Spera v. Fleming & Hovenkamp

• Decision Date: 03 August 2000
• Citation: 25 S.W.3d 863
• Parties: <!--25 S.W.3d 863 (Tex.App.-Houston 2000) SUE SPERA ET AL., Appellants V. FLEMING, HOVENKAMP & GRAYSON, P.C. ET AL., Appellees NO. 14-99-00137-CV In The Fourteenth Court of Appeals
• Court: Texas Court of Appeals

Page 863

25 S.W.3d 863 (Tex.App.-Houston [14th Dist.] 2000)

SUE SPERA ET AL., Appellants

V.

FLEMING, HOVENKAMP & GRAYSON, P.C. ET AL., Appellees

NO. 14-99-00137-CV

In The Fourteenth Court of Appeals

August 3, 2000.

On Appeal from the 61st District Court Harris County, Texas Trial Court Cause No. 98-06249

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Panel consists of Justices Hudson, Fowler, and Edelman.

O P I N I O N

WANDA McKEE FOWLER, Justice.

Appellants in this case, all plaintiffs below, are Sue Spera, James Surowka, Joan Tully, William Tully, Matthew Uto, Harry White, Richard Wood, Nelson Eppert, Helen Groves, Erwin Irmscher, James Keily, Ann Keily, Joseph Langley, and Richard Shore (collectively, the "Spera Plaintiffs" or "Appellants"). Appellees, all defendants below, are individual attorneys George M. Fleming, Mark Hovenkamp, John L. Grayson, and the law firm which bears their names, Fleming, Hovenkamp & Grayson, P.C. (collectively, "FH&G" or "Appellees"). In the trial court, the Spera Plaintiffs complained that FH&G breached its fiduciary duty and otherwise committed legal malpractice by seeking excessive attorneys' fees and by failing to timely disclose a conflict of interest between the firm and its clients. In nine points of error, Appellants argue that the trial court erred in granting FH&G's motion for summary judgment. For the reasons set out below, we affirm, in part, and reverse and remand, in part.

Background

This case stems from the tide of polybutylene pipe litigation which flooded the nation's courtrooms during the last decade. Although thousands of polybutylene cases were filed in Texas, these cases were not certified as a class action. Instead, each was prosecuted on an individual basis. For ease of administration, the judge presiding over the 334th Judicial District Court was appointed to coordinate all pretrial matters in the multitude of polybutylene cases pending in Harris County.

In individual lawsuits filed in Harris County against the manufacturers of polybutylene, FH&G represented the Spera Plaintiffs and over thirty thousand other parties who had suffered property damage as a result of plumbing systems made from defective polybutylene pipes. In so doing, FH&G executed contingency fee agreements with each of its clients, including the Speras. Under the terms of these agreements, each polybutylene plaintiff agreed that FH&G was entitled to an award of attorneys' fees in the amount of 40% of all sums recovered by judgment or settlement and up to 45% of the sums recovered in the event of an appeal.

In December of 1995, an aggregate settlement was reached with two of the polybutylene manufacturers. The settlement called for cash payments totaling $170 million, as well as provisions for replacing the plumbing in each plaintiffs' property. Significantly, in March of 1996, after the settlement was finalized, the 334th District Court, sua sponte, ordered a series of "fairness hearings" to determine whether the attorneys' fees and expenses proposed by FH&G under the contingent fee contracts were reasonable. Those hearings were completed in October of 1996. During the hearings, the court heard evidence from FH&G that polybutylene litigation was its dominant activity for nine years, involving the work of eight attorneys, five legal assistants, a number of contract attorneys, investigators, law clerks, and other support personnel. FH&G presented additional evidence that, during the course of the polybutylene litigation, the law firm conducted more than 8,000 depositions and inspected over 30,000 property units. The court also heard evidence that contingency fee percentages for complex, mass tort litigation typically range from 10% to 50%, depending upon the circumstances of each case. This evidence included the fact that the lawyers representing a nationwide polybutylene class action, which the FH&G clients had not joined, received attorneys' fees of only around 9% of the total settlement fund.

On November 18, 1996, the 334th District Court entered an order reducing the amount of allowable attorneys' fees by more than half of the amount provided for by the contingency fee contracts. Based on this order, the fees were reduced from 40% of the whole settlement value, to 20% of the cash settlement amount. Under the contingency fee contracts, FH&G would have received approximately $87 million in attorneys' fees. The amount of attorneys' fees that the court approved in place of the contractual amount was just over $33 million. The court further declined to award the $20 million in reimbursements sought by FH&G, awarding only $10 million in out-of-pocket expenses.

