Tanox v. Akin, Gump, Strauss, Hauer & Feld

• Citation: 105 S.W.3d 244
• Decision Date: 24 April 2003
• Docket Number: No. 14-00-00765-CV.,14-00-00765-CV.
• Parties: TANOX, INC. f/k/a Tanox Biosystems, Inc., Appellant, v. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Robinson Law Firm, Williams, Birnberg & Andersen, L.L.P., Michael J. Madigan, Michael J. Mueller, Kenneth M. Robinson, and Gerald M. Birnberg, Appellees.
• Court: Court of Appeals of Texas

Page 244

105 S.W.3d 244

TANOX, INC. f/k/a Tanox Biosystems, Inc., Appellant, v. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Robinson Law Firm, Williams, Birnberg & Andersen, L.L.P., Michael J. Madigan, Michael J. Mueller, Kenneth M. Robinson, and Gerald M. Birnberg, Appellees.

No. 14-00-00765-CV.

Court of Appeals of Texas, Houston (14th Dist.).

April 24, 2003.

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Eugene A Cook, David W. Holman, Kenneth R. Breitbeil, Warren W. Harris, Houston, for appellants.

Julius Glickman, Joy M. Soloway, Houston, for appellees.

Panel consists of Justices HUDSON, FOWLER, and EDELMAN.

OPINION ON REHEARING

J. HARVEY HUDSON, Justice.

Tanox, Inc. f/k/a Tanox Biosystems, Inc., appeals the trial court's confirmation of an arbitration award in favor of Akin, Gump, Strauss, Hauer & Feld, L.L.P., The Robinson Law Firm, and Williams, Birnberg & Andersen, L.L.P., and the summary judgment entered in favor of Michael J. Madigan, Michael J. Mueller, Kenneth M. Robinson, and Gerald M. Birnberg. On original submission we affirmed in part, and reversed and remanded in part. On rehearing, the panel has withdrawn our previous opinion of August 27, 2002, and substitutes the following opinion on rehearing in which we have affirmed the judgment of the trial court.

I. BACKGROUND

Tanox envisaged the use of an antibody called "anti-IgE" in the treatment of asthma and allergies. To develop the antibody, Tanox needed a partner. Tanox, accordingly, entered into a confidentiality agreement with Genentech, Inc. in 1989, for the development of the antibody. Genentech subsequently decided not to work with Tanox. Therefore, in 1990, Tanox entered into an agreement with Ciba-Geigy, Ltd., under which Ciba-Geigy agreed to pay Tanox royalties on the sale of the product.

In December 1993, Tanox filed a trade secret lawsuit in federal district court against Genentech alleging that Genentech had violated the confidentiality agreement and utilized Tanox's biotechnology to develop its own allergy drug. In January 1994, Genentech filed a separate lawsuit against Tanox, asserting a claim for patent infringement. Genentech added Ciba-Geigy as a defendant in its patent infringement lawsuit, and the two lawsuits were consolidated.

Tanox had originally hired Ed Harrell of Hughes, Watters & Askanase to represent it in the trade secret lawsuit on an hourly rate basis. Tanox, however, was not able to continue paying Harrell and his law firm on an hourly rate and, accordingly, sought counsel to represent it on a contingency fee basis with respect to its trade secret claim against Genentech. After considering a number of attorneys, Tanox ultimately hired Gerald Birnberg of Williams, Birnberg & Andersen, Kenneth Robinson of The Robinson Law Firm, and Michael Madigan and Michael Mueller of Akin, Gump, Strauss, Hauer & Feld (collectively, "the Lawyers") on a contingency fee basis. On August 1, 1994, Tanox entered into a contingency fee agreement with the Lawyers for representation of its trade secrets claim.¹

Under the fee agreement, Tanox agreed to pay the Lawyers a contingency fee pursuant to a sliding scale: 25% of the first $32 million recovered by Tanox, 331/3% of recovery from $32 million to $60 million, 40% of recovery from $60 million to $200 million, and 25% of recovery over $200 million. In the event the case was settled before, during, or after trial, Tanox agreed the first $8 million received from Genentech would be paid to the Lawyers, "regardless of whether the total recovery amounts to or is less than $32 million."

The fee agreement further provided the Lawyers would, in the event of a settlement, recover fees in the form of a "new business arrangement." Specifically, the Lawyers would be paid on "[a]ny cash, money, or substantial equivalent, any tangible property, and any future payments (such as licensing fees, royalties, income from third parties with respect to defendants' intellectual property, and similar future payments) received by Tanox as a result of the litigation, on account of such new business arrangement, ..." The Lawyers' share of royalties from a new business arrangement achieved as a result of the litigation was 10%.

Tanox also agreed to pay the Lawyers $100 million if they obtained a permanent injunction barring Genentech from entering the marketplace with a product competitive with an allergy product developed by Tanox. The total fees Tanox agreed to pay the Lawyers were capped at $500 million and the total fees derived from royalties were capped at $300 million.

