Akin, Gump, Strauss, Hauer & Feld v. Ndr

• Decision Date: 30 October 2009
• Docket Number: No. 07-0818.,07-0818.
• Citation: 299 S.W.3d 106
• Parties: AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Petitioner, v. NATIONAL DEVELOPMENT AND RESEARCH CORPORATION, Respondent.
• Court: Texas Supreme Court

299 S.W.3d 106

AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Petitioner, v. NATIONAL DEVELOPMENT AND RESEARCH CORPORATION, Respondent.

No. 07-0818.

Supreme Court of Texas.

Argued December 9, 2008.

Decided October 30, 2009.

Rehearing Denied January 15, 2010.

Thomas Fenton Allen Jr., Christopher John Scanlan, Carrington, Coleman, Sloman & Blumenthal, L.L.P., Jeffrey S. Levinger, Hankinson Levinger LLP, Dallas, and Corbet F. Bryant Jr., Richardson, for petitioner.

David W. Shuford, Law Office of David W. Shuford, and Michael L. Jones, Henry & Jones LLP, Dallas, for respondent.

Mark C. Harwell, Cotham Harwell & Evans, P.C., Houston, Luther H. Soules III, Soules & Wallace, San Antonio, for amicus curiae.

Justice JOHNSON delivered the opinion of the Court.

When a former client sues a lawyer for improperly prosecuting a prior lawsuit, part of what the plaintiff must prove is the amount of damages that would have been collectible from the defendant in the prior suit. In this legal malpractice case we address the following issues: (1) what evidence is necessary to prove damages would have been collectible in the prior case, and (2) whether a client may recover attorney's fees and expenses paid for representation in the prior case as damages in the malpractice case.

We hold that (1) the amount of damages that would have been collectible in the prior suit is the greater of the amount of a judgment for damages that would have been either paid or collected from the underlying defendant's net assets; and (2) the time at which collectibility is determined is as of or after the time a judgment was first signed in the underlying case. We also hold that attorney's fees and expenses paid for representation in the underlying lawsuit may be recovered as damages to the extent they were proximately caused by the defendant's negligence.

Because there is legally insufficient evidence in this case to support a finding that damages in the underlying suit would have been collectible or that the defendant attorneys' negligence proximately caused the entire amount the jury awarded as damages for attorney's fees and expenses, we reverse the judgment of the court of appeals. Because there is evidence that the attorneys' negligence caused some amount of attorney's fees and expenses in the underlying suit, we remand to the court of appeals for further proceedings.

I. BACKGROUND

A. The Underlying Suit

At times relevant to this matter, Panda Energy International Corporation (Panda International) was involved in developing energy-related projects. Its operations were conducted, in part, through several subsidiary corporations and joint ventures. In 1994, National Development and Research Corporation (NDR) entered into a Letter Agreement with Panda Energy Corporation (PEC), one of Panda International's subsidiary corporations, for NDR to assist PEC in locating and securing energy-related projects in China. NDR's compensation was to be (1) an annual service retainer, (2) stock grants in a Panda subsidiary corporation, and (3) success fees for each transaction that closed. To facilitate the stock grants, NDR and PEC entered into a Shareholders' Agreement with respect to Pan-Sino Energy Development Company, L.L.C. (Pan-Sino), the Panda subsidiary corporation whose shares would be transferred to NDR as part of its compensation. The Shareholders' Agreement required NDR to sell its interest in Pan-Sino to PEC if the Letter Agreement was terminated.

Subsequently, and with NDR's approval, PEC assigned its interest in and obligations under the Letter Agreement to Panda International, the parent Panda corporation. PEC also sold its Pan-Sino stock to Panda Global Energy Company (Panda Global), another subsidiary of Panda International.¹

In the spring of 1997, Panda Global, as the issuing company, closed a $155 million Senior Secured Notes offering (the bonds) from which a project in Luannan County, China (the Luannan project) was funded. NDR assisted with the Luannan project and, pursuant to the Letter Agreement, received 4 1/2% of Pan-Sino's stock. After NDR received its stock in Pan-Sino, and as relevant to this appeal, the corporate structure of the Panda entities and interests was as follows:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Shortly after funding closed on the Luannan project, Panda Global notified NDR that it was terminating the Letter Agreement and exercising its rights under the Shareholders' Agreement to purchase NDR's Pan-Sino stock. NDR disputed Panda Global's authority to take those actions. The dispute resulted in Panda Global filing a declaratory judgment action (the "underlying" or "Panda" suit) in Dallas County against NDR and its President, Robert Tang. NDR and Tang retained Akin Gump to represent them in the suit and agreed to pay the firm an hourly fee and a sliding percentage contingency fee on any recovery they obtained in the suit. NDR and Tang then, through Akin Gump, counterclaimed for declaratory judgment and breach of the Letter Agreement and filed third party claims against Panda International and Pan-Sino. The Panda entities responded by asserting claims against NDR and Tang for breach of contract, constructive fraud, breach of fiduciary duty, unjust enrichment, and negligence.

