Brewer & Pritchard, P.C. v. Johnson

7 S.W.3d 862, 1999 Tex. App. LEXIS 9385, 1999 WL 1208512

• Court: Court of Appeals of Texas
• Decided: December 16, 1999
• Docket: 01-98-01381-CV
• Status: Published

Opinions

OPINION

SAM NUCHIA Justice.

Appellant, the law firm of Brewer & Pritchard, P.C. (“B & P”), sued James W. Chang, a former associate with the firm, and Nick Johnson, Chang’s friend and current law partner, alleging breach of fiduciary duty, civil conspiracy, conversion, actual and constructive fraud, and negligence. The trial court granted defendants’ motion for summary judgment on all causes of action. We affirm in part and reverse and remand in part.

BACKGROUND

On April 1, 1995, while employed with B & P, Chang and his friend, Henry King, were on vacation together when they learned of a helicopter crash near Flower Mound, Texas, in which King’s father, Herbert King, and six other passengers were injured. Chang and King returned to Houston where Chang, on King’s behalf, contacted several plaintiffs attorneys who specialize in catastrophic personal injury cases. Chang also discussed the case with Nick Johnson, a sole practitioner at that time. Chang and King met with several attorneys, including Joe Jamail and Johnson. On April 6, 1995, King signed an attorney fee contract with Johnson with the understanding that Johnson would refer the case to Jamail. Johnson’s agreement with Jamail was that he would receive 50 percent of the attorney’s fee upon the conclusion of the case. The case settled for $15,000,000, and Johnson received a $3,000,000 referral fee, less expenses. Chang left B & P in June 1995 and began working with the firm of Adams & Reese.

Thomas C. Pritchard, a shareholder of B & P, testified by affidavit that Chang approached him regarding the helicopter crash shortly after the accident. According to Pritchard, Chang said he could control the ease, which involved a significant business opportunity for the firm. Pritch-ard said the firm was definitely interested in the case. Chang did not tell Pritchard that one of the victims was the father of his close friend, or that Chang considered his friend’s father to be a “surrogate father.” Pritchard also said in his affidavit that, on Tuesday, October 8, 1996, Sabrina McTopy told him that Mark Coffin, Chang’s supervisor at the firm of Adams & Reese, said Chang was a multi-millionaire as a result of his 50% fee-sharing agreement with Joe Jamail on the helicopter case.

Patrick E. Gaas, a shareholder of B & P, testified by affidavit that he met with Chang shortly after the helicopter crash. Chang told Gaas that the accident involved a Chinese delegation and a Mend of his mother. He said he could control the case and “sign up” the victims on a contingency agreement or refer them to another lawyer because of his fluency in Mandarin, his connections with the Chinese community, and his mother’s personal acquaintance with one of the victims. Gaas told Chang about contingent fee agreement forms in the firm’s files and discussed such matters as structuring percentages of recovery, closing an agreement with the client, issues to watch out for, and referral fees in the event they refer the case to another lawyer or associate with another lawyer for the case. Gaas discussed possible attorneys to whom they could refer, including Fisher Gallagher & Lewis, Mithoff & Jacks, Joe Jamail, Ernest Cannon, and John O’Quinn. Gaas said Chang indicated he would have no problem signing up the plaintiff; he would be in the best position to make a fee arrangement with the crash victims; and he would keep Gaas advised.

Later, according to Gaas, Gaas asked Chang about the case, and Chang said that Joe Jamail was handling the case. Gaas asked, “How does that guy manage to get all these cases?” Chang speculated it was because Jamail was very famous, and clients and referrals gravitate to him. He did not indicate any further knowledge regarding how Jamail got the case. He also did not indicate that one of the victims was the father of a close friend and a “surrogate father” to him.

Chang contacted six attorneys or law firms regarding possible referral of the helicopter case. The record does not reflect the dates on which some of these contacts were made. The record contains a letter from Richard Mithoff to Chang dated April 5, 1995, saying, “I enjoyed meeting with you and Henry very much this afternoon.” Another letter from Mi-thoff to Chang dated April 6, 1995, indicates Mithoff would have liked to talk further with Chang or Johnson.

