Texas Judiciary Online - HTML Opinion

Swank=20 and McCoy alleged the same acts or omissions as negligence = allegations=20 against Calvin Verner, Battle Fowler, Beck Redden, and Smyser=20 Kaplan. Specifically, Swank and McCoy alleged that these = four=20 appellees committed negligence in the same respects: (a) = affirmatively=20 consenting to the withdrawal of the trial amendment; (b) not = objecting to=20 the withdrawal of the trial amendment; (c) not appealing the = withdrawal of=20 the trial amendment; (d) not asking the court to hold all or a = portion of=20 the proceeds of the Gardere Wynne settlement in the court=3Ds = registry; (e)=20 failing to ask the court to have all or a portion of the proceeds = of the=20 Gardere Wynne settlement held by the receiver; (f) failing to seek = a writ=20 of mandamus directing the trial court to hold all or a portion of = the=20 proceeds of the Gardere Wynne settlement in the court=3Ds = registry pending=20 appeal; (g) failing to seek a writ of mandamus directing the trial = court=20 to have all or a portion of the proceeds of the Gardere Wynne = settlement=20 held by the receiver pending appeal; (h) failing to follow Aubrey=20 Calvin=3Ds advice=20 in his memorandum dated January 4, 1999; (i) failing to advise = them that=20 the Gardere Wynne settlement proceeds were being diverted away = from AMPS;=20 (j) failing to demand that Gardere Wynne not insist on withdrawal = of the=20 trial amendment as a condition of settlement; (k) failing to = demand that=20 Gardere Wynne place the proceeds of the Gardere Wynne settlement = into the=20 court=3Ds=20 registry; (l) failing to demand that Gardere Wynne place the = proceeds of=20 the Gardere Wynne settlement into the hands of the receiver; (m) = failing=20 to demand that the Cunningham Group, the Calvin Group, and the = Battle=20 Fowler Group refrain from withdrawing the trial amendment on = behalf of=20 AMPS; (n) failing to demand that the Cunningham Group, the Calvin = Group,=20 the Battle Fowler Group, and the receiver object to the withdrawal = of the=20 trial amendment; (o) failing to demand that the Cunningham Group, = the=20 Calvin Group, the Battle Fowler Group, and the receiver file a = trial=20 amendment; (p) failing to demand that the Cunningham Group, the = Calvin=20 Group, the Battle Fowler Group, and the receiver appeal the = withdrawal of=20 the trial amendment; (q) failing to demand that the Cunningham = Group, the=20 Calvin Group, the Battle Fowler Group, and the receiver apply for = a court=20 order to hold all or a portion of the proceeds of the Gardere = Wynne=20 settlement in the court=3Ds = registry; (r)=20 failing to demand that the Cunningham Group, the Calvin Group, the = Battle=20 Fowler Group, and the receiver ask the court to have all or a = portion of=20 the proceeds of the Gardere Wynne settlement held by the receiver; = (s)=20 failing to demand that the Cunningham Group, the Calvin Group, the = Battle=20 Fowler Group, and the receiver seek a writ of mandamus directing = the trial=20 court to order that all or a portion of the proceeds of the = Gardere Wynne=20 settlement be held in the court=3Ds = registry; (t)=20 failing to demand that the Cunningham Group, the Calvin Group, the = Battle=20 Fowler Group, and the receiver seek a writ of mandamus directing = the trial=20 court to have all or a portion of the proceeds of the Gardere = Wynne=20 settlement held by the receiver; (u) failing to object to the = settlement=20 of all of AMPS=3Ds=20 claims; (v) failing to object to the extraction of the settlement = credit=20 from AMPS instead of Sverdlin; and (w) failing to fully protect = Swank=3Ds and = McCoy=3Ds = interests in the=20 application of the settlement credit.

