polybutylene
cases were filed in Texas, these cases were not certified as a class action.
Instead, each was prosecuted on an individual basis. For ease of administration,
the judge presiding over the 334th Judicial District Court was appointed to
coordinate all pretrial matters in the multitude of polybutylene cases pending
in Harris County.
In
individual lawsuits filed in Harris County against the manufacturers of
polybutylene, FH&G represented the Spera Plaintiffs and over thirty thousand
other parties who had suffered property damage as a result of plumbing systems
made from defective polybutylene pipes. In so doing, FH&G executed
contingency fee agreements with each of its clients, including the Speras. Under
the terms of these agreements, each polybutylene plaintiff agreed that FH&G
was entitled to an award of attorneys' fees in the amount of 40% of all sums
recovered by judgment or settlement and up to 45% of the sums recovered in the
event of an appeal.
In
December of 1995, an aggregate settlement was reached with two of the
polybutylene manufacturers. The settlement called for cash payments totaling
$170 million, as well as provisions for replacing the plumbing in each
plaintiffs' property. Significantly, in March of 1996, after the settlement was
finalized, the 334th District Court, sua
sponte, ordered a series of "fairness hearings" to determine
whether the attorneys' fees and expenses proposed by FH&G under the
contingent fee contracts were reasonable. Those hearings were completed in
October of 1996. During the hearings, the court heard evidence from FH&G
that polybutylene litigation was its dominant activity for nine years, involving
the work of eight attorneys, five legal assistants, a number of contract
attorneys, investigators, law clerks, and other support personnel. FH&G
presented additional evidence that, during the course of the polybutylene
litigation, the law firm conducted more than 8,000 depositions and inspected
over 30,000 property units. The court also heard evidence that contingency fee
percentages for complex, mass tort litigation typically range from 10% to 50%,
depending upon the circumstances of each case. This evidence included the fact
that the lawyers representing a nationwide polybutylene class action, which the
FH&G clients had not joined, received attorneys' fees of only around 9% of
the total settlement fund.
On
November 18, 1996, the 334th District Court entered an order reducing the amount
of allowable attorneys' fees by more than half of the amount provided for by the
contingency fee contracts. Based on this order, the fees were reduced from 40%
of the whole settlement value, to 20% of the cash settlement amount. Under the
contingency fee contracts, FH&G would have received approximately $87
million in attorneys' fees. The amount of attorneys' fees that the court
approved in place of the contractual amount was just over $33 million. The court
further declined to award the $20 million in reimbursements sought by FH&G,
awarding only $10 million in out-of-pocket expenses.
FH&G
immediately appealed the court's order regarding the attorneys' fees, and that
case was assigned to the First Court of Appeals.(1)
In a December 1996 newsletter distributed to its polybutylene clients, FH&G
informed the clients of its intent to appeal the 334th District Court's
decision. FH&G also acknowledged, for the first time, that the attorneys'
fees issue raised by the court - more than eight months earlier in March of 1996
- posed a "conflict of interest" between the law firm and the clients.
In July of 1997, FH&G sent additional written correspondence to its
polybutylene clients offering to settle the attorneys' fee dispute. From July of
1997, through September of 1998, over 20,000 of the polybutylene clients
represented by FH&G resolved their claims over the disputed attorneys' fees.
However, none of the Spera Plaintiffs entered into a settlement with FH&G
over the disputed attorneys' fees. Rather, the Spera Plaintiffs complained that,
by seeking to enforce the contingent fee contracts as written, and by failing to
disclose the conflict of interest between the law firm and its clients prior to
December of 1996, FH&G negligently breached its fiduciary duty.
Procedural
History and
Issues Presented
In
February of 1998, the Spera Plaintiffs filed a lawsuit against FH&G in the 61st Judicial District Court for Harris County, Texas, alleging
that, by seeking the full amount of attorneys' fees without disclosing the
conflict of interest, the defendants "wholly failed and neglected to
properly represent and protect" the polybutylene plaintiffs' interests.(2)
In that regard, the Spera Plaintiffs lodged claims for "fraud,
misrepresentation, conflict of interest, breach of fiduciary duty, neglect,
negligence, gross negligence, negligence per
se, and legal malpractice." The Spera Plaintiffs complained, in
particular, that FH&G's "overreaching" conduct constituted an
abuse of "the trust and confidence reposed in them" which rose to the
level of a fiduciary breach, and so they sought forfeiture of all or part of the
attorneys' fees already paid.
