Miller v. Kennedy & Minshew, Prof. Corp.

• Decision Date: 20 November 2003
• Docket Number: No. 2-01-408-CV.,2-01-408-CV.
• Citation: 142 S.W.3d 325
• Parties: William J. MILLER, Appellant, v. KENNEDY & MINSHEW, PROFESSIONAL CORPORATION a/k/a Kennedy, Minshew, Campbell & Morris, P.C., and a/k/a Kennedy, Minshew & Campbell, P.C., and Robert Minshew, Appellees.
• Court: Texas Court of Appeals

142 S.W.3d 325

William J. MILLER, Appellant, v. KENNEDY & MINSHEW, PROFESSIONAL CORPORATION a/k/a Kennedy, Minshew, Campbell & Morris, P.C., and a/k/a Kennedy, Minshew & Campbell, P.C., and Robert Minshew, Appellees.

No. 2-01-408-CV.

Court of Appeals of Texas, Fort Worth.

November 20, 2003.

Rehearing En Banc Overruled July 8, 2004.

Appeal from the 235th District Court, Cooke County, Jerry Wayne Woodlock, J Law Office of Frederick R. Zlotucha, Frederick R. Zlotucha, San Antonio, Storey, Moore & McCally, P.C., Helen A. Cassidy, Holtz & Wright, Inc., James W. Holtz, Houston, Bourland, Kirkman, Seidler, Evans, Jay & Michel, L.L.P., David L. Evans, Fort Worth, for appellant.

Haynes and Boone, L.L.P., Karen S. Precella, Kendyl Darby, Fort Worth, Kennedy & Minshew, P.C., Jack G. Kennedy, Sherman, for appellees.

PANEL A: CAYCE, C.J.; WALKER, J.; and SAM J. DAY, J. (Retired, Sitting by Assignment).

OPINION

JOHN CAYCE, Chief Justice.

I. Introduction

In this fee forfeiture case, the primary issue we must decide is whether the trial court abused its discretion by ruling that no forfeiture was required where the jury found that appellees, who are attorneys, breached their fiduciary duty to their client, appellant William J. Miller; that Miller ratified appellees' misconduct and committed fraud; and that both appellees and Miller breached their retainer fee agreement and were negligent, but only appellees suffered damages. Because we conclude that the trial court's ruling was not an abuse of discretion and that none of Miller's other complaints require a reversal of this case, we affirm the trial court's judgment.

II. Factual and Procedural Background

In January 1994, Miller, accompanied by his accountant, contacted Robert Minshew, an attorney with the law firm of Kennedy & Minshew, P.C. (the law firm),¹ about defending Miller in a lawsuit involving a dispute over losses on a commercial building (the Snuggs matter). Miller and the law firm entered into a contingency fee agreement concerning the Snuggs matter. Minshew eventually obtained a reversal of an arbitration award of $30,000 against Miller and secured Miller's release from 90% of the debt on the building.

Meanwhile, in February 1994, Miller discussed with Minshew problems related to his ownership in and control of North Texas Communications Company, Inc. (NTCC), a telephone and cable television business. Miller was chairman of the board of NTCC. He and his wife, Terese, owned 2500 shares, or 50%, of NTCC's stock. Alvin Fuhrman, NTCC's president, and his wife owned the other 50% of the stock.

Miller was unhappy with his role in NTCC. He believed Fuhrman was "running the company like it was his own," rather than as an equal partnership, that Fuhrman was not keeping him adequately informed of company business, and that NTCC should have been paying dividends. Miller told Minshew that he had contemplated selling the Millers' interest in NTCC to either Fuhrman or a third party, but had not been able to negotiate an acceptable sale price. For example, a company had offered to purchase the Millers' stock for $5 million in 1992, but that deal fell apart when the company could not acquire 100% of NTCC's stock. In February 1994, Miller had also offered to sell the Millers' stock to Fuhrman for $5.5 million. Fuhrman had countered with an offer for $4,577,201, including interest, over a nine-year period, which had a cash value equivalency of approximately $3 million.

At meetings in February and December 1994, Miller and Minshew discussed Miller's concerns and what could be done to address them. There is conflicting evidence concerning what representations Minshew made to Miller during these meetings about his expertise. Miller and Fran Voth, Miller's secretary and business partner,² testified that Minshew said he could take care of all of Miller's problems, including getting NTCC to pay $200,000 per year in dividends, getting Miller equal control in the company, and getting Fuhrman to allow Miller's family members to work there. Miller and Voth further testified that Minshew stated he could throw NTCC into receivership anytime Miller wanted—something that was very attractive to Miller. Minshew denied representing that he had any expertise in the area of retained earnings or dividend potential, but acknowledged stating that he had experience with corporate receiverships and that he knew the threat of a receivership got everyone's attention.

