Arce v. Burrow

Decision Date30 October 1997
Docket NumberNo. 14-95-00360-CV,14-95-00360-CV
PartiesCarol ARCE, Individually and as Next Friend of Lyndsey Arce and Lauren Arce, Raul S. Alvarado, David H. Anderson, Freddy Barfield, Dorothy Barfield, Mercer Black, Richard W. Bradley, Jr., James Karl Bryant, Sandra Bryant, Stephen Lloyd Bryant, Thomas G. Butcher, Julane Campbell, Jason Campbell, Justin Campbell, Jaret Campbell, Dennis M. Curry, Ricky L. Dannelley, Glenn E. Deshotel, John L. Dixon, Silverrol Ferguson, Julian Garcia, Jr., Austin Gill, Robert F. Gudz, Joe Alan Holzworth, Wesley S. Hood, Bobby Ray Jones, James E. Kerr, Stanley P. Korenek, James L. Lauderdale, Jesse H. Luna, Ronald D. Lyon, Walter E. Marbury, Jr., John Martinez, Patrick McCourtney, Gary Mcpherson, Lisa McPherson, Carol D. Montelongo, Pete Montoya, Iii, Herver Mosley, Terry L. Mullins, Adolfo Ochoa, Jr., Philip Owens, Jesus R. Pena, Carl T. Richardson, Glenn W. Robbins, Johnnie Rogers, Stephen R. Ross, Amanda Ann Seaman, Terry Wayne Simpson, Allen Smith, Jr., Helga Sieglinde Thompson, Robert A. Wash, and Calvin L. Williams, Appellants, v. David BURROW, Walter Umphrey, John E. Williams, F. Kenneth Bailey, Wayne Reaud, and Umphrey, Burrow, Reaud, Williams & Bailey, Appellees. (14th Dist.)
CourtTexas Court of Appeals

William V. Dorsaneo, III, Dallas, William J. Skepnek, Lawrence, KS, for appellants.

David M. Gunn, Houston, for appellees.

Before YATES, FOWLER and EDELMAN, JJ.

CORRECTED OPINION ON MOTION FOR REHEARING

FOWLER, Justice.

Our opinions of August 28, 1997, and October 23, 1997, are withdrawn and this one substituted for them. The issues presented in this appeal from a summary judgment all revolve around one main issue: whether fee forfeiture is a viable remedy in Texas when an attorney breaches a fiduciary duty to a client, and, if fee forfeiture is a viable remedy, how it is applied. Concluding that fee forfeiture is a viable remedy, we reverse and remand in part and affirm in part.

On October 23, 1989, a series of explosions rocked the Phillips 66 chemical plant in Pasadena, Texas. Twenty-three people were killed and hundreds were injured. Appellants hired appellees to file their individual suits against Phillips. All appellees agreed to payment on a contingency fee basis.

According to appellants, appellees did not develop or evaluate their claims individually, and instead, without discussion or authority, reached an "aggregate settlement" with Phillips for the entire suit. Only then were appellants "summoned" for a brief, twenty-minute meeting to discuss the settlement arrangements. Appellants allege appellees lied, and/or intimidated them into accepting the settlement and, in the process, "skimmed-off" sixty million dollars in attorneys' fees.

Appellees, on the other hand, claim appellants became unhappy with their settlements when rumors began to circulate about larger settlements received by plaintiffs who were represented by other attorneys. Appellees allege appellants then began to believe their settlements were unfair and blamed their attorneys. Appellees contend there was no "aggregate settlement," the settlements were adequate and fair.

Ultimately, appellants filed suit against appellees alleging breach of fiduciary duty, fraud, violations of the Texas Deceptive Trade Practices Act (DTPA), negligence, and breach of contract. They asked to be awarded all fees paid to appellees, punitive or special damages under the DTPA, prejudgment and postjudgment interest, and attorney's fees. According to appellees, however, appellants' pleadings covered liability, but were "strangely vague" about damages. Appellees filed a motion for summary judgment and a first supplemental motion for summary judgment alleging three grounds: (1) no aggregate settlement took place; (2) estoppel and ratification barred appellants from attacking the settlement agreements; and (3) nothing appellees did caused any damage to appellants, i.e., appellees' settlements were fair and reasonable.