FH&G immediately appealed the court's order regarding the attorneys' fees, and that case was assigned to the First Court of Appeals.¹ In a December 1996 newsletter distributed to its polybutylene clients, FH&G informed the clients of its intent to appeal the 334th District Court's decision. FH&G also acknowledged, for the first time, that the attorneys' fees issue raised by the court - more than eight months earlier in March of 1996 - posed a "conflict of interest" between the law firm and the clients. In July of 1997, FH&G sent additional written correspondence to its polybutylene clients offering to settle the attorneys' fee dispute. From July of 1997, through September of 1998, over 20,000 of the polybutylene clients represented by FH&G resolved their claims over the disputed attorneys' fees. However, none of the Spera Plaintiffs entered into a settlement with FH&G over the disputed attorneys' fees. Rather, the Spera Plaintiffs complained that, by seeking to enforce the contingent fee contracts as written, and by failing to disclose the conflict of interest between the law firm and its clients prior to December of 1996, FH&G negligently breached its fiduciary duty.

Procedural History and Issues Presented

In February of 1998, the Spera Plaintiffs filed a lawsuit against FH&G in the 61st Judicial District Court for Harris County, Texas, alleging that, by seeking the full amount of attorneys' fees without disclosing the conflict of interest, the defendants "wholly failed and neglected to properly represent and protect" the polybutylene plaintiffs' interests.² In that regard, the Spera Plaintiffs lodged claims for "fraud, misrepresentation, conflict of interest, breach of fiduciary duty, neglect, negligence, gross negligence, negligence per se, and legal malpractice." The Spera Plaintiffs complained, in particular, that FH&G's "overreaching" conduct constituted an abuse of "the trust and confidence reposed in them" which rose to the level of a fiduciary breach, and so they sought forfeiture of all or part of the attorneys' fees already paid.

In September of 1998, FH&G filed a motion for summary judgment arguing that the Spera Plaintiffs' claims failed as a matter of law for the following reasons: (1) the claims were barred by the doctrine of collateral estoppel because the 334th District Court had already considered the propriety of the attorneys' fee award during the 1996 fairness hearings; (2) the claims were an "impermissible collateral attack" on the November 18, 1996 order entered by the 334th District Court because the Spera Plaintiffs did not appeal that order; (3) the claims were barred by the doctrine of judicial estoppel because of a prior statement made by the Spera Plaintiffs during the course of the lawsuit; (4) the claims were barred because 20,000 of the proposed plaintiffs in the suit had already released their claims stemming from the attorneys' fee issue by agreeing to settle that dispute; (5) the claims regarding FH&G's efforts to settle the attorneys' fee dispute were barred as an "impermissible attack" on the 334th District Court's November 18, 1996 order; (6) that FH&G's conduct in offering to settle the attorneys' fee dispute could not support the Spera Plaintiffs' claims because the court had already found the settlement "acceptable"; (7) that, because the polybutylene plaintiffs received all of the damages sought during the litigation with the manufacturers, the Spera Plaintiffs had not been damaged and therefore could not prevail on their claims against FH&G and (8) that, because all disputed funds were transferred into an escrow account, the Spera Plaintiffs could not prove they had been damaged by the attorneys' fee debacle.

In October of 1998, the judge of the 61st District Court entered a summary judgment in FH&G's favor without specifying the grounds for that ruling. This appeal followed. In their first eight points of error, Appellants challenge each of the grounds recited in FH&G's motion, arguing that none of them support a summary judgment. Appellants' ninth point of error alleges that the judge of the 61st District Court erred generally by entering summary judgment in FH&G's favor under the rule set out in Malooly Brothers, Inc. v. Napier, 461 S.W.2d 119 (Tex. 1970) (noting that a point of error which states generally that the trial court erred by granting summary judgment "is sufficient to preserve error and to allow argument as to all possible grounds upon which summary judgment should have been denied").

Standard of Review: Summary Judgment

Here, FH&G filed its motion for summary judgment under Rule 166a(c) of the Texas Rules of Civil Procedure. The standard for reviewing motions filed under this rule "is whether the successful movant at the trial level carried its burden of showing that there is no genuine issue of material fact and that judgment should be granted as a matter of law." KPMG Peat Marwick v. Harrison County Housing Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999) (citing Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex.1985)). Under that standard, we must take as true all evidence favorable to the nonmovant and must make all reasonable inferences in the nonmovant's favor as...