In=20 addition to the above claims, Swank and McCoy alleged that the = Cunningham=20 Group converted AMPS=3Ds = $35 million=20 jury verdict against Gardere Wynne and that Calvin Verner, Battle = Fowler,=20 Beck Redden, and Smyser Kaplan conspired with the Cunningham Group = to=20 convert the jury verdict. Swank and McCoy also alleged a = fraud claim=20 against Lloyd Cunningham in his individual capacity. Based = on the=20 alleged breaches of fiduciary duty by all appellee lawyers, Swank = and=20 McCoy sought a disgorgement of legal fees paid to the appellee=20 lawyers.

&nbs= p; = ; = =20 Appellees=3D Motions = for Summary=20 Judgment

The=20 appellee lawyers filed traditional motions for summary = judgment. =20 Smyser Kaplan moved for summary judgment on the following grounds: = (a)=20 McCoy=3Ds=20 derivative claims on behalf of AMPS failed for two independent = reasons:=20 (1) because Smyser Kaplan never represented AMPS, McCoy lacked = standing;=20 and (2) AMPS=3Ds=20 board of directors expressly ratified the settlement; = (b) McCoy=3Ds Aindividual@ claims = failed=20 because the damages he sought to recover belonged to AMPS; (c) = McCoy=3Ds = derivative and=20 individual claims failed because his pleadings and interrogatory = answers=20 established that the damages he sought to recover were = impermissibly=20 speculative; and (d) McCoy=3Ds = non-malpractice=20 claims for fee forfeiture and conspiracy failed because they = constituted=20 an impermissible attempt to fracture a legal malpractice claim = and,=20 alternatively, McCoy=3Ds claim = for fee=20 forfeiture failed because he paid no fees and his claim for Aconspiracy = to convert=20 the AMPS verdict@ failed = because a=20 jury verdict cannot be converted.

Beck=20 Redden moved for summary judgment on the following grounds: = (a)=20 Swank=3Ds=20 derivative claim on behalf of AMPS failed because Beck Redden = never=20 represented AMPS; and (b) Swank did not allege any direct = personal=20 damage and, therefore, his individual claim failed. Beck = Redden also=20 incorporated by reference into its motion for summary judgment all = of=20 Smyser Kaplan=3Ds=20 grounds for summary judgment.