On January 11, 1995, the trial court held a hearing on the original and first supplemental motion for summary judgment. The court denied the motions and sent a letter to the parties explaining its ruling. The letter first stated that a fact issue existed "on whether there was an aggregate settlement of the plaintiffs' claims against Phillips" and second, that the defendants had not addressed the plaintiffs' claims for damages on the aggregate settlement. 1

Subsequently, the court held another hearing on appellees' second supplemental motion for summary judgment, which included and incorporated their original and first supplemental motions for summary judgment. After the hearing, the trial court entered an order in which it found the motion should be denied as to the claim that there was no breach of duty because the court found there was evidence of an aggregate settlement sufficient to create a fact issue. The court also found, however, that the motion should be granted because (1) the summary judgment proof established that appellants suffered no damages as a result of any breach of duty, (2) the affidavits of Roberta Edwards, M.D., and Harry Wilson did not controvert the affidavit of Robert Malinack with competent evidence, and (3) fee forfeiture is not an element of damages, but a legal remedy that a court may apply only after a jury has found a breach of duty with resulting actual damages. Appellants perfected this appeal.

In reviewing a trial court's order granting summary judgment, the court must determine whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of material fact as to one or more of the essential elements of the plaintiff's cause of action. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex.1970). The movant has the burden to show there is no genuine issue of material fact, and that it is entitled to judgment as a matter of law. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). Evidence favorable to the non-movant will be taken as true and every reasonable inference indulged in its favor. Id.

In points of error one through four, appellants contend the trial court erred in granting summary judgment in favor of appellees. 2 Within these points of error, appellants raise several arguments. We will begin our review by addressing appellants' third point of error concerning the concept of fee forfeiture and its application, if any, in Texas.

I. FEE FORFEITURE

In their third point of error, appellants argue that summary judgment was improper because they were inherently damaged by breaches of several fiduciary duties, and fee forfeiture is the appropriate remedy for those breaches. 3 To be entitled to the remedy of fee forfeiture, they do not have to prove appellees caused actual damage--proof of a breach is enough. In support of this position, they remind us that the trial court found that a fact issue exists on at least one of the claimed breaches, aggregate settlement.

An aggregate settlement occurs when an attorney, who represents two or more clients, settles the entire case on behalf of those clients without individual negotiations on behalf of any one client. See Scrivner v. Hobson, 854 S.W.2d 148, 152 (Tex.App.--Houston [1st Dist.] 1993, orig. proceeding). The attorney owes a duty of loyalty and good faith to each client, and it is the ethical responsibility of an attorney representing multiple clients to obtain individual settlements, unless those clients are informed and consent. 4 See Judwin Properties v. Griggs & Harrison, 911 S.W.2d 498, 506 (Tex.App.--Houston [1st Dist.] 1995, no writ). Settling a case in mass without consent of the clients is unfair to the clients and may result in a benefit to the attorney (speedy resolution and payment of fees) to the detriment of the clients (decreased recovery). Unfairness is the cornerstone in an action for breach of fiduciary duty. Id. Thus, when an attorney enters into an aggregate settlement without the consent of his or her clients, the attorney breaches the fiduciary duty owed to those clients. 5 Appellants contend that when such a breach occurs, forfeiture, without the need for proof of damage, is the appropriate remedy.

As to the amount of forfeiture, appellants argue that once a breach is proved, the entire fee must be forfeited. In response, appellees contend (1) there can be no forfeiture without actual harm to the client, and (2) total fee forfeiture is not automatic, rather the amount of forfeiture, if any, is in the trial court's discretion.

Considering the points appellants have raised and the responses to them, the main issue we must determine is whether an attorney's fees can be forfeited when the attorney has breached a fiduciary duty owed the client by entering into an aggregate settlement. 6 If so, we must decide: (1) what a party must prove to be entitled to the remedy of fee forfeiture; (2) whether forfeiture of the entire fee is automatic or whether a portion of the fee be forfeited, with the attorney retaining the remainder; and (3) whether forfeiture is a question for the trial court or the trier of fact. 7 There is a corollary to the second question: if only part of the fee is subject to forfeiture, what factors should be considered in determining the amount?

Inherent in any agency relationship is the fiduciary duty an agent owes to his or her principal. Maryland Ins. Co. v. Head Indus. Coatings and Servs., Inc., 906 S.W.2d 218, 233 (Tex.App.--Texarkana 1995), rev'd on other grounds, 938 S.W.2d 27 (Tex.1996); Republic Bankers Life Ins. Co. v. Wood, 792 S.W.2d 768, 778 (Tex.App.--Fort Worth 1990, writ denied). A fiduciary duty is a formal, technical relationship of confidence and trust imposing great duties upon a fiduciary as a matter of law. Central Sav. & Loan Ass'n v. Stemmons Northwest Bank N.A., 848 S.W.2d 232, 243 (Tex.App.--Dallas 1992, no writ). When parties enter a...

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