Anderson Producing Inc. v. Koch Oil Co.

• Decision Date: 18 October 1996
• Docket Number: No. 94-1198,94-1198
• Citation: 929 S.W.2d 416
• Parties: 133 Oil & Gas Rep. 175, 39 Tex. Sup. Ct. J. 582 ANDERSON PRODUCING INC., Petitioner, v. KOCH OIL COMPANY, Respondent.
• Court: Texas Supreme Court

Page 416

929 S.W.2d 416

133 Oil & Gas Rep. 175, 39 Tex. Sup. Ct. J. 582

ANDERSON PRODUCING INC., Petitioner, v. KOCH OIL COMPANY, Respondent.

No. 94-1198.

Supreme Court of Texas.

Argued Sept. 27, 1995.

Decided May 10, 1996.

Rehearing Overruled Oct. 18, 1996.

Charles A. Sharman, John M. Zukowski, Houston, for petitioner.

Thomas A. Loftus, III, Wichita, KS, Susan C. Stevenson, Houston, Cathy Ervin, Tye G. Darland, Wichita, KS, for respondent.

GONZALEZ, Justice, delivered the opinion of the Court, in which CORNYN, ENOCH, BAKER and ABBOTT, Justices, join.

Subject to certain exceptions, Texas Disciplinary Rule of Professional Conduct 3.08 prohibits an attorney from representing a party in an adjudicatory proceeding if the attorney knows or believes that he or she may be a witness at trial. TEX.DISCIPLINARY R.PROF.CONDUCT 3.08 (1994), reprinted in TEX.GOV'T CODE ANN., tit. 2, subtit. G app. (Vernon Supp.1996). Relying solely on this rule, respondent persuaded the court of appeals to reverse the trial court's judgment for petitioner because the lawyer who represented petitioner during pretrial proceedings later testified as an expert and fact witness for petitioner at trial. 883 S.W.2d 784. Although the court of appeals disqualified the testifying attorney from representing petitioner on remand, it did not specifically hold that the attorney could not testify, nor did it consider whether the other members of the attorney's firm were disqualified. Only petitioner applied to this Court for writ of error. Apparently relying on the Court's earlier pronouncements, both petitioner and respondent advance Rule 3.08 as the controlling standard for disqualification. Under this procedural posture, we hold that the testifying attorney appeared at trial solely as a witness, and thus did not violate Rule 3.08. We accordingly reverse the judgment of the court of appeals and remand the cause to that court to consider respondent's remaining points of error.

I

Petitioner Anderson Producing Company obtained a $120,000 judgment against John R. Watson and related entities (collectively "Watson") in August 1990 in an action arising from a mineral lease dispute. In an effort to collect that judgment, Anderson filed the present garnishment action against Koch Oil Company in November 1990. Based on its investigations, Anderson believed that Koch was the principal purchaser of oil from leases operated by Watson, and therefore was indebted to him. K. Ray Campbell, an attorney with the Houston firm of Campbell, Zukowski & Bresenhan, represented Anderson in both the original action against Watson and the garnishment action against Koch.

Answering the writ of garnishment, Koch admitted a debt to Watson of $3967, which it paid to the registry of the court. Anderson claims, however, that Koch owed considerably more and conspired with Watson to avoid further payment. Specifically, Anderson contends that Watson executed sham transfers of his lease interests to entities under his control that were not liable on the Anderson judgment, and that Koch acquiesced in the fraudulent transfers by paying purchase proceeds to the sham transferees rather than to the court pursuant to the writ of garnishment.

Anderson claims that it learned of Koch's wrongdoing when Campbell took the deposition of Carla Rice, a Koch representative, in April 1991. Anderson amended its pleadings a month later to allege fraud and conspiracy against Koch, Watson, and Watson's transferees. At that point, according to Anderson, Campbell realized that he would be a necessary witness at trial because of his personal knowledge of Koch's actions regarding the writ of garnishment. Campbell did not personally represent Anderson at any subsequent court hearings or depositions, although he spoke once at a pretrial hearing in June 1991 in response to a question from the court regarding the location of Uhland, Texas. Campbell did, however, continue to participate in settlement negotiations, assist his partner, John Zukowski, with trial preparation, and sign pleadings. Campbell signed all the pleadings until Koch filed its motion to disqualify, discussed below, at which point Zukowski began signing the pleadings. This comports with Texas Rule of Civil Procedure 57, which merely requires that pleadings "be signed by at least one attorney of record." All pleadings filed by Anderson that are included in the appellate record show both Campbell and Zukowski as attorneys of record.