The=20 Cunningham Group moved for summary judgment on the following = grounds: (a)=20 the statute of limitations barred Swank=3Ds and = McCoy=3Ds claims; = (b) Swank=20 and McCoy lacked standing to assert individual or derivative = claims=20 against the Cunningham Group for the following reasons: (1) they = had no=20 standing to assert individual malpractice and breach of fiduciary = duty=20 claims because they were not and had never been in privity with = the=20 Cunningham Group; (2) they had no standing to assert derivative = claims on=20 behalf of AMPS because they were not and had never been = shareholders in=20 AMPS; and (3) they had no standing to assert derivative claims on = behalf=20 of AMPS for breach of fiduciary duty by the Cunningham Group = because there=20 was no privity between AMPS and the Cunningham Group at the time = of the=20 Gardere Wynne settlement; (c) collateral estoppel, ratification, = and=20 waiver barred Swank=3Ds and = McCoy=3Ds = derivative claims=20 on behalf of AMPS; (d) there was no evidence of any underlying = damage to=20 AMPS to support the malpractice jury verdict against Gardere = Wynne; (e)=20 Swank=3Ds and=20 McCoy=3Ds claims=20 failed because their damage and causation theories were fatally=20 speculative as a matter of law; (f) Swank=3Ds and = McCoy=3Ds = conversion claim=20 failed because there can be no conversion of a jury verdict; and = (g)=20 Swank=3Ds and=20 McCoy=3Ds fraud=20 claims against Lloyd Cunningham failed because there was no = evidence that=20 he made any fraudulent statement upon which they relied to their = detriment=20 and because of which they sustained damages. =20 Battle Fowler moved for = summary=20 judgment on the following grounds: (a) Battle Fowler ceased = representing=20 any party in connection with the underlying litigation immediately = after=20 the jury=3Ds=20 verdict on October 27, 1998, and, therefore, it owed no duty to = any party=20 thereafter; (b) there was no evidence that Battle Fowler = represented any=20 party in connection with the underlying litigation immediately = after the=20 jury=3Ds verdict=20 on October 27, 1998, and in no event after November 4, 1998, and = there was=20 no evidence that Battle Fowler owed any duty to any party = thereafter=20 (Battle Fowler also moved for a no-evidence summary judgment on = this=20 ground); (c) the statute of limitations barred Swank=3Ds and = McCoy=3Ds claims; = (d) there=20 was no evidence of fraudulent concealment on the part of Battle = Fowler=20 sufficient to toll the statute of limitations (Battle Fowler also = moved=20 for a no-evidence summary judgment on this ground); (e) Swank=3Ds and = McCoy=3Ds claims = were barred=20 by the doctrines of res judicata and/or collateral estoppel; (f)=20 Swank=3Ds and=20 McCoy=3Ds claims=20 were barred by AMPS=3Ds = ratification of the=20 Gardere Wynne settlement; (g) Swank=3Ds and = McCoy=3Ds damage = and=20 causation theories were fatally speculative as a matter of law; = (h)=20 neither Swank nor McCoy had standing to bring malpractice or = breach of=20 fiduciary duty claims in their individual capacities; (i) = Swank=3Ds and = McCoy=3Ds Aconspiracy = to=20 convert@ claims=20 failed because a verdict cannot be converted and because there was = no=20 conspiracy; (j) the evidence conclusively established that Battle = Fowler=20 was not a part of any alleged conspiracy; (k) there was no = evidence that=20 Battle Fowler ever knew of or participated in any alleged = conspiracy=20 (Battle Fowler also moved for a no-evidence summary judgment on = this=20 ground); and (l) neither Swank nor McCoy could obtain fee = disgorgement=20 from Battle Fowler because neither paid any fees to Battle = Fowler. =20 Battle Fowler filed a second motion in which it moved for a = no-evidence=20 summary judgment on the ground that there was no admissible = summary=20 judgment evidence to support an award of damages to Swank and = McCoy=20 individually and derivatively on behalf of AMPS.

^{^[1]}In its opinion, the Houston First Court = of Appeals=20 stated that ASwank and McCoy exercised their stock = options in=20 AMPS.@ Swank, 121 S.W.3d at = 790. =20 However, there is no evidence in the record that Sverdlin = performed his=20 side of the option contract by delivering stock to them or that = there was=20 a judicial declaration that Sverdlin was obligated to perform = under the=20 option contracts.

^{^[2]}In Swank=3Ds and McCoy=3Ds second amended petition, which was the = live=20 pleading when Smyser Kaplan and Beck Redden filed their motions = for=20 summary judgment, they alleged the same twenty-three acts and = omissions as=20 grounds for negligence and breaches of fiduciary duty against Beck = Redden=20 and Smyser Kaplan. They also alleged the same twenty-three = acts and=20 omissions as grounds for negligence against Calvin Verner and = Battle=20 Fowler. All twenty-three of the alleged acts and = omissions=20 related in some manner to the Gardere Wynne settlement. In = essence,=20 Swank and McCoy alleged legal malpractice claims that were based = on=20 negligence. Any attempt to recast the negligence allegations = as=20 breach of fiduciary duty allegations would constitute an improper=20 fracturing of the legal malpractice claim. See Deutsch v. = Hoover,=20 Bax & Slovacek, L.L.P., 97 S.W.3d 179, 189 (Tex. = App.CHouston [14th Dist.] 2002, no pet.); = Cuyler v.=20 Minns, 60 S.W.3d 209 216 (Tex. App.CHouston [14th Dist.] 2001, pet. denied); = Sledge=20 v. Alsup, 759 S.W.2d 1, 2-3 (Tex. App.CEl Paso 1988, no writ). However, = the outcome=20 of this appeal remains the same whether Swank=3Ds and McCoy=3Ds claims are characterized as negligence = claims,=20 breach of fiduciary duty claims, or both.