In
September of 1998, FH&G filed a motion for summary judgment arguing that the
Spera Plaintiffs' claims failed as a matter of law for the following reasons:
(1) the claims were barred by the doctrine of collateral estoppel because the
334th District Court had already considered the propriety of the attorneys' fee
award during the 1996 fairness hearings; (2) the claims were an
"impermissible collateral attack" on the November 18, 1996 order
entered by the 334th District Court because the Spera Plaintiffs did not appeal
that order; (3) the claims were barred by the doctrine of judicial estoppel
because of a prior statement made by the Spera Plaintiffs during the course of
the lawsuit; (4) the claims were barred because 20,000 of the proposed
plaintiffs in the suit had already released their claims stemming from the
attorneys' fee issue by agreeing to settle that dispute; (5) the claims
regarding FH&G's efforts to settle the attorneys' fee dispute were barred as
an "impermissible attack" on the 334th District Court's November 18,
1996 order; (6) that FH&G's conduct in offering to settle the attorneys' fee
dispute could not support the Spera Plaintiffs' claims because the court had
already found the settlement "acceptable"; (7) that, because the
polybutylene plaintiffs received all of the damages sought during the litigation
with the manufacturers, the Spera Plaintiffs had not been damaged and therefore
could not prevail on their claims against FH&G; and (8) that, because all
disputed funds were transferred into an escrow account, the Spera Plaintiffs
could not prove they had been damaged by the attorneys' fee debacle.
In
October of 1998, the judge of the 61st District Court entered a summary judgment
in FH&G's favor without specifying the grounds for that ruling. This appeal
followed. In their first eight points of error, Appellants challenge each of the
grounds recited in FH&G's motion, arguing that none of them support a
summary judgment. Appellants' ninth point of error alleges that the judge of the
61st District Court erred generally by entering summary judgment in FH&G's
favor under the rule set out in Malooly
Brothers, Inc. v. Napier, 461 S.W.2d 119 (Tex. 1970) (noting that a point of
error which states generally that the trial court erred by granting summary
judgment "is sufficient to preserve error and to allow argument as to all
possible grounds upon which summary judgment should have been denied").
Standard
of Review: Summary Judgment
Here,
FH&G filed its motion for summary judgment under Rule 166a(c) of the Texas
Rules of Civil Procedure. The standard for reviewing motions filed under this
rule "is whether the successful movant at the trial level carried its
burden of showing that there is no genuine issue of material fact and that
judgment should be granted as a matter of law." KPMG
Peat Marwick v. Harrison County Housing Fin. Corp., 988 S.W.2d 746, 748
(Tex. 1999) (citing Lear Siegler, Inc. v.
Perez, 819 S.W.2d 470, 471 (Tex. 1991); Nixon
v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex.1985)). Under that
standard, we must take as true all evidence favorable to the nonmovant and must
make all reasonable inferences in the nonmovant's favor as well. See
KPMG Peat Marwick, 988 S.W.2d at 748; Nixon,
690 S.W.2d at 548-49. When a motion for summary judgment is based on the
insufficiency of the nonmovant's pleadings, we likewise assume that all
allegations and facts in the pleadings are true and resolve any reasonable doubt
in the nonmovant's favor. See Carriero v.
Wiley, 976 S.W.2d 829, 831 (Tex. App.--Houston [1st Dist.] 1998, pet.
denied) (citing American Tobacco Co. v.
Grinnell, 951 S.W.2d 420, 434 (Tex. 1997); Natividad
v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex. 1994)).
To
prevail on summary judgment, a defendant, as the movant, must establish as a
matter of law all the elements of an affirmative defense or show that at least
one element of the plaintiff's cause of action has been established conclusively
against the plaintiff. See Robles v.
Consolidated Graphics, Inc., 965 S.W.2d 552, 556 (Tex. App.--Houston [14th
Dist.] 1997, pet. denied) (citing Montgomery
v. Kennedy, 669 S.W.2d 309, 310-11 (Tex. 1984)). If a reviewing court finds
that the movant has not met its burden, it must reverse and remand the case for
further proceedings. See id. (citing Gibbs v. General Motors Corp., 450 S.W.2d 827, 828-29 (Tex. 1970)).
