David Gillespie and Michael O'Brien v. A.L. Hernden and Frederick R. Zlotucha
04-15-00405-CV
| Tex. App. | Nov 19, 2015Background
- Plaintiffs David Gillespie and Michael O’Brien sued their former attorneys A.L. Hernden and Frederick R. Zlotucha for breach of fiduciary duty, DTPA and declaratory relief arising from oil-and-gas contingency/fee agreements.
- Trial court granted defendants’ combined traditional and no-evidence summary judgments and entered final judgment for defendants on April 2, 2015; plaintiffs moved to reconsider/for new trial and appealed.
- Plaintiffs allege Hernden’s written agreement purported to assign him a 50% proprietary interest in the claim/recovery, was vague, unconscionable, and violated Texas Disciplinary Rules (including acquisition of proprietary interest and disclosure/consent requirements).
- Plaintiffs allege Zlotucha had no valid written contingent-fee agreement or prior written client consent for fee-splitting/association, and thus had no right to claim part of the recovery.
- Plaintiffs contend the agreements effected self-dealing, excessive/unconscionable contingent fees, and breached duties of full disclosure and loyalty; defendants defended by obtaining summary judgment in their favor.
- On appeal the Fourth Court of Appeals addressed procedural issues (late notice of appeal, filing fees, extension requests) and ultimately granted extension/time to file briefs, retaining the appeal on the docket.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of Hernden's 50% agreement / fiduciary breach | Hernden acquired a proprietary interest, failed to fully disclose terms, charged an unconscionable fee and engaged in self-dealing | Agreement valid as written; no genuine fact issues warranting reversal of summary judgment for defendants | Trial court granted summary judgment for defendants; plaintiffs seek reversal on appeal (appeal retained by court) |
| Compliance with disciplinary and statutory requirements for contingent fees (writing, disclosure, independent counsel) | Agreement violated Texas Disciplinary Rules (e.g., prohibitions on acquiring proprietary interest, Rule 1.08 and writing/consent requirements), so contract is voidable | Defendants relied on the written agreements and client signatures; contend no material fact for rescission | Plaintiffs argue voidability; trial court dismissed claims at summary judgment—issue preserved for appeal |
| Zlotucha's entitlement to fees / right to represent | Zlotucha lacked a written contingent-fee agreement and prior written consent for fee division; thus no entitlement to claimed portion | Zlotucha asserts client signatures and settlement documents demonstrate assent and entitlement | Plaintiffs assert failure to comply with Rule 1.08; trial court granted summary judgment for defendants; plaintiffs preserved challenge on appeal |
| Procedural timeliness of appeal (notice filing, fees) | Late notice by two days and an amended notice adding O’Brien filed months later; plaintiffs explained inadvertence and sought extension | Defendants sought dismissal for untimely/defective notice and challenged the late amended notice | Fourth Court accepted plaintiffs’ reasonable explanation, granted extension, retained appeal, and set briefing deadlines; defendants preserved cross-appeal options regarding the late amended notice |
Key Cases Cited
- Hoover Slovacek LLP v. Walton, 206 S.W.3d 557 (Tex. 2006) (attorney fiduciary duties and unconscionability of contingent fees)
- Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857 (Tex. 2000) (attorney duties of honesty and loyalty)
- Levine v. Bayne, Snell & Krause, Ltd., 40 S.W.3d 92 (Tex. 2001) (requirement that attorneys clearly explain fee basis and that excessive contingent fees may be unconscionable)
- Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493 (Tex. 1991) (unconscionability assessed by procedural and substantive factors)
- SkiRiver Dev., Inc. v. McCalla, 167 S.W.3d 121 (Tex. App.—Waco 2005) (courts may refuse to enforce unconscionable contracts)
- Pony Express Courier Corp. v. Morris, 921 S.W.2d 817 (Tex. App.—San Antonio 1996) (discussion of procedural vs substantive unconscionability)