March 6, 2017
A recent Law 360 story by Michelle Casady, “Texas High Court to Hear $42M Atty-Client Fee Dispute,” reports that the Texas Supreme Court on granted a request from the owner of a water supply company, who argued a lower court ignored a jury's findings and wrongly granted a new trial to his two former lawyers in a contingency fee dispute lawsuit involving their right to a stake in his company.
In October 2013, a jury rejected the claims of solo practitioners Thomas C. Hall and F. Blake Dietzmann that they were entitled to $42 million in damages under a contingency agreement with Dean Davenport, who won full ownership of a water supply company in an underlying suit. But about 105 days after rendering judgment, the trial court vacated the judgment and granted the attorneys' request for a new trial. After an appellate court directed the trial court to provide specific reasons for granting a new trial, it did so in March 2015, holding that the agreement unambiguously provided that fees would be paid out of the ownership in any business recovered, and that the jury's findings weren't supported by the evidence, Davenport told the court. The high court has scheduled oral arguments in the matter for March 23.
In his petition for writ of mandamus, filed in November 2015, Davenport told the high court it should take the case because the dispute raises the important issue of when a trial court should be allowed to grant a new trial. In this case, Davenport argued, the trial court disregarded a jury's findings, misstated the record, ignored evidence, credited disputed testimony and “substituted its judgment and credibility decisions for the jury's” in granting his former attorneys' request for a new trial.
Davenport also argued that the court should weigh in on the “narrow circumstances” under which lawyers and clients can become business partners under contingent fee agreements. Rule 1.08(a) of the Texas Disciplinary Rules of Professional Conduct allows for that only if the transaction is fair, reasonable and fully disclosed; the client is given a chance to seek advice from outside counsel; and the client consents to it in writing. None of those safeguards were met in this case, Davenport told the court.
“Nonetheless, the trial court concluded as a matter of law — eleven months after a jury verdict in favor of the client (and after the trial court determined the fee agreement was ambiguous) — that the fee agreement was unambiguous and supposedly entitled the lawyers to become partners in businesses the client purchased in settling his lawsuit,” Davenport wrote. “In so doing, the trial court ignored the plain language of the fee agreement at issue and the special rules and ethical principles underlying the interpretation of attorney-client fee agreements and attorney-client business transactions, as set forth in Levine, Anglo-Dutch, and Rule 1.08.”
In a February 2016 response arguing against granting the mandamus petition, Hall and Dietzmann told the court that Davenport wants the court to “greatly expand Texas law in ways that would substantially reduce the significance and reliability of all written contracts.” Their agreement with Davenport, the attorneys told the court, “expressly contemplates paying fees out of the recovery of a business ownership.”
“The trial court did not clearly abuse its discretion by granting a new trial for the reasons stated. As it relates to the payment of attorneys’ fees out of the recovery of an ownership of a business, the agreement is unambiguous,” the brief reads. “Furthermore, the trial court did not abuse its discretion in concluding the evidence was insufficient to support findings that Hall and Dietzmann had waived or should be equitably estopped from asserting their right to be paid under their unambiguous fee agreement with Davenport.”
Hall and Dietzmann filed suit in February 2012, claiming that after the settlements because Davenport was “paid” through his former partners' ownership interests in Water Exploration Co Ltd., they were owed a percentage of the company, instead of the about $400,000 in cash he paid them in December 2009. They sought about $24.6 million in damages, equivalent to what they said would be the current value of their alleged ownership interest in WECO, plus $18 million in punitive damages.
But the jury found Davenport's contingent fee agreement with the two attorneys did not include a potential ownership stake in WECO, and found the attorneys had waived their rights to seek ownership of WECO and were each estopped from trying to claim a stake in the company. Jurors also found both attorneys complied with their fiduciary duties to Davenport.
The case is In Re Dean Davenport et al., case number 15-0882, in the Supreme Court of Texas.