Akin, Gump, Strauss v. Nat. Dev. Research

• Decision Date: 29 August 2007
• Docket Number: No. 05-06-01024-CV.,05-06-01024-CV.
• Citation: 232 S.W.3d 883
• Parties: AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Appellant v. NATIONAL DEVELOPMENT AND RESEARCH CORPORATION and Robert E. Tang, Appellees.
• Court: Texas Court of Appeals

232 S.W.3d 883

AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Appellant v. NATIONAL DEVELOPMENT AND RESEARCH CORPORATION and Robert E. Tang, Appellees.

No. 05-06-01024-CV.

Court of Appeals of Texas, Dallas.

August 29, 2007.

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

David W. Shuford, Shuford & Associates, Dallas, TX, for Appellee.

Before Justices WRIGHT, RICHTER, and SMITH.¹

OPINION

Opinion by Justice SMITH.

This is an appeal from a jury verdict in a legal malpractice lawsuit filed by appellees National Development and Research Corporation and Robert E. Tang² (collectively NDR) against appellant Akin, Gump, Strauss, Hauer & Feld, L.L.P. The jury found Akin Gump negligent and assessed damages totaling $922,631.86. Akin Gump does not appeal the finding of negligence but seeks to reduce the damages awarded, arguing that (1) NDR did not prove that certain damages would be collectible; (2) no evidence supports the jury's finding of fair market value of the Pan-Sino stock at issue; (3) attorney's fees in the underlying lawsuit are not a proper measure of damages in a malpractice suit; and (4) an offset is due for the 10% contingency fee NDR would have owed Akin Gump for prevailing in the underlying lawsuit. We conclude attorney's fees are not recoverable in this malpractice suit, but resolve all other issues in favor of the judgment.

BACKGROUND

In October 1997, NDR retained Akin Gump to represent it in disputes with Panda Energy Corporation and its affiliates. These disputes arose from a 1994 Letter Agreement in which NDR agreed to assist Panda Energy Corporation in its efforts to develop and operate power plants in China. As part of the Letter Agreement, Panda Energy Corporation agreed to pay NDR an annual service retainer, a success fee, and stock grants in a contemplated subsidiary. Later that year, Panda Energy Corporation formed Pan-Sino Energy Development Company, L.L.C. (Pan-Sino), to act as a holding company for its Chinese projects. Panda Energy Corporation and NDR executed a Shareholders' Agreement which gave NDR a 4.5% stock interest in Pan-Sino and required Panda Energy Corporation to repurchase NDR's stock in Pan-Sino upon termination of the Letter Agreement.

In 1995, with NDR's approval, Panda Energy Corporation assigned the Letter Agreement to Panda Energy International. Two years later, again with NDR's approval, Panda Energy Corporation sold its stock in Pan-Sino to Panda Global Energy Company. According to the Letter Agreement, Panda Energy International remained obligated to repurchase the Pan-Sino stock from NDR upon termination of the Letter Agreement.³ Meanwhile, the Panda entities developed a power plant in Luannan County in the Tangshan Municipality of Hebei Province in the People's Republic of China (the Luannan project). Pan-Sino held approximately 87% interest in the Luannan project.

For reasons not relevant here, Panda Global Energy notified NDR that it was terminating the Letter Agreement and exercising its right under the Shareholders' Agreement to repurchase NDR's 4.5% interest in Pan-Sino. The parties disagreed about the validity of the termination, which Panda entity should repurchase the stock, and the stock's value.

Panda Global Energy filed a declaratory judgment action against NDR to resolve the parties' disputes. NDR filed third-party claims against Panda Energy International and Pan-Sino. Akin Gump represented NDR in all matters. The case was tried to a jury. The jury returned a verdict partially in favor of NDR and partially in favor of the Panda entities. However, the trial court granted the Panda entities' motion for judgment notwithstanding the verdict because NDR failed to submit jury questions to support the verdict in their favor.⁴ The trial court then entered final judgment in favor of the Panda entities and ordered NDR to pay $111,043.50 in attorney's fees to Panda Global Energy for prevailing in the declaratory judgment action, and $347,348 in attorney's fees to Panda Global Energy and Pan-Sino pursuant to the Shareholders' Agreement. NDR appealed. This Court affirmed,⁵ and the Texas Supreme Court denied review.

After exhausting all appeals in the Panda litigation, NDR sued Akin Gump for legal malpractice for failure to submit jury questions to support the verdict in the Panda lawsuit. The jury found Akin Gump negligent and awarded NDR $922,631.86 for the following damages: (1) $168,667.41 for "the judgment paid by NDR in the Panda lawsuit"; (2) $427,777.77 as the fair market value of the Pan-Sino stock subject to the repurchase agreement; (3) $216,590 in attorney's fees and expenses paid by NDR in the Panda lawsuit; (4) $109,596.68 in success fees owed to NDR by Panda. The trial court denied Akin Gump's request for an offset in the amount of a 10% contingency fee it would have earned for prevailing in the Panda lawsuit.