Where, as here, the trial court does not specify the grounds for its granting of
a movant's motion for summary judgment, a reversal is warranted if the appellant
shows that it was error to base its judgment on any of the grounds asserted in
the motion. See Star-Telegram, Inc. v. Doe,
915 S.W.2d 471, 473 (Tex. 1995); State
Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex.1993).
Collateral
Estoppel
In
its motion for summary judgment, FH&G argued that the Spera Plaintiffs'
claims were barred by the doctrine of collateral estoppel because the attorneys'
fee issue was previously litigated at the fairness hearings before the 334th
District Court. In their first point of error, the Spera Plaintiffs contend that
the doctrine of collateral estoppel does not apply in this instance.
The
doctrine of collateral estoppel is used to prevent a party from relitigating an
issue that it "previously litigated and lost." Quinney
Elec., Inc. v. Kondos Entertainment, Inc., 988 S.W.2d 212, 213 (Tex. 1999)
(citing Parklane Hosiery Co. v. Shore,
439 U.S. 322, 329 (1979); Johnson &
Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 519 (Tex.
1998)). To invoke collateral estoppel successfully, a party must establish the
following elements: (1) the facts sought to be litigated in the second action
were fully and fairly litigated in the first action; (2) those facts were
essential to the judgment in the first action; and (3) the parties were cast as
adversaries in the first action. See Mann
v. Old Republic Nat'l Title Ins. Co., 975 S.W.2d 347, 350 (Tex.
App.--Houston [14th Dist.] 1998, no pet.) (citing Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 801 (Tex.
1994); Eagle Properties, Ltd. v.
Scharbauer, 807 S.W.2d 714, 721 (Tex. 1990)). The Spera Plaintiffs insist
that collateral estoppel does not apply because FH&G cannot establish any of
these elements. Whether collateral estoppel applies is a question of law for the
court to decide. See Dominques v. City of
San Antonio, 985 S.W.2d 505, 507 (Tex. App.--San Antonio 1998, pet. denied)
(citing United States v. Brackett, 113
F.3d 1396, 1398 (5th Cir.), cert. denied,
522 U.S. 934 (1997); Hill v. Heritage
Resources, Inc., 964 S.W.2d 89, 138 (Tex. App.--El Paso 1997, pet. denied)).
A
reading of the "Final Order" entered by the 334th District Court on
November 18, 1996, shows that it was intended to "resolve the issue of
attorney[s'] fees and expenses." The order observes that the settlement
entailed $170 million in cash to be distributed among claimants representing
approximately 67,000 property units and, in addition, for replacing the
polybutylene plumbing found in 60,000 of those units. The order notes further
that FH&G made the following proposal for distributing attorneys' fees and
expenses under the existing contingent fee contracts:
FH&G
presented to the court a proposed formula wherein that law firm would receive in
addition to the $20 million dollars in expenses referred to above, attorney[s']
fees in the amount of $88.8 million dollars. The attorney[s'] fee figure was
arrived at by taking 40% of the cash portion of the settlement and adding it to
40% of the value of replumbs estimated at an agreed upon figure of $72 million
dollars, or $1,200 dollars a unit for 60,000 units. Thus the total fees and
expenses estimate set for by FH&G was $108.8 million dollars or 64% of the
total cash fund available.
The
court found that, under the "unique circumstances" present in the
polybutylene "mass tort" litigation, such an award of attorneys' fees
and expenses "would be excessive and contrary to the interests of
justice." Accordingly, the court reduced the amount of attorneys' fees to
approximately $33 million and the amount of compensation for expenses to just
over $10 million.
We
hold that, under these facts, the doctrine of collateral estoppel does not
apply. The sole issue before the 334th District Court was whether enforcement of
the 40% contingent fee agreements was reasonable as a matter of public policy.
In contrast, the issue before the 61st District Court in this lawsuit by the
Spera Plaintiffs is whether FH&G breached its fiduciary duty or engaged in
any other wrongful conduct by failing to timely disclose a conflict of interest
to the clients. Because the issues presented are separate from those addressed
by the trial court during the fairness hearings, the Spera Plaintiffs' claims
are not barred by collateral estoppel. See
Querner v. Rindfuss, 966 S.W.2d 661, 668 (Tex. App.--San Antonio 1998, pet.
denied) (holding that a court's previous approval of the reasonableness of
attorneys' fees does not bar later litigation of claims concerning the
attorneys' alleged wrongful conduct and breach of the fiduciary duty).