The record also contains a case intake sheet from the files of O’Quinn, Kerensky, McAninch & Laminack dated April 3,1995, showing a referral from Chang of an injured party named Herbert King and identifying King as Chang’s client. By a letter dated June 8, 1995, the O’Quinn firm declined representation.

Also contained in the record are an “Attorney Fee Contract and Assignment of Interest” between Henry Kang and Johnson dated April 6, 1995, a letter from Jamail to Johnson acknowledging receipt of the King file dated April 7, 1995, and a letter from Jamail to Johnson acknowledging receipt of five additional files dated April 19,1995.

The affidavit of J. Mark Brewer, a shareholder and custodian of records of B & P, was attached to B & P’s response to appellees’ motion for summary judgment. Attached as exhibits to Brewer’s affidavit are: computer-generated electronic mail messages of incoming calls to Chang, long distance telephone bills of outgoing calls, facsimile logs of incoming facsimile transmissions and journal of outgoing facsimiles, and messenger delivery slips involving Chang. According to the affidavit, these records show nine telephone messages from Johnson between April 3, 1995 and June 1995, six calls from Jamail’s office, and several calls from Mithoff and Wayne Fisher, another well-known plaintiffs attorney, in the week after the accident. The record of long-distance telephone calls shows that Chang called Harris Methodist Hospital in Fort Worth, Texas, where the injured crash victims were taken, several times on April 3, 1995. He also called the hotel in Fort Worth, where the victims’ families were staying, several times on April 7,1995.

Also, according to the affidavit, the fax records show faxes to Mithoff on April 5 and 6, 1995, to and from Johnson on April 6, to King on April 7, and to Jamail on April 20. Each of the faxes and long-distance calls was billed to B & P’s “business development” account.

The affidavit of Rebecca K. Marquette, a summer associate at B & P in 1995, was also attached to B & P’s response to the motion for summary judgment. Marquette stated that she and Chang became Mends while she was at B & P. She said he bragged to her that he had something working outside of his employment that would probably make him rich enough to retire. After he left the firm in June 1995, he asked her to retrieve some records from his computer, but she refused. She did not see him after August 1995, when she returned to law school.

Appellant sued appellees on October 11, 1996, alleging breach of fiduciary duty and other causes of action. Discovery was conducted, and, in August 1998, appellees filed a motion for summary judgment, which was set for hearing on September 22,1998. On September 4, 1998, appellant filed a notice of non-suit and, on the same day, filed an original petition in this case alleging the same causes of action as pleaded in the first case. Appellees answered and immediately filed a motion for summary judgment under rule 166a (c) and (i) of the Texas Rules of Civil Procedure. This motion asserted that (1) B & P was not entitled to any referral fee because the plaintiffs had not consented to their participation, (2) no fiduciary duty existed between B & P and appellees, (3) there was no evidence of specified elements of civil conspiracy, conversion, actual fraud, and negligence, (4) there was no constructive fraud because there was no fiduciary duty, and (5) all the causes of action except fraud are barred by the two-year statute of limitations because the cause of action accrued in April 1995, and B & P filed the lawsuit on September 4, 1998. Appellees also asserted that there were no issues of material fact and they were entitled to judgment as a matter of law.

B & P responded to the motion by asserting that an associate owes a fiduciary duty to his law firm, citing Bray v. Squires, 702 S.W.2d 266 (Tex.App. — Houston [1st Dist.] 1985, no writ). B & P argued that the other causes of action were based on the breach of fiduciary duty. B & P pointed out that appellees did not negate the discovery rule or fraudulent concealment, and argued that it filed the lawsuit immediately upon learning of Chang’s involvement in the referral of the helicopter case. B & P also asserted that appellees did not meet their burden of proving that there were no issues of material fact and were not entitled to judgment as a matter of law.

The trial court granted the motion for summary judgment on October 21, 1998, without specifying the grounds upon which the motion was granted.

