David Gillespie and Michael O'Brien v. A.L. Hernden and Frederick R. Zlotucha
516 S.W.3d 541
| Tex. App. | 2016Background
- Gillespie and O’Brien signed identical written contingent fee contracts (CFCs) with attorney A.L. Hernden providing for a 50% fee and deduction of expenses from the clients’ share; they did not sign a CFC with Frederick Zlotucha.
- Hernden brought Zlotucha into the representation; clients knew of Zlotucha’s participation and met with him and attended court with him.
- The underlying oil-and-gas matter settled for $40,000 plus a 1% overriding royalty interest (ORRI); expenses of $9,538.22 were deducted, the remainder split into four equal cash shares and the 1% ORRI equally divided so each client and attorney received 0.25% ORRI.
- Clients sued both attorneys for fraud, breach of fiduciary duty, barratry, DTPA violations, and related claims, seeking declarations that the CFC and the oral fee-splitting were unconscionable and unenforceable.
- Trial court denied clients’ traditional (partial) summary judgment and granted attorneys’ no-evidence and traditional summary judgment motions; appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the written CFC was unconscionable (unreasonable fee; attorney gets more than client) | 50% fee was excessive/unconscionable and CFC allowed attorney to recover more than clients | CFC was written, disclosed method of fee, experts supported 50% as reasonable; disbursement shows expenses/shared recovery so attorney did not get more than clients | Denied — genuine factual disputes and documentary evidence preclude judgment for clients; disbursement disproves claim attorney received greater recovery |
| Whether Hernden’s CFC created an impermissible proprietary interest / violated Rule 1.08 (business transaction) | CFC gave attorney proprietary interest and involved self-dealing without independent counsel or full disclosure | CFC is a contingent-fee contract (permitted if compliant with Rule 1.04); not a separate business transaction under Rule 1.08; CFC was written and disclosed fee method | Denied — CFC complies with Rule 1.04(d); Rule 1.08(a) does not apply to formation of attorney-client relationship/CFC here |
| Whether lack of a written fee-splitting agreement with Zlotucha (Rule 1.04(f)) and absence of a signed CFC with Zlotucha invalidates fees / creates barratry | No written client consent to fee split; no signed CFC with Zlotucha — fee sharing illegal and supports barratry/voiding agreements | Clients were informed Zlotucha would assist, participated in representation, accepted benefits; disbursement shows actual division; Enochs/quasi-estoppel principles apply | Denied — clients knew of and accepted Zlotucha’s role and sharing; courts may enforce despite writing defects under equitable principles; no evidence of barratry |
| Whether clients produced competent evidence to defeat attorneys’ no-evidence summary judgment on claims (fraud, fiduciary breach, DTPA, barratry) | Expert and other testimony show unconscionability, nondisclosure, self-dealing and statutory/regulatory violations | Attorneys contend plaintiffs offered no competent evidence of essential elements; documentary evidence contradicts plaintiffs’ claims | Affirmed — clients failed to produce competent evidence on at least one essential element of each claim; attorneys’ no-evidence motion sustained |
Key Cases Cited
- Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546 (Tex. 1985) (standard for traditional summary judgment)
- Hoover Slovacek LLP v. Walton, 206 S.W.3d 557 (Tex. 2006) (disciplinary rules inform public policy and can render contingent-fee provisions unenforceable)
- King Ranch, Inc. v. Chapman, 118 S.W.3d 742 (Tex. 2003) (standard for no-evidence summary judgment review)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for reviewing expert and summary judgment evidence)
- Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494 (Tex. 2015) (disciplinary rules are persuasive but do not themselves create civil liability)
- Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193 (Tex. 2002) (fee-splitting between firms unenforceable absent client’s informed consent)
- Enochs v. Brown, 872 S.W.2d 312 (Tex. App.—Austin 1994) (enforcement/quasi-estoppel where client accepted benefits despite writing defects in fee agreement)
- Ford Motor Co. v. Ridgway, 135 S.W.3d 598 (Tex. 2004) (no-need to reach traditional SJ once no-evidence SJ sustained)
- Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713 (Tex. 1998) (expert opinions require adequate factual basis)
- Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706 (Tex. 1997) (expert testimony must not be mere ipse dixit)
- Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572 (Tex. 2006) (review principles for considering evidence in summary judgment context)