Air Routing (Canada) v. Britannia Airways

• Decision Date: 31 August 2004
• Docket Number: No. 14-02-01167-CV.,14-02-01167-CV.
• Citation: 150 S.W.3d 682
• Parties: AIR ROUTING INTERNATIONAL CORPORATION (CANADA), ARG Processing & Services, Inc. a/k/a Air Routing Group Card Services, Inc., Air Routing International Corporation, and AR Group, Inc., Appellants, v. BRITANNIA AIRWAYS, LIMITED, Appellee.
• Court: Texas Court of Appeals

150 S.W.3d 682

AIR ROUTING INTERNATIONAL CORPORATION (CANADA), ARG Processing & Services, Inc. a/k/a Air Routing Group Card Services, Inc., Air Routing International Corporation, and AR Group, Inc., Appellants, v. BRITANNIA AIRWAYS, LIMITED, Appellee.

No. 14-02-01167-CV.

Court of Appeals of Texas, Houston (14th Dist.).

August 31, 2004.

Rehearing Overruled November 24, 2004.

Lynne Liberato, Joe H. Reynolds, Murry B. Cohen, Houston, for appellants.

S. Shawn Stephens, Jess H. Hall, Jr., Houston, for appellee.

Panel consists of Justices EDELMAN, FROST, and GUZMAN.

OPINION

KEM THOMPSON FROST, Justice.

This is an attorney's fees case arising under the Texas Theft Liability Act ("Theft Act"), a relatively new statute that has a unique provision compelling the award of reasonable and necessary attorney's fees to a party that successfully defends against a claim under this act, without any prerequisite that the claim be found groundless, frivolous, or brought in bad faith. In this appeal, we review the trial court's determination that the successful parties are required to segregate their proof of attorney's fees for successfully defending against the Theft Act claim from the attorney's fees they incurred in defending against fraud, negligent-misrepresentation, and civil conspiracy claims brought by the same plaintiff. Under the Texas Supreme Court's legal standard in Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 11-12 (Tex.1991), we conclude the trial court erred in requiring segregation because these claims arose out of the same transaction and because the prosecution or defense of these claims entailed proof or defense of essentially the same facts.¹ Accordingly, we sever and reverse the part of the trial court's judgment awarding zero attorney's fees based on the failure to segregate, and we remand to the trial court for a determination of the amount of reasonable and necessary attorney's fees to be awarded to the parties successfully defending against the Theft Act claim. We affirm the remainder of the trial court's judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellants Air Routing International Corporation and Air Routing International (Canada) had a contract with the Royal Bank of Canada ("Royal Bank") to operate certain aspects of a credit-card system used in the aviation industry to pay for ground handling and other services at various airports throughout the world. This credit-card system was known as the "Jet Card."²

Appellee Britannia Airways, Limited is a charter-airline company incorporated under the laws of England and Wales, with its principal place of business in Luton, England. At the times material to Britannia's claims, Britannia catered to vacation travelers and offered a variety of flights from the United Kingdom and Europe to destinations around the world. Britannia was a holder of the Jet Card and used it to purchase fuel, maintenance, and other services provided by various vendors at airports around the world. The Royal Bank issued a Jet Card to each aircraft in Britannia's fleet. The captain of the aircraft could use the Jet Card to make purchases from any vendor subscribing to the Jet Card system. After accepting the Jet Card, these vendors would submit invoices for charges through the Jet Card system, and would send the invoices to one of the appellants for processing. After processing the Jet Card invoices, the recipient would forward them to the Royal Bank, which would pay the vendors and send billing statements to Britannia. Significantly, Britannia believed that one of the Air Routing companies, in addition to processing these invoices, would "validate and verify" all charges before transmitting the invoices to the Royal Bank. Air Routing Canada contracted with an affiliated company, appellant ARG Processing & Services, Inc. a/k/a Air Routing Group Card Services, Inc. ("ARG") to process Jet Card invoices. Appellant AR Group, Inc. is a holding company affiliated with the other three appellants.

In late 1998, Britannia learned that it had paid more than $8 million in Jet Card charges for services that had not been performed. Britannia paid these charges based on false and incorrect invoices for services allegedly provided by Nile Valley Aviation ("NVA"), a company that provided supervisory and handling services for Britannia in Egypt. Britannia filed this suit against appellants Air Routing International (Canada), ARG, Air Routing International Corporation, and AR Group, Inc. (collectively referred to herein as "Air Routing"). Britannia sought to recover more than $8 million in excess charges based on claims of fraud, negligent misrepresentation, civil conspiracy, and liability under the Theft Act. Three of the Air Routing parties asserted counterclaims against Britannia, seeking a declaratory judgment that they were third-party beneficiaries of certain contracts between Britannia and the Royal Bank.