On January 30, 1996, Tanox and Genentech agreed to a settlement, which included a $16 million cash payment to Tanox by Genentech and a new business arrangement among Tanox, Genentech, and Ciba-Geigy for the development of the allergy drug. The new business arrangement provided for (1) the release of Genentech's patent infringement claims against Tanox, (2) the release of Tanox's unasserted patent infringement claims against Genentech, (3) the cross-licensing of patent rights, and (4) Tanox's receipt of royalties from Genentech and Ciba-Geigy. Furthermore, Ciba-Geigy and Genentech agreed to combine their efforts in certain markets, which Ciba-Geigy held exclusively under its 1990 agreement with Tanox.

On July 8, 1996, the parties signed the settlement agreement. Although the fee agreement provides Tanox would "not obtain any settlement nor receive any funds relating to this matter without first consulting with and making full disclosure to the successor attorneys," Genentech transferred $16 million to Tanox directly on July 12, 1996. Tanox did not inform the Lawyers of the $16 million wire transfer. On July 15, one of the Lawyers, Michael Madigan, learned of the $16 million wire transfer from Genentech's counsel.

When confronted about the receipt of the $16 million, David Anderson, Tanox's executive vice president, chief operating officer, and in-house counsel, first claimed he did not know whether Tanox had received the $16 million payment, and then would not confirm whether the money was in the country. The Lawyers demanded immediate payment of $8 million from Tanox. Tanox offered to pay the Lawyers $7 million, less expenses, if they would give up their rights under the fee agreement to royalties received by Tanox.

On July 16, 1996, the Lawyers filed a motion to intervene under seal in federal court seeking to recover its fees. Tanox objected to the motion to intervene and, alternatively, moved to compel arbitration of the fee dispute under the arbitration clause in the fee agreement. The Lawyers and Tanox entered into an agreement under which (1) Tanox agreed to wire $6,724,795.15 on July 29, 1996, to an escrow account in the name of Hughes, Watters & Askanase, which in turn would transfer the money to Akin, Gump when the motion to dismiss the litigation had been filed with the court; (2) Tanox and the Lawyers agreed to submit their dispute over the fees to arbitration; and (3) the Lawyers agreed to withdraw their motion to intervene on July 26, 1996.

The fee dispute proceeded to arbitration before a panel of three arbitrators. On September 29, 1999, the arbitrators issued their award in favor of the Lawyers. The arbitrators found Tanox breached the fee agreement by failing to pay the Lawyers the first $8 million received from Genentech and Tanox anticipatorily breached the fee agreement by repudiating its obligation to pay a percentage contingent fee on royalty payments received by Tanox pursuant to the new business arrangement.² The arbitrators found against Tanox on its claims for breach of contract and its tort claims, including breach of fiduciary duty, legal malpractice, and fraud.

The Lawyers moved to confirm the arbitration award and Tanox filed an application to vacate the arbitration award. On February 16, 2000, the trial court entered an amended interlocutory judgment granting the motion and application to confirm the arbitration award, denying the motion to vacate the award, and ordering that Tanox take nothing on its claims against the Lawyers.

Asserting the arbitration award precluded Tanox's claims against them, the Individual Lawyers moved for summary judgment on the affirmative defenses of res judicata and collateral estoppel on all of Tanox's claims. On March 28, 2000, the trial court granted summary judgment in favor of the Individual Lawyers and entered a final judgment, from which Tanox brings this appeal.

II. STANDARD OF REVIEW

Although the parties agree the Federal Arbitration Act ("FAA")³ applies to this case, they dispute the judicial standard of review that should be applied to the arbitration award. Ordinarily, the court of appeals reviews the trial court's decision to confirm an arbitration award de novo under the FAA. Gateway Techs., Inc. v. MCI Telecomms. Corp., 64 F.3d 993, 996 (5th Cir.1995). The review of an arbitration award, however, is usually "extraordinarily narrow." Hughes Training, Inc. v. Cook, 254 F.3d 588, 593 (5th Cir.2001), cert. denied, 534 U.S. 1172, 122 S.Ct. 1196, 152 L.Ed.2d 135 (2002). The court may not review the arbitrators' decision on the merits even if it is alleged that the decision is based on factual error or it misinterprets the parties' agreement. Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001); United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 36, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987). It is presumed under the FAA that arbitration awards will be confirmed. Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir.), cert. denied, 531 U.S. 878, 121 S.Ct. 187, 148 L.Ed.2d 130 (2000). Therefore, " [d]isputes that are committed by contract to the arbitral process almost always are won or lost before the arbitrator. Successful court challenges are few and far between.'" Gupta v. Cisco Sys., Inc., 274 F.3d 1, 3 (1st Cir.2001) (quoting Keebler Co. v. Track...