A recent Law360 story, “Ethanol Co. Wants $1M Attys’ Fee Award Knocked Down” reports that an ethanol company that successfully wiped out a $36 million judgment after appealing a derivative suit brought by investors on Tuesday told the Texas Supreme Court a $1 million attorneys’ fee award should also be cut down.
In a petition for review, White Energy Partners LLC and owner Trey White argued the Fifth Court of Appeals in Dallas erred when it kept the legal fees intact despite reducing a $36 million trial win by investors to just $375,000. The White parties say because the damages award was so significantly reduced, they’re entitled to a new trial on legal fees, and told the high court that leaving the fee award intact would allow appellate courts to disobey binding precedent.
“A court of appeals decision that consciously disregards this court’s simple, bright line rules — such as the rule that an award of attorneys’ fees must be remanded for a re-determination of the appropriate amount when the plaintiff’s recovery is substantially reduced — is like a building with broken windows,” the White parties said in the petition for review. “It represents disorder, if not a flouting of this court’s authority, and will result in further disorder.”
An investor group, led by Michael Pottorff, sued White and White Energy after the company filed for bankruptcy in 2009, alleging White had kept secret a chance for the investors to redeem their shares in a sale to Ares Management LLC, an investor in the ethanol business. The investors, who lost their stake in White Energy, claimed fraud by nondisclosure, fraud, breach of fiduciary duty, unjust enrichment, breach of the covenant of good faith and fair dealing and breach of contract.
White Energy successfully appealed the judgment, arguing tag-along rights in the Ares deal were limited to investors who held Class B units in the company, and that WEIG, which held Class A units, never had a chance to invest.
The Dallas appellate court in August held the White Energy agreement provided tag-along privileges only to members holding the same class of units, and said because the investors held Class A units, they were not entitled to the same redemption offer the Class B shareholders had. That holding wiped out the majority of the damages the investors won at trial, but the appellate court did keep intact the investors’ recovery of a $375,000 award based on the fee White was paid to manage an investors group.
In the August decision, the appellate court said White Energy did not raise an issue about the $1 million fee award. The court said because the investors did secure a judgment in their favor and recovered some damages on their behalf, they were entitled to recover attorneys’ fees and costs in line with a stipulation by the parties.
On appeal, the White parties argue the appellate court misinterpreted the parties’ stipulation, arguing they agreed to the $1 million figure only if the investors were entitled to collect legal fees. And because the investors’ sole recovery was based on a breach of fiduciary duty claim, the investors have no right to recoup legal fees, they argued.
The White parties said even if the investors are entitled to recover fees, the drastic reduction in their recovery requires a new trial on the amount of fees.
The case is White et al. v. Pottorff et al., case number 05-14-00675-CV, in the Fifth Court of Appeals of the State of Texas.