Continental Holdings, Ltd. v. Leahy

• Citation: 132 S.W.3d 471
• Decision Date: 20 November 2003
• Docket Number: No. 11-02-00326-CV.,11-02-00326-CV.
• Parties: CONTINENTAL HOLDINGS, LTD., Appellant, v. Jim LEAHY, Individually; Brown, Parker & Leahy, L.L.P.; and Thompson & Knight, L.L.P., Appellees.
• Court: Texas Court of Appeals

132 S.W.3d 471

CONTINENTAL HOLDINGS, LTD., Appellant, v. Jim LEAHY, Individually; Brown, Parker & Leahy, L.L.P.; and Thompson & Knight, L.L.P., Appellees.

No. 11-02-00326-CV.

Court of Appeals of Texas, Eastland.

November 20, 2003.

Coyt Randal Johnston, Robert L. Tobey Johnston & Tobey, Roy Ryden Anderson, Professor of Law, Southern Methodist University, Dallas, for appellant.

Christine Roseveare, P. Michael Jung, David N. Kitner, Strasburger & Price, Dallas, for appellee.

Panel consists of: ARNOT, C.J., and WRIGHT, J., and McCALL, J.

Opinion

TERRY McCALL, Justice.

This is a legal malpractice case. Continental Holdings, Ltd. sued its former lawyers, Jim Leahy, Individually; Brown, Parker & Leahy, L.L.P.; and Thompson & Knight, L.L.P. (the Lawyers). The Lawyers represented Continental in an arbitration proceeding in which Continental sought to recover damages from Western Atlas International, Inc. resulting from Western's breach of a contract. The arbitrators determined that Western breached the contract and awarded some of the damages sought by Continental. However, the arbitrators found that Continental did not meet its burden of proof on its alleged benefit of the bargain damages and denied Continental recovery of those damages.

In this case, Continental alleged that the Lawyers breached their duties to Continental in the arbitration proceeding by failing to introduce evidence that was sufficient to satisfy its burden of proof on the benefit of the bargain damages. Continental also alleged that the arbitrators would have awarded it benefit of the bargain damages but for the Lawyers' negligence. The Lawyers moved for summary judgment, asserting that their alleged negligence did not proximately cause any damage to Continental because a limitation-of-liability provision in Continental's contract with Western excluded recovery of benefit of the bargain damages. The trial court granted summary judgment to the Lawyers. We affirm.

Issues Presented

Continental presents five issues for review. In its first issue, Continental asserts a general complaint that the trial court erred in granting summary judgment. In its second and third issues, Continental asserts that the trial court erred in granting summary judgment because (a) the arbitrators ruled that the limitation-of-liability provision in the contract did not prevent the recovery of benefit of the bargain damages and (b) the arbitrators' ruling on the limitation-of-liability issue was binding on the trial court. In its fourth issue, Continental argues that the trial court erred in granting summary judgment because, irrespective of the arbitrators' ruling, the contract permitted it to recover benefit of the bargain damages for Western's breach. In its fifth issue, Continental asserts that, if the contract did not unambiguously permit or deny recovery of Continental's benefit of the bargain damages, the cause should be remanded to the trial court for a resolution of the factual dispute presented by the ambiguous contract.

Background Facts

Continental agreed to perform geophysical services for Western under the contract. The contract required Continental to provide Western with the vessel, the M/V Pacific Titan, fully crewed, for a period of 12 months. The start date for the contract was October 1, 1998. A number of disputes arose between Continental and Western; and, on December 29, 1998, Western issued a notice of termination of the contract. Continental asserted that Western's termination of the contract was wrongful.

Continental and Western submitted a number of their disputes to arbitration, including the issue whether Western had the right to terminate the contract. The arbitrators determined that Western's termination of the contract constituted a breach of the contract. Under the contract, the charter rate for the M/V Pacific Titan was $33,000 per day. Continental argued that, as a result of Western's breach, it was entitled to recover $33,000 a day for the full contract term of one year. The arbitrators disagreed in their findings:

20. The classic measure of contract damages is to put the injured party in the position it would have been in had the contract been performed. Awarding Continental the day rate of $33,000 per day for a full year, as urged by Continental, does not, however, accomplish this goal. If the contract clearly called for such a remedy in the event of early termination, and we find that it does not, the remedy would constitute an impermissible penalty.