In November 1992, three weeks before trial, Anderson identified Campbell as one of its expert witnesses in timely responses to the defendants' discovery requests. ¹ A short time later Koch moved to disqualify Campbell and his law firm from representing Anderson, citing Texas Disciplinary Rule of Professional Conduct 3.08. Koch alternatively requested that Campbell be prohibited from testifying at trial on any matter other than attorneys' fees. Anderson responded that Campbell would serve only as a witness at trial, not as Anderson's attorney. After a hearing, the trial court denied Koch's motion to disqualify Campbell and his law firm.

Anderson's fraud and conspiracy claims were tried to a jury in December 1992, with Zukowski acting as Anderson's advocate at trial and Campbell appearing as its principal witness. Although Campbell testified about the factual background surrounding the writ of garnishment, the bulk of his testimony was expert in nature, explaining the numerous assignments, transfer orders, and division orders executed by and between Watson, his transferees, and Koch that had been obtained during discovery. Based on these documents and his knowledge of industry practices, Campbell concluded that Koch had accommodated Watson's efforts to avoid paying the Anderson judgment. Campbell ultimately testified that Koch showed Watson "a way to beat the system" by assigning his producing oil and gas properties to different entities.

Although Campbell did not act as Anderson's lawyer during trial, he sat at counsel table except during his testimony. Moreover, he spoke once in brief response to a question posed by Koch's attorney regarding documents, though he did so outside the presence of the jury.

The jury returned a verdict for Anderson, finding that Koch and Watson's transferees committed fraud and engaged in a conspiracy to commit fraud. ² The jury assessed $164,360 in actual damages for the fraud, and separately assessed $200,000 in actual damages for the conspiracy. It also found that Koch wrongfully paid garnished funds, concluding that this conduct proximately caused $100,000 in actual damages. The jury also awarded punitive damages of $100,000 and additional attorneys' fees. ³

After considering the parties' post-verdict motions, the trial court rendered judgment against Koch for $153,722 in actual damages, $100,000 in punitive damages, and $119,198 in attorneys' fees. Only Koch appealed to the court of appeals. Although it raised points there challenging the exemplary damages and attorneys fees, which that court did not reach, neither party challenges the amount of damages in this Court.

The court of appeals held that Campbell violated Rule 3.08 and that the trial court abused its discretion by failing to disqualify him. It did not consider, however, whether Campbell's firm should have been disqualified. Focusing only on the importance of Campbell's testimony, rather than the extent and effect of Campbell's advocacy at trial, the court concluded that the trial court's abuse of discretion likely caused the rendition of an improper judgment. After further concluding that legally sufficient evidence supported the jury's verdict, precluding rendition of judgment in Koch's favor, the court reversed the trial court's judgment based on Rule 3.08 and remanded the cause for a new trial. While the court disqualified Campbell from representing Anderson in the proceedings on remand, it is not clear whether it intended to prohibit him from testifying as a witness.

II

The pre-1994 version of Texas Disciplinary Rule of Professional Conduct 3.08, which governs Campbell's conduct at the 1992 trial of this cause, provides as follows:

Lawyer as Witness

(a) A lawyer shall not accept or continue employment in a contemplated or pending adjudicatory proceeding if the lawyer knows or believes that the lawyer is or may be a witness necessary to establish an essential fact on behalf of the lawyer's client, unless:

(1) the testimony relates to an uncontested issue;

(2) the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony;

(3) the testimony relates to the nature and value of legal services rendered in the case;

(4) the lawyer is a party to the action and is appearing pro se; or

(5) the lawyer has promptly notified opposing counsel that the lawyer expects to testify in the matter and disqualification of the lawyer would work substantial hardship on the client.

(b) A lawyer shall not continue as an advocate in a pending adjudicatory proceeding if the lawyer believes that the lawyer will be compelled to furnish testimony that will be substantially adverse to the lawyer's client, unless the client consents after full disclosure.

(c) Without the client's informed consent, a lawyer may not act as advocate in an adjudicatory proceeding in which another lawyer in the lawyer's firm is prohibited by paragraphs (a) or (b) from serving as advocate. If the lawyer to be called as a witness could not also serve as an advocate under this Rule, that lawyer shall not take an active role before the tribunal in the presentation of the matter.

Tex.Disciplinary R.Prof.Conduct 3.08 (1989), reprinted in 777-778 S.W.2d (Texas Cases) XCIII-XCIV (1989). In 1994, Rule 3.08(a) was amended to prohibit "employment as an advocate before a tribunal in a contemplated or pending adjudicatory proceeding" Tex.Disciplinary R.Prof.Conduct...