The case was tried to a jury in August 1999. The trial court held several post-trial hearings and signed, then modified, four successive judgments, all generally in favor of the Panda entities. Final judgment was signed on February 6, 2001, and provided that (1) Panda Global recover $111,043.50 from NDR and Tang as attorney's fees for obtaining the declaratory judgment; (2) Panda Global and Pan-Sino recover $316,273.50 from NDR as attorney's fees pursuant to the Shareholders' Agreement; (3) contingent attorney's fees be awarded in the event of appeal; and (4) all parties take nothing otherwise. The court of appeals affirmed the judgment. Nat'l Dev. & Research Corp. v. Panda Global Energy Co., No. 05-00-00820-CV, 2002 WL 1060483 (Tex.App.-Dallas May 29, 2002, pet. denied) (not designated for publication).

B. The Malpractice Suit

NDR² later sued Akin Gump for legal malpractice based on its handling of the Panda suit. NDR asserted, in part, that Akin Gump negligently failed to request jury questions asking whether Panda breached the Letter and Shareholders' Agreements. NDR alleged that because there were no jury findings that the agreements were breached by Panda, the trial court rendered judgment against NDR despite the verdict having been favorable to NDR.

The malpractice jury found Akin Gump's negligence resulted in damages to NDR as follows: (1) $168,667.41 for the judgment paid by NDR in the Panda lawsuit; (2) $427,777.77 that was owed to NDR for the fair market value of its Pan-Sino stock; (3) $109,596.68 for success fees owed to NDR; and (4) $216,590.00 for attorney's fees and expenses paid by NDR in the Panda lawsuit. The trial court rendered judgment in favor of NDR according to the verdict.

Akin Gump did not appeal the negligence finding or damages awarded for the $168,667.41 NDR paid on the Panda judgment. 232 S.W.3d 883, 889. However, it appealed the other damage awards. The court of appeals reversed that part of the judgment awarding attorney's fees and expenses and affirmed the remainder of the judgment. Id. at 887.

We granted petitions for review filed by both Akin Gump and NDR. Akin Gump urges that the court of appeals erred in upholding the trial court's judgment for the value of NDR's Pan-Sino stock and success fees because (1) there is legally insufficient evidence to support the jury's finding that a favorable judgment in the Panda suit would have been collectible, (2) there is legally insufficient evidence to support the jury's finding as to the amount NDR was owed for the value of its Pan-Sino stock, and (3) the damages should have been reduced by the amount Akin Gump's contingency fee would have reduced NDR's net recovery.

NDR challenges the court of appeals' determination that attorney's fees it paid for representation in the Panda suit are not recoverable as damages.

We agree with Akin Gump that the evidence is legally insufficient to support the jury's findings that NDR would have collected damages awarded in the Panda suit for the value of NDR's Pan-Sino stock and for success fees. Absent such evidence, there is no evidence Akin Gump's negligence proximately caused those damages to NDR. We do not reach the law firm's issue challenging the evidentiary support for the damages findings or the issue of whether NDR's damages should be reduced by Akin Gump's contingency fee.

We also agree with NDR that it may recover damages for attorney's fees it paid³ to its attorneys in the underlying suit to the extent the fees were proximately caused by the defendant attorneys' negligence. We conclude the evidence is legally sufficient to support a finding that some attorney's fees paid by NDR were proximately caused by Akin Gump's negligence, but the evidence is legally insufficient to support the finding of $216,590.

II. COLLECTIBILITY OF A JUDGMENT IN THE UNDERLYING SUIT

To prevail on a legal malpractice claim, the plaintiff must prove the defendant owed the plaintiff a duty, the defendant breached that duty, the breach proximately caused the plaintiff's injury, and the plaintiff suffered damages. Peeler v. Hughes & Luce, 909 S.W.2d 494, 496 (Tex. 1995). When the claim is that lawyers improperly represented the plaintiff in another case, the plaintiff must prove and obtain findings as to the amount of damages that would have been recoverable and collectible if the other case had been properly prosecuted. Cosgrove v. Grimes, 774 S.W.2d 662, 666 (Tex.1989). In Cosgrove, a lawyer was sued for failing to properly prosecute an automobile collision case. Id. at 662. The jury was charged to find the amount of damages the malpractice plaintiff would have "in reasonable probability recovered" and "in...