Accordingly, the Spera Plaintiffs' first issue on appeal is sustained.
Collateral
Attack
FH&G
also argued that it was entitled to a summary judgment because, by failing to
appeal the 334th District Court's November 18, 1996 order apportioning
attorneys' fees and expenses, the Spera Plaintiffs' claims were an
"impermissible collateral attack" on the court's final order. In their
second point of error, the Spera Plaintiffs contend that the trial court erred
in granting summary judgment on this basis.
"A
collateral attack is an attempt to avoid the effect of a judgment in a
proceeding brought for some other purpose." Gus M. Hodges, Collateral
Attacks on Judgments, 41 Tex. L. Rev. 163, 163-64 (1962). A collateral
attack is impermissible if it is instituted to interpret a prior judgment
entered by the same court or another court of coordinate jurisdiction. See,
e.g., Martin v. Dosohs I, Ltd., 2 S.W.3d 350, 352 (Tex. App.--San Antonio
1999, pet. denied) (holding that, in Texas, a litigant may not use a declaratory
judgment suit to interpret a judgment of the same or another court). In this
case, the Spera Plaintiffs complain that FH&G engaged in overreaching
conduct by appealing the 334th District Court's order in an effort to secure
excessive attorneys' fees and that FH&G breached its duty to disclose a
conflict of interest. In that respect, the Spera Plaintiffs do not seek to set
aside the November 1996 order on attorneys' fees. It follows that the Spera
Plaintiffs' claims are not a collateral attack on that judgment. See,
e.g., State v. Durham, 860 S.W.2d 63, 67 (Tex. 1993) (finding that, where a
plaintiff is not seeking to set aside a judgment, but instead attacks conduct
extrinsic to the judgment, the claim is not a collateral attack on that
judgment). The Spera Plaintiffs' second point of error is therefore sustained.
Judicial
Estoppel
In
its motion for summary judgment, FH&G argued that a statement purportedly
made during the course of the lawsuit barred the Spera Plaintiffs' claims under
the doctrine of judicial estoppel. The Spera Plaintiffs argue, in their third
point of error, that the doctrine of judicial estoppel does not apply here.
The
doctrine of judicial estoppel "bars a party, who has successfully
maintained a position in a prior judicial proceeding, from later adopting an
inconsistent position, unless he can show the prior statement was made
inadvertently due to mistake, fraud, or duress." Vinson
& Elkins v. Moran, 946 S.W.2d 381, 396 (Tex. App.--Houston [14th Dist.]
1997, writ dism'd by agr.) (citing Owen v.
Knop, 853 S.W.2d 638, 641 (Tex. App.--Corpus Christi 1993, writ denied)).
The doctrine was first adopted "based upon the public policy of upholding
the sanctity of the oath, and to eliminate the prejudice that would result to
the administration of justice if a litigant were allowed to swear one way one
time and a different way another time." Id.
(citing Lesser v. Allums, 918
S.W.2d 81, 85 (Tex. App.--Beaumont 1996, no writ); Miles v. Plumbing Servs. of Houston, Inc., 668 S.W.2d 509, 512 (Tex.
App.--Houston [14th Dist.] 1984, writ ref'd n.r.e.)); see
also Long v. Knox, 155 Tex. 581, 291 S.W.2d 292 (1956) (adopting the
doctrine of judicial estoppel in Texas for the first time). Thus, "[t]he
doctrine of judicial estoppel applies if all of the following elements are
present: (1) a sworn, prior inconsistent statement made in a judicial
proceeding; (2) the party now sought to be estopped successfully maintained the
prior position; (3) the prior inconsistent statement was not made inadvertently
or because of mistake, fraud, or duress; and (4) the statement was deliberate,
clear and unequivocal." Vinson & Elkins, 946 S.W.2d at 396 (citing Owen, 853 S.W.2d at 651; Knox,
291 S.W.2d at 295).
In
this case, FH&G contends that the Spera Plaintiffs' claims are barred by the
doctrine of judicial estoppel because of a sentence found in their "Amended
Motion for Class Certification" to the trial court in this case. That
sentence states as follows: "All issues of reasonableness for attorneys'
fees have been determined by orders of the 234th [sic] Judicial District
Court."(3)
FH&G maintains further that because the Amended Motion for Class
Certification is not a part of the appellate record, the judgment must be
affirmed.
