Wythe Ii Corp.. v. Stone
| Decision Date | 05 May 2011 |
| Docket Number | No. 09–09–00397–CV.,09–09–00397–CV. |
| Citation | 342 S.W.3d 96 |
| Parties | WYTHE II CORPORATION, Appellant,v.John D. STONE, Appellee. |
| Court | Texas Court of Appeals |
OPINION TEXT STARTS HERE
Mark W. Stevens, Galveston, for appellant.Robert J. Rose, Sr., Dana Timaeus, Timaeus & Rose, L.L.P., Beaumont, for appellee.Before McKEITHEN, C.J., GAULTNEY and KREGER, JJ.
In this appeal by Wythe II Corporation involving a fee dispute with attorney John D. Stone, Wythe presents eleven issues and Stone presents one cross-issue. We affirm in part the judgment in favor of Stone on the contingent-fee contract. We set aside the sanctions penalty awarded to Stone and associated attorney fees. We conclude that the jury award of attorney fees to pursue the breach of the written contract action is not supported by sufficient evidence; we reverse that part of the judgment. We remand the case to the trial court to determine that remaining issue between the parties.
Stone represented Wythe in a claim against its insurer, XL Lloyds Insurance Company, Inc., on a $1.625 million policy. Hurricane Rita damaged apartments owned by Wythe. At the time the insurance dispute arose, Stone represented Wythe and its president, Waleed Khan, in the defense of litigation brought by a holder of the mortgage on the apartment complex. Represented by separate counsel skilled in bankruptcy law, Wythe filed a voluntary bankruptcy petition. The bankruptcy court approved Stone's representation of Wythe in the claim against XL Lloyds. Wythe satisfied the mortgage holder, and dismissed the bankruptcy proceeding. Stone subsequently negotiated a $1,975,000 settlement agreement between Wythe and XL Lloyds that supplemented a previous payment of $800,000 on the insurance policy. At the end, the carrier had paid $2,775,000 on a $1,625,000 policy.
A fee dispute arose between Stone and Wythe. Stone intervened in the insurance lawsuit to collect his fee, and moved to withdraw as counsel for Wythe. Wythe counterclaimed for fraud and breach of fiduciary duty. XL Lloyds paid the entire settlement proceeds into the registry of the trial court.
The trial court denied Wythe's motion for summary judgment, granted partial summary judgment for Stone, and submitted to a jury Stone's derivative claim to recover attorney fees incurred in pursuit of the claim for breach of the written attorney fee contract. The jury found that a reasonable fee for Stone's attorney would be $314,420, with additional fees in the event of an appeal. The trial court signed a judgment against Wythe in the amount of $1,138,694.47.
Stone then filed a motion for sanctions. Stone alleged that Wythe and its new counsel submitted false testimony in response to Stone's motion for summary judgment. The trial court ordered Wythe to pay Stone a penalty of one percent of the amount in the registry of the court plus attorney fees incurred in pursuing the motion for sanctions, and additional fees in the event of an appeal.
Wythe contends that the attorney fee contract is unenforceable as a matter of law. The first provision Wythe challenges provides as follows:
As an optional alternative to the hourly bill basis, and at the sole option of said attorney, the attorney may elect to receive compensation for attorney's time on the basis of a specified contingency fee calculated as a percentage of the total recovery achieved by virtue of the undertaking which forms the basis of this agreement.... The attorney may designate this contingency fee option at any time during the representation.
The second provision challenged by Wythe states:
In the event the attorney has elected to be compensated on the basis of the contingency fee option, and subsequently withdraws from this representation, then said attorney shall receive an assigned interest equal to the contingency fee percentage that would have applied at the time of such withdrawal the same as if the matter had been settled in its entirety on the date of withdrawal.
Wythe claims that the unilateral option is unconscionable, and that the termination provision fails to distinguish between terminations occurring with or without cause. See Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex.2006).
In Hoover, the Texas Supreme Court held that a termination provision in a contingent-fee contract violated public policy because it imposed an undue burden on the client's ability to change counsel. Id. at 563. Further, by requiring the client to pay the same contingent fee regardless of whether the client eventually prevailed, the termination fee provision shifted the risk to the client while the attorney retained the benefit. Id. at 564. The Court severed the unconscionable termination provision and remanded the case to the intermediate appellate court to consider whether to enforce the contingent-fee contract under the holding in Mandell & Wright v. Thomas, 441 S.W.2d 841, 847 (Tex.1969). See Hoover, 206 S.W.3d at 566. Similarly, the termination provision in this case is severable and does not preclude recovery of a fee. It was not Stone's withdrawal from the representation that triggered Stone's right to payment in this case, but rather his successful settlement of the insurance claim prior to his withdrawal.
Wythe complains that the contract failed to state the method by which the fee would be determined. The representation agreement provided that the fee would be calculated at an hourly billing rate unless the attorney exercised an option to convert the contract to a contingent-fee basis. The agreement provides that Wythe would be responsible for court costs and expenses of litigation.