STANDARD OF REVIEW

Summary judgment under rule 166a(c) is proper only when the movant establishes that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Randall’s Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex.1995); Lawson v. B Four Corp., 888 S.W.2d 31, 34 (Tex.App.— Houston [1st Dist.] 1994, writ denied). In reviewing a summary judgment, we will take all evidence favorable to the nonmov-ant as true and must indulge every reasonable inference in favor of the nonmovant. Johnson, 891 S.W.2d at 644; Lawson, 888 S.W.2d at 33. As movant, the defendant is entitled to summary judgment if the evidence disproves as a matter of law at least one element of each of the plaintiffs causes of action. Johnson, 891 S.W.2d at 644

Under rule 166a(i), a party may move for summary judgment if there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial. Tex.R.App. P. 166a(i). Thus, a no-evidence summary judgment is similar to a directed verdict. Jackson v. Fiesta Mart, Inc., 979 S.W.2d 68, 70 (Tex.App. — Austin 1998, no pet.); see also Hittner & Libera-to, Summary Judgments in Texas, 34 Hous. L.Rev. 1303, 1356 (1998). A party may move for a no-evidence summary judgment after there has been adequate time for discovery. Tex.R. Civ. P. 166a(i). The motion may not be general, but must state the elements on which there is no evidence. Id. The trial court must grant the motion unless the nonmovant produces more than a scintilla of evidence raising a genuine issue of material fact on the challenged elements. See Tex.R. Civ. P. 166a(i) and cmt. to 1997 change.¹

The general requirements of summary judgment practice continue to be governed by the existing rules. Id., cmt. to 1997 change. Therefore, in reviewing a summary judgment, we must indulge every reasonable inference in favor of the non-movant and resolve any doubts in its favor. Johnson, 891 S.W.2d at 644.

We will affirm a summary judgment if any of the theories advanced in the motion for summary judgment and preserved on appeal is meritorious. See State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 874, 380 (Tex.1993).

DISCUSSION

Appellant presents two issues in this case: (1) whether an associate breaches his fiduciary duty to his law firm by “shopping” cases to other law firms for individual profit, and (2) whether the trial court erred in granting defendants’ motion for summary judgment.

Fiduciary Duty

In their motion for summary judgment, appellees did not contend that there was no evidence that they breached a fiduciary responsibility to B & P or that there was no evidence of damages from an alleged breach of such a duty. Rather, they asserted that, because Chang, as an associate, was an employee at will, there was no fiduciary duty between him and B & P.

A fiduciary relationship creates a special bond requiring the bound parties to deal fairly and in good conscience. Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 513 (1942). The relationship establishes a duty to “act for or give advice for the benefit of another upon matters within the scope of the relation.” Kline v. O’Quinn, 874 S.W.2d 776, 786 (Tex.App. — Houston [14th Dist.] 1994, writ denied). Generally, fiduciaries are expected to conduct their business by a higher standard of equity than would be used in ordinary dealings. Kinzbach, 160 S.W.2d at 514.

A fiduciary relationship may exist in the absence of a contractual relationship. Kline, 874 S.W.2d at 786. A fiduciary duty arises where a party places a “special confidence” in another which binds the other “to act in good faith with due regard to the interests of the one placing confidence.” Id. Moral, social, domestic, and personal relationships can even establish fiduciary relationships where one party places “implicit trust and reliance on another.” Id. Whether a fiduciary duty exists is a question of law for the court’s determination. Fuqua, 683 S.W.2d at 737.

A breach of the fiduciary duty is actionable against the breaching party and any third party who knowingly aids and assists in its breach. Kinzbach, 160 S.W.2d at 514; Kline, 874 S.W.2d at 786; Bray, 702 S.W.2d at 271. Where the facts are undisputed, the question of breach is determined by the court. Fuqua, 683 S.W.2d at 738. Otherwise, the determination is left to the fact finder.

There is a fiduciary relationship between associates and the law firm or partner for whom they work. See Bray, 702 S.W.2d at 270. In Bray we stated:

It is every lawyer’s ethical responsibility to maintain the highest standards of professional conduct. This is true, not only in the lawyer’s dealings with his client and the public in general, but also in his relationship with other members of the bar, including his own partners and associates.... Because of a lawyer’s special position in society, even minor -wrongdoing tends to lessen the public’s confidence in the legal profession. Thus, a lawyer is expected to refrain from any conduct that creates the impression of dishonesty, fraud, or deceit.