We
note that the statement found in the Amended Motion for Class Certification is
not sworn.(4)
See Vinson & Elkins, 946 S.W2d at 396. Therefore, it does not
satisfy all of the requisite elements of judicial estoppel. See
id. Accordingly, the Spera Plaintiffs' third point of error is sustained.
Release
In
their fourth point of error, the Spera Plaintiffs contend that it was error to
grant summary judgment in FH&G's favor "on the ground that 20,000 of
the proposed plaintiffs in this lawsuit released all claims against the
defendant-attorneys related to the disputed attorneys' fees." FH&G's
motion for summary judgment argued that, because 20,000 of FH&G's
polybutylene clients agreed to settle and release their claims regarding the
disputed attorneys' fees, the Spera Plaintiffs had also somehow released their
claims. FH&G concedes, however, that "none of the Plaintiffs/Appellants
herein finalized a release and secured payment of the disputed attorneys'
fees" that are currently held in escrow, and agrees that this issue would
not support a summary judgment. The Spera Plaintiffs' fourth point of error is
therefore sustained.
Correspondence
Sent to Plaintiffs
Points
of error five and six address the following two pieces of correspondence -
between FH&G and its polybutylene clientele - that were attached to the
Spera Plaintiffs' petition: (1) a December 1996 issue of a newsletter entitled PB Press which was distributed by FH&G to all of its
polybutylene clients to announce FH&G's plans to appeal the 334th District
Court's order reducing the attorneys' fees; and (2) a letter dated July 7, 1997,
in which FH&G offered to "resolve" the conflict involving the
attorneys' fees set aside by the judge of the 334th District Court and to settle
that matter. In their petition, the Spera Plaintiffs had complained that this
correspondence "memorialize[d]" FH&G's wrongful conduct. In their
motion for summary judgment, FH&G argued that this correspondence could not
be used to support the Spera Plaintiffs' claims because the 334th District Court
had already determined that the correspondence was "acceptable." FH&G
urged that the Spera Plaintiffs' claims were an "impermissible attack"
on the rulings from the 334th District Court, and that they could not be
"forced to relitigate" the propriety of the correspondence following
such a determination.
FH&G's
argument that the disputed correspondence cannot be "relitigated" or
reviewed because of the 334th District Court's order is without merit. However,
the Spera Plaintiffs are not using the correspondence to launch an impermissible
attack on the 334th District Court. Rather, they are using the correspondence to
show that they were not informed about the potential conflict of interest and
given an opportunity to evaluate whether they should obtain other counsel.
Because FH&G has not shown that it was entitled to summary judgment on these
grounds, points five and six are sustained.
Damages
The
Speras' seventh and eighth points of error concern the issue of whether the
these plaintiffs have suffered any actual damages. FH&G argued in its
summary judgment motion that the Spera Plaintiffs' claims failed as a matter of
law because, given that all had agreed to settle and release their claims over
the disputed attorneys' fees, they suffered no damages.(5)
FH&G did not argue that a breach of the fiduciary duty did not occur, nor
did it argue that there was no injury to the attorney client relationship;
instead, it argued simply that the Spera plaintiffs suffered no actual damages.
FH&G also points out that the Spera Plaintiffs, each of whom participated in
the 1995 settlement with polybutylene manufacturers, have "received all
eligible damages" in terms of a cash payment or replumbing under the
settlement agreement. FH&G argued further that it was entitled to summary
judgment because all of the disputed attorneys' fees were ordered into a
court-supervised escrow account pending a resolution of the FH&G's appeal of
the trial court's order to the First Court of Appeals. FH&G insists,
therefore, that all of the Spera Plaintiffs' claims fail because they cannot
establish the essential element of damages.
On
appeal, FH&G concedes that, in the context of the attorney-client
relationship, proof of damages is not required with a request for fee forfeiture
in a breach of fiduciary duty claim. See
Arce v. Burrow, 958 S.W.2d 239, 251 (Tex. App.--Houston [14th Dist.] 1997), aff'd as modified, 997 S.W.2d 229 (Tex. 1999). As noted, a fair
reading of the motion for summary judgment is that FH&G alleged that it was
entitled to summary judgment because the Spera Plaintiffs could not prove any
actual damages as a matter of law. Although FH&G argues that its motion
should be read more broadly, we find nothing in the motion which would enable us
to do so.