A contingent-fee contract is permissible in Texas in part because the potential for a greater fee compensates the attorney for assuming the risk that the attorney will receive no fee if the case is lost, while the client is largely protected from incurring a net financial loss in the event of an unfavorable outcome. Hoover, 206 S.W.3d at 561 (citing Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex.1997)). If the attorney could earn a reasonable fee on an hourly basis until recovery is assured and the work complete, but later exercise a unilateral option to collect a percentage of the client's recovery, the fee would no longer be “contingent” on anything—in effect, the client could be required to pay regardless of recovery. Shifting the risk of non-recovery to the client through the unilateral option provision would undermine one significant justification for the higher compensation sometimes received under a contingent-fee contract. Id. Simply stated, when an attorney bears no risk of going unpaid, risk of non-recovery is not a factor in assessing the reasonableness of the fee.
The record reflects the contingency fee representation was initially authorized by the bankruptcy judge. The contract did not grant the attorney an option to later convert the case to an hourly rate contract. Wythe commenced a Chapter 11 bankruptcy on December 29, 2006. The parties signed the contract on February 1, 2007. A letter from Stone to Wythe's president signed the same day notified Wythe that the representation agreement must be presented to the bankruptcy judge for approval. The contract would become effective only after the approval. Stone stated in the letter that he anticipated that the percentages used in the representation agreement would be acceptable to the bankruptcy judge. In April 2007, acting through separate bankruptcy counsel, Wythe filed an application and a motion to retain Stone for “reasonable compensation for services rendered on an optional contingency basis, described as: ... 40 percent of total recovery if collection or settlement is made after suit is filed and prior to appeal[.]” The bankruptcy court approved the employment of Stone in May 2007. When Stone billed Wythe in July 2007 for its other ongoing litigation regarding the mortgage, Stone described the work he performed in the XL Lloyds litigation with the notation that the 21.75 hours spent working on the XL Lloyds litigation was “N/C Contingency Fee Matter.” Wythe and XL Lloyds reached a mediated settlement agreement in September 2008. According to the carrier's attorney, the agreed settlement included consideration of attorney fees in addition to the remaining $800,000 policy proceeds, a penalty, and possibly some interest.
Essentially, the bankruptcy application and order made the contract solely a contingent-fee contract from the beginning of the representation on the bankrupt's claim. We conclude the unenforceability of the unilateral option provision does not render the contingency fee arrangement approved by the bankruptcy court unenforceable under the circumstances presented here.
Finally, Wythe also suggests in its first issue that the representation agreement was unconscionable because it required Wythe to bear all expenses of litigation. An attorney is not required to bear all litigation costs, but a contingent-fee contract must state the litigation expenses to be deducted from the client's recovery. See Tex. Disciplinary Rules Prof'l Conduct R. 1.04(d), reprinted in Tex. Gov't Code Ann., tit. 2, subtit. G, app. A (West Supp. 2010) (Tex. State Bar R. art. X, § 9). The contract here identified the expenses that were the client's responsibility. We overrule issue one.
Wythe contends that Stone breached his fiduciary duty to Wythe and that the trial court erred in failing to order that Stone forfeit all fees. Wythe does not argue on appeal that its claim of breach of fiduciary duty should have been submitted to a jury, but argues instead that this Court should order forfeiture.
The equitable remedy of fee forfeiture “is to protect relationships of trust by discouraging agents'...
To continue reading
Request your trial
-
Brewer v. Lennox Hearth Prods., LLC
...no pet.) ; Dike v. Peltier Chevrolet, Inc. , 343 S.W.3d 179 (Tex. App.—Texarkana 2011, no pet.) ; Wythe II Corp. v. Stone , 342 S.W.3d 96, 113 (Tex. App.—Beaumont 2011, pet. denied) ; Davis v. Rupe , 307 S.W.3d 528, 531 (Tex. App.—Dallas 2010, no. pet.) ; Finlan v. Peavy , 205 S.W.3d 647 (T......
-
Barbknecht Firm, P.C. v. Keese (In re Keese)
...remedy of fee forfeiture is to protect relationships of trust by discouraging agents' disloyalty." Wythe II Corp. v. Stone, 342 S.W.3d 96, 104 (Tex. App.— Beaumont 2011, pet. denied) (citing Burrow v. Arce, 997 S.W.2d 229, 238 (Tex.1999)).192. "The remedy is restricted to 'clear and serious......
-
Skannal v. Davis
...5th Cir.1986), writ denied,492 So.2d 1221 (La.1986). These cases are therefore clearly distinguishable. In Wythe II Corp. v. Stone, 342 S.W.3d 96 (Tex.App.–Beaumont 2011), cert denied,––– U.S. ––––, 132 S.Ct. 1150, 181 L.Ed.2d 1020 (2012), the Texas intermediate court of appeal made stateme......
-
Campbell Harrison & Dagley, L. L.P. v. Hill
...result in an absurdity."). Texas courts have found that such fee agreements violate public policy. In Wythe II Corp. v. Stone, 342 S.W.3d 96, 103 (Tex. App.—Beaumont 2011, pet. denied), the appellate court explained that an attorney fee arrangement in which the attorney could unilaterally c......
-
Dear Lawyer: if You Decide It's Not Economical to Represent Me, You Can Fire Me as Your Contingent Fee Client, but I Agree I Will Still Owe You a Fee.
...of nonrecovery, a contingent fee charged by an attorney on the amount of the recovery is inappropriate."). 22. Wythe II Corp. v. Stone, 342 S.W.3d 96, 103 (Tex. App. 2011). The court reasoned: A contingent-fee contract is permissible in Texas in part because the potential for a greater fee ......