Johnson v. Brewer & Pritchard, P.C.

• Decision Date: 21 March 2002
• Docket Number: No. 00-0081.,00-0081.
• Citation: 73 S.W.3d 193
• Parties: Nick JOHNSON and James W. Chang, Petitioners, v. BREWER & PRITCHARD, P.C., Respondent.
• Court: Texas Supreme Court

73 S.W.3d 193

Nick JOHNSON and James W. Chang, Petitioners, v. BREWER & PRITCHARD, P.C., Respondent.

No. 00-0081.

Supreme Court of Texas.

Argued October 4, 2000.

Decided March 21, 2002.

William P. Maines, Thomas R. McDade, McDade Fogler Maines & Lohse, Robert Lee Galloway, Grant Cook, Thompson Knight Brown Parker & Leahy, Houston, for petitioners.

Russell Starbird, Houston, G. Steven Ruprecht, Niewald, Waldeck & Brown, Kansas City, MO, Patrick E. Gaas, J. Mark Brewer, Brewer & Pritchard, Houston, for respondent.

Justice OWEN delivered the opinion of the Court in which Chief Justice PHILLIPS, Justice HECHT, Justice ENOCH, Justice BAKER, Justice HANKINSON, Justice JEFFERSON and Justice RODRIGUEZ joined.

The primary issue in this case is when an associate of a law firm may refer a matter to another firm or lawyer without breaching a fiduciary duty to his or her employer. Brewer & Pritchard, P.C. sued its former associate and another lawyer with whom that associate formed a partnership, asserting causes of action for breach of fiduciary duty, actual and constructive fraud, conversion, and negligence. The trial court granted summary judgment in favor of the former associate and his partner on all claims. The court of appeals reversed in part, remanding the breach of fiduciary duty and constructive fraud causes of action against both defendants.

We hold that an associate owes a fiduciary duty to his or her employer not to personally profit or realize any financial or other gain or advantage from referring a matter to another law firm or lawyer, absent the employer's agreement otherwise. Although our reasoning differs from the court of appeals', we affirm that court's judgment.

I

James Chang and Nick Johnson, the defendants in this case, filed a motion for summary judgment pursuant to Rule 166a(c) as to certain causes of action or elements thereof and pursuant to Rule 166a(i) as to others. Although some of the facts are disputed, we consider the record in a light most favorable to Brewer & Pritchard, who was the nonmovant. We accept the summary judgment evidence offered by Brewer & Pritchard, the nonmovant, as true in determining if there is a genuine issue of material fact.¹

Brewer & Pritchard employed James Chang as an associate. His practice was devoted to corporate securities and other corporate transactional matters. One of Chang's close personal friends was Henry King. They had been members of the same fraternal organization during their college years and had been friends for eleven years before the events that gave rise to this suit took place.

In April 1995, while Chang was employed by Brewer & Pritchard, he and Henry King were together on a ski vacation when King's father Herbert King and several members of a delegation from China were severely injured in a helicopter crash that occurred near Flower Mound, Texas. Chang returned home two days later and talked to two members of Brewer & Pritchard about the possibility that the firm might be retained to represent the crash victims. Chang asserted that because Henry King's father and Chang's mother were friends, and because of Chang's ties to the Chinese community, he could "control the case and could `sign up' the crash victims." Chang said that he expected Brewer & Pritchard "would make a lot of money handling the case." One of the Brewer & Pritchard partners, Patrick Gaas, discussed with Chang how to structure a contingent fee agreement and issues that could arise. Gaas explained to Chang the possibility of referring the case to another firm and how to structure a referral fee agreement. Gaas mentioned the names of several prominent personal injuries lawyers to whom the case might be referred. Chang asserted that he was in the best position to consummate an agreement with the crash victims. Chang likewise told the other partner with whom he discussed this matter, Thomas Pritchard, that the case was "a significant business opportunity for our firm." Chang asked Pritchard if he would be available to travel to Denton, Texas, if needed, to which Pritchard responded that he would assist in any way that he could. Chang did not tell either Gaas or Pritchard that Henry King was a personal friend, that Chang considered Herbert King to be his "surrogate father," or that Chang intended to assist King as a family friend without payment.

Chang scheduled meetings for Henry King with several personal injury lawyers and firms. Chang accompanied King at all of those meetings. One of the attorneys they consulted was Nick Johnson, a close friend of Chang's since they had been in law school together. Henry King and Johnson were also friends. They had become acquainted six or seven years earlier through Chang.