By December 1994, Miller was ready to hire appellees to represent him in his dealings with NTCC, and Miller and Minshew discussed the terms of a retainer fee agreement (RFA). Although Minshew offered to work for $150 per hour, Miller insisted on a contingent fee arrangement. Thus, the compensation section of the RFA provided that, if appellees were "instrumental" in obtaining a sale of the Millers' NTCC stock to Fuhrman or a third party on terms and conditions acceptable to the Millers, appellees would receive a fee equal to 20% of the net sale proceeds, up to $500,000. The $500,000 cap was included at Miller's request. The law firm was hesitant to agree to a contingent rather than an hourly fee because a forced sale might never occur for reasons unrelated to the law firm's work or the possibility of the sale itself. Consequently, Miller agreed to a section providing for the transfer of eighty shares of the Millers' stock to the law firm in the event work had been performed but the stock was not sold within twelve months.

Minshew gave Miller a draft of the RFA, which Miller took home to review and discuss with Voth. The Millers kept the RFA for approximately two weeks before returning to the law firm to sign it. On January 27, 1995, after reading the agreement aloud, the Millers and the law firm executed the RFA. The Millers acknowledged in the RFA that appellees had "made no guarantees regarding the successful resolution of matters for which [they had] been retained, and all expressions relative thereto are matters of [appellees'] opinion only and shall not be considered as express or implied warranties of the outcome of any such efforts on behalf of [appellees]." Before execution of the agreement, Minshew had never met or represented Terese Miller.

Although the Millers employed Minshew to assist in selling the NTCC stock, they did not intend to sell the stock. Miller testified that he had no intention of selling in 1995, 1996, or 1997. He also admitted there was nothing for Minshew to do until the Millers were ready to sell. Miller failed to disclose this information to appellees and instead allowed Minshew to work on the stock sale and other matters from January 1995 through February 1998, without pay or demand for pay.

In February 1995, the Millers borrowed $100,000 from the law firm. Minshew testified that, although the loan was discussed before the RFA was signed and was secured by half of the Millers' NTCC stock, it was not a condition of the RFA. Miller testified that he doubted he would have entered the RFA if the $100,000 loan had not been "part of" the agreement because he needed some ready cash; however, there is no reference in the RFA to the loan.

The RFA contained a section entitled "Duties and Authority of Attorneys," which provided that appellees were to "perform various legal duties in carrying out the purposes and intents of this Agreement, and [were] authorized, but [were] not to be limited," to do several things, including:

1. examine all books and records of NTCC and its subsidiary and affiliated companies, including careful examination of all compensation paid to and fringe benefits received by Fuhrman and his family members;

2. examine all records and reports of NTCC and its subsidiary and affiliated companies on file with any state or federal regulatory agency;

3. take legal action, if necessary, to establish the Millers' right and authority to "effectively participate" in NTCC's business affairs and to be effectively represented by their 50% ownership in NTCC;

4. file suit, if necessary, to recover on NTCC's behalf any "unreasonable" compensation or benefits provided Fuhrman or his family; and

5. file suit, if necessary, to establish NTCC's capability to pay dividends to its shareholders.

Minshew did not personally do any of these things, but in June 1995 he hired James Keller, a CPA, to prepare a valuation of NTCC and the Millers' stock. Minshew assumed that Keller would do anything listed in the first two categories of the "Duties and Authority" section that was necessary to properly value a company; however, Keller did not know about this provision and therefore did not do everything listed in it. Keller did go to NTCC's accounting firm in the fall of 1995, where he reviewed NTCC's audit and tax files, but he did not examine any of NTCC's books and records because they were not available at the accounting firm. He then prepared a valuation of NTCC and placed a maximum value of $4.5 million on the Millers' stock.

Miller rejected Keller's stock valuation as unacceptable. Although Miller said he would suggest alternative terms for the stock sale, he did not do so. Keller also investigated the possibility of NTCC paying dividends in 1995, but Minshew did not make a demand on Fuhrman for payment of a dividend. In February 1996, however, Minshew prepared a letter to Fuhrman that addressed many of Miller's concerns and threatened a receivership. Miller told Minshew not to send the letter. After several months passed, Miller stated that NTCC was expanding its fiberoptic cable routes and that, as a result, he preferred not to strap the company for cash through a forced stock buyout.

By September 1996, the Millers still had not authorized any action on the potential sale of their NTCC stock. Consequently, at the law firm's request, the Millers confirmed in writing that they did not want the law firm to take any action on the stock sale. Although the Millers' stock had not sold within the first...