21. One way to compensate Continental for its damages would be to consider the revenues expected to be earned, less the expenses saved as a consequence of the breach. It was Continental's burden to prove its damages with reasonable certainty. The undated budget produced at the hearing does not alone constitute competent evidence of the expenses saved as a consequence of the breach. Continental did not sustain its burden of proof on any "benefit of the bargain" damages, and we therefore decline to award such damages.

The arbitrators did, however, award the following damages to Continental: (1) $1,056,000 for services performed under the contract before Western terminated it; and (2) $2,251,405 for costs that Continental incurred in performing the contract.

Continental defines its benefit of the bargain damages under the contract as "those profits that it would have earned on the Pacific Titan Contract itself, but for [Western's] breach." Continental argues that it is entitled to recover those lost profits from the Lawyers. In their motion for summary judgment, the Lawyers asserted that, because the limitation-of-liability provision in Continental's contract with Western precluded Continental's recovery of lost profits damages, their alleged negligence in failing to present sufficient evidence of lost profits in the arbitration proceeding did not proximately cause any damage to Continental. The trial court granted summary judgment to the Lawyers on this ground.

Standard of Review

This appeal involves the review of a traditional motion for summary judgment. We will apply the well-recognized standard of review for traditional summary judgments. We must consider the summary judgment evidence in the light most favorable to the non-movant, indulging all reasonable inferences in favor of the non-movant, and determine whether the movant proved that there were no genuine issues of material fact and that it was entitled to judgment as a matter of law. Nixon v. Mr. Property Management Company, Inc., 690 S.W.2d 546 (Tex.1985); City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671 (Tex.1979). A defendant is entitled to summary judgment if it either disproves an element of each of the plaintiff's causes of action or establishes an affirmative defense on each of the plaintiff's causes of action as a matter of law. American Tobacco Company, Inc. v. Grinnell, 951 S.W.2d 420, 425 (Tex.1997); Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997).

The Effect of the Arbitration Award

The Lawyers argue that Continental waived the issue of the conclusive effect of the arbitrators' award—that the contract did not prevent recovery of benefit of the bargain damages—by failing to present the issue to the trial court in its response to the Lawyers' motion for summary judgment. The record establishes that Continental raised the issue for the first time in its motion for rehearing and/or new trial. TEX.R.CIV.P. 166a(c) provides that "[i]ssues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal." Continental's failure to raise the issue of the conclusive effect of the arbitrators' award in its response to the Lawyers' motion for summary judgment constituted a waiver of the issue. Kelley-Coppedge, Inc. v. Highlands Insurance Company, 980 S.W.2d 462, 467 (Tex.1998) (holding that a party waived reliance on an argument that it asserted for the first time in a motion for new trial)(citing McConnell v. Southside Independent School District, 858 S.W.2d 337, 343 (Tex.1993), and City of Houston v. Clear Creek Basin Authority, supra at 676). Continental's second and third issues are overruled.

Even if Continental had presented this issue in its response to the Lawyers' motion for summary judgment, the arbitration award would not have bound the trial court on the limitation-of-liability issue. Continental argues that, although the arbitrators did not refer to the limitation-of-liability provision in their award, the arbitrators addressed the limitation-of-liability issue and decided the issue in its favor. To support its argument, Continental asserts that "[t]he arbitrators would never have discussed Continental's lost revenue and absence of evidence of expenses saved, had those profits been excluded by the Pacific Titan Contract." The Lawyers respond that the limitation-of-liability provision in the contract was an affirmative defense of Western and that the arbitrators never reached that affirmative defense issue because of Continental's insufficient evidence on benefit of bargain damages.

An arbitration award is conclusive on the parties as to all matters of fact and law submitted to the arbitrators because the award has the effect of a judgment of a court of last resort. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex.2002); Powell v. Gulf Coast Carriers, Inc., 872 S.W.2d 22, 24 (Tex.App.-Houston [14th Dist.] 1994, no writ). This case is not a direct appeal from an arbitration award. Rather, Continental attempts to rely on the arbitration award in this collateral proceeding against its former lawyers. In collateral proceedings, the courts apply collateral estoppel principles to arbitration awards. Postlewaite v. McGraw-Hill, 333 F.3d 42, 48 (2nd Cir.2003); Drago Daic, Trustee v. Nauru Phosphate Royalties, (Texas), Inc., 27 S.W.3d 695, 701 (Tex. App.-Beaumont 2000, pet'n den'd); Fluor...