^{^[3]}When a party challenges jurisdiction by = way of a=20 plea to the jurisdiction and the determination of the = jurisdictional issue=20 involves an alleged factual dispute, Athe trial court reviews the relevant = evidence to=20 determine if a fact issue exists,@ and the Asummary judgment standard of proof = @ is used. Kilpatrick, 205 = S.W.3d at=20 700 (quoting Tex. Dep=3Dt of Parks & Wildlife v.=20 Miranda, 133 S.W.3d 217, = 227-28=20 (Tex. 2004)).

^{^[4]}Appellees Smyser Kaplan, Beck Redden, = Calvin=20 Verner, and Battle Fowler did not move for summary judgment on the = ground=20 that Swank and McCoy lacked standing because they were not = shareholders in=20 AMPS. However, all appellees moved for summary judgment on = the=20 ground that Swank and McCoy lacked standing to assert claims = belonging to=20 AMPS in their individual capacities.

^{^[5]}Swank and McCoy alleged in their = pleadings in the=20 trial court that they had standing to maintain AMPS=3Ds claims under the prior law found in = Article 5.14=20 of the Texas Business Corporation Act. Section 21.563 of the = Business Organizations Code made no substantive changes to Article = 5.14(L)=20 of the Texas Business Corporation Act. With the exception of = filing=20 fee requirements, the provisions of the Business Organizations = Code do not=20 apply until January 1, 2010, to entities formed before January 1, = 2006,=20 such as AMPS, unless the entities elect early adoption. = See=20 Tex. Bus. Orgs. Code = Ann.=20 '' 402.001-.005 (Vernon Pamph. 2007). = Whether=20 or not AMPS elected early adoption of the Business Organizations = Code, the=20 analysis is the same because Section 21.563 made no substantive = changes to=20 Article 5.14(L). Therefore, we elect to address this issue = under the=20 current version of the statute.

^{^[6]}Section 21.563(c) is similar to Principles of Corporate=20 Governance: Analysis and Recommendation ' 7.01(d) (2005). Section 7.01(d)=20 provides:

In the case of a closely held corporation = [' 1.06], the court in its discretion may = treat an=20 action raising derivative claims as a direct action, exempt it = from those=20 restrictions and defenses applicable only to derivative actions, = and order=20 an individual recovery, if it finds that to do so will not (i) = unfairly=20 expose the corporation or the defendants to a multiplicity of = actions,=20 (ii) materially prejudice the interests of creditors of the = corporation,=20 or (iii) interfere with a fair distribution of the recovery among = all=20 interested persons.

^{^[7]}Appellees moved for summary judgment on = the ground=20 that AMPS=3Ds board ratified the settlement = agreement. =20 Ratification is an affirmative defense. Land Title Co. of = Dallas,=20 Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex. = 1980). As=20 such, appellees had the summary judgment burden of establishing=20 ratification as a matter of law. Am. Tobacco Co., 951 = S.W.2d=20 at 425. A challenged transaction found to be unfair to the = corporate=20 enterprise may nonetheless be upheld if ratified by a majority of=20 disinterested directors or the majority of the stockholders. = Gearhart Indus., Inc. v. Smith Int=3Dl, Inc.,=20 741 F.2d 707, 720 (5th Cir. 1984) (applying Texas law). = While=20 appellees did present summary judgment evidence establishing that=20 AMPS=3Ds board ratified the settlement, they did = not=20 present any summary judgment evidence establishing that the = directors who=20 ratified the settlement were Adisinterested.@ Therefore, appellees failed to = meet their=20 summary judgment burden of establishing ratification as a matter = of=20 law.