FH&G
also alleges that a recent opinion by the First Court of Appeals moots the Spera
plaintiffs' claims that FH&G should have notified them sooner of a potential
conflict of interest because it allegedly establishes that they had no actual
damages. See In re Polybutylene Plumbing
Litigation, No. 01-96-01528-CV, 2000 WL 330275 (Tex. App.--Houston [1st
Dist] March 30, 2000, pet. filed). In that opinion, the appellate court held
that the 334th District Court, in the absence of a class action, did not have
the authority to set aside otherwise reasonable, valid contingency fee
agreements made between FH&G and the polybutylene plaintiffs. See
id. FH&G's argument is that the Spera Plaintiffs were not harmed by FH&G's
failure to disclose the 334th District Court's order because the court of
appeals ultimately set that ruling aside, holding that the fees were reasonable.
We disagree that the First Court of Appeals opinion moots the issue. As we have
already said, a breach of fiduciary duty can occur even without actual damages. See
Burrow, 997 S.W.2d at 240. Here, the question is whether FH&G had a duty
to tell the Spera Plaintiffs about the potential conflict of interest in time
for the Spera Plaintiffs to obtain other counsel to represent them at the
fairness hearings the 334th District Court held. Consequently, even if FH&G's
mootness argument could be interpreted as arguing that no breach occurred, we
would still hold that a fact issue existed on breach of fiduciary duty.
Thus,
if summary judgment was entered on this ground, it was error. See
id. The Spera Plaintiffs' seventh and eighth points of error are therefore
sustained with respect to their claim for breach of fiduciary duty.
However,
damages are an essential element for all of the other claims lodged by the Spera
Plaintiffs. See, e.g., Latham v. Castillo, 972 S.W.2d 66, 70-71 (Tex. 1998) (fraudulent
misrepresentation); Praesel v. Johnson,
967 S.W.2d 391, 394-95 (Tex. 1998) (negligence, negligence per se); Johnson
& Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 524
(Tex. 1998) (fraud); Federal Land Bank v.
Sloane, 825 S.W.2d 439, 442 (Tex. 1991) (negligent misrepresentation); Cosgrove v. Grimes, 774 S.W.2d 662, 665 (Tex.1989) (legal
malpractice); Scott v. Sebree, 986
S.W.2d 364, 373 (Tex. App.--Austin 1999, pet. denied) (breach of contract).(6)
The Spera Plaintiffs concede that this is true and, in an effort to demonstrate
that they have suffered compensable harm, they claim that they were
"damaged by the attorneys' acceptance of the undisputed portion of the
attorneys' fees and expenses of litigation when such sums may
be subject to fee forfeiture, in whole or in part, in this lawsuit."
(emphasis added). In Texas, however, uncertainty as to the fact of legal damages
is "fatal to recovery." McKnight
v. Hill & Hill Exterminators, Inc., 689 S.W.2d 206, 207 (Tex. 1985). We
conclude that FH&G met its initial burden of establishing that the Spera
Plaintiffs suffered no actual damages. The Spera Plaintiffs did not create a
fact issue and, therefore, FH&G was entitled to summary judgment on the
Spera Plaintiffs' remaining claims for fraud, misrepresentation, negligence,
gross negligence, negligence per se,
legal malpractice, and breach of contract. See
Deloitte & Touche v. Weller, 976 S.W.2d 212, 215 (Tex. App.--Amarillo
1998, pet. denied), cert. denied, 526
U.S. 1117, 119 S.Ct. 1765, 143 L.Ed.2d 795 (1999) (noting that where actual
injury is an element of a claim, a cause of action cannot be maintained unless
some damages result). Therefore, the seventh and eighth points of error are
overruled, in part, as to all of the Spera Plaintiffs' remaining claims.
The
Malooly Point
In
their ninth point of error, listed as an "issue presented" in the
table of contents of the Appellants' brief, the Spera Plaintiffs complain that
the trial court erred by granting summary judgment in the Appellees' favor under
the rule set out in Malooly Brothers, Inc.
v. Napier, 461 S.W.2d 119 (Tex. 1970). Under the Malooly
rule, a point of error stating generally that the trial court erred by granting
summary judgment "is sufficient to preserve error and to allow argument as
to all possible grounds upon which summary judgment should have been
denied." Plexchem Int'l, Inc. v.