Id. During the course of their employer-employee relationship, the associate has “a duty to deal openly and to make full disclosure to the other members of the firm about matters affecting the firm’s business.” Id. If, during the relationship, the associate uses his position to gain a business opportunity belonging to the firm, the conduct would constitute an actionable wrong. Id.; see also MPI, Inc. v. Dupre, 596 S.W.2d 251, 254 (Tex.Civ.App. — Fort Worth 1980, writ ref d n.r.e.).

In the present case, because Chang was an associate of B & P, there was a fiduciary relationship between B & P and Chang. Whether Chang breached that fiduciary duty and whether any breach was a proximate cause of damages to B & P are issues of fact to be determined by the trier of fact. In addition, whether Johnson knowingly assisted Chang in any breach of his fiduciary duty to B & P is an issue of fact. Appellees did not move for summary judgment on breach of fiduciary under the “no evidence” rule, and they did not establish, as required by rule 166a(e), that there is no issue of material fact regarding breach of fiduciary duty. See Tex.R. Civ. P. 166a(c) and (i).

Accordingly, we sustain B & P’s issue as it relates to the fiduciary duty between B & P and Chang.

Civil Conspiracy, Conversion, Actual Fraud, and Negligence

In their motion for summary judgment, appellees pleaded that there was no evidence of a meeting of the minds, an unlawful purpose, or unlawful means to accomplish a lawful purpose as required to support a claim for civil conspiracy.

Appellees also pleaded that B & P’s conversion claim faded because B & P did not have an ownership interest in the King claim, that there was no evidence the plaintiffs agreed that B & P would receive a referral fee, and that Johnson’s receipt of any portion of the fee was not inconsistent with B & P’s rights because B & P was not entitled to the fee.

Appellees asserted that there was no evidence to support B & P’s claim for actual fraud because there was no evidence that Johnson or Chang made any representation with the intent that B & P act upon it and no evidence that B & P acted in reliance upon any representation by Chang or Johnson. Appellees pleaded that there was no proof of a duty, breach, proximate cause, and damages as required by B & P’s claim for negligence. Thus, appellees met their burden under rule 166a(i) of moving for summary judgment on the ground that there was no evidence of one or more essential elements of B & P’s claim under its actions for civil conspiracy, conversion, actual fraud, and negligence. The burden then shifted to B & P to produce summary judgment evidence raising a genuine issue of material fact on those elements challenged.

B & P’s response to the motion for summary judgment did not address the evidence in their summary judgment proof as it related to the challenged elements of the causes of action. B & P merely asserted that its “claims of conspiracy, conversion, actual and constructive fraud, and negligence are all based on Chang’s breach of his fiduciary duty to B & P.” B & P set out its arguments for the existence of a fiduciary duty but made no further reference to the other causes of action or their elements. Although B & P asserted often that there were genuine issues of material fact, the assertion was general in nature and did not relate to the specific challenged elements. We are not required to search the record without guidance from appellant to determine whether it has produced evidence raising a genuine issue of material fact on the elements challenged by appellees. See Nawas v. R & S Vending, 920 S.W.2d 734, 737 (Tex.App. — Houston [1st Dist.] 1996, no writ).

The dissent states that appellant has made specific reference to the record in its response to the motion for summary judgment and appellate brief sufficient to raise issues of material fact. We believe this is somewhat misleading because, although it is true that appellant globally stated facts to support its conclusions as it sees them and cited to the record in support of those facts, it made no effort to connect any of the facts to the challenged elements of the causes of action. We believe rule 166a(i) requires the non-movant to make that connection.²

B & P has not met its burden, under rule 166a(i), to point out, in its response to the motion for summary judgment, summary judgment evidence raising a genuine issue of material fact on any of the elements on which appellees contended there was no evidence. Accordingly, B & P’s issue as it relates to the causes of action for conspiracy, conversion, actual fraud, and negligence is overruled.