^{^[8]}We note that the trial court granted = special=20 exceptions requiring Swank and McCoy to plead facts and legal = theories=20 supporting their claims for damages. Swank=3Ds and McCoy=3Ds counsel approved as to form and = substance the=20 trial court=3Ds agreed order on special = exceptions. While=20 Swank and McCoy amended their petition after the trial court = granted the=20 special exceptions, they did not change their damage=20 theories.

^{^[9]}Swank and McCoy alleged that appellees = breached=20 their duties in connection with Athe application of the credit [that the = Gardere=20 Wynne] settlement proceeds allowed.@ Swank and McCoy did not allege how = they were=20 damaged by the manner in which the settlement credit was allocated = among=20 the defendants in the underlying litigation. In fact, Swank = and=20 McCoy were not damaged by the allocation of the settlement = credit. =20 As a result of the court of appeals=3Ds judgment in the underlying litigation, = neither=20 Swank nor McCoy owed any damages to Sverdlin or AMPS. Thus, = the=20 issue of whether Swank and McCoy were entitled to receive credit = for the=20 Gardere Wynne settlement was immaterial. Swank and McCoy = also=20 alleged that the Cunningham Group breached its fiduciary duty to = AMPS by=20 allowing the proceeds from the Gardere Wynne settlement to be used = as a=20 settlement credit to offset the amount awarded to AMPS on its = breach of=20 fiduciary duty claims. AMPS was not damaged by the offset = because=20 the court of appeals rendered judgment that AMPS take nothing by = its=20 claims.

^{^[10]}For current Restatement provision, = see Restatement (Third) of the Law = Governing=20 Lawyers ' 37 (2000).

^{^[11]}Some of the appellees cite Liberty = Mut. Ins. Co.=20 v. Gardere & Wynne, L.L.P., 82 F. App=3Dx 116, 117-21 (5th Cir. 2003) (not = designated for=20 publication); Bell v. Phillips, No. 14-00-01189-CV, 2002 WL = 576036=20 (Tex. App.CHouston [14th Dist.] Apr. 18, 2002, = no pet.)=20 (not designated for publication); and Universal Fleet Leasing, = Inc. v.=20 Pope, No. 01-99-01235-CV, 2000 WL 1708515 (Tex. = App.C Houston [1st Dist.] Nov. 16, 2000, pet. = denied)=20 (not designated for publication), in support of the argument that = Swank=20 and McCoy are not entitled to fee forfeiture. Those cases = did not=20 involve the precise issue that is before us in this cause. = In=20 Liberty Mutual, a client did not seek to recover fees that = it had=20 paid to its law firm. Rather, the client sought to recover = fees that=20 its former law firm had earned in representing an opponent in a = suit, and=20 the fees had been paid by the opponent. The Liberty = Mutual=20 court held that the trial court had not erred in refusing to = allow the=20 client to recover fees paid by other clients. Liberty = Mutual,=20 82 F. App=3Dx at 121. In Phillips, an = attorney was=20 retained on a contingency fee agreement, and the attorney was = never paid=20 any fees during his representation of the client. The court = held=20 that, because the attorney had not been paid any fees, the client = did not=20 have a claim for fee forfeiture. Phillips, 2002 WL = 576036 at=20 *8 n.3. In Pope, the client claimed that he had paid=20 Aover $25,000.00 in attorneys = fees@ to his attorneys. However, the = client failed=20 to present any evidence that he had paid any fees in connection = with the=20 matter at issue. Therefore, the court held that the client = had=20 produced no evidence showing that he was entitled Ato a disgorgement of fees paid in = connection with=20 this matter.@ Pope, 2000 WL 1708515 at = *3. =20 This cause is distinguishable from Liberty Mutual, = Phillips,=20 and Pope because, in this cause, four of the appellee law = firms=20 received fees, albeit from another party, in connection with their = representation of Swank and=20 McCoy.