Chang billed to Brewer & Pritchard's business development file faxes to and from Henry King, Nick Johnson, and another personal injury lawyer in Houston. Chang also billed to the same file long distance telephone calls to the hospital where Henry King's father was being treated and to the hotel where the King family was staying, and Chang billed shipping charges on a package from Henry King to the same file.

Five days after the crash, Henry King signed a contingent fee agreement with Nick Johnson during or shortly after a meeting at which Chang was present. Johnson told King at that meeting that he would "flip" the case to the firm of Jamail & Kolius. The next day, Johnson consummated an agreement with Jamail & Kolius, referring the matter for fifty-percent of the net fee. Jamail & Kolius had been among the several firms and lawyers with whom Chang and King had previously met. Joe Jamail and Johnson subsequently met with other victims of the crash who were hospitalized in Fort Worth, and Jamail and Johnson were retained to represent them as well as the survivors of a victim who was killed in the crash. All the claimants other than the King family were citizens of China, and suit was filed in federal court. There is evidence that Johnson actively participated as co-counsel with the Jamail & Kolius firm in representing the Kings and the other crash victims in that suit.

When Chang was asked by Brewer & Pritchard how he was progressing in reaching an agreement with the crash victims, he said that the firm "had lost out" and that the Jamail firm had been retained. He disclaimed any knowledge of how that firm had procured the representation.

Chang left Brewer & Pritchard about two months after the crash occurred to work for another firm that had a corporate securities practice. The King family's personal injury suit was settled a little more than a year after that, in October 1996, and Nick Johnson received a $3,000,000 fee. It is unclear from the record whether that fee was solely referable to the Kings' claims or whether it also included a fee from the other crash victims who were citizens of China. About a year later, at the end of 1997, Chang left the firm with which he had been working and formed a partnership with Nick Johnson.

Brewer & Pritchard first sued Johnson and Chang in October 1996, when the helicopter crash suit was settled, which, as noted above, was about a year before Johnson and Chang became law partners. Brewer & Pritchard contended Chang had breached a fiduciary duty that he owed to Brewer & Pritchard and that Johnson had knowingly assisted Chang in committing that breach. Specifically, Brewer & Pritchard alleged that Chang directly or indirectly profited by receiving or arranging to receive all or part of Johnson's referral fee. Brewer & Pritchard sought actual and exemplary damages. When Brewer & Pritchard's case was set for trial and after Johnson and Chang had filed a motion for summary judgment addressing all claims, Brewer & Pritchard filed a notice of non-suit. On the same day that the notice of non-suit was filed, Brewer & Pritchard filed a second, identical suit. Johnson and Chang filed a motion for summary judgment in that case, which the trial court granted.

Brewer & Pritchard appealed. The court of appeals held that fact questions remained as to whether Chang had breached a fiduciary duty and whether Johnson had knowingly assisted Chang.² It accordingly reversed the trial court's judgment in part, and remanded the breach of fiduciary duty and constructive trust claims. The court of appeals otherwise affirmed the trial court's judgment.

We granted Johnson's and Chang's petition for review and Brewer & Pritchard's conditional petition for review. For the reasons discussed below, we affirm the court of appeals' judgment, although the basis for our judgment differs from the court of appeals'. We turn first to Johnson's and Chang's petition for review and the breach of fiduciary duty cause of action.

II

Brewer & Pritchard asserts that throughout Chang's employment, he owed a fiduciary duty to put the firm's interests above his own and to refrain from taking actions detrimental to the firm. The firm alleges that Chang "seize[d] for himself what he perceived to be a lucrative business opportunity," thereby breaching a fiduciary duty. Brewer & Pritchard also asserts that it had policies forbidding associates from practicing law for their own account, engaging in employment of any kind other than their employment with the firm, or referring cases without securing a referral fee for Brewer & Pritchard. The firm contends that its actual damages for Chang's breach of fiduciary duty are the amount of the referral fee that Nick Johnson obtained in connection with the helicopter crash.

Johnson and Chang argue that as a matter of law Chang owed no fiduciary duty to Brewer & Pritchard. They assert that Chang had no employment agreement with Brewer & Pritchard and that an associate does not owe a fiduciary duty to his or her firm "merely as a result" of being employed.

Fiduciary duties are imposed by courts on some relationships because of their special nature. We recounted in Kinzbach Tool Co. v. Corbett-Wallace Corp.³ that the "term ...