Air Routing filed numerous motions for summary judgment, including a motion for summary judgment as to the Theft Act claim. On September 12, 2001, the trial court granted Air Routing's motion for summary judgment as to Britannia's Theft Act claim.³ The trial court denied Air Routing's motions for summary judgment as to Britannia's other three claims. At trial in March of 2002, the trial court granted Air Routing's motions for directed verdict as to Britannia's negligent-misrepresentation and civil conspiracy claims, and the jury returned a defense verdict as to the fraud claim. The trial court denied relief as to the counterclaims for declaratory judgment.

The parties agreed to a bench trial as to the issue of the amount, if any, of reasonable and necessary attorney's fees that should be awarded to Air Routing under the Theft Act. Britannia and Air Routing agree that the Theft Act requires the trial court to award Air Routing reasonable and necessary attorney's fees for defending Britannia's Theft Act claim.

The Theft Act is unusual in Texas law in that it requires the court to award attorney's fees to a party who successfully defends a Theft Act claim, without any prerequisite that the claim is found to be groundless, frivolous, or brought in bad faith.⁴ See Tex. Civ. Prac. & Rem Code Ann. § 134.005(b) (Vernon 1997); Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 637-38 (Tex.App.-Houston [1st Dist.] 2000, no pet.) (holding Theft Act entitles defendant to recover reasonable and necessary attorney's fees in successfully defending Theft Act claim even if defendant does not recover any actual damages); Scott A. Brister, Proof of Attorney's Fees in Texas, 24 St. Mary's L.J. 313, 316 (1993) (stating that Texas statutes providing for recovery of attorney's fees generally do so for a party asserting a claim or to a party defending a claim that has been found to be groundless or brought in bad faith).

Air Routing moved the trial court for a take-nothing judgment as to Britannia's claims and for attorney's fees for its defense of the Theft Act claim. Britannia responded by arguing that the defense of the Theft Act claim did not fall into any exception to the general rule requiring Air Routing to segregate the attorney's fees for defending the Theft Act claim from fees incurred in the defense of the other claims. At the bench trial on the attorney's fees issue, Air Routing presented numerous billing records and an affidavit establishing Air Routing's costs.⁵ The trial court admitted this evidence without any objection from Britannia. Air Routing also called the billing attorney, Kenneth Broughton, as a witness. Broughton testified that Air Routing had incurred $1,909,753.70 in attorney's fees in this case up until September 12, 2001, when the trial court granted summary judgment as to the Theft Act claim. After reviewing the billing records, Broughton testified that $1,177,028.30 of these attorney's fees relate to Air Routing's defense of the Theft Act claim, which Broughton testified is inextricably intertwined with the defense of the fraud, negligent-misrepresentation, and civil conspiracy claims. Air Routing did not seek attorney's fees for any work performed on trial-court matters after September 12, 2001, and did not seek fees under the Theft Act relating to the declaratory-judgment counterclaims. Air Routing, however, also sought appellate attorney's fees.

Britannia presented no evidence in opposition to Air Routing's attorney's fees request. After the bench trial, the trial court ruled that Air Routing would have to segregate its fees for defending the Theft Act claim from its fees for defending the other claims. Despite this ruling and another opportunity to segregate, Air Routing declined to segregate the fees, maintaining its position that applicable law did not require such segregation.

The trial court signed a final judgment ordering that Britannia take nothing on its claims, that Air Routing take nothing on the counterclaims for declaratory relief, and that Air Routing not recover any attorney's fees. In this judgment, the trial court stated that the Theft Act claim is not inextricably intertwined with and does not arise out of the same facts or occurrences as Britannia's other claims against Air Routing. The trial court issued findings of fact and conclusions of law, which essentially reject Air Routing's contention as to the "inextricably intertwined" exception and provide that the only fees potentially recoverable are those that Air Routing segregates and shows to have been incurred in connection with the Theft Act claim. Ultimately, the trial court found that, because Air Routing would not adequately segregate those fees incurred in connection with its defense against the Theft Act claim, it is not entitled to recover any attorney's fees in this litigation.

II. ISSUES PRESENTED

Britannia has not appealed the trial court's judgment. On appeal, Air Routing presents the following issues for review:

(1) Did the trial court err in failing to award attorney's...