Harris County Appraisal Dist., 922 S.W.2d 930, 930-31 (Tex. 1996) (per
curiam) (citing Malooly, 461 S.W.2d at
121). As we have already addressed the specific points of error raised by the
Spera Plaintiffs, there is no need to further examine whether the trial court
erred generally in granting summary judgment. Moreover, the Spera Plaintiffs
have not briefed this separate point of error under Malooly
and, as a result, have presented nothing for review. See
Tex. R. App. P. 38.1(h). Appellants' ninth point of error is therefore
overruled.
Conclusion
Based
on the foregoing, the trial court's decision to grant summary judgment on the
Spera Plaintiffs' claim for breach of fiduciary duty is reversed and remanded
for additional proceedings. However, the trial court's decision to grant summary
judgment as to the Spera Plaintiffs' remaining claims is affirmed.
Wanda
McKee Fowler
Justice
Judgment
rendered and Opinion filed August 3, 2000.
Panel
consists of Justices Hudson, Fowler, and Edelman.
Publish
-- Tex. R. App. P. 47.3(b).
1.
That appeal, docketed as William and Lisa
Adkins et al. v. Hoechst Celanese Corporation et al., No. 01-96-01528-CV, is
a consolidation of sixteen appeals from lawsuits filed in eleven Texas counties.
Each of those appeals turns on the correctness of the November 18, 1996 order
entered by the 334th District Court, which was adopted in other counties as part
of the final judgment in those cases. We note that, on March 30, 2000, the First
Court of Appeals reversed the 334th District Court's order. See In re Polybutylene Plumbing Litigation, No. 01-96-01528-CV, 2000
WL 330275 (Tex. App.--Houston [1st Dist] March 30, 2000, pet. filed).
2.
Initially, Appellants sought to certify their suit against FH&G as a class
action of "all persons entitled to an interest in escrowed attorneys' fees
who were represented by Defendants in claims resulting from polybutylene pipe
failures." On August 31, 1999, following an interlocutory appeal, this
Court affirmed the trial judge's order denying class certification. See
Spera v. Fleming, Hovenkamp & Grayson, P.C., 4 S.W.3d 805 (Tex.
App.--Houston [14th Dist.] 1999, no pet.).
3.
The fairness hearings were conducted by the judge of the 334th Judicial District
Court for Harris County, Texas, and not the 234th.
4.
Although the Spera Plaintiffs' Amended Motion for Class Certification is not
present in the instant case's appellate record, we take judicial notice of the
fact that it is in the record filed before this Court in cause number
14-98-1272-CV, addressing the interlocutory appeal of the trial court's decision
to deny class certification.
5.
As noted above in the discussion on point of error number four, it is undisputed
that none of the Spera Plaintiffs have settled or released their claims with FH&G.
6.
The Spera Plaintiffs appear to claim that they need not show damages to prevail
on a breach of contract action because they are also entitled to a fee
forfeiture under that theory. As support for that contention, the Spera
Plaintiffs rely on the Texas Supreme Court's decision in Royden
v. Ardoin, 331 S.W.2d 206 (Tex. 1960), which held that an attorney who is
disbarred or suspended prior to the completion of his contingent fee contract
has abandoned his client and is therefore not entitled to collect a fee for his
services. See id. at 209. Under that
theory, an attorney who abandons a case without just cause before completing the
task for which his client hired him breaches his contract of employment and
forfeits all right to compensation. See
Staples v. McKnight, 763 S.W.2d 914, 916 (Tex. App.--Dallas 1988, writ
denied) (citing Royden, 331 S.W.2d at
209). Here, however, the Spera Plaintiffs cannot show that FH&G failed to
complete the task for which they were hired. Indeed, FH&G obtained a
settlement in December of 1995; any complained of conduct by FH&G occurred
after the settlement was finalized. Accordingly, Royden does not apply to these facts. See Lee v. Cherry, 812 S.W.2d 361, 363-64 (Tex. App.--Houston [14th
Dist.] 1991, writ denied) (declining to extend Royden where an attorney had completed the contracted for work).