Constructive Fraud

In their motion, appellees recognized that constructive fraud “is the breach of a legal or equitable duty that the law declares fraudulent because it violates a fiduciary relationship,” citing Stephanz v. Laird, 846 S.W.2d 895, 903 (Tex.App.— Houston [1st Dist.] 1993, writ denied). They argue that, because they did not owe B & P a fiduciary duty, there could be no claim for constructive fraud. Appellees did not assert that there is no evidence of any element of constructive fraud, nor did they establish that there are no issues of material fact regarding this cause of action. Therefore, appellees have not met their burden under subsections (c) or (i) of rule 166a with respect to B & P’s cause of action for constructive fraud.

Because we have already determined that there is a fact issue regarding Chang’s fiduciary relationship with B & P, we sustain appellant’s issue as it relates to constructive fraud.

Statute of Limitations

In their motion for summary judgment, appellees contended that all B & P’s causes of action except fraud were barred by the two-year statute of limitations. B & P filed an amended petition pleading the discovery rule and fraudulent concealment. In its response to the motion for summary judgment, B & P asserted that it did not discover and could not have discovered appellees’ breach of fiduciary duty until it learned of the settlement and the referral fee paid to Johnson. B & P also argued that appellees fraudulently concealed the breach of fiduciary duty by lying to B & P about their actions. B & P urges these same contentions in its appellate brief.

Appellees did not amend their motion for summary judgment, nor did they make any reply to B & P’s assertion of the discovery rule. A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense, and when the plaintiff pleads the discovery rule, the defendant must negate that exception. Velsicol Chemical Corp. v. Winograd, 956 S.W.2d 529, 530 (Tex.1997).

Appellees have not negated the discovery rule, and, therefore, summary judgment could not have been properly granted on the ground of limitations. Accordingly, we sustain B & P’s issue as it relates to the statute of limitations.

Consent to Referral Fee

Appellees assert that an issue presented in this appeal is whether a law firm may receive a referral fee without adhering to the requirements of Texas Disciplinary Rule of Professional Conduct 1.04. Rule 1.04 provides in pertinent part:

A division or agreement for division of a fee between lawyers who are not in the same firm shall not be made unless

(1) the division is

(i) in proportion to the professional services performed by each lawyer;

(ii) made with a forwarding lawyer; or

(in) made, by written agreement with the client, with a lawyer who assumes joint responsibility for the representation;

(2) the client is advised of, and does not object to, the participation of all the lawyers involved; and

(3) the aggregate fee does not violate paragraph (a) [dealing with illegal or unconscionable fees].

Tex. DisciplinaRY R. PROF. Conduct 1.04(f).

Appellees contend that the applicability of rule 1.04 is a sufficient ground for summary judgment in their favor.

B & P argued in its response to the motion and argues on appeal that rule 1.04 is inapplicable because B & P is not suing for breach of a fee agreement but for breach of a fiduciary duty, and that the contingent fee is the measure of damages.

We agree with B & P that rule 1.04 does not support the summary judgment on the cause of action for breach of fiduciary duty.

Conclusion

We affirm the judgment of the trial court granting summary judgment in favor of appellees on the causes of action for civil conspiracy, conversion, actual fraud, and negligence. We reverse the judgment of the trial court on the causes of action for breach of fiduciary duty and constructive fraud and remand this cause to the trial court for further proceedings.

Justice MIRABAL concurring and dissenting.

1 . On August 15, 1997, in Mise. Docket No. 97-9139, the Texas Supreme Court signed and entered an order of final approval of revisions to rule 166a, effective September 1, 1997. This order provides in part, "The comment appended to these changes, unlike other notes and comments in the rules, is intended to inform the construction and application of the rule....” 60 Tex Bar J. 872 (Oct. 1997).

2 . The comment to the 1997 change to rule 166a states:

Paragraph (i) authorizes a motion for summary judgment based on the assertion that, after adequate opportunity for discovery, there is no evidence to support one or more specified elements of an adverse party's claim or defense.... To defeat a motion made under paragraph (i), the respondent is not required to marshal its proof; its response need only point out evidence that raises a fact issue on the challenged elements....

Tex.R. Civ. P. 166a and cmt. to 1997 change.