On appeal, Akin Gump does not appeal the finding of negligence or the award of $168,667.41 for the judgment NDR paid the Panda entities in the underlying suit. It brings four issues challenging all the other elements of damages and insisting on its entitlement to an offset.

FAIR MARKET VALUE OF PAN-SINO STOCK

In its second issue, Akin Gump insists the evidence is legally insufficient to support the jury's award of $427,777.77 for the fair market value of the Pan-Sino stock Panda Energy International was obligated to repurchase from NDR. Its argument is two-fold: (1) NDR offered incompetent and thus no evidence of the fair market value of the Pan-Sino stock it owned at the time of the breach; and (2) NDR offered no evidence of the fair market value of the stock remaining in its possession today. It is Akin Gump's position that any value of the stock still held by NDR today must be deducted from the value of that stock at the time of the breach to properly calculate that measure of damages.

In evaluating the legal sufficiency of the evidence to support a jury finding, we view the evidence in the light most favorable to the verdict, crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. See Kroger Tex. Ltd. P'ship v. Suberu, 216 S.W.3d 788, 793 (Tex.2006) (citing City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex.2005)). We will sustain a no-evidence point when the evidence offered to establish a vital fact does not exceed a scintilla. Id. (citing City of Keller, 168 S.W.3d at 810). "Evidence does not exceed a scintilla if it is `so weak as to do no more than create a mere surmise or suspicion' that the fact exists." Id. (quoting Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.2004)).

When we review a challenge to the legal sufficiency of an expert's testimony, our task is not to determine whether the expert's opinion is correct. Kerr-McGee Corp. v. Helton, 133 S.W.3d 245, 257 (Tex.2004). Instead, we are to determine whether the expert's conclusions are reliable. Id.; see Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 712-13 (Tex.1997). In doing so, we examine the principles, research, and methodology underlying the expert's conclusions. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 578 (Tex.2006) (citing Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 629 (Tex. 2002)).

Fair Market Value at Time of Breach

Generally, the measure of damages for breach of a contract to repurchase stock is the difference between the contract price and the fair market value of the stock at the time of the breach. See Miga v. Jensen, 96 S.W.3d 207, 215 (Tex.2002) (quoting Randon v. Barton, 4 Tex. 289 (1849)); Coleman v. Mayes, 347 S.W.2d 827, 830 (Tex.Civ.App.-Houston [1st Dist.] 1961, writ ref'd n.r.e.). In this case, the jury charge did not define "fair market value." Although Akin Gump tendered a definition of fair market value comporting with the parties' Letter Agreement,⁶ the trial court overruled its objection to the charge and denied the request; Akin Gump does not appeal those rulings. As a result, we analyze the sufficiency of the evidence based on the ordinary meaning of "fair market value."

Generally, the fair market value of closed corporation stock, or stock having no public market, as here, is "what a willing purchaser would pay to a willing seller who was not acting under compulsion to sell." Willis v. Donnelly, 118 S.W.3d 10, 40-41 (Tex.App.-Houston [14th Dist.] 2003), aff'd in part and rev'd in part on other grounds, 199 S.W.3d 262, 279 (Tex. 2006); InterFirst Bank Dallas, N.A. v. Risser, 739 S.W.2d 882, 889 (Tex.App.-Texarkana 1987), disapproved on other grounds by Tex. Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240 (Tex.2002). When stock sales do not exist upon which fair market value may be determined, other methods of assessing fair market value include the asset approach and the earnings, or income, approach. See Willis, 118 S.W.3d at 41.

NDR's expert Jonathan Saiger

NDR presented the preliminary report and deposition testimony of Jonathan Saiger, vice president at PricewaterhouseCoopers, concerning the fair market value at the time of the breach of the Pan-Sino stock NDR owned. Saiger originally prepared this report, dated June 21, 1999, for Akin Gump on behalf of NDR in the underlying Panda lawsuit. His report provides "a preliminary estimate of the fair market value of NDR's shares in Pan-Sino constituting a 4.5% equity ownership interest as of June 30, 1997, assuming that NDR's shares are on a controlling and marketable basis." In his deposition, Saiger explained that he used the discounted cash flow, or income, approach to value the stock because no comparable sales or historical data were available to use the market and asset approaches. He stated the income approach "involves projecting future benefits from a project or company and then discounting those benefits to the present time using a rate that reflects...